Delek US Brings Back Megastore Strategy to Retail Segment

BRENTWOOD, Tenn. — Delek US Holdings Inc.'s retail network ended 2018 with fewer convenience stores, and that's by design.

According to the company's fourth-quarter 2018 earnings, its retail segment had 280 locations for the year ending Dec. 31, 2018. This footprint is smaller than the 302 locations it had for the year ending Dec. 31, 2017.

Speaking during Delek US' Q4 earnings call on Feb. 20, Chairman, President and CEO Uzi Yemin explained that the company did sell some sites, mainly in the Waco, Texas, area as it exited that market.

"That's part of our strategy and we were very clear that we will take underperforming stores, sell them, convert them to dealer, and continue to sell fuel from the Big Spring Refinery and take these means and use them to build our megastores," Yemin reported.

 "We just opened a new megastore in Midland, [Texas], the first one, and we have outstanding results," he added.

Delek US' current retail holdings came from its 2017 acquisition of all the remaining outstanding shares of Alon USA Energy Inc. Prior to this transaction, Delek US owned approximately 33.7 million shares, or 47 percent, of the common stock of Alon, as Convenience Store News previously reported.

At the time of the transaction, Alon had 307 convenience stores in its portfolio. Alon is North America's largest 7-Eleven licensee.

The Alon deal gave Delek another foothold in the convenience channel, as it previously owned MAPCO and MAPCO Express stores; however, Delek sold the MAPCO network to Compañía de Petróleos de Chile COPEC S.A. in 2016.

Megastores were a key component of Delek's growth plan for MAPCO, and the company is now resurrecting the strategy with its new assets.  

"The strategy will be, like we did with the MAPCO stores, to get rid of underperforming stores and at the same time, take the money and build the megastores, the new generation stores,"  Yemin said during the Feb. 20 call. "Obviously, that's a long-term strategy. But as we all remember, it paid off when we did the MAPCO transaction."

Q4 Retail Financials

Looking at Delek's retail segment for the fourth quarter of 2018, contribution margin was $13.1 million compared to $13.3 million in the prior-year period. Merchandise sales were approximately $81 million, with an average retail margin of 30.2 percent in quarter, compared to merchandise sales of approximately $84.2 million with an average retail margin of 31.5 percent in the prior-year period.

Approximately 53.3 million retail fuel gallons were sold, at an average margin of 30 cents per gallon, in the fourth quarter 2018 compared to 53.2 million retail fuel gallons sold at an average margin of 17 cents per gallon in the fourth quarter of 2017.

On a same-store sales basis, merchandise sales decreased 0.7 percent while fuel gallons sold increased 0.1 percent compared to the prior-year period.

Brentwood-based Delek US Holdings is a diversified downstream energy company with assets in petroleum refining, logistics, renewable fuels and convenience store retailing. Its convenience store business is the largest 7-Eleven licensee in the United States and operates approximately 280 convenience stores in central and west Texas and New Mexico.

The refining assets consist of refineries operated in Tyler and Big Spring, Texas; El Dorado, Ark.; and Krotz Springs, La. The logistics operations primarily consist of Delek Logistics Partners LP. Delek US Holdings and its affiliates own approximately 63 percent, including the 2-percent general partner interest, of Delek Logistics Partners, a growth-oriented master limited partnership focused on owning and operating midstream energy infrastructure assets.