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Susser Holdings Corporation (NYSE:SUSS)

Q1 2009 Earnings Call Transcript

May 7, 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

Bryan Hunt – Wachovia

Ben [ph] – Morgan, Keegan and Company

Anthony Lebiedzinski – Sidoti & Company

Jeff Blaeser – Morgan Joseph

Scott Mushkin – Jefferies & Company

Andrew Berg – Post Advisory Group

Karen Short – FBR Capital Markets

Mike Smith – Kansas City Capital

Ryan Fick [ph] – Aviva Investors [ph]

Operator

Welcome to the Susser Holdings Corporation first quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions). This conference is being recorded today, May 7, 2009.

I would now like to turn the conference over the Mr. Bonner, Executive Vice President, please go ahead, sir.

Chip Bonner

Thank you. Good morning everyone. Thank you for joining us. This morning we released our first 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 relation 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 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 an 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 risks 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 to 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, May 7, 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 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.

We were pleased to report another good quarter this morning and one of our two seasonally weakest periods of the year. Highlights for the quarter include strong same-store sales growth of 6%, a retail merchandized margin of 34.3% which is near the top end of the range over the last 10 year's or so. Growth in average per store fuel volumes for the second quarter in a row and we saw a 16% increase in adjusted EBITDA year-over-year. We saw particular strength in our South Texas markets which continue to buck [ph] the weaker national trend. That said we have seen some softening in West Texas, which isn't surprising since there is less oil and gas exploration activities then there was six months ago. This was most noticeable in our Country Cookin' food service business, which does a very good breakfast and lunch business from the oil field. We are seeing customer's trade down to lower price points in our Country Cookin' restaurants. Fortunately that was more than offset by growth in South Texas markets.

Now looking briefly at the first quarter numbers. Same-store merchandized sales grew by 6% for the quarter. You may remember a year ago, our same-store sales growth was 8.9%, so we are very pleased by our first quarter same-store growth with reflects a two year 15% comp growth.

Fuel gallons grew as fuel prices came back from the unusually high levels reached during 2008. Average gallon sold to retail stores increased 4.6% from a year ago. This increase was achieved despite softness and diesel volume. Average per store diesel volume fell 6% and average gasoline volumes rose 6.4%. Retail fuel margins were inline with typical first quarter margins for our company. Retail margin per gallon was $0.118 versus $0.12 a year ago. Those numbers don't include the effect of credit card expense. If you deduct credit card cost which were a penny gallon lower year-over-year, we realized $0.091 per gallon in fuel margin versus $0.082 per gallon a year ago.

I would point that we were a significant increase in the use of debit cards in our network. Additional credit card use was down slightly. Wholesale volumes were up as well by 7.3% year-over-year, although fuel margins were off by about a $1.5 due to competitive market conditions.

Overall, our business is healthy and we are experiencing positive trends in merchandize and fuel volumes. Although, unemployment in our region has certainly increased this past year, we are grateful to the momentum we have as we move forward in this recession.

Now I will ask Steve DeSutter to cover few more operating highlights for the quarter.

Steve DeSutter

Thank you Sam and good morning everyone. Looking at results in the retail merchandized segment in a little more detail. We are pleased to report that our merchandized growth continues to be broad based. Of our 22 merchandized categories over 70% of these categories representing 90% of our sales were up again in the first quarter.

Categories driving same-store increases were packaged drinks, food service, beer, snacks and cigarettes, respectively. Additionally, our growth in merchandized sales continues to be driven by both increases in average ticket and customer count.

Third quarter same-store merchandized growth profit dollars also turned in another strong performance increasing 9.6% due to mainly with strong comps in our packaged drink, cigarette, food service and snack category.

As Sam indicated, our first quarter merchandized margin was a healthy 34.3%. Please note that our reported margin does not include other income such as lottery, ATM and commissions on prepaid items. If we had included this amount in our reported first quarter gross profit, would have been 36.9%.

