Susser Holdings' Management Presents at 2013 Consumer & Retail Conference (Transcript)

| About: Susser Holdings (SUSS)

Susser Holdings Corporation (NYSE:SUSS)

2013 Consumer & Retail Conference

March 12, 2013 2:00 pm ET


Mary E. Sullivan - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Steven C. DeSutter - Executive Vice President, Chief Executive Officer of Retail Operations and President of Retail Operations

Rocky B. Dewbre - Executive Vice President, President of Wholesale and Chief Operating Officer of Wholesale


Kelly A. Bania - BofA Merrill Lynch, Research Division

Kelly A. Bania - BofA Merrill Lynch, Research Division

And we're going to go ahead and get started here. I'm pleased to have the pleasure of introducing Susser Holdings this afternoon, which, in case you missed it, Susser now actually operates as 2 companies, really, a retail company and a wholesale company. And the wholesale company has just been restructured as MLP. So I'm sure we're going to hear more about that. But we have with us Mary Sullivan who's the CFO actually of both companies, I believe; and then, Steve DeSutter, the President and CEO of the Retail Division; and Rocky Dewbre, the President and COO of the Wholesale Division. So Mary, I'm just going to go turn it over to you and look forward to some Q&A to follow up.

Mary E. Sullivan

Thank you, Kelly. Good afternoon, everyone. Thanks for being here with us. We're a third-generation family-led business. Our headquarters for both the corporate office and the retail company's in Corpus Christi, Texas, and our wholesale division is headquartered in Houston.

Our roots go back 75 years in the fuel distribution business, and we've changed quite a bit since then. Today, we think of ourselves as selling convenience. I'm going to start off by saying don't think of us as a typical gas station that you might see up here. We've got a few pictures up here of some of our new stores. Stripes is our proprietary brand for our convenience stores. You see that they're larger than what you might be used to up here in this area. One nice thing about those large stores is we can incorporate our fresh food program, which we call Laredo Taco Company, that's currently in about 63% of our stores. Steve will talk about it a little bit in more detail, but it is wonderfully delicious, it's spicy and it's good value, so our customers love it.

We also have a network of independent operators of convenient stores that buy fuel from us under long-term contracts. So example is the Chevron station you see up here on the top left would be one of our dealer-operated stores.

So our network currently is about 1,140 stores. That would be 600 Stripes stores. We just opened 1 yesterday, and 353 now have that restaurant offering inside of them. We have over 580 branded convenient stores that are in our dealer network. So again, they're buying their fuel from us under long-term contracts, but they're operating the actual convenience store side of the business. And additionally, we have over 1,600 active commercial customers, which buy fuel from us. This could be municipalities. It's unbranded convenient stores, it's businesses, it's anybody that has a tank on their property that they buy fuel from -- by the tank load when they need it.

We think of ourselves as almost $1 billion of merchandise and $1.4 billion of gasoline every year of motor fuel, even though our revenues are approaching $6 billion.

Our EBITDA last year was $183 million. When we went public in 2006, our goal, as we told investors, is we wanted to double our EBITDA over the next 5 years, but we not only exceeded that. We've actually more than tripled our EBITDA over the last 6 years, so very proud of that.

We're also very proud of our record of growing our same-store sales by -- same-store merchandise sales every year for the past 24 years. We think it's imperative that you're growing that top line because you know you're going to have the inflation in the middle of your P&L.

We are very much a growth company, we have been and we still think of ourselves that way. We grow in 3 ways: First, we want to grow same-store sales every year. Second, we want to build new big-box retail stores every year, like the ones we've been doing. We, so far, have built over 145 of those. And occasionally, we're going to make a selective acquisition. Now, in our retail business, most of that company was built through acquisition, but now that we've continued to improve our portfolio, we're going to be pretty selective on what we buy because we want it to be accretive, not only financially but operationally. We have done 13 acquisitions over the last 24 years. Four of those doubled the size of the company, so we're certainly not afraid of a big deal, but our company is also pretty adept at managing that change.

We have grown through acquisition and through organic growth, both our revenues and our cash flow, over the 12 years you see here by a compound annual growth rate of 20%. And it would also be 20% if I'd done this graph on a 15- or 20-year basis.

