Murphy USA, Inc. Aktie

Thank you for standing by. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA First Quarter 2026 Earnings Q&A Call. [Operator Instructions] I would now like to turn the call over to Christian Pikul. Please go ahead.

Thanks, Melissa. Good morning, everybody. Thanks for joining us. With me this morning are Mindy West, President and CEO; Donnie Smith, CFO; and Ash Aulds, Director of Investor Relations and FP&A.

Before we get started, I need to remind everybody to refer to the forward-looking statement commentary we included in our prepared remarks yesterday. I also assume you have all read through our earnings release and the prepared remarks, we have read your notes.

I have a few comments before we open it up for Q&A. First, I hope that you noticed we are rebranding the PS&W plus RINs business and simply calling it fuel supply going forward. We provided a lengthy justification for that change, along with a detailed explanation of fuel supply results. So I hope that was helpful. Second, we sent a follow-up note to our sell-side analysts, but I did want to take the opportunity to clarify our comments on April volumes being flat to prior year, that metric is on an average per store month basis, not total volumes. So I wanted to point out that distinction. And lastly, as we will likely discuss, First quarter was strong, but we are focused on building shareholder value over the long term. We're pleased with the way the business performed in the first quarter, but our focus remains on making Murphy USA better in any environment, increasing the earnings power of the company in both favorable and unfavorable environments.

So with that, Melissa, please go ahead and open us up for questions.

[Operator Instructions] Your first question comes from the line of Irene Nattel with RBC Capital Markets.

Thank you for that explanation on PS&W and fuel supply. Very much appreciate it. So just obviously, you said, Christian, this very strong start to the year. Certainly, the momentum seems to be very good. What circumstances would have to occur in order for the balance of the year to take you to a place where you do not exceed the 2026 guidance, which didn't seem to be updated?

Great question. I think it would take a lot to not exceed at this point given the amount that were up in the first quarter alone. So I think that, yes, we could definitely say that the guidance that we gave is a little on the light side. But nevertheless, we did not update the guidance and we typically don't following quarter 1, and we don't want to get in the habit of doing that. There's just simply too much volatility, too many unknowns early in the year to have a really accurate forecast. Our guidance, as you may remember, was built around very low volatility, low price environment. Obviously, now we are in a different situation. But honestly, my crystal ball isn't going to be any better than yours. And this is unprecedented volatility and geopolitical risk, and it's changing every day, minute by minute. So I honestly wouldn't know what fuel margin to put into the model to give you an accurate forecast.

So at this point in the year, just not going to update. What we will do though is wake up every day react to market conditions on that day. We know we have to be nimble, change our playbook as needed and ensure that the business delivers the best outcome, whatever the environment is throughout the remainder of the year. But that's really all I can say about where we might end up year-end. Obviously, our guidance that we gave last quarter is going to end up being on the conservative side but the year is going to be what it is, and it's too soon to tell now exactly what that will be. So we're going to remain focused on execution.

That's really helpful. And then just as a follow-up and sort of it comes back to a little bit of what you said about the fuel margin. But that $0.069 per gallon from, let's call it, inventory revaluate -- inventory gains in fuel supply, how should we think about the evolution of that number as we go through the year?

Well, fuel supply results were high in the first quarter as we explained. The core business, though, generated $0.025, including the impact -- excluding the impact of those higher prices. So if prices continue to increase, then you should expect the positive inventory valuations in that part of the business. If prices decline, you're going to get the opposite impact. But at the same time, that should serve to expand retail margins at the same time, hopefully, volume as well as we can put some of that margin on the street to create separation and have chances to gain volume. But that part of the business is going to continue to be volatile month-to-month, quarter-to-quarter and largely dependent on the direction of prices, but also the magnitude and duration of those price changes.

Our next question comes from the line of Bonnie Herzog with Goldman Sachs.

All right. I did have a question on the consumer. And I guess I'm wondering, Mindy, if your outlook for the consumer has changed. I'm thinking about the context of prices at the pump tracking around $4 a gallon across the nation. So curious to hear how have purchasing patterns may be changed, especially for the lower-income consumers, if at all? And then are you seeing more consumers down trading potentially to your stores? Is this an opportunity, for instance, for you to gain share? And any kind of change of behavior at the pump would be helpful.

Yes, great question. I'll start first with the trade down because candidly, by the time customers are shopping at Murphy USA for our everyday low prices, much of that traditional trade down has already occurred. So as a result, we really see relatively little pressure, especially in the nondiscretionary categories even in the higher price environment. What we know is our everyday low price model is what brings customers in the door. And then once they become regular shoppers, we just don't see significant trade-down behavior within the store.

What we do see and we'll see are some different decisions being made inside the store in discretionary categories like salty snacks or really even lottery where there are just more venues and opportunities available to customers to participate in that. And as -- and remember what we said in the prepared remarks, the Murphy customer is maintaining their spend in our store. So results are actually stronger. Our non-nicotine sales were up 2%, with margins up over 4% at Murphy stores. So we are still seeing strength in that core customer. We're seeing margin growth across most of the inside the store categories. But I'll remind you, while that does speak to our customer is, it also has a lot to do with our team and our offer because that margin growth doesn't come automatically. Our team has to look to innovate for new promotions and vendor partnerships, and we'll keep at it and do a great job because we're seeing the results.

What is interesting to see at these higher prices is we are seeing new customers coming into our stores. We're also seeing lapsed customers returning to our stores. That's telling us 2 really key things. First, they're changing their behavior and becoming more value-seeking shoppers, which is what we would expect. Second, and this one is really important, they remember Murphy USA as a low-priced retailer and we are their store of choice when they're seeking value for low-priced goods in the store and low-priced fuel. So we know we have the right to keep this customer and they're going to return to us in periods of higher prices, and we're encouraged so far by what we're seeing already.

All right. That's helpful. If I may just ask as a follow-up, I guess, on a different topic because I do want to comment on your newly dubbed fuel supply business, and I definitely appreciate that and all the color. I think that's really helpful. And I guess I'm curious to maybe understand a little bit more about the benefits from RINs, which was really huge in Q1. And then just monitoring those prices across the board do remain quite high. So just want to make sure I understand how we should think about the magnitude of the contribution you could recognize from fuel supply in Q2?

Bonnie, we really look at it on a blended basis. You see the windfall in RINs because we report that as a separate category, but they're really just a pass-through because the RIN value is actually factored into the acquisition costs when we purchased the product. So with sustained movement in one direction over quarter, yes, they can have a slight impact over a short period of time. But over time, those impacts cancel out as rent prices move up and down, that's really just a part of the fuel supply business that's already reflected in what we paid for the product to begin with.

As we look at the quarter, if you're trying to get a land at what could product supply and wholesale be for -- I can't really speak for the quarter, but for the month of April. I know we guided you guys in the speech that we were going to be $0.35 to $0.40 a gallon. What we are comfortable saying, with the books obviously not closed on the month yet, is we're expecting retail somewhere in the low 30s that would imply product supply and wholesale would be -- I don't want to give an exact amount, but trend above the normal levels that we would expect to see just because of the volatility that we're continuing to see in the market.

Our next question comes from the line of Thomas Palmer with JPMorgan.

In some of the earlier answers, you've noted the price advantage versus competitors and how that's aided maybe some customer choices in terms of shifting towards you. I did want to ask how you think about the relative pricing advantages that you have as you watch fuel prices migrate higher? Do you think about the level of discount that attracts customers as perhaps being different? So maybe like less discounting is needed relative to the environment when fuel prices are lower and more stable?

Sure, Tom. We've said before that last year with the very low price environment that was making our value-seeking customer less price sensitive. And we were putting roughly $0.02 a gallon on the street to hold our volumes given the low prices and customer price sensitivity, but also competition. But when we said that, remember that $0.02 is not necessarily chain-wide. It's concentrated in certain areas. So where competition is very intense, we were putting more than $0.02 on. Other places where the competitive pressure was not so much, it was less than $0.02. And so I think as we return to a higher price environment, we will have to be less aggressive. But again, in certain markets, we are still going to price where we need to, to hang on to volume as we see competitive pressures.

Okay. And then just maybe an update given the likely elevated cash flow that's resulting from the strong earnings on capital allocation priorities and likely uses of this excess cash.

Yes, it's going to be a good problem to have. First call on capital is always going to be the growth CapEx. So we are committed to building our 45 to 55 sites for the year. So that's going to be the first priority. We will also look to balance that with ratable share repurchases as well. There may be also some opportunities if we need to procure some supplies in order to bolster our new-to-industry stores. We need to go out and buy tanks. We need to go out and proactively buy other things. We will certainly do that.

Deleveraging could be an option. But honestly, given our very low leverage ratio, it's not going to be a high priority but that could factor in at some point. But I think what we're going to do, the priority is going to stay the same with making sure that we are managing our growth, layer in some reasonable amount of share repurchase. And as I started by saying it's a great problem to have.

The next question comes from the line of Bobby Griffin with Raymond James.

I appreciate all the detail on the prepared remarks last night. I guess, Mindy, when you kind of think about what's developed here geopolitically and some of the changes inside the supply market, what do you look at or what should we be thinking about when we try to determine how much of this we can capitalize going further? And I guess I'm asking that more in the context of like what needs to take place or has it already taken place to move the market back from loose to tight and keep it more in a tight supply market on multiple quarters versus just a short-term benefit, if that all makes sense.

It does make sense. Bobby, great question. I would say that the market is moving closer to balance than what it was. So what I would look at is we're seeing increasing exports, total motor gasoline inventories in the U.S. have now returned to the 5-year average level. So they're not beneath it, but that has removed the overhang from last year. We're also seeing supply replenishment slowing globally, and there's a lot of market concern, especially for diesel and jet fuel, remains to be seen the amount of damaged infrastructure that might have occurred overseas and the time that that's going to need to recover. So we could see some supply pressure, the longer this goes on which would work to our benefit with our unique ways that we can procure supply.

And additionally, I think one of the investment banks just increased their Brent and WTI forecast for the end of year by $10. That would work to our benefit as well, obviously, keeping prices higher, that will continue to impact customer sensitivity. But I would expect that there is going to be some tightness in supply in certain pockets throughout at least the rest of this quarter and probably through the summer, but there are still a lot of unknowns there. But those are the things that we're looking at. How long does this conflict last? When does the strait open and how much damage to infrastructure is there? And what is the time frame needed in order to get that back up online.

Okay. That's helpful. I appreciate it. And then maybe switching gears and going inside the store. I think you called out the Murphy's non-nicotine was up 2%, so it kind of implies the drag here on the same stores being down one is in the Northeast on QuickChek. I know there's been some things you guys have been working on. So just maybe curious, you kind of unpack some of the progress there. Is the drag still just competition in QSR factors or anything else for us to kind of glean out of that?

Yes. A lot of it is just that drag in the Northeast region where we're experiencing a lot of QSR pressures. It's just a different competitive situation than what we have in our MUSA markets. We're not sitting still, though. We are taking steps to try to improve the business. We're focusing on the core items in the food offer, I think coffee, breakfast, sandwiches. We're really simplifying the menu, rationalizing the assortment, improving the margin.

One of the other things that we're doing that I really think is going to help is we are actively working to evolve the culture inside the QuickChek stores into a sales-first mentality. That's something that we successfully leverage at Murphy USA, and it's something that is not part of their DNA the same way it is in ours. And it's really an intentional change supported by the leadership changes that we've already made in that business. It's too soon to really give you proof points. We are just in the early stages of that, but we are really excited about what kind of impact that we're going to have there.

This shift in focus is going to make our promotional calendar even more effective, similar to how well we execute large promotional opportunities at our Murphy stores. And we should also see benefits that will help drive all the center of the store categories, not just food and beverage. But we also know we need to double down on efficiency. We need to improve time to serve, and we need to ensure our sales and promotional calendars are reinforced with products with the right margin structure versus making up ways to drive traffic that are not margin accretive. But I'm really excited to see how a sales culture at QuickChek can be implemented and really drive results because I think that we're going to be really happy with the results. And I know they are really excited up there to make that change.

The next question comes from the line of Edward Kelly with Wells Fargo.

Looking at gallons, your gallon performance wasn't quite as positive as I thought it would be with prices rising. I know there's some weather impact. But beyond weather, even that seems to be the case. April seems a little bit better, maybe there's some lag in the trade down. I'm just kind of curious, are you seeing the consumer trade down taking place as you would have expected this quarter? Is there anything else happening there?

Yes. What I would tell you is volume uplift from higher prices takes time, and we're really too early in that cycle. Many markets were only in the mid-$3 range as they exited March. And historically, we really see pronounced shifts once prices stay elevated and particularly elevated above $4 for a sustained period. So in April, we are seeing volumes holding up well, roughly flat year-over-year. And as the longer the prices stay high, the more customers we attract, but that shift doesn't happen all at once. It's more a gradual build. And in fact, only 1/4 of our chain is sitting at or above the $4 level now.

Importantly, though, for our Murphy Drive Rewards, we saw approximately 600,000 more loyalty sign-ups. That's the highest monthly total that we have seen since 2022. And we are viewing that as a really strong signal of those customers actively seeking value and choosing Murphy as part of their everyday routine.

Also remember, though, that price-sensitive customers are only one factor that impacts volume. You can't discount the market dynamics in different geographies and different competitive intensities. So Colorado continued to see volume pressure because we're growing there, everyone else is growing there, too. We are seeing some signs of market stabilization though, as margins are now returning to a more new normal. Markets like Florida, we're still seeing highly competitive activity. So that's pressuring both volume and margin in that region. It's not a single market, but there are many markets in Florida that are still in a highly competitive phase as everyone is trying to attract their fair share of customers. But then we can look at Texas, which we would call a more mature market. And while there's still these new store opportunities in the market, the players are already well established, and so there's not as much volume and margin pressure in a state like that.

And then when we look at the quarter, weather was also definitely a headwind. We would estimate that headwind. I think when we looked at it last year, it was roughly 2%. It's probably a bit more than that this year given the sheer number of closures that we had in the duration. But if you just say it was 2%, that was definitely a headwind that would have made our volumes for the quarter up versus down had those not occurred. And also, when we look at Opus and examine that versus our data, it would tell us that we're outperforming in all of our regions even with all those pressures. So I think the price sensitivity will come. It's just too early in the cycle as most of the -- all this price pressure really happened in March. Those customers have only had a paycheck or 2, a fill up or 2. They haven't even received their credit card statements for those purchases yet. So it's just going to take some time.

Great. I just wanted to follow up on store operating expense, really well controlled in Q1. It looks like you're running below the full year guide. Can you just talk a little bit more about the changes you made to the store labor model and the impact that's having and how we should be thinking about APSM growth moving forward the rest of the year?

Yes. We take the roughly flat increases as a very positive data point, and we think it's demonstrating our ability to implement the self-help that we did last year, controlling what we could during challenging periods, and that's giving us benefits now. What we're seeing is benefits continuing in the store labor model, making sure that we have the stores fully adequately staffed during the busy times, but not overly staffed when they're not busy. So continuing to fine-tune the labor model, continuing progress on shrink where we have made it a focus area. We've also incorporated it as a goal for the sales team. So we're paying a lot of attention to that. And also the shift in maintenance mindset. So going from a proactive -- being more proactive and taking a business mindset versus an administrative approach where we were in the past, just trying to clear the tickets. Now we're taking a step back and prioritizing tickets and batching tickets were possible.

And I use the example in an investor presentation where instead of when one light bulb goes out in the canopy, instead of calling in a tech and having the site visit cost, the cost for the special scissor lift that it takes to get you on the canopy, why don't we wait until the second light bulb goes out because it's not causing a material discrepancy in the illumination with one bulb down. But things like that may seem small, but over the -- when you spread that over 1,800 stores, those little things can quickly become big things. So we're just taking a different approach to the way we're thinking about maintenance, thinking about it more from a business standpoint versus just trying to clear the tickets.

As a reminder though, as our new stores enter the network, we do expect roughly half of our OpEx growth to reflect that with the same-store to trend at least in line, if not better, than our peers. But when we look at our '26 guidance, we are ahead of that right now. But as we feather in our new stores, we do expect to get more back in line of our guidance range in the second half as those stores come online.

The next question comes from the line of Jacob Aiken-Phillips with Melius Research.

Congrats on the strong quarter. So Mindy, just -- I know you've been in the business for a long time, but your first full quarter as the CEO and the environment has completely shifted. I'm curious if the new environment has changed your thinking about experimentation, growth investment, self-help initiatives or capital allocation or anything?

It's been an interesting turn of events, one that, quite frankly, I didn't expect during the quarter, but it doesn't change our overall strategy. We're going to continue to lean into everyday low price, that's staying the same. Continuous improvement mindset, we're only going to accelerate that going forward. Capital allocation remaining unchanged. We are pushing an innovation agenda. We want to collaborate quicker. We want to try and test these things. So that unlock was something though that I talked about even -- so it doesn't diminish in importance just because the fuel macro environment is different. We know that we still need to improve the underlying business of our same stores.

We also need to make decisions that can improve the trajectory of what we're going to be building that's new in the future. And so while it's easier to have a call when things are going like they're going now, it doesn't change the focus and the intensity of our efforts in needing to improve the business going forward because we can't always count on an environment like this sustaining.

Got it. And then so on nicotine, last year, there was a concern with the promotion that it should be viewed as a one-off, but clearly, like you're still performing super strongly in nicotine. Can you give us some color on just -- sorry?

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[Technical Difficulty] Sorry, guys apparently we cut out. I don't know where we left off, Jacob, can you queue us up?

Yes, yes. I'll just say the question again. So on nicotine, last year, there was a concern that it was a one-off promotional activation and that it wouldn't repeat. But clearly, you're still doing very well in the nicotine category. So can you talk a bit about the promotional environment now and throughout the year and what gives you confidence that, that's actually a durable component which you're having 600,000 additional reward members helps.

Yes. The reward membership definitely does help. Look, we love the category. We put a lot of attention on it. As we mentioned in our prepared remarks, promotional activity has been favorable in the first quarter, and we're continuing to see strong performance even as we go into April. We're continuing to grow share and accelerating growth in that category. It's really growing at a very rapid pace. And importantly, customers are still trying to figure out their desired flavor and strength.

There's really no clear winners yet. Manufacturers know this. So they're investing in trial. So you'll see similar to energy drinks, you're going to see continued strong promotional activities as those brands invest to try to gain that customer. And we're going to continue to be a preferred retailer for those manufacturers to pass through savings and attract those customers, especially as they target combustible customers where our share in cigarettes is 20%. So we are ideally situated, happy to help their promotional efforts and have demonstrated the ability with them to hold on to those customers post promo as we continue to gain share.

I do want to remind everybody, everybody remembers the promotion we did back in the third quarter, and that is going to be a very tough comparison in quarter 3 when we lap that. So we're probably going to want to look at a 2-year stack as we progress through 2026, but we are going to continue to get promotional dollars. We're likely not going to have a promotion as lumpy as that particular one was, but we do see strength in the category, and we do have intentions and the ability to continue to grow share.

Great. Congrats again.

Thank you.

Our next call comes from the line of Brad Thomas with KeyBanc Capital Markets.

Mindy, I want to ask about the exciting opportunity here to be picking up some incremental customers. And I know that this will all depend on how long gas prices stay high and how high they go. But can you give us any perspective of historically the company's ability to retain incremental customers that they brought in during periods like this? And then what is the company doing differently or may do differently as the months and quarters go on here at elevated gasoline prices?

Well, I think our loyalty initiatives are key. Murphy Drive Rewards, QuickChek Rewards. What we're seeing as new member counts are up, and we would expect that. We saw the same thing when we saw prices spike in 2022. But the 600,000 new members was the highest new member month that we have on record. We're also seeing an increase in overall active members that are up 8.5% year-over-year in March, total transactions up around 12% also. So you see the dynamic of those customers. Yes, they're buying slightly less per field trip, but they're having to come in more often. And so these digital programs, these loyalty programs are more valuable to customers as they become more and more price sensitive.

And as I mentioned earlier, what we're really excited to see is those new or lapsed customers, the lapsed customers returning to our sites, new customers that we're acquiring because of the higher prices, and we become the store of choice because we are everyday low price. And I'm sorry, Brad, what was your other question? What are we doing differently because prices are high?

Exactly. I mean really just around the idea of retention. If there's anything that you are considering changing about the loyalty program and how you market to customers, et cetera, to try to retain more of these potential folks coming in your stores in this current environment?

We continue to make our digital programs more sophisticated, being able to tailor offers to customers. So we will certainly continue to leverage that. But honestly, everyday low price is everyday low price. It just means more when prices are high and budgets are constrained. And importantly, we sell a great deal of what is called nondiscretionary categories, so things like fuel and nicotine, where we are the lowest price out there. Customers know that and the offer resonates even more in this type of environment. So no, we're not necessarily doing a lot of things new, but we really don't need to.

That's great. And if I could ask just a follow-up around sort of the underlying Murphy store model. And the question that investors were all asking last year was, does it need to evolve because of industry conditions. Clearly what's setting up in 2026 is it's a great model. As you consider the opportunity to expand food or in the case of the site that's got reduced labor, will there be any incremental investments or testing because the year is shaping up to be so different here?

I wouldn't say it's because the year is shaping up to be different. I feel the same way about it this quarter as I did last quarter, that absolutely part of our innovation agenda is about evaluating new formats that can profitably serve more customers and more locations. We're also going to look to think about what is the next layer of products and services and trip missions that customers will buy from us. And then obviously, how do we maximize the productivity of the stores we have.

So I think, yes, our model needs to evolve. I think both our format needs to evolve. Also what we have in it likely needs to evolve. Whether that evolves to a full food offer in Murphy USA locations, what I would say is not necessarily and certainly not everywhere, and we're going to be very thoughtful about how we step into that. I don't want to really provide a lot of color on what we are testing and what we are looking at because it's very early days, and they need time to incubate and prove themselves out. And honestly, we're going to probably hit some singles and doubles, but we'll probably strike out on several things as well. But the focus hasn't changed just because the year is shaping up differently. We know that next year may look different, the next year may look different from that. We're here for the long run, then we need to make sure that our format and our offer is evolving, meeting the customer where they are, meeting their expectations and also giving them value in everyday low price.

The next question comes from the line of Pooran Sharma with Stephens Inc.

Congrats on the strong results. Maybe just wanted to ask if you could speak to the structural pressure on higher fuel margins, kind of the longer-term structural pressure. You kind of alluded to it in your release and on the call. And more specifically in this type of environment where you see a strong rise in wholesale fuel prices or RBOB, you would expect to see the retail side of the equation more challenged, but you've seen it hold up. What do you think is driving that? And do you think this type of dynamic where you have really high fuel prices facilitates that thesis even more?