Although, there is no precise way to pinpoint the exact impact of cigarette inflation, we believe it is only a small part of the 6% comp increase we achieved during the quarter. Cigarettes account for approximately 18.7% of merchandized sales and only 9.7% of merchandized gross profit for the quarter. We believe based on the industry data that during the first quarter, our stores cigarettes category outperformed the overall industry and grew shares slightly within our operating areas.

We expect that the federal tax increase will put downward pressure on overall cigarette volumes going forward. However, we feel that we are in a position to improve our market share and maintain our historic profit levels. Although, the rise in cigarette unit price, we put downward pressure on overall merchandized margin as a percent of merchandized sales. We expect our margin dollar contributions from cigarettes to remain flat to slightly higher for the balance of the year.

As we continue to invest in growth, we opened one new store during the first quarter and a second one in April. And currently have three more other construction. As of today, we are operating 514 retail stores, and 296 of those units have a kitchen concept. During 2008 and thus far in 2009, we have opened 14 new units and closed 4 units.

The net effect is that we are operating larger stores and are less reliant on cigarette. We continue to be encouraged by the positive performance of the initial Town and Country stores that were converted to the Stripes brand. We are completing final bids for the next phase of rebranding with construction commencing at several stores beginning in the second quarter and then progressively completing the conversion over the next 12 to 18 months.

Now I will turn it over to Mary.

Mary Sullivan

Thanks Steve. Good morning everyone. Let me begin with the quick overview of first quarter results and touch on a few expense trends and finish with a look at our balance sheet.

First, just a quick footnote, in the last four quarters we have provided supplementary year-over-year comparisons to include Town and Country results as if that acquisition had taken place at the beginning of 2007. Now that we have cycled a four year pass the acquisition, all of the numbers we reported this morning are actual and not pro forma.

In the first quarter of 2009, we reported a net loss of $931,000 or a nickel a share versus a net loss of $3.4 million or $0.20 a share in the first quarter of 2008. As Sam mentioned a minute ago, the first and the fourth quarters are typically our weakest due to travel patterns and consumer behavior.

Revenues were 32% lower at $681 million, however, this was entirely related to the lower price of fuel which reduced our total company revenues by $333 million from a year ago.

The average price at the pump in the first quarter was $1.80 a gallon versus $3.07 a year ago. The more meaningful trends to watch our same-store merchandized sales which increased 6%, however, merchandized sales which were up 7.8% from a year ago. Fuel gallons which were up in total 6.5% and of course, the margins on both fuel and merchandized.

Adjusted EBITDA was $19.3 million versus $16.6 million a year ago. A 16% increase. If you add back rent expense to adjust for the effect of our sale lease back transaction, adjusted EBITDA was $28.3 million in the first quarter versus $25.1 million a year ago, which is an increase of 13%.

And few of our expense items we were touching on, as Sam indicated earlier credit card expense declined substantially in the first quarter by about $1.6 million overall to $2.07 a gallon versus $3.08 a year-ago. Approximately, 60% of our fuel volume was purchased on credit card versus about 55% in the first quarter of the prior year.

Credit card expense flows through our income statement through the other operating expense line which was down almost 10% from a year-ago to $25.4 million for the quarter.

We have also mentioned utility costs in the last couple of quarters because utilities were the second largest operating expense last year behind personnel expense. Utility costs in the first quarter were about flat compared to last year but did decrease by $1.7 million sequentially from last quarter.

We saw the big increases last year in the second and third quarters, so energy prices remained near the current levels we should see positive comparisons over the next few quarters.

Personnel expense was $35.4 million up about 17% from a year-ago which reflects the year-over-year increase in our store count, increased food service as a percentage of sales which proportionately takes more labor.

Wage increases triggered by improved retention and the rising minimum wage and the fact that we have improved staffing levels in the Town and Country stores.

G&A expense was down about 2% year-over-year to $8.9 million. The ongoing synergies from the Town and Country integration account for most of this decline and stock-based compensation expense was also down a bit.

Rent for the quarter was $9 million up about 7% year-over-year due to the sell lease backs we completed over the past year.

