Q1 2021 Murphy Usa Inc Earnings Call
Zero I would now like to.
I hand, the conference over to your Speaker today Christian <unk>, Vice President of Investor Relations. Please go ahead.
Great. Thank you Megan and good morning, everyone. Joining me on the call today are Andrew Clyde, President and Chief Executive Officer, Mindy West Executive Vice President and Chief Financial Officer, and Donnie Smith, Vice President and controller.
After some opening comments from Andrew Mindy will provide an overview of the financial results and recent financing activity and then we'll open up the call to Q&A. Please keep in mind that some of the comments made during this call, including the Q&A portion will be considered forward looking statements as defined in the private Securities Litigation Reform Act of 1995 as such no assurances can.
Given that these events will occur or that the projections will be attained a variety of factors exist 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 SEC filings Murphy USA takes no duty to publicly update or revise any forward looking statements.
During today's call. We may also provide certain performance measures that do not conform to generally accepted accounting principles or GAAP. We have provided schedules to reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release, which can be found on the investors section of our website with that I will turn the call over to Andrew.
Thank you Christian good morning, and welcome to everyone joining us today.
We were very pleased but not especially surprise for the company delivered such strong first quarter performance during a period, where our reported results may not have been fully anticipated by investors.
The business was able to overcome a number of otherwise detrimental factors, including rising fuel prices, which typically compressed retail margins.
They are a winter storm that came through the heart of our geographic footprint in February impacting over a third of our network and last but not lease comping the extra leap year day in 2020.
Additionally, as this is the first quarter performance that reflects the impact of the quick check acquisition. We appreciate there is a bit of noise in the results would reflect only two months of a quick check impact, but through that noise more than ever the resilience of our business and unique benefits of our advantaged model continued to.
Deliver a strong operating and financial performance.
I'm going to review, our first quarter results for three key points in mind for.
Higher industry fuel breakeven economics are positively impacting industry fuel margins and we will continue to benefit.
Second we are holding onto market share gains in critical categories like tobacco and are highly encouraged from early efforts focusing on food and beverage.
Third we remain extremely excited about the quick check acquisition and are increasingly confident in our ability to achieve our three year synergy estimate of $28 million across the fuels merchandise and opex G&A areas, including reverse synergies.
First let's talk about fuel for the first time in company history, we earn double digit retail margins in all three months of the first quarter.
Even more impressive. These results were achieved during a period of rising prices from January through early March which would otherwise compressed retail margins.
When factoring in the complementary elements of our product supply capability, which typically generates positive benefits during periods of rising prices, reflecting accounting timing and inventory gains all in margins of 22 and a half cents per gallon were the same as the first quarter of 2020, despite the dramatically.
Different price environments encountered over these two time periods.
From these results and what we're seeing in the marketplace. It is clear to us debt less advantage industry players are being before being forced to price higher to offset the impact of some combination of lower customer traffic and sales higher cost and lower gallon sold.
Further we do not believe this is a temporary response to changing customer behaviors for <unk>.
Rather than ongoing more enduring structural change to margins that was accentuated in 2020 that will further differentiate our performance versus the peer group given our high volume model in the future.
Fuel volumes remained lower than their pre COVID-19 baseline, but I would point out that volumes were higher year over year and March for both the Murphy core business and the combined company as we comp the initial impact of COVID-19 on our markets last year when.
When reviewing the tables on page nine in the earnings release, the same store sales metric excludes the impact from acquired stores until they had been in the combined store base for 12 months effectively showcasing Murphy USA only results.
The average per store month metrics on the other hand do capture the impact from two months. So the quick check acquisition, which particularly impacts non tobacco sales and margin.
As you can see from the table volumes were down 10% for moves and roughly 9% year over year, when including quick check importantly April volumes on a per store month basis are improving to within 5% of the 2019 base line showing a relative pickup in demand and market share capture.
Over the past month.
However, fuel is not the only area we are taking share. So let's review merchandise results in these tables you.
You can see same store sales strength and the move to only merchandise results, particularly in the tobacco category, where we grew both sales and margin dollars about 2%, indicating we are not only holding onto but continuing to grow share gains we experienced last year as COVID-19 took hold further.
