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Susser Holdings (NYSE:SUSS)

Q4 2013 Earnings Call

February 26, 2014 10:00 am ET

Executives

E. V. Bonner - Executive Vice President, General Counsel and Secretary

Sam L. J. Susser - Founder, Chairman, Chief Executive Officer and President

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

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

Kevin J. Mahany - Former Vice President of Merchandising

Analysts

John R. Lawrence - Stephens Inc., Research Division

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Kelly A. Bania - BMO Capital Markets U.S.

Irene Nattel - RBC Capital Markets, LLC, Research Division

Ethan H. Bellamy - Robert W. Baird & Co. Incorporated, Research Division

Scott Andrew Mushkin - Wolfe Research, LLC

Dane Leone - Macquarie Research

Benjamin Brownlow - Raymond James & Associates, Inc., Research Division

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

Karen F. Short - Deutsche Bank AG, Research Division

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Susser Holdings, Susser Petroleum Fourth Quarter Earnings Call. [Operator Instructions] This conference is being recorded today, Wednesday, February 26, 2014. I would now like to turn the conference over to Chip Bonner, Executive Vice President. Please go ahead.

E. V. Bonner

Thank you, operator. Good morning, everyone, and thanks for joining us. This morning, we released our fourth quarter and full year 2013 earnings for both Susser Holdings Corporation and for Susser Petroleum Partners. A reminder that today's call will contain forward-looking statements. These statements are based on management's beliefs, expectations and assumptions and include the company's objectives, targets, plans, strategies, costs and anticipated capital expenditures. These statements are subject to risks and uncertainties that could cause actual results to differ materially, as described more fully in the company's filings with the SEC. During today's call, we will also discuss certain non-GAAP financial measures that we believe are helpful for full understanding of our financial performance. Please refer to our news release for reconciliation of each financial measure. A reminder that the information reported on this call speaks only to the company's views as of today, February 26, 2014. So time-sensitive information may no longer be accurate at the time of any replay.

With me on the call today are Sam L. Susser , Susser Holdings' CEO; Rocky Dewbre, the CEO of Susser Petroleum Partners; Mary Sullivan, our CFO; and other members of our leadership team. Now I'll turn the call over to Sam Susser.

Sam L. J. Susser

Thanks, Chip, and good morning, everyone. 2013 was a milestone year for us in a number of ways. It marked our company's 75th anniversary and the 25th anniversary of our transition from a family-owned fuel business to a more meaningful entry into the convenience store business with the acquisition of 26 7-Eleven stores in September 1988. Today, we operate 627 retail stores under the Stripes and Sac-N-Pac banners. I'm also proud to say it marked our 25th consecutive year of positive same-store merchandise sales growth. My continued thanks to all of our team members who helped make that happen. It's a big achievement and one that we're all very proud of. We also celebrated a year of record organic growth in our Stripes chain with 29 new-build big-box convenience stores. These stores have an average footprint of 6,800 square feet, and we believe this year's crop of new stores will continue to improve and drive results in the coming years as they reach maturity. We also are growing the business through acquisition with 2 deals recently completed. First was the acquisition of Gainesville Fuels in the third quarter, which sells diesel fuels to oil and gas producers in North Texas and Southern Oklahoma. The business is a great complement to our existing commercial fuels business serving the Permian Basin region. Then on January 29, we acquired 47 Sac-N-Pac stores located in the high-growth corridor between Austin and San Antonio, along with 20 dealer supply agreements, 5 tracts of land and the right to acquire 2 additional tracts and 1 standalone QSR. This area is a great new market for us, and it will complement our organic store expansion in some high-growth markets nearby in Central Texas. Although it will take 6 to 18 months to optimize this portfolio, we expect it to be accretive both to Susser Holdings and to Susser Petroleum Partners for calendar 2014. As you saw in this morning's release, in addition to Sac-N-Pac, we expect to maintain roughly the same level of new-build growth this year as we did in 2013. 13 of these new stores are already under construction. This is a positive development because for the past 2 years, most of our new stores opened late in the year. We're very much ahead of the curve for new store construction in 2014, and we're very bullish on the pipeline of new locations we're building for 2015 and 2016.

Looking at the fourth quarter, we continue the solid pace of performance in our retail business. Merchandise margin was a very strong 34.4% and 33.9% for the full year. Same-store sales growth was 2.4% or 8.2% on a 2-year stacked basis, as we were comping up against a big fourth quarter in 2012. For the full year, our average same-store sales growth came in at a respectable 3% despite some difficult weather comparisons, especially in Q2 and Q4. We experienced a second consecutive quarter of exceptional growth in average fuel gallons sold per week per store of 7.8%. This growth demonstrates the underlying strength of the economy and the markets we serve. For the full year, the growth in gallons per store averaged 5.8%. Significantly lower retail fuel margins compared to last year did impact our EBITDA performance in the fourth quarter, but we partly offset that with significant gallon growth, solid merchandise sales and strong merchandise margin performance. Our Laredo Taco Company restaurants are continuing to outpace average same-store merchandise sales growth and gross margin. Freshly prepared food is now available in 64% of our stores. As of the end of the year, we operated 376 restaurant locations, including 363 in Laredo Taco Company locations.