Interest expense was down slightly from $9.9 million a year-ago to $9.6 million in the first quarter due to the fact that we had slightly less debt outstanding than a year-ago on the term loan and revolver, and we have realized lower rates on variable rate debt. With interest rates at record lows we decided to fix the rate on $70 million of our variable rate term loan with a 3 year interest rate swap. The effective interest rate on this piece of debt is now approximately 3.75% based on our current leverage grid in the credit agreement.

Now turning to the balance sheet. At the end of the quarter we had $5.9 million drawn on our revolving credit line plus $22.1 million in letters of credit outstanding.

We continue to see improvement in our leverage position. We are now at 3.5 times net debt to adjusted EBITDA versus 3.6 times at year-end. S&P recognized that we were improving on this front which we believe is one of the reasons they upgraded the outlook on our bond rating from negative to stable at the end of March.

One last comment before I turn it back to Sam. We have not made any changes to our 2009 guidance that we provided last quarter as the recent cigarette tax increase had already been factored into our estimates. The copy of the guidance was included in this morning’s press release.

Now, I will turn it back to Sam.

Sam Susser

Thank you, Mary, I appreciate it. Operator I think we will go straight to questions, if there any.

Question-and-Answer Session

Operator

Thank you. (Operator instructions). Our first question comes from Bryan Hunt with Wachovia. Please go ahead.

Bryan Hunt – Wachovia

Good morning everyone. Sam, I was wondering if you could discuss the stores you have rebranded so far T&C and how those sales may have accelerated once you put up new signage and new frontage and what exactly transpired after the fact?

Sam Susser

Sure, Bryan. The three stores that we have converted, two of them were really outperforming trends, one is pretty flattish on balance but the three were seeing 5 or 10 points a pickup versus the trend line. But the sample is so small and there is so many sites specific issues relating to new competition and changes and employment in one of the towns. We are not extrapolating those results mainly ahead. The stores look dramatically better. They have really been freshened up. They are brighter, much more appealing. Our food, service unit growth is up materially. We are continuing to tweak the offering out in West Texas to try to get it right and that will be a multi-year process. But the change in those field stores is very dramatic and we are working with suppliers to bring as much cost out of it as we can while still delivering the same dramatic feel from a customer standpoint.

Bryan Hunt – Wachovia

Alright. My question, you are going to stick with the rebranding. When you think about the CapEx, you initially circled to rebrand all these stores. More in a much different environment, I mean, there is a lot more construction workers and contractors looking for jobs and competing for jobs, are your net rebrands and remodels going to cost you materially less than you originally targeted. And I was wondering if you could circle that number for us, what the total rebrand cost maybe? Thanks. And I will get back in the queue.

Sam Susser

Sure. Order of magnitude the rebranding and upgrade cost for this group of stores is order of magnitude directionally $20 million-$22 million, included in that will be some replacements of old equipment that we feel is been harvested too long and also there is some hard dollars in that that are not branding, the actual brand part is much smaller than the grand total.

I would say that the vast majority of the $22 million will get to equipment and hard assets, signage fuel pumps and the like. And there is actually I think better deals to be added on some of that, because for sure your point is debt on, there is not a lot of construction going on, and we are taking our time to negotiate we will hopefully be the most thoughtful package possible. But the original estimate the same might be 5% Bryan, they are not going to be 20%.

Bryan Hunt – Wachovia

Okay, thank you. I will get back in the queue.

Sam Susser

Yes, 5% or 10%.

Operator

Thank you. Our next question comes from the line of John Lawrence with Morgan, Keegan. Please go ahead.

Ben – Morgan, Keegan and Company

Hi, good morning. This is actually Ben [ph] for John. I actually missed. Could you just recap what the rebranding goals were for this year?

Sam Susser

We are anticipating that we will rebrand 40, 50 maybe 60 of the site Ben. And with the balance to come probably in the first part of next year. The way we have it positioned, we are going to keep an eye on our fuel margins and overall performance of the company. And we are able to step on the accelerator in the fourth quarter and get more done this year. Our backlog for that field is right to us and due to lion share of it in next year. We are just keeping really close eye on what's happening in the economy and so for so good obviously this was a solid quarter for us, but we won't have flexibility as we plan out our capital spending for the next 12 months.

