Q4 2019 Earnings Call
Good question during the session you'll need to press star one on your telephone.
If you're part of any further assistance. Please press star Zero I would now like to hand, the conference over to Christian cycles Senior director of Investor Relations. Please go ahead.
Great. Thank you good morning, everyone. Thanks for joining US with me are Andrew Clark, President and Chief Executive Officer, Mindy, where executive Vice President and Chief Financial Officer, and Donnie Smith, Vice President and controller.
For some opening comments from Andrew Mindy will provide an overview of the financial results. We will then review our 2020 guidance metrics and open up the Colts QNX. Please keep in mind that some of the comments made during this call, including the Q and a portion will be considered forward looking statements as defined in the private Securities Litigation Reform Act 1995.
So no assurances can be given that these events will occur or that the projections will be attained a variety of factors exists that may cause actual results to differ for further discussion of risk factors. Please see the latest Murphy USA forms 10-K, 10-Q, 8-K, and other recent SCC filings Murphy USA takes no duty to publicly update or revise any forward looking state.
During today's call. We may also provide certain performance measures that do not conform to generally accepted accounting principles or gap. We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis as part of earnings press release, which can be found on the investor section of our website with that I'll turn it over to Andrew. Thank you Christian good morning, and thank you.
Thanks to everyone for joining us today.
2019 was an exceptional year and Murphy USA is relatively short tenure as a public company and as we enter 2020 with lot of momentum it's important to reflect on what underpinned 2019 results and how about shapes, the sustainability and growth in the years ahead for earnings and the other share price dry.
Papers, we control.
I just didn't happen by chance it took a lot of planning and a lot of hard work in execution by our team to deliver the plan and we expect more than 2020. So let's go through some highlights we grew our per store fuel volumes and did so at very attractive margins, especially when you net the effects of Murphy dropper words discounts into.
Charles.
In a year that started with an unprecedented increase in fuel prices, our retail pricing excellence initiative reset customer expectations in reestablish our low price position with better leadership mindsets data in tool for executing we not only grew volume, but did so very profitably.
And as our 2020 guidance highlights there's more opportunity to grow our fuel contribution.
As expected fourth quarter 2019 volume and margin result in a rising price environment fell short of fourth quarter 2018 results, which were buoyed by a steep price dropped throughout the quarter. However, we are now seeing uncharacteristically higher margins in January as prices have fallen sharply which.
As a bonus for starting off a new year and once again positions us to grow volume profitably.
Merchandise contribution grew 4.8% to a record $419 million driven by a 4.5% gain and per store tobacco volume as best in class execution, and our new Murphy draw for words platform provided the perfect Foundation to take advantage of manufacturer programs we.
Back to continue to take share.
Our curing significant momentum into 2020.
Headwinds from beeping restrictions in T. 21 regulations are built into our guidance as is the cost of Murphy draw for discounts and deferrals.
From an MDR standpoint, 2019 was all about engaging the customer and we did as we now have almost 3 million fully enrolled members 2020 will be about monetizing MDR with our vendor partner support as we deliver greater value more efficiently and effectively.
2019 also marked a shift in our store portfolio as we now have less than 50% kiosk in the mix. Thanks to the successful raze and rebuild program in our new store development the shift in fuel and merchandise discussed before have led to better new store metrics as larger 28 hundreds.
We're foot stores ramp up to their higher potential providing conviction to us around this format as we increase or anti activity going forward.
Importantly for Murphy USA, we achieved this growth with the continued focus on cost leadership. We ended the year up just 2% on per store operating expenses of which 50 basis points was attributable to higher rents for more least stores.
Fourth quarter Opex before credit card fees fell 4.5% SG nine came in at the low into guidance as we focused on delivering the most important initiatives in 2019 and pushed a few others into the future or fuel breakeven metric fell another 14 basis points to a new record <unk> 0.67 cents per gallon in 2000.
19.
Disciplined capital allocation remain front and center as we repurchased 1.9 million shares in 2019 with 300000 shares repurchased in the fourth quarter.
Looking through the four to five your lens, we provided to investors early in 2019 of growing EBITDA towards $500 million buying back about a million shares a year in earning another turn on or multiple we made significant progress towards these drivers of our share price.
After Mindy cover some key financial metrics I'll come back and go over 2020 guidance, which provides another meaningful step in the right direction towards these long term goals, the creating shareholder value.