So our footprint today covers 4 states in the fast-growing Southwest, and we're grateful to be so heavily positioned in Texas. It's certainly one of the reasons for the strong performance of our company. So here, we've got the red diamonds are our retail locations, and then the blue dots are our wholesale locations. These are the contracted dealer locations.

As you can see, we've got very strong exposure to the Eagle Ford shale, which is here in South Central Texas. It's also bringing a lot of manufacturing activity to this area. Midland-Odessa is the heart of the Permian Basin. Houston is growing by leaps and bounds. It is the #1 job growth in the country. We saw an article just yesterday, Houston alone added 118,000 jobs from January of 2011 to -- or January 2012 to January 2013. So huge, huge growth going on in this area.

We get asked quite often, "well, When are you going to expand outside of Texas?" Implying that, we should do that. And so we did this slide to show just the geography of the states that we're in is huge. We would stretch from Boston all the way to Louisiana. There's more square miles in our 4-state area than there is on the whole Eastern Seaboard and then some. Our area is also growing very fast. We have 3 of the biggest metropolitan areas in our state with very fast growth. We grew by 4.3 million people in the last 10 years since this period. That is larger than the whole population of Connecticut, as well as 23 other states. So a lot of growth potential in that area, and we don't see any shortage of new sites and any shortage of growth opportunities in this area.

This chart here shows that job growth -- this is over the last 5 years, Texas grew by about 0.5 million jobs. You can see East Coast and West Coast is losing jobs. So why is Texas doing so well? Well, a big piece of it is this job growth, but we're also a good state to do business in, consistently ranked one of the best, if not the best. Business is not a 4-letter word in Texas. Our governor knows that his job is to get out of the way and let us do what we do best. We have a balanced budget. We actually have a $10 billion plus surplus. We have no income tax. So a lot of companies are headquartered -- we have more Fortune 500 companies headquartered in Texas than any other state.

A lot of people think, well, that's all oil and gas drilling. You might be surprised to know that less than 3% of all the jobs in Texas are directly involved in oil and gas drilling. Yes, there's some related jobs outside of that energy-related, but it's really become a very diversified economy, much more so than it was in the 1980s.

So we're growing in really 3 primary ways: one, immigration in from other states; immigration from Mexico and other countries; and third, our population is growing. We have the second highest birthrate in the nation. And with that, then, we're a very young population. So you might think of us as we're growing future beer drinkers every day. A great place to be. I can't think of any other place I'd want to be invested right now.

So we have substantially grown our cash flow over the past 6 years. This chart on the left is our actually EBITDAR. So before rent, and you can see a very nice trend upward. We were up 8% last year on an actual basis. But there is some volatility in there, and that comes primarily from retail fuel margins. Retail margins are going to be volatile. We can somewhat influence them, but largely, we can't control them. And so, internally, we use a metric that we call Fuel-Neutral EBITDAR, which is this graph on the right. And what this does is recast these periods at the average 5-year fuel margin. So it strips out that volatility of fuel margins in your result. And what we get then is, how did we really do in growing that core business? Did we grow our merchandise sales? Our gas gallons? Did we control our expenses? This is what we think is important for the long-term growth of the business. It aligns ourselves with the shareholders, and because of that, this is a key metric that we use in our compensation plans. 1/2 of our bonus potential is based on this metric, and all of our equity compensation is based on that metric. So it's near and dear to my teammates and my heart. You can see last year, we grew that by 13% on a fuel normalized basis. So that is a great result and credit to the team for this accomplishment.

And at this point, I'm going to ask Steve DeSutter to cover a few highlights on the retail company. And then following Steve, Rocky's going to do the same on the Wholesale business.

Steven C. DeSutter

Thanks, Mary, and good afternoon, everyone. You're expecting me to say "Howdy," didn't you?

Well, I am from Texas, but I wasn't born there but like a lot of people in Texas these days, I got there as quickly as I could. The great state of Texas is a wonderful place to be, and I'm going to rehearse a few big numbers for you in a second. But as Mary mentioned earlier, we are a publicly-traded -- we're a family-based business, that means we have a lot of family-based values, but we're also proudly publicly-traded, and we have 2 publicly-traded companies, who are proudly listed on the New York Stock Exchange. And we don't forget that part when we stand up here today and we talk to you who reflect and who represent our investor community.

