Earnings Call
Murphy USA Inc. (MUSA)
Earnings Call Transcript - MUSA Q4 2020
Operator, Operator
Ladies and gentlemen, thank you for standing by, and welcome to Murphy USA Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Mr. Christian Pikul. Thank you. Please go ahead, sir.
Christian Pikul, Investor Relations
Thank you, Daphne. Good morning and thank you everyone for joining us. With me, as usual, are Andrew Clyde, President and Chief Executive Officer; Mindy West, Executive Vice President and Chief Financial Officer; and Donnie Smith, Vice President and Controller. After some opening comments from Andrew, Mindy will give us an overview of the financial results. We will review our 2021 guidance and then open up the call to Q&A. Please keep in mind that some of the comments made during this call, including the Q&A portion, will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of Risk Factors, please see the latest Murphy USA Forms 10-K, 10-Q, 8-K and other recent SEC filings. Murphy USA takes no duty to publicly update or revise any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to generally accepted accounting principles or GAAP. We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis as part of our earnings press release, which can be found on the Investors section of our website. With that, I'll turn the call over to Andrew.
Andrew Clyde, CEO
Thank you, Christian. Good morning and welcome to everyone joining us today. As we close out the fourth quarter and the full year 2020 on today's call, we're certainly reminded of the many challenges faced by our customers, employees and communities in this unforgettable year and in turn what it took for retailers like Murphy USA to serve them and navigate throughout this period. At this time last year, we foretold in our annual report that Murphy USA's efforts to build resilience and an agile organization since its 2013 spin-off would propel us through whatever obstacles might be presented such that we could emerge even stronger on the other side. And with that confidence in the strength of our people and business model, we could afford to be bold in the face of grave uncertainty. Certainly, our foresight was evidenced on many fronts, but ultimately it was our insights around our customers' behaviors, the competitive dynamics in our sector and our own capabilities including our own limitations that drove the major decisions and investments that led to our 2020 results and success. We continue to play our distinctive game and win and in the process through the QuickChek acquisition, secure the winning capabilities to play a different game in the future. I could not be prouder of what our team accomplished last year and was excited to welcome the newest members of our team on Friday as we completed the QuickChek acquisition. Like most publicly traded companies, 2020 will be a statistical blip that will have to be adjusted for when performing any historical analysis. Given that we have released or pre-released results virtually every month, I want to focus the bulk of today's call on the future and why we're so excited about our potential in 2021 and beyond. Starting with QuickChek. We have added 157 stores, which brings the combined network to approximately 1660 stores. As stated before, QuickChek operates a best-in-class food and beverage program with a strong brand in attractive markets, which nicely complement the Murphy USA business model and geographic footprint. QuickChek is a successful standalone enterprise with its own meaningful organic growth opportunities in the pipeline. Our integration is not about the rapid extraction of cost synergies, rather we are being thoughtful on both what we can learn from QuickChek and what we can do to help improve their business. This will be a mutually inclusive process where the best practices of each firm are shared and implemented in an appropriate time frame. For example, we have much to learn and benefit from their best-in-class food and beverage offer and how it is delivered. Likewise, we intend to leverage our gasoline supply and retail pricing expertise to optimize their operations. Food and beverage was already an internal priority for Murphy USA as we began to focus management attention on a part of the business where we felt there was both near-term low-hanging fruit and long-term opportunity. As we examined our options, we found that QuickChek would allow us to obtain the capabilities we needed immediately and accelerate our turning up the learning curve while leveraging a unique and distinctive brand in a new geography with a similar culture and aligned aspirations for future growth. We are excited to begin that journey after a very quick and efficient closing process that was very well received by the debt markets. QuickChek's size also enables us to maintain the capital discipline and shareholder-friendly practices Murphy USA has been noted for in the past. We paid our first dividend in December and set a record for share repurchases in 2020. Maintaining our conservative and flexible balance sheet ensures we will continue to allocate capital efficiently going forward. Transitioning to a discussion of the business. Murphy USA's fourth quarter results highlight a continuation of the key trends we witnessed in the most recent quarters. As we enter 2021, those same trends remain largely intact, subject to the normal seasonal and cyclical variations that we were used to pre-COVID. Fourth quarter fuel volume showed sequential improvement from the third quarter and represented only a 6% decrease from the prior year. January volumes remained strong, showing slight pressure at about 8% below prior year, which we believe is mostly attributable to the rising price environment as this is historically a difficult time to profitably create price separation and take share. We continue to see evidence that industry margins are higher than we might expect otherwise in a rising price environment, helping to maintain breakeven equilibrium for some less advantaged players. As noted and demonstrated throughout 2020, Murphy USA is well positioned to benefit from this dynamic. All-in margins in the fourth quarter were nearly $0.20 per gallon, which resulted in total fuel contribution that was nearly 10% above