Andy.
Thank you Andrew good morning.
Revenue for the fourth quarter and full year 2019 was 3.5 billion of 14 billion respectively. This compares to 3.5 billion in 14.4 billion and the year ago periods.
In the fourth quarter. This decrease was attributable to lower retail gasoline prices and lower gallon sold partially offset by higher merchandise sales.
The full year decrease was attributable to lower retail gasoline prices, partially offset by higher fuel volume sold and higher merchandise sale.
Average retail gasoline prices per gallon during the quarter were $2.30 versus $2.34 and 28 team and for the full year retail gasoline prices averaged $2.33 per gallon versus $2.48 per gallon in 2018.
Adjusted earnings before interest taxes, depreciation and amortization or EBITDA was 112.4 million in the fourth quarter versus 148.9 million in 2018 for the full year adjusted EBITDA was 422.6 million versus 411.8 million in 2018.
Adjusted EBITDA for the fourth quarter was lower than the prior year period due to lower retail margins and volumes, partially offset by higher merchandise contribution and for the full year adjusted EBITDA was above the prior year period due to higher volumes and higher merchandise contribution dollars, partially offset by lower all in margin.
The effective tax rate for the fourth quarter was 23.1% and 23.5% for the full year going forward. We continue to use a federal income tax rate of between 24, and 26 cents per cent for planning purposes.
As stated in the press release net income for the full year 2019 was lower than 28 team partially due to two factors between 18 pre tax receipt of 50.4 million in connection with the 2010 deepwater horizon oil spill combined with a pre tax loss on early debt extinguishment of 14.8 million in 2019.
Total debt on the balance sheet as of December 31st 2019 was $1.037 billion broken out as far less long term debt of 999 million, primarily consisting of 296 million carrying value of our five and five eighth notes due 2027.
493 million carrying value of our new four and three quarter a percent notes due 2029 and 212.5 million of term debt.
In addition, we're carrying 37 and half million of expected amortization under that term loan in current liabilities on the balance sheet.
These figures result in an average leverage ratio that we report to our lenders of approximately 2.4 times.
Our ABL facility remains in place with 325 million dollar cap subject to periodic borrowing base determinations, which are currently limiting us to approximately 238 million as of December 31st and at the present time the facility continues to be Undrawn.
Cash and cash equivalents totaled 280.3 million as the year end, resulting in net debt of approximately 757 million.
There were 30.5 million common shares outstanding at the end of the fourth quarter.
And then lastly, capex for the fourth quarter, approximately 56 million and 215 million for the full year of the 250 million spent in 2019 134 million was growth capital, including 17, new stores 27, raze and rebuild projects and some upgrades to our terminal two.
20 million was spent on maintenance.
11 million on corporate capital largely comprised of technology projects and the remaining 50 million was spent on M.B. compliance that are outside dispensers, leaving us with about 25 to 30 million of spend remaining and 2020 to reach compliance by October of this year.
That concludes the financial update so I will now turn it back over to Andrew Thank you Mindy.
I'd like to wrap up with a review of our 2020 guidance metrics and we'll start with organic growth in 2020, we intend to build up to 30 larger format 2800 square foot stores. In addition to raising in rebuilding up to 25 high performing kiosk and turning them into 1400 square foot stores.
As a reminder, going forward we will.
Almost exclusively be building 2800 square foot or larger anti stores as we optimize both or store locations in our merchandise offerings, we are developing or pipeline targeting up to 50, Npis in 2021 and beyond.
Looking at fuel contribution building on our success in 2019, we expect to continue to grow volumes in our establishing a guidance range of 250 to 255000 gallons on an average per store month basis, we will continue to refine our tactics and improve the team's execution capabilities in a dynamic.
Make an ever changing retail environment to maintain our low price position in the market in aggregate price sensitive customers in an economically responsible manner.
Looking at the two primary components, comprising our fuel breakeven metric. We are expecting continued growth from the merchandise category in are establishing contribution margin guidance between 430 in $435 million.
Importantly, this guidance reflects about a $5 million headwind from the T 21 initiative and recently enacted regulatory restrictions impacting the vapor category.
We just returned from our National leadership Conference and I can tell your supplier partners or supported Im excited to help us overcome these headwinds given the impact our business had for them in 2019.
