Q1 2025 Murphy USA Inc Earnings Call
Good morning, and welcome to the Murphy USA first quarter 2025 earnings conference call.
All participants are in a listen only mode. After the Speakers' remarks, we'll conduct a question and answer session.
I ask a question at that time, you'll need to press star followed by the number one on your telephone keypad.
As a reminder, this conference call is being recorded.
Christian Pikul: I would now like to turn the call over to Christian Pikul, Vice President of Investor Relations. Thank you. Please go ahead.
Speaker Change: Yeah, great. Thank you Julie and good morning, everyone and thanks again for joining US today with me are Andrew Clark, Chief Executive Officer, Mindy West Chief Operating Officer, Gallagher, Jeff Chief Financial Officer, and Donnie Smith, Chief Accounting Officer. After some opening remarks from Andrew Gallagher will provide some commentary on first quarter financial results and then.
Speaker Change: Following some closing comments from Andrew 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 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 predictions will be.
Speaker Change: Paint 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.
Speaker Change: <unk> 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.
Andrew Clark: Thank you Christian and good morning, everyone.
Andrew Clark: We've always said the Murphy USA business model is somewhat inflation proof recession resistant and relatively immune to other periods of consumer weakness. We can now add tariff resistance to our lexicon. Our business model has proven durable and resilient against a wide ranging variety of challenges over the last 12 years as a public company.
Andrew Clark: Speaks to serving value oriented customers product set are largely non discretionary within eating L. P offer through a relatively simple, but always evolving business models.
Andrew Clark: Our focus on making the business better has allowed us to deliver results and value to shareholders and almost any environment.
Andrew Clark: If there was one thing that stood out over the past decade said every quarter is just a little bit different it's like a thing we have here in south Arkansas. If you don't like the weather right now just wait a few minutes Murphy USA first quarter results reflect a number of factors that one distinctly broken out provide a clearer view of the core business and trends, especially when.
Andrew Clark: <unk> with a deep understanding of the underlying consumer behavior.
Andrew Clark: When we look back at any quarter and consider what is important for the next 12 months and beyond we typically organize these factors under three headings.
Andrew Clark: Temporal factors that were one off and are not expected to repeat in the next few years.
Andrew Clark: Some of these are well known in advance and included in our annual plan.
Andrew Clark: Others, while not anticipated should not be a big surprise to investors as they have already been widely discussed by other firms.
Andrew Clark: Cyclical factors that fluctuate up and down due to various conditions, where value driver shift both to the positive and the negative for a period of time outside of balanced and stable equilibrium and finally, and most importantly, structural factors, which tend to shift based on an industry fundamental structure.
Andrew Clark: And each competitors' relative positioning and how that relative positioning is evolving.
Speaker Change: On today's call I'd like to review Murphy USA Q1 results under these headings and then overlay the results and trends with what we're seeing from our customers real time.
Speaker Change: I believe this will provide greater insights into what we believe remains a more enduring and resilient business in what was a relatively more challenging quarter.
Speaker Change: So let's start with the fuel category and the temporal factors.
Speaker Change: The first two are calendar effects, which are always fully embedded in our plan. This quarter. It was not repeating leap year and not repeating Easter in March which together had a one 5% impact on same store gallons not planned, but clearly extreme and widely noted was the number location and magnitude of storms.
Speaker Change: Impacting same store gallons by another 50 basis points as the number of store days closed almost doubled versus a year ago.
Speaker Change: While impactful in the moment. These temporal factors are less relevant as they pertain to our long term performance potential of the business and taken together. These temporal factors account for almost half of our Q1 same store gallon decline of four 2%.
Speaker Change: Or cyclical in nature as the lower absolute price level in the quarter as we noted back in 2022, we see greater switching and share gains in high price periods. It would give some of that back when price levels subside and moved significantly lower as some subset of consumers trade off price for locational convenience.
Speaker Change: Retail prices over the past six months have averaged between $2 75, and $2.80 a gallon down meaningfully from the past few years and at a level, we haven't seen since the onset of Covid.
Speaker Change: Fortunately with our loyalty programs, we see greater stickiness than in similar comparable periods without the same capability.
Speaker Change: In the current low price environment, we're seeing loyal customers come a little less by a little more even if overall volumes declined slightly due to some customer switching.
Speaker Change: Structurally we believe returned office mandates a more sensible fuel economy regulations will enhance the longer term outlook on fuel demand that said it is too early to pinpoint any benefit in the current quarter.
Speaker Change: Turning to fuel margins retail margins were <unk> <unk> per gallon higher than the first quarter versus the prior year in part these higher margins reflect a flatter price environment versus the prior year period, where gasoline prices increased about 50 fairly steadily from January through March of 2024.
Speaker Change: As a result margins were not compressed during the normal cycle of rising Q1 prices to the same extent.
Speaker Change: Also retail margins were up about four five cents in the northeast region, reflecting a more stable competitive dynamics.
Speaker Change: Structurally we believe a more enduring source of higher retail margins in Q1 reflects higher breakeven economics being passed through by retailers, who are experiencing more significant volume declines or your merchandise share losses, and higher operating costs, requiring higher fuel margins to maintain profitability.
Speaker Change: <unk> volume data points to the challenges these retailers continue to face.
Speaker Change: Additionally, we note that lower payment fees, which are typically passed through to customers on the retail price did not appear to impact Q1 industry pricing and margins further suggesting retailers continue to support structurally higher margins.
Turning to the product supply margin net of rent we continued to operate in an oversupplied environment masking the value and optionality of our supply chain assets and resulting in lower <unk> contribution year over year.
