Susser Holdings (SUSS) Misses on Q2 Earnings, Beat Revenues - Analyst Blog

Susser Holdings Corporation's (SUSS) second-quarter earnings of 66 cents missed the Zacks Consensus Estimate by 32.0%. Earnings, however, went up 11.8% from the prior-year level backed by higher revenues and margins.

Susser Holdings has more than 600 Stripes and Sac-N-Pac retail stations selling gasoline, diesel fuel and convenience store items across Texas, New Mexico and Oklahoma. The company also provides restaurant services at more than 400 of its Stripes locations, mainly under its Laredo Taco brand. Additionally, Susser Holdings is a majority owner in Susser Petroleum Partners L.P. (SUSP), one of the largest wholesale fuel distributors in Texas.

Susser Holdings' net sales of $1.9 billion beat the Zacks Consensus Estimate by 5.6%. Revenues went up 19.7% year over year to $1.9 billion backed by sales growth in all the three segments. Categories like fresh food, beer and packaged drinks showed improved sales during the quarter.

Gross profit increased 14.7% to $192.7 million backed by merchandise and fuel sales growth. Fuel represented 36% of gross profit. Operating income went up 22.2% to $33.4 million due to lower operating expense.

Segment Results

Merchandise: Net sales went up 15.8% year over year to $318.2 million. While 3% of sales came from stores which were opened more than a year ago, the remaining increase came from stores which were opened in the last four quarters. Same-store merchandise sales was 4% higher compared with the year-ago level backed by higher customer traffic and transaction size led to strong same-store sales during the quarter. Easter sales also helped in the increase.

Gross profit increased 14.4% year over year to $107.7 million higher sales in new stores and food service outlets. Net merchandise margin shrank 50 basis points to 33.8%, due to timing difference in rebate recognition during fiscal 2013.

Retail Fuel: Net sales went up 15% year over year to $926.7 million backed by increased gallons sold during the quarter. Higher average selling price of fuel also led to higher revenues during the quarter. Excluding the impact of recent acquisition of Sac-n-Pac stores, retail fuel sales went up 2% year over year.

Segment volume grew 11.8% year over year to 263.9 million gallons.  Average fuel gallons sold during the quarter went up 2% during the quarter compared with 5.5% in the prior-year level. The company is experiencing volume slowdown mainly due to stiff competition in the industry. Including the recently acquired Sac-N-Pac stores, average retail gallons per store declined 0.4% (in line with management's expectation), due to Sac-N-Pac's smaller average store size and lower fuel volumes.

Gross profit increased 15.1% year over year to $49.5 million backed by higher volume. Retail fuel gross margin went up 50 basis points to 18.7%

Wholesale Fuel: Net sales went up 30.5% to $614.7 million due to higher volumes sold, coupled with higher selling price of fuel, during the quarter. Volumes sold to third parties — which includes all gallons except those distributed to Susser's retail stores — went up 27.5% year over year to 199.1 million gallons. Gross profit increased 21.2% year over year to $20.7 million due to increased gallons sold including the impact of the Gainesville Fuel acquisition, and 0.4% increase in third-party margin per gallon.

Store Update

Susser Holdings opened five large-format Stripes convenience stores and acquired two existing stores during the quarter. The company operated 636 convenience stores, of which 408 included a restaurant, primarily Laredo Taco Company as of Jun 29. Four of these stores were opened during the second quarter, and 17 Stripes stores are currently under construction.

In the wholesale segment, Susser Holdings opened 11 contracted sites during the quarter while discontinuing 624 contracted branded sites.

Financial Update

The company completed sale leaseback transactions with Susser Petroleum Partners LP for six Stripes locations in the second quarter for $31.0 million.

In April, Susser Holdings agreed to divest itself to natural gas transportation and storage partnership Energy Transfer Partners L.P. (ETP) for about $1.8 billion in cash and stock. The transaction, expected to conclude in the third quarter, will provide Energy Transfer the general partner interest and incentive distribution rights in Susser Petroleum Partners and 50.2% of its common units, in addition to Susser Holdings' retail operations. (Read more: Energy Transfer to Snap Up Susser Holdings for $1.8B). On Aug 28, stockholders of Susser Holdings will vote on the proposed merger agreement.

Susser Holdings currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the same sector is The Pantry Inc. (PTRY) sporting a Zacks Rank #1 (Strong Buy).