And equally important part of the breakeven metric is per store operating expenses on this front, we anticipate a 1% to 3% increase in per store Opex in 2020, I will point out the organization worked very hard to overcome transitory elements a higher opex in the first half of 2019 in order to deliver results with.
In our 2019 guided range coming in at a 2% per store increase.
As we think about the landscape around costs in the business. There are several factors that will lead to slightly higher opex guidance going forward.
Versus our historical performance and spend that demonstrated flat to declining per store costs.
Versus the fact that we are building larger stores that necessitate higher staffing levels versus the network average.
Second benefit in insurance costs continue to trend higher including minimum wage creep and although we have mitigated such headwinds in the past. We expect continued pressure in these areas to persist in the near term.
Lastly, as we lease more sites to accommodate or larger store footprint versus purchasing the land, which is our preference rent expense will continue to move higher as a reminder, rent expense constituted 50 basis points of the 2% increase in operating expenses, we incurred in 2019.
Importantly in 2020, we will begin reporting operating expenses per store before rent and credit card fees going forward.
Cost leadership remains a priority for Murphy USA and will remain an area of focus to achieve our stated goals the limiting operating expense growth at or below the rate of inflation.
From a corporate cost perspective, SDMA came in at the low end of the guided range in 2019, as we carried over some cost for IP projects and other corporate initiatives, resulting in slightly higher 2020 gene a guidance of $150 million to $155 million.
And for 2020 are all in tax rate should remain at or near 25%.
Our capital plan remains at a range of $225 million to $275 million certain projects budgeted for 2019 will carry over into 2020 or 2020 capital program earmarks, roughly $170 million to $200 million for retail growth 15 to 20 million for maintenance capital 15 to 25.
In a corporate capital in 25 to 30 million of carryover he and the spend as we complete or network dispenser upgrade in certification process.
While we are no longer offered specific guidance around fuel margins for a variety of reasons, we articulated last year.
We did provide an adjusted EBITDA forecast to $406 million for 2019, when you use the midpoint of all other guidance elements into your models.
Clearly several critical segments of our business performed above the guided range, resulting in 423 million of reported adjusted EBITDA for 2019.
In that same spirit using a three year average all in fuel margin of 16.2 cents per gallon in the midpoint of our 2020 guidance, we would expect the business to generate about $440 million of EBITDA. This year and while we will not be in the habit of updating guidance on a regular basis I'm glad that with January fuel.
Contribution dollars coming in better than expected, it's reasonable to conclude there is potential upside to this math in the event the rest of the year plays out as planned.
I'll also encourage all of you to review the GAAP to non-GAAP reconciliation in the back of the earnings release for information on depreciation and interest expense.
In closing, we recognize anything can happen tomorrow in the coming month for the rest of the year that could result in financial performance dramatically above or below our internal forecast in corresponding guidance metrics, we're maintaining our focus internally on what we can control and how to optimize our performance in any given commodity.
Permit.
We do not nor should investors value the business on a single quarter or even a single years performance. We're clearly stated our goal of growing adjusted EBITDA to $500 million over the next few years and believe we are on track to deliver that go through high quality organic growth and our relentless focus on continuous improvement.
Coupled with our commitment to disciplined capital allocation and our share repurchase programs, we seek to maintain our long term trajectory of share price appreciation.
As we put 2019 in the rear view mirror in Revvy engine in 2020, we're pleased with our performance Im very excited about the outlook for Murphy USA and for our investors and on that note. Operator, we can open up the call to Q Anite.
I could ask a question at this time. Please press Star then the number one on your telephone keypad, if you'd like to withdraw your question press about your first question comes from Chris Mandeville with Jefferies.
Hey, good morning, Andrew.
Morning, Chris.
Can we start off on the fuel side, just with respect to the gallon comps turning negative both on a one year into your basis.
Maybe can you just elaborate a little bit more on unfavorable pricing environment.
Speak anything else that might have been at play on the results for the quarter and then incorporate them general competitive dynamics as well.
Sure. So if you remember last year.
Prices fell very sharply.
Throughout Q4.
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And.
Generated an opportunity for us to be very aggressive.
On the volume side and with periods of margins North of 20.
Since per gallon, we had that opportunity throughout the quarter.
This year was different we didnt have the steep fall off the way actually.
So a run up.
In prices in the latter part of the quarter. So it's that simple dynamic than we've seen a lot of quarter on quarter comparisons.
In the past, where that's been the case and then if you think about entering.
