CORPUS CHRISTI, Texas -- Seven destroyed canopies and about $3 million later, Susser Holdings Corp.—which is in the process of recovering from late July's Hurricane Dolly—has reported that total second-quarter 2008 merchandise sales, including sales from both its Stripes stores and the Town & Country stores acquired in November 2007, increased 77.4% to $187.9 million, versus $105.9 million a year earlier for the standalone Susser operation. On a same-store basis, merchandise sales increased 6.6% year over year. Total revenues for the combined organization increased 77.6% to a [image-nocss] record $1.2 billion, from $692.8 million in the second quarter last year. Gross profit increased 74% to $112.3 million, versus $64.6 million in the year-ago quarter from standalone Susser operations.
"In late July, Hurricane Dolly swept through a portion of our South Texas market area and forced us to secure and close 112 of our stores during the storm," said Sam L. Susser, president and CEO. "Fortunately, none of our employees were hurt, and damage was generally limited to some food spoilage and roof and sign damage outside the stores. We did lose seven gasoline canopies, but we sustained no structural damage that prevented us from reopening our stores. We are still assessing the total cost of the damage, which we currently estimate will be between $2 million and $3 million, and are working closely with our insurance carriers to determine if a portion of these losses will exceed our various policy deductibles. We expect the majority of these expenditures will be capitalized."
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 89.7% to $31.7 million, versus $16.7 million in second-quarter 2007, reflecting the contribution from Town & Country as well as an improvement of 220 basis points in reported merchandise margin to 34.3% and a retail fuel margin of 19.4 cents per gallon.
The company reported net income of $6.7 million, or 39 cents per diluted share, for the second quarter, versus net income of $6.3 million, or 37 cents per diluted share, in the year-ago quarter. Net income was driven by higher merchandise sales, higher merchandise margins and fuel margins, partially offset by increased interest and rent expense related to the acquisition of Town & Country and increased credit-card and utility costs.
"Strong same-store sales growth and a widening of merchandise margins in the second quarter was the result of an increase in customer traffic, purchasing and promotional activities and the realization of synergies from the Town & Country acquisition," said Sam L. Susser, president and CEO. "The flattening in average per-store retail fuel volumes occurred as consumers responded to record-high gasoline and diesel prices by curbing car trips or in some cases by seeking lower prices available across the border from a handful of our South Texas markets. This was offset, however, by an increase in fuel margins."
He added, "Our retail fuel margins were 19.4 cents per gallon during the quarter, which compares favorably to last year's 17.2 cents per gallon. We typically see our highest fuel margins during the second and third quarters. The Texas economy continues to outperform the overall U.S. economy, but more importantly, we are gaining share of merchandise and food sales within our markets."
The company also said that it is increasing its minimum estimate of expected synergies from the integration of Town & Country Food Stores into Susser Holdings from an annual run rate of $5 million to approximately $10 million annually.
"The integration of Town & Country into the Susser organization is now complete, following the integration of our store accounting systems and fuel procurement processes during the second quarter and completion of planned personnel relocations and job eliminations," Susser said. "We continue to expect annual general and administrative expense synergies of about $2 million a year, but we have increased our estimate of procurement cost savings from $3 million to $8 million annually. The majority of the increase is expected from the merchandise segment, but savings are also expected from motor fuel purchases. We expect to achieve the full $10 million of savings in 2009."
He added, "Our operations and marketing teams continue to focus on personnel, merchandising and strong execution, and we are very pleased with the results to date," Susser said.
Susser Holdings completed sale/leaseback transactions totaling $19.8 million for seven retail stores during the second quarter. These latest transactions bring total proceeds from sale/leasebacks year-to-date to $26.8 million. Susser also has received, subject to customary conditions, commitments for up to an additional $45 million of sale/leaseback funding for the remainder of 2008.
It increased its revolving credit facility from $90 million to $120 million in May. Additionally, the company completed a $30 million add-on to its 10 5/8% senior unsecured notes in June, the net proceeds of which were used to repay outstanding borrowings on its revolving credit facility.
"We took these steps to provide additional liquidity and flexibility in the face of rising working capital requirements due to sharply higher motor fuel prices," Susser said. The company remains in full compliance with all of its covenants relating to its indebtedness. As of June 29, the company's borrowing base supported the full use of the $120 million revolver, and there was approximately $75 million of availability. The company remains comfortable with its current liquidity position.
