Executive Summary / Key Takeaways

• Murphy USA's core investment thesis rests on the resilience of its value-oriented business model, leveraging an Everyday Low Price (EDLP) strategy for non-discretionary goods like fuel and nicotine to attract and retain value-seeking customers across economic cycles.
• The company is strategically accelerating high-return organic growth through new store builds and raze-and-rebuilds, targeting a sustainable run rate of approximately 50 new stores annually, which are proven to outperform the existing network in key metrics and are expected to be the primary driver of future EBITDA growth towards the $1.3 billion target by 2028.
• Investments in digital capabilities, loyalty programs (Murphy Drive Rewards, QuickChek Rewards), and operational efficiency initiatives (e.g., store productivity, dispenser health) are enhancing the customer experience, driving market share gains in key categories like nicotine and packaged beverages, and improving profitability and labor efficiency.
• While Q1 2025 saw a decrease in net income year-over-year due to higher operating costs and depreciation despite strong fuel and merchandise margin performance, recent trends in April and early May show fuel volumes normalizing and retail margins remaining robust, suggesting a potential strengthening in performance.
• Murphy USA maintains a balanced capital allocation strategy, combining significant organic growth investments ($450M-$500M CapEx guided for 2025) with substantial share repurchases (nearly 60% of float bought back since spin) and targeted dividend growth, supported by solid cash flow generation and a recently refinanced, flexible balance sheet.

The Resilient Engine of Everyday Value

Murphy USA Inc. (MUSA) operates at the intersection of retail fuel and convenience, a sector often perceived through the lens of volatile commodity prices. Yet, the company's story is one of strategic resilience, built upon a foundational commitment to providing value to a broad and increasingly value-conscious customer base. Since its spin-off from Murphy Oil Corporation (MUR) in 2013, MUSA has cultivated a business model centered on Everyday Low Prices (EDLP) for essential, non-discretionary products like gasoline and convenience merchandise, primarily through its strategically located Murphy USA and Murphy Express stores, many situated near high-traffic Walmart (WMT) locations. The acquisition of QuickChek in 2021 expanded its footprint into the Northeast and diversified its offering with a food-led convenience format, adding another layer to its operational complexity and market reach.

This history has shaped MUSA's competitive positioning. In a fragmented market with rivals ranging from large integrated oil companies (like Marathon Petroleum (MPC)'s retail arm) to regional convenience store chains (like Casey's (CASY)) and fuel distributors (like Sunoco (SUN)), MUSA differentiates itself through cost leadership and strategic site selection. Its streamlined operations and efficient supply chain, supported by product supply and wholesale assets, contribute to lower operating costs per unit compared to many peers. While competitors like CASY may boast higher gross and operating margins driven by more diversified, higher-margin merchandise categories like prepared foods, MUSA's strength lies in high-volume throughput and leveraging its low-cost structure to offer competitive fuel and core merchandise pricing. This strategy has enabled MUSA to gain significant market share, with Murphy-only fuel volumes growing over 500 million gallons in the past decade, more than double the total volume growth in its operating states.

A critical component of MUSA's evolving strategy and competitive moat lies in its increasing adoption and leverage of technology. The company has invested in digital capabilities that underpin its loyalty programs, Murphy Drive Rewards (MDR) and the recently relaunched QuickChek Rewards. These programs are not just about discounts; they are sophisticated tools for customer engagement, data analytics, and targeted promotions. Management highlights that MDR membership grew 11% and QuickChek Rewards membership grew 30% in Q1 2025, demonstrating increasing customer adoption. The data derived from these programs allows for analytics-driven pricing and assortment strategies, optimizing offers and leveraging price elasticities at the SKU level. This capability contributes to market share gains, particularly in categories like nicotine and packaged beverages, where MUSA is outpacing Nielsen data trends in its footprint. Furthermore, technology extends to operational efficiency, with initiatives like demand planning at QuickChek and a store productivity excellence campaign focused on areas like fuel dispenser health. A proof-of-concept test for dispenser health aims to identify opportunities for both revenue generation (higher uptime) and cost savings, with management identifying a potential opportunity exceeding $1 million in annualized cost savings. While specific quantitative metrics on the efficiency gains from digital transformation or the precise impact of analytics on margins are not fully disclosed, the company's commentary suggests these technological investments are foundational to enhancing performance, improving labor efficiency, and driving future leverage.