2020, we had some momentum coming in from falling prices and from a 2018 to 2019, but then prices started running up when we had that unprecedented.
Increase.
Well now seeing something different this year with prices falling pretty significantly.
In the second half of January so we're going to continue to see those sorts of trends.
I would say, we didnt know anything of particular interest from a competitive or market.
Dynamic I would attribute.
Almost all of this to the the nature of the price environment. The amount of margin that you have to play with and then what's optimal in terms of putting more margin on the street to to gain volume and we just didnt have those opportunities in Q4. This year. In fact, we had kind of the office at with the run off.
Prices, Chris I would encourage you to look at the fourth quarter 2017, Thats actually a better comp to use and if you use that as a cop you'll see that we delivered actually the same volume on an average per store month at 242000 and did it at a higher retail margin generating a higher all in contribution so.
2017, really as a better comp, but even so 2017 was actually still a more favorable environment due to the volatility in that quarter. Then what we saw in the fourth quarter 2019, with the flat to rising environment as Andrew said it just was not an optimal period in which to grow volume is because of the sharp rise at the end if we have taken.
Approach to discount prices to gain share that would have resulted in materially lower fuel contribution dollars and just would not have been responsible thing today.
Okay. So is it fair to say just as we think about the near term that.
Based on some of the pricing dynamics, thus far.
We should be expecting a reversion back to positive territory for fuel gallon comps on a go forward basis.
We would in with guidance a 250 to 255000 gallons per store month for the year, you would absolutely expect that.
Okay, Great and then turning to merchandise.
I guess can you help us understand why the non tobacco comps in margins continue to see some pressure. While you continue post very strong results on the tobacco front and how much of this is really a reflection of strategy and the use of MDR versus anything else.
Yes, so for the year non tobacco margin contribution was up about 3.9%.
We mentioned the reclassification of items from Opex into merchandise contribution margin in the fourth quarter.
That would have caused the full year number to be up 4.3% and so that weighed in as we made the year to date for your adjustments.
In Q4, and I would say their price and merchandising practices.
Around some high theft items that also led to some declines in that performance.
Our targets for non tobacco merchandise in 2020 or high single digits, that's going to reflect a return of a more promotional.
Intensive approach to candy, probably the most promotion we elastic product that we have.
That was a strategy toward choice in 2019, as we focus more of our store associates time on rolling out MDR as I mentioned on the last call. We had a contest in October .
In the associates blew that contest out of the water. So we expect to see.
More of that type of performance.
2020, so positive comps there we continue to complete the resets of our different formats, including our larger format stores and so we'll be comping.
Over those changes.
That we started in 2019 for the full year.
In 2020, so hope that addresses some of that lot of it was.
Some adjustments in 2019, and probably some execution and then a little bit around the strategy around the store associates time.
But we expect that to be positive certainly the overall mix of.
Merchandise contribution is weighed heavily by.
Growing the tobacco.
Component of it.
Alright, and then just the final one they're being I apologize I don't know the formal name for the regulation in South by you called out of 5 million dollar headwind from vaping, just want to ensure that.
I understand what exactly that was it related to.
I'm, assuming it's the flavor band itself.
But.
Can you talk to that a little bit in terms of.
Thats a similar contribution that you had been seeing.
2019 to same store sales in tobacco.
Or if it's something somewhat different.
Has there been any pull forward necessarily in the January timeframe as we approach the flavor band and then finally can you just talk about the contribution from leap year as we think about Q1.
Yes. So this is really the.
Flavor bands that been enacted as well as the.
Age 21 restrictions. So we look at 18 to 20 year old purchases in our estimate.
Of that.
Which we believe is lower than the industry average in part due to our significantly higher than industry average age restriction compliance.
Program results and so that's that's really what it is so we just kind of rolled that out throughout the.
The year certainly the age.
Restrictions came earlier in the year than we probably originally planned.
And.
The flavor bands was probably in the mid point of our.
Best and worst case scenarios that.
We outlined.
And then maybe leap year.
Oh, Lapier, sorry, yes, an extra day is.
Always great. So just make sure you account for that in the models. It's on a Sunday I believe which isn't the highest.
Traffic day, but those have all been built into the guidance numbers as well.
Okay. Thanks, guys.
Your next question comes comes from Bobby Griffin with Raymond James.
Good morning. This is alcentra jimenez on for Bobby Griffin. Thank you for taking my question.