the fourth quarter of 2019 at 5.5% lower total volume. We expect higher than normal retail margins to persist in 2021 and beyond. And while we are not agnostic to lower volumes, we believe market forces will support higher retail margins, which will reward our advantaged business model at any volume level. Lower customer traffic did not impact merchandise fourth-quarter sales as market share gains were sustained, new promotional activities were successful and categories more linked to traffic improved sequentially. Same-store sales were up nearly 10% and same-store merchandise contribution was up nearly 11% with meaningful contributions from both the tobacco and non-tobacco categories. I would also point you to the same-store sales and APSM metrics table in the earnings release. The average per store month metrics, which include all new stores opened since January of 2019, are outperforming the same-store sales metrics in fuel volume, non-tobacco sales and non-tobacco margin, which further supports our confidence in the larger format 2800-square-foot stores we've been adding to the network. With up to 50 new to industry 2800 square-foot stores planned for 2021, we expect this new store outperformance trend to continue, and the absolute EBITDA impact should become more apparent all else being equal in 2022 and beyond as the impact of the larger build classes ramp up. While these new Murphy Express stores continue to improve overall network performance, we expect existing QuickChek stores will add over $200 million per year of merchandise contribution dollars, over half of which will come from food and beverage categories, substantially improving both our margin structure and merchandise mix. Yet despite this mix shift, we will continue to be innovative with promotional capabilities in the tobacco category where we expect to both maintain and grow the market share gains achieved in 2020. Operating expenses continued to be impacted by COVID-related factors with fourth quarter per store cost up about 7%. For the full year, we have identified about $4 million of additional expenses in incremental commission programs, emergency sick pay and personal protective equipment and supplies without, which we would have incurred per store increases of about 1.5% in line with our plan. While lower customer traffic understates true OpEx all else being equal, the business is likely facing about a 2% increase going forward, reflecting both the larger store formats resulting from our new to industry and raze and rebuild activity and the inflationary pressures in employee cost. Despite slightly higher costs in 2020, we saw another year of improvement in our fuel breakeven metric improving to 24 basis points from 67 basis points the year before. This translates into 738 stores below zero breakeven at year-end 2020, up from only 560 stores at year-end 2019. The fuel breakeven metric has shown remarkable improvements in spend as we have now added more than $0.03 of fuel margin equivalent to the business. As we move closer to a network-wide zero breakeven, adding QuickChek stores without fuel and investing in food and beverage platforms appropriately, we will be tweaking our nomenclature slightly towards our coverage ratio as we talk about store profitability and growing merchandise margin economically above and beyond incremental cost to serve. With that let me turn it over to Mindy to detail our financial results and our recent financing activity. And then I will return with some additional comments around our 2021 guidance.
Mindy West, CFO
Thank you, Andrew. Good morning, everyone. Thank you for listening in today. I want to first start off with some standard items and then briefly review the terms of our financing used to fund QuickChek while strengthening the balance sheet for future growth. Turning to results first. Revenue for the fourth quarter and full year of 2020 was $2.9 billion and $11.3 billion, respectively. This compares to $3.5 billion and $14 billion in the year-ago period. Throughout the year and including the fourth quarter, this decrease was attributable to lower retail gasoline prices and lower gallons sold due to the COVID-19 pandemic, partially offset by higher merchandise sales. Average retail gasoline prices per gallon during the quarter were $1.87 versus $2.31 in 2019. And for the full year, retail gasoline prices averaged $1.91 per gallon versus $2.33 in 2019. Adjusted earnings before interest, taxes, depreciation and amortization or EBITDA was $136.3 million in the fourth quarter versus the $112.4 million in 2019. For the full year, adjusted EBITDA was $722.7 million versus $422.6 million in 2019. Adjusted EBITDA for the fourth quarter and the full year was higher than the prior year period, due to higher average retail margins and higher merchandise contribution, partially offset by lower gallon volumes and higher total operating expense as a function of both new stores and COVID-related costs. Accordingly, net income for the full year 2020 was also higher than the previous year at $386.1 million versus $154.8 million in 2019. The effective tax rate for the fourth quarter was 24.4% and 24.2% for the full year. Going forward, we are using a federal income tax rate between 24% and 26% for planning purposes, albeit slightly higher in the range due to the higher state tax rates in New York and New Jersey coming from the QuickChek acquisition. Total debt on the balance sheet as of December 31, 2020 was just over $1 billion broken out with long-term debt of $999 million consisting of our $297 million carrying value of notes due 2027, $493 million of carrying value of our notes due 2029 and $213 million of term debt, less $50 million of expected amortization under the term loan and current liabilities which is listed on the balance sheet. These figures result in an adjusted leverage ratio that we report to our lenders of approximately 1.4x. And cash and cash equivalents totaled $163.6 million as of December 31. As noted in our press release announcing the closing of the QuickChek acquisition, we have issued $500 million in new 10-year notes at a very attractive coupon rate of 3.75%. We also secured a 7-year $400 million term loan B at LIBOR plus 1.75% which is due in 2028. Amortization under that