EL DORADO, Ark. -- Murphy USA Inc. is executing a “more aggressive” raze-and-rebuild program during 2017 to help control the cost and timing of new-store construction and openings at a time of year they will bring in the most new retail business, Andrew Clyde, president and CEO, said during the company’s first-quarter 2017 earnings call.
“Being able to load level our construction process around new stores in conjunction with a more aggressive raze-and-rebuild program this year will help us control cost and timing around new store openings, which were heavily concentrated in the spring and summer months,” he said.
Most of the new stores built in 2016 opened late in the third and fourth quarter of the year, “which is not an opportune time for new store openings,” Clyde said. “With stores opening during summer when traffic is heavier, [it] is much easier to attract new customers.”
Murphy USA opened five retail locations in first-quarter 2017, bringing the quarter’s-end store count to 1,406, consisting of 1,152 Murphy USA sites and 254 Murphy Express sites. It has 35 stores under construction, including 17 raze and rebuilds.
“We expect to have these sites back up in time for the summer driving season, along with three other raze-and-rebuild projects, which should complete in the fall,” he said. “While this timing has a noticeable impact on our fuel and tobacco volumes in Q1, this approach generates the best long-run performance, which is what matters the most.”
In other improvements, Murphy USA also plans to install approximately 240 of the larger, three-door “super coolers” this year.
Super coolers offer 68% more capacity and a more diverse, higher-margin mix of beverages outside of the carbonated soft drink (CSD) category. “These additional facings allow us to better execute promotions and qualify for better shelf allowances and rebates,” Clyde said. “We have some other opportunities to add smaller, two-door super coolers that will comprise part of our 2018 CapEx, but these opportunities are fewer in number, approximating about 100 locations.”
This will “largely complete our network expansion,” said Clyde. Murphy USA’s refresh program is continuing “on pace,” he said. “This is the last year of our accelerated refresh program of around 300 stores. At the end of the year, we will have touched 900 stores in the network, leaving roughly 100 to 150 stores that will require a full refresh in 2018, and then a much slower pace, less capital-intensive maintenance schedule will continue after that.”
Financials
El Dorado, Ark.-based Murphy USA reported a net loss of $3 million in first-quarter 2017 compared to net income of $85.9 million in first-quarter 2016.
It reported first-quarter 2017 earnings before interest, taxes, depreciation and amortization (EBITDA) of $26.63 million, compared to $172.14 million in the same period in 2016.
“After posting our highest first quarter last year, Q1 EBITDA this year fell to its lowest level since 2012 as record industry-refined product inventory levels led to depressed wholesale prices, regulatory and political uncertainty dampened RIN prices and seasonally weak demand at the beginning of the year impacted retail volume,” said Clyde. “However, throughout these peaks and troughs associated with fuel volatility, we continue to drive significant improvements to our underlying business, leading to higher total merchandising profits and lower per-store operating expenses.”
Total retail gallons grew 0.6% to 1.01 billion gallons for the network in first-quarter 2017, while volumes on an average-per-store-month (APSM) basis declined 3.6% vs. the prior-year quarter, and retail fuel margins declined from 11.1 cents per gallon (CPG) to 10.1 CPG.
Merchandise total sales increased 0.7% to $565.8 million in 2017 from $561.7 million in 2016, due primarily to an increase in nontobacco sales of 3.2% average per store month (APSM), offset by a decrease in tobacco-products revenue of 5.6% APSM.
Quarterly merchandise margins in 2017 were higher than 2016. The increase in gross-margin dollars of 3.4% in the current period was due primarily to benefits from the Core-Mark supply contract, in addition to per-store improvements and improved promotional effectiveness. As a result, total unit margins were up by 40 basis points from 15.3% in the prior period to 15.7% in the current year.
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