Sunoco LP (SUN) 2012 Q4 法說會逐字稿

Ladies and gentlemen thank you for standing by and welcome to the Susser Holdings, Susser Petroleum Partners fourth quarter earnings conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation the conference will be open for your questions.

( Operator Instructions )

Today's conference is being recorded, February 27, 2013. I would now like to turn the conference over to Chip Bonner, Executive Vice President. Please go ahead.

Thank you operator. Good morning everyone and thank you for joining us. This morning we released our fourth quarter and full year 2012 earnings for both Susser Holdings Corporation and for Susser Petroleum Partners LP. And our news releases were broadcast to our e-mail list. If you would like to be added to one or both lists, please contact our Investor Relations firm Dennard Lascar Associates at 713-529-6600 or send your request via the IR pages of our websites and we will be glad to add you. A replay will be available on the web for at least 60 days and via telephone replay until March 6. To access a replay on the web go to our IR pages either at www.susser.com or www.susserpetroleumpartners.com. You will find all the replay instructions in the earnings release.

A reminder that today's call will contain forward-looking statements. That information is based on management's beliefs, expectation and assumptions and includes the Company's objectives, targets, plans, strategies, costs and anticipated capital expenditures. These statements involve risk and uncertainties that could cause actual results to differ materially. These risk and uncertainties are described in the Company's reports on file with the SEC including the prospectus for Susser Petroleum Partners IPO filed on September 21. We will file our 10-K for Susser Holdings Corporation by March 15 and the 10-K for Susser Petroleum Partners will be filed by March 29.

We will discuss certain non-GAAP financial measures that we believe are helpful for a full understanding of our financial condition. Please refer to our news release which includes a reconciliation of each financial measure. Information reported on this call speaks only to the Company's views as of today, February 27, 2013 so time-sensitive information may no longer be accurate at the time of any replay. Also with us today are Sam Susser, our Susser Holdings President and CEO; Steve DeSutter, President of our Retail group; Rocky Dewbre, President of our Wholesale segment and Mary Sullivan our CFO. Other members of our leadership team are also with us, including Kevin Mahany who heads up Merchandising. Now I will turn the call over to Sam Susser.

Thanks, Chip, and good morning to everyone. First I would like to say that we had a solid finish to an outstanding year over all and I want to express my deepest thanks to the 8,700 team members that delivered results once again for shareholders, setting many new records for our Company. We delivered our 24th consecutive year of same-store merchandise sales growth with a fourth-quarter increase of 5.8% year-over-year and an increase of 6.6% for the full year as compared to 2011. Merchandise margin finished the year at a very strong 34.1% of revenues for the quarter and 33.9% for the year. Total gallons sold increased almost 11% with strong performance from both our retail stores and third party sales made by our wholesale segment. Our adjusted EBITDA was up almost 44% in the fourth quarter and up 9.5% for the full year.

Susser Petroleum Partners, which we will refer to as the partnership on the call, completed its first full quarter of operations following its IPO in September. We are extremely pleased with our initial results and with the positive reception we've received from both sets of shareholders. We believe that our momentum and new store growth combined with a robust Texas economy sets us up with additional opportunities to grow shareholder value in the coming years. We have provided initial guidance for 2013 for both companies in this morning's news release.

Our current expectations assume continued expansion in the Texas economy, which is driving commercial investments, construction activity and continued population growth. There are a couple of unknowns coming out of Washington that could impact our future results and some of you have already been asking about them. The outcome of the fiscal debate is obviously very important to Susser as it is to each of you. Sequestration could especially reduce consumer confidence in the many markets where we have military bases.

The second challenge out of Washington is healthcare reform. While the impact is not expected to materially impact our results until 2014, we are actively working on this issue right now. Just like many other companies, we are trying to understand what all the rules are going to be and what options are really available to us. Unfortunately the requirements are still evolving. We will provide further updates later in the year once we are able to describe our benefit changes to our own team members and to then quantify the potential impact to the Company. Now I will turn the call over to Steve DeSutter, President of our Retail group, for a more detailed look at our operations. Steve?