So some numbers, 559 convenience stores, actually, as of yesterday, 560. We opened another one. Approximately 8,500 employees work in the retail business. Mary mentioned between the retail and the wholesale business, 1.4 billion gallons of motor fuel in the last year.

We are driven by volume, and so our strategy is exactly that. You will see us as a very level-margined business. You won't see merchandise margins change dramatically if we have anything to do with it yet. Within our margin -- within our merchandise business, there's a shift going on. We are built on an amazing food business. I'm going to talk to you about that in a few minutes, and it claimed dependence on low-margin items like cigarette. And so overall, although, we could average up our margins, we tend to use our margins to achieve this strategic objective, and that's year in and year out. If we can grow our same-store sales by 4%, then we know we can grow very profitable and good returning business to shareholders. And that's what we strive to do. And so we don't let margin creep up. We use margins strategically to go after market share and market penetration.

Today, about 60% of our stores, a little over that actually, have Laredo Taco, our fresh food concept in our brand in them, and it is the secret sauce and it is the driver of the business. I'll speak to that in a minute a little bit more. And again, the higher margin in food has really helped us create something very special in our business model.

The chart on the left is also one that we're quite proud of and pretty stunning. This is average 4-store sales inside of merchandise. And you can see that year-over-year, growth-on-growth for a long period of time when Mary showed that CPG or fuel margin neutral slide and you saw those double-digit growth in the last few years, this is one of the big drivers, and it's inside sales. And what drive those inside sales are certainly some very favorable and formable economics behind this. The great state of Texas is growing in leaps and bounds, as Mary has already said. And the segment of that state that's growing largely, a Latino community, growing the fastest above all, are certainly in the sweet spot of our customer base.

Our new store development program also adds to these numbers in a very big way. The average new store has over doubled the food and merchandise sales of our smaller box stores. That also will apply the same for motor fuel.

We have very aggressive category management and have a group of MBAs who study our 22 merchandise categories on a daily basis and all kind of technology at their fingertips to be able to drive performance. That's a little unusual in the convenience store space. Not many of our competitors will have that kind of capability.

We leverage restaurant sales, and what we mean by that is really quite simple. With every $1 of fresh food purchase, 73% of the time, we get an equal dollar of other merchandise sales. And so leading with food is what we do. It's the stickiness and the glue in our business. We've invested a lot of capital in our stores and that's drove sales -- new stores certainly, but we also reinvest capital every year back into our stores looking for revenue-generating activities and refresh and remodel programs to make it a pleasant place for customers to shop, and we also get paid back for that in same-store sales increases.

Fuel is a similar story. It's great to be in Texas, but we've taken a few advantages of Texas in a few ways. One of those, across the bottom of this chart, this is the average for store gallons of motor fuel, now approaching 1.6 million gallons per store. But across the bottom's really an important chart. Two lines, one is auto diesel or light truck diesel, think about delivery trucks and pickup trucks and diesel automobiles. We've increased from 173 in 2006 to over 400 of our locations now have light-truck diesel. I'll tell you in a moment why that's important to our margin business.

We've also, dramatically, over 3 times increased the number of 18-wheel diesel. Diesel fuel, in the last quarter, was 21% of our business, and it represents a more stable and a slightly higher margin in terms of CPG. So it's helped us grow the margin of our business and grow our gallons very nicely. If you haven't noticed, this kind of average per store growth is significantly different than the same -- than the consumption that we see in motor fuels in the United States as a whole. So again, part of that is Texas, part of that is our aggressiveness, our facilities, our capital investment, some of the best pumps and dispensers, the average new store that we'll build this year will have 10 dispensers, which means 20 fueling sites, and that's if we don't add special 18-wheel diesel. If we do, then there'll be another 4 to 8 sites for 18-wheel diesel. So we'll become very sizable fuel pumpers.

Secret sauce in our business is certainly Laredo Taco, and I wish that I could somehow get the taste and the experience of this food off of this slide and out here into this room. And so you have to come to Texas and taste the tacos to understand what's unique about this business. It is authentic food, and what I mean by that is that a tortilla is hand-rolled in front of a customer in our stores, in over 300 of our stores. It starts with a bag of flour in the back of house. It doesn't start coming out of a package from some processor offsite.

