Q2 2022 Murphy Usa Inc Earnings Call
Okay.
Good morning, My name is shantou and I'll be your conference operator today at this time I would like to welcome everyone to the Murphy USA second quarter 2022 earnings Conference call.
Reminder, today's conference call is being recorded all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press star one again thank you.
Thank you for your senior Analyst Investor Relations you May begin your conference.
Thanks, Sean and good morning, everyone with me are Andrew Clyde, President and Chief Executive Officer, Mindy West Executive Vice President and Chief Financial Officer, Donny Smith, Vice President and controller and Christian Pikul, Vice President of Investor Relations. After some opening comments from Andrew Mindy will provide an overview of the financial results and then we will own.
And 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 be 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 it.
Counting 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 investor section of our website with that I'll turn the call over to Andrew.
Thank you Michel good morning, and welcome to everyone joining us today.
Once again, we are certainly pleased with our results this quarter as they clearly demonstrate the earnings power of our advantaged business model, which has outperformed in a variety of different market conditions since our spin and is uniquely built to win in the current environment.
There are three key elements of our second quarter performance, we want to highlight that our most emblematic of our advantage. The first is our high volume everyday low price fuel model, which becomes more effective in our higher margin environment. The <unk>.
Is the resilience of our consumer despite known pressures impacting take home pay we are clearly seeing our low price offer resonate to more and more value seeking customers.
And finally, the investments we've made to engage our staff had deliver targeted results of increased engagement reduced turnover and higher applicant flow without permanently impacting our cost structure.
Looking at our fuel business, we have gained market share over the past six months, despite a rising price environment, a feat that would've been difficult to accomplish in an economically viable manner and previous lower margin environment due to the structural change in industry breakeven cost that is driving marginal retailers too.
Preserve margins rising wholesale prices more rapidly translated to higher prices at the pump.
In this environment, our retail tactics and pricing precision are more are far more impactful with greater ability to create separation with lower prices and that is leading to share market gains are low price strategy as effective across a wide range of different price and margin environment, but it's most.
Economically impactful when industry margins are more robust all else being equal.
Investing two to three pennies when margins are 30.
And prices are high where consumers go out of their way to find lower prices is a different proposition that when margins are 15 and.
And prices are low where customers may not be as price sensitive and you can't get the volume uplift to economically support the volume margin trade off.
These tactics and strategies have allowed us to capture new customers and grow volumes the benefit which was further amplified when prices are falling as they have been since mid June and.
In this environment is lower trending prices temporarily prop up retail margins are contribution margin grows dramatically as a function of a combination of both higher gallons and higher margins, which allows us to further invest in our low price position perpetuating the cycle of share gains and this phenomenon isn't.
Unique to Murphy branded stores quick checks high volume business model also benefits in this environment.
We understand high fuel prices may be just one of many problems lower income consumers face in an inflationary environment. It is important to understand that our customers consider the products, we sell especially fuel and tobacco is non discretionary purchases there.
They are likely cutting back on other areas of their monthly spend versus their spend at Murphy USA, which is increasing a large panel of almost 100000 Murphy drive reward members shows that they are buying a gallon or two less per month, yet. The fact that we are growing overall volume means we are adding new customers and taking share.
These customers not only purchase lower price fuel from us, but we're also seeing improvements in categories attached to fuel inside the store.
Coupled with our innovative ground up resets in our large format stores executed in the second half of 2021, we are seeing strong growth in packaged beverages, specifically as well as better performance from other center of store categories.
Next level innovation is also driving our results as evidenced by the proprietary made to order iced and frozen energy drinks offered a quick chat.
Importantly, new tobacco customers seeking greater value are shifting retail brands and coming to Murphy USA, while existing customers really don't have a better value option to trade down to as targeted promotional activity helps to insulate the category. As a result, we are not seeing a negative impact.
<unk> and the broader down trading phenomenon, making headlines.
At an individual customer level or MTR panel data shows behavior consistent with our overall trends there is a very modest 1% mix shift from premium to discount cigarette brands, while individuals', our purchasing about 5% fewer units versus the prior year. So while individuals' may participate.
Paid minimal down trading across units and categories, we are seeing more than enough retailer down trading where murphy benefits to offset it.
And as we said in the past these new customers tend to be sticky once we convert them to the Murphy brand and communicate with them through MTR to increase and reinforced their loyal behaviors.
