Murphy USA Moves Into 2019 Focused on Long-Term Growth

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Murphy USA Moves Into 2019 Focused on Long-Term Growth

By Melissa Kress - 01/31/2019
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Increasing its store count and rolling out new initiatives are among Murphy USA's strategic plans.

EL DORADO, Ark. — With 2018 in the books, Murphy USA Inc. is looking to up its competitive game moving forward.

"We are competing for the long term and we are competing to win. With several transformative initiatives underway, we are positioning the business for further step-level improvements in 2019 and beyond," President and CEO Andrew Clyde said during the company's fourth-quarter 2018 earnings call on Jan. 31.

Those initiatives, he recounted, include the successful pilot launch of the retailer's loyalty program Murphy Drive Rewards, and investments in its network via a raze-and-rebuild program and implementing EMV compliance at the dispensers across its stores.

In March, El Dorado-based Murphy USA will start to roll out the Murphy Drive Rewards nationally, with plans to complete the rollout in the second quarter of 2019.

Looking back on 2018, Clyde noted that Murphy USA took advantage of market volatility when it counted and delivered a strong financial performance.

"We took market share in Q4, growing average per-store volumes nearly 3 percent and 20-cent-per-gallon margins," he reported. "We reinforced our low-price value position with customers and drove traffic to our stores and inside our stores, helping to surpass a $400-million merchandise contribution for [the] full year — and we achieved these results by keeping costs in check." 

Murphy USA remains patient and disciplined with its capital, according to the chief executive.

"New store growth is complemented by increasingly attractive returns from the raze-and-rebuild program. We remain committed to share repurchase as our preferred use of free cash flow; and while we will remain opportunistic around repurchase activity, we ended the year with a strong cash position, which when coupled with free cash flow, will give us ample flexibility to execute share repurchases in the coming year," he said.

"Our balance sheet remains conservative, but it is well positioned to support incremental investments in growth, technology and other initiatives to make our business more competitive over the long term," Clyde added.

Store Growth

In the fourth quarter of 2018, Murphy USA opened 11 new stores and reopened 15 raze-and-rebuild locations, growing its network to 1,472 stores as it entered 2019.

In full year 2018, the company completed 26 new-to-industry locations and 27 raze-and-rebuild stores, replacing kiosks in high-performing locations with 1,200-square-foot convenience stores while adding dispensers and the ability to offer more fuel grades and products, according to Clyde.

"For the next several years, Murphy USA expects to maintain a 40- to 50-store pace of construction projects consisting of both new-to-industry stores and raze-and-rebuilds that address both end-of-life assets, network optimization and enhancement opportunities at some of our higher-performing stores," he explained.

Of the $225 million to $275 million slated for capital allocation this year, Murphy USA is allocating roughly $140 million to organic growth representing 15 to 20 new-to-industry stores and 20 to 25 raze-and-rebuild locations. This will translate to 65,000 square feet of new retail space vs. about 70,000 square feet in 2018. 

"Although we are building fewer stores currently, the majority of the new-to-industry stores will be 2,800-square-foot stores or larger, which represent a higher per-store cost but come with improved economics due to higher selling square footage and higher merchandise contribution margin for the incremental cost," Clyde explained.

In addition, Murphy USA expects to spend about $30 million on maintenance and has allocated another $30 million for corporate initiatives including technical systems and IT infrastructure upgrades — including some projects deferred from 2018.

The company is earmarking $60 million for EMV compliance. This spend consists of major investments in new dispensers and dispenser upgrades to further secure its network.

"We are very pleased with the progress we made in 2018 and we are very excited about the potential of the 2019 initiatives to continue to move Murphy USA's business forward," Clyde said.

As for possible acquisitions, the company's stated priorities have been to focus on organic growth and continue building the capabilities that allow Murphy USA "to win with customers," Clyde explained.

"Certainly, building capabilities that allow you to add value to someone else's business could be a way to think about future M&A, but right now that is certainly not in our plans for 2019 or 2020," he said. "We're looking to build strong capabilities focused around improving the productivity around our existing stores and creating significant upside from that."