<unk> buy a two year stack growth of 16, 9%.
Tobacco performance was complemented by even stronger growth in the non tobacco business, where sales grew nearly 10% and contribution margin was up six 5%.
Or 14, 5% and five 4% respectively on a two year stack basis as both attached to fuel and non attached categories recover and surpassed last year's COVID-19 impacted results.
Taken together growth in tobacco lot of lottery general merchandise and packaged beverage.
Helped drive Murphy only margin contribution dollars higher by about $5 million in the first quarter.
We are delivering these results through continued innovative pricing and promotion efforts and continued consumer preference for bolt carton purchasing which remains higher than pre COVID-19 levels.
Given that this is the first quarter that includes quick check results I want to provide a little more color on our merchandise results other.
$148 million of consolidated merchandise contribution $36 million was attributable to quick check of about $36 million roughly $29 million was non tobacco with more than $15 million of that amount coming from food and beverage at 63% gross margins.
That is roughly 10 times for food and beverage contribution of the Murphy core business, which generated $1 $6 million in contribution.
Obviously, we have a lot of opportunity for growth and improvement in this category in the curve in the core Murphy business and we are already seeing early benefits as we focus our efforts on supply chain optimization, better store level execution of existing food and beverage platforms and new product assortment efforts that will positively impact this category.
In the coming quarters and.
And my final point I want to reiterate that we cannot be more pleased with the quick check acquisition and our initial integration efforts have validated the value creation opportunity Inc.
<unk> between both teams has been high and the excitement around the unfolding synergy opportunities is increasing the integration team is already capitalize on quick wins and is assuming a deliberately thoughtful and appreciative approach to longer term initiatives taken care not to dilute the unique value and distinct.
<unk> of the quick check brand.
As we drive opportunities across the different areas of our business, we see value through three different lenses of management's actions.
Leveraging scale sharing best practices and accelerating critical strategy initiatives.
I will give you an example of each area to add some color around the integration process.
With respect to leveraging scale the benefits range from the materially obvious to perhaps less apparent for more easily attainable opportunities. For example, we are deeply engaged in preparing to consolidate and address upcoming contract expirations in the fuel procurement area as a significant source of margin enhancer.
But in addition to bundling some insurance coverages at lower rates provided by the scale of the combined company <unk>.
Additional opportunities remain and other vendor contracts coming for renewal later in 2021 and 2022.
Sharing best practices across both organizations has been a highly informative exercise for both parties that has helped unlocked early savings and revenue opportunities for instance by deploying a common case use of the calibrate fuels pricing system and how we utilize competitor datasets to developed market based pricing.
We are enhancing fuel pricing performance further a review of the scalability of certain back office functions will help streamline inefficiently automate processes, eliminating redundancies and some currently outsource services a quick check.
From a strategy perspective, we are focused on identifying and exploiting some of the technological achievements quick check is successfully integrated into their business such as computer assisted ordering where their expertise will help accelerate our own efforts and foster quicker development of some other customer facing technology, such as self checkout.
In the future at Murphy stores the.
To summarize the proof that our model remains advantaged that our capabilities are agile and can deliver results in a variety of challenging economic environments are very apparent in our first quarter results. The fact that we achieved these results against an otherwise difficult price challenged quarter with weather driven externalities.
Further drive home that prove and position us well to deliver on our value creation and growth strategies in the coming months and years with that I will turn it over to Mindy to provide further detail on our financial results and recent financing activity Mindy.
Thanks, Andrea and good morning, everyone.
We closed a quick check acquisition in January the 29th funded by the issuance of $500 million of 375% 10 year Senior notes. Due 2031, we also issued a new 400 million pre payable term loan part of which was used to pay the balance due under the previous term loan that we had in place.
Additionally to add further flexibility to the balance sheet, we replaced our ABL facility with a new $350 million of cash flow revolving credit facility with those transactions total debt went from around $1 billion at December 31st to around $1 7 billion.
You will notice that we have $1 797 billion on the balance sheet under long term debt and this figure does include $126 million of quick check lease obligations that are considered long term debt.