Thanks, Sam, and good morning everyone. To echo Sam's opening comments, it was another record year and a great quarter for Stripes. Our 6.6% increase in same-store merchandise sales was the strongest since 2008. Customer traffic continued its overall positive trends in the fourth quarter and was responsible for about one-third of the increase. Increased transaction size drove the other two-thirds split pretty evenly between basket size and inflation.

Laredo Taco Company continues to grow steadily and during the fourth quarter we enhanced our menu with the addition of new offerings, including tamales, which are selling very well. If you don't know what a tamale is, come taste some during our Analyst Day on March 21. This new item, along with other menu extensions this year and improved operational execution, drove growth in restaurant sales in most of our market areas during the fourth quarter and full year, which also increased combined purchases of other items such as sodas and snacks. Food service, which primarily includes restaurant sales, coffee and fountain drinks, was 21% of merchandise sales for 2012 and approximately 30% of merchandise gross profit.

At year end, we operated 352 stores, or 63%, with restaurant locations, including 338 of those with Laredo Taco Company. While we continue to face increasing cost pressure for a number of food and supply items, driven both by higher commodity prices and transportation costs, we've been pretty successful at containing, reducing or offsetting cost increases on many key items such as meat, eggs, flour, cheese and cooking oil. We continue to look for supply alternatives to help us lower costs and ensure we can continue to provide strong value to our customers.

Our merchandise sales performance in the fourth quarter was led by increases in package drinks, beer, food service, cigarettes and snacks. Gross profit for the quarter was driven primarily by same-store dollar increases in package drinks and food service. For the full year, sales increases were led by the same categories I just mentioned. Same-store gross profit for the year was led by food service, package drinks, snacks and beer respectively.

For the full year, same-store gross profit from cigarettes was down about $1.5 million versus 2011, but bucking the national trend we increased same-store units sold by over 3%. Cigarette margin for 2012 was 150 points lower than last year primarily impacted by major supplier pricing programs.

We had another very strong year for retail fuel volumes and gross profit. Gallons per store increased 5.8% for the full year, with diesel sales driving much of that increase. That said, gasoline gallons per store also increased this year. Diesel was approximately 21% of retail sales gallons sold throughout 2012. Fourth quarter fuel margin of $0.211 per gallon is the best Q4 margin we have ever reported. This was primarily the result of falling fuel costs during most of the quarter. As a reminder, under our new structure, we now pay $0.03 per gallon mark-up to Susser Petroleum Partners whereas prior to September 25, we paid no profit mark-up to our wholesale segment.

So for comparison to last year, we would have reported $0.241 per gallon in the retail segment for the fourth quarter under our old structure. Our full-year fuel margin of $0.218 per gallon would have been $0.226 without the reduction for the mark-up going to the partnership. This is slightly lower than last year's record of $0.232 per gallon, but still a very strong result compared to our five-year average of $0.178. Our 2013 retail fuel margin guidance reflects the $0.03 reduction.

I am very proud of our team for opening a record 10 new Stripes stores in the fourth quarter, following the 8 stores we had already added in the third quarter. These last 18 stores averaged about 6,200 square feet and have an average of 10 fuel dispensers capable of servicing 20 cars and trucks at the same time and each new store location is employing between 25 and 50 new team members. We still expect to open 29 to 35 new stores this year. Some of these are in existing markets as well as expanding into some new communities in Texas where we see good long-term growth potential.

Currently, there are 11 stores under construction and we expect to start 9 more before the end of this quarter. We anticipate opening four in the first quarter and one of those is already open, we opened it in February. I touched on this last quarter, but it bears repeating again this quarter. The unusually large growth spurt of new store openings over the last two quarters will put short-term pressure on our earnings as it takes a minimum of four to six months for a new store to become cash flow positive. Part of this you will see at our ratio of personnel cost to merchandise sales of 19.2% for the quarter versus 18.3% for the same quarter last year.