term loan is 1% per annum. And lastly, we have replaced our asset-backed lending facility with a 5-year revolving credit facility with $350 million of committed liquidity that does not fluctuate with commodity prices as our previous ABL facility did. Taken together, these transactions strengthen our balance sheet and provide us the proper flexibility to prudently manage our debt levels and ensure we have enough capital to support organic growth initiatives for our combined company. Total debt outstanding is currently $1.7 billion on a gross basis and $1.54 billion on a net basis. There were 27.2 million common shares outstanding at the end of the fourth quarter 2020. Also mentioned in the earnings release, we declared and paid our first quarterly dividend of $0.25 per share in December for a total cash payment of around $7 million. Capital expenditures for the fourth quarter were approximately $55 million and $227 million for the full year. Of the $227 million spent in 2020, $178 million was growth capital including 24 new stores, 33 raze-and-rebuild projects and some upgrades to our terminals. $22 million was spent on maintenance with the remaining $27 million on corporate capital including IT projects and strategic initiatives including the completion of our EMV rollout. Total spending was below the guided range of 2020, primarily stemming from savings we were able to extract from the EMV project and the timing of certain other projects. I will go ahead and provide the spending breakdown for our 2021 capital guidance. With a higher rate of organic growth expected in 2021 including up to 55 new-to-industry stores between Murphy and QuickChek and the normal pace of our 25 raze-and-rebuilds, we are forecasting a higher total capital spend of between $325 million and $375 million broken out as follows. The majority is earmarked for growth capital and that's going to be between $275 million and $300 million. We also expect a range of $20 million to $30 million for maintenance capital and between $30 million to $45 million for ongoing technology initiatives and potential investments in the food and beverage offer. Thank you everyone. I will now turn it back over to Andrew.
Andrew Clyde, CEO
Thanks, Mindy, and congratulations to you and your team for such a successful debt raise to finance the QuickChek acquisition. Let me close with a review of our guidance for 2021. We've previously communicated our view of the potential of the Murphy USA standalone business in 2021 signaling to investors that we believe we are capable of generating approximately $500 million of adjusted EBITDA for the standalone business two years earlier than we had previously planned. This is primarily due to three factors. First, our belief that fuel margins will remain elevated, as disadvantaged retailers will require a higher fuel margin to offset lower customer traffic, resulting in higher margins for the industry, which will disproportionately benefit Murphy USA as one of the low-cost high-volume retailers. Second, we have taken a meaningful share of the tobacco market from our competitors and we are focused on not only keeping it but growing it. Third, while early results from our 2,800-square-foot stores they are meeting our heightened expectations and as we ramp up our pace of organic growth, we are increasingly confident in the impact we believe our new stores will have on our financial results in 2021 and beyond. With the QuickChek acquisition, we see the potential for both direct synergies and reverse synergies that we expect will help us improve our food and beverage offer. As we begin our work to integrate the two companies in 2021, we expect limited synergy capture in year one. However, we are highly confident in our ability to drive up to $28 million of synergies on an exit rate basis by year three, meaning we expect to see the full $28 million incremental impact in year four or calendar year 2024. With that being said, we are providing calendar year 2021 guidance metrics that include an expected 11 months of QuickChek contribution. There should be a few surprises in these metrics, but let's discuss them briefly before opening up the call to Q&A. Starting with organic growth. We remain committed to building up to 50 Murphy Express stores nearly all of which would be the high-performing 2,800-square-foot stores. We expect to continue to grow the QuickChek footprint and continue to build new stores in prime locations already identified in their existing markets. As we assess, review and high grade our new site opportunities across our combined network we will be able to flex our capital budget as needed to ensure we are allocating capital toward our highest return opportunities, some of which may result from internal efforts to accelerate synergy capture. Nevertheless, as a free cash flow positive business, this provides us with ample flexibility to maintain consistent and meaningful organic unit growth through any economic cycle. As such, we are providing guidance with up to 55 new-to-industry stores across our combined network. We also remain committed to upgrading the Murphy network with up to 25 raze-and-rebuilds planned in 2021, which continues our format evolution from kiosk to 1,400-square-foot small-format stores, where we had the opportunity and the economics to do so. Moving on to guidance on fuel contribution. We are providing per-store fuel volume guidance of 245,000 to 255,000 gallons on an APSM basis. For reference, the midpoint of this range is close to our 2019 average of 248,000 gallons per store month, which we are inching back towards as we add the QuickChek stores that sell fuel. As noted in an earlier investor presentation, QuickChek complements Murphy USA's industry-leading fuel position. QuickChek has 89 stores that sell fuel at an average rate of over 315,000 gallons per store month. In total this will comprise less than 10% of our total expected fuel volumes for the year, adding about 4,000 APSM to the total. And to be clear, our APSM and same-store sales metrics on fuel going forward will only reflect the stores that sell fuel. In keeping with 2019 and 2020 guidance conversations, we are not including a range of cents per gallon fuel margin guidance as we believe this promotes short-term thinking