Across other categories promotional activity and energy drinks and candy has insulated them from trading down as well, while we do see small shifts downward and enhanced and flavored water to base water products.
Of course everyday low prices get customers in the store, but our model works exceptionally well because of our engage staff, who are fantastic at up selling and providing the high level of friendly customer friendly service customers one in order to become more loyal to.
To increase engagement, we have invested in an appreciation bonus for our staff, which is payable over the 100 days of summer.
The intended outcome of this program was clear helping.
Help engage our employees to maintain sales momentum increase retention and employee well being attract new applicants and increased store hours of operation and reduce overtime hours. We are clearly seeing the benefits of this investments in our results and in our staff surveys, which when coupled with our very strong employee.
Value proposition has resulted in applicant flow returning to near pre COVID-19 levels, but most importantly, similar to the enhanced Commission program. We offered in 2021. This investment supports the business without permanently eroding the low cost operating model that underpins, our low price position and <unk>.
<unk> the long term sustainability of the business.
As a result of a onetime cost of this program, which approximates $500 per store month on full year results, coupled with other inflationary pressures on wages store supplies and maintenance costs, we expect store level operating cost to exceed our originally guided range of 29 5000 to $31000.
Per store month, our revised guided range of 31, 5000 to $32 $5000 per store month, which although above our original forecast has been more than offset by our participation in the higher industry wide fuel margins and our strong merchandise performance.
Given the operational and financial results. We have delivered it is also clear to US that this is an attractive business to invest in given our high volume model larger formats and improved merchandise offer it's a great time to be opening new stores and growing our network. We are building great looking high performing new stores and are on track to deliver.
Nearly twice the stores, whether we did in 2021. In addition, we are on track to complete 35, raze and rebuilds this year, which are helping to diversify our merchandise mix and grow contribution margin.
In addition to investing in new store growth share repurchase continues to be our preferred use of free cash flow to that end, we bought back over $200 million worth of our stock in the second quarter, we have a clear view of the dramatically improved earnings power of our business coupled with a management team that remains committed to maximize.
<unk> shareholder value and we confidently took advantage of the opportunity to invest in ourselves.
When compared to M&A opportunities that occasionally cross our desk the stark difference in the quality consistency and profitability of our network stands out.
Given the relative attractiveness of buying someone else's stores and paying a premium price to do so we are far more motivated to buy a larger interest in our own advantage stores at a discount a practice that has generated significant value for long term shareholders since our spin.
I will now hand, it over to Mindy for a quick review of some key financial metrics and Andy.
Thanks, Andrew and good morning, everyone.
Revenue for the second quarter of 2022 was $6 8 billion compared to $4 5 billion in the year ago period average retail gasoline prices were $4 21 per gallon versus $2 73 per gallon in the second quarter of 2021.
Second quarter, EBITDA was $317 million versus $245 million in the year ago period.
Net income for the quarter was $183 3 million versus $128 8 million in 2021, and the effective tax rate in the second quarter was 24%.
It'll debt on the balance sheet as of June 32022 was approximately $1 8 billion of which approximately $15 million is captured in current liabilities, representing the 1% per annum amortization of the term loan and the remainder a reduction in long term lease obligations as they are paid through operating.
Expense.
Our $350 million revolving credit facility had a zero outstanding balance at quarter end and is still currently undrawn. These figures results in gross adjusted leverage ratio that we report to our lenders of approximately one eight times.
Cash and cash equivalents totaled $240 million as of June 30th down just slightly from the 256 million. We reported at year end 2021, I will now turn the call back over to Andrew. Thanks.
Thanks Mindy before.
Turn to questions I would note that July performance has been nothing short of exceptional as we benefit from the falling price environment that was inevitable.
Being well positioned from a volume and share standpoint, when prices turn further accelerated our momentum.
Month to date volumes are up about 9% year over year for the combined chains with margins double what they were last year month to date same store volumes continue to fluctuate between 90, and 100% of 2019 levels, depending on the relative pricing environment and dynamics across the two periods.
Since last week, we have been at roughly 100% to 2019 performance.
When you combine the fuel share gains with the staffing investments merchandize performance also remains very strong across sales margin margin rate units and transactions in short our affordable model delivered responsibly by our engaged staff is winning and enabling us to meet our broader commitments to the <unk>.
Communities, we serve while staying aligned with our investors.
