Murphy USA Inc. (MUSA) Q4 2022 Earnings Call Transcript

Murphy USA Inc. (MUSA)

Q4 2022 Earnings Conference Call

February 2, 2023, 11:00 AM ET

Company Participants

Christian Pikul - Vice President, Investor Relations

Andrew Clyde - President and CEO

Mindy West - Executive Vice President and CFO

Donnie Smith - Vice President and Controller

Conference Call Participants

Bonnie Herzog - Goldman Sachs

Anthony Bonadio - Wells Fargo

Bobby Griffin - Raymond James

Ben Bienvenu - Stephens

John Royall - JPMorgan

Rob Dickerson - Jefferies



Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA Fourth Quarter 2022 Earnings Conference Call. All lines have been placed on to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions]

Thank you. It is now my pleasure to turn today’s call over to Mr. Christian Pikul. Sir, please go ahead.

Christian Pikul

Hey. Thank you, Brent. Good morning, everyone. With me today are Andrew Clyde, President and Chief Executive Officer; Mindy West, Executive Vice President and Chief Financial Officer; and Donnie Smith, Vice President and Controller.

After some opening comments from Andrew, including a discussion of our 2023 annual guidance, Mindy will provide an overview of the financial results. After a few closing comments from Andrew, we will then 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 projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, please see the latest Murphy USA Forms 10-K, 10-Q, 8-K and other recent SEC filings. Murphy USA takes no duty to publicly update or revise any forward-looking statements.

During today’s call, we may also provide certain performance measures that do not conform to Generally Accepted 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 Clyde

Thank you, Christian. Good morning and welcome to everyone joining us today. In reviewing the company’s outstanding 2022 results and preparing for this call, I was really struck by how last year’s performance reflected so many of the improvements we have made to the business since our spin in 2013. These results reflect a lot of hard work over the past decade, executing against the key elements of the strategies we established a spin to create a sustainable and advantaged business.

We prioritized organic growth, adding over 500 stores to the network since 2012. We improved store productivity, optimizing cost while improving per store merchandise contribution. In addition to substantially reducing our fuel breakeven metric, we enhanced employee engagement and customer satisfaction. A trifecta, any retailer would be especially proud of.

These actions improved our already low-cost position on the industry supply curve, while our relative advantage increased further as costs for the broader industry rose. We also leveraged our fuel infrastructure assets and capabilities to lower our supply cost and maximize our fuel contribution dollars through our retail pricing excellence campaign.

Other significant capability investments like Murphy Drive Rewards further heightened our advantage and differentiated positioning with customers and consumers on our core merchandise offer, while the QuickChek acquisition significantly enhanced our food and beverage capabilities, while introducing a new advantaged format for growth.

Perhaps the most telling statistic reflects our commitment to disciplined capital allocation. As a result of our balanced 50-50 capital allocation strategy showcasing steady unit growth, with a consistent and opportunistic share repurchase, we have grown our store count by nearly 50% and repurchased more than 50% of our original shares outstanding. We are proud of these milestone achievements that created significant shareholder value for our long-term investors.

These investments, coupled with our relentless focus on operational excellence helped lay the groundwork for the company’s outstanding 2022 results. Importantly, 2022 performance wasn’t just about fuel margins. We leveraged our scale and overall cost advantage, including the benefits from PS&W in a tight supply market to grow per store volumes and gain market share.

We also leveraged Murphy Drive Rewards to generate continued tobacco outperformance that also led to share gains, which, along with stronger fuel traffic, helped to grow non-tobacco categories.

We grew food and beverage contribution by $9 million growing legacy Murphy contribution by nearly 50% to $8 million. We extracted further synergies from QuickChek, making excellent progress on our integration as our internal focus transitions in 2023, the enterprise-wide initiatives that will benefit the combined network. We have been very pleased with QuickChek’s performance and are equally excited about the future opportunities we see across both brands.

Looking at OpEx, we took substantial costs out of the business leading up to COVID and while we are certainly not immune to the wider inflationary pressures on the industry, our advantaged format and low cost position afforded us the opportunity in 2022 to allocate incentives and employee appreciation programs without permanently impacting our cost structure. This program helped to financially reward our employees and drive store level engagement, which resulted in strong merchandise sales and higher customer satisfaction.

In closing out the 2022 performance discussion, it’s clear to us that our financial and operational results were the product of intentional actions we have taken as a management team. Our relentless efforts to improve the business have positioned us at the right place, at the right time, with the right capabilities and with the right team in place to extract the most value from the opportunity the market provided in 2022.

At a time when affordability matters more to more people, Murphy USA is also very well positioned for the future. Looking out over the next decade, we are poised to continue delivering results and making investments that we believe better prepare the company to compete and win in 2023 and beyond.