and is not indicative of the way we believe investors should be viewing our business. Our ranges for in-store profitability metrics consisting of merchandise margin and in-store costs change materially with the addition of the QuickChek model to our network. As such we believe it is more helpful to provide a per-store range versus a percent growth figure as we have done in prior years. We are guiding to a merchandise contribution margin range of $680 million to $700 million. For reference, the midpoint of our combined merchandise range is equivalent to our total contribution margin from the fuel business in 2018. And the upper end of this range equates to the 2019 total fuel contribution. Thus, while our business remains highly sensitive to changes in fuel margin, nearly half of our total margin is now coming from non-fuel sources which we think is a more balanced business model and will contribute to lower earnings volatility over time. Also of note, with the addition of the QuickChek assets less than half of our total merchandise contribution will come from the tobacco category which also is a more balanced and sustained mix as we look to the future. And we have also incorporated the benefits of our renewed Core-Mark contract into our guidance. On the OpEx side, as we build our own larger 2,800-square-foot stores and continue our raze-and-rebuild program the OpEx per store metric will naturally move higher. When combined with the much larger format QuickChek stores, the result is a guidance range of $27,000 to $28,000 per store month in 2021. While higher on an absolute basis versus 2020, our focus on cost control remains a cornerstone of our strategy. On the corporate cost side with the addition of the QuickChek home office and personnel, we expect our SG&A expense to increase to a range of $190 million to $200 million per year as we continue to invest in critical IT projects and personnel to help support corporate priorities and drive long-term efficiencies and new capabilities. Effective tax rates as Mindy mentioned should stay in the 24% to 26% range. Our combined capital budget, which prioritizes organic growth in new stores is forecasted in the range of $325 million to $375 million, which includes a range of $275 million to $300 million for Murphy and up to $50 million for QuickChek. This range represents each company's independent planned capital expenditures before high grading NTI opportunities. Our goals remain to grow the network profitably by adding high-quality new stores while maintaining a strong balance sheet and running the business with the appropriate amount of leverage going forward. The combined cash flow of the aggregated business gives us more flexibility to ensure capital is allocated to the right places at the right time. I want to close by once again saying how proud we are of our team's performance throughout the challenges presented in 2020 and how excited we are about the QuickChek acquisition and the combined potential of bringing our two great businesses together. Our standalone five-year plan was robust and generated a substantial amount of incremental adjusted EBITDA through new stores and ongoing improvement initiatives. With QuickChek, we are well-positioned to accelerate our strategic agenda, creating an even higher quality income stream that is inclusive of a best-in-class food and beverage offer. Together, we can grow better, faster, and stronger as our highly engaged teams share a passion for delivering excellence to our customers, our employees, and our communities and our investors. With that operator, we will open up the lines for Q&A.
Operator, Operator
Thank you. Your first question comes from the line of Ben Bienvenu.
Ben Bienvenu, Analyst
Hi, thanks. Good morning, everyone. I want to start by asking about the guidance of $550 million and how it compares to our expectations. It seems like many people might see this as an apples-to-oranges comparison since QuickChek was not included in our 2021 numbers. From our perspective, it appears to be more of a starting point than a conclusion, and you seem equally optimistic about the long-term growth potential of the business. So, as a baseline, how conservative do you believe the expectations in the $550 million are, or conversely, how ambitious are they? Over the next few years, what kind of effort is needed to meet the growth goals you have in mind? Additionally, what should we reasonably anticipate for the next several years?
Andrew Clyde, CEO
Great question. At this time of year, Christian and the team are updating charts for the initial investor conferences. We're considering one of our key charts that reflects our goal of a 15% compounded annual growth rate in our share price and how we can elevate that going forward. The year 2020 was an unusual outlier. The starting point we had was $500 million, which is exactly that - a starting point. Looking ahead, we expect to see growth from our various initiatives. We anticipate adding at least $20 million a year from NTI growth as our larger stores ramp up. Our plan includes opening 50 new stores, which will also benefit from the increased fuel margin resulting from the industry's structure and dynamics, alongside our ongoing improvements. I envision the $550 million as our new starting point when we publish this updated chart. Additionally, there will be opportunities beyond this trajectory, including the incremental contribution from NTI stores, which are performing at about twice the EBITDA of the ramping up stores. We will continue to expand and invest in these locations, which have an attractive pipeline, and they too will gain from the improved fuel margin dynamics in the Northeast. They also have their own continuous improvement strategies. Furthermore, we estimate synergies at $28 million, which doesn't fully account for the potential for reverse synergies. Thus, $550 million is effectively the new $500 million. It serves as a starting point. While we are not ready to disclose future projections, you should get a sense of what this chart looks like. We will definitely aim to maintain that same type of CAGR for our share price appreciation in 2024 and 2025. I hope that answers your questions, and if I missed any part, please feel free to restate it.