The eggs, by the way, and Mary's going to have a fact, too, in little bit. I'll let her explain it, that an egg doesn't come out of a carton in our business or premade patty, which you might find on your Mick [ph] whatever sandwich and breakfast in the morning. They are cracked, all of them, either by hand or in automatic cracking machines in our stores. So it's fresh ingredients, and that's what wins our customers' oven -- over. It's made with love.

These are real people and examples of real people who buy our food. They have dirt on their boots, paint on their jeans, and they're coming in for unbelievable value. In fact, they come in very frequently. Our research tells us that the average Laredo Taco consumer, on average, visits our store 4.3 times a week. That's right. Almost every working day, on average, at least, once. We have customers that come in multiple times a day. They're there for breakfast, they're back in for lunch. For 1/2 chicken and 2 sides, $3.99, a value you can't get anywhere in New York City. I'm pretty certain, and they'll be back for a good 24-ounce cold one out of the ice bin at the end of the day.

The results have been underlying big growth driver in our business, and it's not last year, and it's not an anomaly, but it's consistent. The top chart here is food service sales, which includes fountain beverages, coffee and frozen carbonated beverages, in addition to our fresh food sales growing nicely year-on-year-on-year. That's $210 million of almost $1 billion of sales just coming from that segment of our business. And you can see here, these are actually units in the millions, over $95 million of them last year of fresh food items bought in our stores. It gives you a glimpse of how that fresh food business is performing year-over-year.

But growth just doesn't come from new stores, it also comes from our same-store base. And this chart is an interesting one. Most people who know us know our growth story. We've been building 5,000 to 7,000 square foot stores. They're big, they're beautiful and they're very difficult for anybody in our channel to compete with.

But what about the core of the old business? How does it do? This is the 144 stores that represent the oldest stores and the smallest stores in our chain, and this is the multi-year look at what merchandise sales have done, what gross profit continues to do in those stores. Even there, we find ways to increase fuel gallons, part of that is adding diesel, and part of that is being able to be very competitive because our big stores that we build nearby gives us competitive strength, and then four-wall cash flow.

So underlying this business of its 3 legs of growth, our basic same-store sales that go all the way to our core, building new stores and of course, acquisitions.

This chart will take you a little bit further to show you what those new store returns actually look like and how do they perform. So the first column on the left-hand side are those same 144 stores. They're about 2,600 square feet in size, on average, have a dozen to 15 parking spaces, and they generate about $290,000 annually on average of four-wall cash flow.

Big-box stores, average twice as big. 5,200 square feet. 146 of them, we've built since the year 2000, and they are generating about 2.5x the cash flow, over $630,000 per store. And often times, we're asked, "Well, What does that do?" Because a retail on a square foot basis, we don't actually pay a lot of attention to that, but I'll point you to slide 30 if you're interested, and the answer to that question in the appendix and you'll see that our average per store square foot continues to grow. Sales per square foot continue to grow, and it's not diluted by the big boxes.

How do the new boxes give us returns? On the left-hand side -- sorry about that. On the left-hand side of this chart, our stores opened 12 to 24 months, the next group over is 25 to 36 months, and the next group over to that are the 30 -- are the stores opened 3 years or longer. The combined total of those 140-some stores that we talked about before, those big boxes, are returning between 23% and 25% cash on cash.

The chart on the right-hand side is what you're more used to seeing, which is the leverage performance of those stores under our typical sale lease backdrop. That is getting your money back in less than 5 years, and our target is 20%, and we've been very, very fortunate to be able to beat that target with fairly aggressive goal.

This slide and the next slide, I'll only do a quick pass-through because, again, you've got to come to Texas and you need to see the stores because it's not the little stores that we passed on the way from the FPO yesterday, if you're from this part of town. These are stores with 30 to 75 parking spaces. These big footprints of stores of 5,000 to 7,000 square feet, with places to sit down and eat. They're extremely well-lit, they are very modern, and they're gorgeous and they're beautiful, and this is an example of them. One of the things I will point out as I move through this slide and the next slide is one of the things you'll notice is that out front, this one says Stripes, this one says Phillips 66. You may see even say Chevron, you may see them say Valero, and that's because we have the ability because of the sister business, the Wholesale business, to have access to some of the best fuel costs and the best supply points in our marketplaces.

This is a great segue for me to introduce to you Rocky Dewbre, and Rocky is President and COO of the wholesale segment of our business. Rocky?