Performance Reflecting Strategy and Market Dynamics

MUSA's financial performance reflects a blend of its strategic execution, operational efficiency, and the influence of external market dynamics. Q1 2025 saw net income decrease to $53.2 million ($2.63 per diluted share) from $66.0 million ($3.12 per diluted share) in Q1 2024. This occurred despite higher total fuel contribution and merchandise contribution, primarily due to increases in store and other operating expenses ($266.1 million vs $252.1 million), depreciation and amortization ($68.2 million vs $58.7 million), and interest expense ($25.4 million vs $24.9 million). Revenues decreased to $4.53 billion from $4.84 billion, largely driven by lower retail fuel sales prices and a 1.9% decrease in retail fuel volumes chain-wide.

Looking deeper into the segments, the Marketing segment, which encompasses virtually all revenue-generating activities, saw its income before income taxes decrease to $92.8 million in Q1 2025 from $106.3 million in Q1 2024. This was influenced by the factors noted above. Retail fuel margins, a critical profitability driver, increased to 23.70 cents per gallon in Q1 2025 from 21.70 cpg in Q1 2024, contributing to a 7.1% increase in retail fuel margin dollars despite lower volumes. Management attributes this margin strength structurally to higher breakeven economics faced by marginal retailers experiencing volume declines and cost pressures, suggesting this is a persistent trend. However, the Product Supply and Wholesale (PS&W) contribution, including RINs, decreased by $16.5 million, reflecting an oversupplied market environment that compressed margins.

Merchandise performance showed resilience, with total merchandise contribution increasing 2.2% to $195.9 million in Q1 2025, driven by favorable sales mix, higher retail prices, and increased store count. Same-store merchandise contribution dollars grew 1.0%, with nicotine contribution up a healthy 2.8%, partially offset by a 0.6% decrease in non-nicotine contribution. The nicotine category remains a standout, with noncombustible product sales up over 7% and margin up 15% on a same-store basis in Q1 2025, building on the company's strong market share in combustible products. QuickChek's food and beverage sales saw modest growth of nearly 1%, with sandwich units up 8%, demonstrating traction from menu innovation and the relaunched loyalty program, although the segment continues to face headwinds from QSR value competition.

Operating expenses per store month (APSM), excluding payment fees and rent, increased in Q1 2025, primarily due to higher employee-related expenses and maintenance costs, as well as the increasing mix of larger, newer stores which have higher operating costs but also contribute more merchandise dollars as they mature. SG&A decreased slightly, reflecting lower professional fees and employee costs, partially offset by higher incentive costs.

For the full year 2024, MUSA delivered over $1 billion in EBITDA, demonstrating the sustainable earnings power of the business. Retail fuel margins averaged $0.281 per gallon, up 50 basis points from 2023, even in a less volatile price environment. Merchandise contribution grew 3.8% to $834 million, with strong momentum in Q4, particularly in non-nicotine categories at Murphy stores. However, 2024 performance was impacted by factors like severe weather, QuickChek headwinds, and delays in new store openings, which affected volumes and merchandise growth.

Accelerating Growth and Capital Returns

A key pillar of MUSA's investment thesis is its commitment to accelerating high-return organic growth. The company is targeting up to 50 new store openings in 2025, a significant increase from 32 in 2024, supported by a robust pipeline of approximately 250 potential sites. These new stores, particularly the larger 2,800 sq ft format, are crucial to future EBITDA growth. Management highlights that the 2022 and 2023 build classes are already outperforming the fleet average by nearly 20% in gallons, nearly 40% in merchandising margin, and 18% in EBITDA per store in Q1 2025. The company is also continuing its raze-and-rebuild program, planning for no more than 30 projects in 2025 to focus resources on new builds.

Total capital expenditures for 2025 are guided between $450 million and $500 million, with $350 million to $390 million allocated for retail growth (new stores and raze-and-rebuilds) and the remainder for maintenance and corporate initiatives (including technology). This investment is expected to drive more new store openings earlier in the year, contributing meaningfully to 2025 and 2026 EBITDA as stores progress through their roughly three-year ramp-up period.

MUSA complements its growth investments with a balanced capital allocation strategy focused on returning value to shareholders. The company has a share repurchase authorization of up to $1.5 billion through 2028, under which it repurchased 321,119 shares for $151.2 million in Q1 2025. Since its spin, MUSA has bought back nearly 60% of its outstanding shares, a significant driver of EPS accretion and Total Shareholder Return (TSR). The company also increased its quarterly cash dividend to $0.49 per share in Q1 2025 (from $0.42 in Q1 2024) and declared a $0.50 per share dividend payable in June 2025, with an intent to deliver targeted double-digit growth in the per share dividend over time.