Ben Bienvenu, Analyst
No, it does. And I guess, along those lines, you're optimistic about the future. You bought back a lot of stock in the fourth quarter at a price just a little bit below where we are now, but you do have a heavier debt load as a result of the QuickChek acquisition. So Andrew, Mindy I'm curious to hear as you think about capital allocation through 2021 and beyond should we be thinking about debt pay-down as a priority or still a continuation of opportunistic buyback? Maybe just help us calibrate how we should be thinking about that opportunity? And then also Mindy what are the covenants just remind us within what you have to operate and be mindful of around the debt load?
Andrew Clyde, CEO
Mindy, why don't you start with the covenants and then let me answer the first part of the question?
Mindy West, CFO
Sure, Ben. As you know we issued high-yield bonds with covenants the same as what we had had prior so nothing really new there. And again, the unrestricted share repurchase trigger is at 3.5 times leverage so the same as the other two issues of notes outstanding. With regard to the term loan B, we have lots of flexibility with that facility as we have no real financial covenants at all. We do have an excess cash flow feature where we'll have up to 50% excess cash flow sweep when we have net leverage of over 3.25 times. And then in our cash flow facility which again is a committed facility unlike the revolver that we had before which fluctuated with commodity prices we have some maximum secured net leverage of 3.75 times. And again, that secured net leverage and maximum total leverage of 5 times which steps up to 5.5 if we make an acquisition for a duration of six months. So we really like the financial structure that we put into place with QuickChek. The inclusion of prepayable debt was quite intentional. As you know our high-yield bonds have traded and continue to trade extremely well. So we could have termed out the entire purchase price in the high-yield market. But we do remain committed to maintaining a conservative balance sheet and we like to have that prepayable debt. So that allows us to manage easily within our preferred leverage range. And so we're very comfortable with where we are and our ability to balance our growth our share repurchase dividends and debt pay-down. But I'll let Andrew add some more color to that piece.
Andrew Clyde, CEO
Yes, I think that's great. She mentioned that she appreciates our structure, and I love it too; the team did a fantastic job. We are in a mature sector as a mature company, yet we are still very much focused on growth from both an earnings and unit perspective. Our priority continues to be that focus. The QuickChek acquisition enhances Murphy's growth opportunities while adding another layer on top of that. With high-return, new-to-industry stores and raze-and-rebuild opportunities at the end of their lifecycle, our absolute priority is growth. Regarding the leverage ratio of three times for restrictive items like share repurchases, we have a choice: we can either grow our way to under three times or reduce our debt to achieve that. We believe we are on a path to quickly grow to below three times, and while we have the capability to pay down debt and may consider it under certain market conditions, our primary goal is to grow our earnings to lower our leverage ratio. We anticipate continued volatility in the equity markets and in our sector compared to others, which will present opportunities to buy back our stock at the right times. If you consider our upcoming raised expectations, the projected share price looks attractive even compared to current levels. That’s our plan, and we will remain agile and responsive to market conditions overall.
Ben Bienvenu, Analyst
Okay. Thank you both and best of luck.
Mindy West, CFO
Thanks, Ben.
Operator, Operator
Your next question comes from the line of Bobby Griffin with Raymond James.
Bobby Griffin, Analyst
Thank you for taking my question. I'd just add to Mindy and team congrats on navigating a very challenging year.
Andrew Clyde, CEO
Thanks, Bobby.
Bobby Griffin, Analyst
My first question is more high level. When considering the QuickChek acquisition and the integration ahead, what milestones would you like to achieve in the next 12 to 18 months to help us understand the progress? Additionally, regarding the reverse synergies back to Murphy's core business, how do you see those developing? Will this involve a new store prototype or test zones featuring more QuickChek merchandise? Any insights you can share would be helpful as we monitor this over the next 12 to 18 months.