Additionally, you will notice two new line items on the balance sheet that were previously included in other assets. They are right of use assets, which relates to operating leases and intangibles.
When our prior balances in those accounts are added to the quick check related balances. They now meet the threshold for a separate presentation to total right of use assets of $395 6 million and includes all long term operating leases of the combined company and intangible assets of $141 3 million.
The operating lease line item has a corresponding offset in the non current operating lease liability section of the balance sheet. The net effect of the changes of those two items is immaterial.
The incremental increase to intangible assets recorded as part of the quick check acquisition primarily include the value of their trade name.
You'll also notice goodwill of $336 4 million, resulting from the quick check acquisition more information will be disclosed in the 10-Q. When it's filed later this week, but I did want to add some clarity to those items. As this is the first time you are seeing them.
So now for a review of some standard items total revenue for the first quarter of 2021 was $3 5 billion inclusive of roughly two months of quick check impact compared to $3 2 billion a year ago, which does not include quite check average retail gasoline prices per gallon during the quarter were $2 37.
<unk> versus $2 14 and 2020.
Adjusted earnings before interest taxes, depreciation and amortization or EBITDA.
It was $134 8 million in the first quarter versus $170 7 million in the same period in 2020. Additionally.
Additionally, due to additional depreciation and interest expense from quick check coupled with the $8 8 million of onetime acquisition related costs net income in the first quarter of 2021 was $55 3 million versus $89 3 million in 2020.
Total debt on our balance sheet as of March 31st was approximately $1 8 billion broken out as long term debt of $1 797, which includes our three outstanding notes issuance, our term loan b of $386 million and $126 million of those lease obligations as a result of.
A quick check acquisition.
Additionally, $13 million is captured in current liabilities, representing 1% per annum amortization of the term loan and the remainder of reduction in long term lease obligations as they are paid through operating expense.
Our $350 million revolving credit facility had a zero outstanding balance as of the end of this quarter and is still currently undrawn.
Figures result in our gross adjusted leverage ratio, which we report to our lenders of approximately two four times and cash and cash equivalents totaled $304 million as of March 31st.
Capital expenditures for the first quarter were approximately $56 million the majority of which was growth capital allocated to new store construction. So thank you everyone I will now turn the call back over to Andrew.
Thanks, Mindy before I open up the call to Q&A I do want to close with a quick comment on second quarter activity. As noted earlier April fuel volumes are improving to within 5% of 2019 average per store per month levels and retail margins have averaged nearly <unk> 20 per gallon, giving us a very strong start to the second quarter.
<unk> and firming up our view of 2021 performance and while a single quarter does not make a year. We are excited about the momentum of the business generated in Q1 and grow increasingly confident in our ability to deliver strong multiyear EBITDA growth that will support long term value creation for our shareholders with that operator, we will.
Often up the line for Q&A.
As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
First question is from bad debt.
With Stephens, Inc. Your line is open.
Hey, Thanks, good morning, everybody.
Good morning, Jeff.
Wanted to ask about the merchandise business Youre lapping over in the first quarter you lapped over a strong start to the year and obviously bolstered results in March from COVID-19.
I'm wondering as you get into more deeply from these challenging compares it seems like as of now you are sustaining and maybe even growing some of your market share gains that you've accumulated over the last several years.
Do you think that's the case.
As we move deeper into these compares.
I'd Love to hear your best sense of how you expect kind of the retention of that incremental market share on pretty strong numbers last year as we move through 2021.
That's a great question I think for Q1 results demonstrate.
And the initiatives that.
Led to that.
<unk>.
Future contracts the funding the promotional activity the new products, especially some of the Noncombustible product innovation are the areas that the tobacco category for example.
We're seeing the growth.
And certainly the car.
Carton behavior.
<unk> continues to hold up.
Very high 50% level close to 60 per.
Percentage, so we think the fundamental changes.
Consumer behavior is strong we're continuing to put the value on the street is.
For customers, who become price sensitive.
Start seeing some inflation other factors. So we think that will drive customers on the margin.
To be more value conscious and will be there waiting for them with the best offers in the newest products.
Federer.
Certainly with the fuel volume recovering the sort of attached to fuel categories of rebounding.
