🤑 It doesn’t get more affordable. Grab this 60% OFF Black Friday offer before it disappears…CLAIM SALE

Earnings call: Murphy USA sees growth in Q3 2024, plans expansion

EditorAhmed Abdulazez Abdulkadir
Published 11/01/2024, 09:17 AM
© Reuters.
MUSA
-

In the third quarter of 2024, Murphy USA (NYSE: NYSE:MUSA) reported strong financial results, as announced during their recent earnings call. CEO Andrew Clyde highlighted the company's success, driven by its low-cost strategy and growth in core categories such as fuel and nicotine products. With fuel volumes up by 2% and retail margins slightly increased, the company is pushing forward with an ambitious expansion plan that includes opening more stores and increasing capital expenditure to between $500 million and $525 million for the year.

Key Takeaways

  • Murphy USA's low-price strategy and core category growth drive strong financial results in Q3 2024.
  • Fuel volumes rose by 2%, with retail margins benefiting from falling prices.
  • Plans for organic growth include opening more stores in Q4 and 2025, with updated capital expenditure guidance.
  • Nicotine sales grew, with market share in combustible products surpassing 20% in Murphy markets.
  • QuickChek, despite competitive pressure, saw a 2.9% increase in fuel volumes in the Northeast.
  • Share repurchases totaled 700,000 shares for $320 million, with $1.1 billion remaining under the buyback authorization.
  • SG&A expenses are projected to be between $240 million and $250 million, reflecting cost control efforts.
  • Preliminary October performance indicates flat fuel volumes year-over-year with a slight increase in retail margins.

Company Outlook

  • Murphy USA plans to sustain a run rate of approximately 50 new stores annually.
  • The company is upbeat about the performance of new stores, which are outperforming existing locations in key metrics.
  • Expectations are set for continued momentum into Q4 and 2025, supported by promotional activities and the QuickChek Rewards relaunch.

Bearish Highlights

  • Operating expenses rose by 4%, with future costs expected to increase by 5% to 6% due to new store openings.
  • A slowdown in same-store performance was noted, attributed to market dynamics and pricing trends.

Bullish Highlights

  • The company's market share in combustible nicotine products exceeded expectations.
  • Consumer behavior is stabilizing with a focus on value, which could benefit Murphy USA's value promotions and rewards programs.
  • The company's digital transformation and in-store experience upgrades are ongoing initiatives expected to yield benefits.

Misses

  • Despite an easy year-over-year comparison, a slowdown in same-store performance was observed.

Q&A Highlights

  • Executives discussed the anticipated benefits from ongoing investments and initiatives, with a cautious approach to expectations for the coming year.
  • The importance of enhancing fuel offerings to drive store traffic was emphasized, with more detailed updates expected in February.
  • Full realization of some benefits is projected for 2026, with a growth target of $1.3 billion by 2028.

Murphy USA's third-quarter performance signals strong growth and strategic positioning in the convenience store and fuel retailing industry. The company's focus on core category growth, particularly in fuel and nicotine products, combined with a disciplined approach to expansion and operational efficiency, sets the stage for continued success in the coming years. With a clear strategy and a commitment to capitalizing on market opportunities, Murphy USA is poised for further growth and shareholder value creation.

InvestingPro Insights

Murphy USA's strong financial results in Q3 2024 are reflected in the company's robust market position and financial metrics. According to InvestingPro data, Murphy USA boasts a market capitalization of $9.92 billion, underscoring its significant presence in the convenience store and fuel retailing industry.

The company's aggressive share buyback program, highlighted as an InvestingPro Tip, aligns with the reported 700,000 shares repurchased for $320 million in the third quarter. This strategy not only demonstrates management's confidence in the company's future but also supports shareholder value, which is consistent with Murphy USA's strong performance and expansion plans.