Andrew Clyde, CEO
Sure, that's a great question. As I have mentioned previously, this acquisition is strategic and focuses on enhancing capabilities rather than just quickly extracting cost synergies. Initially, we aim to share practices between us, which includes managing contracts and relationships with various providers, integrating our capabilities, and aligning systems like fuel supply and pricing. We also need to establish appropriate controls and standards for public company operations, particularly in IT and reporting. These foundational activities are expected to generate synergies. A key strategic goal is to leverage QuickChek's expertise across our different food and beverage platforms in a manner that suits all formats. Currently, less than half of our kiosk and chain offerings, which we are gradually reducing by 5% annually through raze-and-rebuild programs, present fewer opportunities. However, in the remaining half of the Murphy USA chain, particularly within our 1400-square-foot stores equipped with coffee programs and beverage offerings, there are significant opportunities. The larger 2800-square-foot stores also present more substantial prospects. We need to maintain our capital program, ensuring we have the necessary permits to build while considering how to redesign these stores in a way that fits their purpose. Although we won’t implement a complete world-class coffee program or a kitchen for made-to-order items in every store, we can improve our offerings by adopting effective coffee practices. As former CEO Dean Durling suggested, there are many steps involved in crafting a great cup of coffee, and we need to adopt most of them. We also plan to enhance our grab-and-go food options. Effective communication is vital to inform customers about which Murphy stores are offering these improved food and beverage selections, possibly involving new branding strategies. Additionally, we are collaborating with Core-Mark and other equipment suppliers to develop a unique offer for Murphy USA that aligns with QuickChek's model. This initiative may not yield immediate results in 2021 but is intended to lay the groundwork for accelerated growth in 2022 and beyond. Finally, we will continue to focus on developing new locations of varying types, ramping up existing stores, and assessing those built in 2021 to ensure they contribute positively to our earnings growth, particularly through ongoing improvement initiatives that we have implemented in the past.
Bobby Griffin, Analyst
Okay. I appreciate that. Very helpful. And then I guess secondly from me my last question. When you look out in 2021 and obviously a ton of moving parts in variables but with hopefully a mix of the business returning a little bit more normal and society going back to normal, how do you think about the tobacco category some of the great progress you guys have done in driving higher gross profit per location there in tobacco and maintaining that and the stickiness of that GP on kind of a per location basis?
Andrew Clyde, CEO
One of the challenges with this customer is that their buying habits are difficult to change. We experienced this during our raze-and-rebuild efforts in states with minimum pricing, where we couldn't be aggressively priced when those stores reopened. As a result, customers turned to other options that provided either good or satisfactory service; we struggled to compete on price in those locations. This made it tougher to win them back, so we had to find innovative solutions to address this issue. The same trend is evident as we move past the pandemic. Customer behavior concerning tobacco has shifted during COVID, with many wanting to reduce the number of trips and consolidate their purchases. Given that many of our stores are located near Walmart Supercenters, we were well-positioned to leverage this trend. Customers looking to limit trips increasingly preferred to buy in bulk. We improved our carton sales from below 50% to over 60%, offering the value that many smaller chains couldn't match. Competitors soon realized they couldn’t beat Murphy USA's prices in most markets. While we invested in inventory and promotions, many of our rivals reduced their spending, focusing on short-term profit rather than price competition, which poses a challenge for them to regain volume. Essentially, we capitalized on insights from our raze-and-rebuild experiences to invest in this product category, even during tough times. This strategy has been yielding positive results, and we continue to find ways to innovate in this area. We're enthusiastic about the changing mix resulting from the QuickChek acquisition, but we remain committed to this vital category where there is still potential for gaining market share and increasing profit margins in the future.
Bobby Griffin, Analyst
Thank you. I appreciate the details, and best of luck year end and first quarter.
Andrew Clyde, CEO
Thank you.
Operator, Operator
Your next question comes from the line of John Royall with JP Morgan.
John Royall, Analyst
Good morning. Thanks for taking my question. Can you talk about the fuel volumes in 4Q? I think you beat the national average gasoline demand by a pretty healthy margin. So, what do you think was driving that outperformance?
Andrew Clyde, CEO
We've discussed our retail pricing excellence initiative. In 2020, we were comparing against a period in 2019 when we didn't have all those capabilities established. I want to acknowledge the team that has been working hard to develop, refine, and expand on those capabilities. Although there were moments when we lost value and volume due to execution issues, the team continues to recover that ground. We are more strategic in our pricing approach. Additionally, we need to provide customers with reasons to choose us, so we will focus more on volume when opportunities arise. This has been beneficial for us. Lastly, consumers are limiting their shopping trips, buying in bulk, and often visiting Walmart Supercenters, which gives us an advantage with our locations. When you combine this location advantage with a focus on pricing and execution, it leads to increased volumes and higher margins. The industry seems to be prioritizing margins, and some competitors appear to be distracted by larger concerns, which typically creates opportunities for us to gain market share.
John Royall, Analyst
Great, thank you. And then, the second question is essentially the same question really for the 2021 guidance and perhaps it's the same answer. But I think if I'm doing the math right at the midpoint of your guidance for 2021, fuel volumes ex the 4,000 from QuickChek is about only 1% below 2019 levels on an APSM basis. So this seems pretty strong and we'll still be in the COVID environment to some degree at least through the first half. So, are you assuming kind of a continuation of that type of share capture you were speaking of there? Is it more of just a strong rebound in gasoline demand you expect in perhaps in the second half?