Rocky B. Dewbre

Thanks, Steve. So in Susser Holdings, we have 2 segments, retail and wholesale. Our Wholesale segment, we are the largest fuel distributor in the state of Texas. We sell 1.4 billion gallons a year of fuel. The pie chart, upper right, shows you the breakdown of volume by customer type. Our largest customer is Stripes. About 59% of our volume we sell to our Stripes locations. About 8% of our volume, we sell to what we call dealer consignment sites. Those are sites operated by an independent operator, but we handle the fuel. So we sell fuel to the end consumer. We pay the dealer a commission to sell our fuel, and we make the margin in between. 22% of our volume, we sell to what we call dealer supply locations. Those are locations that are operated by independent operators, but they set the price. We sell them fuel by the truckload on a cost-plus basis, so we have a very stable margin on that piece of business.

The balance of our volume, 11%, we sell to about 1,600 commercial customers. That could be a school district, that could be a FedEx, Halliburton, a lot of different types of customers. So that's the balance of our gallons sold.

We get asked occasionally, "So why do you have a Wholesale and a Retail business under one roof?" Well, the reason is we think there's synergy there. So by combining the volume that Stripes needs for its retail stores with the volume of our wholesale network, we're able to buy better. We're blessed to be located in the Gulf Coast region, where a large portion of the nation's refining capacity is based. So by aggregating volume, we're able to leverage that buying power.

We've grown via acquisition. Mary mentioned earlier, at Susser Holdings, we've done about, I think, what, 13 acquisitions over the last 20 years or so. We've done 3 acquisitions in the wholesale channel, specifically, in the last 4 years, and we hope to continue that.

We're a branded fuels distributor, again, the largest in the state of Texas. We represent a number of brands. All the major brands that sell fuel through the distributor channel in Texas we represent. The upper left of this chart shows you the brands that we are distributors for. About 36% of our volume is Valero branded fuel. About 19% is Chevron, and the balance is spread across about 20 different suppliers that we buy fuel from.

We have long-term relationships with these suppliers, and it gives us insight into acquisition opportunities by having a relationship with multiple refiners.

In September of last year, we were able to do a spinoff of our wholesale business into a master limited partnership. Thank you, Mary. So in the master limited partnership structure, it's -- provided your income, the qualification is met at 90% or more, it's tax-free. So they trade at a higher multiple. We struggled in the past. We felt that the investment community didn't fully understand our business. A lot of our comps out there are strictly retail: Casey's, Trustar, 7-Eleven. Those guys typically don't have a wholesale segment. So we got lumped -- our cash flow got lumped together and valued accordingly. By separating this business, we now have a mark every day as what it's worth.

By spinning it out, the parent company, Susser Holdings, retained 50.1% ownership of the limited partner units. We also own 100% of the general partner. For that reason, we will continue to consolidate the results into Susser Holdings just as we have in the past, but we get the benefit of a lower cost of capital in an MLP structure.

One change that we made when we did the public offering was, historically, fuel sold between the -- from the wholesale segment to the retail segment was sold at cost. When we put the new structure in place, we signed a new 10-year agreement, where there's a $0.03 markup that applies to the fuel sales. So think of it as we took $0.03 of margin out of the retail segment, dropped it into the wholesale segment and took advantage of the arbitrage in the multiples. From a Susser Holdings consolidate perspective, the margins will look the same because the wholesale business is consolidated in.

So just some of the highlights of the MLP trade under the symbol SUSP, very stable income stream. We took the most stable pieces of our income and dropped it into the MLP. The game at the MLP is to grow our volume, margins are relatively stable. We have long-term contracts. We have the 10-year agreement with Stripes. We also have the supply customers I mentioned earlier, we -- those typically are 10-year agreements as well. We have about a 5-year average remaining life on those agreements. So the MLP has very minimal commodity risk. Most of the fuel we sell, we buy and sell the same day. So very minimal holding period and therefore, limited commodity risk. Also working capital needs are very, very slim. The terms that we give our customers on credit terms are generally at or longer than what we get from our suppliers.

As far as growth, we see a lot of growth opportunities for the MLP, we've got a lower cost of capital. Our line of credit we put in place is at LIBOR plus 200. It's part of the MLP structure. We -- Susser Holdings has granted the MLP an option to buy 75 of its new big-box stores, which the MLP leases back to Stripes and collects an 8% rent. So an 8% rent, plus the $0.03 a gallon margin, delivers about a 10%, 11% yield. That yield, compared to the cost of capital LIBOR plus 200, is a pretty healthy spread for the MLP.