Following the Sac-N-Pac acquisition, we now have 400 restaurant sites. In the fourth quarter, food service accounted for approximately 24% of merchandise sales and 33% of our gross profit dollars. Q4 cigarette same-store sales were up just slightly year-over-year. Total units sold have been down by about 1% this year, although we believe we're still performing very well relative to the market. Most of the reduction comes from lower carton sales with increases in by-the-pack sales. Cigarettes were less than 19% of merchandise sales and less than 8% of gross profit dollars in Q4.

Our wholesale business also continues to gain strong momentum. Q4 total gallons sold to third parties increased year-over-year by about 18%, which reflects both organic growth and the benefit of the Gainesville Fuels acquisition we completed in early September. At the end of January, we announced our third consecutive increase in the quarterly distribution from Susser Petroleum Partners. The distribution was increased 3.5% from the previous quarter to $0.485 per unit or $1.94 on an annualized basis. Based on distributable cash flow of $12.6 million, this reflects a coverage ratio of approximately 1.2x. Coverage for the trailing fourth quarters was 1.18. Now I'm going to turn the call over to Rocky Dewbre for a more detailed look at the wholesale fuel business. Rocky?

Rocky B. Dewbre

Thanks, Sam. Good morning, everyone. The fourth quarter represented the conclusion of Susser Petroleum Partners' first full fiscal year as a publicly traded MLP. Since the IPO, we have generated steady growth in fuel volumes and rental income resulting in increasing distributable cash flow and 3 consecutive increases to our quarterly distribution. As Sam mentioned, we had a strong coverage ratio of approximately 1.2x. And our balance sheet remains healthy, allowing us the flexibility to pursue accretive acquisitions.

We're very pleased with our 2 most recent acquisitions. Gainesville Fuels contributed to our results for the entire fourth quarter and is on track to exceed our initial expectations to sell approximately 60 million gallons per year. The combined Sac-N-Pac stores and the related dealer locations historically sold approximately 65 million gallons of fuel annually. Thus, deal will supply fuel to all of these locations which are branded under the Exxon, Shell and Valero flags. We have not dropped down any of the Sac-N-Pac stores to the SUSP yet, pending the retail segment's evaluation over the next 6 to 18 months. Once this is complete, we anticipate SUSP playing out the opportunity to purchase a number of these properties and either lease them back to Stripes or lease them through independent dealers.

The 2014 guidance we issued in this morning's news release reflects a full year of Gainesville Fuels results and 11 months’ worth of estimated contribution from the Sac-N-Pac and dealer gallons. The guidance does not reflect any additional rental income or capital investment for Sac-N-Pac dropdowns. Next, I would like to do a quick review of some highlights of Susser Petroleum Partners' results, comparing the fourth quarter of 2013 results against the fourth quarter of 2012. As this was our fifth quarter since the IPO, I'm pleased to report that this quarter is now on apples-to-apples comparison, so we don't need to discuss pro forma numbers for the prior-year period. However, for the full year, I would suggest you use the 2012 pro forma gallons and gross profit to compare against 2013 full year results that we provided in this morning's news release.

Volumes sold by the partnership to Susser Holdings for resell at Stripes stores and independently operated consignment sites increased 10% year-over-year to 270 million gallons. This growth reflects gallons sold by 29 new Stripes stores that have opened during the last year, as well as volume growth in existing stores and at consignment locations. Volumes sold to third parties, including independent dealers and commercial customers, increased 25% to 146 million gallons. Gross profit on these third-party sales increased 45% to $7.6 million or $0.052 per gallon compared to $0.045 per gallon a year ago. The margin improvement per gallon was largely driven by higher margin in commercial fuel gallons, including a significant contribution from Gainesville Fuels and improved procurement due in part to increased purchasing power and scale.

We added 8 new contract dealers last quarter and discontinued 4. This brings our total independent dealer count to 591 locations at the end of December. This includes 492 supply sites and 99 consignment sites. During January, we added a total of 23 supply sites, including those acquired in the Sac-N-Pac transaction. There were no closures in January so our dealer total was 614 at the end of the month.

Average fuel margin for all gallons sold by the partnership on a weighted average basis increased to $0.038 per gallon compared to $0.035 per gallon a year ago. Partnership gross profit totaled $20 million, up 30% year-over-year. Adjusted EBITDA was $14.1 million, up from $10.8 million in the year-ago period and up over 300,000 from the third quarter. Rental income at the partnership continues to increase as SUSP completes additional sale leaseback transactions with SUSS. In the fourth quarter, total rental income contributed $3.3 million to gross profit, of which $2.4 million was from Stripes. We completed sale leaseback transactions for 3 Stripes stores during the fourth quarter for $11.9 million and 5 more in January for $19.5 million. Since the IPO, we have acquired a total of 38 Stripes stores for $152.7 million that will produce annual rental income of approximately $12.2 million for the partnership, plus the $0.03 per gallon margin on fuel volumes. Now I'll turn the call over to Mary Sullivan for a few comments on consolidated financials. Mary?