Speaker Change: As the cycle moves from shortened tight in 2022, and 2023, so long and loose in 2024 and year to date, the long environment will likely keep PSM debut performance compressed until the supply and demand balance returns equilibrium.
Speaker Change: One of the benefits of the fuel products supply chain is that it does not stay out of equilibrium for wall between recently announced refinery closures on the west coast the impact of tariffs on imported crude oil and products. We can expect the oversupplied environment to cycle back to a more balanced state in due course, our plan calls for supply margins to normalize.
Speaker Change: <unk> in the second half of 2025.
Speaker Change: Ultimately the retail margin is the largest component of our fuel margin.
Speaker Change: And our structural advantage continues to benefit our results as we've noted before our total fuel margin is primarily driven by structural factors, which accrue to Murphy's relative advantage in the short term temporal and cyclical factors can impact it both to the positive as we saw in 2022 into the negative.
Speaker Change: And this Q1.
Speaker Change: Turning to inside the store the same temporal factors had an impact on traffic coupled with a 30 basis point headwind in merchandise sales attributable to not repeating a $1 billion jackpot that occurred in the first quarter of 2024.
Speaker Change: However, we did outperform in several center of store categories, including Handy, where sales were up 15% against the year on year comp that included the Easter holiday in Q1 of 2024.
Speaker Change: Starting with our nicotine categories, we continue to gain share in cigarettes, smokeless and other nicotine products when compared to the market.
Speaker Change: We're looking at first quarter results, it's extremely important to remember how much share we've taken since 2021 and how much we've outperformed the industry.
Speaker Change: Over the last four years from 2021 through 2024 cigarette volume in the Murphy network has been about flat while the market has lost roughly 20%. This.
Speaker Change: This translates to sales growth from manufacturer price increases of 11% over that same time period for Murphy versus industry sales declines of 9%.
Speaker Change: Q1 year over year cigarette sales comps are slightly negative reflecting the same temporal challenges we saw in fuels as well as some of the timing changes in the promotional cycle.
Speaker Change: That said same store sales is not the best metric to compare cigarette performance given that the category is so heavily promoted and supported by the manufacturers. Our goal is to continue growing share profitably building total nicotine contribution margin up was up a very healthy two 8% on a same store basis in the first quarter.
Speaker Change: On the Noncombustible side of nicotine, we continue to see strong sales and margin contributions out of reduced risk products same store sales were up over 7% for the quarter and same store margin grew double digits up same store margin grew double digits up 15%.
Speaker Change: We remain highly confident and incredibly excited about our ability to deliver differentiated results in the nicotine space going forward through our talented team of dedicated category specialists ongoing investments in digital capabilities and the second half weighted promotional calendar.
Speaker Change: We're also cautiously optimistic that ongoing industry advocacy will have an effect on providing regulatory clarity and enforcement around all this elicit paper products.
Speaker Change: We're also taking share profitably in many of the center store categories, including packaged beverage Candy and general merchandise, where total sales were up high single digits against flat to declining Nielsen sales data in our footprint.
Speaker Change: These gains reflect in part the structural advantage, we have created through some of our new digital capabilities as well as strategic shifts in pricing and promotional effectiveness leveraging many of the learnings and tactics from our differentiated nicotine capabilities and performance.
Speaker Change: Another bright spot in the quarter as the traction we are experiencing in food and beverage. It quick check for menu innovation. The relaunched quick check rewards and targeted promotions as driving sandwich unit growth up 8% and increasing breakfast traffic.
Speaker Change: As a result, total food and beverage sales were up nearly 1% in the quarter, we still have work to do and while tariff and margins remain challenged as to U S. R value worst cycle persist, we're really excited about our upcoming summer sales plan, featuring innovative new products and more attractive bundled offers.
Speaker Change: We remain highly intentional with our investment in G&A, showing a $2 million benefit year over year from.
Speaker Change: From an Opex perspective, the addition of larger and more productive stores toward network, especially with a higher number of Q4 2024 and early Q1 openings is skewing per store expenses higher as communicated in our guidance.
Speaker Change: Third we are performing better than our internal plan year to date with record applicants easing inflation pressures, we are tightly controlling our labor hours and moderating planned wage adjustments accordingly.
Speaker Change: As a result stores are operating closer to fully staff levels, providing better service to customers favorably impacting shrink cost and reducing overtime hours.
Speaker Change: Despite all the noise in the press and changes in consumer sentiment and the soft data one thing remains clear to us the hard data is telling us that our customer is resilient and continues to seek value for Murphy USA.
Speaker Change: This hard data derived from nearly 50 million loyalty customer transactions just in the first quarter of this year speaks to a pressured yet durable Murphy USA customer, we can continue to see more and more people seeking value and trading down into Murphy USA for their non discretionary needs as Ed.
Speaker Change: Evidenced by growing membership in our Murphy drive rewards and quick check rewards loyalty programs up 11% and 30% respectively in the first quarter.
Speaker Change: Interestingly, we are seeing growth in the middle to high income customers defined as over 55000 and $100000 in reported income respectively. As a percent of total customers. This has gone from just under 40% at program launch, it's almost half the current membership base, meaning more and more customer segments are.
Speaker Change: Becoming value seeking.
Speaker Change: As noted earlier loyal customers come a little bit less often as their fill rate increases due to lower prices, but by a little bit more each trip in terms of gallons and in the store with their savings even as overall volumes declined slightly due to the modest level of switching for convenience.