During second-quarter 2008, the company opened three new large retail units, one each in South, Southeast and West Texas, and closed one low-volume site in West Texas, bringing the company's total store count to 509 as of the end of the quarter.
In its wholesale operations, Susser added four new dealer sites and discontinued three during the second quarter, for a total of 384 dealer sites in operation at June 30. New sites typically outperform wholesale locations that are closed or where fuel supply is discontinued.
C-store merchandise sales totaled $187.9 million during the second quarter, up 77.4% on a reported basis and 12.7% pro forma. Same-store merchandise sales increased 6.6% from a year ago and 8.4% on a pro forma basis, showing financial results as if the Town & Country acquisition had taken place on January 1, 2007. The strong growth in sales for the retail merchandise segment was led primarily by increases in packaged drinks, food service, cigarettes and beer.
Total merchandise gross profit for the second quarter of 2008, net of shortages, was $64.4 million, up 89.2% on a reported basis and 18.6% pro forma.
Net merchandise margin increased to 34.3% for the second quarter of 2008—up approximately 220 basis points on a reported basis and 170 basis points pro forma—and is the highest quarterly margin reported since 2001.
Retail fuel volumes increased to 165.1 million gallons for the quarter, up 54.9% on a reported basis and almost 1% pro forma. Average gallons sold per retail location were 330,900, up slightly from a year ago on a reported basis but down 2.3% on a pro forma basis.
Retail fuel revenues increased to $618 million, up 107.6% on a reported basis and 32.7% on a pro forma basis. Fuel revenues were driven by the Town & Country contribution and by a 95 cent-per-gallon increase in the retail price of fuel versus a year ago, or 90 cents on a pro forma basis.
Retail gross margins for fuel increased by 2.2 cents per gallon to 19.4 on a reported basis and by 0.6 cents a gallon on a pro forma basis. Retail fuel gross profit was $32.1 million, up 74.9% on a reported basis and 4.1% pro forma. Susser reports retail fuel margins before credit card and other fuel-related expenses. Credit card fees for the quarter were approximately 4.3 cents per gallon, up 1 cent per gallon from a year ago on a pro forma basis.
Wholesale fuel volumes sold to Susser's 384 dealers and other third-party customers increased 4.8% year-over-year to 124.3 million gallons. Wholesale fuel revenues increased 46.8% to $415.2 million as a result of both the volume increase and a 96 cent-per-gallon increase in average wholesale fuel selling prices. Wholesale fuel gross margin was 5.8 cents per gallon, versus 5.3 cents per gallon a year earlier. Wholesale fuel gross profit increased 14.8% to $7.3 million, reflecting substantially higher wholesale fuel selling prices and the slightly higher sales volumes.
The $31.7 million of total company adjusted EBITDA compares favorably to the second quarter 2007 reported $16.7 million and pro forma $29.5 million results. Second quarter 2008 net income of $6.7 million, or $0.39 per diluted share, increased from second quarter 2007 pro forma net income of $5.1 million, or $0.31 per diluted share, taking into account the Town & Country acquisition and the related impacts on Susser's tax position.
For the first six months of 2008, Susser reported merchandise sales of $356.6 million, an increase of 79.0% on a reported basis and 13.2% pro forma, versus the comparable period a year ago. Total revenues were $2.2 billion, an increase of 82.6% on a reported basis and 35.5% pro forma. Gross profit totaled $203.8 million, up 74.3% on a reported basis and 11.7% pro forma. Adjusted EBITDA was $48.3 million, up 97.2% on a reported basis and 3.4% pro forma. Net income totaled $3.3 million or $0.19 per diluted share, versus $3.9 million, or 23 cents per diluted share on a reported basis and $2.6 million, or 16 cents per diluted share, on a pro forma basis for the same period in 2007.
Corpus Christi, Texas-based Susser Holdings is a third-generation, family-led business that currently operates 510 c-stores in Texas, New Mexico and Oklahoma under the Stripes and Town & Country banners. Restaurant service is available in more than 285 of its stores, primarily under the proprietary Laredo Taco Co. and Country Cookin' brands. It also supplies branded motor fuel to more than 380 independent dealers through its wholesale fuel division.
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