Mary E. Sullivan

Thanks, Rocky. Good morning, everyone. To summarize the consolidated financial result for Susser Holdings, this morning, we reported fourth quarter net earnings of $5.9 million or $0.27 per diluted share versus net earnings of $10.6 million or $0.49 per diluted share in the fourth quarter of 2012. Adjusted EBITDA totaled $37.3 million which was down 18% from a year earlier. This primarily reflects the impact of lower retail fuel margins compared to a year ago. Q4 retail fuel margin before credit card fees averaged $0.146 this quarter, which was $0.065 a gallon lower than a year ago, but was in line with the prior 5-year average of $0.144 pro forma for the MLP impact. Our full year retail fuel margin of $0.169 was also in line with the 5-year average, which is now $0.167 per gallon. We've provided the details of our historic fuel margins on our website, both as reported and pro forma for the $0.03 now charged to Stripes by the MLP. You'll note that our 2014 guidance is also in line with this pro forma 5-year average margin at a range of $0.15 to $0.18. Our average retail selling price of fuel this quarter was $3.19, which was lower than both the prior quarter and fourth quarter 2012. This reduction helped to lower credit card expense per gallon a little to about $0.053 per gallon. Most of the increases in expense lines were related to the growth in our retail and wholesale business over the last 4 quarters. Personnel expense was 20% of merchandise sales versus about 19.2% a year ago. Part of this increase is due to a higher proportion of food service, and a portion is due to the labor and efficiency of our new stores in their first few months of operations. We opened 9 new stores during Q4 and 10 in Q3 that are still ramping up. In addition, labor efficiency was negatively impacted by the colder weather, as our sales were slightly lower than we had anticipated. That said, our operators are managing labor hours more effectively than we did just a few quarters ago. The increase in G&A expense for both the quarter and full year primarily reflects additional non-cash stock compensation expense, which was up by $2.4 million for the fourth quarter and by $3.4 million for the full year, other increases generally related to additional cost of supporting our accelerated growth and operating 2 public companies.

Interest expense for the quarter was $2.5 million versus $9.9 million a year ago. This decrease was due to the refinancing of our senior notes we did last spring. As you'll note in this morning's guidance, we expect consolidated interest expense for 2014 to range between $13 million and $16 million. The slightly higher run rate primarily reflects financing our plan's growth through our 2 revolving credit facilities. Depreciation and amortization in the fourth quarter was up $3.4 million year-over-year to $16.6 million for Q4, and just a reminder you that our pace of new store construction at our recent acquisitions will increase our D&A at a faster rate than in prior years. We currently estimate D&A of $70 million to $80 million for 2014 as reflected in our guidance this morning. Our effective tax rate for 2013 was 26.8%, excluding one-off charges and before deducting minority interest. We expect our 2014 effective income tax rate to be between 27% and 31%. And you'll note that we've added this line to our guidance table.

Turning to the balance sheet, year-end, the parent company had $189.3 million drawn on its revolving credit facility, plus $1.4 million in letters of credit, leaving it with unused availability of $309 million. In December 2013, the partnership increased its revolving credit facility by $150 million to a total of $400 million. And we still have $100 million accordion feature to further expand this revolver.

At year-end, Susser Petroleum had $156.2 million drawn on its revolver, plus $10 million in standby letters of credit, leaving unused availability of $234 million. So including our cash balances, that gives us total available liquidity of $565 million at year-end to fund our growth. Our trailing 12-month adjusted EBITDA was $169 million and our 12-month net debt to adjusted EBITDA ratio remained at less than 2x on a consolidated basis.

Consolidated capital spending in the fourth quarter was $50 million, of which $14 million was incurred at the partnership level. For the full year, CapEx was $212 million, including $116 million at Susser Petroleum. Our CapEx guidance for 2014 of $300 million to $350 million includes the $88 million purchase price for the Sac-N-Pac transaction that closed at the end of January. And please see this morning's new release for other guidance metrics for 2014. Now, operator, we're ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of John Lawrence with Stephens.

John R. Lawrence - Stephens Inc., Research Division

Sam, could you walk through a little bit -- I mean, congratulations on everything on the retail side. Could you give us a little bit flavor of the fuel margin and sort of the cadence there, with it a little surprising, it was that weak in our opinion? But just trying to get a sense of how that flowed, the volatility? And was it the last few weeks of the quarter that sort of impacted that?

Sam L. J. Susser

I do believe that margins were markedly tighter towards the end of the quarter for us. But I think the difference really over the last year -- one of the differences over the last year has been the lack of volatility of -- that's really was a sea change in 2013 versus the 2 prior years. Our average retails have been holding in a pretty tight band and we just haven't had the benefit of a volatility from weather crisis or global crisis. Not that we are pulling for crisis around the world, but they do drive volatility and energy, which is always correlated to higher fuel margins. And it's been a period of stability which has impacted us.