I think that's a great question and interesting idea, and I think you're probably right. I think what we're seeing is that marginal retailer becomes that much more on the margin when prices are what they are. They feel even more pinched. We saw this start in the Ukraine invasion back in 2002 where competitors were restoring multiple times a day. They were pre restoring ahead of what they felt was going to be a price increase the next day. We're seeing that kind of, again, I think that when things get really tight, people become less comfortable riding it out and more eager to go ahead and relieve the pressure. And so I definitely think that, that is playing into it the fact that the marginal retailer becomes that much more on the margin.

We've also seen a lot of competitive entry in markets and the cost to serve doesn't go down when that happens and those retailers are going to need to make a margin on those stores as well. And so they're going to fill the pressure also when prices rise, they're going to want to keep up with that fairly quickly as well. So I think both of those dynamics are in play. But it definitely is unusual that in a period of rising prices that we would be able to post favorable product supply and wholesale results -- or excuse me, I messed up, fuel supply results. We would post positive fuel supply results, but also fairly good margin as well. And that dynamic is playing out again in the month of April, too.

Okay. Appreciate the color there and the thoughts on that. I wanted to kind of get more specific on my follow-up on the -- I guess, just what you've seen thus far through April. The $0.05, I think, $0.05 or so of PS&W margin. Is that -- does that include kind of the price spikes that we've seen up since the start of the quarter. Does that -- do you expect some normalization from those price spikes from RBOB? Just wanted to just get a better understanding of the RBOB commentary.

Well, it reflects what we think we know at this point with the books not closed. You can appreciate there's a lot of moving pieces with that fuel supply part of the business. So all that we're really comfortable commenting on now, we know that retail margins are around $0.30 a gallon or in the low 30s, and we think we're going to be in the range of $0.35 to $0.40. And that's counting all of the volatility that we the price rises that we've seen both on the -- we're accounting for that both on the retail side, when I say retail margin, but also the products supply and wholesale side. But I appreciate that this part of the business can make large swings from day-to-day. And until we close the books, we really don't know where we are precisely.

The next question comes from the line of Corey Tarlowe with Jefferies.

Mindy, I was just wondering if you could walk through the trends that you saw maybe by month in the quarter? And the reason I ask is because I believe you were lapping some pretty significant storms from the prior year. So I was wondering if you could talk about volume and merchandise trends maybe on a monthly basis, if you could, to kind of give us more color on what you saw throughout the quarter?

Yes. Started the year fairly strong. But again, completely different fuel environment so you can appreciate that that price-sensitive customer wasn't quite as price sensitive. So we definitely saw some momentum as we got into March that we didn't see January, February. And then on the fuel side, obviously, the margin exploded during the month of March was challenged when we looked at January and February. I apologize, I didn't bring month-by-month comparisons. But over the course of the quarter, when we saw the volatility return to the market, we saw customers behaving differently inside our stores. They were pressured, but they were still spending money, especially on the nondiscretionary part of the basket.

And then obviously, the fuel volume will come with time. It just hasn't had enough time to season for that customer to really return in droves. But loyalty sign-ups that we're seeing are really a key leading indicator for us that tells us that we are going to gain momentum, especially as we go into the summer if prices are still high.

Got it. And then just on the PS&W business, and again, I recognize it's only a month of data. But as you think about sort of the close to 10% that we saw in Q1 and the close to kind of 5% or thereabouts where you're seeing so far in April. Could you just talk to kind of the driver behind that change specifically, if there is anything meaningful to call out? Is it the variability within pricing? Curious what you saw.

Yes. It's the variability within the price environment, just the magnitude and the direction of the price movements were magnified in the month of March in particular. While we're continuing to see prices rise in the month of April, it hasn't been as dramatic. And so you would not expect products and wholesale results in that month to be as strong as what they were in March. And then again, I certainly can't extrapolate that out over the full quarter remains to be seen.

There are no further questions at this time. I will now turn the call back to Mindy West for closing remarks.

Thank you so much for your participation today, and really thank you for your interest in Murphy USA. I hope you guys are getting a better understanding that the first quarter results were not simply a byproduct of volatility and the price-related impacts because our team works really hard to optimize that volume-margin relationship. We're also seeing benefits in the work we've done to make merchandise and store operations more resilient.

Sitting here last quarter, we talked about what a return to volatility could mean. Did not see it happening really at all this year, much less so much so fast. Obviously, a lot can change just in a few months. That said, the reverse can also happen. So we are not relaxing because the macro is going our way. What did we emphasize in the first quarter? We emphasize improving the business. What are we focused on now? The same thing. Volatility does work in our favor, and you can see that in our results, but we can't rely on volatility. We talked about it in some of these questions. Our focus hasn't changed since last quarter. We're not relaxing because the environment has improved. We can't.

We have work to do to grow the business. We're very happy with our new store pipeline. So high-quality growth is going to continue in the years ahead. We also have work to do to continue to improve our existing business, and we're excited to get after it. I know all of us here are energized, excited to do the work to build the business and take Murphy USA to the next level, which is why we will continue to focus on what we can control. We're going to execute with precision and continue to grow our business and make it better.

So thanks, everyone, and we will talk again next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, everyone, and thanks for listening in today. With me are Mindy West, President and Chief Executive Officer; and Donnie Smith, Chief Financial Officer. After some opening comments from Mindy, Donnie will review some performance highlights from the first quarter, followed by some closing comments from Mindy.

As a reminder, we will be publishing a transcript and recorded playback of these remarks this afternoon, and then we will host a live Q&A session tomorrow morning at 10:00 a.m. Central Time. Details can be found on our Investor Relations website and in today's earnings release.

Please keep in mind that some of the comments made during these remarks, including the Q&A portion tomorrow, 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 discussion, 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.

Welcome, everyone, and thanks for listening to our first quarter 2026 fireside chat. As you have likely seen, first quarter results were strong. Increased market volatility beginning in late February contributed meaningfully to performance in March, building on an already solid start to the quarter. While geopolitical events were a catalyst for that volatility, our results reflect how Murphy USA's business model performs in a more dynamic market condition, something we have consistently highlighted as a structural strength.

I want to point out that quarterly results were not merely the passive byproduct of higher margins during periods of exceptional market volatility. All the self-help work we undertook last year during a lack of volatility is making incremental bottom line contributions in the first quarter, not just in fuels, but in driving merchandise margin and further optimizing our cost structure, both at the store level and in the home office. Importantly, first quarter results were strong despite significant and material adverse weather events across our geographies, impacting everything from fuel gallons to merchandise sales, along with extra maintenance dollars as a result of heavy snowfall.

But the most important component of first quarter results I want to ensure you understand is in the middle of the war's impact on the global supply chain for a wide range of raw materials and the chaos of rapidly changing fuel prices, the markets in which we operate have continued to remain rational. Along with higher prices, we are seeing stable and well-supported floors underneath retail margins, which distinguishes the earnings power of our everyday low price, high-volume business model. This rationality fundamentally lays the foundation for our business to deliver results in a world where we know that change is the only constant.

So let's dig into fuel results because that's a great place to start the conversation. All-in fuel margins in the first quarter averaged $0.35 per gallon comprised of $0.254 of retail margin and PS&W contribution of $0.096 per gallon. The fact that retail margins remain strong despite a rising price environment, which has historically compressed retail margins tells us 2 things. First, fuel retailers remain risk averse, quick to pass through higher replacement costs to the pump, similar to what we saw during the initial volatility during the Russia-Ukraine conflict in 2022. Second, this behavior indicates that marginal fuel retailers are less and less resilient during periods of margin pressure and are unwilling or more likely unable to withstand prolonged periods of compressed margins. Subsequently, they are more likely to pass through higher costs by restoring the fuel price in the market, which serves to insulate retail margins during periods of sharp upward movement.

Higher prices are also beneficial to PS&W margins, although much of this benefit can be temporal and moderate over longer periods of time, as I will explain. Although we have made repeated efforts to properly communicate the financials behind the product supply and wholesale business over the years, especially during periods of relatively high and low contribution margin, we acknowledge that a lack of visibility remains, rendering this function more difficult to forecast. Nevertheless, some of you guys on the sell side got pretty close this quarter, which tells us understanding of the underlying drivers continues to increase.

First, a comment around semantics. Although PS&W stands for product supply and wholesale, I want to rebrand this function and simply start calling it our fuel supply business. When discussing fuel supply internally, we disaggregate the results into 3 distinct activities.

Let's start with the controllable activities, which comprise the set of assets, expertise and capabilities we strategically deploy to provide a ratable and low-cost source of supply for roughly 50% of our retail volume. This includes securing product from the refinery, transporting it along the pipe to the terminal, blending it with ethanol and selling it at the rack to our retail business at a market-based internal transfer price. Embedded within this function are RIN sales, which are an integrated element of the fuel supply chain and are essentially a pass-through, in that the price of the RIN is typically negotiated into the product purchase. Only after the gasoline we buy and transport is blended with ethanol at the terminal, can we strip the RIN and sell it, where it is reported in other revenue as a legacy accounting policy.

What is not always obvious or apparent in our financials is the additional cost recorded when we buy product, which includes a value for RINs before we are able to sell the blended RIN in a separate transaction, typically offsetting a loss versus the internal transfer price. For that reason, we typically try to keep the timing of RIN sales closely aligned with the time in which they were generated.

While our pipeline assets and logistics capabilities can generate substantial profit during periods of physical supply disruptions, for the most part, the refined product market and infrastructure in this country remains stable and well supplied. As such, the market conditions where we can earn abnormal profits or take advantage of price arbitrage typically exist only for a brief duration. In these normalized conditions, the fuel supply business has historically generated between $0.02 and $0.03 of margin, and we expect it will continue to do so going forward. While many factors will impact the profitability of this function over any specific time period, in the first quarter of 2026, the controllable activities generated roughly $28 million of gross margin or $0.024 per retail gallon.

The second set of activities and by far, the most volatile component of reported results within fuel supply remains the exposure to changing prices combined with timing of inventory movements. This impact is ultimately dependent on both the magnitude of the change up and down and the duration of the change, does it occur over a short or a long period of time. Given the upward move in regular unleaded prices during March, this part of the fuel supply business generated roughly $100 million of margin, reflecting an average price increase of roughly $0.20 per gallon on approximately 500 million gallons purchased or a little less than half of our retail volume of 1.2 billion gallons.

On a net basis, after accounting for LIFO, this combination of pricing actions and volume movements generated nearly $80 million of margin or $0.069 of contribution margin. In short, we effectively sold our fuel inventory for a lot more than we paid for it coming into the quarter. The other 50% of our purchases in the quarter were contracted fuel purchases at the rack to directly supply our retail system. These volumes typically sell very quickly due to our position as a high-volume retailer, resulting in less variability within that component of fuel supply. While potentially material in any given quarter, importantly, there is no unique financial advantage or disadvantage in this part of the fuel supply business over time. And consequently, we expect this component to zero out as prices move up and down, often over a several year period.

The third set of activities is our wholesale and our terminal function. While we do have a wholesale arm, it is not built to be a stand-alone profit center, but rather to help us manage the logistical complexity stemming from the significant volumes we purchased for the exclusive benefit and use at our retail stores. The product we sell to third parties is largely a byproduct of our inventory management activities. The net profit or loss generated by the wholesale business is not always financially material as reported in Murphy USA results, but does serve a very important function as a discretionary lever in supporting the broader set of our fuel supply capabilities.

Murphy USA also owns and operates 7 terminals where third-party volumes are treated, blended and processed in addition to our own volumes, and we house fuel inventory at roughly 100 other third-party terminals. The terminal and wholesale business taken together generate a relatively ratable yet modest margin contribution of about $1 million to $2 million per month on average over the past several years. This quarter, the net contribution from terminals and wholesale resulted in another $0.03 of contribution margin, which taken with the controllable and uncontrollable elements collectively generated $0.096 per gallon to our first quarter total fuel contribution.

Needless to say, not every quarter will warrant such a detailed explanation. But given the relative size of the contribution this period, I wanted to take the time to fully explain as best I could the key drivers of our fuel performance.

Moving on to retail fuel performance. As I mentioned, retail margins averaged $0.254 per gallon, very healthy levels given the rapid run-up in prices over the last month of the quarter, generating just over $0.27 per gallon of retail margin in March. Importantly, while somewhat noisy, volume performance was strong as well with same-store volumes down less than 1% despite the severe weather and rising price environment. As volume pressure has abated somewhat into April, it's just as important to understand the challenges to first quarter reported volumes in addition to the set of factors that are not evident in Q1 results.

First, when prices rise rapidly, market price leaders are continuously restoring markets and moving retail prices higher, and it is tactically much more difficult to create price separation versus peers. And so historically, not an environment in which we would expect volume growth. However, during the last week of March when prices remained relatively stable in the middle of the Iran war rhetoric, we were able to invest in margins and put some price on the street in specific markets. And as a result, we did see a nice volume response, which helped boost overall March performance.

Second, almost all of the price increase in the first quarter occurred in March. So customers only had a couple of fill-ups and a couple of paychecks to begin to see the impact on their wallets. While we do expect higher prices to encourage more intentional price-seeking behavior over time, we wouldn't expect to see much, if any, of that behavior show up in our first quarter results. However, we did see heightened price sensitivity show up in our loyalty data with a record 600,000 customers signing up for Murphy Drive Rewards in the month of March, about 200,000 customers higher than the already elevated run rate of about 400,000 customers we saw sign up over the past year. For reference, when prices last spiked in 2022, we saw MDR sign-ups ramp from 250,000 to about 350,000, and we eventually saw the impact in 2022 results from those customers who began to prioritize value over convenience.

And third, as I referenced earlier, it is worth reiterating that weather was a significant headwind to first quarter volumes. In the first quarter of 2026, the business experienced over 900 temporary store closures, nearly 50% more than the 642 closures in the first quarter of 2025, a period that in hindsight, we incorrectly interpreted as an extreme weather impact. For added color, in the first quarter of 2024, we experienced only 230 temporary store closures or minimal network disruption during a period of mild weather. So against that backdrop, we were very pleased with first quarter fuel performance.

Merch results were also strong, particularly in the nicotine space where once again, we continue to accrue the promotional benefits attributable to our large presence in the category and the ongoing effort of the team to make sure we maximize our participation in the pool of promotional dollars available to retailers. This quarter, on an average per store month basis, nicotine contribution dollars were up 8.8% with growth in both cigarette margin contribution up 3% and noncombustible contribution dollars up 22%.

Total nicotine contribution dollars were up 11% year-over-year in Q1 as promotional momentum that the team generated across the category in 2025 carried over into the first quarter. We are seeing ongoing strength in sales of oral nicotine products with pouch volumes up significantly year-over-year, offsetting cigarette volume declines and setting us up for robust first half momentum in nicotine.

Despite relatively lackluster year-over-year growth in non-nicotine sales and margin, which captures more of the discretionary nature of our offer, it is important to point out that the Murphy USA customer is holding up nicely, largely maintaining their in-store spend with non-nicotine sales and margin up 2% and 4.4%, respectively, on an average per store month basis.

QuickChek stores in the Northeast region continue to face traffic challenges, offsetting the strength we are seeing across the rest of our network. In Murphy stores, we are seeing mid- to high single-digit margin growth across many of our most important categories, including packaged beverage, candy and snacks, offset by modest growth of less than 1% in lottery and general merchandise and slightly lower comps in beer, which continues to face a structural decline in demand.

Turning finally to the cost side of the equation. We experienced only minor growth in per store operating expense, which was the outcome of some very intentional activities from our store operations team. We are evolving our maintenance functionality, shifting to a proactive managing mindset versus an administrative mindset where tickets are submitted and repair crews automatically dispatched. We are taking a more holistic view of prioritizing incoming tickets and aggregating tickets by geography to limit trip charges, and this shift is having a material benefit on costs.

We are also seeing efficiencies on our largest line item, hourly wages as we rolled out an upgraded store labor model, which is allocating hours more closely aligned with customer demand at the store level, and that is delivering early benefits. We have made further progress around shrink by making it a goal for all store employees, and we've backed it up with monthly training. As we referenced in our investor deck, these are the small things we need to do really well to preserve our position as a low-cost operator, and we are making great progress in several of the largest line items within store operating expense.

As good as Q1 results were from an OpEx perspective, we do expect per store cost to increase throughout the year as we see the impact from larger new stores and begin to comp some initiatives that provided benefits in the second half of 2025.

At this point, I will turn it over to our new CFO, Donnie, for a brief financial update.

Thanks, Mindy. First, I'd like to say how grateful I am for the opportunity to serve as Chief Financial Officer of Murphy USA. I'm excited to continue working alongside Mindy and our entire leadership team as we remain focused on executing our strategy and continuing our strong track record of shareholder value creation.

Let me start off by providing some of the usual quarterly data points. Retail prices averaged $2.89 per gallon in the first quarter and $3.46 in the month of March. Total debt on the balance sheet as of March 31 was approximately $2.14 billion. This resulted in a consolidated leverage ratio we report to our banks of 1.9x.

Our effective income tax rate was 22.6%. This was slightly below the full year guided range of 23% to 25% due to higher benefits associated with federal energy tax credits, partially offset by lower excess tax benefits from share-based compensation in the period. We would still expect our full year tax rate to fall within the previously guided range.

With respect to our capital program and new store development, I'm excited to say our 2026 new store program continues to move forward. Year-to-date, we have opened 7 new-to-industry stores, 6 of them opening in the first quarter as reflected in the earnings release. We currently have 18 stores under construction, and we are steadily working new projects through the pipeline with 25 more stores expected to break ground in the next 90 days.

As a reminder, we mentioned on the fourth quarter call that the low end of the 45 to 55 new store guided range was aligned with our internal organic growth plan, while the higher end was attainable with potential bolt-on locations we may opportunistically choose to pursue.

Our cash flow from operations was robust in the first quarter at $320 million against total CapEx of about $100 million, generating strong free cash flow, providing us the extremely valuable flexibility to both invest capital to grow the business and repurchase shares to grow shareholder returns. We repurchased 169,000 shares in the quarter for $71 million, about roughly $420 per share, in addition to paying a dividend of $11.7 million or $0.63 per share. During the quarter, we also paid down approximately $26 million of debt on our revolver and grew our cash balance to $119 million from $29 million at year-end. You can expect us to maintain a balanced approach to growth and capital returns to shareholders going forward.

With that, I'll now turn it back over to Mindy.

Thanks, Donnie. Before I wrap up the call, I want to provide a few data points around April results. As we referenced in the earnings release, preliminary April volumes were flat to prior year, which remains a win given the continued volatility and upward pressure on fuel prices. April all-in margins are expected to land between $0.35 and $0.40 per gallon. However, as I mentioned previously, fuel supply results will always be highly levered to change in prices, and we all know those changes can be sudden and significant.

Our core Murphy USA customer remains strong with their spend inside our stores. Merchandise results continue to show strength in nicotine as we actively address opportunities to drive traffic and increase margins in our Northeast region. Preliminary results suggest that total merchandise contribution dollars grew high single digits versus prior year.

While year-to-date results have been strong, remember, the business performs even better in an environment of falling prices, providing significant optionality when prices ultimately fall. While price changes are ultimately out of our control, we continue to invest in new store growth and maintain our continuous improvement mindset, all of which we believe better positions Murphy USA for sustainable growth in the years ahead.

Thank you. And as a reminder, we will be hosting a question-and-answer session at 10:00 a.m. Central tomorrow.

Well, good morning, everybody. Thanks for joining us today. I'm Bobby Griffin, cover consumer hardlines retail here at Raymond James, including the convenience store sector. Today, we are pleased to have Murphy USA with us. From the company is CEO, President, Mindy West; VP of Investor Relations and FP&A, Christian Pikul; Director of Investor Relations and FP&A, Ash Aulds; and Senior Vice President of Strategy and Analytics, Eric Bartko, all sitting over there.

Today's format is going to be a presentation. Mindy is going to lead. But before we get started, I'd just like to, a, thank you for being here. You guys have been a long-time support and congratulate you on your first live presentation here as CEO.

So with that, I'll turn it over.

Thank you, Bobby. It's a pleasure to be here. Thank you, guys, for attending, and thanks for your interest in Murphy USA. We love the industry that we are in. We are actually the fourth largest convenience store operator in a huge market that is highly fragmented and serving 160 million customers on a daily basis. And we see a lot of potential for growth as well. This industry is serving a growing population in this country, and these people are mobile.

They're moving into our markets, which is good. This map may be a little bit hard to see from where you are but it shows that while the convenience store count is still hovering around 152,000 stores, there are actually fewer stores in the Midwest and the Northeast because new stores and more population are migrating to the Southeast and the Southwest. So that is a fantastic trend for us.

This industry also has high trip frequency. 43% of us live within a mile of a convenience store and about 2/3 of us visit a convenience store at least once a week. Some visit even more than that. And as we like to say, all of those trips are not for quinoa salads or pepperoni pizzas. A lot of those trips are for nondiscretionary products that we major in, that we provide for our customers, and they reward us with their loyalty for having those products. So it is an amazing industry. We have been incredibly successful in that space since our spin, and we are confident that we will continue to be successful in the future.

We built our first store in 1996, and we have grown to a network of 1,800 stores in 2025, so tremendous growth. And that's something in the past 30 years that we are really proud to have achieved. Today, I want to share with you some things that we are really excited about. We have a highly durable and repeatable growth model. We are building high-performing new stores that are earning attractive returns, and we are building more of them, and that is going to support our EBITDA growth in the future.

We are also an everyday low pricer, and that is not going to change. That is the player that we are, and we're also enhancing our offer both inside and outside the store. We're also leveraging technology to do things more efficiently and effectively and to make our stores perform better. And despite a year that created a lot of headwinds on the fuel side of the business, our fuel performance last year was actually highly resilient, and we believe that fuel is going to be a major growth catalyst for us going forward. So we believe there's a lot of reasons to be excited to invest in Murphy USA. We have a really appealing value proposition. We have an incredibly strong foundation to build on. And we're improving store performance, building new stores and share repurchase, share buybacks continue to be a focus and deliver accretive value.

I've been attending this conference for 13 years. And as Bobby said, this is the first time I'm actually presenting the company as the CEO, and I'm really excited about that. One of the most popular investor questions that I've been getting is what is going to change under my leadership. I think that's a fantastic question but I actually think a more important near-term question is what is going to stay the same. And a lot of things are going to stay the same. We remain committed to the core strategies that have allowed us to have a proven track record since our spin in 2013.

