Alon USA Feels the Impact of Regional Struggles

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Alon USA Feels the Impact of Regional Struggles

By Angela Hanson, Convenience Store News - 05/05/2016

DALLAS — Alon USA Energy Inc. expressed optimism during its May 5 earnings call, despite posting losses in the first quarter of 2016 based primarily on regional weakness.

The company saw a net loss of $35.5 million during the quarter, compared to a net profit of $26.9 million during the same quarter last year.

For months now, lower gas prices and a slowdown in oil drilling have had a notable effect on Alon's convenience stores in the Permian Basin, located in the Midland/Odessa region of Texas. The area is one of the most important oil and gas-producing areas of the United States, as CSNews Online previously reported.

On a more positive note, Alon's stores in other regions performed well during 2016's first quarter, the company reported.

"Our retail business was negatively affected by economic conditions in the Permian Basin, mostly offset by good performance in our newly constructed and acquired stores," stated Alon USA President and CEO Paul Eisman. "As we move into spring, we see seasonally improved fuel and merchandise demand, with resulting improved profitability."

Along with the loss of drilling activity in the Permian Basin, Eisman noted that the number of people moving out of that area is "clearly impacting" sales of merchandise and fuel at those stores. He also stated that it is not yet clear whether the region has reached a bottom point.

However, Alon's stores located elsewhere are benefiting from increased demand for gasoline, he shared. Retail fuel sales rose by nearly four million gallons year over year to 50 million gallons. Fuel sales per site per month increased slightly from 54,000 to 56,000. Retail fuel margins declined from 23.6 cents per gallon to 19.9 cents per gallon.

In-store merchandise sales increased to $77.8 million during the quarter, up from $76.1 million one year ago. Merchandise sales per site per month decreased by $3,000 from last year to $84,000. Merchandise margins declined from 33.2 percent to 31.5 percent.

Despite a rocky quarter, Alon is continuing to pursue avenues of growth.

"In February, production began at AltAir, a renewable fuels project located at our Southern California refinery, in which we own a majority interest," Eisman said. "AltAir contributed operating income of $7.2 million in the first quarter. Based on current market conditions and operations consistent with our plan, it is our expectation that the operating income of AltAir will substantially offset the operating loss of our California refineries in 2016."

Alon ended the first quarter with its convenience store count holding steady at 309 locations.