Susser reported that third-quarter 2008 merchandise sales-including sales from the company's Stripes stores [image-nocss] and the Town & Country stores it acquired in November 2007-increased by 74.9% to $189.3 million vs. the same quarter a year ago for standalone Susser operations. Same-store merchandise sales were 4.8% higher year-over-year on a reported basis and 6.7% higher on a pro forma basis, assuming the Town & Country acquisition had taken place on January 1, 2007.
"No doubt during the past quarter, our customers were feeling the pinch of higher gasoline prices, food prices and reduced real estate-related activity, but the merchandise sales increases we've been seeing all year illustrate that our customers' spending habits inside Stripes convenience stores are not terribly dependent or correlated on whether the overall economy is on an upswing or downswing," said Susser. "Our customers continue to respond to our ability to provide the basic products and delicious food they want at a price they want in a store setting that makes them choose Stripes over the other convenience store down the block. I think our numbers show that we're doing a good job attending to our business."
Total revenues for the combined organization were $1.2 billion, an increase of 80.1% from the third quarter of last year on a reported basis and up 32.2% pro forma. "We're using the term 'pro forma' whenever we're comparing against 2007 results assuming Town & Country was in the numbers for all of last year," Susser explained.
Gross profit was $118.8 million, up 78.7% on a reported basis and up 13.5% on a pro-forma basis vs. a year ago.
Adjusted EBITDA increased 89.8% to $31.8 million, vs. $16.8 million in the third quarter of 2007, primarily reflecting the contribution from Town & Country, and increased 1% against pro forma adjusted EBITDA in the year-ago period of $31.6 million.
Net income was $6.9 million, or $0.40 per diluted share, compared with $4.8 million, or $0.29 per diluted share reported in the year-ago quarter. Pro-forma net income in the 2007 period was $5.5 million, or $0.33 per diluted share, taking into account the Town & Country acquisition and the related impact on Susser's tax position. The increase in net earnings was driven by the contribution from new stores-including Town & Country stores-and higher merchandise and fuel margins, partly offset by higher interest, utilities, credit card, hurricane-related impacts and income tax expense.
"The 6.7% pro-forma same-store merchandise sales increase and the 34.9% merchandise margin we realized in the third quarter demonstrate the continued vitality of the consumer economies in the primary markets we serve," Susser said.
"During the quarter we saw very strong performance from both the legacy Stripes stores in South Texas and Oklahoma, and even stronger performance from the newly acquired Town & Country stores in West Texas and Eastern New Mexico," he said. "We believe this performance reflects the continued positive impact of improved execution by our team on our merchandise and customer-facing initiatives and a regional economy that continues to outperform national trends."
Outside the store, the economy did have an impact on gasoline volumes, Susser said. However, "the impact was more than offset by higher fuel margins per gallon," he added. "Retail margins averaged 22.2 cents per gallon-up more than 3 cents from a year ago on a pro-forma basis. While the third quarter is generally one of our most profitable for fuel sales, this year margins were bolstered by falling oil prices, which tends to improve our margins."
Corpus Christi, Texas-based Susser's operations during the third quarter of 2008 were negatively impacted by two hurricanes that struck the Texas Gulf Coast, including Hurricane Dolly in late July and Hurricane Ike in mid-September.
"We shuttered 144 of our retail stores during these storms for an average of about two days each," said CFO Mary Sullivan during the conference call. "We lost 297 store days, which is less than 1% of our total retail store days during the quarter." She added that seven wholesale dealer stations that sustained extensive damage remain closed today.
"We estimate we incurred between $500,000 and $1 million in incremental expenses for merchandise spoilage, maintenance, generators, overtime and incidental expenses, such as meals and lodging," Sullivan said. "We estimate the capital replacement costs are going to be about $2 million to $3 million, and most of that is from Hurricane Dolly, which hit near Brownsville, Texas, where we have a concentrated number of stores.
The company opened one new large retail unit in the Rio Grande Valley of Texas and closed another low-volume store in Corpus Christi, Texas, during the third quarter, leaving the total store count at 509 as of Sept. 30, with in-store restaurants at 287. Two more stores with restaurants have opened in the fourth quarter, and a Laredo Taco Co. restaurant was added to another existing store. Four additional stores are currently under construction.
In its wholesale operations, Susser added seven new dealer sites and discontinued 16, for a total of 375 dealer sites in operation at the end of the quarter. So far in the fourth quarter, eight new sites have been added to the network, and seven dealer sites remain closed due to Hurricane Ike. New dealer sites typically outperform wholesale locations that are closed or where fuel supply is discontinued.
Convenience-store merchandise sales were $189.3 million during the third quarter, up 74.9% on a reported basis and 10.4% on a pro-forma basis. Same-store merchandise sales increased 4.8% from the third quarter of last year on a reported basis, or 6.7% pro forma. Sales growth was driven primarily by strong increases in the sales of cigarettes, food service and beer.
Total merchandise gross profit, net of shortages, was $66 million, up 83.6% on a reported basis and 16.1% pro forma. Net merchandise margin increased to 34.9% for the quarter-up from 33.2% on a reported basis for the third quarter of last year and 33.1% on a pro-forma basis.
Retail fuel volumes increased to 163.4 million gallons for the quarter, up 50.1% on a reported basis but down 3.6% on a pro forma basis. Average gallons sold per retail location were 325,900, which was down 2.3% from the third quarter of last year on a reported basis and down 6.2% on a pro forma basis. The volume decline reflects the impact of significantly higher pump prices vs. a year ago that reduced fuel demand, especially near the Texas-Mexico border.
Retail fuel revenues increased to $619.7 million, up 112.7% on a reported basis and 32.9% on a pro-forma basis. Fuel revenues were driven by the Town & Country contribution and by a $1.11-per-gallon increase in the retail price of fuel vs. a year ago, or $1.04 on a pro-forma basis.
Retail gross margins for fuel increased by 6.4 cents per gallon to 22.2 cents on a reported basis and by 3.3 cents a gallon pro forma. Retail fuel gross profit totaled $36.3 million, up 110.4% on a reported basis and 13.2% pro forma. Susser reports retail fuel margins before credit-card and other fuel-related expenses. Credit-card fees in the third quarter were approximately 5.2 cents per gallon, vs. 3.4 cents per gallon a year ago on a pro-forma basis, or an increase of $2.8 million. Utility costs, which are also tied to the cost of energy, were up $3.4 million on a pro forma basis.
Wholesale fuel volumes sold to Susser's 375 dealers and other third-party customers increased 3.0% from a year ago to 122.3 million gallons. Wholesale fuel revenues increased 48.0% to $397.0 million as a result of both the small volume increase and, more importantly, a 99-cent-per-gallon increase in average wholesale fuel selling prices. Wholesale fuel gross margin was 7.2 cents per gallon, vs. 6.2 cents per gallon a year earlier. Wholesale fuel gross profit increased 18.1% to $8.8 million, reflecting significantly higher wholesale fuel selling prices and the slightly higher sales volumes.
"I think we're soft a couple million gallons of wholesale fuel volume [from] what we would have been if the hurricane had not happened and we'd not had all those outages." Susser said. "But at the end of the quarter, it all netted out to a wonderfully solid quarter."
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