The Upside to Susser's Downs

Reports net income declines for quarter, year, offset by strong fuel, merchandise growth

Susser Holdings Corp.

CORPUS CHRISTI, Texas -- Despite its 25th consecutive year of positive same-store retail merchandise sales growth, Susser Holdings Corp. reported declining net income for the three-months and 12-month periods ended Dec. 29, 2013. For fourth-quarter 2013, net income attributable to Susser Holdings was $5.9 million, versus net income of $10.6 million in fourth-quarter 2012. Net income for the full-year 2013 was $14.3 million, versus reported net income of $46.7 million, in 2012.

"This was driven by significantly lower retail fuel margins, partially offset by strong fuel gallon growth as well as solid merchandise sales and margin performance," said Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo Securities LLC, New York.

"Retail fuel margins in full-year 2013 were below historical years based on the relative stability in macro conditions that otherwise create volatility in fuel prices, such as hurricanes and geopolitical instability," she said. "While this result was below expectations, we were generally encouraged by management's tone and favorable long-term outlook. Further, we believe its growing footprint and strategic priorities provide a long runway of further growth. We continue to believe [Susser] remains one of the most compelling growth stories in c-stores. Bottom line--we believe [Susser's] long-term drivers remain intact and that there is upside not currently reflected in the stock."

Merchandise sales totaled $262.2 million in fourth-quarter 2013, up 8.9% from a year ago. Same-store merchandise sales rose 2.4%, versus an increase of 5.8% in fourth-quarter 2012. Sales from food service and snacks were the biggest contributors of the sales growth.

Net merchandise margin as a percentage of sales was 34.4%, up from 34.1% a year ago. Merchandise gross profit was $90.2 million, an increase of 9.7% from fourth-quarter 2012. Gross profit growth was led by $6.1 million contribution from new stores and by same-store increases from foodservice and snacks.

Retail fuel volumes increased 12.3% from a year earlier to 237.3 million gallons. Average gallons sold per store were 7.8% higher than a year ago, at approximately 32,100 gallons per week. Retail fuel revenues totaled $756.8 million, up 5.4% from the fourth quarter of the previous year, reflecting the increase in gallons sold, partly offset by a 21-cent-per-gallon decline in the average selling price of motor fuel versus fourth-quarter 2012.

Retail fuel gross margin averaged 14.6 cents per gallon, versus 21.1 cents per gallon a year earlier.

For full-year 2013, Susser Holdings' same-store merchandise sales rose 3%. Merchandise sales totaled $1.1 billion, an increase of 9.2% from 2012. Merchandise margin was 33.9%, unchanged from the prior year.

Retail fuel margin was 16.9 cents per gallon for the full year, versus 21.8 cents in 2012.

Susser Petroleum Partners

Susser Petroleum Partners LP, a wholesale distributor of motor fuels, has reported financial and operating results for the fourth quarter and full year ended Dec. 31, 2013.

Net income for the quarter was $9.5 million, compared to $8.6 million, in fourth-quarter 2012.

Revenue for the fourth quarter totaled $1.1 billion, a 10.3% increase compared to $1 billion in the comparable period of 2012.

Gross profit for the quarter totaled $20 million, a 37.2% increase compared to gross profit of $14.6 million in fourth-quarter 2012. The average fuel margin for all gallons sold increased to 3.8 cents per gallon in fourth-quarter 2013, compared to 3.5 cents per gallon in the prior-year period.

Affiliate customers as of Dec. 31, 2013, include 662 locations under long-term contract, including 575 Stripes convenience stores and consignment arrangements at approximately 87 independently operated convenience stores. Gallons sold to affiliates during the fourth quarter increased 10% versus the prior-year period to 269.5 million gallons. Gross profit on fuel sold to affiliates totaled $8.1 million versus $7.3 million in the comparable three-month period in 2012, with the margin per gallon at three cents in each period.

As of Jan. 31, following the Sac-N-Pac acquisition, Susser Petroleum Partners supplied 709 affiliated sites.

Third-party customers include approximately 492 independent dealers under long-term fuel supply agreements, consignment arrangements at 12 independently operated c-stores and approximately 1,900 commercial customers as of Dec. 31, 2013. Total gallons sold to third parties increased year-over-year by 24.6% to 146 million gallons for the quarter, partly reflecting the Gainesville Fuel business that Susser Holdings contributed to Susser Petroleum Partners in Sept. 2013. Gross profit on fuel sold to these third-party customers was $7.6 million, or 5.2 cents per gallon, compared to $5.3 million, or 4.5 cents per gallon, in the prior-year period.

"We continued to see robust growth, with a more than 8% increase in gallons sold and a 38% year-over-year increase in gross profit for the full year," said Rocky B. Dewbre, president and CEO. "We now own 38 Stripes stores that are leased back to [Susser Holdings], and expect to continue this dropdown strategy throughout 2014. In addition, we will continue to pursue accretive acquisition opportunities such as our recently completed purchase of 3W Warren Fuels, the wholesale distributor for 67 fueling locations, including the 47 Sac-N-Pac stores now owned by [Susser Holdings]. Additionally, we may have the opportunity to purchase some of these stores and lease them to [Susser Holdings] or independent dealers as [Susser Holdings] completes its evaluation of the properties over the next six to 18 months."

Susser Petroleum Partners completed the acquisition of three Stripes c-stores during fourth-quarter 2013 at a total cost of $11.9 million. So far in the first quarter of 2014, it has acquired five additional Stripes stores for a total of $19.5 million.

Susser Holdings Corp. is a third-generation, family-led business based in Corpus Christi, Texas, that operates 627 convenience stores in Texas, New Mexico and Oklahoma, with 580 under the Stripes banner and 47 under the Sac-N-Pac banner. Restaurant service is available in approximately 400 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 LP, Houston, which distributes approximately 1.6 billion gallons of motor fuel annually to Stripes stores, independently operated consignment locations, convenience stores and retail fuel outlets operated by independent operators and other commercial customers in Texas, New Mexico, Oklahoma and Louisiana.