Murphy USA's commitment to shareholder returns is further evidenced by its dividend policy. An InvestingPro Tip reveals that the company has raised its dividend for 5 consecutive years, with a current dividend yield of 0.39%. This consistent dividend growth, coupled with a 23.08% dividend growth rate over the last twelve months, reflects the company's strong cash flow generation and commitment to returning value to shareholders.

The company's financial strength is also apparent in its profitability metrics. With a P/E ratio of 19.58 and an adjusted P/E ratio of 18.72 for the last twelve months, Murphy USA trades at a premium compared to some peers, suggesting investor confidence in its growth prospects. This is supported by the InvestingPro Tip indicating that analysts predict the company will be profitable this year, which aligns with the positive outlook presented in the earnings call.

It's worth noting that while Murphy USA has shown strong performance, it operates with some financial considerations. The InvestingPro Tip mentioning that short-term obligations exceed liquid assets suggests that investors should monitor the company's liquidity position, especially given the ambitious expansion plans and increased capital expenditure outlined in the earnings report.

For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Murphy USA, providing a deeper understanding of the company's financial health and market position.

Full transcript - Murphy USA Inc (MUSA) Q3 2024:

Operator: Thank you for standing by. I would like to welcome everyone to the Murphy USA Third Quarter 2024 Earnings Conference Call. All participants are in a listen-only mode. We also conduct question-and-answer session and instruction will be given later. I would now like to turn the call over to Christian Pikul, Vice President of Investor Relations. Please go ahead.

Christian Pikul: Thank you, Dustin. Good morning, everybody, and thank you all for joining us today. With me are Andrew Clyde, Chief Executive Officer; Mindy West, Chief Operating Officer; Galagher Jeff, Chief Financial Officer; and Donnie Smith, Chief Accounting Officer. After some opening comments from Andrew, Galagher will provide an overview of the financial results, 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 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 those 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'll turn the call over to Andrew.