So that, combined with acquisition opportunities, we see is a positive outlook for the MLP. Mary?

Mary E. Sullivan

Thanks, Rocky. So we've been working on our balance sheet very hard over the last couple of years. We're currently in the best financial position we've ever been in. Our leverage at the end of the year is under 1x on a net debt-to-EBITDA basis. And we plan to use that positon to continue accelerating our growth. I want to point out, we do have a big opportunity coming up in a couple of months to refinance our debt. We have $425 million of bonds outstanding and an 8.5% coupon. We raised over $200 million from the IPO of Susser Petroleum Partners, that's still sitting on our balance sheet. So we can use that cash to help pay down some of that debt. We will need to refinance a piece of it. We are actively working on it right now, and I don't have the specifics that I can share with you today on exactly what that will look like, but just know it will be a meaningful reduction in interest expense come middle of this year.

A couple of fun facts just to help you frame the size of our business. Okay. So we sell a lot of beer. We've talked about beer a few times here today. Last year, we sold 4,780 truckloads of beer. So if you line those up bumper to bumper, it would be 60 miles from 1 truck to the end.

We used so many eggs last year in Laredo Taco Company. If you put them end to end, and they're about 2 inches each, it would take you 30 hours to drive from that first egg to the last egg. And Rocky's group delivered over 178,000 loads of fuel last year, truckloads of fuel, so that's about 20 loads per hour every single day of the year. So pretty good-sized business.

We believe we still have plenty of growth potential. Let's face it, the desire for convenience is not going away. The markets that we operate in are very strong. We've got a great team. We have significant ownership, we're in it for the long run. And I want to thank you for your interest. I want to invite you to come down and see us. We have a saying, if you come taste the tacos, you just have to own the stock.

We do have an Analyst Day we're hosting next week, actually in Houston on the 20th and 21st, so if you haven't signed up and would like to shoot me a line or give me your card, then we'd be happy to get you the information. And I think we have a few minutes left. We'd be pleased to take your questions.

Question-and-Answer Session

Kelly A. Bania - BofA Merrill Lynch, Research Division

Sure. I'll kick it off with a question or 2, and if there's any more, we can go to the audience. Steve, one thing that struck me that you said besides the fact that your stores are gorgeous and beautiful, which I haven't heard described as a C store. One thing that was really interesting was that you don't let your merchandise margin creep up. And I think that's really unique and something to talk about a little bit more because not all of your competitors are like that, and you've done an incredible job of keeping that margin very stable. So I guess, how do you do that? And how important is that going forward to your same-store sales outlook?

Steven C. DeSutter

It's very important. Higher margins as higher GPs [ph] just tend to attract more kinds of competitors into the marketplace. And so again, the dynamics are cigarette sales last quarter were 19% of sales, but only 8% of gross profit inside the store so as the food service continues to grow and in our big box stores, with the large percentage of sales, it carries with it and its associated higher margins, which Susser is kind of averaging up. So a little bit of a see-saw. Pressure -- downward pressure, thin margins on cigarettes, upward lift. The benefit of those 2 tend to level a little bit, and then we take the extra on that, and we're willing to match and single price any store on things that's critical to us as beer and cigarettes or any other key item. That's unusual for a chain, Kelly. Most chains will have a price for a city. A lot of the big nationals will do that. We'll have a price for a corner. If we have to be competitive with a smoke shop across the street on cigarette or somebody else on beer in a beer barn, we will be to protect the business. And so ultimately, we think a big piece of that drives that constant growth in customer count. So in the last few years, about half of our growth, and last year, it was 6.6% on a same-store basis, now half of that ends up coming from customer counts, and the balance of that comes from averaging that ticket up a little bit and then some inflation. So it's a big deal to us, and it's been the strategy for quite a while and it's not going to go away. But often, we're asked, "Why don't you -- if you've got that kind of pricing power and market position, why not ask for more margins?" We just don't. It lets us be a value player for our consumers, and that works really well on our market.

Kelly A. Bania - BofA Merrill Lynch, Research Division

So I think we have a question on the audience.

