Q1 2024 Murphy USA Inc Earnings Call
Operator: Thank you for standing by. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by my name is Alex and I will be a conference operator today at this time I would like to welcome everyone to the Murphy USA first quarter 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and.
Gallagher Jeff: Another quick one for Gallagher. I know it's still early days, but what has surprised you most about the C-Store industry, or Moosa specifically, since joining?
Operator: After the speaker's remarks, there will be a question and answer session. If you would 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, press star one again. I would now like to turn the call over to Christian Pikul, vice president of investor relations. Please go ahead.
Gallagher Jeff: Answer session. If you would 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 Press Star One again I would now like to turn the call over to question Tycho Vice President of Investor Relations. Please go ahead.
Gallagher Jeff: A really good question, so thank you for that. And I just hit my two months here with the company. So, a lot of good surprises. I think one surprise, or most of my background is retail, is the volatility that you see in fuel. And we are executing a strategy that we are very confident in. And just like we saw in Q1, we execute the strategy, but the dynamics in the industry and the volatility of fuel prices can impact our results.
Christian Pikul: Thank you, Alex. Good morning, everyone. Thanks for joining us today.
Speaker Change: Hey, Thank you Alex good morning, everyone. Thanks for joining US today with me are Andrew Clyde Chief Executive Officer, Mindy West Chief Operating Officer, Gallagher, Jeff, Our Chief Financial Officer, and Donnie Smith, Chief Accounting Officer. After some opening comments from Andrew Gallagher is going to provide some additional color commentary and then we will open up the call to Cuba.
Christian Pikul: With me are Andrew Clyde, Chief Executive Officer, Mindy West, Chief Operating Officer, Gallagher Jeff, our Chief Financial Officer, and Donnie Smith, Chief Accounting Officer. After some opening comments from Andrew, Gallagher is going to provide some additional colored commentary, and then we will 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, may be considered forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995.
Gallagher Jeff: That's something that we are managing, but we're very confident that over any horizon, we'll continue to deliver the strong results that everyone's accustomed to. So that's a learning for me as I get into this business, but I think we're extremely confident in our initiatives. We love our strategy. Our customers are responding, and we're continuing to deliver some really great results.
Gallagher Jeff: 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.
Christian Pikul: 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 undertakes 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.
Gallagher Jeff: 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.
Christian Pikul: 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 the 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.
Christian Pikul: We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis as part of our earnings press release, which can be found in the Investor section of our website. With that, I will turn the call over to Andrew.
Andrew Clyde: Thanks Christian, and thank you everyone for joining us today. In addition to discussing our first quarter results, I'd like to welcome our new CFO, Gallagher Jeff, to the call. Gallagher hit the ground running at our March Investor Conference and is already having a tremendous impact with the team. And, likewise, Mindy has fully embraced her broader COO role, and with her support, she is implementing the Productivity Improvement Initiative we introduced at the conference.
Mindy K. West: Awesome, great, super helpful caller.
Andrew: Thanks, Christian and thank you everyone for joining US today. In addition to discussing our first quarter results I'd like to welcome our new CFO Gallagher, Jeff the call Gallagher and hit the ground running at our March Investor Conference and is already having a tremendous impact with the team.
Andrew Clyde: That concludes our Q&A session. I will now turn the conference back over to Andrew Clyde, CEO, for closing remarks.
Andrew Clyde: Great. Well, thank you, everyone, for joining in. As always, direct any follow-ups to Christian and me, and we'll look forward to updating you in the very near term. Thank you very much.
Andrew Clyde: Likewise, Mindy has fully embraced or broader CLO role and look alegar support she is standing up the productivity improvement initiative, we introduced at the conference.
Andrew Clyde: I continue to be very grateful for the incredible leadership team supporting the business here at Murphy USA. In addition to the benefit of having great leaders on your team, another thing I've learned about this business is that every quarter is a little bit different. And when it comes to evaluating performance and measuring wins and losses, understanding that context is absolutely critical, especially when your efforts and energy are focused on long-term value creation. Q1 2024 had a few unique factors that separated it from its year-ago counterpart.
Andrew Clyde: To be very grateful for the incredible leadership team supporting the business here at Murphy USA.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Please wait; the conference will begin shortly.
Andrew Clyde: In addition to the benefit of having great leaders on your team. Another thing I've learned about this business is that every quarter is a little bit different and when it comes to evaluating performance and measuring wins and losses understanding that context is absolutely critical, especially when your efforts in energy are focused on long term value creation.
Operator: Q1, 2024 had a few unique factors that separated it from its year ago counterpart product prices were up 50 cents compared to eight cents in the prior year. We also didn't see a repeat of the beneficial falloff in prices mid quarter and overall saw less volatility.
Andrew Clyde: Product prices were up 50 cents compared to 8 cents in the prior year. We also didn't see a repeat of the beneficial fall-off in prices mid-quarter and overall saw less volatility. In addition, severe weather events were abnormally higher, especially those concentrated on the Atlantic coast from Florida to New Jersey.
Andrew Clyde: In addition, severe weather events were abnormally higher, especially those concentrated on the Atlantic Coast from Florida to New Jersey.
Andrew Clyde: In that setting, our core fuel and tobacco businesses performed exceptionally well. APSM fuel gallons were essentially flat year-over-year and up 2% on a two-year stack at comparable retail margins of 22 cents per gallon, with January retail margins the highest on record. This level of performance in what would historically be a very challenging environment strongly supports our view of the sustainability of the structural industry dynamics that continue to favor Murphy USA. And while the Opus industry volume data may not fully represent all the competitors in the market, it certainly highlights that Murphy and QC are taking share in our respective markets.
Andrew Clyde: In that setting our core fuel and tobacco businesses performed exceptionally well.
Andrew Clyde: P. S M fuel gallons were essentially flat year over year and up 2% on a two year stack on comparable retail margins of 22 cents per gallon with January retail margins the highest on record.
Andrew Clyde: This level of performance and what would historically be a very challenging environment strongly supports our view of the sustainability of the structural industry dynamics that continue to favor Murphy USA.
Andrew Clyde: And while the opus industry volume data may not fully represent all the competitors in the market. It certainly highlights that Murphy and QC are taking share in our respective markets.
Andrew Clyde: Similarly, the tobacco category saw very strong sales and margin growth, up 6% and 4.5% respectively, and units remained healthy across all nicotine categories. Looking at broader industry data, we continue to take share profit. The stickiness and share gains in fuel and tobacco, the two largest categories, reinforce the non-discretionary nature of these categories for our value-seeking consumers.
Andrew Clyde: Similarly, the tobacco category saw very strong sales and margin growth up 6% and four 5%, respectively and units remained healthy across all nicotine categories looking at broader industry data, we continue to take share profitably.
Andrew Clyde: The stickiness and share gains in fuel and tobacco are two largest categories reinforced the non discretionary nature of these categories for our value seeking consumers. Indeed, we saw a comparable year over year purchase behavior across all income cohorts and we continue to see consumer stock up on fuel and tobacco.
Andrew Clyde: Indeed, we saw comparable year-over-year purchase behavior across all income cohorts, and we continue to see consumers stock up on fuel and tobacco around major weather events. We also continue to see new-to-Murphy customers behave the same as they trade down from higher-priced retailers. The bottom line is that the fundamental drivers of our largest and most evidocreative categories continue to grow despite a more acute set of conditions in Q124 relative to the benign conditions in Q123.
Andrew Clyde: <unk> around major weather events.