Ben – Morgan, Keegan and Company

Alright. And then can you just give a little bit of color on the sales trend you are seeing through the core and specifically with diesel cost down 6% in Q1, are you seeing those trends start to improve?

Sam Susser

Looking inside fuel, net-net our fuel volumes were up 4.5%. Diesel was down 6% and gas was up 6.5%. Within diesel we saw some improvement in South Texas which I think has a lot to do with the gap in pricing on the US side of the boarder and in Mexico. And it has gotten better as fuel prices have become more imparity with the price this is charging. Out west during the quarter specially (inaudible) 20 and especially at the big truck stops that we operate. We saw increasing softness during the quarter as the months rolled by and so it's kind of a mixed message.

Ben – Morgan, Keegan and Company

Okay, great. Thank you.

Sam Susser

Sure.

Operator

Thank you. Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Please go ahead.

Anthony Lebiedzinski – Sidoti & Company

Hi, good morning. Couple of questions first on the cigarettes, would you say that less than 1% of your merchandized comp sales came from cigarette price inflation?

Sam Susser

Yes. We were in the first quarter, it will probably be little more than that for the balance of the year because most of this inflation occur during March, during the tail end of the quarter.

Anthony Lebiedzinski – Sidoti & Company

Right.

Sam Susser

But I would say less than 1% of the fixed was cigarette price inflation.

Anthony Lebiedzinski – Sidoti & Company

Okay. And also are you seeing more people buying packs versus cartons and how does that impact your margins if that's the case?

Sam Susser

Yes. We are seeing a migration to packs which is going to be plus for us, like our peers we see little bit of inflation from the initial price changes that occurred during the end of the first quarter run through gross profit and helps us a little bit in the month of March that accounting kind of reverses itself in April. But net-net we are feeling like our merchandized gross profit dollars or pennies are well positioned and should be pretty solid this year. Net-net certainly higher prices are going to reduce volume but we will see a shift to pack and having a real strong private label offer has benefited plus for us as we managed through this rapidly rising prices in recent months.

Anthony Lebiedzinski – Sidoti & Company

And what percent of your cigarette sales are your private label?

Sam Susser

It's a meaningful double-digit. 9% of our cigarettes is on our royal brand.

Anthony Lebiedzinski – Sidoti & Company

Got it. Okay. And then you mentioned before that you are seeing more people using debit cards versus credit cards, what's the different in cost per transaction maybe you could just give us a little bit of color on that?

Sam Susser

Sure, it varies by which credit card and which debit card but directionally credit cards traditional will run 2.5% sometimes 3% of the sale and a debit card is typically about half of that, typically 1.4, 1.5%.

Anthony Lebiedzinski – Sidoti & Company

Okay.

Sam Susser

So, it's not as bad as the traditional credit card but as some of this migration is moving from cash customers to debit card if not necessarily a positive for our profitability.

Anthony Lebiedzinski – Sidoti & Company

Okay. And lastly can you just give us an update on the number of Laredo Taco is now in place and your expectations for year-end?

Sam Susser

We have to-date about 296 stores with restaurants about 185 of those are a Laredo Taco Company. We will open 5 to 10 more new stores roughly during the balance of this year all with the Laredo Taco and we will convert as I mentioned earlier 30 to 60 of the Country Cookin' to Laredo Taco by end of the year. So, directionally I think we will be at 325, no I guess it will a total of about 310 restaurants at the end of the year roughly and that will be 75% to Laredo Taco by the end of the year.

Anthony Lebiedzinski – Sidoti & Company

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Jeff Blaeser with Morgan Joseph. Please go ahead.

Jeff Blaeser – Morgan Joseph

Good morning, thanks for taking my question. Could you talk a little bit about the whole sale opportunities in Town and Country and possible expansion into those areas, with timing as well?