So I want to lead off with these and talk about what they mean for us. These are the same 5 pillars, by the way, that you would have seen in our spin materials in 2013. They were resonating then. They continue to resonate now. Store growth. That has always been our first strategic pillar, and we have added about 600 stores to our network since we became a public company in 2013. And since building our very first store in 1996, we have now grown into, as I said, the fourth largest convenience store retailer.

After a lull post COVID with the new store program, we are excited to tell you that we are going to be delivering new stores at a more robust pace and accelerating our growth over the next several years. And more importantly, it's not growth for growth's sake. We're building performing assets that are meeting our high return expectations and helping to expand our [Audio Gap] customers contribution and diversify our merchandise mix, which brings me to the second pillar, diversifying the merchandising mix. That is actually a strategy that I'm actually excited that we have not been able to execute because [Audio Gap]. And so that continues to be part of our foundation.

And we have -- that has been a large contributor to our success. Our in-store sales contributes about 64% and on a margin basis, just under 50%. And as we build larger stores, though, that selling space is going to more center of the store, so those higher-margin products. So over time, we will continue to diversify our merchandise mix and grow our offer to our customers, optimizing our food and beverage offer, too.

Sustaining our cost profile is a critical element to our long-term success. And there's no magic bullet here. We just have to grind it out and be better at everybody else. We have to live EDLP in order to succeed. And as we build bigger stores, I'm going to show you this in a minute, those will come with some higher store costs. But we are building a more enduring and resonating offer for our customers, which will result in higher merchandise dollars versus the additional expense dollars.

Creating advantage for market volatility. Volatility, we always say is our friend. Our friend was absent last year, which was an exceptionally low volatile year with respect to gasoline prices. However, we know that volatility can introduce itself into the market at any time, and we have a really strong and competitive business model to capitalize on it when it does. We will also leverage our proprietary supply strategy to support our EDLP strategy at the gas pump.

Lastly is investing for the long term. And when I think about that mindset, that has been one of the most impactful strategies that we have deployed in delivering shareholder value. It combines our preference for high rate of return growth and generated excellent shareholder returns since going public. So we make investments for the long term in those new stores that we expect to have a 30-plus year life and our free cash flow that those throw off, we also direct to building new stores but also investing in capabilities, investing in people, processes, technology, when those are executed with precision and scaled across the business, those can be some of the most valuable assets and valuable expenditures that we can make.

And as I said, we continue to favor share repurchases. And that's not because there's nothing else to do with our cash. It's because we know what we can do with this business. We know the value that it can create. And as a result, that belief always underwrites an investment in ourselves, and that will continue to be a focal point of our capital strategy.

All right. Let's get right to it and talk about the new stores. This is where we spend most of the capital, and we're very pleased with our new store performance. The data here that I'm showing you represents the last 3 years of stores, all 2,800 square feet that were built from 2021 to 2023. These stores are delivering higher merchandise dollars, higher fuel contribution. They do come with higher operating expenses but they also come with higher EBITDA. These store investments are meeting our return expectations. They have actually, in some cases, slightly outperformed their pro forma. And you can see the returns grow as the store ramps to maturity. And on the bottom left, from a volumetric perspective, all these stores are performing really well.

So we remain pleased with our new store performance, and we will continue to do everything we can to push those returns even higher. As we're building more of these high-performing stores, they are growing square footage at an accelerated pace. So you can see over the past 5 years, we've actually grown our square footage by over 100%, and at roughly 50 stores per year going forward, we expect square footage to grow another 900,000 [ square ] feet coming off a higher base. So that's about 34% growth in square footage as we grow the network to over 2,000 stores. And remember, as I said earlier, the square footage is going to the center of the store space. So it's diversifying our mix, it's broadening the offer to our customers and increasing our contribution.

In addition to the substantial investments we're making in the new stores, we're also investing in the customer experience, too. So we're going to be rolling out a fresh new look starting at midyear. This is what it looks like. We're going to introduce this. You can see it has a attractive new color scenes, it's very blue forward. You'll notice that the canopy matches the store. We also have a more modern look with the gray brick. On the inside of the store, we've done kind of the same thing. We've removed the wallpaper. It's now clean, white, bright space, much better signage inside the store to direct the customer where they want to go, better LED signage outside at the dispensers. We think these new stores are going to look great. We think this is really going to resonate with our customer. [Audio Gap] is really cost neutral. It's just a few thousand dollars of increase in cost we're able to roll this out. So we're really excited about this concept. We think this bright new features is going to make our brand even more appealing than it already is.

I said, nicotine is important to us. We're very good at it. We have a differentiated advantage in nicotine and it's built on a large and very loyal customer base. And it's a category, quite honestly, that we invest in. We have the best people in our company working on this category. We've invested in advanced pricing sales. We also have tremendously strong relationships with our partners. And as a result, we own a large percent of the market. And as you can see here, we have grown our share [Audio Gap] 2019. So think about that. Every 5 packs sold in our market come from our stores.

And a lot about how you get better at merchandising is really just about how do you manage executing on the basics. So as much as we would love to be the only retailer selling some unicorn product that customers want every day only we have, that's not going to happen. The fact is we honestly, in the convenience store space, we really pretty much sell the same stuff. So it's amplifying the basics that really make the difference in the business.

So how we do that is very simple. We lead with price. We're going to lead with price on the things that matter to our customers, and we're also going to price competitively for the other products throughout the store. We provide value to our customer, and we reinforce that perception with our signage and with executed promotions. We also deliver quality. While our particular customers are not the wealthiest and they have to make their dollar stretch further, they still want quality. And that's why in our mix, we skew to the well-known national brands because for our customer, that reads quality to them. You also have to provide your customer with a good shopping experience. And that can mean a lot of things. It definitely means fast and friendly customer service, clean and well-maintained stores, products that they want in stock and priced correctly. Those are all impactful to the customer. And when you do that properly, those customers want to come back. So if you execute across all those areas, we believe that we will be successful. We're already good at these things but we know that we can get better.

We're also refocusing on our food and beverage offer. And this is really about growing food contribution but it's also about driving traffic to the store and building bigger baskets. So at QC, we will be doubling down on our coffee offer to drive traffic to the store, which also will then support bakery and breakfast. We're also intent on driving complexity out of the prepared food offer. So we're going to strengthen the portfolio of what we're offering. We're going to reduce waste. And we're also going to be focused on the economics of things. So providing value and quality to the customer, but being very mindful of what margin, what price point do we need to be.

We're also going to maximize promotional opportunities. We talk about our Murphy Drive Rewards and our QuickChek Rewards. Our digital capabilities are really allowing us to meet the customers where they are. And so how can we use those to economically change customer behavior? How do we get our customers to buy more of what they already buy? How do we get them to explore and buy other things in addition to that thing that they already buy. And our loyalty programs are very important to our customers. Last year alone, we delivered over $500 million of savings to the customers through our loyalty program, largely vendor funded.

As I mentioned earlier, we are building larger, more productive stores but these larger stores do come with higher operating expenses. That does not mean that we are deviating from our everyday low-cost position at all. We are not departing from that mindset. And you can see here the new stores are driving about 2/3 of that OpEx. If you look at it from a same-store basis, the growth was only 2.2%. So that is representative of significant wins that we have made when it comes to driving down costs at the store level because really, it's all about simplifying operations, balancing efficiency and effectiveness.

We ask our store managers to do a lot of things. If you spend a couple of hours in one of our stores, it is a beehive of activity. We are asking our store managers to do an awful lot. During my 2 years as COO, I spent a lot of time in our stores, and that really shocked me how much burden and how much expectation we really put on our store. So the trick is to make sure that they're busy translates into focus on the right things. We have leveraged our digital transformation efforts to make our labor model more efficient, using demand forecasting, historical data to properly staff the stores when they are at their busiest. So store labor is roughly 2/3 of store expense, and we've done a great job in optimizing that. Our labor costs were only up a little over 2% last year.

Optimizing store hours not only allows us to drive labor costs from the business, it also means we have the right people inside the store focused on the right things. So we had a big win last year in shrink, reducing that by $4 million. We did that through a better check-in process, better inventory management, better merchandising of some high shrink items moving those closer to the register. And without the right labor model, we would have never been able to drive that efficiency.

We're also investing in store maintenance. Store maintenance by far is the largest non-people cost that we have, and we're doing a couple of different things to address that. One is life cycle management. So we've designed an inventory database to help us predict when the most costly repairs will happen. That's driven by age of equipment, warranty expiration, where is the store, what is the velocity of the store, what is the weather that, that store is typically in. So rather than paying to fix the dispenser 3 different times and having all that downtime for customers, we're going to proactively go in and replace those ahead of that. So we will reduce our maintenance expense but we will also reduce downtime and customer frustration.

We're improving our self-maintenance capability. We've taken a look at all the high-velocity tickets that are generating a lot of maintenance expense for things that we could do ourselves. So we can change out fuel hose couplings. We can change card reader batteries. Last year alone, that drove a benefit of about $2 million, and we're still identifying different opportunities to deploy that. Another subset of self-maintenance is when you call in a ticket. Our past operating procedure said, you call in a ticket anytime a single light bulb was down in a canopy. So that results in the tech coming out, a special charge for the scissor lift to get that technician to the top of the canopy. So it's a lot of expense for light bulb.

So we've rethought about that. We've recognized that light bulb out in a canopy is not making material amounts of illumination change. So what if we waited until 2 light bulbs are out. So that is the procedure says now. And those sound like little things but little customers really do have enormous impact. And as you know, we also restructured the home office last year to create a leaner and more efficient organization.

We talked a lot last year about the low price environment and the historically low volatility. I'm showing you here. Look at the minimal volatility that we had last year. We had on average of the first 3 quarters, $0.30 swing of volatility when we would normally see $0.70 to $1. We also had the lowest retail prices we've seen since COVID. Yet we still sold 28 million gallons. We continue to outperform Opus and retail margins held firm at $0.281 a gallon, which was flat to the last year. So we feel really good about what we were able to deliver in fuel.

And as we said last year, data has shown that customers become less price sensitive at low prices. And we're showing you this here. This shows the relative volume changes against absolute changes in retail gasoline. What is important in this chart is you will notice it's not a straight line. Once you reach certain thresholds, you get exponential behavior. So certainly, below prices of $2.20, customers -- we see volume pressures. Customers are less price sensitive. When prices drift over $3, you start to see that price sensitivity behavior.

Competition is also a reality that we face. There are some really strong competitors out there, and they are growing in markets in which we're growing too. In fact, we've seen 600 stores open within 3 miles of our stores since 2020. So roughly 1/3 of our network has been impacted by competitive intrusion. And a lot of that activity is happening in Texas, Florida, Colorado, North Carolina, places where we already have a strong incumbent position but we're also building new stores. You're probably thinking that doesn't sound very good. What I would tell you is we don't worry about it. Why it might be a pain early on, eventually, the markets normalize, and we are set to win our fair share of the customers.

I'll show you what this looks like. When we see pockets of competition emerge, we see a recurring pattern, 3 different themes. The first stage is the emerging phase where the new entrant comes in, we see very aggressive pricing as they are trying to get their share, and that generally results in lower margins for the players in that trade area, us included. Eventually, though, the market stabilizes. The promotional pricing ends because that new entrant has to earn a rate of return on that store, and so they cannot continue to hold margins low or negative. And you see the volumes get redistributed across the market with the advantaged players such as ourselves holding on to our fair share. And then you see margins recover to more sustainable breakeven levels. And then over time, the market matures and you have steady volumes, predictable behavior and orderly gas pricing structure.

So this is the analog we have seen. Obviously, it varies from market to market but I'm going to show you one particular market and what it looked like. I'm showing you an example of a competitor entry with a large store model entering one of our Texas markets where we had an incumbent position of 27 stores. We saw these same 3 phases. At first, yes, we felt the volume and margin pressure as the new competitor blanketed the market. And we didn't sit still from that. We were aggressive, too, trying to fight for our share. Eventually, though, we saw the market stabilize. Yes, it took a couple of years from the first store to the last store before we saw the behavior change. And during that period, we're investing in our store and our capabilities. After 6 years, you can see we still retain about 90% of the volume pre-entry. So our stores are performing well. And we see the competitors start to lean into margin beginning year 2. And they're usually inflating margin not just to pre-competition levels but even higher levels to account for their larger stores, higher wages, higher inflation in the market. And then over time, the market becomes orderly. So we know the end state is going to be incredibly advantageous to us in our winning business model. So while it hurts for a period of time, we know that we will win in the future.

Now I want to talk briefly about our product supply and wholesale business. We get a lot of questions about this. I'm going to try to explain it really simply. We are really trying to strike an appropriate balance within 4 areas: ratability, flexibility, sustainability and low cost. So let me see if I can summarize for you what we do. We purchase fuel in 2 different ways, proprietary barrels that we buy at refinery gates and through contracts that we have with suppliers in our markets. Yes, we have a wholesale function, but it's not a high risk-taking organization. It's not a material profit center. We think about it as an inventory balancing function for the retail business.

We also have a long shipper history major pipelines. This complements our ability to buy product at the refinery gate and move it where we need to. We own and operate several terminals -- 7 terminals where we process third-party volumes. Once the leaves the terminal, we use third-party carriers to get it where it needs to go. And lastly, given all the assets and capabilities, we are able to optimize sending the right logistics partner to the right store and sourcing supply for every store at the most optimal location. Over time, this set of assets earns $0.02 to $0.03 a gallon. I know it's hard to model because it can be volatile quarter-to-quarter but it does even out over time. It is really complex to own and to manage all these assets but that's what we expect it to deliver.

We have delivered strong EBITDA growth over the years, and we acknowledge that it has been low since 2022 but we believe this is an inflection year. This is a bottoming year, and we're confident we can deliver [Audio Gap]. So confident, in fact, we continue to be active repurchasers of our stock.

So what does all this mean for long-term value creation? We have inherent volatility in our business, and so that can result in a rather large expected result of outcomes. But we have a baseline view of the business, which we are showing with the Navy blue solid bars. We are also showing you potential upside for the business, too. Our baseline, however, is underwritten by our new stores, growing at a pace of 50 stores per year or 3% annually. We're also intent on growing our merchandise margin 3% to 4% a year also. So we are going to control our ratable growth driven by our NTIs, driven by our initiatives but also put ourselves in the best position to capitalize on volatility when it happens.

Our strategies have endured the test of time, and they're going to serve us in the future. How we execute on the strategies, though is critically important. It's my job as CEO to enable leaders to run the business and drive results. And to do that, we need a culture that is intent on delivering those results. We've made some important leadership changes in the past several months, putting the right leaders in position to grow the business. And in conjunction, we have rethought about how do we refresh our focus, how do we need to work together.

To help drive a culture of change, we've introduced what we like to call our ABCs. So accountability, being accountable to each other, to our customers, to our stores, to investors. We're still going to keep in our process but we need flexibility to move faster. And we had a lot of success over the years. So it will be easy to be complacent but we're not going to be. We're going to be curious because curiosity is the spark that is going to enable the idea that is going to drive shareholder value, the next thing that we need to be doing in the stores, and it keeps our team engaged.

So in closing, the 5 strategic pillars that we've leaned on to grow this company since spin are still valid. They are still intact. We're undergoing a culture shift intended to make sure that we are agile and adaptable, unafraid to challenge ourselves while maintaining a relentless focus on delivering our results. I can assure you, as a management team, we are 100% not happy with flat EBITDA. But I can tell you, I believe that these days are behind us, and I feel fully confident that when we are at this conference next year, we will not be talking about why EBITDA is going to be lower again. We will be talking about how much growth and potential we have ahead of us, and we are happy to jump start that today right here.

Thank you. We have time for question.

I think you might have time for one question. We got about 1 minute. I don't know if there's any from the audience.

So I guess it's a 2-part question. First, you said the new stores at full ramp generate like 16% returns. How does that compare to the old store formats?

How does it compare to what?

To the old store formats, like how much better is the 16%?

Well, it depends on what margin environment you're talking about. But the new stores we expect to deliver 16% return. In the past, when we first built kiosks, those were high performers too. So I'm not saying -- it's not that is any different. It's just that we have an even better store [Audio Gap] aging network that is continuing to hold its own but it's certainly not able to contribute the kind of value that the larger store formats can with the more expanded offer.

Got it. And the second part of the question, so you guys have talked about capital allocation kind of 50-50 shares. Is that still your goal?

It is still valid. It can differ from year-to-year period to period, right? So our capital is going to go to growth. [Audio Gap] are going to fund additional cash flow back into the business. We're also investing in initiatives that are going to drive value, too. And share repurchase is going to maintain is going to still be a critical component. But as you look year-to-year, we may be doing more of one less of the other, but that is certainly our intention.

Very good. I think that's right on time. Thank you, Mindy.

Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA Fourth Quarter 2025 Earnings Q&A Call. [Operator Instructions] I would now like to turn the call over to Christian Pikul. Please go ahead.

Thanks, Carly. Good morning, everybody. Thanks for participating in our first Q&A only session covering fourth quarter and full year 2025 results, I would remind everybody to refer to the forward-looking statements commentary we included in our prepared remarks yesterday, which I hope you all took the opportunity to listen to or read. With me this morning are Mindy West, President and Chief Executive Officer; Donnie Smith, Chief Accounting Officer and Interim Chief Financial Officer; and Ash [ Olds, ] Director of Investor Relations and FP&A. [Operator Instructions] Carly, you can go ahead and open us up for questions.

[Operator Instructions] Your first question comes from Bobby Griffin with Raymond James.

Yes. I like the new format getting that out there after the press release. I guess my first question is more on the competitive comments that you put in the prepared remarks. Just curious if you can kind of conceptualize where the competitive kind of pressure is versus 6, 8 months ago? Is it getting worse or getting better? And then, I guess, more importantly, after you see that initial competitive response of new entrants how long does it take the store that's impacted to kind of come back to what you'd say are company-wide trends or company-wide averages.

Right. That's a great question, Bobby. Our same-store gallons in particular, are impacted by those factors of competitive intrusion. And really the pressures vary market by market. So for instance, in 2025, some of our stores had average per store month volumes that were actually higher. We saw that in 9 states that we operate in. Margins were higher in 10 states. .

But those markets are in different stages of competitive intrusion and pricing behaviors. When we look at Texas, has both higher margins, higher volumes. Colorado and Florida, though had lower volumes and lower margins but those states over time are going to look more like Texas as they mature and stabilize, and those new competitor entrants their share and then ultimately raise prices because they have to make a return on their sites, too.

So our new stores also take share from others, and they're outperforming the network. But same-store remains under pressure. So we have to invest an extra $0.01 or so in order to maintain volumes. So typically, when a new entrant enters the market, they do exactly what we do. They price very low at the outset while they try to gain their share from the other competitors that are already entrenched in the market, and that could take 3 months. It could take 6 months. It could take a year.

And then it depends on how many stores that particular market entrant wants to build and that -- and what density do they want to build in that market as to how long it's going to last. But ultimately, everything goes back to normal and margins rise and we are able to increase our margins as well.

So in a way, we actually like competition because while it creates a disruption when it's happening, as that market matures and stabilizes, and the winners have acquired their share of customers, then the higher margins ultimately follow.

And we're disciplined where we build and continuously upgrade. So we're going to be there for the long term, and we're going to be a winner also.

Okay. That's helpful. And I guess, secondly for me, and I'll turn it back over. The comment there about the step-up or the acceleration in the maintenance capital spending, I found interesting. And more so and just like the fact about it limiting disruption, is there any -- can you put any more details around how big of a brag those, call it, disruptions have been?

Or is more this step-up just kind of getting ahead of what could have been a drag. And just kind of trying to see if we've been -- there's been an EBITDA impact that actually will start to go away after you do this maintenance capital step up.

Sure. What I would say is it's more of the latter. It's more of a getting ahead of things before it happens. We have been entirely within a break 6 mode for our history. That means that maintenance comes in lumps, but it's difficult to predict.

And as our market -- as our fleet ages, we found the need to go ahead and proactively invest in equipment that is end of life or near end of life because that does 2 things. It results in maintenance expense that we can predict. It also enhances uptime with that equipment, so enhances the customer experience and therefore, their loyalty to us. So the kinds of things that we're talking about doing is a step-up in proactively replacing some dispensers HVAC units, space, things like that, which are going to cost us a little bit in capital from the beginning.

But we'll improve it in uptime and store performance over time. And we think the projected savings from just doing that is roughly $6 million to $8 million, somewhere in that range of maintenance cost -- maintenance expense that we would avoid by doing that.

And then, of course, the impact on our customer goes even beyond that by being able to serve them in a more consistent fashion.

That's helpful. Best of luck here in the first quarter.

Your next question comes from Bonnie Herzog with Goldman Sachs.

Just trying to get -- how are you? I actually had -- I actually had a question on your long-term guidance, I guess, through -- and I guess I'm just thinking about it, this for modeling purpose guy this year of $1 billion, it does imply stronger EBITDA growth in, I guess, '27 and '28 to ultimately reach that long-term guidance of EBITDA target of the $1.2 billion.

So I was just hoping maybe you could talk about the drivers of maybe faster expected growth in the out years? And where you see maybe the most upside or maybe most downside. Just trying to think through the potential for you to kind of meet that long-term EBITDA guidance?

Great question, Bonnie. And what you're seeing in our EBITDA guidance is really a function of several factors for 2026 so the guidance is capturing the timing and scale impacts of our new store program. So as we get to a level where we can sustain 50-plus NTIs a year and those classes mature, then that EBITDA contribution becomes more visible because we would expect that 50 stores can contribute $35 million to $40 million of EBITDA once they complete their 3-year ramp.

However, for this year, when an entire class of 50 from last year opens at once, it does create a temporary drag that outweighs the strong 2- and 3-year contributions that we are getting from our earlier smaller classes.

So it isn't that the stores aren't performing, it's about scaling up our program to deliver the 50-plus stores going forward. So that's one of the factors is us just being able to build 50-plus stores a year and then ramping as expected. The other factor is in a more normalized, more volatile fuel environment, our EBITDA growth will become even more sustainable.

Because, as you know, and we've talked about at length, the current fuel environment does impact our same-store performance that the new stores right now are not able to offset this early into their ramp, and that's going to be a headwind this year.

Now when you look at the path to the $1.2 billion, it really depends on 3 levers only 1 of 2 of which we can control. We talked about one, the normalized fuel environment. That's one unfortunately, we cannot control sustaining the 50-plus NTIs annually, we can, and we are in a great position to do that and accelerate our growth there, also executing on our initiatives.

