Murphy USA Weathers Three Historic Events

EL DORADO, Ark. — As the country navigates the current health crisis driven by the spread of COVID-19, many companies, including Murphy USA Inc., are feeling the effects of the pandemic and change in consumer behavior.

Speaking during the company's first-quarter earnings call, held April 17, Murphy USA President and CEO Andrew Clyde reported that the convenience store retailer has been impacted by the combination of three "historic events:"

1. The rapid and steep fall in crude oil prices that resulted from the price war between Saudi Arabia and Russia, and the resulting oversupply in domestic and global markets;
2. The global COVID-19 pandemic that introduced the novel coronavirus throughout the United States; and
3. The large-scale government response and intervention.

"As an essential service business, we are indeed very fortunate to be able to serve the needs of our customers across the communities in which we operate during this period," Clyde said. "We are extremely grateful for our employees and our key supply chain partners who are at the front lines making this happen. As shareholders, we can never lose sight of who really makes this business tick, because without our customers and the teams that serve them we have nothing."

Crude Oil Prices

During the earnings call, Clyde explained that crude oil prices dropped from roughly $62 a barrel in January to slightly less than $20 in late March. This drop led to total fuel margins of 22 cents per gallon for Murphy USA in its latest quarter.

"It is important to remember the falloff in crude prices was largely driven by geopolitical events that led to the high margin environment going into the COVID-19 crisis," he said. "And in that period, we were experiencing fuel volume increases of approximately 2.7 percent through February on a same-store basis, as our fuel pricing initiatives were delivering exceptional results."

However, March became a month divided into three parts.

The first 10 days — before COVID-19 became widespread — consumer demand was strong and Murphy USA saw a 6.2 percent increase in per-store fuel volumes.

Then, "the pursuant demand shock as shelter-in-place orders across the country took hold had a significant impact on the second half of March performance," Clyde said. "During the middle 10 days of the month, the schools closed and more people started working from home. We saw some pre-buying behavior and, as a result, per-store volumes remained relatively strong at 2.7 percent over the prior-year period."

The last 10 days of March, however, exhibited the full effects of the shelter-in-place orders with per-store fuel volumes posting a year-over-year decline of 31.7 percent.

As for the beginning of the second quarter, Clyde noted that April month-to-date fuel volumes have leveled out, at an average decline of 31.6 percent. The company was seeing strong margins in the first half of the month, but that continues to trend downward. 

COVID-19 Pandemic

Looking beyond fuel, Murphy USA's merchandise sales have experienced a rollercoaster ride since the COVID-19 crisis took hold of the U.S.

The chain saw merchandise sales per store up 7.1 percent in the first 10 days of March vs. the prior year. This increase built on "the strength we saw in January and February performance, which was comping very well in both tobacco and non-tobacco, erasing Q4 2019 headwinds," Clyde explained during the earnings call.

In the middle part of March, merchandise sales per store increased 29 percent above prior-year sales as consumers stockpiled essential items, particularly cigarettes.

Then, in the last 10 days of March, Murphy USA reported per-store sales were flat vs. the year-ago period, but with continued strength in tobacco sales showing 6 percent year-over-year improvement. This uptick was offset by a reduction in non-tobacco sales, which were down 13.3 percent as both fuel and tobacco traffic was lower. 

Based on Nielsen and other third-party sources, Clyde said the company believes its performance in core categories is outperforming what the industry is seeing on average, though. He cited three factors that are driving this:

• The proximity of Murphy USA's stores to Walmart Supercenters and the uplift in traffic the big-box retailer is experiencing amid COVID-19;
• Value-conscious customers who have become more loyal; and
• Exceptional operational execution from store associates, along with support from supply chain partner Core-Mark International Inc. and manufacturing partners.

Response & Intervention

While the federal government has implemented economic stimulus actions, Murphy USA does not anticipate the need for government financial assistance. The company's cash position is strong, as it continues to generate significant operating cash flow, its credit facilities have capacity, and its debt maturities are "well down the road," said Clyde.

"Our conservative balance sheet is yet another strategic asset that was an intentional design element of our business model. As a result, we continued to invest in our new store and raise-and-rebuild opportunities," he explained. "And while we have the flexibility if necessary to adjust our capital plans for the second half of the year, we have no plans to do so at this time."

All of Murphy USA's current projects are on track, with only one delay due to weather.

The company has implemented several measures to ensure the safety of its customers and frontline associates. This includes additional labor hours at the store level for more thorough and frequent cleaning; self-stocking of items delivered by certain distributors; and personal protection equipment for staff and, when available, for customers.

"We are meeting — and in some cases, exceeding — the standards and guidelines set by various national, state and local governments," Clyde said. "The result of our efforts is that we have kept our network up and running with no store closures currently.

"We have temporarily closed 43 stores to date for deep cleaning, which typically lasts a few hours," he continued. "Opening hours have been reduced at 74 stores due to mandated curfew restrictions, and we have reduced opening hours at another 79 stores on a discretionary basis for safety or security concerns. We continue to hire new associates, and we have a record-low eight store manager vacancies across the entire chain."

El Dorado-based Murphy USA's network totals 1,491 stores, consisting of 1,161 Murphy USA sites and 330 Murphy Express sites. Fifteen stores are currently under construction, including five new retail locations and 10 kiosks undergoing raze-and-rebuilds that will transition those locations to 1,400-square-foot convenience stores.