Speaker Change: Last on the consumer we are seeing purchase behavior remained fairly static across income core cohorts, meaning we are not seeing any incremental weakness from our lower income consumer.
Speaker Change: This is especially important as we compare the headlines with the hard data.
Speaker Change: Income earners are still spending, but they remain nimble with their decisions and choices focusing on their fundamental daily needs, where they balance inflation in other areas of their household budget with the largely non discretionary products. They rely on Murphy to deliver at the lowest prices. We continue to focus on these customer.
Speaker Change: With targeted offers and promotions, which did drive higher pumped a store conversion despite the fewer trips.
Speaker Change: I'll now turn it over to Gallagher to provide some details on our capital spending in recent balance sheet activity.
Gallagher: Hello, everyone and thank you Andrew.
Gallagher: In addition to the performance areas Andrew covered there are several more actions taken in Q1 that are better positioning the company for the future.
Gallagher: First starting with store growth.
Gallagher: We added eight new store to the Mercury network in the first quarter and with 18, new stores and 20, raze and rebuilds currently underway construction activity remains robust.
Our new stores continued to perform well with our 2022 and 2023 build classes outperforming the fleet average by nearly 20% in gallons and nearly 40% in merchandising margin, while producing EBITDA, 18% higher than the chain on a per store basis in Q1.
Gallagher: These new stores are driving value and winning new customers, which is why we are aggressively working on our new store pipeline to deliver more high quality stores in 2025 and 2026.
Gallagher: Second it has been over four years since we put into place our current capital structure and both the company and a resulting EBITDA have grown significantly over that time.
Gallagher: So in early April we increased our revolving credit facility from $350 million to $750 million.
Gallagher: And Upsized our term loan from March 31 balance of $386 million to $600 million.
Gallagher: Our objective in this is to manage our balance sheet to ensure we have flexibility to execute our long term strategy in any environment maintained low leverage while also lowering our fees and carrying cost.
Gallagher: Despite a tumultuous time in equity and debt markets demand for Murphy USA credit was extremely strong throughout the process and we're very happy with the outcome of the refinancing.
Gallagher: Both offers were oversubscribed and Mercury received tighter spreads and a favorable fee structure undertaking both of these actions at the same time.
Gallagher: With these additions our debt to EBITDA ratio remains at 2.0 and is comfortably within our target range.
Gallagher: Third I want to run through some additional financial highlights.
Gallagher: Cash flow from operations was $129 million in Q1 with total cash capital expenditure of $88 million, primarily for new store construction, resulting in free cash flow of $41 million.
Gallagher: Additionally, we repurchased 321000 shares for $151 million and paid $9 8 million in dividends in Q1.
Gallagher: Lastly, I did want to point out the first quarter effective income tax rate was 14 114, 1% compared to 19, 4% in Q1 of 2024.
Gallagher: The rate for the quarter is lower due to recognition of energy tax credits and tax benefits related to share based compensation.
Gallagher: We do expect our all in tax to remain within our guided range of 23% to 25% going forward.
Gallagher: With that.
Andrew Clark: Turn it back over to Andrew.
Gallagher: Gallagher.
Speaker Change: Close out with some comments on performance since March 31.
Speaker Change: In April per store fuel volumes approximated, 100% of prior year levels as traffic patterns normalize and weather has played less of a factor in the first week of May although it's still early we're seeing volumes trend about 1% to 2% higher than the prior year.
Speaker Change: Retail margins in April were a little over 28 cents per gallon or about three pennies higher than April last year and may retail only margins are also averaging about 28.
Speaker Change: We expect April merchandise results to look more like the first quarter, while strengthening throughout the second quarter and into the second half with the promotional cycles.
Speaker Change: Before we open up the call to questions I, just want to emphasize that our business remains resilient and well positioned to outperform in a variety of environments over time.
Speaker Change: I think it's just as important to point out what we didn't say on this call that so many other firms are rightly concerned about.
Speaker Change: We're not pulling our second half guidance due to tariffs or supply chain uncertainty.
Speaker Change: We're not seeing the increased risk around consumer weakness or demand uncertainty.
Speaker Change: And we're not seeing other forms of inflation impacting our business.
Speaker Change: And that's because our E D. L. P model, coupled with our low cost position is a powerful combination to appeal to an ever growing pool of value seeking customers things will move up and down in the short term, but our focus remains on making the business better over the long term.
Speaker Change: We're pulling all the right levers with investments in both store productivity and growth through new stores, raze and rebuilds and remodeling activity coupled with meaningful share buybacks that we think will richly reward long term investors.
Speaker Change: So with that commentary I'll turn the call back to the operator will open up the call for questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad.
Speaker Change: The interest of time, we ask that you. Please limit yourself to one question and one follow up for any additional questions. Please rejoin the queue.
Our first question comes from Anthony <unk> from Wells Fargo. Please go ahead. Your line is open.
Speaker Change: Yeah, Hey, good morning, guys. Thanks for taking our questions. So I wanted to start with inside sales can you just help us better understand trends. There I know you flagged the 200 bps from Tinfoil factors, but can you talk more about the level of improvement you saw in periods, where those factors eased.
Speaker Change: How much of a benefit you think Easter might be to Q2.
Speaker Change: To the extent you're still seeing fundamental.
Speaker Change: Underlying weakness the different factors driving that.
Speaker Change: Sure. Thank you.
Speaker Change: Look I think when you look at the non nicotine categories. The performance we saw in Q4 and again in Q1.
Speaker Change: Speaks to the capabilities that we've put in place around digital pricing promotional effectiveness et cetera.