Andrew Clyde: We also continue to see new to Murphy customers behave the same as they trade down from higher price retailers, but the bottom line is that the fundamental drivers of our largest and most EBITDA accretive categories continue to grow despite a more acute set of conditions in Q1 24.
Andrew Clyde: Relative to the benign conditions of Q1 'twenty three.
Andrew Clyde: That said, these same conditions impacted the more discretionary center store categories due to fewer trips reflecting lower absolute fuel prices and less stocking up behavior for these categories. We also witnessed a lag in the lotto lottery as it took longer to build up to similar jackpots, and we believe there is some switching to new and newly legalized online betting sites, which saw significant growth in some of our states.
Andrew Clyde: That said the same conditions impacted the more discretionary center of store categories due to fewer trips, reflecting lower absolute fuel prices and less stocking up behavior for these categories. We also witnessed a lag and a lot of lottery as it took longer to build up to similar jackpots and we believe there is some switching to new.
Andrew Clyde: And newly legalized online betting sites, which saw significant growth in some of our states.
Andrew Clyde: While below our Q1 expectations, there were still bright spots. Murphy-branded stores grew non-tobacco margin dollars by 3.6% APSM, led by innovative dispensed beverage offers with sales up 19% APSM. Packaged beverage sales were up 1.8% APSM, yet contribution margin dollars for the category grew 3% due to pricing and promotionally driven product mix changes. Overall, the two-year stacks for Murphy stores provide a more fulsome view of our performance, indicating APSM non-tobacco sales and margin growth of 12% and 17.2%, respectively. At quick check, food and beverage sales were up 3.7% APSM, and contribution margin dollars were up 1.2%. This is despite fuel gallons being down 1.2% APSM.
Andrew Clyde: While below our Q1 expectations, though were still bright spots Murphy branded stores grew non tobacco margin dollars by three 6% a PSM led by innovative dispense beverage offers with sales up 19% Aps dam.
Andrew Clyde: Packaged beverage sales were up one 8% a P. S. M. Yeah contribution margin dollars for the category grew 3% due to pricing and promotional driven product mix changes.
Andrew Clyde: For all the two year stacks for Murphy stores provide a more fulsome view of our performance, indicating a PSM non tobacco sales and margin growth of 12% and 17, 2% respectively.
Andrew Clyde: Quick check food and beverage sales were up three 7%, a PSM and contribution margin dollars were up one 2%.
Andrew Clyde: This is despite fuel gallons down one 2% a PSM having.
Andrew Clyde: Having seen the recently reported earnings for a number of QSRs where same-store sales results were mixed, we believe our prior decision to stay focused on value pricing amidst some of the increasing food cost inflation is paying off. A recent brand survey further updates and reinforces our strong positioning with consumers. And with more innovative offers to come alongside the enhancements from our digital initiatives, we believe we are very well positioned in the current environment compared to food brands that are having to make a sharp pivot toward value.
Andrew Clyde: Having seen the recently reported earnings for a number of <unk>, where same store sales results were mixed we believe our prior decision to stay focused on value pricing amidst some of the increasing food cost inflation is paying off.
Andrew Clyde: Our recent brand survey further updates and reinforces our strong positioning with consumers.
Andrew Clyde: And with more innovative offers to come alongside the enhancements from our digital initiatives. We believe we are very well positioned in the current environment compared to the food brands that are having to make a sharp pivot towards value.
Andrew Clyde: Looking ahead to the rest of the year, our core innovation, growth, and productivity initiatives that largely focus on food and beverage and center of store opportunities remain on track with benefits weighted to the second half of the year. Coupled with softer Q3 and Q4 2023 comps, we remain confident about the trajectory of this part of the business. The PS&W and RENs component performed in line with our Q1 plan, which accounted for not repeating the higher Q1 2023 REN sales, which were a carryover from Q4 2022, when the EPA announced a proposed rule to establish RFS volumes for 2023, 2024, and 2025, which created uncertainty as the market absorbed that information.
Andrew Clyde: Looking ahead to the rest of the year, our core innovation growth and productivity initiatives that largely focus on food and beverage in center of store opportunities remain on track with benefits weighted to the second half of the year, coupled with softer Q3, and Q4 2023 comps we remain confident about the trajectory of this.
Andrew Clyde: Part of the business.
Andrew Clyde: The P. S N WN rent component performed in line with our Q1 plan, which accounted for not repeating the higher Q1, 2023, RIN sales, which were a carryover from Q4 2022, when the EPA announced a proposed rule to establish R. F. S volumes for 2023 24.
Andrew Clyde: In 2025, which created uncertainty as the market absorb that information.
Andrew Clyde: Moreover, we anticipated tight supply in Q1 2023 in a few markets, and our supply model enabled us to capture an advantage in supply-constrained markets that did not repeat in Q1 2024. We continue to believe our supply model provides an advantage that differentiates us from some of our competitors and expect it will continue to provide value within the historical range of two to three plus cents per gallon. OPEX was also favorable to our internal plan as higher labor costs for specific cohort investments were implemented as planned.
Andrew Clyde: Moreover, we anticipate its tight supply in Q1 'twenty three in a few markets and our supply model enabled us to capture an advantage in supply constrained markets that did not repeat in Q1 2024.
Andrew Clyde: We continue to believe our supply model provides an advantage that differentiates us from some of our competitors and expect it will continue to provide value within the historical range of two to three plus cents per gallon.
Andrew Clyde: Opex was also favorable to our internal plan as higher labor costs for specific cohort investments were implemented as planned we are closely watching the proposed F. LSA changes and believe that 2024 impact to be minimal we are running scenarios and have developed options to address what would be a larger impact in 2020.
Andrew Clyde: We are closely watching the proposed FLSA changes and believe the 2024 impact will be minimal. We are running scenarios and have developed options to address what would be a larger impact in 2025 if the changes go through as proposed. Of note, though, to the extent that marginal retailers have salaried managers impacted by the regulation, the impact to their business on a cents per gallon basis would be three to six times higher due to their lower volume.
Andrew Clyde: Five if the changes go through as proposed.
Andrew Clyde: Of note, though to the extent that the marginal retailers have salaried managers impacted by the regulation the impact to their business on a cents per gallon basis would be three to six times higher due to their lower volumes as discussed before Murphy USA is certainly not immune to the headwinds that.
Andrew Clyde: As discussed before, Murphy USA is certainly not immune to the headwinds that arise from inflation or regulation. It's just that our hyper-focused, everyday low price and everyday low cost model ensures we are not only not disadvantaged from the change, but that the vicious cycle experienced by some retailers results in a virtuous cycle for Murphy if the changes ultimately result in higher unit costs being passed through at the gas pump. Looking ahead, with steady momentum from the January through March months, we expect to capitalize on key promotional opportunities around our primary traffic drivers and fully expect to see results improve in the second half.
Andrew Clyde: Arise from inflation or regulations.
Andrew Clyde: It's just that our hyper focused everyday low price and everyday low cost model ensures we are not only not disadvantage from the changes, but that's the vicious cycle experienced by some retailers results in a virtuous cycle for Murphy if the changes ultimately result in higher unit costs being passed through.
Andrew Clyde: The gas pump.
Andrew Clyde: Looking ahead with steady momentum from the January through March months, we expect to capitalize on key promotional opportunities around our primary traffic drivers and fully expect to see results improving in the second half.