Sam Susser

We are looking to expand our sales effort out there, we have hired and put on place all time account executive and one new position in West Texas and we moved somebody from Deep South Texas to that part of the country. We have lots of brands and it’s a pretty fragmented market, but lot of the growth in wholesales comes from the development of new sites and with the dramatic decline in the price of energy and let's say growth of new sights in West Texas is really come to a halt in recent months.

So we are focused on the area, there is minimal incremental G&A as we grow our wholesale fuel volume and its something that we really want to make cap in but I don’t want to mislead you the economy is certainly slowing in that part of world as it is and the rest of the United States and opportunities are going to be there over the long-term but its going to be probably pre-test letting over the next 12 months or so.

Jeff Blaeser – Morgan Joseph

Okay. And then finally have you seen any impact Swine Flu concerns or I believe yes from the high schools, I think the high schools are except and cancelled, is that still the case and have you seen any reduced traffic probably due to the second part more than the first?

Sam Susser

We have seen no change in traffic patterns in, as you can imagine we are looking for mining our data. 40 school districts in Texas were closed as a day and half ago. They had generally announced closures lasting for 10 days but when the CDC changed their council almost all of those school districts decided to reopen. Here in Corpus Christi where the comings headquartered to get one back-to-school starting today. So, net-net it’s has been a big scare the closures but several hundred thousand kids but some out of school which is a big disruption to people’s lives but we haven’t seen any effect in our business from a sales standpoint or anything.

Jeff Blaeser – Morgan Joseph

Great. Thank you very much

Sam Susser

Thank you

Operator

Thank you. Our next question comes from the line of Scott Mushkin with Jefferies & Company. Please go ahead.

Scott Mushkin – Jefferies & Company

Hi guys, thanks for taking my question and hopefully it doesn’t sound like a funny question, but I was trying to understand a little bit, is your volumes in gas on a per store basis seemed really high to me, hope I am afraid this is right but it almost seems like you were attracting people just to the gas business given more inflation is and clearly the same-store sales and merchandized were strong, I was wondering is that true and what is driving people to choose you guys for gas?

Does that make any sense?

Sam Susser

I know we are coming from Scott, this has been a very competitive quarter and we as a company in markets where pricing was aggressive, we were aggressive staying with those hypermarket competitors that were getting down and dirty we went down and dirty which is our long-term philosophy and we have stayed with that for many year's and it produced some nice increases for us this quarter.

Scott Mushkin – Jefferies & Company

Great. So I mean something you think they can continue because clearly it looks to me taking share right? Is that or is that not? Is it a right way to look at it?

Sam Susser

I would say this quarter we took share we don’t believe that the volume of gasoline grew at this rate. So we definitely took share. A part of what’s going on is again pricing in the United States, a piece of the Mexico and last year at this time there was more savings, we as consumers to be going across the border of Mexico than was available to them in the first quarter of 2009 and so that is a big part of the volume shift as well.

Scott Mushkin – Jefferies & Company

You already mentioned that I missed the first like five minutes, so I apologize you mentioned already. So, that does affect your business when these differentials here and how much of that big uptick was do you think attributed to that factor, Sam.

Sam Susser

Less than half

Scott Mushkin – Jefferies & Company

Okay.

Sam Susser

Because we saw pretty good healthy volume increases distributed all over our markets not just along the border. So, the Mexico piece is a contributing factor but not the sole factor. We are working hard to be competitive, to be reliable, to be fast to keep our equipment up, running, clean and suffered this quarter was rapidly rising prices like we saw in the second and third quarter of last year. And so it all went into the mix and we delivered right result for product.

Scott Mushkin – Jefferies & Company

Yes you did definitely and thanks, thanks for my question.

Sam Susser

Sure

Operator

Thank you. Our next question comes from the line of Andrew Berg with Post Advisory Group. Please go ahead.

Andrew Berg – Post Advisory Group

Hi guys couple of questions just on the housekeeping basis, Mary, what was the availability on the revolver at the end of the quarter?

