Murphy USA Inc. Q1 FY2025 earnings call

• Store Growth: Added 8 new stores in Q1, with 18 new stores and 20 raise and rebuilds underway. New stores outperform fleet average in gallons and merchandising margin.
• Balance Sheet Activity: Increased revolving credit facility to $750 million and upsized term loan to $600 million, maintaining debt-to-EBITDA ratio at 2.0.
• Financial Highlights: Cash flow from operations $129 million, free cash flow $41 million, repurchased 321,000 shares for $151 million, and paid $9.8 million in dividend. Effective income tax rate 14.1% in Q1 vs 19.4% in Q1 2024.
• Customer Focus: Loyalty program memberships up 11% (Murphy Drive Rewards) and 30% (QuickChek Rewards). Growth in middle to high-income customers seeking value.

Fuel Category

• Same-store gallons: Impacted by temporal factors like non-repeating leap year, non-repeating Easter in March, and storms, with a 4.2% same-store gallon decline. Retail margins were $0.02 per gallon higher in Q1 vs prior year, due to flatter price environment and $0.045 higher margins in the Northeast region. Product supply margin net of RINs was lower due to an oversupplied environment.
• Revenue contribution: Fuel category is a significant component, with retail margin being the largest part of fuel margin and structural advantages benefiting results.

Inside the Store

• Merchandise sales: Temporal factors and a $1 billion jackpot in 2024 impacted merchandise sales. Candy sales were up 15%. Nicotine categories saw share gains; noncombustible nicotine had same-store sales up over 7% and margin up 15%. Packaged Beverages, Candy, and General Merchandise had high single-digit sales growth. Food and Beverage at QuickChek saw sandwich unit growth up 8% and breakfast traffic increase.
• Revenue contribution: Inside store sales contribute through various categories, with nicotine and center store categories driving growth.

• April per-store fuel volumes approximated 100% of prior year levels, with May volumes trending 1%-2% higher than prior year. April retail margins were over $0.28 per gallon, and May retail-only margins average about $0.28.
• No pullback in second half guidance due to tariffs or consumer weakness; focus remains on long-term structural advantages and investments in stores and share buybacks.

• Temporal factors like weather-related store closures and calendar effects impacting same-store gallons.
• Product supply oversupply environment negatively impacting product supply margin net of RINs.
• Competitive dynamics and potential promotional intensity affecting margins and sales.

Q: Could you help us better understand trends in inside sales, including Easter impact on Q2?

A: Non-nicotine categories show capabilities in digital pricing, customer has more to spend inside store. Nicotine noncombustible products strong, combustible promotional cycle expected to pick up in second half.

Q: Could you speak more about growth in middle and high-income customers and its impact?

A: More consumers across segments recognize need for value. Higher income consumers purchase more gallons and inside store as they trade down to Murphy USA.

Q: How to retain EBITDA if fuel margins don't move higher?

A: Retail component of fuel margin continues to grow structurally. Product supply margin works to advantage in short/tight markets and disadvantage in long/loose markets, but long-term structural advantage remains.

Q: Thoughts on store build pace and new store performance?

A: Still second-half weighted in store build. New stores perform well, with merchandise taking 3 years to fully ramp up. Bigger stores away from Walmart Supercenters have attractive returns.

Q: Color on operating expenses and new store performance?

A: Record job applications, controlled labor hours. New stores perform well, with modular building and permitting adjustments to speed up cycle time. Fuel dispenser stress test procedure in place for new stores to improve ramp-up.