Susser's Spring Thaw
Weather, competition, growth plans factor into first-quarter finish
CORPUS CHRISTI, Texas -- It might have been a cold spring for many c-store retailers, but Susser Holdings expects things to heat up--literally in terms of the hot, Texas summers soon to roll in, as well as the company's growth plans.
"We don't spend a lot of time giving the weather report, especially after so many companies have flagged the issue," said Sam Susser, president and CEO, during Susser Holdings Corp. and Susser Petroleum Partners LP's first-quarter 2013 earnings call on Wednesday. "But like others, so far in 2013 we have had significantly more cold weather days than in the prior two years, and that's had a measureable effect on our numbers."
- Same-store sales for the 562-site chain rose 4.2% year over year, vs. a 6.7% increase in first-quarter 2012. On a stacked two-year comparison basis, they were up 11%. Merchandise sales grew 9.5% compared to a year ago, led by beer, foodservice, packaged beverages, cigarettes and snacks; gross profits were driven by same-store dollar increases in packaged beverages, foodservice and snacks.
While cigarette sales continued a multi-year growth trend, margins were weaker. Considering that cigarettes supply only 19% of total merchandise sales in Stripes stores, execs consider the impact of this category's decline less of a factor than for other retailers.
Susser's Stripes stores saw a small increase in same-store average customer count vs. the prior year, as well as same-store average transaction size, which accounted for three-quarters of comp growth.
- Fuel volumes rose 5.7% for the Stripes retail and wholesale businesses combined, reflecting gallons sold by new Stripes locations. Average retail gallons per store grew 4.1%, compared to an increase of 5.8% in first-quarter 2012. Retail fuel margins before credit-card expenses averaged 16.6 cents per gallon (CPG) after deducting a 3-CPG margin that Susser Holdings pays to its MLP, Susser Petroleum Partners LP. This is nearly 7 CPG higher than the average of the first quarters for the previous 5 years on a comp basis, the execs noted, and 3.3 CPG better than the same period last year. The MLP's average fuel margin for all fuel sold was 3.6 CPG, vs. 3.4 CPG vs. a year ago on a pro forma basis.
- Adjusted EBITDA totaled $31.8 million, up 38.5% vs. a year ago. Consolidated gross profits were up 19.6% vs. the prior year.
Concerning lower retail net merchandise margin compared to first-quarter 2012--or 33.1% vs. 33.5%--Susser said that the company is taking a store-by-store, community-by-community approach to finding new growth opportunities.
"For better or worse, there's no one big idea that creates success in the c-store business--it's blocking and tackling and getting hundreds of little things lined up," said Susser. "We are definitely paying attention because there is some softness out there, and we're trying to be sure we're not leaving anything undone."
Some of these activities include:
- New growth. Susser is bullish on its ability to drive growth and distributable cash flow from SUSP. It declared a first-quarter distribution of 43.75 cents for SUSP common units for a payout of $9.6 million and distributable cash flow coverage of nearly 1.1X. Since the IPO was filed, Susser Holdings has dropped down 16 Stripes stores for a total investment of $65.4 million, which will generate SUSP an annual rental income of $5.2 million and 3 CPG from fuel sales going forward.
"Assuming the business continues to grow on its current trajectory, we can be announcing our first increase to the quarterly distribution as early as next quarter," Susser said.
On the Susser Holdings retail side, Stripes opened four new stores in the first quarter, with two additional sites in April and 14 under construction. The chain expects to open 29 to 35 new stores in 2013.
Some of these will likely be in its newest market of Waco, Texas, where Susser is building three sites but plans to ramp up its footprint over the next two years, to the point that "Stripes will become a well-known brand," Susser retail president and CEO Steve DeSutter said.
- New programs. Susser plans to invest in foodservice in 2013, including ice makers, fresh food and testing a new fountain wall concept to offer more variety to customers. The retailer will also begin testing a loyalty program before the end of the year. Although he declined to share any additional details, DeSutter said, "We've got to be very thoughtful about a program like that--you make a promise to consumers, you need to be able to keep it."
- New competition. "This is the double-edged sword of being in the great state of Texas," said Susser. "We have great demographics, a really strong economic outlook--but it's no secret. And there are lots of big national players that are increasing their square footage and variety of store formats, and traditional truckstops and c-stores are starting to plant more flags."
Stripes feels the impact of grand openings in cigarette, beer and soda sales, he said, but mainly on fuel.
"The competitive landscape is not different than in the past, but with more new openings in the marketplace, fuel margins will be very volatile as new people move in to take advantage of growth," he said.
Concerning dollar stores, which have ramped up store openings nationwide, Susser said size is on that channel's side. As a key supplier told Susser execs recently, "Just a few cigarettes times 15,000 stores is a lot of cigarettes."
"I don't think [dollar stores] have enjoyed meaningful success yet with their rollout strategy, but they're such big companies, their expansion into the categories like salty snack, soda, dairy and cigarettes is definitely having an impact," Susser said, noting it was not huge, and just one part of the competitive pressure from multiple channels, including drug stores and big-box retailers.
Susser Holdings is a third-generation, family-led business based in Corpus Christi, Texas, that operates more than 560 c-stores in Texas, New Mexico and Oklahoma under the Stripes banner. Restaurant service is available in approximately 355 of its stores, primarily under the proprietary Laredo Taco Co. brand. Susser Holdings also is majority owner and owns the general partner of Susser Petroleum Partners, which distributes more than 1.4 billion gallons of motor fuel annually to Stripes stores, independently operated consignment locations, c-stores and retail fuel outlets operated by independent operators and other commercial customers in Texas, New Mexico, Oklahoma and Louisiana.