John R. Lawrence - Stephens Inc., Research Division

So on that, Sam, and you may have mentioned that a little bit, but I mean, the cadence, as we went through the quarter, Mary, can you give us a sense of sort of through the quarter, did it -- just how meaningful was, say, that last month?

Mary E. Sullivan

John, I don't I think that Sam mentioned we saw lower volatility this year. And while there was some difference quarter-to-quarter, it was as marked as you've seem to think it might've been.

Sam L. J. Susser

I think the last couple of weeks were maybe $0.05 a gallon or so. I'd have to go back and examine data, but December was about $0.05 a gallon lower than where we were in October and November, if that's helpful.

John R. Lawrence - Stephens Inc., Research Division

Yes, that's helpful. And secondly, Mary, as far as -- although you mentioned on the labor hours, et cetera, that I would assume sort of the workforce management system and all those are continuing to pay dividends and we're starting to see some of that?

Mary E. Sullivan

Yes, we rolled that out over the summertime. And our store managers are enjoying the new system, are learning how to use it. And we feel very good about where that's going to put us this coming year. As I mentioned, we had a lot of new stores coming at the end of the year. And yes, those new stores use a lot of labor hours and don't have quite the sale to cover that. So that, along with just the normal Q4 seasonality, and I'll talk about that much colder winter that we saw in Q4, all impacted that number. But we feel good about our labor management going forward.

Sam L. J. Susser

John, you remember exactly 1 year ago and also 3 quarters ago, I expressed some frustration around the way we were running things operationally and just not as tight as we should be. And our new labor systems are starting to mature and get traction, and we're doing a much better job of managing our hours and matching it to the customer counts. It's hard to see it in our P&L because the mix of food service is growing so fast, and we have to use directionally twice as much labor per dollar of food service sales, 3x as much labor per $1 of food service sales is for a $1 of nonfood service merchandise. And so with that mix surging, it looks like our labor is not getting better. But inside, under the hood, we are really making some progress, and we feel well-positioned for the balance of this year and the years ahead.

John R. Lawrence - Stephens Inc., Research Division

Great. And last question for me, the cadence or opening schedule for '14 first half versus second half?

E. V. Bonner

John, this is Chip. We will have 2 stores opened in Q1 and we will start up to 7 more stores in Q1. So as Sam indicated, we have 13 stores under construction today. We will have a significant amount of stores start in Q2, and which means the stores under construction today will be opening in Q2 and then in Q3. So it's much more front-end loaded this year than it has been in years past.

Sam L. J. Susser

But we also have a more robust land bank than ever. So we feel like we're in a position to spread out our new construction over the next couple of years, where it's more ratable, and it's going to be less growing pains and more efficient from a cost standpoint for the company overall as we look out over the last couple of years. The last couple of years have been a little bit painful as we've ramped up our growth to the current levels. But now, we got it in a place where we feel that we're going to manage it better and start to leverage cost as a percent of sales more effectively here in the next couple of years.

Operator

Our next question comes from the line of Sharon Lui with Wells Fargo.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Just a question on the SUSP guidance. So does the volume guidance include the $65 million of motor sales related to 3W?

Mary E. Sullivan

Yes, it does.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

It does? But the opportunity is for SUSP to buy, I guess, the assets and I guess earn the 8% lease rate on that? Is that how we should think about it?

Rocky B. Dewbre

Yes, sure. And this is Rocky. So the assets -- first of all, the gallons to the Sac-N-Pac stores and the dealers are supplied by the MLP, but none of the assets of the 47 stores have been acquired at the MLP level at this point. So as those, they're trying to determine what the long-term plan is as some stores will likely be converted to Stripes, some would likely be converted to the dealer channel. Either way, we anticipate SUSP adding the opportunity to acquire some or a greater portion of those locations once the determination's been made. But at this point, none of the assets are actually owned at the MLP level.

Sam L. J. Susser

And there are no dropdowns of Sac-N-Pac assets contemplated in the SUSP guidance. But after we make final determinations of which stores are going to move to the Stripes network, we're in a position to accelerate dropdowns and increase the number of dropdowns to higher a level than what's in the guidance. But we haven't made that determination yet, and so we don't want to guide for it.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. But the dropdowns could be conversions or just if you decide to maintain the Sac-N-Pac?

Sam L. J. Susser

It could be, but it's also possible that we move some sites that are today retail under Sac-N-Pac to our dealer model, and dealers ought to acquire some of that real estate. So if we are putting in some stores into the dealer channel, some maybe -- the real thing might be sold to the third-party dealers or could be sold to the MLP and leased to the dealer to be operated.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. And in your, I guess, consolidated growth CapEx guidance, do you assume any spending for conversions of these Sac-N-Pacs?

Sam L. J. Susser

Yes, we do have some dollars allocated in our guidance to upgrade and convert some of the Sac-N-Pac locations.

E. V. Bonner

We tell them that the Susser Holdings level that we have that.