So making our business better is also a material driver of that future growth. So when the environment changes, I think investors are going to be very surprised about the earnings power of this business.

But if I was going to handicap how can we achieve 1.2, what am I -- what are the pluses and minuses I believe in the pipeline that we have, I believe, it's a quality pipeline that will deliver the $35 million to $40 million at ramp and a 50-plus store ramp per year.

I believe in our ability to achieve our initiatives. But again, the $1.2 million does depend on a little bit more volatility and I think as we saw in the fourth quarter, when we can just get brief spurts of that, our business is functioning well, and we are attributing the value to the company that we would expect in periods like that. but we do need a little more help from the macro environment in order to get to the $1.2 billion.

Yes. That's super helpful. And honestly, it makes a lot of sense. And yes, volatility is your friend as you kind of stages and maybe a quick follow-up, Dan, on that because also just in the context of that, the fuel margin, I know, again, it's for modeling purposes, but it did suggest that $3.5 million CPG.

And so if I'm right, I think that's maybe 4 years of flat to down field margins. So just trying to think through that for how you're kind of thinking about fuel margins. And again, and then also just the breakeven costs? Like how have they been trending recently?

So for fuel margins, our outlook for the year really reflects what we believe is the highest probability and most likely environment. So it's -- we think it's going to still be characterized by relatively low volatility as we go through the year.

We think we're going to see relatively stable and still low fuel prices, which impacts our business model because it makes our customers on margin a bit less price sensitive. So we believe it is a base case similar to last year.

And of course, we're comping several years ago when we experienced the other extreme of things, which we benefited from tremendously where we saw really high volatility, higher prices, which made our offer even more compelling so we are going to focus on the things we can control and improve our business and the earnings power, including levers that in the future could be more fuel immune.

But for right now, for the fuel margin, we think that, that $0.30-ish all in is right where we need to be. And it's still reflective of that structural component because to be able to earn margins at this level despite the fact that we're putting a $0.01 or $0.02 on the street. And despite the fact that we have low volatility is really speaking to that structural element that, that is still there and supporting the stock -- the margin.

So when you talk about the breakeven, what I can say is the cost to serve is really not going down and that breakeven component is still alive and well and playing out industry-wide.

So the fact that margins were flat this prior year given the low volatility and really nothing that was there to macro support margins being that high shows you that those marginal retailers are still requiring those higher margins to break even, much less continue to invest in their business, which they're not able to do, and we are able to do that.

Actually makes sense. So I appreciate that, and I'll pass it on.

Your next question comes from Irene Nattel with RBC Capital Markets.

Before I get to my question, I just wanted to clarify something you just said, Mindy, which is -- you're still planning on putting $0.01 to $0.02 a gallon on the Street this year and that -- and even with that, you're still looking at sort of 1% to 3% same-store volume pressure. Is that correct?

We still think that we will continue to see volume pressure in this lower price environment, and we will still need to protect our position, especially against competitive entrants in certain markets by putting some sense on the street in order to do that and maintain our competitive position. So yes.

Yes. Understood. And then just moving on to the back hard. Can you talk about how you see the nicotine environment unfolding this year? We had some bright spots last year do you think it plays out that in 2026 and moving ahead?

I think that we are still the ideal retailer for manufacturers as they help our customers progress down the risk spectrum from cigarettes to other products. We will continue to be very promotion-driven throughout the year. And I think that we have delivered strongly on promotions. I think you saw that earlier in the year when we have a promotion, our sales force can get behind that and really sell it. .

We are having our national leadership conference over these several weeks. I just got home from St. Louis, where we toured the Midwest. We had all our store managers from the Midwest in one location a couple of weeks ago, we were in Houston for the Southwest. And I can tell you, all of those store managers are so excited and they are very promotion-driven. They are very content driven. And I think that, that culture really underpins our ability to be the most effective use of our manufacturers promotional dollars and meanwhile, we still continue to take share in cigarettes, and we will continue to do that.

But the other categories, the other nicotine categories are growing strongly, and we don't expect that to slow down any. Now we do realize that we're going to be comping a very special one-off promotions. So we are not anticipating in our guidance being able to duplicate that but we have put in our numbers accelerated promotional funding from what we had last year.

Your next question is from Ed Kelly with Wells Fargo.

Good morning I wanted to ask you about per store expense growth. You had a very strong year in '25 below the initial guidance that you had mentioned. The '26 outlook assumes that you'll still be running below that 5% level that I think at one point, you maybe thought was more normal in terms of run rate. I'm just hoping that you could talk about the drivers of that for '26 and then just taking a step back, what's the right -- the correct run rate over time for per store expense growth over the next few years?

Great questions. Let me take that. And you're right. We have -- the team has done a great job of managing their expenses, so hats off to them delivering OpEx at only up 3.3% last year. It was really good. And obviously, our guidance is still forecasting that we're going to be below that 5% number.

I'll talk about some of the drivers this year that we expect to maintain going into this year. We've done a lot of work with our store excellence campaign and our self-maintenance in particular, and just changing -- being able to change our card reader batteries, ourselves versus calling in a technician allowed us to save almost $2 million on maintenance expense last year.

Our team has also done a great job of cutting overhead almost in half and that's attributed to our store managers just doing a great job with staffing and with scheduling and motivating their teams and running their stores more efficiently and then done a great job on loss prevention as well. We've moved some of the higher shrink items closer to the register.

We also really dialed in on our cash loss and our merchandise inventory management. That alone allowed us to cut shrink by over $4 million, and that's inclusive of price increases, growth. We were still managed to save over $4 million. So we expect the impacts of those things to continue and even amplify. And then things like I talked about with proactively going ahead and replacing some of our equipment those will earn some savings in our maintenance line over time.

And then I think your last question was, what should you expect going forward? I would expect something around 4% going forward. And bear in mind, we are building a lot of new-to-industry stores. Those stores are bigger than some of our existing networks.

So those are going to come with higher costs from the -- and especially in the beginning as we are going to make sure that those stores are fully staffed to make a really good first impression to our customer. And then, of course, the fuel on the merch will ramp over time.

So a lot of the driver of our OpEx is actually the new-to-industry growth building the bigger stores. But we are going to hold the line on making sure that we are operating as efficiently as possible.

Your next question comes from Jacob Aiken-Phillips with Melius Research.

I just wanted to double quick on the larger format stores and some of the cost pressures. I think last year, there was a dynamic where a lot of stores open towards the end of the year, beginning of the year. And the winter storm in February like exacerbated some of those cost pressures.

We had this January storm and I guess, February is still pending. But how should we think about like the 1Q dynamics there? And then the evolution of that or cadence throughout the year?

What I would tell you is we will experience some higher maintenance costs from this first quarter winter storms, but we also got were the beneficiary of some higher margins to heading into those storms. So we think that on balance, all that is going to offset and was fully baked into kind of the $1 billion-ish that we already talked about. So you are correct that when we build a bunch of stores, these larger stores, all at one time, those come with full OpEx really from day 1, while our fuel takes a bit of time to ramp and merchandise takes a full 3 years to ramp.

And then, of course, the field does ramp faster, but we are also probably aggressively in order to take that share as well. So that definitely has an impact on our overall OpEx. And I would say that half of it or so is it just attributable to those larger stores.

Got it. And then just on the small tuck-in acquisitions like you just did for and then could potentially do some this year. it's new or dynamic. And I'm just curious what exactly do you look for? And I know it's early, but I think what do you envision like economic improvement of the stores when like you get the Murphy's merchandising into the stores?

We really like that Colorado acquisition in particular because we got to pick and choose which ones we wanted versus taking a whole portfolio where you get the good and the bad, and you just have to make the best of the bad. In this case, we got the kind of cherrypick.

And it was a market in which, one, we wanted to add density. This was a very quick and easy way to do it. It was also an economic way to do it. And we were able to get those stores open in what, 30 days or so, less than 30 days, we were able to put our signage up get our assortment, how we wanted to get those stores back open.

So we were able to hopefully retain most of the customer base that was already going there. and then leverage our Murphy Drive Rewards loyalty app and our density of stores in that market to drive more traffic into that store. So we like it from the standpoint we got to cherry pick it. It was a market in which we wanted to add density.

It also allowed us to do that very quickly without having to go through -- we like organic growth, but it takes a long time to go through the let's pick the site, let's permit the site, let's construct the store, let's get all our opening permits. That just takes a long time. So having the ability to bolster that with some of these maybe smaller ones two, 5G type acquisitions. We are certainly in the market looking at some of those right now.

Congrats on your new role.

Thank you very much.

Your next question comes from Pooran Sharma with Stephens Inc.

Just wanted to -- just wanted to maybe start off with understanding the contribution from the in year 3. I think you mentioned $35 million to $40 million in yesterday's prepared comments and today as well. And I think you mentioned in the prepared comments, you maybe expected?

Was it 2 years worth of these 50 class builds contributing $30 million to $35 million to $40 million. So higher level, should we be thinking that you're going to get about $70 million to $80 million in contribution dollars from these stores and then that would rise to around $100 million to $120 million by 2028 or just wanted to get the right way to frame up that contribution?

It's more of a stair step. And granted, we're always going to be -- for the foreseeable future, we're going to be building a new class of 50, which are going to be a drag on that as they didn't incur full cost, but have to go to ramp. So what we said was we expect -- each new build cost of 50 stores to generate between $35 million and $40 million of EBITDA at maturity after their 3-year ramp.

So as we enter 2027, we will have the 32 new stores from our 2024 bill class, the 51 stores from our 2025 bill class and the 45 to 55 from this year, helping to grow EBITDA in 2027.

So cumulatively, this will begin to move the needle even if the fuel environment does not normalize, and we expect and continue to potentially increase our ability to add more than 50 stores in the network as we look even beyond 2027.

So that's why we say looking back, 2026 will be viewed as an inflection point in our ability to deliver sustained EBITDA. But the $120 million is a bit extreme because you're going to still have that 50 new stores coming on, which in that first year, especially or a decrement to EBITDA.

Okay. That's very helpful. I appreciate the color there. And I wanted to maybe understand kind of the higher-than-expected PS&W and RINs contribution for the quarter. I wanted to understand more specifically what the dynamics at play were during 4Q?

And as we look and think about S&W margins in 1Q I know you're expecting $0.05 for the year. But just with the run-up in RIN prices, should we expect PS&W margins to stay a little bit above that [ $0.02 to $0.025 ] per gallon range you'd previously mentioned?

Sure. When you compare the fourth quarter versus prior year on PS&W, this year were really supported by stronger arbitrage, stronger line space values. But less than prior year because we did have some downward movements in the price. So that's what's explaining that, but just there was a little more volatility in the fourth quarter than in the third quarter, for example.

And so you saw the benefit of that in the PS&W line. As we look forward into the first quarter, obviously, these winter storms are having an impact on the network. It's also having an impact on price. Too early to say where we're going to end up on PS&W for the quarter at this point because the swings can be pretty dramatic.

But safe to say for the full year, we think that we're still going to be within that band unless we can see some more prolonged volatility sustain itself but that's where we would expect [indiscernible] for the full year, too early to say really for the first quarter. And then with regard to the RINs, as we always say, the price of the rent is baked into the price the gas we pay. So while there may be some temporary dislocations if RINs run up very quickly or run down very quickly, over the sweep of time, it all balances out.

Your next question comes from Corey Tarlowe.

Can you talk a little bit about what happened on the tobacco side from a margin perspective in the quarter? And then also maybe what to expect ahead there?

Sure. And that's a great question. What you were seeing there, something we talked about frequently last year. So for the fourth quarter, it's really the timing of promotional dollars impacting that cigarette category, in particular, and the volumes. .

So importantly, though, although volumes were down, we did grow share of market in the cigarette category for both the 4-week and 13-week periods ending January 4. So our volumes did remain strong compared to the market. But keep in mind, these categories are highly promotional, so you won't necessarily ever see straight-line growth even on a year-to-year basis.

But as we've demonstrated over longer periods of time, we do have -- we have significantly grown those contribution dollars in the overall nicotine category, and we are definitely seeing strength in pouches and other products. And I will tell you, too, the business has already normalized in January, and we expect to continue to show consistent margin performance when viewed over time, but it can be lumpy quarter-to-quarter.

Okay. Great. And then I have 2 quick follow-ups. I know we're lapping severe weather from last year. Can you provide any context around the storm impacts this year? And then also any impacts from changes in SNAP as well?

Well, I would just reiterate what we said for January, it's shaping up to be a good month. We are lapping winter storms from last year, but we're not finished with the winter storms from this year because now we have one impact in the Carolinas and other parts of our network. So while we were pleased with January's results, that was one of the reasons, quite frankly, that we were not willing to increased EBITDA guidance materially because we don't know what's going to happen for the rest of the year, and we know that we're going to have some impacts on the back end of these winter storms as well.

So turning to [indiscernible] that is a great question. And we do have some exposure there, but it is relatively small. It's actually less than 2% of our sales but we did have those SNAP changes take effect January 1 and 5 of the states in which we operate, as you I'm sure know, they primarily affect handy, Pace and specifically energy drinks.

I'll share with you some data points, but I want to caveat these are very preliminary, but our early read suggest kind of a modest headwind and candy and energy drinks. We're going to continue to monitor the data, obviously, as the space is in, and we do expect some impact in the very discretionary categories, which is included in our guidance, by the way, we put in our guidance a headwind and I think it's roughly less than $5 million overall for Snap.

Our top EBT item, you might not guess it. It's actually Red Bull. So while some customers may pull back, we believe that most are going to continue to buy those products even if they are not eligible for the SNAP benefit. So there is some category noise there, but the overall impact to the business is modest. As I said, it's $5 million or less.

Your final question comes from Brad Thomas with KeyBanc Capital Markets.

Maybe I'll just add my congratulations as well on your first call. as CEO. And I know that last quarter, the main message welcome. I know last quarter, the main message was around much of the leadership transition, keeping the core strategies of Murphy in place. But just wondering if I could ask directly, if there are specific areas that you think the priorities will change a little bit now that you've taken over?

That is a great question. Thank you, actually for asking that. What I said in those certain terms, some things are going to stay the same. Our everyday low price strategy, our continuous improvement mindset capital allocation will remain unchanged. So when I think about it, it's really more of our culture that is evolving.

So we're pushing for things like quicker collaboration, more nimble decision-making reorganized the company to create more clear roles in accountability. We've already made some leadership changes to help us work better together, remove some inefficient reporting structures and increase accountability.

I can tell you people are excited because their work and ideas can have more impact and then that excitement ends up being infectious. And we have an incredibly strong platform to improve this business and dedicated to growing shareholder value. So our 5 strategic pillars in which we have grown the company since spin, are still intact.

It's really just a culture shift, which I think is necessary to make sure that we are agile and adaptable and really unafraid to challenge ourselves and stretch further and try new things. So you may see SP, and I hope you will see us be a bit more innovative going forward than we are in the past.

And as we have these macro conditions pressuring our stores, we have accelerated competition. I think that's a smart thing to do. We need to be able to fight back in our business model, reducing our reliance on fuel and tobacco where we can, but still preserving the strength in both of those.

We need to figure out how to attract and retain new customers, how to grow trips and spend and how to make our store teams life easier and our stores more productive. And then what are those niches of opportunities of value that we can exploit.

So we're going to be looking to innovation to support our core business and also drive for more business. And we're really already looking at it around 3 main pillars, which are our portfolio, our customer and advanced technology, and we're going to attack all of those types of opportunities and absolutely believe that we have untapped potential in this business to improve, not just our existing stores and serving our existing customers, but the ability to stretch for more with different stores and different customers.

So I'm excited about the future. I know the team is to and stay tuned to see what we will deliver on this topic.

That's really helpful, Mindy. If I could squeeze in one last follow-up just on the quick check brand. I don't think I heard any commentary about how it performed in the quarter. Could you just address that? I mean, how you're thinking about its impact on EBITDA in 2026?

Yes. Great question. It is continuing to exhibit stronger sales. Margins continued to be pressured. Traffic continues to be pressured. What we're doing really there is really simple. We are refocusing on the fundamentals of the business. We are focusing on the core, which are mainly coffee, breakfast and sandwich as our traffic drivers -- we are simplifying the menu, rationalizing the assortment based on performance, not legacy, not what we've always done.

So we're choosing where we win and really not trying to be everything for everybody. We're also focused on improving margin. We need to balance the innovation with cost and margin control because while growth is important, we have to earn money. I can't take growth to the bank.

We have to take margin to the bank. So being disciplined around that. And then building a better operating model that simplifies operation, reduces complexity, enhances that customer experience because we're -- our speed to service is better.

So overall, it took really just a recognition that execution and ability to scale are as important as idea generation because ideas which can't be implemented well or executed consistently are actually a bad idea.

So I would add to that we have new leadership at Quick Check in that new structure and that will help speed up execution and also, I think, spark some innovation. So I really like where the team is headed and I believe they're focused on the right thing. So really appreciate you asking about that part of our business.

There are no further questions at this time. I'll turn the call back over to Murphy Presenter Panel for any closing remarks.

Thank you for your time and participation on the call. All great questions. As we look to upcoming calls, I want you to know that we are committed to strengthening our core business while pursuing incremental sources of value that endure across the field cycle. .

And we are building from a very solid foundation, and I have solid conviction in this leadership team's capacity to unlock Murphy USA's next level of potential. So thank you again, and I look forward to the next quarter's call.

This concludes today's call. Thank you for participating. You may now disconnect.

Good afternoon, everyone, and thank you for listening in today. With me are Mindy West, President and Chief Executive Officer; and Donnie Smith, Chief Accounting Officer and Interim Chief Financial Officer. After some opening comments from Mindy, Donnie will review some performance highlights from 2025 and discuss 2026 guidance metrics, followed by some closing comments from Mindy. As a reminder, we will be publishing a transcript and recorded playback of these remarks this afternoon, and then we will host a live question-and-answer session tomorrow morning at 10:00 a.m. Central Time. Details can be found in our Investor Relations website and in today's earnings release.

Please keep in mind that some of the comments made during these remarks, including the Q&A portion tomorrow, 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 discussion, 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 will turn the call over to Mindy.

Thank you, [ Kirsten ]. I want to start off our conversation today by thanking Andrew Clyde for his extraordinary leadership since our spin-off in 2013. His strategic vision, operational discipline and formative impact on our culture helps shape Murphy USA into what it is today, a company that is high-performing, resilient and customer-focused. As current or prospective investors, you may be wondering what might be different under my leadership.

But I believe the more important question is, what is going to stay the same. I want to be very clear on this point. Our commitment to value creation through organic growth, our continuous improvement mindset and our disciplined balanced capital allocation strategy will remain unchanged. My leadership style is grounded in transparency, accountability and empowering people, giving them the opportunity to innovate and challenge the status quo. Having served as CFO and COO since the spin-off, I understand this business, and I am excited to lead Murphy USA into its next chapter.

We will carry forward the habits, processes and principles that have driven our success as a stand-alone company. My mission going forward is to unleash even more creativity and innovative thinking within our senior leadership team so that we can extend our value creation journey well into the next decade. Our foundation is strong, our opportunities are compelling, and our team is fully aligned around the next phase of disciplined growth. When considering how I wanted to run these earnings calls going forward, I took a page from the book of one of my favorite presidents, Franklin Roosevelt. What I like most about his leadership style were his fireside chats, a commitment to truth, clarity and transparency delivered in simple straightforward language that resonated deeply with the American public.

By speaking plainly and directly, he built trust, dispelled rumors, strengthen morale and help unify the country behind important actions. The term fireside chat is perhaps more familiar to you all as an industry term for the forms where corporate leaders talk candidly with analysts. So this idea feels like a natural fit to me. It also reflects how I like to interact with my teams every day with candor, clarity and accessibility. And that is the same tone and format I hope to bring to these quarterly discussions with you. In that spirit, there are 3 key points I want to make before I hand the call over to Donnie. And the first is retail margins in 2025 were flat to 2024 at $0.281 per gallon despite experiencing far less volatility in 2025.

Given that retail margins remain flat in this environment is a strong indicator that we are seeing structural support for higher retail margins when normal levels of volatility are reintroduced to the market. RBOB prices ranged from $1.60 per gallon to about $2.15 in 2025 or a range of only $0.55 and with only about $0.30 through the first 3 quarters of the year versus much wider ranges of $0.72 in 2024 and $1.07 in 2023, years which we would characterize as more typical with respect to price volatility. As we would expect, given a little fourth quarter volatility, fuel performance was the best we have seen all year.

Retail margins were up about $0.02. Same-store volumes were down only slightly at 0.6% and total volumes were up 3.1%. Therefore, importantly, we believe retail margins are likely at or very near a bottom, and there is far more likelihood of upside potential versus further downside pressure going forward. My second point is on new stores. We added 51 new stores to the network in 2025, an achievement we are proud of and a level of activity we expect to sustain in 2026 and beyond. The new stores are delivering results aligned with our high expectations. For instance, the 2022 and 2023 build classes collectively comprised of 56 stores contributed $32 million to EBITDA in 2025 in the second and third year of their ramp, respectively.

As such, we still expect a full build class of 50 new stores to generate roughly $35 million to $40 million of EBITDA annually at maturity after 3 years of ramp. As we enter 2027, we will begin to see the cumulative effect of several years of approximately 50 new stores per year and expect to see sustainable EBITDA growth as these stores ramp to maturity. Third, I'm going to go ahead and discuss the EBITDA outlook for 2026. While there were puts and takes in the 2025 results, total EBITDA of $1.02 billion is roughly in line with what we indicated the business would generate using $0.305 per gallon to achieve $1 billion of EBITDA as noted in our original 2025 guidance and again reiterated in the third quarter call in November. All-in fuel margins of $0.307 per gallon in 2025 were 20 basis points higher year-over-year, attributable to slightly better performance from the Product Supply and Wholesale segment, which delivered $0.026 of contribution margin within our long-term expectations of $0.02 to $0.03.

Looking back over the last several years, all-in fuel margins since 2022 have landed within our expected short-term range of $0.30 to $0.32 as initially described in our third quarter 2024 conference call. As we look into 2026 and weigh, assess and risk the set of factors that drive our business, our expectations are that we will face a similar environment to what we encountered in 2025, characterized by low absolute prices, low volatility and continued competitive pressure. As such, we think these factors will continue to limit retail margin expansion in the near term. Although geopolitical risk has heightened over the last few months, we don't expect a year of above-normal earnings for the supply business in 2026 and are using approximately $0.025 a gallon in our plan.