Speaker Change: And certainly the customer has a little bit more of the spend inside the store and so we're seeing that despite the reduction in trips due to the average fill rate going up.
Speaker Change: On the nicotine side.
Speaker Change: Very impressive results on the Noncombustible products as we continue to see customers.
Speaker Change: Engage in those products and because of our large share of combustible products.
Speaker Change: We just hold a larger share of consumers.
Speaker Change: That are starting to.
Speaker Change: Try those products and adopt those products on the combustible products. The promotional cycle. As we noted was lighter in Q1 versus a year ago, and we would expect that to pick up in the second half of the year. So unlike where we stood last year Anthony at the end of Q1 with concerns about.
Speaker Change: The guidance for the remainder of the year, we're not in that situation this year.
Speaker Change: Got it.
Speaker Change: And then just maybe just an update on our retail margins can you just talk a little bit more about breakeven what you think the marginal operators seeing right now versus last year.
Speaker Change: And whether there's been any change competitively or is it still fair to say <unk>.
Speaker Change: Industry participants are behaving in a rational way.
Speaker Change: Yes, so as I noted the retail only margins.
Speaker Change: April 28, a gallon, it's largely what we've seen.
Speaker Change: In may as well look into in terms of the marginal.
Speaker Change: Retailer.
They are not in a position to claw back.
Helens: Helens theyre not in a position to call back.
Speaker Change: Tobacco market share, they're facing the same type of.
Cost headwinds that anyone is so this debate about whether.
Speaker Change: Their outlook significantly improves that puts a dent into the structural.
Speaker Change: Increase in margins that we've seen I think most people have got their heads around the fact that that.
Speaker Change: Structural advantage margin is here to stay that's likely to continue.
Speaker Change: To increase.
Speaker Change: Over time, and I think you can just look too.
Speaker Change: The commentary from a number of folks.
Speaker Change: What we see in some of the opus data as well.
Speaker Change: That they continue to trade off volume.
Speaker Change: For margin to be able to meet their profit profit needs.
Speaker Change: Thanks, guys.
Speaker Change: Our next question comes from.
Speaker Change: Corey Carlo from Jefferies. Please go ahead your line is open.
Corey Carlo: Great. Thanks, so much.
Speaker Change: Andrew you provided some interesting color around.
Speaker Change: What youre seeing in your hard data specifically as it relates to growth in middle and high income customers as a percentage of the total.
Speaker Change: Could you speak a little bit more about what you think is driving that and what that means for your business going forward.
Speaker Change: Yeah. So look when we launch Murphy drive rewards at the end of 2019.
Speaker Change: You could imagine that we had.
Speaker Change: Large customer base of value seeking customers in the first ones too.
Speaker Change: Glom onto this.
Speaker Change: Loyalty program were.
Speaker Change: Those making less than 55000 a year.
Speaker Change: Year.
Speaker Change: What we've seen but there are still plenty of folks that were coming to our stores and often on a trip to Walmart. They can between 55 and 100 or over 100000, but they represented only about 40% of the consumers that mix has been increasing about 1%.
Speaker Change: A year, even as the program grows and so I think.
Speaker Change: Our view is look.
Speaker Change: More and more people are living paycheck to paycheck. The data we get from pay act of one of our providers has shown us that.
Speaker Change: From about that time people about.
Speaker Change: About 50% are living paycheck to paycheck that number is over 60%.
Speaker Change: Certainly Walmart is seeing more higher income consumers in their mix as well.
Speaker Change: While not a jet direct shadow.
Speaker Change: <unk>.
Speaker Change: Their customer is pretty close and so I, just think we're seeing more and more consumers across segments, recognizing the need for value in the current environment and so that's generally what we're seeing I think importantly, though is.
Speaker Change: The behavior across our lower middle and higher income consumers.
Speaker Change: Is roughly the same in terms of their movement. So the notion that our lower income consumer.
Speaker Change: As weaker there are behaving the same positively, though the higher income consumer purchases more gallons from US every month and also purchases more inside the store say trade down to Murphy USA as a retailer.
Speaker Change: That's very helpful and just to follow up on that last comment about in store sales.
Speaker Change: You mentioned in your prepared remarks that.
Speaker Change:
Speaker Change: Food and beverages are performing quite well I think quick check is.
Speaker Change: Sandwich units up about.
Speaker Change: High single digits I think it was 8% was the number that you cited.
Speaker Change: How would you describe the overall.
Speaker Change: The momentum that you've seen in in store sales, how do you expect that trajectory to change.
Speaker Change: Throughout the course of the year and then I did just wanted to ask about the recent volatility that we've seen in the fuel.
Speaker Change: Price, how would you characterize that volatility in terms of pricing action that we've seen versus history.
Speaker Change: And the associated impact on margin.
Speaker Change: Sure.
Speaker Change: With quick check I mean, there are a number of <unk>.
Speaker Change: Investments we've made up there that are now kind of if you will stacking on top of each other some of the digital capabilities that we put in place around demand forecasting production planning.
Speaker Change: It led to higher sales.
Speaker Change: And margins.
Speaker Change: The barbell strategy approach that we took around our sandwiches.
Speaker Change: The value on certain six inch subs, along with the premium sub lineup that now makes up.
Speaker Change: Over 16% of our sandwiches is helping on both unit sales dollars.
And margins the relaunch of quick check rewards, where we're up 30% on membership year over year.
Speaker Change: Is adding to that so I think theres a number of factors there that.
Speaker Change: Continue to.
Speaker Change: To have momentum.
Speaker Change: And.
