Uzi Yemin, president and CEO of Delek US, said, "Our second-quarter profitability was primarily attributable to a combination of strong demand [image-nocss] for refined products in each of our operating segments, improved Gulf Coast refining economics and elevated retail fuel margins."
He added, "Within our refining segment, we operated the Tyler refinery at or near peak capacity for the duration of the second-quarter 2010, largely in response to increased regional demand and significantly improved refined product margins. In our retail segment, strong same-store sales of fuel (gallons) and merchandise helped to produce one of our best quarters at retail in nearly two years. Finally, in our marketing segment, we continued to grow the business, as total sales volumes increased for the third consecutive quarter."
He concluded: "Entering the third quarter, demand for refined products in the Tyler market remains on pace with second quarter levels. Within our retail business, same-store sales of fuel (gallons) and merchandise continue to improve as well, driven in part by continued contributions from the company's reimaged store locations."
Second-quarter net income from continuing operations was impacted by several factors, including a capital loss on the sale of three retail locations, accelerated depreciation resulting from the closure of six retail locations, writedown of DHT catalyst cost at the Tyler refinery, as well as flood-related property damage resulting from the May 2010 storms that affected portions of Middle Tennessee. Collectively, these factors negatively impacted net income from continuing operations by $1.7 million, or 3 cents per diluted share, during second-quarter 2010.
Retail segment contribution margin was $18.1 million in second-quarter 2010, compared to $10.2 million in second-quarter 2009. The year-over-year improvement in contribution margin was primarily attributable to a same-store increase in fuel (gallons) and merchandise sales, increased gross profit generation on select in-store merchandise, as well as a significant increase in the retail fuel margin, when compared to the year-ago period.
On a year-over-year basis, same-store fuel gallons sold increased 3.4% in second-quarter 2010, versus a decline of 0.8% in second-quarter 2009. The retail segment sold a total of 109.1 million gallons during the three months ended June 30, 2010, versus 110.4 million gallons in the prior-year period. During second-quarter 2010, the retail segment operated 425 locations, versus 465 locations in the prior-year period.
The company's retail fuel margin was 18.6 cents per gallon in second-quarter 2010, compared to 12.4 cents per gallon in the prior year period. The increase in retail fuel margin is mainly attributable to a favorable spread between wholesale and retail fuel prices in the quarter, in addition to favorable blending economics associated with the company's ongoing E-10 (ethanol) blended fuel program.
On a year-over-year basis, same-store merchandise sales increased 4.6% in second-quarter 2010, compared to a same-store decline of 1.4% in second-quarter 2009, marking the fourth consecutive quarter of same-store merchandise sales growth. The improvement in same-store merchandise sales is attributable to several key factors, including strong contributions from the company's reimaged MAPCO convenience store locations, successful promotional efforts within the beer and dairy categories, consumer acceptance of newly introduced private label products, as well as continued growth in fresh food sales.
Same-store sales of food and fountain increased 16.4% in second-quarter 2010 when compared to the year-ago period, due primarily to increased contributions from the company's quick-service restaurant (QSR) locations, in addition to improved sales resulting from the company's ongoing fresh "grab-n-go" food initiative.
Merchandise margin increased to 31.3% in second-quarter 2010, versus 30.3% in the year-ago period, due primarily to increased gross profit contribution across several leading categories.
Marketing segment contribution margin was $6.7 million in second-quarter 2010, compared to $7.7 million in second-quarter 2009. Total sales volumes within the marketing segment increased for the third consecutive quarter to 14,652 barrels per day in second-quarter 2010, compared to 14,231 bpd in the prior-year period.
Delek US is a diversified energy business focused on petroleum refining, the marketing and supply of refined products, the retail marketing of refined products and the sale of general merchandise in its retail locations. The refining segment operates a refinery in Tyler, Texas. The marketing and supply segment markets refined products through its terminals in Abilene and San Angelo, Texas, as well as other third-party terminals. The retail segment markets gasoline, diesel and other refined petroleum products and convenience merchandise through a network of company-operated retail fuel and c-stores, operated under the MAPCO Express, MAPCO Mart, East Coast, Fast Food & Fuel, Favorite Markets, Delta Express and Discount Food Mart brands.
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