Therefore, to anchor net income and EBITDA expectations in 2026, using the midpoint of all other guided ranges, we would expect EBITDA of about $1 billion at $0.305 a gallon, which is comprised of retail margins of $0.28 and PS&W contribution of $0.025 per gallon. Our forecast of flat to slightly lower EBITDA reflects several different inputs from across the business. From a volume perspective, we expect same-store pressure will continue to impact volumes as laid out in our guidance. These same-store pressures are a function of the ongoing low price environment where our customers will occasionally choose convenience over price and the active pace of new store growth from competitors in our markets, primarily Colorado and Florida.

Further, low price volatility impacts our ability to profitably widen our discount versus the competitor set in each market, limiting our ability to take share. Importantly, while likely to persist in 2026, we do view these factors as transitory. Additionally, while we are excited about our accelerated new store growth, the larger high-performing stores do tend to come front-loaded with higher operating expense in the first year as the store begins its 3-year maturity ramp to higher merchandise growth, resulting in a temporary drag on earnings. That being said, as the program builds momentum, the plus or minus 100 new stores that will be in service in 2027 will provide a material boost to our earnings power even if fuel markets do not normalize by then. That momentum will continue into 2028 as roughly 3 years of 50-plus store build classes will stabilize the earnings base with one class reaching maturity as the newest class enters the first year of its ramp.

At which point, 2025 results and whatever happens in 2026 will likely be viewed in retrospect as an inflection point in our ability to deliver higher sustainable EBITDA growth. Importantly, as I mentioned earlier, as we accelerate new store growth, we do not view the risks above and below the $0.305 benchmark as balanced. We think there is far more upside potential given the price volatility that was introduced in the fourth quarter of 2025 and which helped to generate stronger fuel performance. Given the extremely low relative volatility in 2025 and a tendency for markets to revert to mean levels of volatility over time, the likelihood of all the margins to outperform our $0.305 forecast remains higher versus the factors that might drive year-over-year margins lower in the near term.

I will now hand it over to Donnie to discuss performance against our 2025 guidance metrics and introduce our 2026 guidance.

Thanks, Mindy. Let me start off by reviewing 2025 performance results and highlights in combination with the elements of our 2026 guidance. Starting with new store growth. We placed 51 new-to-industry stores into service in 2025, slightly exceeding our guided range of up to 50 stores. Special thanks to our store development and asset management team, along with our sales and operations team for helping us achieve this important milestone. We also completed 23 raise-and-rebuilds, transforming a smaller kiosk to a 1,400 square foot walk-in store. Since year-end, we have opened 2 additional stores with 18 stores currently under construction, giving us high confidence in the sustainability of our organic growth strategy for the next several years. Our pipeline remains healthy, and we are on track to deliver 45 to 55 new stores in 2026 with the lower end of the range representing our internal organic growth plan and the higher end representing the ability to bolt on a few stores through opportunistic acquisition in strong markets, much as we did in 2025 with the purchase of 4 stores in the Denver area.

In addition, we expect to undertake up to 30 raise-and-rebuild projects in 2026. To reiterate, our primary focus remains adding highly productive 2,800 square foot stores to the network as part of our long-term goal of building 500 or more new stores over the next decade. Going forward, we are taking a more holistic approach to formats, understanding in some markets, larger or smaller formats may be more desirable than our standard 2,800 square foot format. We will keep you updated on the evolution of our new store program in the coming quarters as we continue to prioritize our organic growth strategy as the primary vehicle to grow shareholder value.

Turning to fuel volume. In total, we sold 4.85 billion gallons of fuel in 2025, up about 0.6% from 2024, translating to a 2% decline on an average per store month basis and a 2.6% decline on a same-store basis. Average per store month fuel volumes of 235,800 gallons in 2025 finished near the midpoint of our revised guided range of 235,000 to 237,000 as updated in our third quarter earnings release, but below the original guided range of 240,000 to 245,000 gallons issued in early February 2025. As we discussed last year, there were several factors pressuring volumes in 2025, including severe weather in the first quarter, above normal competitive pressure in some of our markets and more impactfully, the low absolute fuel price environment, rendering our customers less price-sensitive and prone to losing an occasional trip to a convenience-driven occasion versus a price-driven decision.

Importantly, as Mindy referenced earlier, we view all these elements as transitory over time. Weather will come and go, pockets of competition have waxed and waned in intensity as long as we have been in business and fuel prices are unlikely to stay low over the long term. Given these factors, we are pleased with our overall fuel performance in 2025 and maintain the highest level of conviction that our low-price strategy will continue to win with customers over time. Against that backdrop, our current view is that 2026 could look pretty similar to 2025, with low prices likely to persist over the near term as supply remains healthy and markets remain balanced despite what appears to be an increase in geopolitical risk surrounding oil-producing regions around the globe. Going forward, we expect average per store fuel volumes to remain relatively flat with high-performing new store gallons largely offsetting legacy declines in our older smaller format stores, a more likely outcome now that new store activity is ramping to previously expected levels.

As such, we expect to maintain average per store month volumes within a range of 233,000 to 237,000, the midpoint of which represents flat to slightly below 2025 APSM volumes. In 2026, we expect to sell just over 4.97 billion gallons of fuel in total, up from 4.85 billion gallons in 2025. These figures correspond to a 1% to 3% decline in same-store fuel volumes, which is a guided metric we have added in an effort to provide additional transparency around our volumetric performance and align more closely with other retail peers. Moving to merchandise. We generated $869 million in merchandise contribution margin dollars in 2025, up 4.2% versus 2024, largely in line with our expectations. Robust promotional activity and steadfast category management offset a challenging customer environment and continued margin compression, particularly in the food and beverage categories.

In 2026, we believe our core customer remains strong, and we expect that strength to continue to drive merchandising growth opportunities. In 2026, we are forecasting total merchandise contribution dollars to come in between $890 million and $900 million, the midpoint of which represents approximately 3% year-over-year growth. Importantly, our 2026 merchandising growth outlook incorporates several incremental headwinds relative to 2025, including expected changes to the SNAP program, which have been conservatively reflected in this guidance. Additionally, while our nicotine promotional engine is expected to remain a durable contributor to growth, our 2026 outlook does not assume a repeat of the outsized onetime event that supported performance in 2025.

Rather, we anticipate a normalized promotional environment and meaningful investments in both core and emerging segments, supported by a healthy pipeline of nicotine-related opportunities enabled through broader vendor support. These promotions are expected to drive traffic and support both sales and margin performance. [ Absent these factors ], we would expect merchandise growth to track at our normal cadence of approximately 4%. Moving to OpEx. In 2025, the team continued to drive efficiencies at the store level as initiatives around labor planning and loss prevention helped offset continued pressures in store maintenance.

Collectively, per store expense growth in 2025 was only 3.3% for a total of $36,100 per store month, just below the low end of revised guidance of $36,200 to $36,600 and well below originally issued guidance of 36,500 to 37,000. In 2026, we will continue to find ways to make the network more efficient, helping to offset the impact of the higher number of larger stores we are adding to the network in both 2025 and 2026. As such, we expect a slight increase to 37,000 to 38,000 average per store month in 2026, the midpoint of which represents roughly 3.8% growth versus 2025.

As a reminder, nearly half of our projected total OpEx increase is again a direct outcome of our decision to build larger format stores, which are more costly to run than the network average. Also, keep in mind that when new stores are put into service, operating expenses are running very close to the target maturity rate as we schedule above normal labor hours to ensure new customers have a positive experience their first time visiting the store. Merchandise dollars, on the other hand, take about 3 years to reach maturity. Thus, in the early years of accelerating these stores, you will see OpEx growing a little bit more than merchandising contribution until the stores reach maturity, at which point the coverage ratio turns positive in our new larger format stores.

Now moving to corporate costs. SG&A expense was $232 million in 2025, down about 1% from $235 million in 2024, towards the low end of our adjusted guidance range of $230 million to $240 million and well below the original guided range of $245 million to $255 million. As we announced in the third quarter, we completed an organizational restructuring, which helped streamline our workflows, simplified our processes and eliminated technical redundancies, all while preserving our agile, data-driven decision capabilities. In 2026, we expect SG&A expense to run between $240 million and $250 million, largely reflecting annual merit-based wage adjustments and continued growth in other employee-related benefit costs such as health care.

From a tax perspective, income tax expense was 22.8% versus 22.9% in 2024. 2025 taxes were lower than planned due to some discrete state tax refunds we received and acquisition of some federal energy tax credits. In 2026, we anticipate an all-in effective tax rate between 23% and 25% for the full year, which would assume no retroactive WOTC approval and continued use of federal energy tax credits. Finally, the capital spending. Total capital spending in 2025 came in at $432 million, slightly below our adjusted guided range of $450 million to $500 million, primarily due to timing of new store construction and equipment orders for the 2026 and 2027 build class. In 2026, we expect a capital program between $475 million and $525 million as the new store growth program accelerates to a higher level of ongoing activity. Of this amount, $375 million to $400 million is allocated to retail growth, including new stores and raise and rebuilds, $80 million to $95 million of maintenance capital with the remaining funds earmarked for strategic initiatives and other corporate investments.

Of note, our maintenance capital budget is about $30 million to $40 million higher than in prior years due to a slate of initiatives intended to proactively replace equipment that has reached end of life, limiting operational disruptions from broken equipment and increasing uptime across the network. Before I turn it back to Mindy, there is a few more pieces of information I want to provide. Retail prices averaged $2.66 per gallon in the fourth quarter and $2.77 for the full year. Total debt on the balance sheet at year-end was approximately $2.18 billion, resulting in a consolidated leverage ratio we report to our banks of 2.1x. Additionally, in conjunction with the guidance metrics provided to further help analysts and investors model the business in 2026, I will provide our expected store months by quarter.

In the first quarter, we expect 5,403 total store months. In the second quarter, we expect 5,336 total store months. In the third quarter, we expect 5,377 total store months. In the fourth quarter, we expect 5,446 total store months. For the full year 2026, we expect a total of 21,562 store months. This forecast is subject to variance largely connected to potential delays we may experience in planned new store openings, the amount of time our raze-and-rebuilds are under construction and to a lesser extent, the timing of any planned store closings.

Lastly, as mentioned in the earnings release, we continue to execute against our balanced capital allocation strategy, repurchasing approximately 175,000 shares in Q4, reaching a total of over 1.5 million shares in 2025. The exact number of shares we purchased in any given year will depend on a number of factors, including overall indebtedness levels, share price and our expectations for future value creation in which we remain steadfast. Given our ability to generate strong free cash flow in any given year, we intend to maintain a balanced capital allocation strategy, investing in the growth and improvement of our store network and repurchasing shares to enhance the benefits of future earnings growth for long-term shareholders. I'll now turn it back over to Mindy.

Thanks, Donnie. Before I wrap up the call, I want to provide a few data points around January results. Winter Storm fern resulted in significant store outages and highly limited customer mobility across a large part of our network in the last week of January, hampering results in what remains a very strong month of performance for Murphy USA. In fact, we set a new record for daily volumes as customer prebuying behavior accelerated ahead of the storm, just above 18.2 million gallons in a single day, surpassing the prior record of 17.5 million gallons set in March of 2020.

I want to take this opportunity to directly address all our store managers and associates who performed like champions during this challenging weather event. I could not be prouder of you and the way the team stepped up to serve our customers, enabling us to sell record volumes of fuel. I am grateful for your service and extremely glad that everyone made it through safe and sound. Due in no small part to the team's efforts, I am pleased to report that January average per store month volumes were about 1% to 2% higher than prior year. And on an even brighter note, retail fuel margins of roughly $0.26 per gallon are running $0.02 above January of last year. As such, we expect all-in fuel contribution dollars to be well ahead of our internal plan, getting us off to a great head start in 2026.

Despite the strong start, we recognize near-term challenges to EBITDA growth may persist in 2026. January results are encouraging, but 1 month does not make a trend, and I don't want to overpromise on our ability to deliver. We don't know when the fuel environment will normalize. But when it does, as we saw in the fourth quarter, the business delivers the kind of results we would expect with stronger volumes and elevated margins. This optionality around future volatility gives us even more confidence that the earnings power of the business continues to improve. I assure you, this management team is not happy with a forecast of flat to lower EBITDA.

And while we can't control many elements of the environment we face from year-to-year, I promise you this. Our entire organization is digging into every part of our business to uncover new revenue opportunities, increase operational efficiencies and drive further savings to the bottom line. As long as we continue to invest and grow the business through high-performing new stores, we remain confident that our low-price strategy and low-cost business model will win over time.

Value and affordability remains central to more and more American consumers every day, which makes our offer that much more durable and well positioned to win in the long run. In the meantime, we will maintain our relentless focus on growing the earnings power of the company, all of which means Murphy USA Investors will win over the long term. Thank you, everyone, and I look forward to the Q&A session tomorrow morning.

Thank you for standing by. At this time, I would like to welcome everyone to the Murphy USA Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Christian Pikul, Vice President of Investor Relations and FP&A. You may begin.

Good morning. Thank you, everybody. Thank you, Jeannie. With me are Andrew Clyde, Chief Executive Officer; Mindy West, President and Chief Operating Officer; and Donnie Smith, Chief Accounting Officer and Interim Chief Financial Officer. After some opening comments from Andrew, both Mindy and Donnie will provide an overview of the financial results, operating performance and a review of our 2025 guidance metrics before we open the call to Q&A.

Please keep in mind some of these 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 Clyde.

Thank you, Christian. Good morning, and thank you all for joining today's call. I'm quite positive. This is a call I will always remember as I expect it to be my last earnings call as Chief Executive Officer of Murphy USA. It has been an incredible honor to serve as Murphy USA's leader, and doing so has been the pinnacle of my professional career.

For those joining live today or reading the transcript later, I would encourage you to take away 3 things from today's call: continuity, resilience and momentum.

In terms of continuity, yesterday's announcement signaled both continuity in Murphy USA's leadership and continuity in our long-term capital allocation strategy. Having foretold this day to investors as a hypothetical in the past, we certainly appreciate the need to be as clear about future strategy and capital allocation as we are about future leadership. And as both our 50-50 strategy, and Mindy are well known to investors, we believe this announcement sends a clear message about what Murphy USA will continue to deliver and what investors should continue to expect.

At the end of our Murphy USA Board meeting last Thursday, I officially notified the Board of my intent to retire as President and CEO at the end of the year. The timing reflects a very thoughtful, intentional and multiyear CEO succession plan, which led to Mindy's appointment as Chief Operating Officer back in February of 2024. And after almost 2 years in the current structure, we are ready to make the final transition.

As you saw in yesterday's press release, Mindy becomes President of Murphy USA immediately and will become CEO and a member of the Board of Directors on January 1, 2026, and I'll remain as adviser to the company through February 2027.

Mindy and I took this company public in 2013, and she has been by my side every step of the way through the peaks and the troughs, through the campaigns that made the business better, through the major inflection points like COVID and the Walmart transition that shape the business we run today, leading by example in establishing a winning culture. In short, she is well positioned to lead Murphy USA into its next chapter, providing the continuity that all our stakeholders will value from a successful transition.

In terms of continuity in our capital allocation strategy, the Board took this opportunity to authorize a new $2 billion share repurchase program as we were about 80% through the existing $1.5 billion program, while at the same time renewing our dividend policy at its 4-year anniversary where we have naturally increased the cash pool for dividends. Having repurchased about 60% of the share since the spin ahead of target dates and increasing dividends at a compounded annual growth rate of 20% since inception of the dividend, Murphy USA is committed to the continuity of its capital allocation approach to reward long-term investors.

Complementing our 50-50 approach is the Board's commitment to new-to-industry store growth and reinvestments within the existing network, and Mindy will touch on both sides of the 50-50 strategy in her remarks as she will carry this very bright torch into the future.

In terms of resilience, Murphy USA's third quarter results speak for themselves. Despite earning $0.02 per gallon less on fuel margins, we generated the same EBITDA as Q3 a year ago due to the underlying improvements made to the business and the enduring strength of our core category capabilities that yielded outsized results. Updated guidance metrics for the full year highlight the team's efforts as merchandise contribution is expected to be in the upper end of the guidance range as exceptional Q3 results and Q4 momentum more than offset first half temporal effects. And OpEx and G&A expenses are both expected to finish positively below the low end of our guidance due to ongoing initiatives and our previously announced staff restructuring.

With regards to fuel, in our most recent investor meetings, we described the low price, long supply and consequently low volatility environment as a trough, the most challenging for an EDLP fuels retailer and contrasted it to the 2022 peak. Ultimately, how a firm responds in a trough speaks to its true resilience and whether it can sustain its commitment to an EDLP strategy and emerge a winner on the other side when the cycle normalizes. And Murphy USA has done just that.

Through capabilities that strengthen its competitiveness and enhanced customer stickiness, we are performing significantly better than in the prior trough environment, and we continue to lean into value. Most importantly, we continue to see the structural component of the retail fuel margin grow as the marginal retailer remains challenged and passes through to customers its higher breakeven requirements. This does not only supports Murphy's ability to lean into price in the current low price environment, but highlights the upside potential for when margins normalize, and we certainly expect the cycle to normalize. In fact, over the life of any 25-year store investment, one should expect 3 peaks every 6 to 8 years and 3 troughs based on the last 25 years experienced with normalized periods in between. And when we invest, we are basing our economics on mid-cycle factors, noting there is significant upside over time from the consistently increasing structural component of the margin.

In terms of momentum, while Q3 merchandise results are exceptional, we would argue that on an annualized basis, the performance reflects ongoing trends that we expect to continue. For example, nicotine promotional dollars have grown at an impressive 12% CAGR since 2020. While we will never be able to predict exactly what products are being promoted in which quarter, our capabilities to engage consumers in the category are unparalleled. In other areas, QuickChek reported its fourth successive quarter of same-store food and beverage sales growth, and total center store categories grew by 5%, while same-store operating expenses moderated, increasing by only 2.8% for the quarter, and ongoing campaigns are designed to further this momentum.

New store openings are now projected to be over 45 for the year with a strong pipeline supporting 50-plus stores in 2026 and into the future. Currently, nearly 40 stores are under construction that will open in Q4 and early Q1 of 2026. While the newest stores ramping do not have the same subsequent year EBITDA impact of stores further into the ramp, getting this first group of about 50 stores under our belt creates a line of sight to future earnings growth as new build classes come on board.

Before handing over the call to Mindy and Donnie for additional remarks, on a personal note, my announcement comes with a great sense of accomplishment for what the Murphy USA team has achieved together in the past 13 years and a deep appreciation for an opportunity one can only dream about. As I noted in our internal announcement yesterday, the most resilient for us in our business is our team members, the people who make it all happen each and every day. I cannot begin to express my appreciation for their leadership and followership as we have strived to make the business better. Their efforts and sacrifices are too numerous to name, and provide the inspiration and energy for future initiatives to keep on making the business better. They define the winning spirit culture at Murphy USA, and I believe it is one of the greatest hallmarks a company can have. And for that, I'm both internally grateful and exceptionally proud. So it is with confidence of an enduring business model, a robust growth and capital allocation strategy and a winning Murphy USA spirit reflected in our future leader and leaderships and team members that I'll look forward to in my next chapter, both personally, professionally and as a Murphy USA shareholder.

I'll now turn the call over to Mindy to review some highlights around our capital allocation strategy and third quarter results. Mindy?

Thank you, and good morning, everyone. But before I start, it has been a great ride, Andrew, with a lot of ups and downs. You built the foundation of this very successful public company and have improved it in every type of environment, which is just remarkable. And I want you to know, I truly appreciate your wisdom, your mentorship and your friendship. You will be missed. But it is not goodbye because you know that I'm going to be calling you.

For those of you who don't know much about me, I joined Murphy Oil, the same year in which we opened our very first Murphy USA store. I was also here by Andrew's side as we launch this company as a public entity. And at that time and since, we highlighted 5 key value pillars still relevant today, one of which investing for the long term has been illustrated through our continued commitment to our 50-50 capital allocation, balancing growth and share repurchase. So with our new Board authorization, as you said, I am happy to carry the torch into the future.

Now let's talk about third quarter results. As Andrew alluded to, we are pleased with the third quarter. As mentioned, third quarter EBITDA was $285 million, virtually flat to the prior year despite all-in margins running about $0.02 lower. This is a significant achievement and is representative of our philosophy that especially during challenging times, we dig in and make the business better. So when the next peak environment presents itself, the earnings power and operating leverage will be that much stronger for longer-term investors.

Let me break down fuel performance just a little more, which remains strong despite that low price, low volatility environment. Average per store month volumes were down 1.8% in the third quarter and down 0.7% on a 2-year stack. However, all-in margins of $0.307 including retail margins of $0.283 are stronger than one might expect in this environment. If we compare to peak all-in margins of $0.343 that we experienced in 2022, that included roughly $0.04 of impact attributable to that once and every 6-year falloff in prices in the third year of 2022, coupled with about $0.015 to $0.02 of margin attributable to the tight supply and high volatility environment, and then further adjust for the $0.02 we are now investing to short volumes in the current low price environment. Given all that, we might expect all-in margins to be in the $0.26 to $0.27 range.

So to reiterate, we firmly believe the current margin structure includes $0.03 to $0.04 of structural uplift since 2022, which would translate to materially higher fuel contributions in a return to normal environment for Murphy USA. Important to note, fuel margins are highly correlated with the environment in which we are operating. While investors frequently ask why margins are lower year-over-year, why can't they see more of a structural uplift, our answer continues to be that current results are largely attributable to the low volatility and low price environment, which is masking the potential of our business in a normal environment where we believe we would experience several pennies of incremental margin opportunity.

Turning to merchandise. Total margin contribution dollars were up $24.4 million or 11.2% in quarter 3. There are 2 key drivers of these exceptional results. First, nicotine categories are up over 20%, driven by strong promotional activity and center of the store categories grew approximately 5%. Through the continued evolution of Murphy Drive Rewards and other capability building initiatives, Murphy USA has dramatically increased the efficacy of our promotional efforts across the store, especially when it comes to executing needle-moving product offers to support our vendor partners.

While promotional opportunities of this size do not show up every quarter, when they do, manufacturers recognize our ability to execute. We don't always know when or how these opportunities will arise. But when combined with our team's innovative and creative approach to optimizing promotional impact, it's important to recognize the third quarter margin benefit is not onetime.

For instance, while not a data point we would otherwise go out of our way to provide, in the third quarter, we also saw strong promotional activity in the traditional [ spokes ] products that drove double-digit margin growth in that category. So taken together across a wide variety of products over time, the collective impact of nicotine promotional dollars has been both significant and sustainable. In fact, since 2020, nicotine promotional dollars have grown at a very impressive 12% CAGR, as Andrew mentioned, and performance that we would expect to replicate going forward.

