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Susser Holdings Corporation (NYSE: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

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.

So, this allows us to continue the expansion of our wholesale dealer network across Texas and into Louisiana. These are all high-quality properties that have been built in the last seven years or so and we are very pleased to be able to grow our portfolio with these stores.

A great fit with attractive economics made possible by operating a strong wholesale business in tandem with the retail operation. We expect the transaction to be accretive to shareholders in the first 12 months of operation and we expect to close this deal by month end. When the transaction is complete, we’ll issue a news release with additional details.

Now, I would like to ask Steve DeSutter to cover a few more operating highlights for the quarter.

Steve DeSutter

Thank you, Sam, and good morning everyone. We are pleased to report that our merchandise growth continues to be broad-based. Categories driving same-store increases are cigarettes, packaged drinks, beer, snacks, and food service. Additionally, our growth in merchandise sales continues to be driven by both increases in average ticket and customer count and promotional items that have positive overall market basket impact.

Second quarter same-store merchandise gross profit dollars continued to improve due mainly to growth in our snacks, candy, cigarette, and bear category. As Sam indicated, our second quarter merchandise margin declined from 34.3% to 33.3% mainly due to the impact of federal excise tax increase and manufacturers' price increases on cigarettes and consumer shifts to lower margin items.

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 second quarter gross profit, margin would have been 35.6%.

Our private-label continued to outperform other similar products. We are continuing to introduce new items and evaluate and seek out products that enhance and contribute both incremental sales and profits to overall business. On a same-store basis, we estimate that cigarette sales volumes were off 2% to 3% for the quarter, which we believe is much better than the national trend. Customers continue to shift from cartons to higher margin single-packs as they manage more limited free cash. Cigarettes accounted for only 20% of merchandise sales and 8.6% of merchandise gross profit in the second quarter, much less than the average for the convenience store industry.

That said, we expect our margin dollar contributions from cigarette to remain flat to slightly higher for the balance of the year. As we previously reported, average per store fuel gallons increased by 6.5% for the quarter, driven in part by a 41% drop in average retail prices and a smaller retail fuel price gap with Mexico compared to a year ago. Conversely, diesel fuel gallons fell during the quarter 2.4% as nationwide diesel demand weakened. Second quarter decline of 2.4% per diesel fuel is an improving trend to the first quarter decline of 6.4%.

In addition to the acquisition Sam mentioned, we are continuing to invest in new store growth. We opened two new stores during the second quarter and two additional stores already in the third quarter. We currently have three units under construction. As of today, we are operating 517 retail stores and 299 of those units have kitchen concepts in them. Within the next two weeks, we will be opening the next new store in Mission, Texas, which will give us our 300th restaurant. We had no store closures during the quarter.

We’ve just completed the rebranding of an additional 21 Town & Country stores. We expect to have 35 to 40 more converted to the Stripes brand by the end of 2009, and we still anticipate the rebranding for all Town & Country stores to be completed by the end of next year. We continue to believe that this conversion will be beneficial to our customers and ultimately our shareholders in the long run.

Now, I will turn it over to Mary.

Mary Sullivan

Thanks, Steve. Good morning everyone. I’ll do a quick review of second quarter results first, then touch on a few expense trend update and finish with our liquidity position. In the latest quarter, we reported net earnings of $2.2 million or $0.13 a share versus earnings of $6.7 million or $0.39 a share in the second quarter of 2008.

Revenues were $823 million, which is a decline of 33%. As we saw in the first quarter, the revenue drop was entirely related to the lower price of fuel, which reduced our total company revenues by about $470 million from a year ago. The average price at the pump in the second quarter was $2.21 a gallon versus $3.74 a year ago.

The more meaningful numbers that reflect the activity we’ve generated in our stores are the 4.6% increase in same-store merchandise in food sales, the 6.4% increase in total merchandise sales, and the nearly 5% in total fuel gallons. Adjusted EBITDA declined by 21.5% to $24.9 million. if you add back rent expense to adjust for the effect of our sale and leaseback transactions, adjusted EBITDAR was $33.9 million in the second quarter versus $40.3 million a year ago.

As Sam mentioned, our second quarter fuel margins were generally in line with the five-year average, but lower than the record margins we experienced last year. The change in retail and wholesale fuel margins resulted in a $10.2 million decrease in fuel gross profit versus last year, which was the key reason for the reported decline in profits this quarter.