Very nicely.
Encouraged by.
That's certainly some of the general merchandise around PPE will be harder call for the team has done a nice job in being able to replace those items.
With new categories, as well food and beverage on the Murphy USA stores was was essentially zero.
During these periods and so thats the easiest comp will ever have to go over and the resets. We've done there is a new product a new core mark contract. Some of the incentives that we have to induce trial et cetera, all feel really good and so the periods will be different.
That we're comping to as we go throughout the year, but I think those are the main factors.
I can also tell you that in a quick check business there.
Their merchandise basket growth is more than offsetting some of the transaction declines that still haven't been made up we've seen the food sales recover already in April of 2019 levels and that's been supported by their innovation during COVID-19 developing an omni channel capability, including delivery.
Picked up.
Similarly.
<unk> come a long sales are driving their center of store to recover quickly we are seeing drinks and dispense beverage slowing down.
You have slowed down and not as quick to recover certainly the early morning day part, but the delivery introduction is driving growth in the late night day part shift and so we're continuing to see that business recover.
Nicely against its comp so I think both businesses.
Driven by different.
Main customer drivers continue to show signs of improvement that will allow us to sustain or grow versus some of the exceptional comps we put up last year.
Okay. That's helpful. Thank you.
My second question is related to the headlines this morning about the Fda's.
Proposal to ban menthol flavored cigarettes.
I'm sure. This will face pushed back from the industry, probably is as opposed to be heavily litigated.
To the extent that you could offer your opinion on it your level of exposure to the category and how you think if implemented.
It might manifest itself in your business fundamentals, whether it's.
Just to step down reduction in tobacco consumption or switching to other products to help us get a sense of value.
Pathetically here.
Exactly well look our experiences.
The announcement starts the rule, making process, which is typically a pretty grueling two to three year process, we'll expect to see challenges from manufacturers <unk>.
Industry organizations.
<unk> do you see state and local regulatory efforts bolstered by announcements like this so they go and implement bands ahead of the rule, making process and you can you can look to Massachusetts as an example debt.
They ban menthol cigarettes effective June of 2020, and California's passed a similar law, but it's faced some delays and you've got about 100 cities and counties out there was some bans in place, but nowhere, where we have a store.
It's about 32% of R cigarette business.
When you looked at what happened.
In Canada you had.
Smokers quit so there is a threat there I think one of the benefits that we have is our intentional efforts to grow the noncombustible business over the past seven years.
Murphy drive rewards, we can deliver differentiated value. We've got a lot of promotional resources now growing to noncombustible products reallocating shelf space to those products.
We're providing our customers with the most comprehensive source net of those so we're capturing a market leading position in the new products along that continuum of risk.
And the targeted marketing efforts will allow us to be well positioned on that so it's an important category and I think we're as well positioned.
Is anyone to adapt to the shifts just knowing that it takes a long time for these processes rulemaking processes to go through.
Okay Perfect and then my last quick question in the first quarter, you guys did buyback stock 400000 shares or so.
Did you have any blackout windows as it related to.
The consummation of the quick check deal I'm wondering.
Are there any prohibitions around when or if you could be in the market buying back stock in the quarter.
No. So we typically as we've talked about have <unk>, one plans in place and they have levels that.
Once achieved.
That locks you out so if we achieved our <unk> five one objectives by the end of the year, we wouldn't have been buying in the first part of the year for example, until the next new window opened after announcing Q4.
Our results.
But certainly we'd already closed the quick check transaction I believe it was January 29th.
And we were announcing I believe the next week and then the following week, we would've had an open window. So the only blackout, we would've had really wouldnt have been a blackout. It would have been that we just finished what we started before the.
Beginning of the new year, if that helps.
It does thanks good luck.
Thanks.
Your next question is from Matt Fishbein with Jefferies. Your line is open.
Hey, good morning, Thanks for the question.
Good morning.
So.
A lot of noise in terms of fuel volume metrics since March two dynamic and all in I guess, just a broader question further out after we lap all of the pandemic volume losses net.
Including all the macro puts and takes on long term U S gasoline consumption and interested to hear your latest thoughts on same store fuel volume growth.