We expect the earnings pressure to abate by the third quarter of this year as the pace of new store openings begins to level out. Although our robust economic climate, especially in Texas, is attracting new ground-up competition by a wide variety of retailers, and our customers have been impacted by higher payroll taxes and the uncertainty associated with the federal government programs Sam mentioned, we remain optimistic that we will produce a 25th consecutive year of positive same-store sales growth as we indicated in our initial 2013 guidance. Now I will turn the call over to Rocky Dewbre for a more detailed look at the wholesale fuel segment. Rocky?

Thanks Steve. Good morning everyone. Before I review the results, let me remind you that the wholesale segment results that are consolidated into Susser Holdings consist mostly of the partnership operations. But our wholesale segment also includes the consignment dealer and fuel transportation businesses that were not contributed to the partnership and still remain with Susser Holdings. Now let me begin with a review of Susser Petroleum Partners results.

As you saw in this morning's release, we have presented combined financial statements for the partnership and its predecessor. In addition, the pro forma results for sales and gross profit for the more appropriate historical comparisons. The results I will discuss this morning will compare actual fourth quarter 2012 results versus pro forma fourth quarter 2011 results. Starting with the partnership's third-party customer sales, that is volume sold to independent dealers and other third-party customers. These sales were up 1.6% year-over-year. Gross profit dollars on these third-party sales for the quarter increased by 22% with the margin per gallon at $0.045 up from $0.038 per gallon in the prior year. The margin improvement was largely driven by a strong performance in our commercial fuels group.

Gallons sold by the partnership to Susser Holdings for resale at Stripes stores and by independently operated consignment locations increased by 5.4% for the quarter versus the prior year period. This mainly reflects the growth in retail segment gallons, which Steve discussed. The partnership now earns a $0.03 per gallon margin on these volumes, which offsets the reduction in the retail segment fuel gross profit so that consolidated fuel gross profit at the Susser Holdings level does not change from the new MLP structure.

In total, the partnership -- the partnerships average fuel margin for all gallons sold was $0.035 per gallon in the fourth quarter versus $0.033 per gallon a year earlier on a comparable basis. Total gross profit for the partnership was $14.6 million, up almost 14% from a year ago on a comparable basis. We reported adjusted EBITDA for the partnership of $10.8 million for the quarter and distributable cash flow of $9.8 million.

Now, moving up to the consolidated wholesale segment of Susser Holdings. Adjusted EBITDA for the fourth quarter was $14 million compared to $5.9 million a year ago. Approximately $6.4 million of this increase reflects the new $0.03 per gallon mark-up on gallons sold to the retail segment with the balance reflecting the increased gallons sold and higher margins. Full-year adjusted EBITDA for the wholesale segment was $35.8 million compared to $24.9 million in 2011. Our wholesale segment added 13 new dealers in consignment sites in the fourth quarter and discontinued 6, which brings our independent dealer count to 579 at year end. For the full year, we organically added 39 dealer sites and discontinued 25 for a net increase of 14.

Our wholesale team continues to work on numerous growth opportunities and we have a healthy pipeline started for this year. We estimate we will bring on 25 to 40 new contracted wholesale sites in 2013. We are also working on improvements in our cost of fuel in certain markets and enhancing the automation of our back office operation. Now I will turn the call over to Mary to review the financial highlights.

Thanks, Rocky. Good morning everyone. Let me begin with a quick reminder that our Susser Holdings results fully consolidate the results from Susser Petroleum Partners with the minority interest share of the partnership's net income deducted as non-controlling interest.

To quickly summarize the consolidated financial results of Susser holdings, this morning we reported fourth quarter net earnings of $10.6 million, or $0.49 per diluted share, versus earnings of $5.3 million, or $0.29 per share a year earlier. Q4 adjusted EBITDA was $45.5 million and it was $182.9 million for the full year, both reflecting solid increases over 2011. One of the key metrics we use internally to measure our performance and to set compensation is fuel neutral EBITDAR, which removes the impact of fuel margin volatility from the comparisons. For the year, we increased fuel neutral EBITDAR by 13% over 2011.

Most of the increases in operating expenses this year were related to the increased store count. G&A expense in the fourth quarter increased by about $2 million versus a year ago to $12.8 million. Our quarterly run rate this year has been about $1 million higher than last year largely reflecting additional personnel and related cost of accelerating our growth. The other $1 million increase in the fourth quarter is primarily attributable to additional bonus and 401(k) match we accrued based on our record results and another $200,000 to $300,000 of additional cost directly related to the operation of our new public company.