Unknown Analyst

My apologies. I'm new to the story, so an elementary question. I realized you just spun out the subsidiary of yours as an MLP, and there's a lot of talk clearly in Washington about removing loopholes. And my understanding is the MLP is one big loophole. Clearly, you must have looked into all this before spinning something out just a few months ago. Could you talk about sort of how one should think about that because is it's a big benefit?

Mary E. Sullivan

That's certainly was one thing that we explored. And based on what we're hearing right now, we -- in terms of what Washington is looking at, our understanding is that's not one of the top things that they're looking at right now.

Rocky B. Dewbre

Just to take a step further, there's a huge portion of the nation's energy infrastructures in this platform, the MLP space. So anything is possible in this environment. It would be very structurally difficult to make that change.

Unknown Analyst

And Rocky, another follow-up for you. As you looked at the MLP structure, any of you, it seems to make so much sense, was there anything besides that issue or anything else that made you step back and think maybe this was the right structure for us long term? It seems to have a lot of benefits and no shortfall. So maybe you can help us think about your thoughts as you kind of were planning and doing this over the last year or so?

Rocky B. Dewbre

Great. We studies it for quite a while before we elected to proceed. I don't want to understate the complexity. We now have 2 public companies. There's a couple of $100 million [ph] of incremental G&A costs just to have the separate company. So you've got to be a fairly sizable business to even take advantage of it. There's a lot of talk about it, I suspect. There will be others that follow. But for us, it was an opportunity to leverage our size and benefit from a lower cost of capital. We're hoping to grow faster as a result, but time will tell.

Unknown Analyst

Great. And then, Mary, you talked about the cash on the balance sheet and the potential deleveraging. What do you think the right leverage amount is for Susser long term going forward?

Mary E. Sullivan

Sure. As a smaller company and before we were public, we were used to operating at 4, 5, sometimes 6x leverage. As a public company, we brought that down. We did take it up to 4x when we bought the Town & Country chain in 2007, which was a fantastic acquisition for us. Going forward now, we see on the MLP side, being that it's a stable cash flow, probably a 3 to 3.5x leverage on that piece of the business. Makes sense and would be very comfortable on the retail side of the business then at Susser Holdings, we are still going to have some volatility in earnings because of fuel margins. And because of that, we think that if we can operate it at, say, at 2x or less leverage would be a great position. Obviously, if we have another Town & Country-like acquisition, we tick that up a little bit for a period. But we think 2x is a good target for the long run for that size of business.

Kelly A. Bania - BofA Merrill Lynch, Research Division

I think we have a question in the audience.

Unknown Analyst

Can you talk about the legacy stores -- the legacy stores, what has been the comps in those stores and Where is it coming from?

Rocky B. Dewbre

So we've put the slide up and showed the performance of the 144 oldest stores, we call those the legacy stores, they comped positive trend. It's the only way those -- the growth that you saw on that slide. They do not comp quite as much as the new stores, so you might think of them as comping 100 or 200 basis points lower than one of the newer big-box stores. The growth is coming from the power of the brand, our ability to buy really well. We have suggested selling programs that we run and incent our employees 9 out of the 12 months during the year. We gave away 7 Ford Mustangs at our trade show and sales meeting here the 1st of February and dozens of trips all over the place to our store-based personnel to achieve sales targets. So we are a -- we're, by nature, a cost-control business, that's retail. And by design, we're a sales-oriented shop. And so we work as hard to getting sales up in our legacy stores. We do driving new sales in new customer traffic in our new big boxes.

Kelly A. Bania - BofA Merrill Lynch, Research Division

I think we have time for just one more quick question.

Unknown Analyst

Can you talk about your initiatives on the customer loyalty side? What do you do except great tacos and products that bring new customers in 4 times a week?

Steven C. DeSutter

I'll make that quick because we're out of time. The great tacos, sure, are the best loyalty program you could ever ask for, because it's hard to get better frequency than that out of loyalty. But when looking at loyalty today, we spend a lot of time over the last few years bringing professional business processes to deliver consistent performance to our consumers. That's been the big deal for us. But loyalty is coming and they'll be a form of it, just been a moving target because of mobility, plastic, telephones, how do you do it? So we're still answering that question. Thanks.

Mary E. Sullivan

Thanks so much.

Rocky B. Dewbre

Thanks, everybody.

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