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Susser Holdings Corporation (SUSS)

Q3 2008 Earnings Call

November 6, 2008 11:00 am ET

Executives

Chip Bonner - EVP and General Counsel

Sam Susser - President and CEO

Steve DeSutter - President and CEO of Retail

Mary Sullivan - EVP, Treasurer and CFO

Analysts

John Lawrence - Morgan, Keegan & Company

Bryan Hunt - Wachovia

Anthony Lebiedzinski - Sidoti & Company

Radina Russell - JPMorgan

Mike Smith - Kansas City Capital

Andrew Berg - Post Advisory Group

Chris Smith - SCM Advisors

Presentation

Chip Bonner

Thank you. Good morning, everyone. Thanks for joining us. Yesterday afternoon, Susser released its third quarter 2008 earnings and our news release was broadcast to our e-mail list. If you'd like to be added to our list, please contact our Investor Relation's firm, DRG&E at 713-529-6600, or send your requests via the Investor Relation's page of our website, and we will be glad to add you.

A replay will be available both on the web and via telephone replay. To access a replay on the web, go to our IR page at www.susser.com. You'll find a phone number and an access code in the Earnings Release, if you'd like to listen to replay by phone.

Today's call contains various forward-looking statements and includes information as based on management's beliefs and assumptions. It includes Susser's objectives, targets, plans, strategies, costs and anticipated capital expenditures. These statements involve risk and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in our 2007 10-K and our subsequent 10-Q filings.

We will discuss certain non-GAAP financial measures that we believe are helpful to a full understanding of our financial condition. Please refer to our news release which includes a presentation and reconciliation of each financial measure. Information reported on this call speaks only to the companies view as of today, November 6, 2008, so time sensitive information may no longer be accurate at the time of any replay.

Now, I'll turn the call over to Sam Susser, our CEO.

Sam Susser

Thanks, Chip and good morning, everyone. Along with us on the call this morning are Steve DeSutter, who joined Susser Holdings in June as the President and CEO of our Retail Division; Mary Sullivan, our CFO; and other members of our management team.

First, I'd like to make a couple of general remarks about the quarter and our view of how our company has faired in the phase of some very strong headwinds that are impacting the national economy.

We reported very strong numbers across all our businesses in the third quarter. Two hurricanes hit us directly and we still managed to produce one of the strongest quarters in our history.

Our same-store merchandise sales grew by 6.7% on a pro forma basis, which is near to top end of the average growth range we've seen over the last 10 years. This increase was on top of a 9.1% pro forma same-store increase in the third quarter of 2007.

We're using the term pro forma whenever we're in comparing against 2007 results assuming Town & Country was in the numbers for all of last year.

Our merchandise margins grew from 33.1% pro forma a year ago to 34.9%, which is the highest margin we've seen in seven years. These numbers reflect a continuation of strong trend in the merchandise business that we established early in the year.

And they demonstrate a successful integration of Town & Country as well as relatively stable economies in the markets where we operate in Texas, New Mexico and Oklahoma. They also speak to the particular characteristics of our business as compared with some other types of specialty retail operations you may own or follow.

No doubt, during the past quarter, our customers were feeling the pinch of higher gasoline prices, food prices and reduced real estate-related activity. But the merchandise sales increases we've been seeing all year, illustrate that our customer spending habit inside Stripes convenience stores are not terribly dependent or correlated on whether the overall economy is on an up swing or down swing.

Our customers continue to respond to our ability to provide the basic products and delicious food they want, at a price they want in a store setting that makes them to Stripes over the other convenience store down the block. I think our numbers demonstrate that we're doing a good job of [attending] to our business.

The same is in, and that's really true for consumer behavior on the outside of our stores. Last quarter, we talked about how fuel volumes had softened, as retail street prices hit $4 a gallon, especially along the Texas Mexico border.

We saw a continuation of this pattern during the third quarter as pro forma average fuel volumes declined by more than 6%. In the fourth quarter as gasoline prices have fallen below $2 a gallon in some markets, we're beginning to see volumes rebuild. So that’s a very positive development.

Fuel volumes and merchandise sales were also negatively impacted by Hurricane Dolly, which hit the lower Rio Grande Valley in July and Hurricane Ike, which hit the Houston and Galveston area in mid-September.

Despite the negative impact of two hurricanes, it was a great quarter with some of the highest fuel margins we've ever seen and we produce some of the strongest merchandise trends in our company’s history.

Mary will give some additional detail on the operational and financial impact of the two storms in a moment, but I want to say how grateful we are that none of our employees were hurt and our business is essentially running at full speed today.

Read the rest of this transcript for free on seekingalpha.com