Sunoco LP (SUN) Q3 2011 Earnings Report, Transcript and Summary

Welcome to Sunoco Incorporated's Q3 2011 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Lynn Elsenhans, Chairman and CEO. You may begin.

Thank you, and good evening. Welcome to Sunoco's Quarterly Conference Call where we will discuss the company's third quarter earnings that were reported this afternoon. With me today are Brian MacDonald, our Chief Financial Officer; and Clare McGrory, Manager of Investor Relations. I'll start by making a few introductory comments, and then Brian will address business results and comment on our overall financial position. As part of today's call, I would direct you to our website, www.sunocoinc.com, where we have posted a number of presentation slides, which may provide a useful reference as we progress through our remarks. I would also refer you to the Safe Harbor statement referenced in Slide 2 of the slide package that is included in this afternoon's earnings release. Now let's begin. As you can see from Slide 3, we reported net income before special items of $65 million or $0.57 per share. When I look at our performance in the third quarter, I see 3 things. First, we had very strong performance from Logistics and retail, the 2 businesses we are growing. Logistics contributed $53 million in pretax income as Sunoco Logistics Partners generated record results for the second straight quarter, largely driven by market opportunities within our crude oil segment. The $48 million in pretax income earned in retail was a solid result, given market conditions during the quarter. Our retail team did a good job of capturing available margins in August and September. Second, market conditions in Refining and Supply continue to be very challenging, and we expect volatility at relatively low margins to persist for some time in our region. Refining and Supply was negatively impacted by the rapid deterioration in market conditions in September, which resulted in a loss for the quarter of $17 million pretax. This marks the ninth quarter out of the last 11 that we have lost money in Refining and Supply. We continue to pursue a sale of the refineries and plan to exit the refining business by July 2012. Operationally, the refineries ran well during the third quarter as crude utilization averaged 9% for this 3-month period, but we continually evaluate ongoing operations in light of changing economic conditions. For as we long as we own and operate the refineries, safety and reliability will remain key areas of focus. Third, delivering value to shareholders continues to be a top priority. We recently completed the previously announced $500 million share repurchase at an average price of $34.69 per share. We also continued to work towards completing the separation of SunCoke Energy from Sunoco. We completed the initial public offering of SunCoke in July. We currently retain approximately 81% ownership of the new public company and expect to distribute our common stock holdings to Sunoco shareholders within a year of the initial public offering. Our work to position Sunoco for future success is ongoing. In our Logistics segment, we have announced approximately $500 million in acquisitions so far this year. The Eagle Point Tank Farm, the expanded leased crude oil business and a new terminal in East Boston are all operating well, and Sunoco Logistics is seeing the positive financial impact of these and other recent acquisitions. Sunoco Logistics announced an increase in the expected distribution growth for 2012 to 7%. As the largest holder of LP units and the GP holder, Sunoco continues to benefit from the strong strategic execution within Sunoco Logistics. On the retail side, we continue to evaluate small and large growth opportunities as they arrive. In August, we acquired leasehold interest in 14 retail locations in Central Pennsylvania. Each location will be company-operated and include an APlus Convenience Store. In the third quarter, we also opened the first 2 of 16 sites along the Ohio Turnpike as part of a previously announced agreement. Excluding cash reported at Sunoco Logistics Partners and SunCoke, we have $1.5 billion in cash at the end of the third quarter, which provides us with strategic flexibility to continue pursuing growth in both Logistics and retail. Positioning Sunoco for future success also entails exiting non-core and underperforming businesses. The previously announced sale of our Haverhill phenol plant was closed at the end of October and marks our complete exit from the chemicals business. Similarly, we continued to pursue a sale of our remaining Northeast refineries. Transactions of this size and complexity take time to develop and are governed by confidentiality agreements. We will provide updates on the status of the sales process when we are able to do so. Additionally, we are making progress on our comprehensive strategic review of the company with a focus on exiting the refining business, determining the optimal allocation of our capital resources and maximizing the potential for our retail and Logistics businesses. At this time, we have nothing to report on the review. Now I'll turn the call over to Brian.