Andrew Clyde: To add a little color to the anticipated lift in merchandise performance, we expect to see continued strength in tobacco and center store improvement as new pricing and promotional initiatives take hold. As it is still very early in the year, and given all the initiatives underway and the expected second-half impact, we remain confident of delivering merchandise results within our guided range, albeit probably something closer to the lower end of the range, as we are unlikely to be able to claw back some of the first-quarter headwinds versus our plan.
Andrew Clyde: To add a little color to the anticipated lift in merchandise performance. We expect to see continued strength in tobacco center of store improvement as new pricing and promotional initiatives take hold.
Andrew Clyde: And it is still very early in the year and given all the initiatives underway and the expected second half impact we remain confident of delivering merchandise results within our guided range, albeit probably something closer to the lower end of the range as we are unlikely to be able to claw back some of the first quarter headwinds versus our plan. Nevertheless, the run rate.
Andrew Clyde: Nevertheless, the run rate impact on next year's merchandise results remains significant and reflects the hard work and highly impactful digital transformation initiatives underway, including a relaunch of the QuickCheck Loyalty Program, which is underway and should be rolled out in the fourth quarter. In summary, the entire team and I are really excited about all the activity we have going on to build upon the underlying strength of the business, and we look forward to updating you on our progress next quarter. And with that, I'll turn it over to Gallagher.
Andrew Clyde: Impact on next year's merchandise results remained significant and reflects the hard work and highly impactful digital transformation initiatives underway, including a relaunch of a quick check loyalty program, which is underway and should be rolled out in the fourth quarter in summary, the entire team and I are really excited about all the activity we have going on.
Andrew Clyde: To build upon the underlying strength of the business and we look forward to updating you on our progress next quarter and with that I'll turn it over to Gallagher.
Gallagher Jeff: Hello everyone and good morning. Thanks for the introduction, Andrew. It's been an amazing experience for me so far here at Murphy. I'm extremely impressed by the team and the commitment to creating shareholder value through our Advantage business model and focus strategy. I spent my first few months learning about our business and meeting our team members and customers, and I'm very much looking forward to getting to know our shareholders and investing in building these long-term relationships. I also wanted to thank Mindy for building such a solid foundation and strong team that I've come into here at Murphy.
Galagher Jeff: Hello, everyone. Good morning, Thanks for the introduction, Andrew it's been an amazing experience for me so far here at Murphy I'm extremely impressed by the team and their commitment to creating shareholder value through our advantaged business model and focused strategy.
Gallagher Jeff: I spent my first few months learning our business and meeting our team members and customers and I'm very much looking forward to getting to know our shareholders and invest in building. These long term relationships.
Gallagher Jeff: Also wanted to thank Mindy letting such a solid foundation and strong team that have come into here at Murphy.
Gallagher Jeff: This morning, I'm going to switch up the content a bit versus prior calls. Most of the financial information typically discussed is already provided in our earnings reports, so to avoid redundancy, going forward, I'm going to focus my comments on incremental elements of the business. Adding clarity where it may be needed to better understand our financial and operational results, as well as our overall financial health and capital allocation strategy. First, I wanted to add some perspective on our new-to-industry store, our NTI program, which we have stated previously remains a significant driver of EBITDA growth over time.
Gallagher Jeff: This morning, I'm going to switch up the content a bit versus prior calls most of the financial information typically discussed has already provided in our earnings release.
Gallagher Jeff: So to avoid redundancy going forward I'm going to focus my comments on incremental elements of the business, adding clarity, where it may be needed to better understand our financial and operational results as well as our overall financial health and capital allocation strategy.
Gallagher Jeff: First I wanted to add some perspective on our new to industry store or MTI program, which we have stated previously remains a significant driver of EBIT growth overtime.
Gallagher Jeff: As mentioned in the earnings release, we opened three new stores, including one QuickCheck store, during the quarter. Additionally, we closed three QuickCheck stores that did not have a fuel offer and were not materially additive to our EBITDA.
Gallagher Jeff: As mentioned in the earnings release, we have opened three new stores, including one quick check store during the quarter.
Gallagher Jeff: We closed three quick tech stores that did not have a fuel offer and were not materially additive to our EBITDA.
Gallagher Jeff: Since quarter end, we have opened one new Murphy Benner store, with two more scheduled to open in the next few weeks. Current construction activity is accelerating, with 22 raise and rebuilds underway, as well as nine new-to-industry stores, including three new QuickCheck-branded stores. Expected new construction starts in May and June but is on track to deliver 30 to 35 new stores this year, which is in line with our guidance and a projected increase over the 28 new stores that were opened last year.
Gallagher Jeff: Since quarter end, we have opened one new Murphy banner store with two more scheduled to open in the next few weeks.
Gallagher Jeff: Current construction activity is accelerating with 22, raze and rebuilds underway as well as nine new to industry stores, including three new quick check branded stores.
Gallagher Jeff: In fact in new construction starts in May and June for Us on track to deliver the 30 to 35, new stores. This year, which is in line with our guidance.
Gallagher Jeff: And a projected increase versus the 28, new stores that were opened last year.
Gallagher Jeff: The new store pipeline is also in great shape, and right now stands at the highest level it has been since COVID, which means we're getting line of sight to a more robust 2025 opening pay. I will update you more on our progress for new store openings later in the year. From a capital spending perspective, we spent $82 million in the first quarter, with $61 million of that for new store growth and the rest going to maintenance capital and the digital transformation initiatives that we have discussed in prior quarters. These initiatives are on track, and we expect to stay within our guided range of $400 to $450 million of spending for the full year 2024.
Gallagher Jeff: The new store pipeline is also in great shape and right now stands at the highest level. It has been since Covid, which means we're getting line of sight to a more robust 2025 opening pace.
Gallagher Jeff: Well update you more on our progress for new store openings later in the year.
Gallagher Jeff: From a capital spending perspective, we spent $82 million in the first quarter with.
Gallagher Jeff: With 61 million of that for new store growth and the rest going to maintenance capital and the digital transformation initiatives that we have discussed in prior quarters.
Gallagher Jeff: These initiatives are on track and we expect to stay within our guided range of $400 million to $450 million of spending for the full year 2024.
Gallagher Jeff: I'd also like to talk a bit about our share repurchase activity. Per the release, we repurchased 216,000 shares in the quarter and remain committed to our goal of buying back around 1 million shares annually. We intend to continue our repurchase activity utilizing cash on hand and other available means of liquidity, particularly if we feel the market, price, or stock does not accurately reflect our ability to grow and improve the business. We maintain a high level of confidence in our ability to execute against our multi-year plans, and we think this is a great opportunity to be buyers of our stock. We continue to operate under the board authorization to repurchase up to $1.5 billion of our stock, which extends through 2028. With that, I'll turn the call back over to you, Gallagher.
Gallagher Jeff: I'd also like to talk a bit about our share repurchase activity.
Gallagher Jeff: Further release, we repurchased 216000 shares in the quarter.
Gallagher Jeff: Remain committed to our goal of buying back around 1 million shares annually.
Galagher Jeff: We intend to continue our repurchase activity utilizing cash on hand, and other available means of liquidity, particularly if we feel the market price of our stock does not accurately reflect our ability to grow and improve the business.
Galagher Jeff: We remain we maintain a high level of confidence in our ability to execute against our multi year plans and we think this is a great opportunity to be buyers of our stock.
Gallagher Jeff: We continued to operate under the board authorization to repurchase up to $1 5 billion of our stock which extends through 2028.
Galagher Jeff: With that I will turn the call back over to Andrew.