We currently estimate our 2013 effective tax rate to be between 26% and 29%. This rate would be applied to pre-tax income before minority interest in your models. The parent company's leverage and liquidity position are the strongest in our history, with a trailing 12 month net debt to adjusted EBITDA ratio of just under 1 times at year end. The partnership had $35.6 million borrowed on its revolver at December 31 with over $200 million in availability.

Susser Holdings has no funded debt under its credit facility and available liquidity on the combined revolving credit facilities was almost $300 million at year-end. Our $425 million of 8.5% senior unsecured notes are callable in May 2013 at a price of 104.25%. It is still our plan to call these bonds using part of our cash balances. We will need to refinance a portion of the bonds, but we have not yet finalized the amount or type of new debt. In any event, we do expect significant interest savings beginning in June. I will note that our guidance provided this morning does not reflect any assumptions on the refinancing. Total capital spending for Susser Holdings was $65.3 million in the fourth quarter and $179 million for the full year. Included in Q4 CapEx is $34.2 million spent at the partnership which was -- $0.5 million was maintenance CapEx and $33.7 million was for growth.

During the fourth quarter, Susser Holdings sold eight Stripes stores to the partnership for a total of $29 million and we have dropped down three more so far in the first quarter of 2013 for a total cost of $10.9 million. We expect to complete four more by the end of April, which means we will have exercised the first 15 sale-leaseback options included in the omnibus agreement. Then as indicated in our guidance for the MLP in this morning's earnings release, we currently anticipate dropping down a total of 25 to 35 stores from the parent to the partnership in fiscal 2013 out of the 29 to 35 new stores, Stripes expects to build this year. We expect these drop-downs will occur throughout the year as the new stores are completed.

In addition to the fuel gross profit made from the Stripes stores, the annualized rent to the partnership from the 11 stores it has purchased so far from Stripes is $3.2 million as compared to $147,000 of rental income from Stripes during 2012. For 2013, the partnership expects to spend between $1 million and $3 million for maintenance capital and between $95 million and $135 million for growth capital including the purchase of Stripes stores. On a consolidated basis, Susser Holdings expects to spend $195 million to $215 million in 2013 which reflects the continued acceleration of our new store building program and our ongoing additions to the land bank for future store development.

Our Board recently declared our first full quarterly distribution of $0.4375 per Susser Petroleum Partners common units to be paid on March 1. This is the minimum quarterly distribution and totals approximately $9.6 million with distribution coverage of just over 1 times. We expect this coverage to increase as we move through 2013 and we will evaluate increases in the quarterly distribution later in the year. Now I'll turn it back to Sam.

Thank you, Mary. Operator, we are ready for any questions.

( Operator Instructions )

Kelly Bania, Bank of America Merrill Lynch.

Hi, good morning and congrats on another great quarter

Thank you Kelly, very much.

Just wanted to ask about your gas margin outlook for next year. On the old accounting $0.15 to $0.18 would be more like $0.18 to $0.21 with your historical accounting. I guess it's in line to maybe slightly better than your five-year average. But that five-year average has some really record, strong margins in it. So I guess it just seems to imply that you expect that favorable environment to continue? And just wondering if you could comment on that, if we are reading that correctly?

I think that there will be -- this is likely to be yet another year of very meaningful volatility as evidenced by the rapid run-up in cost here in the first two months of the year. So based on what we've seen in the first two months all the uncertainty in the world, I think we are more likely than not to see a lot of volatility and as long as there are some big down quarters to go with the tough up quarters, that usually works out pretty well for us as long as there is a lot of volatility. I would describe the competitive environment as tough as ever. In the last year or two, the rate of new stores being built and the rate of disinterest in investing in our markets has certainly grown and picked up. There is a wide variety of retailers that are also investing in these attractive markets and everybody is fighting for their share. We expect seasonality trends that we've had in the past to remain in place with our best margins typically coming in the second -- in the summer months and early fall. Generally, the winter months are tighter for us and we would expect that trend to remain in place.