Rocky B. Dewbre

Yes, that wouldn't be at the partnership level, but it would be at the Susser Holdings level.

Operator

Our next question comes from the line of Kelly Bania with BMO Capital.

Kelly A. Bania - BMO Capital Markets U.S.

Just first wanted to ask if you could try to quantify if you have any estimate whatsoever on the impacts of weather for the fourth quarter on both your comps and your personnel expenses?

Sam L. J. Susser

Generally, when -- if you look at what we think of as good weather, bad weather kind of quarters, it's a couple of 100 basis points when you have meaningful difference in weather patterns. And a couple of 100 basis points is enough to really alter that percent to sales of labor force. I don't have a good way of quantifying exactly what that would be for you, but I would guess 10 or 20 basis points as a percent of labor when you have a 5% comp quarter versus a 3% comp quarter. This past year, we had 2 tough weather quarters, Q2 and Q4. It's widely reported, no news in that. The 2 years prior to that, as you recall, Kelly, were years of exceptional heat and exceptional drought in the Southwest. And we have comped up against that now. So overall, the weather comps are much easier for us here in 2014. And I approach this year with more confidence than I had last year about our ability to punch out another year of same-store merchandise comps, feel very good about confidence level to turn a 25-year record into 26 this year. We feel very well-positioned. The economy's strong. Weather comps aren't as difficult. Clearly, January was a weather challenge across the country, but our economy and our store performance and our trends and market share, the programs that we're implementing, all gaining traction that we feel very good about the outlook and definitely feel better about the outlook than I did 12 months ago.

Kelly A. Bania - BMO Capital Markets U.S.

That's very helpful. Then just another question on Sac-N-Pac. I realize you guys are evaluating them over the next 6 to 12 months and how they're going to be integrated as either Stripes or Stripes of Laredo Taco or wholesale. But I guess I'm just curious, what would be a reasonable assumption for us to assume in our models on how those 47 sites will be integrated at this point?

Sam L. J. Susser

Kelly, I'm just not prepared to discuss that on the call today. We are -- these stores were included in some high-volume new really great facilities and some older smaller facilities with a wonderful team of folks that were part of the family. We're thrilled with the very high retention we've had through the transition, much higher than we expected. And we are really pleased about the potential to grow merchandise sales here in the next 6 to 9 months in these stores, bringing our purchasing power and some of our merchandising and value to Sac-N-Pac customers that they haven't been able to offer in years past. And there's -- we went into it not sure how many of those stores would be able to do enough volume to operate under the Stripes model. But as we're getting into it and seeing the opportunities and seeing some of the initial response to a few key promotions, that view's changed, and we might end up with keeping a whole lot more of the stores in the Stripes system. But we just need to take time to run the play and then evaluate the data. We want to be fact-based.

Kelly A. Bania - BMO Capital Markets U.S.

And then when you look at that base of stores, how many potentially have the in-store square footage for you to potentially fit the Laredo Taco concept in there?

Sam L. J. Susser

I would say no more than 1/3 would naturally fit Laredo Taco Company. But of the remaining 2/3, we might be surprised with our ability to help the Sac-N-Pac team really grow sales volumes and be in a position to hopefully convert many of them to the Stripes brand.

Operator

Our next question comes from the line of Irene Nattel with RBC Capital Markets.

Irene Nattel - RBC Capital Markets, LLC, Research Division

Just looking at the guidance on gas volumes for 2014, given everything that's going on, they seem to -- a little bit lighter than what I would've thought. Is any of that the result of what you're seeing in Q1 weather impact? Or if you could -- is it a result of a shift in the competitive dynamic? If you could talk us through that, that will be very helpful.

Sam L. J. Susser

Thanks for raising the question, Irene. One issue is that the Sac-N-Pac stores, the 47 Sac-N-Pacs come in at a lower volume per store than the rest of the chain. And that tones down the guidance that we need to put in here in this average per store calculation. There isn't any change, certainly, for the negative or outlook for the negative economy. Everything is -- remains intact, and we expect to see a number of big industrial plants in our region break ground over the next year. So we feel good about the economy. It remains intensely competitive, as it always has been. We are aware that we have delivered several years of exceptional comps on fuel volume. And as you've heard me say, Irene, trees don't grow to the sky, even in Texas. So we're trying to be conservative in our outlook and in our guidance and the one kind of hard data point I think is the Sac-N-Pac volumes per store meaningfully below Stripes volumes. So that affects the guidance.

Irene Nattel - RBC Capital Markets, LLC, Research Division

Okay. So we should not then necessarily assume that there's any shift whatsoever in underlying trends at your core Stripes stores, excluding Sac-N-Pac?

Sam L. J. Susser

Not that we're seeing, Irene.

Irene Nattel - RBC Capital Markets, LLC, Research Division

That's great. And just on the subject of weather...

Sam L. J. Susser

Even in these difficult weather conditions, obviously, we'd be doing even better if things were hot and dry, which hadn't been the case. But the underlying strength of the business is very healthy, and we're looking forward to producing another year of strong comps, hopefully, better than the last year.