Speaker Change: We will be cycling every every quarter for the remainder of this year I think one of the big unknown is what is the broader promotional intensity you look like.
Speaker Change: Across the industry and as we signaled before in our current plan.
Speaker Change: <unk> said it remains fairly competitive throughout the rest of the year if that subsides earlier.
Speaker Change: That could be a positive.
Speaker Change: Tailwind for us as well.
Speaker Change: Terms of fuel volatility, we like volatility I mean, we.
Speaker Change: Do better and earn more when prices run up and then fall sharply.
Speaker Change: And what we've seen in terms of.
Speaker Change: Competitive behavior is when prices run up our margin doesn't get compressed as much on the way up so we hold more volume on the way up so we would.
Speaker Change: <unk> an environment that has.
Speaker Change: Greater levels of price volatility versus lower levels of.
Speaker Change: Volatility.
Speaker Change: Yes.
Speaker Change: Great. Thank you very much.
Speaker Change: Our next question comes from Bonnie Herzog from Goldman Goldman Sachs. Please go ahead. Your line is open.
Andrew Clark: Alright, Thank you Hi, Andrew.
Bonnie Herzog: Good morning, Good morning, I actually wanted to ask you about the environment and I guess you know the cycle. We're in right. Now is yeah risks there might be to continued EBITDA pressures. Despite the still elevated fuel margin.
Bonnie Herzog: I recognize Q1 is a smaller quarter, but your EBIT dollars seems to be reverting to pre COVID-19 levels as it's now below the elevated EBITDA you generated in Q1 of 2020 so.
Bonnie Herzog: Hoping you could help us understand your ability to I guess retain EBITDA dollars in fact steel margins don't move higher for the rest of the year and I guess, what other levers do you have to pull to maybe offset that.
Bonnie Herzog: Yes. So just remember in Q1 of 2020, there was a pretty incredible March if we recall from a large margin standpoint look this is.
Bonnie Herzog: If you look at <unk>.
Bonnie Herzog: 2022, and the outsized fuel margins from.
Bonnie Herzog: The volatility in Q3, and some of the Halo effect on that in 2023, we talked very clearly that.
Bonnie Herzog: Product supply environment during that period was at least a <unk> <unk> benefit on the.
Bonnie Herzog: Upside right and then we spoke.
Bonnie Herzog: On this call and last year, how the product supply component was a little bit more of a headwind and a lot of that is just fundamentally moving from a very short tight volatile market.
Bonnie Herzog: Where our supply assets.
Bonnie Herzog: Provide a real distinct value not just in terms of rate ability flexibility security of supply, but also just an advantaged supply margin from a contribution standpoint.
Bonnie Herzog: That cycle gets longer and looser theres, just more product out there we see more discounting at the rack and so the spot to rack margin net of rens.
Bonnie Herzog: Is less and so it's down about a penny or so and that plus or minus a penny or two.
Bonnie Herzog: Is honestly the biggest driver from the fuel contribution standpoint.
Bonnie Herzog: You go back and look at the structural margin the retail component of it.
Bonnie Herzog: That continues to grow.
Bonnie Herzog: And so what I would say is we've got a lot of transparency in this industry around retail margins you can see them structurally growing.
Bonnie Herzog: Pre COVID-19 2019 throughout the Covid volatility periods, $2023 2024, and 2025 and those are steadily moving up and there is frankly.
Bonnie Herzog: Nothing that we see that would cause those.
Bonnie Herzog: To revert.
Bonnie Herzog: Because of the fundamental industry structure.
Bonnie Herzog: Kind of dictated by the marginal players.
Bonnie Herzog: Cyclically, we will see the product supply margin.
Bonnie Herzog: Work to our advantage up a penny or two and really short in tight markets.
Bonnie Herzog: And worked hard disadvantage right in a very long and loose environment.
Bonnie Herzog: But all we have to do is remember those few times when a backhoe stopped product on colonial pipeline and we had product.
Bonnie Herzog: Almost 100 terminals and that was our inventory and everyone else got caught up that advantage over the long term is going to be a strong benefit. So I would say, we as a company certainly the largest buyers of our shares every year look more at that long term structural dynamic recognizing.
Bonnie Herzog: There's going to be some cyclical factors that move up and down a penny or two from the norm as well as some temporal factors that.
Bonnie Herzog: Built into our plans and I'm, assuming built into your models as well.
Bonnie Herzog: Yes, I know like barnacles.
Andrew Clark: Really quickly I was just going to add in addition to what Andrew mentioned of operating in our environment. We are doing a lot of other things to drive EBITDA. Obviously, we're confident in our new stores and we're accelerating the new stores the initiatives, we're doing inside the store both through our loyalty programs targeted promotions.
Andrew Clark: See traction we'll continue to grow margin there.
Andrew Clark: And then finally expense management, we managed expenses well, we're going to continue to grow the top line, while managing expenses tightly which will also add to the fuel contribution that we're going to see going forward.
Speaker Change: Okay. That's all Super helpful. I appreciate that if I may just ask a second question on the pressure that youre seeing on traffic with you highlighted night honestly don't think it's coming as a big surprise given the environment. So maybe hoping to hear a little bit more color on how traffic trended monthly through the quarter.
Andrew Clark: And.
Andrew Clark: Changes, you're seeing kind of similar behavior, especially considering the pressures on your business across the board and I'm curious to hear more color on what you might be doing maybe to even sharpen your value proposition further ultimately to drive faster traffic and same store sales guidance. Thank you.
Andrew Clark: Sure.