Mary Sullivan

At the end of the quarter, our borrowing base was $85.4 million at the end of the quarter. And so we had about $57.5 million that was unused availability.

Andrew Berg – Post Advisory Group

Okay. And then, just going back to the debit card Sam, can you tell me, what percentage of your sales overall have been done historically on credit cards?

Sam Susser

This quarter, it was about 60% of our fuel sales.

Andrew Berg – Post Advisory Group

Okay. And then that’s been coming down over time.

Sam Susser

No. It's actually increased from about 55 the year ago quarter.

Andrew Berg – Post Advisory Group

Alright. You are taking them on a combined basis credit and debit or just debit or just credit.

Sam Susser

Yes. That's combined credit and debit.

Andrew Berg – Post Advisory Group

Okay. If we went back historically what was just a credit card component, do you know?

Sam Susser

I do actually.

Andrew Berg – Post Advisory Group

What I am concerned think through is you get a benefit as people switch from credit cards to debit cards. That gets offset by whatever shift you are going to see from people going from cash to debit cards. And so I am just trying to get a sense of who has done horse racing if you guys continue to see benefits, because obviously is great for you this quarter and month just continue to see it.

Sam Susser

Okay. I got the point of the question. There is a very small shift, just 300 basis points from traditional credit card to debit, but in much more sizable shift from cash to debit. So, that was a headwind. The reason, the big reason though credit card cost came down despite bad headwind as we had a much lower price per gallon of fuel a year ago. That’s the big driver.

Andrew Berg – Post Advisory Group

Okay. Great. Thanks guys

Sam Susser

Thanks.

Operator

Thank you. Our next question comes from the line of Karen Short with FBR Capital Markets. Please go ahead.

Karen Short – FBR Capital Markets

I just, had a couple question for you. I don’t know if you gave the traffic versus ticket on your merchandized comp. So it's the first question. The second question was just on what kind of trends you are seeing in this quarter today if you said so. And then, I guess the third was just on what you are seeing in terms of the acquisition environment? Thanks.

Sam Susser

Okay. First, on transaction and customer count, both were up this past quarter which was our trend for last year as well. We had a six percent growth in total. And we are going to find the exact number for you, Karen, we will come with that in a second. We were up 2.7% in customer count. And about 4% in average transaction size on a same-store basis this past quarter. Second part of Karen’s question. Current trend this quarter?

Karen Short – FBR Capital Markets

Trends, yes.

Sam Susser

We came to shy away from quarterly forecasting. But there hasn’t been any material change in consumer behavior that we have seen not from swine flu, or any other items making national moves. We are continuing on feeling about the same. We feel our company continues to take market share and a lot of the core categories across merchandized segments and that feels really good to us. But as I highlighted earlier on the call, the economy in West Texas around the oil patch is definitely slowing down. We are seeing unemployment rise month-after-month, it rose sharply in Texas in the fourth quarter of last year and we are staring to see some impact of that, but we produced positive same-store sales growth for 20 straight years and we are really bullish that this will be 21. And so I hope that gives you a flavor.

On the acquisition outlook, we wouldn't comment on any individual discussions. We of course, note that Exxon has probably announced a divesture of its US retail operation. Not moving ahead yet with the Texas asset which would fit right in our wheel house and something we would be very exited about it, as I am sure many other potential parties would be, expect that to be a very competitive situation but they are great assets.

And that's representative of the kind of high quality asset that we would like bring in to the business in the years ahead. These things really fit.

Karen Short – FBR Capital Markets

So from a store side perspective and from I mean just a format perspective it would be something that you would consider. I think would you be able to add (inaudible) format on the Exxon announced that?

Sam Susser

In many of the store we were because many of those stores are big boxes of it. There are great corners, representative of what you expect of the great company like Exxon. We worked very hard to bring some of those assets into the portfolio. It's going to be very competitive Karen.

Karen Short – FBR Capital Markets

Right. Would you consider bidding outside of Texas, so the assets or would you wanted to impact those?