Portable responsible engaged committed and aligned these five pillars are at the core of our sustainable business strategy as such we use them to frame. Our latest ESG summary report now posted on our corporate website and I encourage you all to take a look at that with that we can open up the lines of questions for you.
Operator.
At this time I would like to remind everyone in order to ask a question. Please press star one we'll pause for just a moment to compile the Q&A roster.
Our first question comes from Ben Bienvenu with Stephens. Your line is open.
Hey, Thanks, good morning.
Good morning, Dan.
I wanted to ask given the share gains that you've realized.
What do you see from repeat behavior.
Those new customers are they signing up for MTR.
And then what in your mind would it take for those customers to then switch back again to either where they were going for.
Or some other outlet.
Yes, that's a great question. So we are seeing a large increase in new <unk> members and participants.
Especially in.
In the last three to six months so.
They are seeking value not only from our.
Lower street price, but the benefits.
That come with that.
But one thing that we noted Ben.
Probably in the 22.
16, 17, 18 period when prices were just materially lower for a long period of time.
As consumers just aren't as price sensitive on the margin when prices get lower.
As long as we're in a higher price environment and there.
Paychecks are.
Impacted by inflation across everything that they buy.
It's a great environment to gain those customers and create stickiness, what I would say on the tobacco side, especially as we have.
<unk> retained a significant share of those customers that we gained during the panic.
Pantry loading peer.
Period, our carton sales remained at about 57% of our total and we were in the 40% range.
Pre COVID-19 the industry has gone down to 12% from about 13% so.
Depending on the category, we see different levels of stickiness, but this is certainly a great environment to gain and retain customers, but if we get back below $2, a gallon thats, probably the environment where.
They just don't go out of their way as far for lower prices because they are just generally doing better.
Okay, alright, great that makes sense.
Shifting gears, a little bit to organic growth on the new store side I know you started out the year, a little bit behind schedule as their broad based delays in construction timelines what does your pipeline look like as you start to look forward to 2023 should we expect unit growth to accelerate off of these levels.
And can you talk to us a little bit about what that targeted level might look like going forward.
Sure. So we continue to be on track for.
You know our numbers this year, we have had delays whether it's.
Permitting or getting folks in the permitting organizations to come out and certify stores and get the operational licenses.
Utilities have been a source of some delays in frustration etcetera.
But nothing like the more structural impact of the underground tanks that we had a year ago.
I would say right now the real estate pipeline is more conducive to a <unk>.
$40 45 to 50 type range versus a 60 store range next year.
Largely just as a function of.
Some inflation real estate prices and valuations that we held the line on in terms of not wanting to overpay.
And we will continue to be judicious from a return standpoint, I think importantly, though the raze and rebuild program.
Not only allows us to load level that from our construction and our modular build provider standpoint, certainly on the Murphy branded.
Stores, but also allows us to accelerate.
Those high performing kiosks into even higher performing 4500 square foot stores. So to the extent we are still in the $40 range next year on our guidance.
We will look to continue to make that up with the raze and rebuilds and.
And a quick check portfolio contains continues to present.
New growth opportunities there as we rebuild that pipeline from a period in which during there.
Sale period they'd let their pipeline fall off significantly and so we've been building that back.
Okay, great. Thanks, so much.
Our next question comes from Anthony <unk> with Wells Fargo. Your line is open.
Hey, good morning, guys. Thanks for taking my question.
Just wanted to start with the labor market you guys raised store opex guidance on incremental labor pressure.
And added that one time support bonus which to me implies a challenging labor backdrop general commentary from retailers and.
Even some of your peers seems to be that the labor market has been improving as the year progresses can.
Can you just dig in a little bit more on what youre seeing there and help us reconcile.
All of that especially given the fact that you tend to under index toward that headwind.
Sure.
Pre COVID-19 if I go back to the beginning of 2020, our applicant pool was north of 20000.
At any given time, we'd experienced periods for that applicant pool was below 10000.
We've looked at our.
Higher to term ratio.
It had gone negative and then stabilized at about one <unk>.
And the impact of that was we had to cut back on hours of operation at our store, we had higher over time.
Push store managers.
Above kind of our social contract a number of the hours were working as we are.
Work to make.
Meat and I would say beginning in about April of this year, we saw improvements in that applicant flow.
Getting over 20000 again for the first time, that's continued into May and June and July .
