Hold the New Construction; Bring on the Acquisitions
Delek US shifts priorities in response to market pressures,construction processes
BRENTWOOD, Tenn. -- Delek US Holdings will delay much of the new-store growth in its MAPCO convenience store chain to future years, but don't take that as a sign the company isn't aggressively looking at new places to grow--quite the contrary. In fact, coming off its most profitable quarter in four years and following completion of a refinery acquisition, the company is eager to hunt up retail acquisitions.
"Our strategy always is to look at the cheapest assets on the board relative to others," Uzi Yemin, president and CEO of Delek US said during an earnings conference call [image-nocss] yesterday. "And with the pressure on retail with high fuel prices and the need for working capital, we look very favorably on retail as an M&A opportunity."
Look for a story on Delek US Holdings' complete second-quarter earnings report in this issue of CSP Daily News.
Yemin added that at the end of the second quarter, the company had $250 million in cash and "several" retail acquisition targets in its sights.
"Our focus is looking at [retail] acquisitions," he said. "We have said all along that we will not pay more than five times EBITDA on the retail side. If anything, it would be lower than that."
So then why the slowdown in new-store construction?
"The delay in store construction really isn't related to market conditions as much as it has been us working through the process," said CFO Mark Cox. "When you go in a new area, you have to go through zoning, permitting, etc., and quite candidly, some of those things have taken longer than we anticipated. That has slowed down construction. It wasn't an internal decision by us to slow down construction; it's just been a slowdown in the actual process itself."
Delek US strategy call for the construction of 10 to 20 new stores annually; however, for 2011, Cox said, "five to 10 new-format store locations will be under construction by the end of this year."
As a result, "For the full year of 2011, we're reducing our capital-spending forecast by 9.4% to $73 million," Cox said. "The new forecast reflects a decline in spending within the retail segment as new construction initially planned for 2011 has been moved into later years."
Meanwhile, during the second quarter, Delek US also sold 14 stores throughout its marketing area as part of an ongoing attrition process.
"We've set EBITDA targets that we expect stores to exceed, and if they're not exceeding our EBITDA targets, we're looking at them to see if there's something that we can do to make improvements to bring them up to those targets," said Cox. "And if we don't believe that's possible, we've been looking at ways to reduce stores.
"The way that we've reduced the store count has been through basically two ways: one has been actually selling stores, and the other has been terminating or not renewing leases on some of our stores."
Brentwood, Tenn.-based Delek US Holdings is a diversified downstream energy business focused on petroleum refining, the wholesale distribution of refined products and c-store retailing. The retail segment supplies fuels and merchandise through a network of approximately 390 company-operated convenience store locations operated under the MAPCO Express, MAPCO Mart, East Coast, Fast Food & Fuel, Favorite Markets, Delta Express and Discount Food Mart brand names.