Irene Nattel - RBC Capital Markets, LLC, Research Division

And just you did call out the easier comps in Q2 and Q4 of '14. And I know that Q1 of '13 wasn't particularly good, but it wasn't as bad at Q1 as you're having this year, was it? So could you just talk a little bit about what's been going on in your markets, please?

Sam L. J. Susser

We have had 3 very tough weather weeks so far this year out of whatever it's been. 8 weeks in a year, 3 of them had been very tough. But overall, looking through kind of the average and everything, we feel like the customer is still spending money in our stores. And we're still continuing to see the same trends in big categories, strength in food service and salty snacks and beverages. That's driving traffic for us. We do have a calendar shift this year. And the Easter comes in the second quarter instead of the first. And so that's going to make the Q1 comparison a little tougher. And obviously, Q2 should be a very, very easy comparison for us because the weather was horrific last year and Easter comes later in the year. And overall, we see more tourist traffic when Easter comes in April than when it comes in March, in the middle of spring break. So we'd be able to spread it out, results, and are doing more business in years past. So we really like the way that lays out, although we would expect a much stronger comp in Q2 than Q1.

Operator

Our next question comes from the line of Ethan Bellamy with Baird.

Ethan H. Bellamy - Robert W. Baird & Co. Incorporated, Research Division

One item on the MLP, the maintenance CapEx guidance was a little higher than what we were looking for. Is that due to acquisitions, the year-over-year change? And can you give us a hand in terms of modeling that off of percent of EBITDA or PP&E and what that ratio might look like over the long term?

Rocky B. Dewbre

Yes. Ethan, this is Rocky. So if you recall, we acquired the Gainesville Fuel book of business in Q3 of this past year. Inside that business, they have a number of trucks that obviously are used in the delivery of fuel. And as we replace those, that's maintenance cap. That's a big chunk of it. I think our overall guidance was still at a couple of million dollars. That's the biggest component of it. As far as -- I think our total guidance was $2 million to $4 million, I believe, for maintenance.

Ethan H. Bellamy - Robert W. Baird & Co. Incorporated, Research Division

Yes. Then is that a good number going forward if we break that out per site, for example?

Rocky B. Dewbre

I wouldn't nearly break it down on a per-site basis, I mean, because it's probably pretty level from there without meaningful growth by acquisition. This is -- the $2 million to $4 million range is likely to be without a meaningful change by acquisition. This could be the guidance you would see the year after and the year after as well.

Operator

Our next question comes from the line of Scott Mushkin with Wolfe Research.

Scott Andrew Mushkin - Wolfe Research, LLC

So I just wanted to look at the kind of the margins in the merchandise business a little bit and your guidance. It seems like maybe the leverage point, Sam, if we're going to look at the guidance, is that maybe sales could do a little bit better from what you're talking about, that maybe there are too many levers to pull on the gross margin or on the store expense side? Or am I misreading that if -- maybe you take a shot at that one?

Sam L. J. Susser

We feel pretty good about our ability to achieve these guidance targets. I mean, we have always tried to be conservative and realistic and our strength as a public company. We've been doing it 7 years. I think we've only grown more conservative as we put together our annual guidance that we shared with you in February. But we feel good about merchandise margin. In the cusp side, you have big-box competitors that are suffering and producing negative comps. We're not producing negative comps, but we're prepared to be as competitive as we need to be to hold on and grow our market share. And we have a do-what-it-takes attitude there. But with the positive trends in our food and higher margin beverage categories, I think it's definitely possible that we can get to the high end of this margin guidance or maybe a little bit beyond because of positive shifts in mix. It's in the realm of possible.

Ethan H. Bellamy - Robert W. Baird & Co. Incorporated, Research Division

Has the environment in consumables generate down in the restaurant side of your business. But on other side, I know you've talked, I guess, through the back half of last year that things were pretty darn tough. I mean, it's still remaining that way or things are easing up a little bit?

Kevin J. Mahany

Scott, this is Kevin. It remains pretty much the same. It's very competitive, and everybody is continuing to go after a piece of the pie. But we're very confident that with our programs and our initiatives, our food program, that will continue to look at taking more share and building around that business.

Sam L. J. Susser

We have a few large supplier partners that are really working very closely with us, and we've got some programs and by-store merchandising initiatives that I think are going to really help us this year. And I don't think that some of the aggressive -- reaching for price is working so well for some of our big-box competitors. They're still doing it, but I'm not sure it's working quite as well as they intended. And we're continuing to hold on and grow our business relative to the total spend in some of these big categories. We see what's going on, and we have definitely been holding our share because, I guess, of our great real estate and great people and the improvements we're making in service. And we have a lot of little things that we were working on relentlessly here. And it's working. We're getting a bigger and bigger share of these big consumer spend categories in our markets.

Operator

Our next question comes from the line of Dane Leone with Macquarie.