And so we feel much better about the applicant flow I would say on the margin we probably have to go through a few more applicants.
To get.
The staff, we need and you still have the challenge of signing up a new staff member and are they going to stay past the end of the week or not so we feel the frustration of our store managers have.
And getting out there but.
Overall look a lot better.
And frankly, that's one of the reasons why we just proactively said.
<unk> Institute this appreciation bonus.
Even on the heels of some improvement we had great momentum from Q1 going into the 100 days of summer, we're starting to see some positive trends we wanted to sustain those.
You go into one of our stores our associates are wearing a button that says want free gas ask us how and effectively that's what that bonus will do is pay for our new associates.
Gas purchases and so it is having an impact.
Allowed us to increase hours of operation, we have fewer stores at risk over time has come down, but I would say, we're still not out of the woods, yet we're still feeling some of the pressures from the labor market, but it is it is getting better.
Got it.
Really helpful. Thank you and then just on fuel margins I know you've flagged an acceleration into the July period, which certainly checks out given what we're seeing now in the opus data.
I guess, what I'm trying to understand here is obviously some of that acceleration is driven by the decline in fuel prices. We've seen over the last few weeks, but is there any sense of.
Any sense you can give us in terms of how much of that unwind says prices ultimately find some stability.
Yes look I don't know where the long.
Ron equilibrium margin.
Is going to settle out I mean, that's been a point of discussion for <unk>.
Years, even when margin for 16, let alone 2006.
What we do know is that the structural cost challenges impacting the.
The smaller retailers continues to be significant.
Credit card fees.
For example are significantly higher and consume a big portion of that incremental fuel margin that we earn so it's higher prices come down.
There's a little bit less pressure on credit card fees.
Some of the supply chain issues arent going to go away.
Over.
Knight either to the extent some firms have traded vol.
Volume for margin trying to recapture penny profit their unit economics.
Continued to be higher as a result of that so I think it's anyone's guess where are we.
And up.
Leveling out of that and frankly, there is there is no certainty that prices aren't going to run right back up to where they are.
If we see more geopolitical unrest or disruptions in the fuel supply chain.
Our other impacts so.
What I would say is were built to win in any environment with the high volume position, we have in those and the position we got ourselves in.
Sure.
As prices were going up gaining share even gave us more momentum now that prices.
Are falling so I think we've got our pricing position well.
Designed where we like it and we're just going to work. This is going to work out really well as long as we continue to see the volatility whether prices are very high or high or moderate to a lower level.
Got it thanks, so much guys and congrats on the solid quarter.
Thank you.
Your next question comes from Bonnie Herzog with Goldman Sachs. Your line is open.
Thank you Hi, Andrew.
Good morning, Bob.
I was hoping you could maybe help us understand the monthly cadence of your fuel margins Dunkin' Q.
Asking in the context.
During the quarter crude oil costs are rising pretty much I think most of the quarter. So just trying to get a sense of.
Your strong margins.
<unk> seen a bit contrary to how things of course typically work when credits rising well aware of the structural changes, which I appreciate but just helpful to hear about the monthly payments that quarter.
Yes men do you want to take that sure Hi, Bonnie Yes, I can answer that question for you. So during the month of April our margins were more 26th sense and May there were about $18 18, and a half and then June rebounded to almost 35, a gallon the interesting thing that happened during the month of.
May was not that we had volatility in the market, but it had because we still had a consistent play rising market at that time, but it had to do when the price rises took place because three out of four weekends from the end of April through Memorial day. The price rises occurred on Friday, and typically the market does not.
Like to restore on Friday, and so what that does is it essentially freezes in place at a lower margin than you anticipated and in fact that also happened Friday before memorial weekend as well.
So that helped to contribute to industry wide margins being lower in the month of may than they otherwise would have had those price increases happened during earlier in the week or middle of the week, what we did see that it was by the time that happen that third time, we did start to see some market restorations occurring even.
In the weekend days, which we also selectively supported.
So that's kind of an overview of how the margins shake out for the quarter just very interesting.
And the timing of the price increases now.
That's super interesting and very helpful. I appreciate that color then.
So you mentioned that in July Andrew I think you mentioned that you know what youre seeing in July so far is double what it was last year. So is that an acceleration then Fran from June what you saw.
Alright and contacts.
Yes, so when the when the when the.
Those spot prices fall the street price is lagging is.
Typically the higher priced retailers are only replenishing their product once once a week maybe longer than.
