EL DORADO, Ark. — Strongtobacco performance at Murphy USA Inc. led to higher overall merchandise margins than expected previously, the company said on its second-quarter 2020 earnings call.
Tobacco contribution increased 19.2% on a same-store basis due to higher unit volumes, generating higher sales and margin during the current period.
“Our multi-pack and carton cigarette offers have become a destination trip for consumers, and second-quarter results compare strongly against the already impressive high-single-digit contribution gains we put up last year,” President and CEO Andrew Clyde said, noting Murphy USA’s tobacco business is entirely uncorrelated with fuel traffic, which has been down amid the COVID-19 pandemic.
Aside from cigarettes, vapor and alternative nicotine products are also delivering a substantial margin uplift, Clyde said. Second-quarter total merchandise contribution margin was up about $13 million compared to the prior year. Of that increase, $11 million came from tobacco. Of that $11 million from tobacco, about $8.3 million came from cigarettes and about $2.3 million came from other tobacco products (OTP).
“Like cigarettes, results reflect exceptional execution through managing our in-stock position, providing effective visual merchandising and offering an appealing product assortment including enhanced promotion on larger pack and SKU sizes,” Clyde said.
Nicotine pouches represent 5% of Murphy’s OTP category, Clyde said, and Murphy Drive rewards helped send traffic to these new products. Through Murphy Drive the company has insights on eight out of every 10 tobacco purchases, he said.
Murphy USA is increasing its merchandise contribution guidance from $430 million to $435 million to a range of $455 million to $460 million, due largely to the performance in the tobacco categories, that Clyde said he expects to continue into 2021.