Longer term is it flat is it up or down.
Interest in what's your latest thoughts are on that and.
And how are you defining longer terms, so I can be more precise with my answer Matt.
Yeah. So after we lap the lingering.
Impact of <unk>.
<unk> volume losses. So we're still I think you said down.
5% in April.
Further out when things are back to the way they should be in terms of going to work so more than a year, but less than 3% within three to five yes, just like the long term run rate of steel volume growth.
Yeah look I mean, I think since we spun off we said fuel demand was going to be a plus or minus a half a percent 1% category into the foreseeable future and.
We saw a few periods it was above that and we saw some periods where it was.
Below that but if you think about vehicle miles traveled coming back post.
COVID-19 recovery back to work.
Et cetera, the population.
Growing.
Big variable in there is cafe standards.
We did some work in 2017 that we shared with investors and at the heightened cafe standards.
We said between 2017 and 2027 demand would fall, 3% a year in Murphy markets higher at the national level.
When we had the faster growing economy over the last few years and the lower <unk>.
Cafe standards.
The outlook switch to positive 3%.
A year, so still within that range and so.
We guided that we expected volumes by the end of 2021.
To be back to kind of 2019 levels were within 5% of that now we're marching up around that I think part of the advantages with the higher prices people become a little bit more price sensitive with the more value. We're putting on the street for that volume comes to us and other low price.
High volume.
Retailers and so I think with R. Murphy drive rewards promotions, we continue to have.
Engagement there so is it going to be into 2021 is it going to be halfway through 2022, when we get back to those 2019 levels don't really know, but I think the structural margin environment that we've talked about will favor us regardless of exactly when that takes place I think once you get.
Back to that level, you are kind of back into the.
The basic model of what's driving fuel demand, it's the auto fleet.
Mix of cars, how the cafe standards.
You know kind of drive that over a longer term the introduction of electric vehicles, especially plug in hybrid electric vehicles, all of which have been built into our projections.
And then it's really fuel fuel prices in the GDP and so if the economy is going and people are out there driving.
We think we're going to get back to.
Yes.
Your line is half a percent a year environment.
You know theres a lot of noise about electric vehicles.
I ask all the time, we know that as a way out there.
The impact.
Nationally just in terms of shifting the.
Auto fleet, but certainly within the Murphy markets, where there's <unk>.
Few cars registered today.
And lower adoption because of the customer preferences, we don't see that having an effect with certainly within that three to five year period.
Okay. That's very helpful. Thank you for the color.
Sticking to the longer term just a second question given the number of new stores being built this year.
Cumulative amount of square footage coming on line.
Any color you can provide on construction costs that you're seeing I know, there's been a bunch of.
Cost inflation for building materials, owing to supply shortages, just wondering how that impacts your new builds.
And where are you kind of see that construction materials supply chain right now.
From from your seat.
Yes, so we haven't seen that yet certainly something that we're keeping our eye on.
Certainly for the Murphy USA stores they are modular built.
And so we've got contracts in place.
Around those and it's a per.
It's a pretty straightforward prop.
Process where are for.
Large amount of the construction cost is the preparation of the site and then the tank goes in underground.
For gets brought in and set up within a couple of days in dispensers goes so for.
Chairman efforts have established contracts.
And we're certainly keeping an eye on debt inflation I will say that the new stores that we built.
Last year and the year before.
I'll continue to ramp up very nicely there fuel volume is still in the ramp or above the Murphy store averages and so we remain very encouraged by the performance of those 2800 square foot stores in the markets that we're building those in.
Perfect. Thank you very much.
Your next question is from Bonnie Herzog with Goldman Sachs. Your line is open.
Hey, Thanks, so much this is actually Sam Reed pitching in for Bonnie.
Wanted to touch on another longer term topic actually and that would be our wages here. We're obviously watching the political environment closely I guess could you just quickly update us on what you see as the potential for wage increases, especially at the federal level and how that could play out in line.
Some of the commentary we might have heard in last night the address to Congress and then separately could you remind us of your compensation structure at the store level and may be how your employee base and wage expenses might be impacted if we were to see a concerted effort to increase wages.