Looking at a few key expense items, personnel expense for the quarter increased by $2.3 million or 6.8% from a year ago. About $1 million of that reflects the year-over-year increase in our store count. The remainder is primarily due to wage increases resulting from improved retention, the compression and direct impacts of the rising minimum wage, and better overall staffing levels at the Town & Country stores. Town & Country stores were quite short-handed when we initially took on the operation.

We also implemented our practice of using internal inventory auditors in West Texas in mid-2008 instead of an outside service. And we are seeing increased healthcare cost this year.

Other operating expenses for the quarter declined by $1 million or 3.2% from a year ago in spite of the additional store count. Both utility and credit card expenses flow through the other operating expense line. Utility costs are one of the largest operating expenses in our stores behind personnel expense, and they declined by $2.2 million versus the second quarter of last year when we saw big run-ups due to higher overall energy commodity prices. We’ve taken advantage of the relatively low energy prices and have recently completed a competitive bid process and locked in a portion of our electricity cost through 2011.

We also had a favorable year-over-year comparison in credit card expenses although they were up versus the first quarter because the retail pump prices have climbed about $0.40 a gallon. Credit card expense in the second quarter was $0.037 a gallon versus $0.043 a year ago, which is down almost $600,000 for the quarter.

G&A expense was us 2% from a year ago at $8.2 million, but down $637,000 from first quarter as we recorded a $700,000 insurance recovery related to last year’s Hurricane Ike damage. We booked another $300,000 credit against capital expenditure, reflecting an initial estimated recovery of $1 million based on our work to date with the insurance company.

And turning to the balance sheet, at the end of the quarter, we had $3.1 million drawn on our revolving credit line plus $22.1 million in letters of credit outstanding. That left unused availability on the revolver at quarter-end of $72.5 million. During the quarter, we did a sale and leaseback transaction for $2.8 million for one store. We are continuing to work on additional sale and leaseback transactions as well as several build-to-suits to finance a portion of our new store growth. We remain very comfortable with the Company’s liquidity position and are in excellent shape with regard to all covenants.

We have reaffirmed our key targets for merchandise sales, merchandise margins, and retail fuel margins. We made some slight adjustments to a few other guidance targets and I’ll refer you to this morning’s press release for the detail.

Now, I’ll turn it back to Sam.

Sam Susser

Thank you, Mary. Operator, we are ready for any questions that may be there.

Question-and-Answer Session

Operator

(Operator instructions) And our first question comes from the line of John Lawrence with Morgan Keegan. Please go ahead.

John Lawrence -- Morgan Keegan

Sam, would you just start off by talking just a little bit about how much do you think – I think you blended the two things in as far as merchandise margin and I guess how much was the cigarette tax impacting the comps and the margin, just that line item?

Sam Susser

Cigarette comps were low double digits for the quarter and our business excluding cigarettes for the quarter was in the black between probably 2%and 3%, John, and on a year-to-date basis if we strip cigarettes out of the business entirely, the merchandise business is – it was up probably 4% to 5% for the year-to-date. The inflation in cigarettes is two-fold. Everybody I think is well of the federal excise tax increase, but, manufacturers also took some pretty healthy price increases right before the tax was implemented. So, the overall inflation is running $1 a pack or more.

John Lawrence -- Morgan Keegan

And secondly, and I will go back in the queue, is that can you talk about some of those. You mentioned some new items, some new things that you are looking at working at toward I guess opening price point that type of thing.

Sam Susser

We have made several introductions of private-label items this year, John, as kind of expanding our fun items and value items both in packaged beverages and candy, and the snack area. And we are very pleased with those introductions and just the overall positioning of our private label. Still a growth area for us as we get more scale. We hope to be able to make more sense out of more products in the private-label arena. We are also focusing with suppliers on getting this magical price points across a number of categories, and we are doing a lot of cross-selling and running a lot of incentives inside our stores in conjunction with our supply partners. So, there are tremendous amount of contest, handy gum and the like, varies from one month to the next, but--

John Lawrence -- Morgan Keegan

And then Sam, from a timing standpoint, have these been just developing through the summer or was there a real start date for those programs?