Thanks, that's very helpful then. Just wanted to add one more question on cigarettes. The details you provided for this year were very helpful. I am just curious how you're planning that category for next year. You seem to be one of the few c-stores that are having the positive unit momentum in that category so just wondering what you're expecting for same-store sales and margins for that category next year?

We expect pretty stable margins and there will probably be some modest inflation in the category and we hope to continue to take market share. We remain very focused on growing our share of the pie and out-hustling our competition one store at a time. We hope to continue to out-perform the national trend data here in the coming year, but long term we see it as a very difficult category. There is growth in smokeless, but long term the trend in cigarettes are going to be down we believe. But I think that we're going to be able to continue to hopefully eke out a flat to slightly positive performance in units here over the next year.

Thanks, that was helpful.

Sharon Lui, Wells Fargo.

Good morning.

Hi Sharon.

Just a question in regards to your motor fuel gallon guidance for the partnership. What are you assuming in terms of gallons sales per store for the new drop downs? Is it still a range between like $2.5 million to $3 million per store? Is that a good number?

Sharon, this is Rocky. Good morning to you too. We haven't given guidance on that specifically. The range you described is reasonable. We've got a number in the pipeline and a number that have already opened and we feel pretty good about that number you described.

Okay. And then I guess just a question in terms of your growth CapEx guidance. It looks like the cost per store is a bit higher than what was in the prospectus. Is that a function of the size of the stores or is there some cost creep in terms of the construction of these stores that you're seeing?

We just happen in this crop of new stores here right now have built and are building some stores that are very large, that have truck diesel offering for the 18-wheel truckers. Probably see a return in terms of cost per store more in line with the long-term trend as we look out into 2014. We just happen to have a number of larger units that are coming on stream right now.

Okay, that's helpful. Thank you.

John Lawrence, Stephens.

Good morning.

Hi, John. Good morning to you.

Sam, would you go back and -- talking about the competitive environment and the new boxes, the larger boxes, any real differentiating information or basket size or anything when you compare those Houston stores to the Valley? Any differences there as you get some of those up and running for a period of time?

John, this is Steve. We have been really blessed. Across the board our new store crop last year came out of the ground with food service sales significantly higher than the company average. And the Houston group has certainly been there if not leading the way, kind of in the 30% to 50% range on food service, and that's fresh food, specifically LTC, better than the system average. But that's -- ticket is similar in size, food certainly has led the way and it's going to continue to be the anchor for bringing other merchandise sales with it.

Great, thanks. And to follow that, Sam, you're talking about the new entrants into the market and a lot of new players building, has that changed anything on the footprint plans for 2013 and 2014?

Really hasn't John. We think that we are pleased with the way the Stripes brand is being received and we think that our focus needs to be on running our play and being as strong at delivering Stripes and Laredo Taco Company as we can be and the competitors will do what they're going to do. But we are just focusing on trying to be the best we can be at what we are doing.

Great. Thanks and congratulations and have Richard have a couple extra of those tamales ready in a couple weeks. (laughter)

He will.

Ben Brownlow, Raymond James.

Good morning. Great quarter. Can you comment a little bit -- you commented on the strength of commercial side of the business, just hoping a little color around the drivers behind that?

Ben, this is Rocky. In our third-party sales we include both dealer locations, [Suss] owned and operated typically by third party dealers as well as what I call our commercial fuels group. That ranges from an independent unbranded convenience store or two, an oil and gas company to a dairy company, there's a wide segment of customers that we sell to. But the area that we have seen a real nice lift has been customers that directly or indirectly serve the oil and gas sector. It's been a nice lift in gallons there as well as some margin.

We also have, I think, Rocky and Gail and Les and our team have made great progress on our supply arrangements. This is a business where supply is really vital and as we've made these incremental improvements in supply that's kind of opened up doors to new customers and new opportunities. So really, very complimentary of the work that's been done there.

Are there any Stripes stores on the alternate rate at this point, the alternate delivery fee?

We have one store on that currently.