Sure.
The discussion about the $15 an hour of national minimum wage.
Is fraught with issues and Theres, a lot of folks that certainly support higher wages, but.
What you need in the bi coastal urban areas is different than what you need in the.
Interior rural areas of our country and so I would hope that we wouldn't try to go down the path again of a one size fits all.
Proposal that really doesn't make.
A lot of sense.
That'd be the comment there.
We are seeing at the state level and.
Local level.
Pressure on wages I would say the biggest challenge we're facing right now is that between stimulus checks the tax credits the unemployment benefits all hitting at once.
The availability of labor of the supply of labor.
Is that an all time low because your people basically taking a vacation from work.
Because of this windfall of.
Benefits that they've received and I think for many of our workers it would amount to about 20 weeks of.
Pay that they've received in a very short period of time, it's not only affecting us other retailers our truck driving.
Fuel carriers et cetera. So.
Some of those challenges will have a natural.
Pressure on wages and you're just trying to attract people to come back.
To work given all the stimulus that is out there.
Our wage structure at the store level, our managers on salary they receive commissions based on incentives, which they all try to beat and we hope they do.
They also have medical benefits they participate in profit sharing and for all one K Inc.
So just like during the period when the higher.
LSA was put in place.
Their abilities to shift components within that but many of those components are valued by our workers, even though they may be not counted.
In certain formulas for.
For the hourly it's mostly a.
Hourly wage.
With benefits so.
Those are the things, we're keeping an eye on.
I did reference that there is customer facing technology.
A quick check has had as an early adopter in self checkout.
For over 15 years, and so when we think about our new stores certainly you have to have labor for age restricted product, but we have levers there.
Around self checkout and have that technology.
It all a quick check stores to be able to do that I think the other thing that the gasoline convenience industry.
But most of the other industries don't if the ability to pass through higher prices. We do it every day with rising and falling prices the industry demonstrate its ability to do that.
During the pandemic certainly if we went to $15 minimum wage nationally, it's probably a $30 million plus.
Headwinds our business for which we would expect to see over time the industry pass through those higher cost into higher prices.
For consumers and because our.
Lower labor mix in our stores, our ability to leverage technology that we already have and have implemented.
Hundreds of stores.
It will allow us to once again have the advantage cost model should the industry face that headwind so.
We've got our head around it we understand the levers.
We'd like to see if we do have regulations at least those put in place that don't try to force a one size fits all approach into.
Country in a business industry, where that doesn't make a whole lot of sense.
Thank you so much that's super helpful color all around if I could just sneak one more in on the alcoholic beverage side. You know you guys have given a ton of great color kind of on the merchandise business today.
That said wanted to look at look into your outlook for alcohol here, particularly if we see a step up in on premise.
Guys expecting to see a slowdown in this side of your non tobacco merchandise mix in 2021, especially given maybe some of the strength that we might have seen here across retail in 2020.
Yes.
Yeah, we don't I don't.
I don't have a particular view on that at this point I think the research that we have have done help on that the pricing on our singles.
Have helped on that so.
There is nothing that <unk>.
I've seen or the team has talked about that changes our view on that at this point in 2021.
And were Havent got stores, where we're able to.
Provide debt product and in the stores for licenses are required we are increasingly able to get those licenses.
Got you no that's super helpful. Thank you so much I'll pass it on.
Your next question is from Bobby Griffin with Raymond James Your line is open.
Good morning body. Thank you for taking my questions hope everybody is staying safe and healthy for.
First off for me Andrew can you, maybe just dive in a little bit more to the product.
You referenced what areas of maybe what areas of the stores or in the product categories. They are in the margin aspect of those or the margin accretive in sales accretive just anything there to help us wrapper head around some of these resets that are clearly driving some good performance in the non tobacco side of sales merchandise sales.
Yes, it's really across the across the board in every category. We now have the data the tools the insights the.
The decision support capabilities for people know how.
Did you just take every part of the store and dissect it and move product around introduce.
Our new brands and there's a lot of innovation going on.
Out there.
Reducing facings and just just core visual merchandising space management merchandising.
101, we're able to see where we can take.
Pricing and not lose.