Financially, MUSA ended Q1 2025 with $49.4 million in cash and cash equivalents. Its balance sheet includes approximately $1.3 billion in Senior Notes and, as of March 31, 2025, $384.6 million outstanding on its Term Loan and $200 million on its Revolving Credit Facility. The company's total leverage ratio was 1.96x at March 31, 2025, well within its covenant limits and providing flexibility. A significant subsequent event was the refinancing of its credit facility on April 7, 2025, which increased the secured term loan to $600 million and revolving credit commitments to $750 million, enhancing financial flexibility and optimizing borrowing costs. Management believes existing liquidity and borrowing capacity are sufficient to fund operations, growth, and shareholder returns.

Outlook, Risks, and Competitive Positioning

MUSA's outlook for 2025 reflects confidence in its core model and growth strategy, tempered by expected headwinds. The company forecasts EBITDA between $1 billion and $1.12 billion, based on an all-in fuel margin range of 30.5 to 32.5 cents per gallon. This range aligns with management's view of a "normal" fuel market environment (stable supply, limited volatility), which has moderated to the 30-32 cpg range in recent years. The difference from the historical $0.30 margin/$1 billion EBITDA relationship is attributed primarily to expected headwinds at QuickChek and the initial OpEx drag from the accelerating new store ramp before merchandise contribution fully matures. Total fuel sales volume is expected to reach just over 5 billion gallons in 2025, up 4.5% from 2024, driven by new store additions offsetting flat per-store volumes. Merchandise contribution is forecasted between $855 million and $875 million, representing nearly 4% growth at the midpoint, with continued strength expected at Murphy stores offsetting slightly lower contribution from QuickChek. Store operating expenses are guided to increase 4% to 6% ($36.5K-$37K APSM), largely due to the mix of larger stores, while SG&A is forecasted between $245 million and $255 million, normalizing after a lower 2024. The effective tax rate is expected to be 24% to 26%.

Recent trends in April and early May 2025 show per-store fuel volumes normalizing to prior year levels and then trending slightly higher, with retail margins holding strong at around $0.28 per gallon. Management's plan calls for PS&W margins to normalize in the second half of 2025.

While the path to the $1.3 billion EBITDA target by 2028 does not rely on higher industry margins, management sees potential upside from structural factors continuing to pressure marginal retailers and potential crackdowns on illicit vapor products.

However, MUSA faces several key risks. Margin volatility remains a significant factor, influenced by unpredictable crude oil prices, geopolitical events, and supply-demand dynamics. The PS&W segment is particularly sensitive to these cyclical factors. Operational risks include supply chain disruptions, severe weather events impacting volumes and store operations (as seen in Q1 2025), and potential cyber-attacks. Regulatory risks include changing legislation around nicotine products, fuel economy standards, and environmental regulations. Competition, particularly QSR value wars impacting QuickChek and the ongoing challenge of illicit nicotine products, presents headwinds. Legal proceedings, including climate change lawsuits, pose potential liabilities, although management currently deems them immaterial. The company's debt levels, while currently manageable, expose it to interest rate risk and covenant compliance requirements, though the recent refinancing provides flexibility. The successful execution of the accelerated new store build program and the ramp-up of profitability in these stores are critical to achieving future growth targets.

Compared to peers, MUSA's competitive positioning is robust in its core EDLP fuel and merchandise segments, leveraging cost efficiency and strategic locations. Its loyalty programs and digital initiatives provide a technological edge in customer engagement and targeted marketing, differentiating it from less technologically advanced competitors. While it faces challenges in diversifying its merchandise mix compared to food-focused players like CASY and lacks the vertical integration of MPC, its focused strategy and disciplined capital allocation, particularly the high-return organic growth program, position it to continue gaining market share and driving EPS accretion.

Conclusion

Murphy USA's investment narrative is compelling, grounded in a proven, resilient business model that thrives on providing value in essential retail categories. Despite facing temporary headwinds from weather, cyclical market conditions, and specific challenges at its QuickChek segment, the company's core strengths—cost leadership, strategic locations, effective loyalty programs, and a growing technological edge—enable it to capture market share and generate robust cash flow. The acceleration of its high-return organic growth strategy, targeting a significant increase in new store builds, is a clear path to future EBITDA expansion, complemented by a balanced capital allocation approach that includes substantial share repurchases and dividend growth. While external volatility and competitive pressures remain inherent risks, MUSA's strategic focus on operational excellence, disciplined investment, and serving the enduring demand for value positions it favorably for long-term growth and shareholder value creation, making it a noteworthy consideration for discerning investors.