That now so.
Theres two things one is you have a different pricing environment kind of a steeply falling environment.
We look at our differentials.
This year versus the same time.
Last year, so they are probably wider and gaining.
Sure as well so.
Every month is frankly every week out of every month is going to be a different price environment.
Sure.
Tactics in those environments may look a little differently and then I think it goes without saying we've talked about it before in that rising price environment, we have positive benefits from the accounting timing differences on product supply and the falling price environment. It works the other way.
Where there is typically some some offsets.
Yes, and that actually that was going to be my second question, Andrew just trying to understand the driver and the key drivers behind European W. Outperforming we are continuing to see AD just trying to get a sense of how sustainable that is.
How do we think about any maybe inventory timing benefits that you, possibly around the corner I think that ways.
In Q1, just wondering if that continued and had a look at it going forward.
Yes, the timing difference, it's just a function of our prices rising or falling so we had a benefit in Q2 as prices generally rose throughout the quarter July certainly started off with falling prices. They did the last half of June and so if we continue to see.
Falling prices throughout the summer.
You will see.
An equal and opposite effect on a portion of.
The product supply.
Contribution the other component is just the net supply costs versus our opus low transfer price.
Net rents.
And given the tight.
Supply chain and inventories are.
We're getting better but the supply chain was especially tight you.
You didn't see refiners, just dumping product at the wholesale racks, which they would do in a very loose.
Environment. So generally the supply margin has net of rens has been stronger due to the tightness in the market.
<unk>.
Gasoline continues to.
Loosen up either because of lower demand higher utilization.
Et cetera.
That component might weaken a little bit as a result, but you're talking.
1% to <unk> variability.
<unk> across.
That versus several cents on the retail side.
Alright, Thank you very much.
Your next question comes from Bobby Griffin with Raymond James Your line is open.
Good morning, Thanks for taking my questions I guess first.
Mindy I wanted to maybe switch back over to merchandize margin really nice performance this quarter, despite a pretty tough supply chain and kind of inflationary environment. So can you maybe further unpack some of the drivers behind that new programs.
Some some new innovation you and your partners have done.
Murphy drive rewards anything kind of what's helping the merchandize margin grow and then the sustainability of this performance going forward.
Sure.
The biggest gap.
Certainly from a merchandise sales standpoint would be lot of lottery.
In this period versus the same period last year and that also contributed.
In part to the.
Better unit rate.
So I think that from a sales standpoint, that's probably the biggest driver there.
One of the things that we continue to see is strong.
<unk> Tabak.
Tobacco.
Growth from a margin contribution standpoint.
There is a lot of discussion around down trading and what we're finding is actually there is more new customers coming to us from other retailers.
<unk>.
That more than offset any down trading that we're seeing and even or down trading I mean, we looked at about 80000 customers that bought cigarettes.
A year ago.
And again this period end.
Of those about 56000, only bought premium a year ago.
And.
The majority of those 92% still just bought premium products.
About 8% went to discount products and even more interesting 11000 of that 80000 only bought discount cigarettes in 2021.
In 2000 of them are 17% trade up to premium products given some of the promotional activity and those that bought a mix there premium mix was 56% and 154%. So it really didn't change.
So if our existing customers only buying about a half a pack less per week.
The share gains that we're having.
Both on premium and especially on discount cigarettes.
Collect a lot of new new customers coming from other retailers.
So thats a big driver on the tobacco side as I mentioned in the <unk>.
Main script the resets, we did last year in our larger format stores really drove acceleration around packaged beverage in center store categories.
Also food and beverage margin contribution.
Improved significantly at Murphy.
<unk> sales improved significantly at a quick check so.
We're seeing.
Yes.
Good growth across all the categories in all of the formats and brands.
Okay very good.
And then secondly on the onetime kind of bonus payment investment.
For employees given some of the labor issues is should we think about this is you are kind of evaluated and there is a chance this could have to become permanent if the labor market stays the same.
Premises rolls into permanent wages for the staff.
I don't know anything to help us kind of put in context, why it could be temporary or what would drive it to be more kind of a permanent increase like we saw with some of these bonuses during the COVID-19 period.
Well first of all we called it a appreciation bonus for the 100 days of summer. So on the 100 days of summer is over.
It's over from that standpoint, and it is really kind of designed to as I said continue momentum from Q1 I appreciate that.