Volume, where we're seeing.
Combinations in our promotions that makes sense. So I mean, it's not any one particular category.
Bobby it's really across.
The beverage sets the center of store set for tobacco sets, we talked about allocating more space to the noncombustible.
Items and being a leader in those products.
Getting.
Vantage promotional dollars to be able to do that leveraging Murphy drive rewards.
The insights we get.
From that so I'd say, it's really it's really across the board.
Okay, and then maybe to follow up on that you touched on a little bit, but with Murphy drive rewards and some of the new data.
To do this on a faster more consistent basis. So the customer know your standard customers coming in.
New offerings seeing new price points on a much quicker basis than maybe historically and a murphy's model or Murphy store.
They are and it's also just so much more targeted and we've talked about this before but we don't need to incentivize someone who's already buying multi packs, we want to incentivize the individual that's fine.
A single pack.
The data that we have and the surveys that we're able to do so you can match longitudinal data across all the products with.
<unk>.
Survey data that indicates preferences desire willingness to try things, it's really that combination that allows us to go in with targeted offers especially on new products, where we have those insights and really exceed the expectations of R.
CPG partners and so it's not only doing it more often but more targeted against more new and innovative products that.
Folks are putting.
For funding behind to grow these new categories.
Which helps us in this transition towards the lower low risk products over time.
Okay, and then did you see any type of did you see a similar impact as we kind of did last year around the March April stimulus checks that started to hit.
We really didnt.
I think one other things we saw last year was we saw that initial impact, but then we started looking at some of the other payroll data with the unemployment checks.
Coming in et.
Better for those that might not have been.
Working and it really kind of.
Muscle the amplitude from just the stimulus.
Check itself and so that money is being spent broadly across.
Lot of different.
Outlets online and bricks and mortar and.
Within our stores as well so.
It's not as big a bump is as one would think but.
But I think because of all the stimulus and unemployment everything thats out there we just continue to see.
Repeatable repeatable business.
Okay, and then last one for me Andrew is on the fuel side and you touched on this a little bit about how the structural changes in the environment and you guys seeing higher than normal retail margin given some of that pressure that's to the smaller operators are you actually seeing these above average margins, but also seeing your price gaps versus your peers widen where youre actually at a even a bigger.
Our structural advantage in terms of price gap versus the peers.
You know thats really a store by store market environment by market environment.
<unk> phenomenon, where it makes sense to do that we will where it doesn't we won't.
Certainly coming out of the.
Blizzard that we had in the <unk>.
Southwest and southeast I mean, we had about 400 stores at one point, where we were having challenges getting inventories back up I'm happy to say that.
That is largely behind us, but you can imagine during those periods youre not going to be more aggressive.
When you're trying to just replenish.
Your safety stock.
Level, so it's really a store by store decision and Thats the benefit of our enhanced retail pricing.
Capabilities, where it makes sense to widen more where it makes sense to maintain a larger differential.
We know.
When where why and how to actually do that to maximize the contribution while maintaining that everyday low price position in.
Top of mind customer perception.
I appreciate all the detail on the time, Thank you and best of luck here for the remainder of 2021.
Alright, thank you.
Your next question is from John Royall with Jpmorgan. Your line is open.
Hey, good morning, guys. Thanks for taking my question.
Apologize if I missed this earlier I did have to step away for a bit but just wanted to confirm that.
Kevin Pietersen W range margin, which is more than double the typical amount is.
He is not affected in debt by the very strong RIN pricing.
<unk> said in the past.
That strength and Rins are offset by weakness in margin and so I just wanted make sure that debt kind of relationship is held in place on the difference between the 2% to 3% long term and seven inventory.
On the whole on the price excuse me on the margin, we're just around inventory gains with them.
Modest pricing is coming up thank you.
John Thank you for asking it and thanks for getting it.
I know you don't like talking about it but I just wanted to confirm it now, but we do have a couple of headlines that said our beat was because of rents and the reality is renz and RIN prices are immaterial to our business.
Historically and you can look back over the last.
Three years annual result, we've made two to three cents per gallon on product supply and wholesale net of returns and so during the quarter on the average.