Andrew Clyde: Thank you, Gallagher. Let me close with some comments on the preliminary April fuel performance, where prices have trended higher throughout most of the month. Nevertheless, APSM fuel volumes approximated just over 100% of prior year levels, and retail margins look to be roughly three pennies above Q1 results, or about 24.5 cents per gallon. The continued run-up in prices sets us up nicely for an eventual fall-off in prices during the higher volume summer months, which is a when, not an if, event.
Gallagher Jeff: Thank you Gallagher, let me close with some comments on the preliminary April fueled performance, where prices have trended higher throughout most of the months. Nevertheless, a PSM fuel volumes approximated just over 100% of prior year levels and retail margins looked to be roughly three pennies above Q1 results.
Andrew Clyde: We're about $24.05 per gallon. The continued run up in price sets up sets us up nicely for an eventual falloff in prices during the higher volume summer months, which is a when not an if event to that point, we've seen a recent drop in prices over the past week and we are currently sitting on retail margins on the.
Andrew Clyde: To that point, we have seen a recent drop in prices over the past week, and we are currently sitting on retail margins in the low to mid-30 cent range. I'll now turn the call back to the operator, and we'll open up the call to questions.
Andrew Clyde: Low to mid 30% range.
Andrew Clyde: I'll now turn the call back to the operator, and we'll open up the call to questions.
Andrew Clyde: Yeah.
Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not muted when asking your question. Again, press star 1 to join the queue. And your first question comes from the line of Anthony Bonadio, from Windwells Fargo. Please go ahead.
Speaker Change: Thank you.
Speaker Change: We'll now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad journey, you're having joined the queue. If you would like to withdraw your question simply press Star. One again, if you are called upon to ask your question and I listening via loud speakers no goodbyes. Please speak up there.
Operator: Handset and ensure that you're following he's not in it when asking your question again press star one to join the queue and your first question comes from the line of Anthony Bonadio with Wells Fargo. Please go ahead.
Anthony Bonadio: Yeah, hey, guys. So I realize you're not explicitly updating guidance this quarter, but I guess at a higher level, just how are you thinking about your confidence level in that one to $1.2 billion EBITDA range that you gave, just in the context of what we saw this quarter and what we're seeing from the
Anthony Bonadio: Yeah, Hey, good morning, guys. So I realize you're not explicitly updating guidance this quarter, but I guess at a higher level. Just how are you thinking about your confidence level.
Anthony Bonadio: And that one to $1 2 billion EBITDA range that you gave I just in the context of what we saw this quarter and what we're seeing from the consumer.
Andrew Clyde: Yeah, good question, Anthony. Look, we don't historically update at this quarter. But if you kind of read through the script, I think we pretty much updated you on everything, you know, PSNW plus RINs was in line with our, you know, Q1 plan, OPEX is in line with our Q1 plan, volumes are right on track, and will continue to be as we go into April. We've got a lot of quarters to go. And there's nothing better than a big run-up in prices, because you know, you're going to have a more positive opposite effect when prices fall.
Speaker Change: Yes. Good question to Anthony look we don't historically update it this quarter, but if you kind of read through the script I think we're pretty much updated you on everything you know P. S. N W. Plus rins was in line with our Q.
Andrew Clyde: Q1 plan Opex is in line with our Q1 plan.
Andrew Clyde: Volumes are right on track.
Andrew Clyde: And continue to be as we go into April.
Andrew Clyde: Merchandise, we talked about the Q1.
Andrew Clyde: Headwinds, but still believe that's going to be in the.
Andrew Clyde: Guided range, maybe on the lower end and as Gayla noted, our Capex and store growth is there. So the only thing we don't guide on as retail margins and we've discussed the.
Andrew Clyde: Retail margins and the set up in Q1, and 22 cents versus a little bit higher in Q1 last year. We've got a lot of quarters to go and there is nothing better than a big run up in prices because you know youre going to have a more positive opposite effect.
Andrew Clyde: So, you know, I think we actually provided insight on all of those elements. And I think the thing we have to remind folks is that we give annual guidance; we don't give quarterly guidance. We have an annual plan that aligns with that guidance, and we do break that out monthly and quarterly. So when we say this is aligned with our plan, it translates into our view for the whole year. So I hope that's helpful.
Andrew Clyde: When prices fall so.
Andrew Clyde: I think we actually provided insight on all of those elements and I think the thing we have to remind folks as we give annual guidance. We don't give quarterly guidance. We have an annual plan that aligns with that guidance and we do break that out monthly and quarterly so when we say this is aligned with our plan.
Andrew Clyde: It translates into our view for the whole year. So I hope that's helpful.
Andrew Clyde: Got it. Yep, that is very helpful. And then just drilling in a little bit on the inside store guidance. Can you just help us better understand your comment around results being weighted to the back half? I know comparisons are a factor, but maybe just a little more color on the cadence of some of the initiatives that you're working on and what's giving you confidence in that inflection to get to the contribution guidance. There are promotional initiatives.
Speaker Change: Got it that is helpful. And then just drilling in a little bit on the insights to our guidance.
Andrew Clyde: Can you just help us better understand your comment around results being weighted to the back half I know comparisons are a factor, but maybe just a little more color on the cadence of some of the initiatives that youre working on and.
Andrew Clyde: And what's giving you confidence in that inflection to get to the contribution guidance absolutely. There are promotional initiatives the digital transformation initiatives.
Andrew Clyde: Absolutely. There's promotional initiatives, there's the digital transformation initiatives, you know, that we have that, as we move from pilot sites to rolling them out across the network, things that impact the center store, food and beverage, personalization, and the like. Our ISX remodels, you know, will start having an impact later in the year as well. So, on top of resets and other things with the planet grams that we have scheduled, we feel strong about that cadence.
Andrew Clyde: You know that we have that you know as we move from pilot sites to rolling it out.
Andrew Clyde: Across the network things that impact center of store food and beverage.
Andrew Clyde: Personalization.
Andrew Clyde: And the like are <unk> remodels.
Andrew Clyde: We will start having an impact later in the year as well so.
Andrew Clyde: On top of resets and other things with the planet grams that we have scheduled.
Andrew Clyde: And you're right, they're, you know, if you look at the two-year comps, which are pretty incredible, you do get to some softer comps in Q3 and Q4, which allows for that higher year-over-year total number. Thanks, guys.
Andrew Clyde: We feel strong about.
Andrew Clyde: That cadence and Youre right there.
Andrew Clyde: If you look at the two year comps, which are pretty incredible you do get to some softer comps in Q3, and Q4, which allows for that higher year over year total number.
Andrew Clyde: Thanks, guys.
Benjamin Shelton Bienvenu: Your next question comes from the line of Ben Bienvenu with Stevens. Please go ahead.
Andrew Clyde: Your next question comes from the line of Ben <unk> with Stephens. Please go ahead.
Benjamin Shelton Bienvenu: Thanks, Good morning.
Benjamin Shelton Bienvenu: Andrew, you know that. Good morning.
Benjamin Shelton Bienvenu: Andrew.
Andrew Clyde: You noted in your commentary that adverse weather during the quarter provided some benefits to tobacco, you know, particularly kind of maybe pantry loading effects across your stores. But there were some headwinds as well. To what degree did that impact your ability to realize margin during the quarter and in what would otherwise be kind of a rising price market? And is there any kind of nuance associated with what we saw in the first quarter that we should be mindful of as we think about future quarters?
Benjamin Shelton Bienvenu: Good morning.
Benjamin Shelton Bienvenu: In your commentary that adverse weather during the quarter it provided some benefits to tobacco.
Andrew Clyde: Potential, particularly kind of maybe pantry loading effects across their stores there were some headwinds as well.
