Delek US Retail Reports Strong Second Quarter

BRENTWOOD, Tenn. -- Delek US Holdings Inc., operator of the MAPCO convenience store chain, reported a decline in net income for the second quarter 2010 compared to a year ago, while its retail segment experienced one of its best quarters in two years.

For the three months ended June 30, 2010, net income from continuing operations was $15.0 million vs. $29.6 million in the second quarter 2009. Excluding special items, adjusted net income for the second quarter 2010 was $12.3 million, compared to $13.0 million a year ago.

Second quarter net income was impacted by a capital loss on the sale of three retail locations; accelerated depreciation resulting from the closure of six retail locations; write-down of DHT catalyst cost at the Tyler refinery; and flood-related property damage resulting from the May 2010 storms that affected portions of Middle Tennessee, the company reported. Together, these factors decreased net income by $1.7 million during the second quarter 2010.

"Our second quarter profitability was primarily attributable to a combination of strong demand for refined products in each of our operating segments, improved Gulf Coast refining economics and elevated retail fuel margins," Uzi Yemin, president and CEO of Delek US, said in a statement.

"In our retail segment, strong same-store sales of fuel (gallons) and merchandise helped to produce one of our best quarters at retail in nearly two years," Yemin said.

Delek US' retail segment contribution margin was $18.1 million for the second quarter 2010, up from the $10.2 million a year ago, and was attributable to a same-store increase in fuel gallons and merchandise sales, increased gross profit generation on select in-store merchandise, and a significant increase in the retail fuel margin when compared to the year-ago period, the company stated.

During the just-ended quarter, Delek US operated 425 locations, compared to the 465 locations operated a year ago. Same-store fuel gallons sold increased 3.4 percent in the second quarter 2010, totaling 109.1 million gallons, vs. a 0.8-percent decline in the second quarter 2009. Retail fuel margin was 18.6 cents per gallon in the second quarter 2010, compared to 12.4 cents per gallon in the prior year period. The increase in fuel margins per gallon was related to a favorable spread between wholesale and retail fuel prices, as well as favorable blending economics associated with an ongoing E10 blended fuel program.

In stores, same-store merchandise sales increased 4.6 percent in the second quarter, compared to a same-store decline of 1.4 percent in the comparable quarter of 2009. This marks the fourth consecutive quarter of same-store merchandise sales growth for Delek US' convenience stores. The increase in in-store sales was attributed to strong contributions from the company's "reimaged" MAPCO store locations; successful promotional efforts within the beer and dairy categories; consumer acceptance of newly introduced private label products; and continued growth in fresh food sales.

In foodservice, same-store sales of food and fountain increased 16.4 percent in the second quarter 2010, due primarily to increased contributions from the company's quick-service restaurant (QSR) locations as well as improved sales resulting from an ongoing fresh grab-n-go food initiative.

Merchandise margin reached 31.3 percent in the second quarter 2010, up from 30.3 percent in the year-ago period, thanks to increased gross profit contribution across several leading categories, the company reported.

The company's Tyler refinery operated at or near peak capacity for the duration of the second quarter, due to increased regional demand and significantly improved refined product margins, Yemin said. "Finally, in our marketing segment, we continued to grow the business, as total sales volumes increased for the third consecutive quarter," he added.

During the second quarter 2010, the company received $17.0 million in insurance payments related to the November 2008 fire at the Company's Tyler, Texas refinery.

Yemin concluded: "Entering the third quarter, demand for refined products in the Tyler market remains on pace with second quarter levels. Within our retail business, same-store sales of fuel (gallons) and merchandise continue to improve as well, driven in part by continued contributions from the company's reimaged store locations."

Western Refining In other second quarter earnings news, El Paso, Texas-based Western Refining Inc., which operates retail service stations and convenience stores in Arizona, Colorado and New Mexico, reported net income of $14.4 million for the second quarter ended June 30, 2010, reversing a net loss, excluding special items, of $28.5 million for the same period in 2009.

Including special items, net loss for the second quarter of 2009 was $307.3 million, which included a non-cash goodwill impairment loss of $299.6 million.

"We are pleased with our second quarter results, which reflect improved refining margins and continued gains as a result of our cost savings initiatives," Jeff Stevens, Western president and CEO, said in a statement. "Our retail and wholesale businesses both delivered increased operating income due to continued fuel volume growth as market conditions improved in the Southwest."

The retail segment's net sales for the second quarter 2010 totaled $184.2 million, up from the $157.0 million a year prior. Operating income in the retail division was $5.1 million in the 2010 second quarter, vs. an operating loss of $23.7 million a year ago. The company operated 150 stores in the second quarter 2010, vs. 152 a year ago.

Fuel gallons sold during the second quarter 2010 reached 52.8 million, up slightly from 52.2 million in the comparable quarter. Fuel margin per gallon increased 2 cents to 20 cents in the second quarter 2010. Merchandise sales were nearly flat, totaling $49.25 million in this year's second quarter, compared to $49.27 million a year ago. Merchandise margin was flat at 28.7 percent.

In addition, Western Refining's cost-savings initiatives are generating results ahead of schedule, with $13 million in year-to-date savings from the consolidation of operations between its Four Corners refineries into the Gallup refinery, the company reported, noting it is on track to achieve the original estimate of $25 million in annualized cost reductions. In addition, the company has realized $14 million in other cost reductions year-to-date.

Moreover, Western announced it is suspending refining operations at its Yorktown refinery due to a poor outlook for East Coast refining margins. It will continue to operate the Yorktown products terminal and supply the region with finished products. A shutdown will begin immediately and take approximately six weeks to be completed, according to the company.

As a result, the company will record a one-time cash charge totaling approximately $13 million during the second half of 2010.

"The recent operational changes, the reduced cost structure of the Company, the position of our business units in the strengthening Southwest region, along with increasing demand for refined products, position the company well for the future," Stevens concluded.