Andrew Clyde: Thank you, Christian, and good morning, everyone. Murphy USA continued to demonstrate the benefits of its advantaged business model as we delivered strong third quarter results from our core categories, once again benefiting from our distinctive everyday low-price positioning with the growing segment of value focused consumers. In addition to our strong current period results, I'm very excited about the acceleration in organic growth as current construction projects underway put us in a great place for Q4 openings and sets the foundation for more new stores and earnings growth in 2025 and beyond. Our efforts to front load our real estate pipeline have paid off as we've seen more stores exit the permitting process than expected. As such, we are updating our CapEx projections for the year as we take advantage of this beneficial timing. I want to acknowledge our asset development team who worked hard to build this high-quality pipeline and implement process improvements to ensure we would hit our goals this year and put us in a better position for ratable store growth going forward. Galagher will provide some more details on our CapEx and growth programs later in the call. Unpacking third quarter results, we see continued outperformance in our core nondiscretionary categories, including fuel and nicotine. We grew both fuel volumes and retail margins with total and APSM volumes up 2% and 1.1% respectively. Retail margins were up a little over $0.03 versus the prior year, largely due to a modest falling price environment. All in fuel margins were about $0.02 lower when combined with PS&W results, which behaved as we expected in a period of falling wholesale prices. In fact, the entire $0.05 per gallon difference versus the prior year quarter is attributable to the accounting and timing variance associated with our internal supply transactions and inventory positions impacted by the year-over-year difference in price movement. For the full year, we expect PS&W contribution to land closer to the low end of the $0.02 to $0.03 per gallon range we have told investors to expect over the long term as we continue to see a long supply market with lower volatility. Looking at our merchandise results, notably across the Murphy geographies, we are seeing the incremental benefit in basket building categories from the customer trade down in our traffic driving categories. In turn, we are leveraging the strengths of these core categories, including fuel, nicotine, beer and lottery to drive transactions and other more discretionary categories across the center of the store. Performance within the nicotine ecosystem specifically remains exceptionally strong. We are continuing to grow our market share in combustible products, eclipsing 20% share in Murphy markets. Similarly, we are taking share in driving sales and margin growth in traditional smokeless products and the fast-growing oral nicotine category, where collectively we are seeing double digit growth in sales and margin, further differentiating our performance versus peers. Under the Murphy banner stores, we saw total packaged beverage sales and margin growth of 2.9% and 6.2%, respectively. Further, we saw mid-high single-digit strength in general merchandise, candy and salty snacks, each of which grew share in our markets versus broader declines registered in the Nielsen data. In total, Murphy stores grew non nicotine total sales and margin 2.7% and 4.8%, respectively, underscoring both the strength of our core customers in our core geographies and the relative attractiveness of our offer. These results reflect the value of 2024 initiatives, including personalization of MDR offers to encourage customers to experience different elements of the Murphy USA offer, as well as analytics driven pricing and assortment strategies to optimize our offer and leverage price elasticities at the SKU level. On the QuickChek side, competition from QSR value pricing continued in Q3, continuing to pressure food and beverage traffic and margins and center store baskets. Nevertheless, fuel had a great quarter in the Northeast, where total volumes were up 2.9% and fuel margin dollars were up 9.2%. Coffee sales were a bright spot, up 4.3% on a per store basis with made to order specialty drinks up 14% on a per store basis as QuickChek placed second nationally in CSP's annual survey of coffee programs. Overall, food and beverage sales per store were essentially flat with center of store sales down 1.2%. Recognizing the inside traffic headwinds will likely persist into 2025, we are taking intentional action to drive QuickChek traffic and further increase the competitiveness of our value offer. In fact, inside transactions at QuickChek have improved throughout the third quarter from a 6% year-over-year decline in July to a 1% decline in September. We kicked off the fourth quarter with new value offers and promotions in the breakfast and lunch dayparts, featuring a $3.99 6-inch Italian spicy chicken or chicken tender sub sandwich. Additionally, we expanded our value offer on breakfast with a $5 breakfast bundle, including a breakfast sandwich, spuds and any size coffee and while it's early in the sandwich promotion, we are seeing significant customer uptake in the 6-inch sub offer where volumes were up 63% and perhaps more encouragingly, we are seeing a 16% increase in total sandwich units, meaning we are seeing cross pollination across the category. Coupled with the higher traction in the New York Giants premium subs versus their inaugural launch last year, we are very encouraged by the trips and transactions we are seeing attached to this core traffic driving category. Further capitalized on this momentum, we expect the newly designed and relaunched QuickChek Rewards program, which went live earlier this week to offer additional opportunities to engage with our customers and drive sales in 2025. The new app will feature mobile ordering and delivery, in app payment options, the ability to earn points on fuel transactions and extends deeper into more center store categories. This is another great example of a cross functional capability we are bringing to QuickChek based on the huge success and impact of our own Murphy Drive Rewards program. Taking these initiatives together, we expect to show incremental improvement in transactions into the fourth quarter at QuickChek, setting the stage for a more robust recovery in 2025. Turning to operating expense, average per store month OpEx was up 4% in the third quarter, a sequential improvement versus the first half of 2024 as we start to lap some wage increases and other investments we made in the stores in the second half of 2023. Importantly, only half of this increase is attributable to same-store increases, meaning the other half of the growth reflects the impact of a higher mix of larger new stores and raze-and-rebuild stores in the network. Given that we will be adding more new stores this year, next year and beyond, we expect this trend to continue and would therefore expect same-store costs to increase at about a 3% clip, which would translate into network wide per store cost growth in the 5% to 6% range going forward. The team has done a great job this year making QuickChek stores more efficient through demand planning and implementing a more sophisticated and efficient store labor model, a process we also expect to roll out at Murphy stores next year. Before I turn the call over to Galagher to provide more color on our store growth and capital allocation, I just want to reiterate we are very pleased with third quarter results. We have a lot of irons in the fire to further optimize and grow the business in the fourth quarter and the team is engaged and excited, all of which suggest 2025 will be another rewarding year for our team members and our shareholders.