Andrew Clyde, CEO
Yeah. I mean look, we don't have a perfect crystal ball, John. And so, we've got a plan that assumes that the recovery continues that we continue to gain strength in the face of that and have a certain set of competitive dynamics. I think the key point here is if we're rolling on the volume, it means that it was subdued for everyone and it probably translates into higher margins. And so we don't expect to be materially wrong on the fuel contribution or the EBITDA line item where it really matters. And so, as we've said in the main point, we're not agnostic to lower volume. In fact, in answering the question about why we did better than national average, we're actually highly focused on it. But if national demand doesn't pick up for whatever reason, we expect the margin response, driven by other competitors, to make up for that.
John Royall, Analyst
Great. Thank you.
Operator, Operator
Your next question comes from the line of Bonnie Herzog with Goldman Sachs.
Sam Reid, Analyst
Thanks so much, guys. This is actually Sam Reid pitching in for Bonnie here. I wanted to quickly touch on your merchandise same-store sales. I know you've talked through your confidence on the tobacco side, but wanted to talk through things on the non-tobacco side. Specifically, how should we think about that metric in the context of some of the tough comps you'll be lapping in 2021, especially, given some of the strength in lotto sales that you saw in 2020? Thanks.
Andrew Clyde, CEO
It's a great question. Looking at the fourth quarter, we observed strong results from general merchandise categories and products that we didn't offer at the start of 2020. We anticipate this trend will continue in the near future. The packaged beverage sector has seen enhancements due to innovations in energy and other drink offerings, which continue to improve as traffic increases. We are also optimistic about the snack category. Regarding candy and other promotional items, we expect to return to a regular schedule with improvements. The main challenge we faced in 2020, which presents potential growth opportunities for 2021, was with dispensed beverages and grab-and-go food items, many of which were unavailable. However, we're seeing early signs of improvement in dispensed beverages in Q4, which gives us confidence. Additionally, in 2021, we will benefit from our renewed five-year Core-Mark contract. Therefore, while 2021 may feel like a year of small wins, especially following some setbacks in 2020, we are preparing for better performance moving forward, particularly with non-tobacco comparisons.
Sam Reid, Analyst
No. Thank you so much. That's super-helpful. And, I guess, for my second question, I wanted to pivot to something a bit more philosophical here. We're obviously seeing a lot of stepped up interest in the potential effects from electric vehicles on C-stores and we're obviously hearing quite a bit from some of the major automakers on this front, whether it's GM, Ford. What steps are you guys taking here to kind of prepare your portfolio for these changes? And are you acquiring anything from QuickChek that you think might help jump-start you here? Thanks.
Andrew Clyde, CEO
I don’t have all the specifics on the GM announcement, but considering 2035 is quite far away, if it resembles Volvo's plan, an all-electric vehicle fleet will include both battery electric vehicles and plug-in hybrid electric vehicles. Many existing demand trends already incorporate these hybrid options. First, we need to clarify what types of vehicles we are talking about and their fuel consumption. Are they purely battery electric vehicles, which present various challenges related to raw materials, and the mining-to-wheels versus well-to-wheels discussions? Secondly, we need to consider who will be purchasing these vehicles and in what locations. Currently, states promoting zero-emission vehicles and electric vehicle adoption are primarily outside our main market, and the pricing of these vehicles often exceeds what our typical customer can afford. Last year, we surveyed our customers and found that many are driving 10 to 12-year-old cars with over 125,000 miles, purchased for under $15,000. By 2035, they may still be looking for used vehicles from around 2020, especially if new models remain unaffordable. Therefore, we anticipate that the used vehicle market will continue to be robust, which will favor companies like Murphy USA. Combining all these trends shows that changes will be gradual and occur at different rates across various metro markets and customer segments. Initially, it will impact competitors already selling luxury vehicles and trucks to these customers. Rising pressures, such as minimum wage increases and high fuel costs, will force either commodity prices to rise, leading to inflationary trends, or affect competitors more significantly than us. While we won’t be completely insulated from these shifts, they are likely to have a lesser impact on us. Increased inflation may lead to greater price sensitivity among consumers, and due to our efficient low-cost operations, we may benefit from these dynamics. It’s important to note that there will be various subsidies, incentives, and investments involved, but their effects will take time to reach our markets and customers compared to others. We will gain insights from QuickChek's experiences with charging stations and fees, which will help us evolve our approach, even though it currently represents a minor part of the business. QuickChek is located in denser markets, aligning with higher adoption rates, but remains a small aspect of our operations. We are closely monitoring and analyzing trends instead of simply following popular opinions. Insights from our customers' purchasing habits—for fuel, vehicles, and other products—will be considered along with overall competitive dynamics. Regarding capital allocation, there might be times when perception leads to our shares underperforming relative to the market. In such cases, we want to be positioned to buy back shares during any market fluctuations because, ultimately, we have a high-quality, cash flow-generating business that continues to improve.