Sam Susser

I would say just developing throughout the year on the (inaudible) early in the year that unemployment was going to continue to move north and we had to get accurate and we are aggressively working on merchandizing in our sales contest and some local store marketing incentives in a manner that we have never done before. And we are grateful that we’ve done it. We are driving traffic.

John Lawrence -- Morgan Keegan

Great. Thanks.

Sam Susser

Thank you.

Operator

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

Anthony Lebiedzinski -- Sidoti & Company

Good morning. A couple of questions on the merchandise same-store sales number. Do you guys have any idea as to what the breakdown was between the traffic and the average ticket in the quarter?

Sam Susser

Just order of magnitude our customer count was up a couple of percent and the average transaction size about 3%. Steve, do you have your hands on a more precise set of numbers?

Our average transaction size is up about 3.5% for the quarter. And, as I said, a couple of points on the customer count.

Anthony Lebiedzinski -- Sidoti & Company

Okay. That’s helpful. Also, I was wondering if your stores in the West Texas, are they doing now may be relatively better given that we’ve seen oil moving up from $40 a barrel to $70 or so. Have you seen any change there or has that not yet developed?

Sam Susser

We are not seeing it get any worse, Anthony, but I think the real change in drilling activity in our state is in the natural gas side and natural gas prices are very depressed and the number of drilling rigs is down dramatically from the level of the last couple of years, so I would not report that there has been a turnaround. And I understand where you are coming from the question because crude has moved up a whole bunch the last 90 days, but I am not picking up that oil field activity is back up.

Anthony Lebiedzinski -- Sidoti & Company

Okay. And the last question if I may here. Can you just remind us as far as diesel what percentage of your stores sell diesel and also just a sort of ballpark figure as to what percent of your total fuel is diesel related?

Sam Susser

Approximately 9% or 10% of fuel of our fuel diesel. I know that we have just over 50 sites now with -- or 10% of the stores that have separate fueling canopies that are tall and designed for exclusively for those 18-wheel on-the-road truckers. Anthony, I think approximately 60% of our stores have diesel as an offering, so about 10% to on-the-road truckers and far more for people that drive diesel cars or diesel pickup trucks. I will get back to you with a more precise number if that’s not materially right on.

Anthony Lebiedzinski -- Sidoti & Company

Okay. Thank you.

Sam Susser

Sure.

Operator

Thank you. And our next question is from the line of Bill Ruder [ph] with Banc of America Securities. Please go ahead.

Bill Ruder -- Banc of America Securities

Good morning guys.

Sam Susser

Good morning, Bill.

Bill Ruder -- Banc of America Securities

In terms of the competitive front, particularly on the retail fuel side, I was wondering if the margin deterioration that we saw on a year-over-year basis, and obviously I know this is still kind of above your long term average you’ve guided us to, but was this due to some competitive pressures, or was it just the move in fuel prices throughout the quarter, if you can talk a little bit about that?

Sam Susser

Sure. We described the fuel business as one that’s very volatile and unpredictable from quarter to quarter, but certainly stable on an annual basis. But our experience says when our cost of gasoline and diesel is going up, our margins get squeezed. And throughout the second quarter, for the first 10 weeks of the quarter it was a just a straight shot up. Cost did drop a little bit in the last 10 days or so of the quarter, but it was a straight ride up – for us a difficult challenging ride as costs move up in the first two and a half months of the quarter. So, we’ve talked about that internally. Do we think that there has been any kind of material change in markets? No, we think our markets remain competitive just as they have in years past. More a function of just the volatility, the inherent volatility in pricing.

Bill Ruder -- Banc of America Securities

Okay. And then long term where should we think about the fuel margins, retail fuel margins settling out?

Sam Susser

Before credit card cost, we are – our guidance is $0.125 to $0.165, which is very reflective of our five-year kind of average performance. And $0.145 is the midpoint there. That’s the kind of range and number that we certainly are using for (inaudible) purposes. But we recognize that there are going to be variances from quarter to quarter around that a little bit from year-to-year. But those numbers, I hope are a good proxy.

Bill Ruder -- Banc of America Securities

Okay. And then just one last one. Your net CapEx guidance for the year went up a little bit. And I was wondering if this was due to an expectation for a reduced number or sale and leasebacks? And I guess if you could talk at all about how many stores you guys can currently – of your current portfolio you guys can do sale and leasebacks without significant adverse tax effects.