Galagher Jeff: Hello, everyone, and thank you, Andrew. As Andrew mentioned, our asset development team is firing on all cylinders and on track to deliver our strategy of strong organic growth in 2024 and 2025. We opened four new stores in the third quarter, bringing our year-to-date openings to 10, including one QuickChek store. We also reopened 16 raze-and-rebuild stores, our ongoing program to transform small kiosk into 1400 square foot stores in Q3, which brings us to 27 raze-and-rebuild projects open year-to-date. Since quarter end, there are additional two new stores and four raze-and-rebuild stores that have opened. We've also accelerated our construction activity to its highest level in the past 10 years with 29 new stores and 15 raze-and-rebuild currently under construction. We've already started construction on some of our 2025 new builds. So when you add all that up, we are looking at up to 40 new stores and 47 raze-and-rebuilds scheduled for completion in 2024. However, some of these projects could potentially slip into early 2025. So our new store and raze-and-rebuild guidance remains unchanged at this time at 30 to 35 new stores and more than 40 raze-and-rebuilds. I want to again recognize our asset development team for finding efficiencies in the store development program and better managing risk, which has allowed us to not only achieve our 2024 new store guidance, but also deliver more raze-and-rebuilds than we had planned. Additionally, the team has moved forward more projects into the fourth quarter to provide a meaningful head start to the 2025 new store class, where we will get more stores open earlier in the year, helping to grow our EBITDA in 2025 and going forward. As such, we are increasing our capital expenditure guidance to a range of $500 million to $525 million in 2024. Importantly, all of this increase is attributable to the stronger than expected organic growth, including the high level of raze-and-rebuild activities, more new stores under construction for 2024 and a head start on our 2025 new store program. We're moving toward our objective of sustainable run rate for the organization of about 50 new stores per year and with that, we expect a similar level of capital spend in 2025. To wrap up our newbuild program discussion, we're very pleased with both the quality of the pipeline and the performance of our new stores to provide predictable and consistent incremental EBITDA for the next several years as the stores begin their three-year ramp to maturity. New Murphy USA stores are generating attractive returns with key performance metrics well above the network average. For the 2022 and 2023 build classes, those 56 stores are having 292,000 gallons per store month and 43,000 merchandising contribution dollars per store month, which is 18% and 27% higher than the network averages respectively. So we're building more new stores and these stores are delivering more and outperforming our existing stores, which demonstrates why we are excited to accelerate this growth and that will be highly impactful to our company performance going forward. Turning to share repurchase, we bought back 244,000 shares in the second quarter and remain committed to ongoing share repurchases. We continue to execute against the existing board authorization to repurchase up to 1.5 billion of our stock, which extends through 2028. Through the third, we have bought back nearly 700,000 shares for $320 million leaving about 1.1 billion remaining under our Board authorization. You may have noticed we ended the quarter with a $41 million balance on our revolver. As we continue to allocate cash toward growth, share repurchases and operations from time to time we will access our revolver to manage our daily liquidity needs. As a reminder, we typically see $400 million moving in and out of the business in any given week and depending on the timing of receipts, vendor payments, tax payments and the day of the week the period ends, managing liquidity with the revolver becomes a more common place as we efficiently allocate funds for both growth and share repurchase. One last guidance measure to address before I turn the call back over to Andrew. In addition to increasing our capital expenditure guidance, we're also tightly managing our expenses and investments. With our ongoing cost control efforts and more targeted investments, we're reducing our SG&A guidance to a range of $240 million to $250 million versus the prior range of $255 million to $265 million. Thank you. And with that, I'll turn the call back over to Andrew.