Turning to center of the store, where total margin dollars were up about 5%. We saw strength across the board, driven by mid-single-digit gains in our largest categories, packaged beverages, general merchandise, candy and lottery, where the $1.9 billion Lotto jackpot did help to drive traffic and transactions. Total food and beverage sales were up 2.7% in the third quarter. Margins remained pressured, though, down 2.2%.

At QuickChek, we continue to focus on price and value for our customers, which is propping up sales and traffic and translating to better performance across the rest of the store. Excluding food and beverage, total non-nicotine sales and margin at QuickChek were both positive for the first time in 2025, up 3.1% and 5.8%, respectively. Of course, merchandise sales do not happen in a vacuum. To grow sales and effectively execute promotional opportunities, the store has to look good, be well stocked and in functional working order, in addition to being properly staffed. Yet per store operating expense was only up a modest 2.8% in the third quarter or 5.6% on an absolute basis, 2/3 of which is attributable to new and bigger stores.

So we continue to enforce restraint in our expense profile, controlling what we can control to ensure the network is running as efficiently as possible. We are making significant strides in reducing loss prevention year-over-year and holding labor expense steady, which is helping to reduce our overall cost structure. Bottom line, Murphy USA is performing at a fundamentally different level than it was in the prior trough due to the capabilities we have built and our ability and commitment as a management team to make the business better. As a result, we are improving our competitive position through best-in-class promotional execution and relentless discipline around maintaining a low cost structure, both at the store level and the home office.

I am highly confident in the resilience and durability of our business model. And as noted in the capital allocation update we released in conjunction with our third quarter earnings, we are taking action to strengthen shareholder distributions and help maximize shareholder value as we navigate towards the next peak in the cycle.

First and foremost, we remain steadfastly committed to new store growth, primarily through our acceleration of our new-to-industry store program to 50-plus stores and opportunistic supplementing organic growth with small-scale M&A opportunities as they arrive.

Second, we have received board authorization to begin executing against a new $2 billion repurchase program through 2030 once we close out the remaining $337 million on the existing $1.5 billion authorization.

Third, we expect to continue to grow the dividend payout 10% annually starting with an additional 10% increase or $0.63 per share for the dividend payable on December 1 of this year.

Lastly, we will explore other reinvestment opportunities in the network to help improve the customer offer and reinvigorate the same-store base while maintaining a leverage ratio at or below 2.5x for the long term.

I'll close out my comments with a little color around October's performance. Preliminary October fuels results continue to reflect the strong fundamentals I mentioned earlier, despite the transitory impact of low prices and low volatility. Average per store month volumes are running 98% of prior year at retail-only margins approximating $0.32, exhibiting resilience amidst an otherwise lackluster price profile.

Here is another important takeaway for October. Even at these lower absolute price levels, when we saw prices fall early in the month and margins ran up to the mid-$0.30 level, we were able to put some of that on the street to create separation against our peers. And in that environment, we saw volumes at about 100% of prior year. The run-up in prices towards the end of October mitigated some of that impact, resulting in slightly lower volumes. But the point is, the team is executing extremely well against our strategy and the fundamentals are supportive when a little volatility in margin shows up even if only for a brief period.

So that business is behaving as we would expect and October results reflect underlying strength that would be even more apparent in a higher price, higher volatility environment. With October largely behind us, we do have a higher degree of confidence in our 2025 guidance metrics, which we updated in our earnings press release.

So I will now turn the call over to Donnie.

Thanks, Mindy and Andrew. Starting with our new store development program. We are continuing to make excellent progress. During the quarter, we brought 8 new stores into service, along with another 11 raze-and-rebuilds, bringing the year-to-date total as of September 30 to 22 and 20, respectively. In Q4 2025 and Q1 of 2026 combined, we expect to open roughly 40 new stores, all of which are currently under construction. This figure includes a small package of 4 stores we purchased in the Denver market that should be opened by year-end, an example of an opportunistic small-scale real estate play in an attractive market where we want a bigger presence. This gives us line of sight to at least 45 new store openings in 2025 and as we continue to grow the new store pipeline, positioning us for 50-plus stores in 2026 and beyond.

For fuel volume, we expect 2025 volumes to come in below the low end of our original guided range, which was 240,000 to 245,000 gallons per store month. Year-to-date through the third quarter, average per store volumes are approximately 236,000 gallons per month, reflecting both the Q1 storm impact and the lower relative price sensitivity of customers in a low absolute price environment as we have discussed in previous calls. Based on current trends and our expectations for the remainder of the year, we're adjusting our full year fuel volume guidance to between 235,000 to 237,000 gallons per store per month.

For merchandise contribution dollars, as previously discussed, third quarter results highlighted the strength of our promotional engine, causing us to tighten our full year guidance at the upper end of the range to between $870 million and $875 million.

On the expense side, if you've seen us on the road over the last 6 months, you've probably heard us talk about self-help and how we're actively managing our costs and driving savings across the organization to help improve performance amidst the challenging fuel environment. Our efficiency initiatives continue to demonstrate benefits as evidenced by the new labor model we rolled out in the spring that has helped ensure we have the right people in the store at the right time, which is also controlling labor costs and reducing overtime.

Similarly, we are seeing benefits in loss prevention where in-store training and other investments have paid dividends through reduced shrink. Collectively, these efforts are making an impact, resulting in a lower projected monthly per store operating expense range of $36,200 to $36,600 per store month, down from our original guided range of $36,500 to $37,000 thousand per store mine.

On the home office side, as noted in the press release, we completed an organizational restructuring during the quarter, which will help streamline our workflows and processes and eliminate technical redundancies while preserving our agile, data-driven decision capabilities. As such, our 2025 SG&A guidance range is being adjusted lower to $230 million to $240 million for full year 2025, which is exclusive of the restructuring charge.

From a tax perspective, year-to-date income taxes have come in lower than planned due to some discrete state tax refunds we received and acquisition of some federal energy tax credits. As such, we are tightening the all-in expected effective tax rate to between 23.5% to 24.5% for the full year.

When you input all this into the models and used $0.30 per gallon as a fuel margin placeholder for the full year 2025 versus the $0.295 year-to-date through Q3, you should end up somewhere pretty close to $1 billion of adjusted EBITDA, which likely shouldn't surprise anyone given how we framed our original 2025 guidance in January. At that time, the midpoint of our ranges suggested adjusted EBITDA of about $1.06 billion at $0.315 a gallon. At $0.30 and about 5 billion gallons, $0.015 variance in margins would generate plus or minus $75 million, all else being equal. As we look at year-to-date performance, we have more than offset the impact of lower volumes with improved merchandise performance, OpEx efficiencies and G&A cost savings.

With that, I'll hand the call back to Andrew.

Thanks, Donnie and Mindy. And let me close out the call by thanking the analyst community and our investors for your support, your challenge and your candidness over the last 13 years. Your questions early on about a business that wasn't necessarily well understood when we spun off really pushed us to think more deeply about our unique way of creating value, allocating capital and building a flywheel that played to our strengths, helping us win with all our stakeholders. Your challenges around future potential headwinds and the sustainability of fuel margins pushed us to think more analytically about industry structure and the behavior of the marginal retailer. I can probably point to less than a handful of slides over 13 years across all our conferences and meetings where over 90% of our discussions focused around.

I would like to thank our conversations that helped to shape the broader narrative, not just for Murphy USA but for the convenience industry as a whole. Thank you for being a catalyst, a partner with us and keep pushing us in the years ahead. We'll now turn the call over to questions.

[Operator Instructions] Your first question comes from the line of Ed Kelly with Wells Fargo.

And Andrew, congrats on your retirement. So I wanted to start just on fuel margins. It sounds like the quarter is off to a good start on the margin front, rack prices have been down. But the data would suggest that's -- and I think you're telling us that maybe that's fading a bit. Any color on the cadence in terms of fuel margins so far in the quarter and maybe what you're seeing in the last week?

And then I just wanted to follow up on something that you mentioned about investment to drive volume. Obviously, you've seen some elasticity on more of the recent work. So what is that telling you about your plans moving forward in terms of putting some money on the street to drive better volumes in this environment?

Thanks, Ed. I'll take that question. Yes, as I said for the month of October, we did see a run-up in prices towards the -- we did see a run up in margin at the beginning of October. That spike kind of normalized itself as we ended the month. So while the impacts were short lived, the market did behave exactly as we would expect during that time.

And so when you talk about your questions about investing for traffic, we absolutely know on a site-by-site basis where we need to be versus our key competitors and where the right pricing position is. And so really, our margins are more a function of the slow and our volume are really more a function of just this low price environment where our customers are just not as price sensitive and are going to go to a more convenient location. It doesn't mean we leak off every trip, but assuming we may leak off 1 of every 3, 1 of every 4, that certainly starts to have an impact.

When I look over this last quarter, the thing that sticks out to me most was it was remarkable for its flatness, which really resulted in little volume or margin creation opportunities. And just to illustrate the lack of volatility as I looked at this with my analyst group a couple of days ago, post-COVID, we have never seen a quarter where every month's retail margin was pretty much exactly the same. And in fact, you can add May and June to that list because they weren't that different either. So essentially 5 consecutive months of flat margin.

So when we look at the margin side, despite very low volatility, fuel margins are remaining strong at $0.30 all in. So that's showing that even in an environment entirely unproductive and value capture opportunities or volume capture opportunities, what we managed to do was actually pretty impressive and really speaks to that structural component still being in there. And then as I said, in October, when we saw that brief price run-up, we executed, we generated the margin and volume recovery you would expect.

So what I would say is the fuel engine isn't broken. It just needs to jump start to get things moving. We saw them in October. It wasn't long lived, but we will see it again, and we will be there to capitalize on that.

Great. And just maybe a follow-up on the [ ZYN ] promo in the quarter. Obviously, a nice event for you. Can you just maybe talk about your execution of that event and what differentiates you there, the traffic benefit that you saw? And then looking out the potential for additional similar promos or events that you might see that I think you're indicating that you don't see it as a one-off. So just more color there.

Yes, great question. And we don't get into the details of any particular promotion. I'm sure you can appreciate, in any given quarter, as we say, there are dozens that contribute to our results. Some are more material than others. Obviously, this one was material. So I do appreciate your question because I think what's important about this one is it really does showcase the strength of our ability to execute for our vendor partners. This is really more about a strategic partner investing to drive share, utilizing our large and very loyal nicotine customer base. It also provided the added benefit for us growing awareness in an already growing category and driving traffic to the store and utilizing our operations, just outstanding ability to execute and deliver on a promotion.

We will expect that to continue as manufacturers are going to continue to invest and reduce risk products. And Murphy USA can be an important catalyst to that because when you think about it, we sell 5x the industry average volume. Our promotions also have about 4x the industry average upsell. So that makes us 20x more effective using their money. And we also are able to measure that halo effect of promotions because of our loyalty engine that really major in nicotine.

So when the promotions come, and they will, we're happy to execute on their behalf, and we have the engine in the store with the sales culture that is very strongly reinforced, our manufacturers know that we can deliver. So while this one, yes, was maybe a one time this year and really material impact, we certainly expect there to be other promotions throughout the sweep of time and continue to propel that CAGR of promotional dollars going forward.

Your next question comes from the line of Bonnie Herzog with Goldman Sachs.

Congratulations to all of you. Andrew, you're going to be missed. So stay in touch, but happy for you in this next chapter. I had a quick follow-on question on ZYN. You guys just raised your merch contribution guidance for the year after, I guess, pointing to the low end of the range last quarter. So obviously, expectations improved and you had good performance in the quarter. Should we assume most of that's driven from this ZYN promotion in September? Or were there other drivers that give you the confidence to kind of raise your merch contribution guidance for the year?

Bonnie, I'll take that one. It does definitely include ZYN. When we think about the first half of the year, the timing of cigarette promotions and also the Lotto jackpots resulted in comps kind of below our expectations, which we talked to in the last call. Those did turn around in the second half. Obviously, this one promotion was part of that. But also one key data point I'll share. Nicotine pouch volumes were growing around 45% in promotion. In October, we have seen that jump to 120% of prior year volumes, and we will likely see that halo effect continue on into November.

And also, just as importantly, noncombustible nicotine products have fully offset our decline in cigarettes, but it's also not just a nicotine story. We have seen growth in the center of our store categories, as I said, up 5% in margin dollars, and importantly, also saw strength across the board. It wasn't just in one place. It was in packaged bev, it was in general merch, it was in candy. So I think that highlights the underlying strength of our offer in addition to the nicotine.

Bonnie, one thing I will add here is if you think about some of the investments we talked about a year or so ago, our digital transformation initiative and the expected impact on sustainable center of store growth, we're seeing all that benefit, and we've been seeing it for the last few quarters. The relaunch of QuickChek Rewards driving food and beverage same-store sales growth there and investing in value through that advanced program suddenly driving the food and beverage, but also the center of store. So these are some of the investments that we've highlighted over the last couple of years that in this environment are really flowing through across categories. So it's just coming together in a really nice way.

Okay. That's helpful. And if I may, I wanted to ask about capital allocation. You raised your quarterly dividend by an impressive 19%. And the Board also authorized a new share repurchase program. So it does seem like you're increasing returns of cash to shareholders. So how should we think about that relative to your ability to grow the business? I mean, should we assume growth moving forward might be more moderate and maybe you're seeing a bigger opportunity to return more cash to shareholders versus reinvesting? Just any color there would be helpful.

Yes, Bonnie, let me take this one. When we say our 50-50 capital allocation, I mean -- we mean 50-50. We've done strategic work over the last couple of years to test the bookends of that. And we're really confident at that level of balanced capital allocation that makes sense.

If you remember, when we initiated a dividend 4 years ago, we benchmarked it against peers at about a 0.67% yield. We haven't kept up with that yield because of the outstanding share price performance. And so with this auto pilot program, where the cash pools raised 10% every year and the quarterly dividends simply then a function of the shares outstanding, we simply took this as an opportunity to increase that, to bump up the yield for long-term investors who are holding the stock, especially when the stock is a little bit in a trough. If you think about the incremental $4 million from that extra 10% in the pool, that's one store, right? And we're going to more than make that up given the growth pipeline that we have in front of us.

The other thing I would note, the bonus depreciation benefits that we're going to get from the One Big Beautiful Bill is over 10x that amount, and that's going to go back into reinvesting in the stores, whether it's remodels, maintenance programs with dispensers or future raze-and-rebuild growth in out years. So the dividend is just simply a way to recognize long-term shareholders holding the stock.

When we model out the business at the 50 store a year growth in a normalized environment, we're generating significant excess free cash flow in years in the future that more than allow us to do that, take care of the balance sheet, take care of the share repurchase program. And so as we complete the end of a $1.5 billion program, we heard loud and clear from investors, it's really important as you think about the transition to be just as clear about future strategy and capital allocation. So it's really important to send this message at the same time that we're committed to this balanced growth and returns to shareholders, and we'll continue to maintain that balance as well as our conservative balance sheet.

Your next question comes from the line of Irene Nattel with RBC Capital Markets.

I'll echo the congratulations, Andrew, and it's been great. Just a couple of follow-up questions, if I may. You talked about the halo effect on in center of store of the ZYN promo. If you kind of dissect out the transactions from those -- from the customers that benefited from the promo versus those that maybe didn't because they just don't use nicotine, was there any difference in consumer behavior? I guess in other words, how much was the growth really just a halo from the promotion versus the rest of the customer base?

I'm not sure, Irene, that we're fully able to parse that out. But what I will tell you is that the uptake for the ZYN offer were largely customers that were already coming in there to purchase another nicotine product anyway. So it wasn't necessarily an extra trip or incremental traffic that we were driving. It was just kind of an and to a visit they already had.

So I think that, that speaks well to the center of store because I think that, that category was increasing on its own, and we would have seen that even despite the nicotine promotion. Obviously, the Lotto jackpot helps us as well because we know that, that also is a factor that can drive an incremental trip into the store. But for the ZYN only, I would say that there may have been some secondary impact on center of the store, but I think it would have been very small as those customers were in the store to buy nicotine anyway.

Yes. And one thing to add to that, Irene, is we talked about the temporal effects of the lottery and the nicotine promotion in the first half of the year, we are reporting a really strong Murphy only center of store activity in the first half of the year. So this is many -- says, this maintains that momentum. It offsets the temporal effects for the first half of the year. And when you look at it over any 12-, 24-month period, it's a really steady cadence despite some lumpiness from quarter-to-quarter that we saw this year.

That's great. And then coming back to the whole capital allocation discussion. I'm wondering what level of EBITDA or free cash flow underpins that $2 billion program if you want to keep your leverage at around 2.5x., because if we kind of look at current consensus numbers and we assume that 50-50, the $2 billion implies about $400 million a year over 5 years, let's say. And it's a little -- you're kind of getting a little tight there.

Yes. So we'll lean into the balance sheet, as we've talked about, in '26, '27 with the cadence of the new stores and the expectations from those which are ahead of our projections in terms of returns. We expect that to turn the other side. So just like we did with the $1.5 billion program, we gave ourselves 5 years to do it. We're completing it in just a little over 3, given ourselves 5 years to do the $2 billion at current equity prices. We can see ourselves doing that quicker as well.

So you're right, it gets a little tighter. We've always said we can go over 2.5x. Our covenants aren't hit until 3x, 2.5x is a longer-term target that we expect to stay within. So if we bump above it for a short period of time to take advantage of some downward pressure, we'll absolutely lean into that and the balance sheet that we've established.

Your next question comes from the line of Pooran Sharma with Stephens Inc.

Just wanted to say, hey, congratulations, Andrew. I know we'll probably interact a few more times here, but wanted to say it's been a pleasure working with you and wish you nothing but the best in the future. Absolutely.

My first question, maybe just for Mindy. Mindy, you've talked about how you've been with the company really from the beginning. And I just maybe wanted to focus on your prior positions. I mean I think you held the CFO role. You were put into the COO role. Can you maybe talk about how that kind of prepared you or how that has prepared you to take on the CEO role coming this new year?

Great question. And you're the first one that's asking that. So I'll be thinking through my response here. I think I have a great background for this role. One, I grew up in this business, so very familiar with our culture and the way that we do things and the way that we work.

Through the CFO lens, especially at [indiscernible], Andrew and I got to take this company public. And so we're taking public a company that existed within a subsidiary of a subsidiary of what used to be a fully integrated oil and gas company that was investment grade. So it kind of got to incubate under that environment in a very entrepreneurial way, which was fantastic.

But obviously, when you think about taking something public, suddenly you need to have a lot of discipline. You need to have guardrails in place. You're now no longer investment grade, so every penny matters. Everything that wasn't material in that business before, now suddenly became material. So that gave me a great basis for what does it take for a public company? What do we really need to care about? How do we manage our performance? How do we make commitments to our shareholders and keep those and at the same time, balance our growth prospects and ambitions with maintaining a very solid and resilient balance sheet?

So I think from the financial aspect, I have that pretty much down. I don't remember exactly what year it was that Andrew decided to add fuels to my CFO role. I want to say it was around 2017, 2018. And so that got me a real feel for one of the main engines of growth within this company, one of the main drivers of EBITDA fuels. Obviously, a very complex department as well. And so that gave me some exposure to some of the more commercial aspects of the business, especially the main commercial aspects of our business. So I got to season in that for a while.

But then when you think about, okay, what was missing, it was really that connection with the customer because I had never done anything that was business to customer. It was only business-to-business from the commercial side. So bringing the COO role underneath me gave me one exposure to what we sell inside the store, so the merch category for the first time, but also a real understanding of the mission that we are serving for those value-conscious customers, how much they really count on us to be able to get through their lives on a month-by-month basis.

And so that experience really rounded me out because now, I understand absolutely the financial discipline side, I understand the commercial aspect side, but I also understand that connection with the customer and also the connection with the staff that is actually serving that customer and how much we absolutely expect from them and how we need to make sure that whatever we do, we're simplifying their ability to serve our customers every day.

So hope that answers your question. That's the first time anyone has ever asked me that, but I think that, that all 3 of those roles really did serve to round me out and prepare me in this journey to become CEO.

Yes. No, absolutely. I appreciate the color there. I guess on my follow-up, maybe just wanted to focus on costs. I think in the past, we're following a peak margin environment. You've been known to focus on costs and take them out. And so with this earnings release, we saw a reduction in store OpEx and SG&A. Just wanted to get a sense of how much opportunity is there ahead? Do you see like a good amount of opportunity to take out cost in 2026 and 2027 if you need to? Just wanted to get a sense of potential magnitude there.

Obviously, this onetime restructure with order of magnitude far above what we would be able to do in the future because this was intended to be kind of a onetime reset of SG&A costs. But look, we're going to continue to optimize our business. So what you saw at this restructure, we streamlined our operations to scale the business properly and to force us to do more with less. So we've now made us leaner, but I think now we're uncovering opportunities, identifying what are those other opportunities for automation, for consolidating resources where it makes sense to streamline the workflow, to look at some of the overlaps in the business where we're not as efficient as we could be. So now that we've become leaner, I think the next step is how do we get more efficient. And so I do think that there is more to come there.

And then we're going to continue to optimize the performance of our existing store network. I think we're off to a great start with our store productivity excellence initiative and other ones. And so we will continue to hold the line on costs. It's obviously really important now when the external macro environment for fuels is a bit of a challenge. But it also will reap benefits for us in the future when that does turn around and does normalize because we will be able to bank more of that extra margin because of the efforts and diligence that we're applying now.

So do I think that it's going to be order of magnitude in a one time, one sell swoop, what it was in this quarter? No. But there are certainly plenty of opportunities that we already do see, and I'm sure we'll uncover new ones as we go forward.

Your next question comes from the line of Bobby Griffin with Raymond James.

My congrats to both of you guys as well on the new roles. Andrew, it's been a pleasure to work with you and get to know you over the last years. And Mindy, I look forward to continuing the relationship.

I guess, first, I wanted to circle back. It was a comment in both of you guys' prepared remarks, and it's the nicotine promo CAGR over the last 5 years, I believe, 12%, which is pretty notable on a 5-year basis. And during that time, we start to see the evolution of the nicotine category with alternate nicotine.

So I'm just kind of curious, as you think about that type of environment over the next 5 years, what does the change of the category and the composition of the category would alter nicotine due to that type of opportunity from promo dollars? Is altering nicotine going to, in your view, be accretive to that, make it look even better or less? Or just kind of curious how you think about that changing of the category.