Sam Susser

There were probably dozens of locations that we could do sale and leasebacks on without a significant tax recapture, but given that our liquidity position is in really strong shape and we are comfortable with our cash flows we would not be planning to do a sale and leaseback on anywhere near that number of stores. We are basically using build-to-suit financing, our sale and leaseback financing for 50% to 80% of our new stores as we build and we are basically keeping our long term fee properties that we own on our balance sheet and continue to hold those. So I hope that’s helpful, Bill. If not, you follow-up with me here.

Bill Ruder -- Banc of America Securities

Okay. Thanks for taking the questions guys.

Sam Susser

Sure, well thank you.

Operator

Thank you. And our next question is from the line of Bryan Hunt with Wells Fargo Securities. Please go ahead.

Bryan Hunt -- Wells Fargo Securities

Good morning.

Sam Susser

Good morning, Bryan.

Bryan Hunt -- Wells Fargo Securities

Sam, I was wondering if you could talk about the Town & Country’s you’ve converted so far, the 21 locations, what’s the average cost and what kind of lift in sales have you seen or have you seen any?

Sam Susser

Order of magnitude, we are spending – it varies tremendously from site to site. But call it $140,000 a site. That includes for a lot of locations where we are completely replacing the fuel pumps or taking out older fountain and ice-making equipment and putting in brand-new state-of-the-art equipment and technology. The branding component is just a fraction of that spend. A lot of the investments are improving the customers’ experience. They are improving our maintenance uptime and they are going to result in lower maintenance cost. These stores, as you know, Bryan, are very, very, very spread out, and many of the stores – it’s a 100 as much as 200 miles between locations. And coming in with some new equipment it will be much easier to diagnose the problems and the uptime will go up. It’s going to help our customers and our expense line.

We’ve had – we’ve opened a handful of new stores in West Texas that are – in New Mexico that are – came out of the ground as Stripes and Laredo Taco’s. Those stores are performing very well. We’ve converted three sites that we’ve – have been converted long enough that we’ve got a read on the sales data. And they are slightly outperforming the trend for the market order of magnitude about 500 basis points, 5% higher than the average for the stores in the vicinity. The 22 or so sites that have just completed re-branding, there hasn’t been nearly the time to begin to look at – for a sales trend yet.

Bryan Hunt -- Wells Fargo Securities

Great. And then I was wondering if you could talk about the acquisition environment and potentially the acquisition you just announced. It appears that not just Exxon, but St. Clair [ph] announced that they are going to get out of the sea store business. One, are you seeing better multiples on acquisitions out there and as a second, how do you plan on funding the acquisition that you just announced?

Sam Susser

The acquisition that we just announced we are going to – I am going to take that part first, Bryan. We are going to fund with cash and we will be selling a lot of those stores to our dealers right away. And it will be largely self-financed monetized within days, weeks or no more than a couple of months from closing. And we have a lot of visibility on that. And we are very, very pleased with the way that one is coming together.

In general, I think valuations are clearly down in the convenience store industry as they are across retail industry. Period. But I think that there are a lot of folks that might be contemplating selling their business that maybe haven’t fully adjusted to today’s valuations or want to ride it out till this economic cycle turns and valuations pick back up on the road. We have a fair amount of deal flow. But our wiring hasn’t changed, Bryan. We try to be very reflective and very focused on packages of assets and teams of people that we think will be very accretive and help us build our business for the long term. So, we are looking to execute a few great rifle shots in the coming years, not tons and tons of transactions.

Bryan Hunt -- Wells Fargo Securities

Got you. Thank you. I will get back in the queue.

Sam Susser

Thanks, Bryan.

Operator

Thank you. And our next question is from the line of Jeff Blaeser with Morgan Joseph. Please go ahead.

Jeff Blaeser -- Morgan Joseph

Good morning and thanks for taking my question. On the utility cost side, you just mentioned that you locked them in, is that going to take out the year-over-year volatility and if so what kind of rates should we look at similar to Q2 levels?

Mary Sullivan

Jeff, it will take out some of the volatility over the next couple of years. We haven’t locked in 100% of that, so there will be a small portion that will still vary with what’s going on in the market. If you look at the current natural gas curves would give you a pretty good indication of about the pattern of those electric cost over the next couple of years.