Dane Leone - Macquarie Research

If you bake everything together, what you've given in terms of building out the QSR with some of the operational tools, could you maybe help us frame the big picture here in 2014? Is it still going to look more like 2013 from an operational leverage point of view? Or do you expect expenses as a percent of your in-store revenues to have bottomed out and then actually seeing some leverage this year maybe ramping up into 2015?

Sam L. J. Susser

If I could strip out the Sac-N-Pac out of the portfolio, which you can't do. But if you stripped it out, we would expect to see expenses as a percent of sales improving in 2014 versus 2013 across a number of lines. We have more control, more visibility, more process. We feel confident in our ability to grow sales this year. That feels pretty good. I think given the size and lower volume of the Sac-N-Pac portfolio, as it works its way into the system, it's going to cause some noise inside the numbers. But we feel very bullish about being able to grow Sac-N-Pac merchandise volumes at a level that is kind of the 10% kind of level for the next couple of 2 or 3 years, which has been our experience with Town & Country and stores we've acquired from Circle K and 7-Eleven and others over the years. We've seen that same repetitive sort of opportunities with the Sac-N-Pac Group. And so maybe a little noise in the expense relationships this year because of it, but we're really pleased we made that acquisition.

Dane Leone - Macquarie Research

Okay, great. And then I'm not sure anyone asked it, but could you -- did you give any color regarding quarter-to-date retail fuel margins?

Sam L. J. Susser

We have a practice of not commenting on margins in the quarter, Dane. So it can be so volatile we feel that we could very mislead the market one way or the other because the last week or 2 can completely change the results for the quarter. So we have had a firm practice since going public of not commenting on fuel margins in the quarter, other than to say when it's rising, that usually hurts us, and when it's falling, that usually helps us. But we don't comment beyond that.

Operator

Our next question comes from the line of Ben Brownlow with Raymond James.

Benjamin Brownlow - Raymond James & Associates, Inc., Research Division

Just a follow-up on the last question. I know you don't want to comment too much on your quarter fuel margins, but is it fair to say that March, the month of March last year was extremely difficult and that quarter-to-date, you've had a little bit more favorable cost environment? But ultimately, I'm just trying to get to how you're thinking about margins and the pricing strategy as you go forward over the next few weeks.

Sam L. J. Susser

Ben, we don't think about margins on a weekly or monthly or quarterly basis. We have a very long-term approach about holding and growing our volume and share. And there hasn't been any change in our fuel pricing approach or philosophy and don't anticipate any.

Benjamin Brownlow - Raymond James & Associates, Inc., Research Division

Okay. And just one more for me. On the wholesale side of the fuel margins to the third party, which I guess, were up a little bit to $0.052 per gallon. Is there any way to quantify the benefit that you have from the Gainesville acquisition on that fuel margin?

Rocky B. Dewbre

This is Rocky. So we commented when we acquired that business that we anticipated about 60 million gallons a year. And our expectation is coming to fruition, it's we're right on track and feel good about that. So...

Sam L. J. Susser

Rocky's sandbagging you. We're ahead of historical run rate to close the deal. And the margins in Gainesville are 2 to 3x the fuel margins of the rest of the portfolio. So this definitely helped it.

Rocky B. Dewbre

That was margin. I was talking about the gallons. Throughout these years, we've been very pleased with Gainesville.

Operator

Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

The merchandise margin was better than what we had expected. Now I know from time to time, there are some timing shifts with vendor rebates. Did you see that in this quarter? And how should we think about that in 2014?

Sam L. J. Susser

Big shift last year from one quarter to the next with some vendor rebate issues. And that -- I don't think that's -- Ken, would you please comment? Do you see any big shifts on the horizon?

Kevin J. Mahany

I don't see any big shifts on the horizon. But traditionally, we do pick some up annual growth rebates at the end of the year that we booked when they're received.

Sam L. J. Susser

And so because we hit growth targets there at the end of the year, we have earned some additional incentives from certain suppliers, and we were able to release that into the fourth quarter.

Kevin J. Mahany

Yes.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Got you, okay. I may have missed this, but did you give the same-store sales number for merchandise, excluding cigarettes?

Sam L. J. Susser

We can give that to you.

Mary E. Sullivan

For the quarter was 2.9%, excluding cigarettes, and 3.6% for the full year.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Got it, okay. And Sam, you mentioned before that as you opened new stores, there are some initial labor inefficiencies. Now on average, how long did it take for these new stores to become labor-efficient, I guess, in your opinion?

E. V. Bonner

Anthony, this is Chip. On new stores, our program is we had 2 weeks of training before the store is opened. So you have that labor that runs through all of these stores. And then it takes us about 6 months to ramp sales up and get our labor basically righted. And we are trying -- we're working hard to make that shorter than 6 months, but these stores, a lot of these stores are in areas, growth areas where business is coming. And so these sales will ramp up. We expect these sales will ramp up year-over-year. And so it's constantly tweaking our labor matrix to make sure we have the right labor in there. But all new stores have training on the front end, which causes additional labor to hit our line.