Andrew Clyde: Thanks, Galagher. As usual, I'll close with a preliminary view of October performance. Per store fuel volumes are flat to prior year at retail only margins of about $0. 27 October merchandise trends are showing performance broadly in line with the third quarter with total sales and margin up 2% to 3%. As mentioned, between our promotional activities at QuickChek and the relaunch of QC Rewards, we are looking to build momentum in Q4 as we head into 2025. Looking at year-to-date performance, average per store month volumes are flat with retail margins about $0.015 higher than last or about $0.28 versus $0.265 while all-in fuel margins are about $0.01 lower or just a little under $0.30 per gallon year-to-date in 2024 versus $0.31 per gallon in 2023. Couple of thoughts to share as we put this into the context of the broader $0.30 to $0.34 per gallon fuel margin range we use for our modeling purposes. As we noted previously, the upper end of the range requires one or both of two market dynamics to occur. First, a steeply falling price environment like the one we witnessed in Q3 of 2022 where retail margins are elevated more than offsetting the timing variance in PS&W. This has occurred about once every six to eight years and you can certainly see this coming as prices run up. [Technical Difficulty] Where wholesale prices are well above our OPUS low transfer price. This contrasts with the long-oversupplied market where refiners discounted the RAC and again, there are indicators like an increase in colonial line space values, more significant prolonged refinery outages and the like. In 2024, we have seen neither of these conditions despite the geopolitical headlines. As such, we would expect margins to remain in a tighter $0.30 to $0.32 per gallon range in a more normal somewhat benign environment and within this framework, we do continue to believe challenged in store performance, declining fuel volumes and higher costs for marginal retailers will continue to result in higher equilibrium margins and as such, we expect to see structural upward pressure on margins over time. As we put this in the context of a walk forward to our 2028 goal of $1.3 billion in EBITDA, we don't require this upward pressure that creates higher industry margins to achieve our goal as new and rebuilt stores and capability investments of scale fully pave the way. Rather, it's an upside case and we continue to believe there is significantly more upside on fuel margins than downside. And with that, I'll turn the call back to the operator for Q&A.

Operator: Thank you. [Operator Instructions]. Your first question comes from the line of Anthony Bonadio from Wells Fargo.

Anthony Bonadio: Your line is open. Hey, good morning guys. Nice quarter. So I want to start off with NTI stores. I think, Galagher, you mentioned as many as 40 NTI stores this year now versus that initial 30 to 35 number, which is not something we've been used to hearing from you guys. So can you maybe just talk about what went right this year that allowed you to contemplate beating your target? And then any early thoughts on how you're planning NTIs for 2025 as we think about both magnitude and guidance or in cadence?

Andrew Clyde: Yeah, this is Andrew. Look, I mean, the first thing is we have been working on building up the pipeline. We've made the point on several calls that we've been a little disappointed in not hitting the number. Part of it was a function of the pipeline, part of it was a process of stores moving to the pipeline, especially tied up in the permitting part of the process. So we've built up a pipeline that gives us confidence of a 50 store per year build class in the future, and we are seeing some breaks in the permitting process and we just had more become as we use the term shovel ready, in the fourth quarter that, we move forward and that really front loads Q1 and the benefit of running front loading Q1 is you get that earnings for the entire 12-month period versus having your entire portfolio back-end loaded. So confidence around the pipeline, a little more certainty around the permitting process, and importantly a more ratable build throughout the year are things that we should look forward to and on top of that, the increased performance of those per store metrics that Galagher went over, all of which continue to get amplified with the improvement initiatives that we have underway.

Galagher Jeff: Anthony. The only thing I would add to that is, as Andrew mentioned, we are the cadence is very important. Getting more open earlier in the year gives us confidence that we can deliver the number. We're not ready to give guidance for 2025 yet, but we are moving closer to our objective of 50 NTIs a year. So, we'll move toward that in 2025 and, you should see that soon.

Anthony Bonadio: Got it. That's helpful. And then just on inside contribution, if I take the low end of your contribution guidance for the year, that now implies something like 3% to 4% growth in Q4, which does represent an acceleration from what you just mentioned. So can you just talk about the drivers of that acceleration a little bit more? And then how to think about underlying contributions from same-store sales and margins?