Jeff Blaeser -- Morgan Joseph

Okay. And then on the gasoline and--

Sam Susser

The second quarter rate is a pretty good proxy, Jeff, for what we’ve locked in and we’ve locked in a little more for this year than for 2010 and a little more in 2010 than 2011, but at the rates that we’ve locked in at the second quarter is a pretty good proxy for run rate.

Jeff Blaeser -- Morgan Joseph

Okay great. Thank you. And then on the margins, retail as well as merchandise, can you give us a little bit more breakdown regionally or Town & Country versus Stripes? Did Town & Country with the economic backdrop I guess get a little bit – had a little bit more of a headwind?

Sam Susser

That’s fair, Jeff. We have seen some softness. And about 20% of the stores that we operate are really tied to the oil patch economy. And an example would be the Middle and Odessa area, really on fire 12 and 18 months ago, couldn’t get a hotel room in those communities. That’s definitely not the case today. We don’t have a crush of oilfield workers coming in at 6:00 in the morning and loading up on our homemade food and buying a case of (inaudible) drinks to take out to the oilfield because they are just – they are not employed right now. And that’s the nature of the East and West Texas. The – this downturn is notable because of how quickly it has come on, but there is still a good base – a healthy base of energy business out there and I don’t think that this downturn is severe as what we saw in the 1980s in Texas at all. But it’s noticeable and it’s measurable for us. So West Texas is softer than South Texas right now.

Steve DeSutter

Jeff, this is Steve. I – the benefits or the outsets we’ve seen a lot of activity on our coastal beach stores. They’ve had just absolutely banner and record gears. And we’ve had other pockets that have really come through where we’ve seen military based movements in our favor as well. We see a lot of offset in our market then in other 20% of the business that’s just blown away as planned.

Jeff Blaeser -- Morgan Joseph

Okay great. And one final question, you mentioned that consumers are spending down if you will. Are you seeing any positive impact from that I guess particularly in some of the food items within the stores, coming down to your lower prices from restaurants or what not

Sam Susser

Well, our customer counts are – remain very healthy. And relative to what we are reading about in the restaurant industry, we think our trends are very positive. And we are seeing growth in certain take-home packages that we offer in the store. And there are some nice growth there. So we think that’s a positive. Long term, we are making investments still in really high quality facilities, new facilities that are compelling. In this environment there is not nearly as much new competition going up. Yet, we are continuing to invest for the future. We are making some very sound investments on the technology platform that we operate and learning, getting even more data and insight to our expense patterns and our customer patterns and I think we are setting a great foundation for the Company to enjoy very robust growth when the economy turns, when homes are being built again, and those construction and trade workers are back in our stores in a growing pace. They are still in our stores (inaudible) but we have not yet seen – not feeling the same kind of boom inside the business that we felt one and two years ago.

Jeff Blaeser -- Morgan Joseph

Okay. Thank you very much.

Sam Susser

Thank you.

Operator

Thank you. (Operator instructions) And our next question is from the line of Mike Smith with Kansas City Capital. Please go ahead.

Mike Smith -- Kansas City Capital

Good morning

Sam Susser

Good morning to you.

Mike Smith -- Kansas City Capital

Just one quick question and not quick necessarily, but it does appear that you’ve kind of accelerated the conversion of the Town & Countries. Did you say that you did 31 in the quarter?

Sam Susser

I think we did 22.

Mike Smith -- Kansas City Capital

Okay.

Sam Susser

Or 21 in the quarter, I apologize. And we’ve got another couple of dozen in the queue right now. And we are moving that process along. We hope to have everything converted during next year, probably half way home, a third and a half way home by December, and most of the balance before Memorial Day of next year and finishing out in calendar 2010.

Mike Smith -- Kansas City Capital

Okay. Have you done enough that they are -- have they been open long enough as Stripes to give you an idea as to what happens to the revenues on a store level as well as how much you are ending up investing in them?

Sam Susser

Mike, we have operated – we’ve converted three of the stores and ran them for kind of six months or so before we really expanded the conversion program and the rollout. Those stores have outperformed the other stores in the region by 4% or 5%. They look a lot better. They feel better to customers. I am not at all prepared to extrapolate that growth from the conversion out. I don’t think that there is so much uniqueness to every store in the company, I don’t think a sample of three is enough to say aha! It’s going to be exactly 5%. But it’s clearly the right long term thing to do business and it will pay dividend and a more resilient store, a better shopping experience, and lower maintenance expenses.