Absolutely, Bobby. Yes, we look at that as an opportunity because we own that customer. We know that customer better than anyone. And so again, just to our knowledge and ownership of that customer, along with our ability to execute, along with our loyalty program which majored and nicotine, we are ideally suited to help the manufacturers move those customers down the risk spectrum and incidentally moving them into what are higher-margin products. So we would absolutely expect that to continue because they get a great ROI. They know what they are getting when they invest with us.

Yes. Bobby, I think back over the last 13 years, and some of the things that have surprised me the most and someone who pays attention to industry structure and how that influences performance and competition, I think about the tobacco category, it's a fairly concentrated industry amongst the manufacturers. And you can put the packaged beverage companies in the same category, yet the amount of innovation we've seen over the last decade is phenomenal from what you would expect to see in a concentrated industry, right?

So you're seeing this continuum of risk introduce new products. You're seeing the different players making investments. Some working, some not working as well. Making acquisitions, some working, not working as well. And there's actually pretty good competition amongst those players. And as they introduce new products, new brands within those products, et cetera, part of their go-to-market strategy has to be through retailers who can get their product in front of customers. And on the nicotine side, as Mindy noted, we're the only retailer in the space who intentionally build a loyalty platform around the nicotine category. And so the benefits that we're able to provide to these manufacturers who continue to innovate, which we are very thankful for, I think is just going to continue to evolve.

There's also a lot of upstarts in the category, right? So as others try to get a toehold into nicotine pouches where the top 3 players might control 90%, there's companies out there that want a shot, and they just have to look at packaged beverage like energy drinks to see well, Celsius was one of those small players. And you know what, they finally got a toehold in the category. So there's a lot of Davids out there looking at the Goliaths, and they, too, realize the only way they can get the customers' attention, right, is going to be through the broader capabilities we have, especially the store upselling capabilities because they're not going to get the preferred shelf space where the customer can see it in the back bar, they're going to get it because of the upselling.

So I'm really excited about the future of these categories, but even more excited about our capabilities as we continue to hone them for both packaged beverage and nicotine providers.

Very good. That's helpful. And I guess lastly for me, when you think about the $0.02 that you guys referenced, a margin on the street to help drive volume, and the potential of that going away where you could keep it or not have to do that, is that purely just a volatility pricing environment returns to "more normal," or is there also a competition aspect in certain key markets for you guys that is basically independent of the underlying commodity environment? So that would actually have to behave differently, too, for you to be able to get those $0.02 back.

Well, I would say yes and yes, kind of. So when I think about your first scenario, it's really more a function of just this low price environment, especially given that we're sub-$3 because prices do matter. People just, for whatever reason, are just not as price sensitive, are not willing to go across -- drive across town to save $0.02 a gallon when prices are below $3 versus above $3. So really, the phenomenon that would need to change would be the overall price profile being higher.

With regard to competition, that obviously has an impact, especially in key markets where we're seeing competitive intrusion because really good competitors are going to act the same way that we do when we go into a new market, which is the price load to gain share. That's not actually irrational, that's a very rational thing to do. And what happens is when everybody gets their share, then everybody raises prices and plays nice.

So over the sweep of time, that doesn't have an impact, but in certain key markets during certain months, absolutely. But we disrupt the market in the exact same way when we open our site. So that's why I say, yes and yes, kind of because, yes, there will be a competitive response for those new-to-industry sites, but it only lasts for a few months for just a short period of time.

And Bobby, the only two cents I would add there, no pun intended, is -- and we've always seen competitive entry. And I think what we're seeing now is just kind of more isolated in locales, as Mindy said, that dissipates. It's not like there's the big play like where Walmart rolled out so many neighborhood markets in a period, and you saw that effect more at scale.

I think another thing when we talk about peak to trough, fundamental difference between, I would say, kind of the low price trough we're in now versus the one post 2014 is when we had $0.16 all-in margins and you had significantly lower margins after your variable cost, putting $0.01 or $0.02 on the Street was a significant, much more significant part of your available gross margin. And so if you go back to those periods, the volume impact that we witnessed is significantly more impactful than what we're seeing now. And so in this type of environment, you can put $0.02 on the Street because partly, you're getting a couple of cents every year from the structural dynamic that happened then, but not at the same level of inflection. And at $0.30 margins, the variable margin that's left is significantly greater. And so it's much more beneficial to maintain that volume, even if it's at 98%, 99%, no one in the higher price, more normalized environment, the customer goes back to their more normalized behavior and you get that back.

So those are the kind of trade-offs, and I'd say this trough, we're doing much better than the prior one for a whole set of reasons. But part of it is the fact that the higher structural margins we're enjoying allows us to make some different decisions with respect to price-volume trade-offs.

Due to time constraints, our final question comes from the line of Jacob Aiken-Phillips with Melius Research.

I guess congrats is in order to all 3 of you given the next -- you've taken a new step in your professional journeys. So I guess to start off, a little bit more on fuel. I'm curious. The run-up in early October, were you also putting a couple of cents back on the street? And can you give a little more color on what drove the increase in October?

Then also the updated guidance seems to imply that you'll have positive fuel gallons and maybe positive same-store fuel gallons in 4Q. So any thoughts generally on that?

Yes, I'll take that question, Jacob. Thanks for your question. The tightness in the market was due to a refinery that was briefly offline for a week or 2. But in a well-supplied environment, it all normalized pretty soon. The pipeline was reversed in order to get product back up into the Midwest. And so it ride itself quickly.

But during the course of those couple of weeks, that was literally the most sustained run-up that we had seen in a while. So that allowed the market to completely restore. We restored with it, which then allowed us to create some separation and essentially achieve some really nice margin and get 100% of our volume.

Carrying that forward, I can't extrapolate that into the rest of the fourth quarter because we really haven't seen that yet. I was just giving that as an example of when we do see that happen, we are able to respond. The market is also responding in the way that we would expect it to, which will then allow us to create time periods in which we can get outside margin and as well as volume. But this past quarter was just essentially flat, which we've always said is the worst environment for us from a fuel standpoint. We did see some pickup in October. I hope we see it going into Thanksgiving. That would certainly be nice to carry some high margins over the holiday period. But not ready to extrapolate the rest of the quarter that we're going to be at 100% of last year's volume.

Got it. That's helpful. And then sorry to ask another question on capital allocation. But you reaffirmed the 50-50 and the share buybacks and increased the dividend. I'm just curious, it seems like you're trying to accelerate new store growth to 50 plus next year, maybe some accelerated R&Rs and perhaps some other remodels or other smaller projects. So I'm just curious how we should think about CapEx next year? And if that number is elevated, should we expect repo to be up or is that more balanced over the next few years?

We haven't given our CapEx guidance for next year, and we're finalizing our plan on that, certainly as part of our ramp to get to the 50. This year, we had real estate that goes into that. So one of the things we're clearly looking at is the trade-off between more raze-and-rebuild versus remodels and maintenance programs. We do expect significant bonus depreciation benefits from One Big Beautiful Bill, that can actually address a lot of that incremental capital that we're talking about and using those tax benefits for reinvestment. And as we said on the share repurchase, we'll continue to be disciplined and also opportunistic on that given we've got the balance sheet we can lean into should we want to take advantage of particular opportunities.

So we look at this like anything over a 3- to 5-year period, not just the next 12-month period. And that's why we remain very bullish about the business as we think about where we're going to be, '28 to 2030, where we view the fuel margins to normalize, where we look at our store count, where we look at EBITDA and look where the outstanding share count is. So we expect to see attractive returns, both on new stores to reinvestment capital as well as the share repo over that period. And we'll be back -- actually, Mindy will be back in February with the guidance for 2026, which will include that capital.

So I think this wraps up today's call. I've enjoyed these earnings calls. I talked to CEO peers, they kind of speak to me, oh my gosh, we got our earnings call coming up or we've got the investor meetings or whatever.

Spending time with the analysts and investors has been one of the most fun parts of this job. We've had an incredible story to tell. We've had incredible people to tell the story with. We have an incredible talented group of team members that actually live the story where we get to be the chief storytellers, and we're really proud of that, but also the capital allocation discipline that we know investors care about.

And I think this message coupled with continuity of leadership with Mindy succeeding me and clearly knowing the business and the people and the team and how we create value and our capital allocation approach positions this company in excellent shape for the near term as well as the longer term.

I look forward to seeing some of you on the road or one-on-one calls as we kind of wrap up some year-end investor discussions. And thank you again for supporting Murphy USA and me as CEO during this tenure. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA Second Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Christian Pikul. Please go ahead.

Yes. Good morning, everybody. Thanks, Jennie, and thanks, everyone, for joining us today. With me are Andrew Clyde, Chief Executive Officer; Mindy West, Chief Operating Officer; Galagher Jeff, Chief Financial Officer; and Donnie Smith, Chief Accounting Officer. After some opening comments from Andrew, Gallagher will provide an overview of the financial results and performance against our 2025 guidance metrics. And then following some closing comments from Andrew, we'll open up 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 and -- 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, and -- 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. And with that, I'll turn it over to Andrew.

Thank you, Christian, and good morning, everyone. Second quarter results largely reflect the trends previously disclosed in our operations update covering second quarter's performance through May. Fuel prices continue to be range bound despite remarkable geopolitical events, and we remain in a lower price, less volatile environment. Together with lighter cigarette promotional activity and lower lottery jackpots -- this translated to modest pressure on customer traffic, and you can see that in Q2, same-store fuel volumes were down 3.2%, ahead of OPUS volume levels reported that noted weakness in demand. .

July volumes have rebounded and are currently running at 100% of prior year levels with a couple of reporting days left in the month. While these trends reflect an environment on the low side of what we would call normal, there are definitely bright spots that may get obscured in the current environment, which should result in significant performance uplift when conditions normalize. Galagher will review the 2025 outlook shortly, but it's worth emphasizing a few things that we are excited about.

First, while cigarette volumes remain pressured, noncombustible nicotine categories are growing at a rate that fully offsets the decline in cigarette margins, which is remarkable as this category represents only 30% of total nicotine margin contribution. With an uptick in July promotional activity on cigarettes around the fourth of July, we believe a more robust second half cadence will be supportive to stronger nicotine category growth. Moreover, we view FDA Commissioner Dr. Mark has forceful comments about illicit vapor and synthetic Cragun crackdowns earlier this week is very positive. Second, unlike many of the public QSRs reporting sales declines, average per store month food and beverage sales at Quick Check have been positive for the third straight quarter, underscoring our value offer and ability to drive traffic to our stores.

Investing in traffic and transactions versus taking excessive price increases in the current environment will pay dividends later when food costs subside, resulting in both sales and margin growth going forward. Third, supporting sales and contribution on both brands are the digital initiatives that are creating value for their customers. For MDR, we saw a 31% increase in new loyalty enrollments for the quarter and an 11% increase in merchandise transactions. In fact, if you remove cigarettes and lottery from the mix, Murphy only merchandise contribution increased by 8.9% for the quarter, led by strength in candy and packaged beverages. Both categories where we are seeing price increases across the industry yet our ability to deliver value to the customer and CPG firms is yielding positive results.

At Quick Check, the revamped loyalty program has seen mobile orders double since the relaunch and 35% of in-store pickup items included additional sales inside the store, averaging $7 per transaction. We've also seen a meaningful shift in the full-time to part-time labor mix at QC as part of our demand forecasting digital initiative. Fourth, a common theme across today's call will be that when merchandise contribution is pressured which it inevitably will be from time to time, we are able to maintain store profitability from operating cost improvements, a hallmark of our corporate DNA since our 2013 spend. The current quarter is no exception, where we saw improvements in overtime labor rates, loss prevention and maintenance. These improvements are complemented by home office efficiencies that are driving our G&A lower.

Fifth, in a relatively more challenging environment where we can sustain store profitability, retail fuel margins are proving even more resilient than we would have thought. We saw retail margins up 50 basis points in 2024 and year-to-date, we are seeing an 80 basis point improvement, along with an additional 13 basis points from lower credit card fees. This reinforces our view that industry headwinds are translating to higher retail margins over time because the marginal retailer is unable to sustain their profitability without taking up price on fuel.

Furthermore, our street pricing on average in Q2 was $0.01 more aggressive, supporting weaker demand which further reinforces our view that in a more normal price and volatility environment, we would likely see further bottom line margin improvement.

And last but certainly not least, we are really excited and encouraged by the quality of our new store pipeline and construction underway, which is poised to deliver 50 stores over the next 12 months. While we have not met our commitments and expectations on the timing of store months individual store performance for all the most recent build classes are performing well above pro forma. Galagher will provide some more details around that program. So let me turn it over to him to provide some updates on our 2025 guidance before returning to discuss our longer-term potential.

Thanks for the handoff, Andrew. Building on your comments. I'm going to discuss our progress against our 2025 guided metrics. Starting with fuel volumes. First half volumes were down 3% on an average per store month basis, which after adjusting for temporal issues we referenced in the first quarter call, translates to down 2% on a normalized basis. Given first half performance is tracking slightly lower than our expectations, our second half outlook incorporates a market neutral view at by continued low volatility and does not account for anything exceptional that may occur, such as supply shock followed by dramatically falling prices. .

As such, our outlook for the second half suggests volumes could fall slightly below the low end of our annual guided range of 240,000 to 245,000 average per store month. As Andrew mentioned, Gila fuel volumes are running at 100% of prior year. For merchandising contribution margin, we're seeing a similar impact from a slow first quarter. With headwinds from 2 of our largest categories in the first half, cigarettes and lottery, we also expect to be within but toward the low end of our guided range of $855 million to $875 million. It's important to remember on an average per store month basis, Q2 merchandising contribution at Murphy USA branded stores are up 8.9%, excluding the headwinds from cigarettes and lottery.

This speaks to the underlying resilience we see in the Murphy customers and broader center store categories. In this demand environment, we are actively managing our costs and driving savings across both store operating expenses and home office costs. Our initiatives to improve store-level operations are showing results. and we expect store operating expenses to be at or below the low end of the guided range of $365,000 to $37,000 per store month. Therefore, from a store profitability perspective, due to sustainable and structural improvements we are making to the business.

On a net profit basis, we are seeing higher operating contribution dollars per store, not lower. This stronger coverage ratio reinforces the competitiveness of our Murphy business model and increase our ability to generate free cash flow. In addition to our operating expenses, we've also made progress optimizing our home office spend, which has resulted in total corporate SG&A also trending below the low end of our guided range of $245 million to $255 million. The effective tax rate in the first half was 22% due to a combination of excess tax benefits related to equity compensation, and recognize benefits from federal energy tax credits reflected in first quarter results.

We expect second half all-in tax rates to be within the guided range of 24% to 26%. And resulting in a full year tax rate at or slightly below the low end of guidance. I'll close the 2025 guidance update with 2 related topics: new store growth and our capital expenditures. We put 14 new stores into service in the first half, along with 10 raise and rebuild stores, followed by 6 more raze-and-rebuilds opened in July. I'm pleased to report that new store construction activity will remain robust through the end of this year. with the pipeline in extremely solid shape to deliver accelerated store growth this year and beyond.

40 new stores and 8 raise and rebuilds are currently under construction, and we're positioned to start construction on an additional 10 new stores. over the next 45 days. Given any unanticipated supply chain shocks or jurisdictional delays, that means we expect to open around 40 new stores in 2025, up from the 32 stores opened in 2024. More importantly, we have over 45 NTIs in construction in Q3, resulting in a robust end of year delivery and a great start to 2026, where we do expect 15 to 20 additional new store openings in the first quarter of 2026. Accordingly, our 2025 capital plan remains largely intact, and we expect to remain within the guided range of $450 million to $500 million.

Looking past 2025, our new store pipeline continues to grow and accelerate with 90 stores already in design or permitting and over 50 more in contract negotiations. We believe these new numbers and momentum reflect our newly refined store development capabilities and will allow us to increase our NTI delivery capacity in 2026 and beyond. I will close with a brief comment on share repurchase. In the second quarter, as noted in our release, we repurchased 471,000 shares, bringing our year-to-date repurchases to nearly 900,000 shares. Share repurchase remains the highest and best use of our free cash flow. -- and we expect to remain active repurchase of our shares going forward. We will continue to take advantage of the currently misaligned views between investors and management with respect to our ability to drive future value creation for Murphy USA shareholders. And now I'll turn it back over to Andrew for closing comments.

Thanks, Galagher. That's a great perspective on our '25 outlook. Referencing our longer-term value creation algorithm and in particular, Slide 10 of our most recent investor deck, we remain bullish on our ability to create value for long-term investors. We remain well positioned to continue to sustain and improve our near-zero fuel breakeven margin with a focus on overall store profitability, addressing merchandise headwinds with operational and overhead efficiencies and growing categories with our vendor partners with the right mix of pricing, promotion and digital activities.

With advantaged nonfuel profitability per store, we expect to grow EBITDA on a CPG basis as we keep more of the increases we are experiencing in retail fuel margins. And as we bring on more new stores that enhance returns and higher volumes per store, growth in total volume provides the free cash flow to deliver our 50-50 capital allocation strategy that has proven to be a winning formula with shareholders. And we also believe EPS will be further enhanced through our tax optimizing strategies.

When I think about some of the conversations with investors over the past few months, these discussions remain rooted in the long-term potential of our business, particularly in connection with the $1.3 billion EBITDA potential we set for 2028 and which we have included in our investor presentations beginning in 2023. This figure was a single point target that represented in our view, the potential of our business based on a set of factors in a normal environment, some of which are within our control and some are outside of our control. Since then, our progress against some of these metrics have been slower than anticipated, as we have shared with you during prior earnings calls and investor conferences, while some other metrics have been realized ahead of our expectations.

So let's take stock and review our progress against this target. It was predicated on 4 distinct drivers. First, NTI growth approximating 50 new stores annually starting in 2024. Two, continued upward pressure on equilibrium retail margins approximating 30 to 40 basis points annually. Three, sustaining the higher rate of merchandise contribution growth we experienced in 2022 and 2023, which was about 7% annually. And last, number four, continued operational improvements to make our business more competitive which is the legacy of our history as a public company.

Together, in a normal environment, these resulted in a 5-year view of a little over $1.25 billion in EBITDA, such that another $0.01 of fuel margin would yield $1.3 billion of potential EBITDA we referenced. Starting with nonfuel performance on existing stores, we are about $20 million behind our expectations for 2028. The largest driver is a quick check, where older nonfuel stores have been impacted the most from the QSR value wars, while food and beverage margins have been hampered by cost inflation and overall weakness in the Northeast traffic has been persistent impacting center store performance. As we look beyond 2028, these older nonfuel stores are coming off lease, and we expect food margins to stabilize as we continue to drive traffic on our high-volume fuel stores.

Murphy branded merchandise contribution was also lower, reflecting the compounding of delays in some of the center store initiatives last year and cigarette weakness this year. Offsetting a lower base for compounding on the top line and contribution margin growth as better-than-expected operating costs and SG&A costs, both in terms of what we have realized to date and what we were highly confident ongoing initiatives will deliver, which will also then deliver compounded benefits from a lower base.

Moving to new stores. We are also about $20 million behind our expectations for 2028 due to fewer store months. While the fewer store months creates a drag on fuel volume and merchandise sales, it is offset by lower operating cost and rent but more importantly is the offset from new stores that are performing better than our plan. Turning to fuel at existing stores. The shortfall we have seen in same-store volumes is offset by higher fuel margins and lower payment fees in our forecast. We expected and continue to expect PS&W's net of RINs to normalize between $0.025 and $0.03 per gallon with a more balanced supply-demand outlook. Based on current market and competitive dynamics, we would expect retail margins to improve about $0.005 per gallon per year slightly above what we had in our original plan. These updated assumptions generate EBITDA potential of around $1.2 billion in 2028.

We also expected and continue to expect to see more normalized fuel prices and volatility levels such that we can claw back an extra $0.01 per gallon, where we have been more aggressive to sustain volume in a much lower price environment over the last several quarters. That penny would get you back to the original $1.25 billion plan for 2028. And if the environment yielded an additional $0.01 above and beyond that, we would realize close to the original $1.3 billion figure. No matter what 2028 EBITDA ultimately turns out to be in a normalized environment where merchandise contribution offsets OpEx growth and volume pressures are abated at higher fuel prices we expect incremental benefits on retail margins in addition to the $40 million to $50 million of EBITDA contribution expected from each new build class at maturity.

The trajectory of the business will look far different in 2028 versus what we see today as we ramp up our NTI program. Outside of fuel margin expectations, we have shown we can manage the puts and takes of our business and honestly believe there's more upside than downside on the merchandise assumptions given the reset baseline. Range of outcomes is and always will be primarily a function of the level of fuel margins realized. Our investment thesis as the largest single buyer of our shares every year is that prices, margins and the underlying drivers lead to a bumpy path towards a higher normalized level. and with highly disciplined 50-50 capital allocation strategy, coupled with a conservative balance sheet, we are well positioned to continue our track record of TSR growth. So with that, we will open up the call to questions.

[Operator Instructions] Your first question comes from the line of Anthony Bonadio with Wells Fargo.

I just wanted to ask about gallons for starters. Can you just talk about why trends seemingly worsened throughout the quarter and how your market share trended over that period? And then if it's an industry issue, I guess why we didn't see more retail margin growth to offset that given those poor volumes would translate to higher breakeven .

Yes. So the first thing, the trend in the quarter is partly masked by the April-May update, which had a different same-store base that we had been for the full quarter. And so where June trended around 4% down, leading to the quarter where it ended up. So there was some deceleration, but not as significant as it showed based on the April, May numbers with that different base.

In terms of where margins ended up, we see our margins not only improve but they improved at lower credit card fees and by being at least $0.01 per gallon more aggressive than we were in the past year's quarter. So I would say with that, industry margins were up in a low price environment, we typically put a little bit more on the street to hold volume and continue to drive traffic, stay top of mind with the consumer. And that's our view that when prices achieve a more normal level versus this lower level, we're able to call some of that back. .

Anthony, quickly to add. We did outpace OPUS volumes and each of our markets that we look at for the full quarter. And while June did decelerate for us, it also decelerated for OPUS. And as we mentioned a couple of times on the call, July volumes have returned back to 100% last year. .

Okay. And then just on guidance, I guess, I know you mentioned gallons sort of running below inside at the low end, but still in the range. And then you've got OpEx, SG&A running below, I guess, like net of all that, it sounds like you're more or less reiterating EBITDA, I guess, is that right? .

Well, and we don't give an EBITDA guidance because we don't give a fuel margin guidance. But yes, as you go through the puts and takes, there's a lot of offsets there. So we're on the lower end of March. We're making up for that by being at or below the better end of OpEx and G&A. And as you said, volumes slightly at or slightly below the low end -- so a lot of puts and takes there, if you will. .