First, we are preparing for more new store growth, building better stores and strong markets. Looking at the network plan in 10 years, we would anticipate at least another 500 high-performing stores, providing material contributions to the future earnings potential of the company. That is in addition to ongoing efforts to improve the current network through our raze-and-rebuild program and other investments.

Second, we will remain focused on improving same-store productivity, increasing efficiency across all aspects of the business and maintaining an ultra-low cost structure, which supports our everyday low price strategy.

Third, we are embarking on a comprehensive set of new investments that will help extend and ultimately widen our competitive advantage in the industry.

The first of these digital transformation will help evolve the reach and effectiveness of our Murphy Drive Rewards loyalty platform, leveraging customer shopping habits to customize more impactful offers at scale and trigger point-of-sale upselling opportunities. In addition to customer-facing opportunities, transaction data will help inform pricing and assortment optimization at the local and store level.

These learnings and capabilities will inform a redesign of the QuickChek Loyalty Program to increase brand awareness and attract new customers. These are just a few early examples of what we look to deliver from our digital transformation campaign.

Another new campaign in-store experience involves a comprehensive redesign of the inside of new and existing Murphy stores, leveraging critical insights from consumer research, QuickChek’s food and beverage expertise and analysis of subcategory performance.

This effort goes beyond routine category resets, the resets represents a fundamentally different experience for our customer that will better showcase the breadth and accessibility of our product offerings and drive higher in-store sales.

In turn, we will take full advantage of these combined learnings and synergies in the imagination and design of our Store of the Future, which we expect will enhance new store performance and returns over the next decade.

Importantly, these initiatives go beyond technology and capital investments, but involve investments in people with new skills and experience sets in the home office as we build new muscles and data science and data analysis.

Like prior capability-building investments such as MDR, retail pricing and our zero breakeven campaigns, success wasn’t realized overnight. But as we have seen from our 2022 results, the tangible benefits we realized were achieved from seeds planted in prior years. Similarly, we expect these new investments to deliver significant tangible benefits in the coming years.

With that context in mind, let me take you through the elements of our 2023 guidance. Starting with organic growth, which remains the centerpiece of our growth strategy, we completed a total of 36 new stores in 2022, including two QuickChek stores and completed 32 raze-and-rebuilds, a notable improvement compared to the 23 new stores opened in 2021.

While new store additions fell short of our internal target of 45 new stores, we were able to backfill with a few more raze-and-rebuilds and enter 2023 with nine stores scheduled to open in the first quarter.

Putting new stores into service remains challenging from sourcing electric panels and concrete to local delays in hooking up to permanent power. Nonetheless, we maintain a robust inventory of high-quality new store locations and expect 2023 activity to eclipse that of 2022. As such, our guidance remains up to 45 new store additions and up to 30 raze-and-rebuilds.

Moving on the fuel contribution, we are pleased to report 2022 average per store month fuel volumes were in line with the high end of guidance, just under 245,000 APSM, representing 7% growth versus 2021 as our everyday low price value proposition attracted more customers to our stores.

Looking ahead, we don’t expect the same level of market share gains in 2023, given we are not expecting a once in every six year to eight years mega-price drop in our forecast, but we do expect to hold on to many of the new customers that came to our stores looking for value. As a result, we are forecasting a slightly tighter range of volume guidance between 240,000 gallons per store month and 245,000 gallons per store month in 2023.

Looking at store profitability. We delivered $767 million of merchandise margin in 2022, above the guided range of $740 million to $760 million due to strong performance from categories attached to fuel that benefited from higher customer traffic and a highly impactful promotional events in the tobacco category.

In 2023, we expect to continue to take share and deliver growth for merchandising initiatives, driving contribution dollars to a range between $795 million and $815 million or an increase of about 5% at the midpoint. This growth is primarily attributable to increases in the non-tobacco merchandise and continued growth in food and beverage categories.

Operating expenses, excluding payment fees and rent came in at 31,700 APSM in 2022 within our adjusted guided range of 31.5% to 32.5% APSM, which included the impact of our WayPay supplemental incentive program we provided our employees over the summer of 2022.

While many of the factors impacting OpEx growth in 2022 will persist into 2023, including labor and service cost inflation, which are stickier in nature, not all of last year’s cost increases are built into our structural base. As a result, we expect a range of 2.6% to 7.4% increase in operating expenses, excluding credit card fees and rent or 32,500 to 34,000 on a per store month basis. This forecast does not assume a repeat of the special incentive program we implemented in 2022.

For corporate cost, general and administrative expense adjusted for the $25 million contribution to the Murphy USA Charitable Foundation was $208 million, within the guided range of $200 million to $210 million....

Read the full article on Seeking Alpha