Andrew Clyde: To what degree did that impact your ability to realize margin during the quarter.
Andrew Clyde: What would otherwise be kind of a rising price market.
Andrew Clyde: And is there any kind of nuance associated with what we saw in the first quarter.
Andrew Clyde: That we should be mindful of as we think about future quarters.
Benjamin Shelton Bienvenu: And are you, when you say about realizing margin, are you talking about retail fuel margins?
Andrew Clyde: And when you say about realizing margin are you talking about retail fuel margins.
Benjamin Shelton Bienvenu: I'd be interested in hearing you talk about retail and product supply and wholesale. From our perspective, the product supply and wholesale plus RINs in such a steeply rising price market, I would have thought there would have been a little bit better cents per gallon contribution there, even considering the kind of excess RIN sales you would have had a year ago. So maybe kind of dissecting what happened in both retail and product supply and wholesale would be helpful.
Benjamin Shelton Bienvenu: I'd be interested in hearing you talk about retail and product supply in wholesale.
Benjamin Shelton Bienvenu: From our perspective, the spine wholesale plus rins and such a steeply rising price market I would've thought there would have been a little bit better cents per gallon contribution there, even considering kind of the excess land sales you would've had a year ago.
Benjamin Shelton Bienvenu: So maybe kind of dissecting what happened in both retail and product supply and wholesale would be helpful.
Benjamin Shelton Bienvenu: Yes.
Andrew Clyde: So, look, on the retail side, certainly when you have that run-up in prices, it was a much steeper run-up than the year before, and you didn't have the fall-off that we had in mid-February, which is always a benefit, you know, from the retail side. So it ended up running up more steeply as an absolute level without the fall-off, and that's going to be the biggest driver there. If you have a nice fall-off in any period, it's just like we're seeing now in April, you know; you go from $0.25 to $0.35 in a very quick period.
Benjamin Shelton Bienvenu: Yes.
Benjamin Shelton Bienvenu: So look on the retail side certainly when you have that run up in prices. It was a much steeper run up in the year before.
Andrew Clyde: And you didn't have the falloff that we had a mid February which is always a benefit from the retail side. So it ended up running up more steeply than an absolute.
Andrew Clyde: Level without the fall off and that's going to be the biggest driver. There. If you have a nice falloff in any.
Andrew Clyde: <unk> is just like we're seeing now in April you go from 25 to 35 and a very quick period on the Pearson Debbie side. There was a couple of factors. There we got the benefit from the accounting trading inventory timing variance that you would normally see it just offset by two factors. One is we had some.
Andrew Clyde: On the PS&W side, there were a couple of factors there. We got the benefit from the accounting, trading, and inventory timing variance that you would normally see. It's just offset by two factors.
Andrew Clyde: One is that we had some tight supply markets last year, but we anticipated those. We took advantage of those, and that's when our supply chain really provided an advantage to us. So that offsets some of that. And then, you know, look, as we talked about, the RIN market occasionally gets distorted when the EPA updates RFS targets, and that's what happened in late 2022. So we just carried over some RINs into Q1 2023, which led to some of that outsized margin for that quarter. And, you know, for PS&W and RINs together, it was largely in line with our plan for the year.
Andrew Clyde: Get supply markets last year, we anticipated those we took advantage of those and Thats, what our supply chain. It really provides an advantage to us so that offset some of that and then look as we talked about the rent market occasionally gets distorted when the EPA updates RFS targets and Thats what happened in late 2022, So we just carried out.
Andrew Clyde: Some rins into Q1, 2023, which led to some of that outsized margin for that quarter and for <unk> in Rins together it was largely in line.
Andrew Clyde: With our plan for the year and then just to add to that some other headwinds in the retail side of the business. We did have because of the weather. Some state of emergency was declared which hampered our ability to pass through increases very quickly and then as you know on the products planned wholesale business. It's very complicated there are multiple factors working in tandem.
Andrew Clyde: And then just to add to that, some other headwinds in the retail side of the business we did have because of the weather, some state of emergencies declared, which hampered our ability to pass through increases very quickly. And then, as you know, in the products, plan, wholesale business, it's very complicated. There are multiple factors working in tandem that influence everything.
Andrew Clyde: The influence everything.
Andrew Clyde: And so, yes, given the run-up in the quarter, we may have had lower results than you would have expected, but things like we had a significant drop in RIN values during the quarter. They were essentially cut in half, and the magnitude of that drop ended up producing a bit of a lag in the spot-to-rack normalization. So the way to think about that is we were receiving less per RIN immediately, but without that on-par corresponding benefit in the product price.
Andrew Clyde: And so yes, given the one up in the quarter. We may have had lower results than you would've expected.
Andrew Clyde: Things like we had a significant drop in rent values during the quarter. They were essentially cut in half and the magnitude of that drop ended up producing a bit of a lag in the spot to rack normalization. So the way to think about that is we were receiving less per wren immediately but without that on par corresponding benefit in the product price.
Andrew Clyde: And additionally, we had refiners pricing really aggressively at the RAC to clear their winter gasoline. As you know, most of our barrels are proprietary, they're not RAC, and so those factors contributed to the lower product supply results than you might have expected. But we do continue to believe our supply model provides an advantage that differentiates it. And, in fact, as we look into this quarter, that spot to RAC has normalized across the system, RINs are accurately priced in, and, as Andrew already mentioned, retail is performing well for the quarter as well. So hopefully, that kind of explains why the results might differ from what you would have modeled.
Andrew Clyde: And Additionally had refiners pricing really aggressively at the rack to court to clear their winter grade gasoline as you know most of our barrels are proprietary theyre not rack and so those factors contributed to the lower product supply or something else. Then you might have expected, but we do continue to believe our supply model provides an advantage that differentiates us.
Andrew Clyde: As we look into this quarter that spot to rack has normalized across the system rins are accurately priced N and as Andrew already mentioned retail is performing well for the quarter as well. So hopefully that kind of explains why the results may differ from what you would have modeled.
Benjamin Shelton Bienvenu: That's great! That's super helpful.
Speaker Change: That's great that's super helpful.
Andrew Clyde: Maybe shifting a little bit inside the store, the tobacco trends that you've continued to deliver. What causes that dynamic to change? Recognizing there are some company-specific issues, there's strategic pricing, and you're pricing differentials relative to your competitors, and prices continue to rise, which I think probably highlights the value proposition you bring to the market. Is it simply a lull in large numbers that causes the growth and market share gains to slow or something else because the performance has been noteworthy there?
Andrew Clyde: Maybe shifting a little bit to inside the store the tobacco trends that you continue to deliver.
Andrew Clyde: What causes that dynamic to change recognizing there's some company specific issues there is strategic pricing and your pricing differentials relative to your competitors.
Andrew Clyde: Prices continue to rise, which I think probably highlights the value proposition, you're bringing to the market.
Andrew Clyde: Is it simply a.
Andrew Clyde: Getting to the end of initiatives and law of large numbers that causes the growth and market share gains to flow or something else because the performance has been noteworthy there.
Andrew Clyde: Yeah, look, Ben, I think it's like any other commodity category, you know, where you've got everyday low price retailers, and you've got those that, you know, price higher, because, as you know, being somewhere stuck in the middle is the worst place to price a commodity. As a retailer, you know, just similar to that vicious cycle, as you see more retailers taking prices, with price increases, on the margin, there's just one more customer, you know, that chooses low price over convenience.
Andrew Clyde: Yeah look I think it's like any other commodity category, where you've got everyday low price retailers and you've got those that.
