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Susser Holdings Corporation (SUSS)

Q2 2009 Earnings Call Transcript

August 5, 2009 11:00 am ET

Executives

Chip Bonner – EVP and General Counsel

Sam Susser – President and CEO

Steve DeSutter – President and CEO, Retail

Mary Sullivan – EVP, CFO and Treasurer

Analysts

John Lawrence – Morgan Keegan

Anthony Lebiedzinski – Sidoti & Company

Bill Ruder [ph] – Banc of America Securities

Bryan Hunt – Wells Fargo Securities

Jeff Blaeser – Morgan Joseph

Mike Smith – Kansas City Capital

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Susser Holdings Corporation second quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. And following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Wednesday, August 5th of 2009 and a replay will be available with information in today’s news release.

I would now like to turn the conference over to Chip Bonner, Executive Vice President. Please go ahead.

Chip Bonner

Good morning everyone. Thank you for joining us. This morning we released our second quarter 2009 earnings and our news release was broadcast to our email list. If you would like to be added to our list, please contact our investor relations firm, DRG&E at 713-529-6600 or send your request via the IR page of our website and we will be glad to add you.

A replay will be available both on the Web and via the telephone replay. To access the replay on the Web, go to our IR page at www.susser.com. You will find the phone number and the access code in the earnings release if you would like to listen by phone.

Today's call contains various forward-looking statements and includes information that is 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 risk and uncertainties are detailed in our 2008 10-K and our subsequent 10-Q filings.

We will discuss certain non-GAAP financial measures that we believe are helpful for a full understanding of our financial condition. Please refer to our news release, which includes a reconciliation of each financial measure.

Information reported on this call speaks only to the Company's view as of today, August 5th, 2009, so time-sensitive information may no longer be accurate at the time of any replay.

Now, I will turn the call over to Sam Susser, our President and CEO.

Sam Susser

Thanks Chip and good morning to everyone. Also with me on the call are Steve DeSutter, President and CEO of our Retail division; Mary Sullivan, our Chief Financial Officer; and other members of our management team.

During the second quarter we continued to show solid growth in same-store merchandise sales. As we reported in this morning’s news release, our same-store sales increased 4.6% on top of a very strong 6.6% in the second quarter of last year. Merchandise margin was 33.3% versus 34.3% a year ago.

Three key issues that impacted the quarter include lower fuel margins as prices moved up steadily during the second quarter. As you know, crude oil moved from $48 a barrel on April 1 to $70 a barrel on June 30th. The federal excise tax increase on cigarettes drove up revenue per unit but reduced merchandise margin. And by our customers trading down to lower priced merchandise in food items in selected areas of the business. Still, given the overall economic backdrop, we are very pleased with these results.

Unemployment in our region has gone up significantly from a year ago. And we are seeing changes in consumer patterns especially in the areas of West Texas that are most directly affected by oil and gas activity as well as in the locations that cater to the 18-wheel truck diesel customers. Unemployment in Texas during June 2009 was 7.5% versus 4.8% in June of last year. This still remains well below the U.S. average of 9.5%.

Although we haven’t experienced the boom and bust in real estate during this cycle that many other parts of the country are dealing with new home construction, manufacturing, international trade, and oil and gas drilling clearly have softened.

As I mentioned, we are seeing evidence of customers trading down to lower margin items especially in the packaged beverage, beer, and food service categories. Our category managers are working closely with our supplier partners to create the best values possible for our customers.

Thanks in part to the lower fuel prices that lifted demand, we enjoyed a 6.5% increase in year-over-year average retail fuel volumes sold per store. The average retail price for fuel in the second quarter was $2.21 per gallon, which is a $1.53 decrease from the second quarter of last year, and a $0.41 per gallon increase from the first quarter of 2009.

While volumes were up, retail fuel margins were down versus the second quarter of last year. Our second quarter retail margin was $0.152 versus $0.195 a year ago. For the past five years our second quarter retail fuel margins have averaged $0.155 per gallon.

Wholesale volumes were up 1.2% year-over-year and margins were off $0.02 from a year ago at $0.04.

As you may have seen in our news release on Monday, we have entered into a definitive agreement to acquire 25 convenience stores. 24 of those sites are long term leases and there is one (inaudible) property. We expect to convert a majority of the stores to our dealer and all stores will be supplied branded motor fuel by Susser Petroleum under long term fuel agreements. We currently supply 11 of the 25 sites with fuel today. Existing supply relationships helped to create this opportunity.

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