Sam L. J. Susser

Also, Anthony, in 2012 and 2013, we entered a couple of new geographic markets, the greater Houston area and Temple, Killeen, Waco. And the staffing and efficiencies in these new markets were much higher. And as we get more stores, more share, more density, we think we're going to be increasingly efficient. And about half or a little bit more than half of our new store growth, new-build boxes are in these newer markets. But we think we're going to be more efficient with them in 2014 than we were last year.

Operator

Our next question comes from the line of Ronald Bookbinder with The Benchmark Company.

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

With the Sac-N-Pac doing lower volumes than the rest of the chain, should we be thinking about some deleverage of the personnel cost when looking at 2014 as you work through this acquisition?

Sam L. J. Susser

Well, I think it's going to show probably higher labor to sales in 2014 because of bringing that portfolio on into the 2014 mix. But in 2015, labor as a percent of sales will show positive leverage as compared to '14 because we're building sales and we'll be able to increase labor efficiency in that portfolio of stores over the next 12 to 18 months.

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

Okay. And last year, your initial average per store gallon growth was up 1% to 4%, and you ended up achieving 5.8%. Congratulations. And so would you be conservatively looking at the Stripes base in that same sort of range, such that Sac-N-Pac is having a negative 100-basis-point impact on that initial guidance?

Mary E. Sullivan

Ron, this is Mary. I think that would be a pretty close assumption. As Sam mentioned, we did take the Sac-N-Pac gallons into account in the guidance, which does include all of our stores. Whereas, if you recall on our merchandise same-store guidance, that is only the stores that have been on our system for 12 months. So I think you're correct to that assumption that excluding Sac-N-Pac, our guidance would've been similar to what we would have guided in prior years at this point in time.

Ronald Bookbinder - The Benchmark Company, LLC, Research Division

Okay. And just lastly, why wouldn't you drop all the Sac-N-Pac stores down to SUSP, whether they're leased to dealers or leased to Stripes?

Sam L. J. Susser

Well, the supply will all be -- is already being provided by SUSP from the first day, but the real estate today is owned at the SUSS level, and if we want to maintain the flexibility to sell some real estate, some dealers and select cases, if that's the determination that the company makes. And so we don't want to dropdowns until after those decisions have been made.

E. V. Bonner

The other thing is if we spend dollars to convert the stores to Stripes, that CapEx within the spend by SUSS, which would be included in the price that we drop it down versus dropping it down and then keeping that CapEx on SUSS books. So we want to do the conversion first before we drop it down.

Operator

Our next question comes from the line of Karen Short with Deutsche Bank.

Karen F. Short - Deutsche Bank AG, Research Division

Questions on the cadence for the merchandise comps during the quarter. Was it relatively steady growth throughout the quarter? I know you guys mentioned there were some weather impacts. Any color you guys can give on week-to-week volatility, maybe what's been impacting that, and if you've seen any significant change across your various markets?

Sam L. J. Susser

Looking at Q4, October was a strong month, and the weather got us in November and especially in December. We also were going up against increasingly difficult months in the prior year. So the comps were -- got harder as the month -- as the quarter went along and the weather got worse. But we -- weather, obviously, is going to vary from month to month to month. It's not something that we spend a lot of time worrying with. We feel very good about our ability to grow our comps at a healthy level this year. Even though there's not much inflation out there in the economy, we still feel very good about our ability to grow our comps, which is going to, I think, with our improved controls and systems, that are starting to mature and get traction. I think we're going to be better at expense controls well this year.

Karen F. Short - Deutsche Bank AG, Research Division

Okay. And you mentioned your inflation's been pretty modest. I mean, what's really embedded in your comp forecast for this year in terms of inflation?

Sam L. J. Susser

We're seeing inflation of no more than 1%, maybe 0.5% in terms of what we're really experiencing in the business. It's very modest.

Karen F. Short - Deutsche Bank AG, Research Division

Okay, great. And just a last question on the employee cost trends, healthcare trends, any color you guys can give on kind of how you're thinking about potential headwinds looking out this year or any impact from Obamacare?

Sam L. J. Susser

Yes, we estimate that our healthcare costs in 2014 are going to be $3.3 million to $4 million higher than the prior year, and with most of that as a result of the Affordable Care Act changes and a small part of that because we have just a larger company. We're adding so many new employees as we grow stores at this big clip. We're adding employees. Excluding the impact of Sac-N-Pac, just too organic growth, we're growing about 1,000 employees a year.

Operator

I would like to turn the call back over to Mr. Susser for any closing remarks. Please go ahead, sir.

Sam L. J. Susser

We thank everybody for your time and your interest. And I hope you'll come down and see the new stores that we're building and some of the tweaks we're making in merchandising. And visit us at Susser Petroleum Partners as well in Houston. We have a brand new store near the big Houston Intercontinental Airport. We'd love to show you around when you guys are coming through the region. Thanks for your time, everybody.

Operator

Thank you. Ladies and gentlemen, this does conclude our conference for today. Replay information is available in this morning's press release. Thank you for your participation. You may now disconnect.

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