Speaker Change: Bonnie I wish there was a nice steady trend line that we could say Erith January trending February training March trending there were some episodic events and we talked about the metrics store days close the number of days, we had stores closed due to weather and it just provided what I would call it.
Andrew Clark: Just kind of a discontinuity.
Speaker Change: And the trend lines.
Speaker Change: And unlike hurricanes, where we see a lot of stocking up for these storms, we didn't see some of that that same.
Speaker Change: Behavior.
Speaker Change: One thing we will note is that when we look at kind of our pricing relative to <unk>.
Speaker Change: On the top of the market.
Speaker Change: We were a little more aggressive when the quarter in the lower price environment and yet still earned retail margins <unk> higher right and so that is one of the things that we'll continue to do is.
Speaker Change: Put value on the street for the consumer.
Speaker Change: In the form of our.
Speaker Change: Street price to be able to.
Speaker Change: Maintain that level of traffic.
Speaker Change: On the tobacco side as we noted expect more promotional activity in the second half versus what we saw in Q1.
Speaker Change: Alright, Thank you I'll pass it on.
Speaker Change: Okay.
Speaker Change: Our next question comes from <unk> Sharma from Stephens. Please go ahead. Your line is open.
Speaker Change: Alright, thanks for the question.
Speaker Change: Just wanted to ask about.
Speaker Change: Door bells.
Speaker Change: In the past, we've talked about getting that.
Speaker Change: Is that a more even pace for the year.
Speaker Change: Given you've historically had it more back end loaded.
Speaker Change: <unk>.
Speaker Change: Given the commentary we've had eight new <unk>.
Speaker Change: So far.
Speaker Change: But just wanted to get a sense.
Speaker Change: You have 18 under construction, but wanted to get a sense. If you think youre going to see a little bit more even pace build this year as opposed to last year.
Speaker Change: I would say with the Q1 of eight some of those also kind of reflect the carryover from last year, we're still going to be significantly.
Speaker Change: Second half weighted I think the goal is for next year to have the more.
Speaker Change: Much more ratable and continue with some of the processes, we've put in place under new leadership, a more ratable plan, but I think the reality is we will be more second half.
Speaker Change: Weighted again this year.
Speaker Change: Okay. Thanks for that color.
Speaker Change: I just wanted to ask about.
Speaker Change: The consumer behavior trends too I know you mentioned you.
Speaker Change: Youre seeing stable behavior, among the lower income Colorants and.
Speaker Change: Wanted to ask about your confidence.
Speaker Change: And in your ability to lean in on promotional spend.
Speaker Change: In the back half I know you said it already with nicotine.
Speaker Change: But just overall, we'd like to get your thoughts on that.
Speaker Change: Well I think certainly across categories.
Speaker Change: The promotional effectiveness is working I mean, if you look at Kandi for example.
Speaker Change: 15%.
Speaker Change: That's a not only a benefit to us and the consumers.
Speaker Change: But the manufacturers.
Speaker Change: As well so promotional effectiveness has to be a win win.
Speaker Change: For all parties so to the extent, we can be the most effective deliver of that.
Speaker Change: Resource for the consumer packaged goods companies, we have confidence that they will want to continue to invest sometimes differentially.
Speaker Change: With us.
Speaker Change: The basis of the confidence it's a win win win for all the for all the parties.
Speaker Change: One quick thing to add to that as we've mentioned in prior calls our ability to get specific with unique customer offers has changed over the last 12 months. So now we can target individuals versus broader promotions measure that impact and then lean in more where it works. So both on the quick check side and across the Murphy stores, we're seeing a lot of <unk>.
Speaker Change: Target of promotions that are paying off and that drives margin for us without the broader based discounting. So it's early for some of that especially a quick check, but we're seeing good targeted promotions that are paying off.
Speaker Change: One last point, we continue to see innovation and some of the categories as well and so when.
Speaker Change: Manufacturers, introducing a new product.
Speaker Change: That's where we often see some of the most aggressive promotional activity.
Speaker Change: If it's in the nicotine space.
Speaker Change: We're going to be advantaged significantly there as well due to our promotional effectiveness upselling in our large installed base.
Speaker Change: Okay.
Speaker Change: Okay. Thanks for the color.
Speaker Change: Our next question comes from Brad Thomas from Keybanc Capital markets. Please go ahead. Your line is open.
Brad Thomas: Alright, thanks, so much and good morning.
Brad Thomas: I wanted to start just ask asking about operating expenses and I'm wondering if you give us a little bit of color around what youre seeing in terms of running the stores and how youre thinking about that.
Brad Thomas: Moving through the year, given the ramp in store openings.
Brad Thomas: Great.
Brad Thomas: First thing I'll say is we're seeing a record number of.
Brad Thomas: Applications from.
Brad Thomas: Staff positions at the store I mean, its almost two times versus where it was.
Brad Thomas: Last year in that it already exceeded kind of pre COVID-19 levels on a per store basis, so really.
Brad Thomas: Feel good about that.
Brad Thomas: The stores that were previously at risk from not having a full complement of staff or have reduced opening hours.
Brad Thomas: Has largely subsided. This is having an impact both on the wage rate as well as overtime and thats, having a corresponding result.
Brad Thomas: In categories like shrink.
Brad Thomas: Where we're seeing benefits there.
Brad Thomas: We are seeing some slightly higher maintenance cost, but we have some initiatives underway that we expect to bring those costs down.
Brad Thomas: In the second.
Brad Thomas: Half of the year, but its Gallagher says we remain extremely diligent.
Brad Thomas: On our operating expenses.
Brad Thomas: One thing that we don't.