Andrew Clyde: Yeah. Well, I think again let's separate the Murphy banner from the QuickChek banner. I mean the Murphy banner continues to benefit from our traffic driving categories fuel, nicotine, beer, and even lottery, even with the online gaming etc. going on. That's helping center the store on the Murphy side, which is really important and we read the headlines around packaged beverage and salty snacks and what's happening there. We're not seeing that on the Murphy side. We're seeing the opposite because we're getting the flow through, into the stores and with more raze-and-rebuild stores with a bigger center of store with the new 2,800 center of the store, we feel really good about that. The QuickChek business, is food and beverage led and as we've talked and again we read about in the news constantly, a lot of value wars going on in that space, breakfast daypart, coffee daypart, lunch sandwiches, etc. And so having food and beverage sales flat essentially on a per store basis, I guess feels good in this environment, but certainly didn't meet our expectation and our plan going into the year where we just didn't anticipate the persistent inflation and the level of kind of price wars, some of which we're reading about are alleviating and I think as you see our coffee program and some of the numbers we talked about there by being a value brand, to start with, we didn't have to take some of the same steps, to maintain traction in that environment. Center of store has been an area at QC that with the lighter traffic on the food and beverage side has been down and you see some of the more industry type numbers on packaged beverage, salty snacks, etc. I think our promotional activity and the results we're seeing there, coupled with the launch of QuickChek Rewards, which we think is going to be, you know, as impactful in its categories as Murphy Drop Rewards was within its core categories, is going to really allow us to build that momentum. So as we go into 2025, we're going to have a real clear picture and so we'll have a higher level of confidence and certainty around the guidance we give in February, knowing that we missed our guidance that we gave in February this year.

Anthony Bonadio: Got it. Appreciate it guys.

Operator: Our next question comes from the line of Bonnie Herzog from Goldman Sachs. Your line is open.

Bonnie Herzog: Thank you. Good morning. I wanted to ask about your fuel volumes, which were up, I guess, a modest 50 bps on a same-store basis in the quarter. This is despite an easy year-over-year compare. So could you talk through the drivers of a bit of a slowdown that you're seeing? And really, Andrew your outlook for industry fuel volumes over the next few years. Also could you maybe talk about any benefit you might have seen in the quarter and possibly in October from the hurricanes, I guess Helene and Milton? Thanks.

Andrew Clyde: Yes. So look, I think if you go back on a three-year stack, I mean, you look at one-year numbers, two-year numbers, two-years numbers, in the period where we gained the most significant market share, we're still holding on to close to 5% on a three-year stack basis. So we know in high prices and falling price environments, that's ultimately when we take the most share and as we said before in low pricing like we're seeing now, we give a little bit of that back and Murphy Drive Rewards has been a significant contributor into not giving as much back as we would have given back in say 2015 after the price fall off in 2014. So, we're actually view this as positive especially given kind of the macro trends around relatively flat fuel gallons. With respect to the two hurricanes, first of all, our team did an incredible job keeping stores open to the last possible safe moment, for our teams and getting them opened very quickly and we saw the typical, pre-storm buy followed by a dip in the days where maybe some stores couldn't reopen due to power being out, but with generators getting to the stores quickly, getting those volumes back up. So no real appreciable impact from the stores and minimum damage, thankfully to the stores and no impact materially to our team members. Our Tampa terminal, also the team did an incredible job of preparing it. It was the last to close and the first to reopen, and our fuel transport providers, which we use third parties for did a great job reallocating trucks. So, despite all the headline news, there's really no material impact to us from fuel gallons standpoint, from the two storms.