Andrew Clyde: Price higher because as you know being somewhere stuck in the middle is the worst place to price.
Andrew Clyde: Commodity.
Andrew Clyde: As a retailer.
Andrew Clyde: Over to that that vicious cycle.
Andrew Clyde: More retailers, taking price with the price increases.
Andrew Clyde: On the large and there is just one more customer.
Andrew Clyde: That chooses low price over.
Andrew Clyde: Convenience.
Andrew Clyde: And given our unique positioning, the word of mouth, the additional value provided, you know, through the Murphy Drive Rewards Loyalty Program, and the value that we're creating, you know, across the supply chain, you know, I do feel like it's something that's, you know, sustainable, and, you know, there'll be ups and downs, you know, with the comps, but I think we have an advantage here, and, you know, we remain very focused on the category and do it in a responsible way, but also giving that value to the customer.
Andrew Clyde: And given our unique positioning the word of mouth.
Andrew Clyde: <unk>.
Andrew Clyde: Additional value provided.
Andrew Clyde: Through the Murphy drive rewards loyalty program.
Andrew Clyde: And the value that we're creating across the supply chain.
Andrew Clyde: I do feel like it's something that's.
Andrew Clyde: Sustainable and there will be ups and downs.
Andrew Clyde: But with the comps, but I think we have an advantage here and we remain very focused on the category and do it in a responsible way, but also given that value to the customer.
Benjamin Shelton Bienvenu: Yep. Okay, great. Thanks. Best of luck.
Speaker Change: Yes, okay, great. Thanks best of luck.
Bonnie Lee Herzog: Your next question comes from the line of Bonnie Herzog. Please go ahead.
Andrew Clyde: Your next question comes from the line of Bonnie Herzog. Please go ahead.
Bonnie Lee Herzog: All right, thank you. Hi everyone. I wanted to follow up on Anthony's question, but maybe ask a different way, considering, you know, a key question we're hearing from investors is on your total fuel contribution in the quarter, which was quite a bit below your, you know, for modeling purposes, only target of the 30 to 34 cents per gallon. So, I guess I wanted to understand if that range maybe is, I don't know, no longer seems achievable, and Or, Andrew, are there other levers that we should just really be thinking about, you know, for you to have to pull, essentially, to drive EBITDA growth? Thank you.
Bonnie Lee Herzog: Alright, Thank you hi, everyone.
Bonnie Lee Herzog: I wanted to follow up on Anthony's question, but maybe ask a different way considering.
Bonnie Lee Herzog: A question we're hearing from investors is.
Bonnie Lee Herzog: On your total fuel contribution in the quarter, which was quite a bit below your for modeling purposes only target a bed.
Bonnie Lee Herzog: 30 to 34 cents per gallon. So I guess I wanted to understand is that range. Maybe is I don't know no longer seems achievable and if it's more likely you'll be below and therefore, what do you see your adjusted EBITDA below the one to $1 $2 billion range or Andrew you know are there.
Bonnie Lee Herzog: Their lawyers that we should really be thinking about.
Bonnie Lee Herzog: For you to have to pull essentially to drive EBIT or EBITDA growth. Thank you.
Andrew Clyde: Bonnie, as I stated before, PSNW plus RINs was the biggest driver in the year-over-year variant, and PSNW plus RINs is aligned with our plan. And so there's nothing that changes our view of our plan for the year in the range. Q1 was a little bit lighter on the retail side than the prior year, and Mindy talked about the factors there that contributed to that. But we didn't have the fall off mid-February. Guess what?
Bonnie Lee Herzog: Yeah, well I mean as I stated before.
Bonnie Lee Herzog: <unk> plus Rins was the biggest driver in the year over year variance and <unk> plus Rins is aligned with our plan.
Andrew Clyde: And so theres nothing that changes our view of our plan for the year.
Andrew Clyde: And the range.
Andrew Clyde: Q1 was a little bit lighter on the retail side than the prior year and Mindy talked about the factors there that contributed to that we didn't have the falloff mid February yes, what we're starting to see it now and I can't remember exactly what happened.
Andrew Clyde: We're starting to see it now. I can't remember exactly what happened on May 1st a year ago, but we're going to have rising prices and falling prices, and when they happen, not if they happen, is something that we don't have a crystal ball and can't project. So I think the Q1 number is fully aligned with our plan, and we've articulated why it varies from a year ago, and we don't provide quarterly guidance, and so that's... probably the best way to sum it up.
Andrew Clyde: On May one.
Andrew Clyde: A year ago, but we're going to have rising prices and falling prices and when they happen not if they happen is something that we don't have a crystal ball and project. So.
Andrew Clyde: I think the Q1 number is fully aligned with our plan and we've articulated why it varies from a year ago, and we don't provide quarterly guidance.
Andrew Clyde: So that's.
Andrew Clyde: Probably the best way to sum it up.
Bonnie Lee Herzog: I completely appreciate that, and you can imagine on our side, trying and predicting this is incredibly challenging, so it's helpful honestly to hear that you know Q1 came in sort of as expected. We'll see how the rest of the year plays out just in terms of volatility, but maybe my second question to switch gears is just on your merchandise contribution. I guess you had modest merchandise contribution growth in the quarter of 2.4%, but thinking about this in the context of the midpoint of your guidance, because you do guide that for the year at that 8%, so it does imply pretty significant acceleration for the rest of the year. So just if you could provide a little bit more color on the drivers of this and maybe your confidence that this is still achievable, that would be helpful. Thanks again.
Speaker Change: I completely appreciate that as you can imagine on our side to try and predict this incredibly challenging so it's helpful honestly to hear that.
Bonnie Lee Herzog: Q1 came in it started out as expected so.
Bonnie Lee Herzog: Let's see how the rest of the airplanes out just in terms of volatility, but maybe my second question to switch gears just on your merch contribution.
Bonnie Lee Herzog: I guess, you had modest merch contribution growth in the quarter to 4%, but thinking about this in the context of the midpoint of your guidance because you do guide that.
Bonnie Lee Herzog: I think for the year at that 8% so it does imply.
Bonnie Lee Herzog: Pretty significant acceleration in the rest of the year. So just if you could provide a little bit more color on the drivers of that.
Bonnie Lee Herzog: Maybe youre confident that that is still achievable that would be helpful. Thanks again.
Andrew Clyde: Oh, you're welcome. As I said, look, the two-year comps of sales and margin growth on non-tobacco of 12 and 17 and a half percent really reflect the strength of, you know, 23 over 22 and, you know, continuing and holding that. So part of the 8% is just the math, right? We're not going to have the same 23 over 22, you know, comp to go up against.
Speaker Change: Youre welcome.
Bonnie Lee Herzog: As I've said look the two year comps of sales and margin growth on non tobacco of 12 and 17, 5%.
Andrew Clyde: Really reflect the strength of 23 over 'twenty, two and continuing in holding that so part of the 8% is just the math right, we're not going to have.
Andrew Clyde: The same 23 over 22.
Andrew Clyde: Comp to go up against but.
Andrew Clyde: But we don't run our business based on the competitions. We run a business based on initiatives. And so, as articulated for Anthony, there's promotional activities, there's resets, there's new offers that we're rolling out, there's ISX remodels, there's our digital transformation, pricing, personalization, and other offers as well. Some of the things are even further back-end loaded like quick check, loyalty, relaunch, etc. But there's a whole suite of initiatives that we've invested in that are going to have significant returns on the invested SG&A and capital that we're putting into those.