Sam Susser

We are in Texas, Oklahoma, New Mexico today. We operate in markets there are many-many hundred of miles of products. I think we have proven ability to operate over a large territory, but our real focus here in this region. I think that we are very efficient buyer and operator in this region and we have some excellent relationship with trade partners here and when you think about other parts of the country there are other companies that probably can and should pay more for assets that are out of the region and it would make sense for us too. So, our real focus is here I can't rule it down entirely but this is home and I think we have been doing a pretty good job last 20 years.

Karen Short – FBR Capital Markets

Okay. Great. Thanks for taking my question.

Sam Susser

Thank you.

Operator

Thank you. Our next question comes from the line of Mike Smith with Kansas City Capital. Please go ahead.

Mike Smith – Kansas City Capital

Good morning. Mary, could you breakdown the gross profits for your wholesale or retail gas sales?

Mary Sullivan

Sure. The sales per gallon or the actual dollar's price?

Mike Smith – Kansas City Capital

Dollars.

Mary Sullivan

In terms of the actual dollars, yes, wholesale is $4.3 million and retail.

Sam Susser

Retail fuel is 21.2.

Mary Sullivan

21.2.

Sam Susser

4.5 and 21.2.

Mike Smith – Kansas City Capital

And Sam I know you just talked about acquisitions but you are starting to get some distances between when you made the Town and Country acquisition and where you are. And I was wondering about new store openings on a go forward basis, I know you have got some plan for this year but what kind of is the philosophy that will have with that in the future.

Sam Susser

Thanks Mike, we are very pleased with our Big Box [ph] new stores all with our food concept, we really believe in market share. I think that’s a positive thing for the company, it will be growing mark share overtime, so we plan to continue building these Big Box stores and closing low volume stores, few low volume stores each year.

Order of magnitude, we have been building 12 to 18 new stores a year in recent years. When the economy comes back we would hope to be able to be at the top end of that or build more new boxes than that when the economy is moving forward again. But even in the down economy like the one we are in today, we see opportunities to build sites selectively that we think are real good for the portfolio. In addition to working on the sites for this year we are working and adding to our land buying for next couple of years. So we are not standing still from a real estate standpoint. Our team is actively working on building out that pipeline and we have a lot of properties under contract today.

Mike Smith – Kansas City Capital

In general is that less expensive to expand by building as appose to acquiring?

Sam Susser

In general, I think current, often depends on the quality of what you are buying, but in general on average can probably buy chains for a lower first year multiple of the EBITDA than the cost of building a new Greenfield Big Box location, but when you build a brand new Big Box Greenfield location you are doing it in an area of a community that’s growing. And it's likely to produce strong same-store sales growth for the next 10 or 20 year's. And we believe very strongly in that.

So, we think both kinds of investments in this industry aggressively manage and produce great shareholder value but the core of your question is probably a little better short-term return to buy and maybe a little better long-term return to bill. We think the best strategy is to do some of both. We built our company out by making kind of Beachhead [ph] acquisitions where we get market share established and than we build new Greenfield locations in the growing parts of the town in the markets that we have entered by way acquisition strategies will glow for us today.

Mike Smith – Kansas City Capital

Thanks a lot.

Sam Susser

Thank you.

Operator

Thank you. Our next question comes from the line of Ryan Fick [ph] with Aviva Investors [ph]. Please go ahead.

Ryan Fick – Aviva Investors

Yes, good morning, thanks for taking my question. I wondering if you can talk little bit about as the economy softens, any concerns that you have regarding the shift in disusing same store spending in your ability to keep on expanding the in-store margins that you have in there?

Sam Susser

The company is definitely responding to consumer sentiment and delivering more value with our promotional offerings and to your point I think that will limit our ability to expand margins in '09 versus '08, because we are admitted to meeting consumers needs and what they need and want today is definitely hot deals. And that’s what we are delivering.

We also are going to see reduction in our overall merchandized margin because of this giant increase in the price of cigarettes which has been I think compared very thoroughly by others. Kind of digging deeper we are seeing favorable trends in the mix within our business. We are driving more and more food service, more and more beverages through the company and although we are focusing hard on delivering more value to that end-consumer the mix changes are helping us. So, net-net I kind of feel that our merchandized margins will be real stable this year and we feel that they are in a very healthy place.

