Delek US Holdings Considers Retail Dropdown to Logistics MLP

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Delek US Holdings Considers Retail Dropdown to Logistics MLP

02/26/2016

BRENTWOOD, Tenn. — In an effort to unlock value for its stock price, Delek US Holdings Inc. is strongly considering dropping down its retail division to its sister company Delek Logistics Partners LP, a master limited partnership (MLP) and operator of logistics and marketing assets for crude oil, as well as intermediate and refined products.

Delek's retail segment markets motor fuel and convenience merchandise via a network of 358 company-operated convenience store locations as of Dec. 31 operated under the MAPCO Express, MAPCO Mart, East Coast, Fast Food and Fuel, Favorite Markets, Delta Express and Discount Food Mart brand names.

When questioned by a Wall Street analyst during the company’s 2015 fiscal fourth-quarter earnings call Friday, Delek US Chairman, President and CEO Uzi Yemin said he prefers a retail dropdown as opposed to spinning off or selling the division due to tax consequences.

Yemin added that despite the declining stock prices of MLPs, the company is fully behind its Delek Logistics Partners for the long-term. He did not set a timetable regarding when the retail dropdown could occur.

He stressed this move has nothing to do with any weakness in Delek’s retail division. In fact, the dropdown would occur on the heels of the division reporting a record year in 2015, achieving $64 million in contributing margin.

“Retail is making very [good] money. We are very happy with the performance,” Yemin said. “In fact, we recently opened six new stores.”

As for its fourth quarter ended Dec. 31, Delek’s retail division saw contributing margin decline by $6.8 million to $15.2 million. Lower fuel margins were cited as the main cause.

However, most other metrics improved year over year, including same-store merchandise sales, which rose 4.3 percentage points vs. 2014’s fourth quarter, as fuel gallons sold increased by 1.5 percentage points.

Merchandise margin percentage increased slightly to 27.6 percent. Merchandise sales improved by more than $3 million to $104.58 million.

On the fuel side, gallons sold rose by more than 1 million gallons year over year to 114.67 million gallons. Fuel margins, though, declined by 6.6 cents per gallon year over year to 17.8 cents.

As for the current quarter, Yemin said one of its retail markets — accounting for 40 stores — suffered from a supply situation in January, causing overall same-store sales to decline. He did not mention where these stores are located, but did note the situation has been resolved. He added that if not for this one-time item, same-store sales would have been flat in January.

February has seen much better results, with same-store sales rising 3 percent year over year, Yemin revealed.

“Demand is very strong [at retail locations],” he said.

Regarding future retail growth, Delek US will continue to build large-format stores. At the end of 2015, Delek had 67 such c-stores open.

Companywide, Brentwood-based Delek US reported a net loss of $31.5 million for its 2015 fourth quarter, compared to a net profit of $37.5 million in the year-earlier period.