We generated about the equivalent of seven cents per gallon per Ren but net of the.
Yes.
Negative spot to rack margins are for since we needed a little bit over three cents and some of that was due to butane blending and other things that we benefited so call it sort of three <unk> net of the supply margin.
Net of rents and we're going to see that whether rins are at a buck or they are at 10 cents.
If rins are high the refinery gate price is high and like it was in this quarter, our refinery gate spot to rack margin is negative so you're spot on it really doesn't matter what the RIN prices are that equilibrium has held up.
The reality is we don't live in a flat market environment, we have volatility and so the benefit of the rising price environment.
For the trading book at the <unk>.
End of the month isn't reflected into the accounting until the next month. So in a rising price environment, we're getting debt accounting timing variance for getting the inventory gains.
That was worth about <unk>.
In the quarter and by the way if you go back last year to Q1 it was negative.
Because there was an equal and opposite effect there so.
RIN prices don't matter.
Product supply margin plus the rins is going to be about two to three cents.
And the price environment, whether it's driving our falling will explain the balance and then this quarter. It was worth about <unk> and the supply margin net of Rins was worth about <unk> and some other things that we've invested in that we've got a nice return on.
<unk> 10 to 20 points. So thanks for your question and I hope that added clarity to everyone else.
Thank you.
One more perhaps related working capital was a big tailwind this quarter $108 million just wanted to.
Let's walk through some of the dynamics there.
What you may see reverse in future periods.
Yes, I believe it was mostly payables and I'll, let mindy.
Pick that one up.
Sir John what you saw was that we picked up.
Net balance with the results of our quota share transactions. So that explains roughly $45 million of the 100 or so different and then the remainder was just simply due to timing of a couple of our large bulk sale payments that were located in payments and payables at quarter end and we had no comparable bulk payments at the end of the year.
So it was strictly just a timing difference there and we're always going to see that quarter to quarter. It depends on what day of the week the quarter ends it depends on.
When did we procure fuel Gary if we did it towards the end of the quarter. So all of those things have the ability to ship that number around actually quite a bit but.
On balance.
No no real change to speak of.
Great. Thank you then go ahead.
Your final question is from Carla Casella with Jpmorgan. Your line is open.
Hi.
Just two follow ups on quick check can.
Can you just talk about the number of locations that have fuel and if you as.
As you get into integrating that business, whether you're maintaining that or if that's an opportunity and you see a difference in those locations versus the ones without fuel in terms of the food and beverage merchandise margin performance.
Sure so out of the roughly 156 stores I think it's like 89 that have fuel.
About and we have seen some difference in the merchandise.
Sales for the merchant only.
Stores have.
In April.
<unk> performed very well relative to.
2019.
And the fuel stores have as well, but not quite to the same extent and so I think part of that is just one standalone destination and some of it's getting traffic associated with fuel so.
Not a surprise there but.
Both have done very.
Very well in April.
Lapping 2019 results.
Okay, Great and then just given that given as you.
Looking to that business is there any thoughts in terms of changing your fuel non fuel mixed at Murphy overall.
Other than growing obviously the entrance.
Yeah, all of the new stores will have fuel I think that was something the quick check leadership made a decision on back.
In 2005, I believe and so we would expect to see.
As as leases.
Run out in stores are closed.
And the quick check.
Markets.
A new store that would open that would be in the same catchment area for customers would be positioned to be a high performing.
Fuel store many of the smaller standalone stores for about 3500 square feet and so there are about 2000 square feet smaller than the current model store. So you would expect to see that number decline gradually over time, and we're certainly not looking to build.
Stand alone non fuel stores at.
At Murphy, it's an important part of our value proposition and traffic driver in our new our new stores.
The fuel volumes are.
Ramping up quickly and well above our overall network average.
Thank you.
We have no further questions at this time I'll turn it back to speakers for closing remarks.
Alright.
Thank you everyone for joining today.
Hope you share our excitement as we see the business not only delivering great Q1 results in a challenging environment by carrying that momentum.
For Q2 in April as we discussed around a lot of key metrics. Thank you for your support and have a great day.
This concludes today's conference call you may now disconnect.
Okay.
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Good day.
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