Brad Thomas: Breakout separately, but in this lower price environment payment fees.
Brad Thomas: Are substantially lower and that represents a significant.
Brad Thomas: Cost to the business and so one of the benefits of not only being up <unk> on a retail margin being slightly more aggressive on pricing. We also had the benefit of lower payment fees and I know some folks include that in their margin net of payment fees, where we don't break that out.
Speaker Change: Brad I would say that we are also making meaningful progress Andrew related to uncovering opportunities within our store productivity excellence dispenser uptime wedge, where we are going to have benefits that will be next.
Speaker Change: Revenue generation with higher dispenser, uptime, allowing us to sell more products, but also in terms of cost savings as well as we are uncovering opportunities, particularly with regard to self maintenance and other things, which will help us to continue to control our costs.
Speaker Change: Sure.
Speaker Change: That's helpful and if I could ask a follow up question on the ntis by our count <unk> got about 34 that you've opened over the past year. Just wondering if you could comment about new store performance.
Speaker Change: <unk> been doing and then I guess, maybe as you cut the data has the largest stores had been doing of late versus the kiosks.
Speaker Change: Yes go ahead, yes, I was going to say Gallagher highlighted the.
Speaker Change: Level of performance of new stores in both gallons and merchandise. So we're very pleased with those one of the challenges is certainly the merchant side merchandise side does take about three years to fully ramp up and you've got the full complement of operating expenses.
Speaker Change: During that process so.
Speaker Change: That creates kind of a headwind as we keep building more and more new stores until you get to that steady level.
Speaker Change: Youll see some of that.
Speaker Change: The reality is our kiosk are small stores perform extremely well they always have.
Speaker Change: We continue to build the bigger stores away from.
Speaker Change: The Walmart supercenters, because we can sell a much broader offer.
Speaker Change: Especially around packaged beverage beer larger center store and a fit for purpose food and beverage offerings. So we continue to see returns from those stores at.
Speaker Change: At levels that are very attractive.
Speaker Change: Then we will continue to invest in those certainly on the quick check side, the new stores there.
Speaker Change: And beverage side ramps up very quickly very much like a quick serve restaurant and you've got the ramp there on the center of store, but we're achieving record sales within the first few months from some of our new openings. There. It's just had a longer lead time to build up the pipeline given at the.
Speaker Change: Acquisition, we started with a pretty bare covered in terms of stores in the pipeline.
Speaker Change: Yes.
Speaker Change: Thanks, so much.
Speaker Change: Our next question comes from Jacob Aiken Phillips from Melius. Please go ahead. Your line is open.
Speaker Change: Good morning, everyone.
Speaker Change: So first I wanted to ask about so the opex from the bigger stores I understand the dynamic of <unk>.
Speaker Change: Three years to ramp up the merchandise, but you still have to staff it.
Speaker Change: But I'm curious how we should think about in relation to like your zero breakeven are you not zero breakeven, though without change going forward until they are fully ramped up in the pipelines like running.
Speaker Change: Yes, I mean, the calc is really simple, it's the merch margin minus the opex over the over the gallons. So when those stores get to ramp the merch contribution exceeds the opex.
Speaker Change: Opex and so you've got the 100% coverage ratio or better or the zero breakeven. So while the merch margin is ramping up you've got the full operating.
Speaker Change: Costs, so you'll move from.
Speaker Change: 60% coverage to a 72 and 80% to 90% and get to 100.
Speaker Change: We monitor that closely.
Speaker Change: Every month every quarter by store make sure they're ramping up appropriately.
Speaker Change: One of the other things about the new stores is.
Speaker Change: When they open we're going to do.
Speaker Change: Do a lot to let customers know.
Speaker Change: That were there in the market and they are to deliver value. So.
Speaker Change: Not surprisingly the fuel margin that those new stores is a lot lower as we establish that everyday low price positioning and so again as we start building more and more new stores.
Speaker Change: With that aggressive opening.
Speaker Change: Price that has a weighting effect as well, but we do everything we can to appropriately get those stores up to ramp as quickly as we can.
Speaker Change: Yeah.
Speaker Change: Got it and then you made a comment earlier about how there's some new processes with the new real estate team could you just give more color or at least some of the things you think will be a bigger driver and then any update on my construction costs, especially in tariffs and everything.
Speaker Change: Yeah, I think part of it may just be a mindset around risk I'll just give you. One tangible example of we have a lot of.
Speaker Change: Permitting requirements when you build a new store in some of the core markets were in the municipalities may have some.
Speaker Change: Restrictions they place where they may have some additional requirements.
Speaker Change: When you think about.
Speaker Change: The modular building that we use for both the <unk> thousand 500 square foot store in the 2800 square foot store.
Speaker Change: May require some modest changes to that building.
Speaker Change: And were in the past we may have wanted to get all the permitting.
Speaker Change: Requirements fully identified before that modular building was.
Speaker Change: Started we recognize.
Speaker Change: Maybe we should go ahead and get that particular modular building started knowing that we may have a few thousand dollars worth of adjustments.
Speaker Change: To make in the field, but if it <unk> six months out of the cycle time.
Speaker Change: Because of the permitting.
Speaker Change: It's a risk that we feel comfortable taking so that's a very tangible example, there are many others where the teams identified.
Speaker Change: Some approach to risk and trade offs that we feel are appropriate to make and one. Other example, I would mention just with the ntis openings. We have began enacting a fuel dispensers stress test procedure with all our ntis.
Speaker Change: To try to discover and correct scale flow issues before the store opens because we have had in the past several instances of <unk>.