Sam Reid, Analyst
Awesome. Thank you so much. I really appreciate the color.
Andrew Clyde, CEO
Thank you.
Operator, Operator
Your last question comes from the line of Matt Fishbein with Jefferies.
Matt Fishbein, Analyst
Hi. Good morning. Can you hear me all right?
Andrew Clyde, CEO
We can.
Matt Fishbein, Analyst
Thanks. Perfect. And thanks for squeezing me, in here. I wanted to ask about, your most recent thinking on the, unit growth strategy. I'm assuming there was a point in your planning for 2021, when it was time to combine the new store opening plans into one. And although, you're confident in the organic growth opportunity in the base business and QuickChek has its own stand-alone organic growth opportunity of its own, it feels like, it probably would have been understood had you made a more substantial adjustment to the headline total new store number for a variety of reasons. Whether it's the timing of the deal, and inserting freshly acquired capabilities into new stores, or whether you want to try a smaller sample size than the 50 or 55, with this new particular offering et cetera. So the up to 55 target, I guess gives you the ample flexibility that you talked about. And it isn't up to 60 plus or 60 plus. But I guess my question is, why not give yourself more flexibility there? Can you walk us through, how you settled on the up to 55, number?
Andrew Clyde, CEO
Sure. It's not just two figures. We have all the flexibility we need within that framework. We have a strong real estate team that has taken three years to develop a pipeline capable of supporting 50 stores a year. Some of these projects are already advanced in the permitting process, so we will build them as originally planned using the modular build format, unless there are some redesign initiatives. We will consider redesigning if it provides a benefit, but these are already high-return locations and investments, so acquisitions will enhance those returns. With the QuickChek acquisition, we also gained a top-notch real estate acquisition and construction team that is actively pursuing opportunities in those markets. As you might expect, not knowing the final outcome of the process slowed some activities down in 2020, but now we have ramped up our efforts in building stores, signing leases, and acquiring locations. There may even be chances to accelerate some projects into 2021 in that market. This gives us considerable flexibility. From a capital expenditure perspective, we typically provide the upper limit of our guidance range. If we end up spending less than that, we’ll offer transparency about this by mid-year and explain our reasoning. Right now, we expect to meet numbers close to that range, knowing we have the flexibility to adjust in some areas, but less flexibility in others where we already have permits and projects in progress.
Matt Fishbein, Analyst
Yes. That's fair. I totally understand. And I guess you derisked the proposition now that you don't have to create this expertise out of thin air by acquiring QuickChek. Curious to understand how copy-pasteable the food and beverage capability could be here? Is it more along the lines of sharing best practices situation? So maybe like you were saying it doesn't necessarily require a whole kitchen to be installed in existing stores. Or is it more along the lines of listen a lot of certain percent of the existing stores can probably get a more QuickChek-like food and beverage capability? Just interested to kind of understand how you view how much attention is going to be needed on the existing store footprint.
Andrew Clyde, CEO
Yes, first of all, I want to emphasize that our approach is well-founded. We have a dedicated team and established capabilities. We've detailed our initiatives and potential for stores based on the current platforms. We've incorporated planned improvements of $500 million in this area from our team's efforts in 2020 into our 2021 plan. What we've really mitigated is the learning curve. When it comes to the steps and capabilities needed for our offerings, we don’t require multiple identical coffee dispensers in our 2800-square-foot stores to leverage that capability. Instead, what matters is the underlying learning process. Our team is trained in food handling at the store level, which is an advantage over starting from scratch. Key factors will include sourcing, execution, and customer insights. This is a crucial aspect of our growth strategy for enhancing existing stores with additional capital. However, we won't be offering made-to-order sandwiches in a Murphy USA store of that size, as a kitchen is necessary for that, and our space cannot accommodate it. Nonetheless, we can think about grab-and-go food differently, with menus that a third-party commissary can prepare and deliver to those stores through various supply chain partners. There are numerous options to explore. We have also been considering unique grab-and-go concepts tailored specifically for Murphy USA, and we believe there is significant potential here. However, it's important to note that we are not simply imitating the platforms in QuickChek; we are focused on the insights and practices that support those capabilities.
Operator, Operator
And you have no further questions.
Andrew Clyde, CEO
Great. Well, we ran a few minutes over our normal hour, but I appreciate the great questions, the great interest in the story. And as I've said before, we believe that with this acquisition and the great efforts our two teams have both made in 2020 navigating through what was absolutely an unforgettable year. We're poised to come out even stronger in 2021. So thank you for your continued interest in Murphy USA.
Operator, Operator
This concludes today's conference call and you may now disconnect.