Bonnie Herzog: Okay. That's helpful and good to hear. And then, I wanted to make a comment, and share that I absolutely love that you're rebranding your tobacco business to nicotine. So hoping to hear a little more color on some of the strength you're seeing there and if you have plans, I guess, to change your fast bar, either this year still or early next year to add essentially more space for smoke-free nicotine products and in the context of that ultimately do you see further upside to your nicotine margins over the next few years? Thank you.

Andrew Clyde: Sure. I mean, you know, when we talk to investors, many have taken the position that nicotine broadly or the tobacco category as we called it previously, is a growing category and certainly oral nicotine, non-combustible products are a significant portion of that growth. So it's just changing the times. It's interesting when we acquired QuickChek they had already named the category nicotine on their side. So in terms of color, we'll continue to provide the same color that we have in the past, right. We're growing share across the categories. We're constantly making updates to our back bar optimizing space there, working closely with the manufacturers on that. So in terms of a complete revamp of our back bar, I don't see that coming. It'll just be the continued evolution as we've been a leader on a lot of the products. With respect to upside, I think there's going to be upside in at least three areas. One, as other retailers’ kind of deemphasize the traditional products, and with the price increases that you see from the manufacturers, our everyday low price becomes more and more and more relevant, and so we will continue to pick up share and grow contribution margin dollars, in the traditional products. Two, especially with the oral nicotine products and their higher contribution margin per use equivalent, that change in from growth associated with that will be positive and it may show up in a higher unit margin or it may not depending on how much the traditional products grow in relation to that but it will absolutely grow more contribution margin dollars. The third area of possible tailwinds, for us, would be if other retailers, manufacturers and distributors and the FDA and the DOJ, would take a more responsible approach towards the illicit and illegal products, in the marketplace and it's as we mentioned [Technical difficulty] the state took and we saw a significant uplift across the tobacco nicotine categories, in that state and so we see that as a, opportunity down the road as some have projected almost 80% of, vapor products are considered, illicit or illegal products.

Bonnie Herzog: Yes, very much agree. Thank you, Andrew. I'll pass it on.

Operator: Thank you. Our next question comes from the line of Bobby Griffin from Raymond James. Your line is open.

Bobby Griffin: Thanks for taking my questions. Congrats on a good quarter. Andrew, I want to first circle back just on the consumer behavior. Clearly, a lot of different moving parts in today's economy. We've talked past calls about the QSR promotional pressure and things like that, but on a high level, how would you characterize it all versus 2Q or 1Q? Is it starting to get stable, when you look at the consumer pressure? Just curious kind of what you would characterize it on a sequential basis, to help us frame it up as we're heading into 2025?

Andrew Clyde: On a sequential basis, it does feel like it's stabilizing, somewhat. Certainly [Technical Difficulty] have been out there. So sequentially, as we see some of the retailers announcing whether it's a coffee program or sandwich program backing away, from some of those that's going to be positive. We're having to make a trade off with the 399 six-inch promotional subs, so we're seeing a shift in mix from 12-inch to six-inch but the uplift we're seeing on that is more than breakeven to positive. So, the customer is definitely value focused. We see some of that play off in the center of the store with the basket not being maybe as complete, but I think with some uncertainty in the economy, we'll continue to see the value customer behaving as we've seen over the last couple of quarters. I think it's going to be some of the competitive relief that we certainly expect to see later in 2025, but Q1, Q2 we probably expect to continue to see competitive value offers from a broader set of QSRs. I was going to say on the Murphy side, we continue to see the core fuel nicotine, beer lottery categories, driving consumers and we're continuing to see the trade down to Murphy from other retailers as evidenced in our share growth there and so the good news is it represents a higher proportion of our total network and higher proportion of our future growth as well. So, while we're doing concrete steps to intentionally address some of the traffic headwinds at QuickChek, those same types of steps at Murphy are having even more compounding benefit.