The staff support their engagement and well being.
The idea was hey can we get part time workers to work a few more hours because of the way the incentive was design could we get folks to work an extra.
Shift would that relieve some of the pressure on our store managers are impacting.
Impacting turnover and engagement.
Et cetera. So.
It was a very focused investment.
That's not built into the base wage rate for which other.
Incentives are benefits are calculated off of.
We did do a summer Commission program last year, but it was a commission program. So it was directly tied to sales. So we're always looking for innovative ways.
To incentivize our staff.
I can't remember the number but I think it was something like $1 million to $2 million worth of.
Of prizes associated with competitions.
Ben.
Paid out as another way to motivate and.
Encourage our staff. So we look at it through the lens of what's effective in driving engagement, maintaining the sales momentum et cetera, and can we do it in ways that don't structurally add to our cost base, where you're having to add on top of that every year. When you have your salary increases or are you there.
Turman.
Benefits like our 401K.
The benefits that we pay.
Hey, good I appreciate the details congrats again on a good quarter and a good start to July .
Great. Thank you.
Okay.
Again, if he would like to ask a question. Please press star. One. Your next question comes from Clara <unk> with J P. Morgan Your line is open.
It's Carla Casella.
One thing I Miss Mindy, you mentioned the gas price per gallon in the quarter and then I've got some other questions.
Yes.
I'm sorry, what was your question did you give the price of the average price per gallon in the corner versus last year. I think you gave it and I just missed it.
I did give you that it was.
Hang on 421 versus $2 73.
Okay, Okay great.
And then.
I guess similarly on that.
Labor question aside from the one time.
Here you are paying them.
Where we're at.
How should we think about inflation, I guess labor and other and when it's when do you see the peak inflation in the business how are we past the peak.
I think thats one of those that's one of those $1 million questions. Carla in terms of where the peak is I think we've benefited from probably a lag given some of our contracts.
And so as you see renewals some of those lags.
May kick in but at the same time.
Our suppliers.
Suppliers input cost are coming down given our scale and buying power, we're going to certainly.
Seek to minimize that some of the.
Cost pressures, we talked about on the last call for example, like <unk>.
Garbage bags or thermal paper any any items around supplies or maintenance that have either a.
Petroleum petrochemical input or a high labor.
Input.
Are likely going to remain high for a little bit before coming down.
And so it's not really clear when you would start to see deflation.
And prices coming down.
Certainly were.
Remaining innovative and looking for ways to beat inflation, which is typically our objective and which is why we designed our.
Incentive bonus in a way that doesn't permanently add to our salary line.
Okay, and then you gave a number for the higher.
Ross.
First store I think it was SG&A, but do you have what the overall amount.
<unk>.
What we should expect to see for that.
The.
For the quarter.
I'm, sorry, Karl you broke up for what amount.
The amount on the higher store level operating.
That is the exact wording in store on store level operating costs.
How much higher it was on a per I think he gave a per store hour basis, but did you give a.
Yes, so our new guided range is 31 5000 to $32 $5000 per store month.
Okay.
And so you could take the number of stores times 12 times that number and get to the answer.
Simple as that okay, great and then one last one just on the <unk>.
You continue to open locations in the raze and rebuilds, which is great to see did you give an amount that you see your average construction cost going up.
Year over year, or and or how far out are you contracted on construction costs.
We have not given that amount and it varies and we've got different construction partners with <unk>.
Different contracts, we have a modular building.
Partner with a long term contract another other items. So we are seeing inflation.
Inflation in those costs, but we have not.
Given.
New pro forma is with inflated cost what I would say is we're very return focused at the end of the day and so when we look at the new construction cost are higher real estate cost or whatever the input would be even higher labor cost or payment fees.
We're also looking at the improvements we've made in merchandise our expectations for volume and volume growth.
And the higher unit margin and structurally.
What is a range in which we can plan around at a minimum to.
To establish returns and so that's really.
Our focus more than some average construction cost which might vary depending on are you building more stores in Texas versus Colorado versus Florida versus New Jersey.
Okay, great. Thank you.
We have reached the end of the question and answer session I will turn the call back over to Andrew Clark for closing remarks.
Great well, thank you for joining in today and encourage you to take a.
Close look at our results.
For the quarter as well as our ESG summary report, which we posted.
Yesterday on our corporate website. Thank you and look forward to talking again next quarter.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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