Speaker Change: Our failing at open or shortly after and when do you think about that that's going to impact the field sales it will likely impact inside store sales because customers will get frustrated and leave we're obviously not making a great impression on that customer. So it does impact the overall ramp at the store. So with this new process, we will catch those.
Speaker Change: Thanks before the stores open and set those stores up for greater success from the beginning.
Speaker Change: Okay, one last point on that and then.
Speaker Change: As Mindy and Andrew mentioned, our new stores are working we're doing a lot of us.
Speaker Change: Work to drive that 18% improvement in EBITDA versus the chain, but the team is maniacal about that on the pipeline.
Speaker Change: It's really a math issue to have good stores, yet that good stores in the pipeline and our pipeline now across the enterprise is around 250 stores everything from <unk>.
Speaker Change: Site selection that negotiation, but it's a funnel. So we are actively building that funnel. So more great stores can pop out on the other side. So that work is underway, we feel great about the outcomes once they're launched and we're working to make sure. They do ramp up fast we just got to continue to build that pipeline.
Speaker Change: Thank you.
Speaker Change: For any additional questions. Please press star one or.
Speaker Change: Our next question comes from Bobby Griffin from Raymond James. Please go ahead. Your line is open.
Bobby Griffin: Good morning, Brian Thanks for taking my questions I guess, Andrew My first question is more kind of a high level Murphy's position within industry question. You know our administration that we have now, particularly the president's been pretty firm on wanting low oil low gas environment and let's just say he gets that and we are in kind of a longer term low gas price.
Bobby Griffin: Low oil price environment, what does that do for Murphy's and how Murphy's its position in that does that change the long term dynamics of this product and W supply margin like anything around that would be curious just some thoughts.
Bobby Griffin: Yes look I mean, it's easy.
Bobby Griffin: For any.
Bobby Griffin: Any leader to say this is what they want and then what do you get and then certainly there's leaders in other countries that depend on very high.
Bobby Griffin: Oil prices to sustain their social economy as well.
Speaker Change: Countries in the middle East that have a pretty significant impact on what the price of crude.
Speaker Change: We will be so, let's just set that aside and say what happens in a low price environment.
It's what we've always said happens right customers have a little bit more in their pocket book.
Speaker Change: It's still a non discretionary product.
Speaker Change: They have more money leftover to spend in other categories. We're building.
Speaker Change: Bigger stores, and razing and rebuilding stores that have.
Speaker Change: More offers that caters to those customers and so <unk>.
Speaker Change: Continue to see the center store.
Speaker Change: As an area of growth for us the customers do make trade off on the margin.
Speaker Change: Other thing is that <unk> got is say, okay is it a low oil price environment and a booming economy or is it a low oil price.
Speaker Change: Economy.
Speaker Change: And we're in a recession right or youre continuing to see.
Speaker Change: High inflation in non fuel categories, where the consumer is pinch so thank.
Speaker Change: Thank you really have to think about the totality.
Speaker Change: The environment.
Speaker Change: The condition of the consumer the other trade offs.
That they're making but as we've always said and the lower price environment. There will be some consumers on the margin that are going to pick convenience over absolute price.
Speaker Change: We've also said our loyalty program provides stickiness that we didn't have say in 2015 16 and 17.
Speaker Change: And as we've continued to demonstrate.
Speaker Change: We are giving back to the customer some portion of the higher margins.
Speaker Change: That we continue to see.
Speaker Change: And that debt.
Speaker Change: Additional price benefit continues to make our offer extremely relevant to all those consumers. Unfortunately as we've noted there are more customers that continue to live paycheck to paycheck that trade down into Murphy USA. So.
Speaker Change: <unk> some past low price environments, I think some of the conditions are a little bit different.
Speaker Change: And we are certainly better positioned.
Speaker Change: To compete in that environment versus say 10 years ago or 20 years ago.
Speaker Change: Okay. That's helpful. And then secondly for me just back to inside the store we saw that based on your April commentary you saw gallons get a lot better than what some of the impacts probably took away from gallons in <unk>, but you did mention you know not as much of improvement yet.
Speaker Change: In store side, the merchandize nicotine and non nicotine why do you think that's the case I mean gallons bounce back implies the traffic kind of came back pretty heavily once we got by the the.
Speaker Change: The weather impact and the leap day, what do you think was the delay that we're seeing on the recovery inside the store.
Speaker Change: So it was just the promotional cycle, especially on the nicotine.
Speaker Change: Syed I think Thats a <unk>.
Speaker Change: Driver there that we're a destination when you ask consumers. What's your one main reason for coming to Murphy USA is can be value on fuels can be value on.
Speaker Change: Tobacco and sometimes on the margin the promotional activities in that space. It is a.
Speaker Change: A traffic driver into the store I think the categories that are performing well continue to perform.
Speaker Change: Well, we're seeing higher.
Speaker Change: Year over year results in those categories.
Speaker Change: Thank you I appreciate the details and best of luck here in the second quarter.
Speaker Change: That's great. Thank you.
Speaker Change: We have no further questions I'll turn the call back over to Andrew Clyde for closing remarks.
Speaker Change: Great.
Speaker Change: Appreciate everyone joining today and as we kind of laid out the factors to our business and some of the temporal and cyclical drivers. We remain focused on the structural advantages both as a function of what the industry is doing but also the structural capabilities that we're putting in place to allow us to differentiate ourselves in.
Speaker Change: In this environment. So we will look forward to follow up questions. Later today Tomorrow next week.
Speaker Change: Stay tuned thank you.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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