Andrew Clyde: But we don't run our business based on the comps we run our business based on the initiatives and so has articulated for for Anthony there's promotional activities. There's resets theres new offers that we're rolling out there.
Bonnie Lee Herzog: Okay, thank you.
Bonnie Lee Herzog: Six remodels or is our digital transformation pricing.
Bonnie Lee Herzog: Personalization.
Bonnie Lee Herzog: And other offers as well some of the things or even further backend loaded like quick check.
Bonnie Lee Herzog: Loyalty relaunch et cetera, but there's a whole suite of initiatives that we've invested in that are going to have significant returns on.
Bonnie Lee Herzog: On the invested.
Bonnie Lee Herzog: And capital that we're putting into those.
Bonnie Lee Herzog: Okay. Thank you.
Bonnie Lee Herzog: Okay.
Robert Kenneth Griffin: Your next question comes from the line of Bobby Griffin with Raymond James. Please go ahead.
Bonnie Lee Herzog: Your next question comes from the line of Bobby Griffin with Raymond James. Please go ahead.
Robert Kenneth Griffin: Good morning, everybody. Thanks for taking the questions. I guess the first question for me is about the inside of the store business. And I know there's a lot of moving parts for the quarter. Can you talk about in some of the regions, if you saw anything materially different that wasn't impacted by the weather that you called out, just trying to really kind of gather on what is going on at the center store and how big the deal was the weather verse, you know, maybe the consumer just being actually a little weaker today than it was six months ago across just areas of the
Robert Kenneth Griffin: Good morning, everybody. Thanks for taking the questions.
Robert Kenneth Griffin: First question for me is on inside the store business and I know Theres a lot of moving parts for the quarter can you can you talk about in some of the regions. If you saw anything materially different that didnt werent impacted by the weather that you called out just trying to really kind of gather on what is going on in the center store and how big of a deal was the weather versus.
Robert Kenneth Griffin: Maybe the consumer just being actually a little weaker today than it was six months ago across just areas of this country.
Andrew Clyde: Bobby, it's a great question. We'll look at that really, really hard. And you know, we try to correlate, you know, things to the weather. In fact, our demand forecasting tool that does our production planning and labor scheduling, which we rolled out a quick check, absolutely factors in the wedding of the weather. Look, when we have a foot of snow on the ground in New Jersey for a few days, you can expect sales to be down 30 plus percent.
Robert Kenneth Griffin: Bobby It's a great question, we look at that really really hard and we try to correlate.
Andrew Clyde: You know things to the weather in fact, our demand forecasting tool that does our production planning and labor scheduling that we've rolled out a quick check absolutely factors in the wedding.
Andrew Clyde: The weather.
Andrew Clyde: Look when we have a foot of snow on the ground in New Jersey for a few days you can expect sales to be down 30% I mean, it's just absolutely horrible for our business and everyone else's Biz.
Andrew Clyde: I mean, it's just absolutely horrible for our business and everyone else's business. If you look at the daily sales report for the last four or five days... We've had great weather, sales are up 6% year over year, week over week, right? Strong fuel volumes, etc. So, it's been difficult for us to identify anything that is statistically significant, you know, beyond the weather factor.
Andrew Clyde: Business.
Andrew Clyde: If you look at the daily sales report for the last four or five days.
Andrew Clyde: Had great weather sales were up 6% year over year week over week, right strong fuel volumes et cetera. So.
Andrew Clyde: It's been difficult for us to identify anything that is statistics.
Andrew Clyde: Statistically significant.
Andrew Clyde: Beyond.
Andrew Clyde: The weather factor, we do know that you.
Andrew Clyde: We do know that you've seen lower food inflation from take-home groceries than eating away from home. But, at the same time, I believe you continue to see trading down from... you know, QSRs to convenience stores. The one thing we have noted is that for not our full-size subs but our 6-inch subs, some trade down, you know, from 6-inch subs to some of the snacking categories as people are just trying to stretch their dollar a little bit.
Andrew Clyde: <unk> seen lower.
Andrew Clyde: Food inflation.
Andrew Clyde: From.
Andrew Clyde: Take home groceries than eating away from home, but at the same time I believe you continue to see trading down from.
Andrew Clyde: <unk> to convenience stores. The one thing we have noted is that for not our full size subs, but our <unk> subs some trade down.
Andrew Clyde: From <unk> to some of the snacking categories as people are just trying to stretch their dollar a little bit.
Andrew Clyde: You know, one of the other things we've looked at is that with lower absolute prices, we're not seeing 100 percent of that windfall being spent in the store, but if you look at where the other consumer headwinds are, people are spending 8 percent more on car maintenance. They're spending 22 percent more on car insurance.
Andrew Clyde: One of the other things we've looked at is with lower absolute prices.
Andrew Clyde: We're not seeing a 100% of that windfall being spent in the store, but if you look at where.
Andrew Clyde: Other consumer headwinds our people are spending 8% more on car maintenance are spending 22% more on car insurance and so I do think the average consumer is looking for ways to save money.
Andrew Clyde: And so I do think the average consumer is looking for ways to save money. Fortunately, we are one of those ways for them to save money. And on 12-inch subs and, you know, tobacco products and fuel, we're definitely a winner. So we saw a little bit of a trade down in a few categories, but, you know, largely, we would attribute big sales gaps on a day-over-day, week-over-week, year-over-year basis to severe weather events.
Andrew Clyde: Fortunately, we are one of those ways for them to save money and on 12 inch subs and tobacco.
Andrew Clyde: Tobacco products and fuels were definitely a winter so we saw a little bit of a trade down.
Andrew Clyde: In a few of the categories, but largely we would attribute.
Andrew Clyde: Big sales gaps on a day over day week over week year over year basis to severe weather.
Andrew Clyde: And look, we hate blaming anything on the weather, and so we've been real happy this last week when, you know, sales have rebounded the other way. And I think that gives us confidence also that the value pricing position we've put ourselves in, where we consciously made the decision to not take prices early, has really positioned us well in the eyes of the consumer. And you see a lot of QSRs now making a sharp pivot to value because their coffee prices just got way too high per cup, and their food prices got way too high. And I think we're just in a better position not having to make that sharp pivot but just committing to an everyday low price.
Andrew Clyde: And look we hate blaming anything.
Andrew Clyde: On the weather and so we've been real happy this last week when our sales have rebounded the other way and I think that gives us confidence also that the value pricing position, we've put ourselves in where we consciously made the decision to not take price early.
Andrew Clyde: Has really positioned us well in the eyes of the consumer and you see a lot of <unk> now, making a sharp pivot to value because our coffee prices just got way too high per cup.
Andrew Clyde: Their food prices got way too high.
Andrew Clyde: And I think we're just in a better position not having to make that sharp pivot, but just committing to everyday low price.
Andrew Clyde: Okay, that's helpful. And then, Andrew, I think in your comments, you mentioned some pricing initiatives rolling out in the back half of the year as one of the building blocks to help kind of drive to a faster merchandise gross profit contribution. What exactly are those pricing initiatives? Because it seems like you guys are holding your price, which is tough for some of your QSR peers. So is it just going to be more regional pricing on a local basis, you know, region by region? And what exactly is going to be changing about pricing that's going to be favorable for the business?
Speaker Change: Okay. That's helpful and then Andrew I think in your comments you mentioned some pricing initiatives I think rolling on the back half of the year is one of the building blocks to help kind of drive faster merchandize gross profit contribution what exactly are those pricing initiatives because it seems like you guys are holding your price.