And just one last one for me. You had mentioned the store openings and I think there were 11 under construction and there's something of 9 in the second quarter or the first half? Can you just repeat that for me?

Yes, so we have -- this is Steve, Ben -- we have 11 under construction, we have 9 more that we expect to break ground on and start construction before the end of the quarter.

Great. Thank you very much.

Lee Giordano, Imperial Capital.

Thanks. Good morning everybody.

Good morning, Lee.

Can you talk a little bit about your decision-making process for how you choose where to open a new store? And is there any particular region where you are focused on expansion or is the opportunity truly broad-based?

Our real estate team, which is led by my uncle Jerry Susser who is here with us this morning, uses a handful of tools, works with some excellent real estate development professionals that we have very strong relationships with. But at the end of the day, the biggest driver is the view and that feeling in the gut that our team has when they are out looking at the site, assessing its growth potential over time, the competitive advantages or disadvantages that a particular site may have. We employ a number of quantitative scientific tools, but for us that gut feel and that experience that my uncle and now David Marks and others have really drive the decision-making at the end of the day. We have a lot of experience here and we hope to keep building on that.

And Sam, where in Texas are you focused right now in expansion? Are you basically looking at a broad spectrum of locations?

Very broadly. I'm sorry I didn't remember that part of the follow up question. We are first and foremost focused on filling in and adding to our market share in the markets that we are already in. We are blessed to be in many communities that are experiencing strong growth and we are trying to get out in front of where that growth is going to be three, five and seven years from now. That is our main focus is filling in, in existing markets. There are a couple of areas that we are looking at and working on but for competitive reasons it would not be appropriate for me to comment on that.

Thanks. And just lastly, Mary, how should we think about G&A expense in 2013? I know you were looking at a $1 million run rate on a quarterly basis versus last year. Is that going to increase, particularly in the first half? Thanks.

I think on G&A, Lee, we are still ramping up on the new public company expenses. We spent probably $0.25 million in Q4. Our expectation is $2 million on a full run rate, so a little bit more there. Typically we see a little bit of inflation in G&A with personnel costs. So I think a little bit of an increase over 2012 and a fairly level run rate throughout the year.

I would just built on Mary's comment. I agree with everything she said. I think we will see a little -- have an inflation trend in new public on the expense in the first half, but I see an opportunity for us to leverage G&A as a percent of sales meaningfully in 2014, 2015 and beyond.

Great. Thank you.

Anthony Lebiedzinski, Sidoti and Company.

Good morning. I think, Sam, you mentioned about the higher payroll tax. So now that we're two months into the quarter, have you actually seen any -- anything from your consumer? Just wanted to get a better color on what you are seeing so far this year.

Sure. Generally, Anthony, we try to avoid in quarter, during the quarter interim updates, but there has been so much news from Walmart and others as to what is going on with the consumer, I think it deserves a comment. The very, very first part of the year, right as the media was focusing on the machinations in Washington and the payroll tax went into effect, we too saw some bobbling in consumer spending. But as the quarter has marched on, we are hearing less about it, seeing less times of it and we think that we are getting back to more of a normal state. But our consumers are not immune even here in the great state of Texas to what is happening in Washington and the impact on their paychecks from these tax changes. Yes, we are seeing an impact and we are very respectful of how consumer confidence could turn one way or the other as the year plays out.

Okay, that's helpful. How many of your markets that you have military bases -- you also mentioned that in your prepared comments?

Close to half.

Okay. And lastly, could you also comment on your projected store openings and closings by quarter? If you could give us any color on that, that would be helpful.

On the first comment on number of markets that have military bases in the area, it is a large number of markets but it is not nearly half the number of stores.

Okay.

It's quite a few markets. Our openings this year are going to be much more evenly spread out than last year. So last year we had 18 of the 29, I guess, in the third and fourth quarters. This year it will be much more evenly spaced.

Any store closings?

Oh, I'm sorry. There will be a few closings throughout the year, but not a significant number.

Okay. Thank you very much.

A couple of these openings are raise and rebuilds, where we're tearing sites down and moving across the street or we bought some additional opportunity and can build a large site with a full Laredo Taco Company offering.