Your next question comes from the line of Pooran Sharma with Stephens.

I appreciate the question here. Just wanted to get a sense of the store build looks like first half, it seemed like we were going to be a bit behind pace. And I know you've talked about getting a more even build throughout the year. But I think you mentioned still on pace for, I believe, 40. And I was going to ask what gives you confidence in hitting this number, but it sounds like you already have a lot of wheels in motion, a lot in the pipeline already. So I just wanted to ask you what's changed in your kind of store build program relative to prior years, just given your confidence talking about the next 12 months and going forward.

Well, some of those the bottlenecks at some point, if you have so many stores in the queue that have a bottleneck they're released. And so I think that's a big part, whether it's permitting or tanks or some supply chain issues. We continue to build up the pipeline. And then I think as we've talked about on the last call, there's a few things where we've taken a different view of risk and cost to make sure that things don't get delayed that are within our control. So I think when you look at the number of stores under construction, the numbers of stores, we expect to see under construction and then the pipeline beyond that for '26 and '27.

That's what gives us the confidence. There's nothing like having the shovel already in the ground to know that you're going to get that store built and whether we said before, we weren't going to get to 50 openings this year. We have well more than 50 starts. And I believe when you add what we do in January to what we close the year at, we're pretty down close to that $50 number.

Just to add a little bit. I do want to give some credit to our store development team. It's really gone aggressively looking for great sites. And our pipeline -- total pipeline now is over 250 stores. As Andrew mentioned, in the rolling next 4 quarters, we expect to open 50 stores. And the performance we're seeing is outstanding. As we mentioned on the call, since 2021, each class has outperformed their expectations, outperformed the pro forma. So we continue to see really good results from the stores that are open and now we're building the pipeline to open more. .

And I would echo that too, and I think it's tougher when you come from a lower base to generate that kind of inertia and momentum. But now that we are getting that and filling the funnel with greater numbers of projects in the queue. I think it will allow us to have some momentum to continue that type of build program in the years to follow this year and next. .

Great. Appreciate the color there. And I guess for the follow-up, just wanted to get a sense of the overall demand environment and then also the degree of cost flex and like the optionality you have in the back half of the year to offset markets. We I'm only saying this because we do see several weeks of gasoline demand from the Department of Energy down year-over-year. You did mention that you outperformed OPIS data in several of your markets. But just given the lower demand environment was just wondering if you could help us understand with a little bit more granularity what kind of optionality you have in your ability to flex your cost essentially in the back half?

Yes. As it relates to demand, look, we've said it for years in a lower price environment, there's some consumer on the margin who is not as price sensitive. -- if you find yourself in a low price environment where unemployment goes up, inflation continues unabated, and you start seeing various corporate changes, et cetera. that changes the dynamic. So it's really all about the price sensitivity of consumers and that consumer on the margin. That's why we talk about putting extra penny on the street. That's why we talk about the benefits of Murphy Drive Rewards and Quick Check Rewards as tools we have now that we didn't have when prices were low in 2015, '16 in '17. And so at some point, when you invest in a company that you see fuel margins being the ultimate driver of value and you see some ebbs and flows, this is 1 of those trough periods where volumes from the demand side are a little bit tighter. All right?

And we're going to have to be more aggressive from a margin standpoint to winning customer. I think whether it's remote work, whether it's the battery electric vehicle percent of sales changing, it's the car ownership, Cafe standards, et cetera, changing we're actually bullish on the North American fuel in 2030 and beyond as a lot of changes have taken place. As it relates to cost and optionality I think the current quarter and first half of the year is a great example of that. We've streamlined over time. If we see some lower demand, we can optimize even store hours if we have to with our unattended overnight fuel. If you see applicants more than doubling versus the same time a year ago when you see softness in the labor market, you can be thoughtful on your labor rates, especially around new employees, which was key benefit for us in the period. Loss prevention and maintenance for 2 other categories where we've demonstrated lower cost.

So there are things that you can do because of the environment. There's levers you can pull, but you never want to pull back too hard on things like maintenance because those things catch up with you in the long run. You don't want to pull back on value -- as we mentioned, Quick checks had 3 straight quarters of food and beverage growth, which is unlike a lot of the big QSRs, who pull those levers and give up a value proposition.

So we're keen and well positioned to weather a cycle of lower demand, lower prices managing it for the long run because we know in the long run, our everyday low-price value model is going to be a winning model with consumers, and we've got a balance sheet, capital allocation strategy that allows us to continue to build stores in more difficult times so that when they're up and running in the cycle shifts, you're taking full advantage of that. So we don't get too wound up about any 1-year demand picture, we're more bullish about the long-term demand.

And Flor, just adding to that, particularly about the cost side of the business, we do have multiple activities underway to improve the productivity of our store -- some of those are business led, some are initiative led. Benefits are showing up, as you saw, we're controlling OpEx to the low end of our guided range. And that's despite opening those new stores, which incur full expenses day 1 while the revenue ramps over time. So this quarter, we did see the improvement on several fronts, maintenance, labor, loss prevention, as Andrew mentioned.

And we expect to continue to be able to drive value from all of those efforts. And we know that, look, despite whatever is happening on the demand front, we know that over time, ensuring that our stores are well supplied, they're in stock, they're clean, our equipment is working. Our staff is friendly and helpful are all the ingredients and the recipe that make a successful store and allow us to be able to attract and retain the customers. So that is what we're focused on. Our operating model is 1 of the lowest costs in the industry, and we will continue to squeeze additional costs from our business to enable that EDLP strategy, as Andrew said, which is so important to our customer who needs that.

Your next question comes from the line of Bonnie Herzog with Goldman Sachs.

I had a question on merchandise contribution. You did just talk down your guidance this year, but it does still imply a healthy acceleration in the back half. So just curious to hear from you what gives you the comfort that this new guidance is achievable despite what remains a pretty challenging operating and macro environment. And then just curious to hear any specific initiatives you have in place to drive faster growth? And is your merch contribution guidance predicated on continued improvement at Quick Check.

So on the merch side, I think Gallagher and I both mentioned that if you take out cigarettes and lottery, the Murphy branded stores were up 8.9%. I mean, that's incredible growth in the context of the environment you described Bonnie. I mean we're seeing chocolate candy price increases. We continue to see packaged beverage increases. We've just taken a different approach with the manufacturers around value, helping them drive their baseload volume. And those are 2 categories, packaged beverage and candy where we showed significant upside in the quarter. Other nicotine continues to do very, very well. And where we had tobacco weakness on cigarettes in the first half because of the promotional cycle, the promotions we're running in the second half, and we've already started give us confidence around that front. .

Other initiatives that we have as it relates to getting more customer reach we had a significant increase in new enrollments for Murphy Drive Rewards. And so we've got some initiatives underway to further drive that enrollment. And we see those members baskets and frequency and contribution to the business greater than participants and nonmembers. So that's 1 of the initiatives. And we continue to have innovation on the Quick Check side in terms of our sub which is our more value offer as well as the continued success of our premium offers there.

So I would say there's just a lot of things going on. And part of 1 thing that's frustrating on the Quick Check side is we're driving the sales we continue to see some headwinds around food cost and the like. And we believe when those abate, it will be a lot easier to demonstrate kind of higher margin contribution because we won't have to go back and win back the customer because we priced and gave them value during this period, so we didn't lose them. And you follow some of the other QSRs to really struggling to figure out their price per check increases that ran off so many customers. I don't know if others have anything they want to add on initiatives.

That was really helpful. I appreciate that color. Maybe just a quick follow-up because you touched on it, is nicotine and you highlighted some of the pressures was promotion-related the first half, and it sounds like you just mentioned you have some sense of what it's going to look like in the second half. But should I understand that to mean that you feel better about the contribution from nicotine maybe being a little again stronger in the second half versus the first half? And then just wanted to hear if you're seeing any improvements with -- on that business from the so-called stepped-up efforts to crack down on illicit ES6 is that still kind of a headwind for you as well? .

Yes. No, we're definitely more bullish on second half than first half. First half, we were just comping again some really significant promotional activity last year. The -- we also had a strong Q2 comp last year as well. I'm sure you listened to Dr. Mark are a couple of days ago when he was interviewed in the morning, he said something big is coming as it relates to illicit vapor and synthetic rate. I don't know what that's something big is. I know our industry partners have been doing a funnel all-out campaign with the FDA. I was encouraged by his discussion around risk and the continuum of risk and not going to attack these broad categories broadly but really focus on the area where there's the greatest risk. So that's a very positive sentiment coming out of the FDA that we haven't heard in a very long time.

Your next question comes from the line of Bobby Griffin with Raymond James.

I guess, Andrew, first, I want to circle back on the guidance moving parts as you guys Understanding that you guys don't guide for a fuel margin. But if you were to take the range that you gave us at first and just assume the business ends up in that fuel margin range for the year, would you still generate the level of EBITDA that, that range implied? And basically, what I'm trying to get at is just to understand if the OpEx offsets are fully offsetting the merchandise pressure we're seeing in the gallons. Just trying to understand that range and the sensitivity there. .

Yes. So if you add all of that up and you have our original fuel margin range, you're going to be below that EBITDA number that was put out there and largely that's driven by right, and the impact that we had there. So OpEx is more than making up for challenges on the merch side we referenced on tobacco. SG&A is having a significant impact as well. So it's really going to be end of the year predicated on where we land with the fuel margin in the second half. But if you just adjust for Q1 and kind of the trajectory on the volume side in this low price environment, that is going to have a bigger impact than the offsetting effects that OpEx and G&A have on the merch side. .

Understood. That's helpful. And then Galagher...

And just 1 other point. Q1 PS&W being below, that's kind of we're still seeing a very long loose environment with a lot of high refinery utilization and a lot of exports.

Yes. Good point. It's nice to see that bounce back this quarter versus the 1Q I guess my second question is more near term. I just want to make sure I understand the comments. July, back to 100%. I believe that is on an APSM basis for field fuel volume, correct? And I don't think you gave any comments on just July retail margins as we typically talk about, but anything you can share with us there? .

No. It's on an APSM basis and with adjustments and these different calculations you do only at the end of the month. It's just premature to give a fuel margin number for July. We've been doing this call a week from today, we've had more confidence in that number. .

Understood.

We would expect that directionally though to be somewhere in the high 20s.

On the retail only.

On the retail-only side.

That's helpful. And I guess, just lastly for me, this really impressive OpEx performance across the P&L here. Just curious if you can unpack that a little further. Is that some timing aspects? Or is that more of the work Mindy, you and the team and everybody has been doing on productivity that we've talked about on these lower quartile stores starting to actually now move into harvest stage and flow through. .

As I said earlier, we are seeing the benefits show up in the results through both business-led and initiative-led because we're really trying to tackle on all fronts, our store productivity. So yes, I think you're seeing the fruits of those efforts come to bear. And I think that there's more that we can do. We continue to identify larger opportunities and maintenance from both incident response as well as vendor accountability, also opportunities and team effectiveness. Now keep in mind though, these benefits are going to show up in multiple ways. Some of them are going to be very difficult to attribute. What I mean by that is on some levels, we're going to have cost savings through things like doing self-maintenance at our stores versus calling in a technician.

Other things are going to be more cost avoidance -- so for example, by keeping fuel dispensers better maintained, that will result in fewer breakdowns. And then also things like customer loss avoidance. -- using fuel as an example, if we have a dispenser down at 1 of our stations, does that mean customers drive away or do they use 1 of the 7 others that are actually working. Probably, you're not going to lose those customers initially. But eventually, if that is a chronic problem, then you are going to have certain customers who are going to look at the long lines and go somewhere else.

So that's why we know that over time, we're working on the right things. It may be hard to attribute that as a financial impact quarter-to-quarter. But we know that, that is the recipe for success in our stores. And yes, I think you are starting to see the green shoots really resulting in us being able to keep our OpEx under control and within the lower part of our guided range.

Bob, I was just going to say a couple of other things. The loss prevention opportunities has been something we have been working on for quite a while and just taking a targeted more analytical approach to how we address that. And labor rate is a big thing. So with a better demand forecasting model, we shifted from full-time to part-time labor where it makes more sense with the enhanced labor model, doing the same thing at Murphy enhancing its labor model. But in an environment where your applicant flow is more than double what it was you do have the opportunity to be thoughtful about starting rates, rate increases, et cetera, as you maintain the competitiveness of your business, but stay in the sweet spot of where you want to be price-wise in the market. .

One more quick build just on your earning point. in a challenging demand environment like this, there's a couple of things you do while you try to spur demand. one, and Mindy team has done a great job in operations of you manage cost, right? We're doing that in our stores in the home office. And those are sustainable as she talked through. we're not expecting this to be a onetime effort. We're continuing to manage costs. And the second is you optimize cash, and we're spending our cash on the things that will pay off in very long term, such as the new stores and the share repurchase. But we are expecting the demand environment to come back, but we will have a lower cost structure when it does.

I appreciate the time and best luck in the second half. .

Your next question comes from the line of Jacob Aiken-Phillips with Melius Research.

So first, I wanted to talk a bit more about PS&W. Last quarter, there was a lot of focus on it. You went through like the temporal was the co-structural factors, et cetera. So you already just talked about retail margins. I'm just curious if you can speak about like why the blip in 2Q and what we can expect for the rest of the year and going forward?

I can take that one. When we look at the first quarter results, PS&W of around 1.73%, I think it was in a quarter that was really characterized by very low volatility a much longer supply environment than this quarter, although this quarter is still very long and loose. It was worse actually in the first quarter. And then, of course, we had all the storms, with hundreds of stores down. So that impacted our demand profile. So when we look at this quarter and why the difference, still a pretty well-supplied market Yes, there were higher RIN values, but there was also a correspondingly offset results in our transfer to retail. Price is 10% lower on absolute levels.

And so part of the difference between the impact this quarter versus last year. Last quarter is just the amount of length in the supply market and also the direction and movement of pricing, which impacts what we call our noncontrollables. So is the timing of pricing and inventory variances as well as the length of supply in the market was a little bit tighter this quarter versus last.

And then so on share repurchases or I guess, capital allocation, it seems like you may have like levered up a little bit or took a nonsim debt to do that level of repurchase. I understand the valuation dynamic, but can you walk through how you're like balancing leverage tolerance versus growth capital returns, given like the softer fuel volumes?

Yes. So we don't borrow money for any 1 particular purpose. We have a 50-50 capital allocation strategy. So you could have asked the question differently, and so it seemed like you levered up to get all those stores in the pipeline. So we have a long-term commitment to that capital allocation strategy. So our financial framework is geared to that. So for every dollar, we borrow 50% for growth, 50% for shareholder distribution. So don't think about leveraging up to buy shares. It's just whatever leverage we need to maintain that 50-50. And we said we'd probably be hitting the balance sheet a little bit in '25 and '26. -- and in 27, 28, 29 and beyond, your excess cash flow is going to be going in the opposite direction. .

Jacob, just to reiterate, we're very purposeful with our balance sheet. We took on some additional financing early in Q2 to make sure we had the flexibility to run our strategy for the next 3-plus years. So that strategy, as Andrew mentioned, is investing in new stores, continuing to repurchases. We've said we're comfortable at leverage around 2.5 or below. We're going to be right at 2.0 Q2 right now. So we're very comfortable with our balance sheet and gives us a lot of flexibility as we go forward. .

Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

I wanted to follow up a bit on the fuel volume trends. And I was just wondering if you could just touch on the competitive landscape. Curious if you feel like you're seeing anything different there? And then as you look at sort of the locations of stores, wondering if any difference geographically or perhaps those more co-located with Walmart versus those not so where you might be seeing any differences? .

No real differences between Walmart versus non-Walmart locations. I mean our customer behavior is pretty consistent across formats and markets and proximity to different retailers. I would say that other everyday low-price retailers experience the same thing we do from a convenience standpoint on the margin. There are some customers that may go to a more convenient store. Certainly, in some of our markets, DFW is a great example. There's just a lot of low-price retailers there, so it's pretty convenient to find the next one. So nothing really different from a dynamic standpoint and kind of big established markets where competitive entry has taken place a few years ago. What we see every year somewhere is a high-volume retailer emerging in a new market area.

And when they move in, there's greater competition. Just like when we move in to certain markets. And sometimes we move in at the same time as someone else. And so you may see some downward pressure on margins as you establish kind of the new equilibrium. And then margins are store. And fortunately, these are markets that are growing markets, which is why we're investing in them and others might be investing in them. So in any given year, there's going to be 1 or 2 pockets geographically where you see market entry at scale and there's greater competition. I would say in a lower price environment, generally, we're not the only 1 that's probably been a little bit more aggressive trying to retain customers.

That's helpful, Andrew. And as we think about OpEx and the success that you've seen here this quarter with some initiatives. Can you help us just think about -- does that take on a growing importance for you if volumes remain a bit weak in the near term? And how do you think about the opportunities in front of you on that aspect of the business?

Yes. That's a great question. Look, at the last investor conference we went to, there are a lot of questions kind of short term, long term. We just kind of got everyone focused back to Slide 10 of the presentation we delivered at the Raymond James presentation in March. And it's really simple. We run highly productive, low-cost stores. And we have a 0 breakeven target. And if we were at full ramp on our new stores, we'd be doing better than that. And it's basically the Merc contribution covers the OpEx and field in direct G&A. And so to the extent we can make improvements there, especially if we're seeing some temporal headwinds on the merchandise side, we maintained that 0 breakeven -- and then when you see a fuel margin that's being structurally resilient and growing, we're able to then with reductions in our nondirect G&A keep more cents per gallon on an adjusted EBITDA basis.

And it kind of goes back to that long-run thesis where I kind of did the reconciliation Yes, we've put an extra $0.01 or 2 on the street over the last few years in this low price environment. And so we're not even capturing the full extent of that structurally resilient margin that we're seeing. And so at the end, that EBITDA margin on cents per gallon, it's all about growing your fuel volume. And we know that we're going to see some same-store declines in mature rural markets where we may be doing race and rebuilds, but demographics are shifting.

But as Mindy and Galagher said, our new stores are performing not only at a much higher level, but much higher than our expectations and especially on a gallon basis. And so with 50 stores at ramp, we keep growing that total fuel volume on a growing EBITDA margin. That's what creates the cash flow machine this business is and that beautiful virtual cycle of then reinvesting into future growth and then having the cash flow to buy back shares, pay our dividend and any other priorities. So that's really how we think about it. And we're less worried about kind of the ebbs and flows of the cycle, need temporal effects. We've got the structural business. We've got the structural advantage because of our low operating and overhead cost with that 0 breakeven, we'll be able to keep over the long run, more of the fuel margin versus the marginal player and continue to grow EBITDA.

And Brad, well, I would say that the OpEx mathematically may, in certain cycles need to be more important. What I would hope is that culturally, it doesn't feel more important because it needs to always feel important, right? We are running an everyday low price model for our customer who depends on that and we cannot do that without underpinning that with everyday low cost. So regardless of the environment, we have to be ruthless on our cost, and it should just be part of our DNA and what we do every day. .

Your next question comes from the line of Corey Tarlowe with Jefferies.

I was just wanted to ask a question on the long term. As you think about the 2020 target that you put out, what were some of the big changes that you want to highlight? What's different why make the update today and how you're thinking about the building blocks of getting to that new target from where we're at currently.

I think in terms of building it today, it's kind of been out there. And with some of the headwinds that we've had, people just asked the straightforward question is that target is still intact. So when you hear investors ask a question, enough times, you go back and say, okay, let's update that target and reconcile the assumptions that we had with the new assumptions and provide a new view of that. It's just really a simple is that. We've broken it down kind of similar to that Slide 10, right?

If you think about same-store performance outside of fuel, we're behind our Quick Check merchandise and Murphy merchandise. And fortunately, OpEx and G&A covers most of that gap in the 2028 view off about $20 million. Both are going to be compounding in the future off of a lower base. But as Mindy noted, if you're able to kind of keep that relationship intact, that's what's different for us versus other retailers. They may be shrinking their merch contribution and growing their OpEx. So that's really positive.

The new stores the impact there isn't as big a difference in the 2028. We will miss those store months in 29 and 30. When they're at full ramp. The good news is -- that goal was to start in '24. We're going to hit 50 starts in 25, 50 openings, if you include January. And the good news is those stores are performing at a better rate. the same-store volumes have been really offset by the improvements that we see and expect to see in retail margins without slowing that penny back without getting that extra penny and just PS&W getting back to a $0.025 to $0.03 range. And so that kind of gets you back to about a $1.2 billion EBITDA. And then we expect to see a more normal price environment. Look, it's going to be a bumpy trail to [ 1.2, 1.3 ] to 2028 to 2029.

And to '30, we're really thinking about what does the business look like on a sustainable basis. And certainly, when we build our longer range plans and set expectations and present those to our Board as we think about capital allocation and reaffirming our 50-50 objectives, we need to do that in a normalized environment. but we also need to understand there are going to be periods that are better like 2022 and early '23. And there are going to be periods that are a little bit softer. And that's why the balance sheet stays conservative as Gallagher talked about, because we will win in any environment.

We want to build in any environment. We don't want to be slowing down growth in a weaker part of the cycle because the point is when those stores are up and running, you're back to a normal environment or better and the stores ramped up and then you're getting even more out of it and a better return. And that's the philosophy we've had since the spin, right? We're going to be capital disciplined. We're going to invest in the best of times and the worst of times so long as we believe that we have a proven winning model, which we do.

Got it. That's really helpful. And then I just wanted to ask another question on the back half. As you think about the dynamics that you've seen in the first half, is there anything that maybe sticks or changes or goes away as you think about what the back half might look like? I know that there is some change in the tobacco expectations, but would be curious to know if there's anything else that you expect from either an operational or financial perspective that would shift as we kind of turn the corner into the back half here?

Not at this point. And I think given some of the areas that were weak in the first half, we'd like to think there's more upside than downside in those areas and then especially relative to some of the comps from last year. As we noted, despite some pretty remarkable geopolitical events, we didn't see a high level of volatility. Could that change? I don't know. But if you see the high level of political activity, is it going to really show up in crude prices as it did in the first half of the year. So we're going to be a taker of those inputs and we're just going to execute our model around them because those are the things that are outside of our control, and we're just focused on the things that we can do within our control, and we continue to have a lot of arrows in our quiver to continue to improve this business. .

There are no further questions at this time. I will now turn the call back over to Andrew Clyde for closing remarks. .

Great. Well, thanks, everyone, for joining in. appreciate the opportunity to provide an update on our guidance, but also how we think about long-term value creation for shareholders. Thank you very much. .

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.