Ryan Fick – Aviva Investors

Thank you. And just in terms of private label you talked about that for cigarettes. Are there any other products where you carry private label and kind of overall growth penetration rates?

Sam Susser

Yes sure, we have been expanding private label in recent years and really pleased with some of the snacks, key items and drink offerings that we have out there. We are not nearly as developed as some of the much-much larger retailers that we compete with and I think they are doing a fantastic job and we are trying to emulate that and selectively add private label products that makes sense that can help us growth our profit streams years and years ahead. We are believers if as the size matters and as we get bigger hopefully we will be able to do more of it.

Ryan Fick – Aviva Investors

Do you have a general rate for cap penetration?

Sam Susser

The private label brands and brands that we own account for about a quarter of our merchandized profit today 25%-30%.

Ryan Fick – Aviva Investors

Okay, where would you see that maybe on a long-term basis in ideal role?

Sam Susser

140, maybe more. Now lookout five years.

Ryan Fick – Aviva Investors

Okay. Thank you very much.

Sam Susser

Thank you very much.

Operator

Thank you. (Operator instructions). We have a follow-up question from the line of Bryan Hunt with Wachovia. Please go ahead.

Bryan Hunt – Wachovia

Thank you. Sam or Mary I wonder if you could talk about the appetite for sale lease backs in the current environment, are you having any resistance to what you are trying to accomplish?

Sam Susser

Bryan, we have continued to identify sources for attractive sale lease back financing. Clearly, some of the big institutions have been affected by the credit markets and their pricing is gone up. In some cases, pricing is still attractive from our standpoint and other cases. We just don’t find that to be the right kind of long-term finance for the company. We are seeing increased level of interest from individuals and smaller institutions in the sale lease back arena. And we have a lot of dialogue that’s new, that started here in recent months for some new parties that have come to the table as oppose to the, our dialogue is fairly limited to just a few very large institutions in the past.

Bryan Hunt – Wachovia

Okay.

Sam Susser

We are going to continue to use some sale lease back to finance some of our new store growth in 2009. And I think it is a real efficient financing tool and its cost of debt normalizes and the banks get stable. They will probably be even more interest in the years ahead again.

Bryan Hunt – Wachovia

And then with regards just to your store growth in your Greenfield portfolio. Could you remind us how many stores you have planned on opening this year because it just appears that while you have opened two and you got 3 under construction of volume, five it appears that you are going to get open probably by the end of Q3 maybe in early Q4? And then again could you remind us what's your number of Greenfield sites you have available?

Sam Susser

Sure. We have giving guidance of 8 to 16 new sites and it takes only about 90 days from the time we turn the first shovel of dirt when that construction is complete. And so, if we are feeling good about where we are, July or August we will easily make that guidance. So, we won’t have the flexibility as I said earlier accelerate or slow down, just depending on what was with the economy. We have the pipeline and I think we are well positioned to that guidance of 8 to 16 new sites for this year.

Bryan Hunt – Wachovia

And then how many Greenfields do you have? How many suitable store sites do you have?

Sam Susser

About 20.

Bryan Hunt – Wachovia

Okay.

Sam Susser

That doesn’t include a large number of sites that are under on-track negotiations.

Bryan Hunt – Wachovia

Alright. Thank you, Sam.

Sam Susser

Thank you.

Operator

Thank you. And at this time we are showing no further questions in the queue. I would like to turn the call back over to management. Please continue.

Sam Susser

Thank everybody for your participation and questions this morning and really giant thank you to my teammates for your dedication and making our company the best it can be. Have a great day everybody. Thank you, operator.

Operator

Ladies and gentlemen, the replay information can be found in this morning's news release. That does conclude today's Susser Holdings Corporation first quarter earnings conference call. Thank you. And at this time you may now disconnect.

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Source: Susser Holdings Corporation Q1 2009 Earnings Call Transcript
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