That's helpful. Thank you very much.

Thank you, Anthony.

Ethan Bellamy, Robert W Baird.

Good morning everybody. The partnership IPO was an obvious home run and relative to your internal models, probably prior to the IPO, the unit price has got to be substantially higher than what you may have been anticipating, I would assume. How does that cost of capital advantage both at the MLP directly and for the overall enterprise impact you're thinking about strategy? Does that cost to capital advantage open up new possibilities for you? Basically, what does the [SUFC] unit price mean, if anything different from there around the time of the IPO?

I want to answer that in two parts. The first part is we felt that we were offering, as we communicated on the investor road show, tremendous value, but that IPO price, given the risk return characteristics of an investment in Susser Partners. And we are pleased but not shocked at the strong unit price performance since the IPO. We offer tremendous value at that IPO price. We -- part of why we executed the MLP IPO was we thought we would end up with a long-term lower cost of capital that we would be able to employ into a growing market and we do expect to use that capital to be more aggressive, certainly for sure organically as we build new stores, both in Stripes and add our very valuable -- to our very valuable dealer network.

Rocky and the team here are actively considering different M&A opportunities. We never comment on any particular transaction until there is one. But we recognize that we have access to meaningful capital now and we're not going to be reckless. We have always been conservative and careful, but we do want to grow and we want to use the capital wisely.

Thank you.

Thank you.

Karen Short, BMO Capital Markets.

Hi, good morning. This is actually Ryan Gilligan on for Karen. Can you talk about the competition for labor in some of your markets and how you think that will trend in the upcoming year?

Ryan, this is Steve DeSutter. We certainly continue to have competitive pressures in the oil patch, so the Permian Basin and the Eagle Ford Shale. I don't expect that to get worse, in fact in some places we've seen pipelines being built and now being opened up and it's reducing pressure for truck drivers and some service people. So I think it's probably there the pressure's about at its maximum. There's also new building going on in those communities, apartments and condos and places for people to move in and live and that is also satisfying some of that market demand for jobs. Outside of the oil patch, it's a fairly stable, slightly improving unemployment situation, but not one that's putting excessive pressures on employment for us.

Oil patch labor is very tough. The rest of the markets are more manageable.

That's helpful, thank you. And I guess a quick follow up on labor is can you update us on any initiatives to become more efficient on labor at the store level?

Thanks for asking Ryan. Yes, that's a -- it's kind of the never-ending part of our job in retail is to figure out how to get flow through. In 2012 we made a significant investment in developing training and new methodologies for training. And so this next year we'll be rolling out iBooks and iPad methodologies in all of our stores to better retain employees, better train them, to give better customer service. And then we're building over the top of our PeopleSoft investment that we made in 2012 a couple of new tools, one of those is in test now for labor scheduling that will allow us to get very much more precise on a day part basis of when labor needs to be in the stores and how to schedule that labor much more easily. And then we're also creating a jobs exchange board for our employees that want to work extra hours or can work extra hours. So, all of these are all with the forward look of over the next two and three and four years finding ways to be even more efficient.

Especially in the light of the pressures caused by healthcare reform. That is really forcing us to think hard about what tools we have got to have to be successful as retail operators.

That's very helpful. Thank you.

Jeffrey Birnbaum, UBS.

Hey, everyone. Good morning. So, Mary, I think you mentioned that you expect for the partnership coverage to increase through 2013. And I think you said that you will all evaluate increases to distributions later in the year. And I guess I was wondering if you could give us some color on what you'll be looking for on that, whether it be signs of that improved coverage or improvements in some of the political conditions you've all mentioned, what have you? But before those distribution increases would be considered and if we should assume later in the year precludes any increase in the first quarter? Thanks.

Sure. One thing to keep in mind, we set the minimum quarterly distribution on the forecast for the next 12 months that was included in our S-1. And so inherent in that is earlier in that period, the coverage was planned to be a little bit lower and it gets better as we get towards the end of that period. So where we're at right now is not unexpected and really as the coverage improves then we will evaluate the increase in distribution.