Bobby Griffin: Okay. I appreciate that. And then maybe talk about something we first talked about in March. I think you guys identified some opportunities. I believe you phrased it like pulling up the bottom quartile of each quartile of your stores and EBITDA and just curious where we are in that journey? Are we still kind of in the identified stage of finding the stores and finding the opportunities? Or are we moving towards more into the execution side of that, where that starts to flow through in 2025? Just anything there on one of those initiatives that we were talking about?

Mindy West: Hi, good morning, Bobby. This is Mindy. I'm happy to take that question. Thanks for remembering and asking. Actually, we have made progress on that initiative. We've done the work to really separate our stores in to groups, based on the structural factors, we can look towards on a like-to-like basis and asses the variability and performance. The good news is we do see variability. We have 30 clusters of similar stores and because we now see variability on like-for-like stores that says that the variant should be controllable at least to some degree and we are also now able to attribute most of that addressable variability to some 11 different performance drivers and of those drivers, fuel sales, influenced by the Spencer Health represents our largest theoretical upside. So what we're going to be doing next is do a proof-of-concept test beginning as early as actually next week to a small set of stores with a plan to roll out to a larger set and that proof-of-concept really will let us assess what is really feasible at the store, what gaps do we have in getting that benefit both at the store and at the home office, and will help to inform a large rollout. So, we're still in the testing and learning phases and we're in the early days of that, but we will continue to be able to refine what’s really possible for upside capture, what investments also are we going to have to put against that in order to get that benefit capture and also how do we make that benefit sustaining as we go forward. So, yes, we should see some benefit for that in the next year, but again, we're trying to keep our expectations conservative at this point, because there is no perfect store and even though you might find some theoretical opportunity, trying to figure out what is actually realistic to expect and what gaps do we have at the store and in home office to actually get that potential, we're still trying to figure that out, but I think as we come into next year after having done this pilot, we will be a lot more informed about what the actual potential is and we will be able to start really putting some numbers behind this and giving you some more concrete guidance of what we can expect and when we can expect to get the benefit.

Andrew Clyde: Yes, Bobby, one thing I will add to that, those inherent structural uncontrollable factors absolutely make up the top half of that range that we presented in our investor deck. So we're working on the bottom half of that range and as Mindy said, proving that out. The other thing is, if there's one thing this incredible team of people does is they're always looking for the next opportunity and pushing it forward, but we also have a few things that we want to complete with excellence like our digital transformation initiative that continues to roll into Q1 of next year, our in-store experience initiative where we've remodeled stores and taken the learnings of that into our store of tomorrow and then some other common systems work that we're doing across the enterprise and so there's a pacing mechanism there also reflecting things that we've started that are delivering real tangible benefits to the bottom line that we want to finish with excellence, and Mindy leading the initiative with Galagher rightly focusing on the biggest upside opportunity on fuel can make a huge difference because that is one of our traffic driving categories that impacts the entire store, at Murphy. So more to come on that in February, but it's really something that, you know, we're not going to probably see fully baked in until 2026.

Bobby Griffin: Thank you. I appreciate the details. Best of luck here in the fourth quarter.

Andrew Clyde: Great. Thank you.

Operator: Thank you. Seeing as there are no more questions in the queue, that concludes our question-and-answer session. I'll now turn the call back over to Andrew Clyde for closing remarks.

Andrew Clyde: Great. Well, thanks everyone for joining. It's great to see a quarter come together despite all the noise and uncertainty, out there in the marketplace and with consumers and I think it's just evidence that, our brands are delivering on a value offer that just continues to resonate. Our capability investments are continuing to translate into real results that are meaningful to the business and the consumers and our teams across the enterprise are doing a great job in terms of preparing us for future growth in that walk to $1.3 billion in 2028. So, big thanks to all the teams out there that have went through a lot in Q3 with the hurricanes and the initiatives and everything that's going on. So congratulations to them and we'll look forward to speaking with investors soon. Thank you.

Operator: Thank you. Ladies and gentlemen, that concludes today's call. [Operator Closing Remarks].

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.