Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Murphy USA Inc (MUSA, Financial) achieved the highest Q2 retail fuel margin contribution dollars in company history.
- Same-store sales and margin growth were strong, particularly in the tobacco category.
- Murphy USA Inc (MUSA) continues to invest in new store growth, with 22 new stores under construction and a target of 30 to 35 new stores for the year.
- The company has a robust share repurchase program, buying back 238,000 shares in Q2 and remaining committed to ongoing repurchases.
- Murphy USA Inc (MUSA) has a strong free cash flow, enabling investments in technology, store maintenance, and share repurchases.
Negative Points
- Year-to-date merchandise results are falling short of high expectations due to a slow start in Q1 and softness in discretionary categories.
- Inflation remains impactful, particularly in the northeast markets, affecting consumer behavior and sales.
- QuickChek markets experienced a 2% year-over-year decline in sales comps, with continued softness into July.
- Operating expenses per store increased by 6.2% year-over-year, driven by larger stores, wage investments, and higher maintenance costs.
- The company faces challenges in maintaining transaction volumes and consumer demand in the face of persistent inflation and competitive pressures.
Q & A Highlights
Q: Can you explain the factors behind the adjusted guidance for the second half of the year, considering the choppy demand backdrop and your self-help initiatives?
A: The primary driver of the adjusted guidance is the merchandise contribution from QuickChek, reflecting continued softness in transactions due to persistent inflation and QSR competition. Initiatives driving improvements at QuickChek are on a lower transaction base than planned, and most are second-half weighted. NTIs and raze-and-rebuilds will ramp up towards the end of the year, contributing less to the second half.
Q: How should we think about gas margins in the back half of the year, given the uncertainty and the $0.30 to $0.34 per gallon range discussed earlier?
A: The biggest driver of fuel margins is whether there will be a sharp fall-off in prices. While Q2 margins were strong in a low volatility environment, the future direction of fuel prices remains uncertain due to geopolitical and logistical factors. The structural dynamics supporting higher retail margins are in place, but a significant fall-off in prices would be needed to impact margins significantly.
Q: What additional levers can you pull to drive improved traffic in the back half of the year, especially in the northeast where inflation is higher?
A: In the northeast, higher inflation rates impact consumer behavior, leading to fewer trips or trading down. Murphy USA benefits from consumers trading down to lower-priced retailers. We continue to gain Murphy Drive Rewards customers, who ramp up their growth faster than prior cohorts. We don't need to be extra aggressive with promotions as our natural price differential widens over time.
Q: How active have you been in the M&A market, and where are you seeing the greatest returns right now?
A: We see most M&A transactions but prefer organic growth due to better capital returns. Our new stores are designed to meet our standards without the need for significant reinvestment. Share repurchase has been our highest return investment, driven by growing EBITDA and buying back shares. We focus on balanced capital allocation, with high returns from new stores, raze-and-rebuilds, and capability-building investments.
Q: Can you discuss the promotional intensity in your stores and your willingness to use promotions to boost merchandise sales?
A: We are known for everyday low prices and always have some promotional activity in our stores. This is part of our value pricing strategy and represents a significant baseload volume for many providers. There is nothing unique or one-time about our promotional activity that would be difficult to comp over.
Q: How should we think about the shape of the OpEx curve as you continue to open new stores and make investments in larger stores and your people?
A: OpEx related to new larger stores and raze-and-rebuilds will increase as we build more of them. One-time catch-up wage investments will normalize, and dispenser maintenance costs will stabilize. The enhanced merchandise performance of new stores largely outstrips the increase in wage rates, making the expansion of merchandise contribution the key metric to watch.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