Good morning.
First if we could start with merchandise margin was the merchandise margin drag from MDR inline with your expectations heading into the quarter and when should we start to see that drag start to dissipate.
So the amount of the 30 to 40 basis points is consistent with what we've seen thats consistent with what we've estimated.
It's built into the.
Guidance going forward in terms of the 430 to 435 million.
Contribution so if you're.
Yeah.
Looking at the uplift.
Around tobacco for example in one of the programs that require.
MDR membership and participation to get that.
You are going to continue to see the higher volumes relative share performance higher contribution from those categories.
And then you'll continue to see the discounts and deferrals.
Associated with that so the numbers are pretty much built in as you would see so if you want to think about it kind of like the core Mark negotiation.
Contract five years ago, you saw a onetime reset in the contribution margin.
This has been a if you will a onetime reset.
Owned by the 30 basis points.
There that we're giving to the customers, but in return we're seeing significant contribution margin.
Improvements.
As a result of.
Those those programs and then we'll be looking to find ways to.
Execute.
Programs related to Murphy drive rewards more.
Efficiently sweepstake type programs et cetera, which might impact the liability balance and and flow through and so there may be some.
Adjustments that impact those numbers as well we continue to.
Reevaluate few times a year.
You have the points and there've been some adjustments to those but.
We expect these to be the kind of numbers you should expect going forward, but you should also expect the same top line and total margin contribution.
That.
Is derived from having a program like this.
Okay, and then do you think that the contribution mostly impacted tobacco or did you see a lift in comps from other areas of the business.
Yes, so right now the.
Two big areas, we've seen comp performance from MDR is clearly tobacco.
But also on the fuel side.
The other categories smaller categories will be a.
Bigger focus point.
In 2020.
But we knew that in the very first year.
And signing a customers you had to be able to demonstrate uplift in the program in your two biggest categories for us being fuel in tobacco.
We did and so that gives us than the opportunity to leverage those findings in those results across our vendor partner.
Base as we have other.
Programs offers et cetera for our customers.
Okay. That's helpful. And then lastly from me given the current industry dynamics and cost pressures impacting the smaller operators do you potentially see an environment, where you could operate the business with fuel margins above the 14 to 16.5 range and still maintain your cost leadership.
We do what I would say is that 14 to 16 and a half range that you know I think we stopped using.
A couple of years ago.
I think we've generated now 16.2 cents is a three three year average and so.
We are certainly more comfortable.
Working around that average than such a wide range, we just havent seen the.
Either the commodity type movements that would reflect what you'd have to believe to go back to a 14 cents type number.
Nor have we seen sort of the competitive dynamics that you would experience that as well.
Yeah. There are certainly pressure for the smaller operators and you can look at the NACS data you can look at the second third fourth quarter tile retailers breakeven metrics and so is there cost pressures continue to go up.
They are impacted by.
These headwinds the amount investments are going to have to put into in the on many of them putting significant investment into food, but maybe not having the offer the practices to get a return on that investment.
There is a lot of pressure for them to.
Raise prices to.
Achieve.
Financial performance they need to get a return on their investments in so in that environment, we're able to both grow volume.
And margins.
As we've demonstrated with our 2019 results on the or 2020 guidance has that same perspective in mind.
Okay. Thank you I appreciate the detail and best of luck 2020. Thank you.
Your next question comes from John Real with Jpmorgan.
Hey, good morning, guys. Thanks for taking my question.
So on the station Opex, you guys had a big year over year decline and the per store metric imports.
It's just wondering if you could talk through some of the drivers there I appreciate the color on the.
2020 guide in my comments, but just wanted to understand the 14 strike a little better.
Sure. So we had the re class there were some cost to good items that.
We're showing up in supplies and some other categories that needed to be in the merchandise.
You know margin area and so.
That was one driver in our maintenance for the quarter was of significant so when that was something where earlier in the year.
We got caught up on.
Prior.
Years deferred.
Projects and we really saw.
That play out in Q4 will we just had significantly less break fix.
And planned maintenance.
Out there.
And so I think those were probably some of the probably the two biggest items.
Great. Thank you and then for the raze and rebuild program.
I was just wondering if you could talk through how much running room. There is remaining there I think you said.
You are under 50% kiosk now and.
Maintaining a pretty healthy pace when these conversions.