And to answer your question, we are spending order of magnitude between $100,000 and $200,000 a store averaging about $140,000 per store today and that is primarily equipment upgrades, new signage, new gas pumps, new fountain and beverage equipment, new freezers, and only maybe a third of that expense is really related to the brand change itself.

Mike Smith -- Kansas City Capital

Then if I could do a followup, on the acquisition you just made, you acquired 25 convenience stores. And you said you are going to sublease those to dealers I think. I am not quite sure I know what that means that’s why I said it was probably a--

Sam Susser

Sure. Of these 25 stores, 24 of them are leased locations where we’ll have a landlord.

Mike Smith -- Kansas City Capital

Got that.

Sam Susser

But we are going to sell the majority of those 25 stores to dealers or individual business owners that will pay us a certain amount of cash upfront, sublease the properties from us and will buy their branded motor fuel from us under long term supply agreements. And so real core this is exactly what we do inside Susser Petroleum and this acquisition is – it really underscores the strategic importance and fit of Susser Petroleum and Stripes and how well these two business units work together. For most of the folks that operate chain of stores in the convenience store industry, they have both retail salary [ph] operated stores and dealer supplied stores who are operated by independent business owners. We provide a very effective one-stop shop for a seller of assets in the convenience store business because we can optimize the stores no matter which go-to-market strategy they are in.

Mike Smith -- Kansas City Capital

So, in terms of modeling, those are not going to be – and this is 25 new retail stores, in order do they affect your wholesale dealers, right?

Sam Susser

They will increase – most of those stores will go to the wholesale division. 11 of the 25 are already supplied by Susser Petroleum. So there is 14 additional sites that we don’t supply fuel today that are coming into the fold as part of this. And a portion of those sites will be retail and a portion will be wholesale and we don’t have those details finalized. But we will provide additional information as we work – as we close the transaction and work through the sales process with our dealer network, outstanding dealer network and we are really appreciative of their enthusiasm to work with us on this opportunity.

Mike Smith -- Kansas City Capital

Thank you.

Sam Susser

Thank you.

Operator

(Operator instructions) And we do have a followup question from the line of John Lawrence with Morgan Keegan. Please go ahead.

John Lawrence -- Morgan Keegan

Yes, thanks. Sam, would you – as far as the conversion activity, obviously a lot of those vendors in West Texas were dealing with you on better supply arrangements, especially on the beverage side and that type of thing. Have you seen increased activity in this environment as you’ve moved out to other sections of West Texas.

Sam Susser

We are still feeling – we are still seeing real healthy growth with a lot of the consumer packaged goods, the beverage snack, candy, categories and some others are growing at a real healthy cliff down in West Texas. Overall, the business in West Texas is very solid with the exception the caveat of stores in specific towns that have to be very well oil and gas dependent. But that’s the minority of the locations. Across the board, business remains pretty healthy with good customer count and good sales trends. And we are working very collaboratively with our suppliers and those good relationships and improving relationships are definitely helping our business and helping our store manager execute better. I think that our in-stock conditions and our customer experience store image are all improving and our supplier partners are certainly a big part of that.

John, did you have a followup question to that or operator do you have any questions in the queue?

John Lawrence -- Morgan Keegan

I am fine. Thanks.

Sam Susser

Okay. Thank you, John.

Operator

And there are no further questions in the queue at this time. I will turn the call back to management for any closing comments.

Sam Susser

Thank you, operator. Everybody, we have definitely entered into a more challenging environment in these markets. That said, I think relative to the rest of the United States we are very well positioned in the geographic territories we’ve chosen to compete in. I don’t think the economic data demonstrates that. Our team is doing a great job with effective merchandizing. Pretty good cost control. And or team is very passionate about what we do. And I think those factors combined put us in a good position to ride this cycle out. Our capital structure is strong and we are the market leader in the regions we operate. We intend to stay that way. So, we thank you for your time, your interest in our Company, and we’ll go back to work trying to grow the business. Thanks everybody.

Operator

Thank you. Ladies and gentlemen, this concludes the Susser Holdings Corporation second quarter earnings conference call. Thank you for your participation. You may now disconnect.

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Source: Susser Holdings Corporation Q2 2009 Earnings Call Transcript
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