Andrew Clyde: Tough for some of your <unk> peers. So they just go into more regional pricing on a local basis region by region and what exactly is going to be changing on pricing that's going to be favorable for the business.
Andrew Clyde: Yeah, so we have really developed enhanced capabilities in fuel pricing and tobacco pricing. What we've done less on from a capability standpoint is the broader center of store pricing. And so some of the analytical work we've done is, you know, basically involves segmenting stores, understanding the price elasticity by different segments of stores, and honestly, just seeing where you can take the price and we've left money on the table. And alternatively, you know, where we could actually give some additional price and pick up some volume.
Andrew Clyde: Yes, so we have.
Andrew Clyde: Really developed enhanced capabilities on fuel pricing and Banco pricing, what we've done less.
Andrew Clyde: On from a capability standpoint, as the broader center of store pricing and so some of the analytical work. We've done is basically involves segmenting stores understanding the price elasticity by different segments of stores.
Andrew Clyde: And honestly, just seeing where you can take price and we've left money on the table and <unk>.
Andrew Clyde: Alternatively, you know where are we could actually give some additional price.
Andrew Clyde: And pick up some volume there.
Andrew Clyde: Some other specific categories like Candy for example that was super inflated cocoa prices.
Andrew Clyde: There are some other specific categories, like candy, for example, that have super-inflated cocoa prices; consumers are seeing a pinch. And so as we think about the elasticity of some of those products, you know, where can we take some pricing and promotional activity to the next level and, on a contribution margin dollar basis, come out ahead? So a lot of those activities, Bobby, relate to the center of the store but just build on kind of the know-how and analytical prowess that we have in fuel and tobacco. Okay.
Andrew Clyde: <unk> are seeing a patch and so as we think about the elasticity of some of those products.
Andrew Clyde: Where can we take some pricing and promotional activity to the next level and on a contribution margin dollar basis come out ahead. So a lot of those activities Bobby relate to center of the store.
Andrew Clyde: Just build on kind of the know how and analytical prowess that we have in fuel and tobacco.
Robert Kenneth Griffin: Okay, I appreciate the details. Best of luck here in the second quarter.
Speaker Change: Okay I appreciate the details best of luck in the second quarter.
Speaker Change: Thanks, Bobby.
Mindy K. West: Your next question comes from the line of Kylie Cole with Jefferies. Please go ahead.
Speaker Change: Your next.
Robert Kenneth Griffin: Question comes from the line of Kylie cone with Jefferies. Please go ahead.
Mindy K. West: Hey, good morning. This is Kylie Koyu on for Corey Tarlowe.
Mindy K. West: Good morning, and I will tell you on for Corey.
Mindy K. West: Nice to chat with you gentlemen, thank you for taking my question.
Mindy K. West: Starting at a higher level, there's a lot of consolidation in this space, especially with a small multiunit chain.
Mindy K. West: Let's say like one two up to.
Mindy K. West: 200 <unk>.
Mindy K. West: And as opposed to like these one off guys.
Mindy K. West: It seems the overall operating environment.
Mindy K. West: How are you responding.
Mindy K. West: It's nice to chat with some of you again, and thank you for taking my question. Kind of starting at a higher level, there seems to be a lot of consolidation in this space, especially with the small multi-unit chains. So let's say, like one to, or, I'm sorry, like two to 100 units, as opposed to, you know, these one-off guys. Does that significantly change the overall operating environment? And if so, how are you responding?
Mindy K. West: So first of all I don't think its going to change the environment. We've seen consolidation in this industry at a steady pace since the late Ninety's when some of the majors merged and then they.
Mindy K. West: Divested their company owned chains, and we've just seen a.
Mindy K. West: Steady state of consolidation.
Mindy K. West: <unk> with the majority of these stores being consolidated.
Mindy K. West: As our old they have old underground tanks, they often.
Mindy K. West: In rare cases like quick check they have exceptional brands that you can leverage.
Mindy K. West: Any of the ones being.
Mindy K. West: Consolidated have undifferentiated brands.
Mindy K. West: If a franchise focused consolidator picks them up and applies there brand to them it helps and certainly gets.
Mindy K. West: Some value to that.
Mindy K. West: Operator, but.
Mindy K. West: For the most part it's not changing the fundamental positioning of those stores are they going to become high volume everyday low price retailers that compete with us or are they going to Maine.
Mindy K. West: <unk>.
Mindy K. West: Lower volume convenience oriented top of the market priced retailers and we really just don't see that changing.
Mindy K. West: Think you can look at the economics of some of the.
Mindy K. West: Bigger public consolidators.
Mindy K. West: On a same store basis.
Mindy K. West: Youre not seeing sort of material changes there.
Mindy K. West: That indicate.
Mindy K. West: It's changing the fundamental industry dynamics.
Speaker Change: Got it no that's super helpful color.
Speaker Change: Quick one for Gallagher.
Mindy K. West: Early days, but I was wondering what has surprised you most about the C store industry or Mr. Specifically since joining.
Speaker Change: Really good question. So thank you for that and I just hit my two months here with the company. So.
Mindy K. West: A lot of good surprises.
Mindy K. West: Yeah, I think one surprise for most of my background as retail is the volatility that you see in the field and we are executing a strategy that we are very confident in and just like we saw in Q1, we execute the strategy, but the dynamics in the industry that the volatility of fuel prices can impact our results.
Mindy K. West: That's something that we're managing we're very confident that over any horizon will continue to deliver the strong results that everyone's accustomed team. So that's a learning for me as I as I get into this business, but I think we're extremely confident in our initiatives, we love our strategy our customers are responding and we're continuing to deliver some.
Mindy K. West: Some really good results.
Speaker Change: Oh, great Super helpful color.
Mindy K. West: That concludes our Q&A session I will now turn the conference back over to Andrew Klein CEO for closing remarks.
Speaker Change: Alright, well, thank you everyone for joining and as always.
Speaker Change: Any follow ups too.
Speaker Change: Christian I am.
Mindy K. West: And we look forward to updating you.
Speaker Change: In the very near term thank you very much.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Andrew Clyde: So first of all, I don't think it's going to change the environment. We've seen consolidation in this industry at a steady pace since, you know, the late 1990s when some of the majors emerged, and then they divested their company-owned chains. And we've just seen, you know, a steady state of consolidation.
Speaker Change: Please wait the conference will begin shortly.
Andrew Clyde: You know, the challenge with the majority of these stores being consolidated is that they're old, they have old underground tanks, they often, in rare cases, like QuickCheck, they have exceptional brands that you can leverage. You know, many of the ones being consolidated have undifferentiated brands. You know, if a franchise-focused consolidator picks them up and applies their brand to them, it helps and certainly adds some value to that operator.
Andrew Clyde: But, you know, for the most part, it's not changing the fundamental positioning of those stores; are they going to become high volume, everyday low price retailers that compete with us? Or are they going to be mainly, you know, lower volume, convenience oriented, top of the market priced retailers? And, you know, we really just don't see that changing. I think you can look at the economics of some of the bigger public consolidators and, you know, on a same store basis, you're not seeing sort of material changes there that indicate it's changing the fundamental industry dynamic.
Mindy K. West: Sure.
Mindy K. West: [music].
Andrew Clyde: Okay.
Andrew Clyde: Yes.
Andrew Clyde: [music].
Andrew Clyde: Yes.
Andrew Clyde: Okay.
Andrew Clyde: Yes.
Andrew Clyde: Yes.
Andrew Clyde: [music].
Andrew Clyde: Yes.
Andrew Clyde: [music].