What's what's the ultimate percentage you can get too I assume it's not.
No we've talked about before I mean, I think there's three things that.
Or the criteria, we used to identify raze and rebuild candidates first how old are they.
And given we started building these stores in 19.
97, we've got the larger part of our mix approaching that 15 to 20 years and.
In the late Ninetys early 2000, so we are building with our partner Walmart over 100 stores.
You know a year so there's a number of stores in that.
Kind of window that are up for consideration.
Have a land available to do it and so when we ultimately took possession of the land.
We had parcels that range anywhere from a quarter of an acre to well over an acre you can't do a raze and rebuild and put a 1400 square foot store on a quarter of an acre and so that would require cooperation with our partner to be able to do that and then you really need to have the economics to be able to.
To do it as well to get the color reinvestment return on.
Investments reinvestment economics, and I think thats, one of the things that really distinguishes.
Murphy USA in the small format. So as you could take an existing store tear it down rebuild it at the end of the useful life and still get.
Very very strong returns on those and so at 25 stores a year, we've got a long runway.
North of 10 years to be able to do that I think one of the capital allocation questions. We get from time to time.
With investors is would you ever accelerate that.
From more than 25 stores to something greater than that and so I think.
Yes, we think about our into high growth ramping up maintaining capital.
Allocation disciplined in a balance between new growth in share repurchases. That's certainly a lever that we can consider and if we start running into higher maintenance cost or.
Issues in terms of.
Hey, the stores are is competitive and we're seeing it degradation in the economics of those stores that could cause us to rethink the 25, a year number and perhaps something greater.
Then we have the ability to pivot on our.
Share repurchase program, if we deem to be a higher return and better use of capital.
Very helpful. Thank you.
Once again, if you'd like to ask a question. Please press star one on your telephone keypad and we have a question from Ben Ben Bienvenu with Stephens. Please go ahead.
Thanks, Good morning.
One event to start I want to start with a question on DNA edge.
Thanks.
Today for your outlook for 2020, if you just talk about.
DNA expense next year, what's driving such material increase in that line item.
Are you asking about DNA.
Sorry, negotiation and amortization.
As a depreciation is going up similar to what it did last year really with the ramp up in our build program building more new sites and so thats, adding incremental DNA to the overall bottom line and also with the increase in raze and rebuild activities we have.
An amortized balances within those that also has to be written off so we have some accelerated depreciation built into that number two.
Okay fair enough.
I wanted to ask about guidance in general.
And when you look at 2019 guidance you guys.
Obviously be conservative on a number of line items I'm curious what surprised you and 2019 to the upside.
And when you think about 2020.
What are the the variables outside of just market environment.
Changes in fuel prices and how that could impact fuel in particular.
That we should be thinking about to drive upside or downside to kind of the midpoint of the metrics you provided for 2020.
Sure.
We know Ben it's usually our practice did not get too far ahead of ourselves in terms of certain initiatives. So if I think about 2019.
In the accomplishments there and what we.
Delivered.
You know I wouldn't say it was a surprise, but it was.
One of the expectation that we would be able to grow our fuel volume through our retail pricing initiative and we were able to do that I guess the surprise in the year was.
Yes, the massive run up in prices in Q1 in our ability to.
Grow volume and margins.
And that.
Environment and throughout the whole year, certainly the refine product market tightened up.
Over the course of the year colonial line space turn positive.
We haven't talked about Rins, and two or three calls which is.
Delightful for for me on this and our team and so I think there is lot of stabilization and refine product market from that standpoint, and so you got to see the impact of our strategic initiatives.
Play out.
You know I think it was a surprise when we started seeing the number Murphy drop reward customers signing up but when you think about doing three times the industry fuel volume five times industry tobacco to have six times. The density of members per store versus some other public comps, we have I guess that shouldn't have been.
So price.
And then seeing that translate into.
You don't attractive platform for manufacturing partners, our ability to translate that into value for our customers and seeing the significant uplift in tobacco volumes per store against the.
Headwinds the rest of the industry was facing.
We certainly didn't build.
All of that into.
The guidance that would have been pretty aggressive and betting on the come but as it all kind of played out I think it makes sense when you think about our customer.
Their value conscious focus our ability to deliver that value through a unique capability and.
In doing so delivering a better marketing return on investment for our supplier partners. So I think that all just came together nicely and as I said when you add those two components to our new to industry stores in our raze and rebuild stores, we're just seeing higher performance.