No plans for an increase in distribution in the first quarter, to specifically answer that. Though definitely later in the year did mean later in the year. But the key consideration for us on that will probably be our coverage ratio and the actual outlook for the partnership in Washington -- in all the things going on there really has less impact on the partnership than it has on the Stripes retail business.

Yes, that makes sense. Just wanted to clarify. Thank you.

[Jarron Holder], Barclays.

Good morning. Just to follow-up from Sharon's question earlier. Given the agreed annual lease rate and the tick up in the per store cost, is it fair to assume that we should see higher rental income being generated by the new stores that was acquired at the partnership level?

This is Rocky, Jarron. The lease agreement we have in place between the partnership and Susser Holdings is the 8% rent. So obviously as the purchase price is higher, the rent is higher.

Okay.

And also as we build -- when we do build larger stores we have expectations for elevated volumes that go with that.

Okay. Also given your expansion CapEx guidance and considering that the majority of it's being spent on new stores, what other projects are being taken into consideration in that number, if any?

This is Rocky again. So inside our dealer business, we have given guidance on planned growth and the number of sites we supply fuel to. Part of the capital, in addition to the Stripes drop downs, would be going to satisfy that growth. So as we add new sites we make an investment in the locations. Those are the two largest pieces of capital, Stripes and our dealer segment.

Okay. Thank you.

( Operator Instructions )

James Jampel, Hite.

Thanks for taking so many questions. I do appreciate it. Can you comment a little bit on the competitive dynamics of a place like Houston versus San Antonio or Austin or Dallas? I was just looking at your map and I'm trying to understand where you are where you are and where your next move might be.

The major metropolitan areas all have numerous fabulously tough retail competitors without exception. And these markets are the most attractive markets in the United States. Dallas and Houston go back and forth for number one in population growth, number one in employment growth. Austin, San Antonio, central Texas, very strong positive demographic changes. And these positives are attracting the best in the business and they are equally challenging from a competitive standpoint.

We also, though, have a lot of exposure to many midsize and smaller communities and we are continuing to invest in those communities outside the major metropolitan areas. And we're trying to have a real balanced portfolio of new store investments that we make so that we are not afraid, we are not shying away from some major markets. But we are respectful of our competitors and we are very pleased to continue to invest in the mid-size markets that have been core to us for many, many years.

So the initiatives in Houston -- would it be fair to say that those are testing the waters in the more major markets?

I would say the amount of money we put into Houston is not a test. (laughter) We are committed.

And it could potentially that be expanded at some point to the other major markets or is there something inherently different? That's what I'm trying to understand.

These markets are really huge. It takes a lot of capital and a lot of focus to become relevant and meaningful and develop meaningful market share. And we're kind of -- one or two markets at a time. We're not at a place where we could do a good job in a handful of major metropolitan areas around the country or around the giant state of Texas. So we do believe in focusing ourselves. And if we continue to develop success and deliver the kind of years we've had the last few years, then we're going to keep expanding our growth pattern.

Thank you.

I am showing no further questions in the queue at this time. I'd like to turn the call back to management for closing remarks.

All right, we want to thank everybody for joining in on the call. We appreciate your interest in both Susser Holdings and Susser Petroleum Partners and we would like to formally invite our analysts and portfolio managers to Houston on March 21 for our analyst day. We will follow a similar format as we have done in the past. We will start around 7.30 in the morning with a tour of several locations. Then formal presentations with management starting mid-morning, 11.00 or 11.30, covering both companies at our Susser Petroleum Partners headquarters building in North Houston. We will get you out in plenty of time to catch a flight home to the East Coast or wherever you're going. We do not plan to webcast the meeting since the store tour is such a big part of it. But we hope you can make plans to attend.

Anne Pearson of Dennard Lascar, our outside IR firm can send you detailed information in the registration materials if you are not already signed up. Anne's contact information is in the morning's news release and we thank you everyone for joining us. Come taste the tacos. Thank you.

Ladies and gentlemen this concludes our conference for today. If you'd like to listen to a replay of today's conference you may access replay information in this morning's earnings release. Thank you for your participation. You may now disconnect.