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Susser Focuses on Cost Control, Operations Excellence

CORPUS CHRISTI, Texas -- In a conference call with investors Friday, executives of Susser Holdings Corp. outlined the convenience store chain's strategic plans for 2010, which call for an intensifying focus on cost control and maintaining strong liquidity.

Steve DeSutter, president and CEO of Susser's retail division, which operates 525 c-stores under the Stripes and Town & Country banners, said the retailer began in January implementing more than $2 million in cost-saving measures suggested by the company's senior leadership team that wouldn't have a negative impact on customers.

The majority of the ideas -- many of which have already been implemented -- were personnel related, such as slightly increasing the number of stores per supervisor, and streamlining processes to take advantage of Susser's technology investments while also reducing head count where appropriate, according to DeSutter.

In addition, an ongoing priority for Susser is getting better control over its labor requirements and costs. The chain recently moved its west Texas stores to the same labor metrics that have been used in its Stripes stores for a number of years.

"We've also intensified our systemwide discipline in staying within the allowed labor hours and matching labor use against shifting sales patterns," DeSutter explained during the conference call. "Our fourth quarter labor-to-merchandise-sales ratio was higher than normal and this was the result of two things -- an increase in minimum wage and quite honestly, our not reacting quickly enough in [adjusting] labor schedules to the declines in sales we experienced. Our senior management team is now watching this on a weekly basis, and we've seen great improvement going into 2010."

Susser is eyeing continued improvement in this area by taking advantage of technology it invested in last year that provides time-stamped detailed sales data from every store. "This will allow us to better match our employee work schedules to those periods when our stores experience the most customer traffic," said DeSutter.

Aside from controlling costs, the convenience store retailer is taking steps to enhance operations at the store level and improve the overall customer experience. Susser recently launched a new program it calls "Operations Excellence" whereby a small team of trained operations specialists visit each store once a quarter to conduct a through site review.

According to DeSutter, the goal is to catch team members "doing it right," as well as develop written action plans for areas that need improvement. "Our focus is looking at the stores through our customers' eyes in areas such as cleanliness, quality of interaction with customers, safety, security and proper controls," he explained. "Even though the program is in its infancy, we are already seeing positive trends in our stores."

Additionally on the operations side, the chain is doing more to ensure customers can get what they want when they want it. Susser implemented a next day out-of-stock system that notifies stores when they did not sell a top 30 high-volume item the day before, while also launching new training modules and an enhanced training system to improve the speed of service within its Laredo Taco Company foodservice program. "We want to ensure the same standards are being met by all of our sales associates," DeSutter said.

Fourth Quarter and Full Year 2009 Results
Susser is hoping these measures will bolster its 2010 financial performance.

On Friday, the company reported its fourth quarter and full year 2009 results. Susser Holdings President and CEO Sam L. Susser said on the conference call that the fourth quarter of 2009 marked the first time in 17 quarters that the company experienced a quarterly drop in its same-store merchandise sales. Same-store merchandise sales for the quarter declined 1.2 percent vs. a 6.5-percent increase a year ago.

Merchandise sales from all stores increased 9.5 percent to $201.4 million in the fourth quarter of 2009, according to the company's news release. Retail merchandise margin was 32.7 percent, vs. 34.6 percent for the same period in 2008.

Adjusted EBITDA for the three months ended Jan. 3, totaled $15.0 million, compared with $30.5 million a year ago. Companywide gross profit declined 9.8 percent year-over-year to $102.6 million. Total revenues for the quarter were $921.2 million, up 15.8 percent from a year ago. These results reflect an additional week vs. the prior year; increased fuel prices and gallons sold; and higher merchandise sales driven in part by a cigarette tax increase that went into effect in April 2009, a full year's operation of the 12 new retail stores added in 2008 and the 15 retail stores added during 2009.

The company reported a net loss of $5.7 million for the fourth quarter of 2009 vs. net income of $6.3 million for the fourth quarter of last year.

"We finally began to feel the full impact of the nationwide economic downturn across all of our markets during the fourth quarter," Susser stated. "The company's business is historically seasonal, producing the bulk of its operating cash flow in the second and third quarters. However, the economic slowdown, combined with unfavorable weather comparisons, negatively impacted our year-over-year sales volumes.

"Cigarette inflation, more aggressive pricing from other retailers and restaurants, as well as our customers trading down to lower-priced options, put additional pressure on margins during the last part of the year," the CEO added. "Rising fuel costs also compressed our fuel margins during the fourth quarter as compared to 2008, although full year 2009 retail margins tracked very closely with our five-year average."

The good news, he said, is that it appears the worst may be behind the region.

"In each month from July to December, we experienced sequentially lower comparable merchandise sales, but we have seen stabilization over the past six weeks," he stated.

For the full year ended Jan. 3, 2010, which included 53 weeks, Susser reported merchandise sales of $784.4 million, up 7.5 percent from the comparable 52-week period last year. Total revenues were $3.3 billion, down 22.0 percent due to lower retail fuel prices during the first nine months of 2009, according to the company.

Excluding the impact of the 53rd week, same-store merchandise sales were up 3.3 percent for the full year. Gross profit was $427.4 million, down 2.3 percent from 2008, reflecting a $34.3 million reduction from the impact of lower fuel margins for the full year in both the retail and wholesale segments, partly offset by higher merchandise profits.

Adjusted EBITDA was $92.2 million, down 16.6 percent, while net income totaled $2.1 million, compared with $16.5 million for the same period last year.

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Susser Expects Q4 Merchandise Sales Decline
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