Out of those.
Stores, which gives us both the conviction continue with raze and rebuild and the 28.
Hundreds square foot stores.
So I think that was.
You know again, just kind of recap going back to the beginning in my script around.
2019, and those were the parts of the business that really operated a much higher level and they were part of the very intentional planning and initiatives that we've been talking about for two years and we actually delivered on them right and so when you think about 2020, we've now highlighted guidance in areas, where we can continue to.
Deliver on those continue to grow volume profitably continue to expand merchandise contribution.
And doing that.
Even with some headwinds.
That are out there.
You know as well.
Think about what are some of the risk.
You know in 2020.
We certainly want to maintain.
Or.
Fuel volume growth and have the right markets to do it I think IMO 2020, I think we probably thought two years ago is going be a lot bigger factor and we'd see these big run up so we havent.
We havent seen that so what sort of commodity environment.
Might we have this year, especially in the second half of the year when we have.
The the.
The driving season higher volumes et cetera, we can see falling prices in that period, which are generally were attractive. We've seen some regulations on tobacco are those done or they're going to be further restrictions regulations et cetera that could impact that category differentially I think we've got.
Good line of sight on the benefits the minimum wages and have that.
Built in certainly any new FLS, a treatment would only impacted very small number.
Of our stores, so not too concerned to concern there.
That's helpful I want to ask it sounded like.
For the merchandise contribution for 2020, we should be kind of thinking of.
Something similar to 2019 in that.
Continued strong merchandise sales growth.
But.
Nice margin compression.
What if anything is considered as it relates to mix of merchandise, because obviously really strong tobacco.
Sales growth in 2019 and that negatively impacted margins given the lower margin relative on tobacco.
So you can opine on that that'd be helpful for us to think about what we should expect in 2020.
Yes, so I, probably can't do a detailed walk on the the unit margin, but what I would say is within the tobacco category I would expect.
Cigarettes to be remain relatively strong.
But with the impact on vapor and a lot of the.
Headwinds that we described associated with that which is a higher margin.
Product.
That will be.
Unfavorable to the unit margin, but at the end of the day, we don't take the unit margin to the bank, we take the contribution.
You know dollars.
You know MDR will be fairly consistent so not an impact there.
As we look to grow non tobacco contribution as we said high single digits versus around.
4% that should generally improves the overall.
You know contribution.
You know margin as well.
Okay. That's helpful. Thanks, so much.
Thanks, and once again, if you'd like to ask your question. Please press star one on your telephone keypad and we have a question from Bryan Hunt with Wells Fargo Securities.
Yes, thanks for your time.
And I look at sure when I think about your framework for cash flow.
And given the fact that.
We are where you've talked about EBITDA and capex.
Taxes interest et cetera, it looks like he'll be marginally free cash flow if beyond buying a million shares at the current level is there any reason to believe that you would fluctuate dramatically.
On on roughly $100 million or share repurchase one direction or the other.
If if share prices for to move.
One direction on either.
So we.
Authorized a 400 million dollar share repurchase program last year.
And we don't expect to deviate from that so I think that probably answers your question will be more than a million.
Shares.
Year to achieve $400 million a repurchase.
In a two year period.
All right very good.
My second question as you talk you touch all the risk.
Hi, there Andrew on just on the last question when you when you look at inflation, we get cigarette inflation every year.
And you talked about minimum wage, but when you look across the merchandising front are there any and all.
Early year surprises us you're getting either on.
So does coffee et cetera within your merchandising mix.
No. It's really it's really too early to tailor see that theres nothing dramatic from that standpoint, I think the cost increases that we've seen on tobacco were pretty pretty ratable and.
There's a.
Long history of of that and there were some offsetting industry volume trends associated with that I think last year in the year before we saw in the carbonated soft drinks.
Some price increases there and you know I do think we saw continued shifts from CSD products too.
Other products.
As well, but I don't anticipate anything.
From what we've seen the first 30 days.
The year to impact our views.
For the rest of year on them.
That's it for me thanks for your Chuck.
Thank you.
This time ill turn the call over to the presenters.
Great well. Thank you for joining the call today as we said, we're really excited about our performance in 2019.
The plans that we've laid out executed against delivers exceptional performance and we're looking forward to a great 20, Tony is laid out.
In our guidance. So we appreciate your support thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.