Thanks, Lynn. Let me first comment on quarterly income attributable to Sunoco shareholders and our special items. We reported pretax income of $57 million attributable to Sunoco shareholders in the third quarter, excluding special items. Net unfavorable special items of approximately $1.9 billion pretax were primarily associated with provisions to write down the refining assets to their estimated fair market values in connection with Sunoco's decision to exit the refining business. As a reminder, upon the sale of the refineries or idling of the main processing units, we expect to record a pretax gain related to the liquidation of associated inventories that would total approximately $2 billion at current market prices, which would largely offset the impairments recorded this quarter. Before we discuss business results, I'll note that we saw an income tax benefit in the third quarter even though we recorded positive pretax income before special items. This is due in part to the impact of nonconventional fuel tax credits on the year-to-date tax rate. Additionally, income taxes for each quarter reflect the adjustment of the year-to-date levels computed using the expected full year tax rate at the end of each quarter and the recognition of any discrete items. Looking ahead when Sunoco is no longer the beneficiary of favorable tax benefits associated with SunCoke and the refining operations, we would expect our effective tax rates to be closer to the statutory rates in the range of 35% to 40%. Regarding Q3 business results, I direct you to Slides 4 through 7. First, let's discuss the retail and Logistics segments, businesses which we continue to believe have the best prospects for growth. Our Retail Marketing and Logistics businesses earned $101 million pretax in aggregate during the quarter. Retail Marketing earned $48 million pretax in the third quarter of 2011. Retail gasoline margins benefited from declining wholesale gasoline prices during August and September, resulting in average margins in the quarter of $0.105 per gallon. Total gasoline volumes for our network were up over 2% in the quarter versus the prior year due to new sites added in New York State, the Garden State Parkway, Ohio Turnpike and our distributor network. On a same-store basis, gasoline volumes trended lower by approximately 2.9% versus the same period last year, which is largely consistent with the EIA data. Distillate volumes also trended lower than the prior year with a loss in volumes of about 1% on a same-store basis. Demand was impacted by hurricane activity in the Northeast region in the late August/early September timeframe. Now turning to Logistics, which earned $53 million pretax in the third quarter. The earnings in this business are almost entirely related to Sunoco's ownership in Sunoco Logistics partnerships, which reported record earnings for the second quarter. The main driver for the strong results has been in the crude oil business. As we saw in the second quarter, demand for West Texas crude continues to be very high, translating into a tremendous demand for Sunoco Logistics transportation services, including their wholly owned pipelines, the West Texas Gulf and Mid-Valley Pipeline joint ventures, and their trucking services. There were also increases in crude production related to increases in drilling activity associated with the shale development, which led to higher lease volumes and margins. And the Texon crude business has boosted the expansion of the leased acquisition business as well. The strategic focus in the terminals areas has also delivered results with the acquisition during the third quarter of the 1.2 million-barrel refined products terminal in East Boston and the acquisition of the 5 million-barrel Eagle Point Tank Farm on the Delaware River. The Logistics business continues to demonstrate great success in growing its business segments and its geographic footprint. Year-to-date, Sunoco Logistics has spent $494 million for acquisitions and forecast $160 million in organic capital expansion for 2011, bringing the total expansion capital spending for 2011 to approximately $650 million. Beyond that, Sunoco Logistics has a number of other opportunities for growth that they are actively pursuing, which includes the potential conversion of pipelines related to the growing development of the Marcellus and Utica Shale plays. Sunoco Logistics also announced a successful binding open season for Mariner West, the first ethane pipeline solution in the Marcellus area that will deliver ethane to Sarnia, Canada, marketplace. July 2013 is the expected startup for this project. Additionally, SXL continues to pursue the expansion of their West Texas Gulf System, with expectations for our first quarter 2013 startup. As Lynn noted earlier, Sunoco Logistics provided guidance of 7% distribution growth for 2012, up from 6% in 2011 as the entity is successfully executing on its growth plan. Sunoco Logistics also announced the 3-for-1 split of its limited partner common units and Class A units last week, reflecting the confidence that the Board of Directors and the management have in our ability to grow earnings cash flow and distributions in the future. Now turning to the Coke segment. The Coke segment earned $24 million pretax in Q3. Our Coke segment results reflect Sunoco's ownership of approximately 81% in SunCoke Energy, effective July 21 when we completed the initial public offering. The business segment results exclude financing cost. Our share of SunCoke's energy financing costs are shown within the financing segment. The business saw a sequential improvement as the domestic coke-making business operated at more than 100% capacity and produced a record level of coke during the quarter. The improvement in coke and coal operations was partially offset by higher expenses reflecting costs related to the startup of the Middletown, Ohio, facility and the transition to becoming an independent public company. SunCoke recently made their first delivery of coke to our customer AK Steel from the new Middletown plant. The plan is to ramp up production at Middletown with the expectation to be operating at full capacity by mid 2012. During the quarter, SunCoke Energy acquired from an affiliate of GE Capital its entire 19% interest in the partnership that owns Indiana Harbor coke-making facility. As a result of the transaction, SunCoke Energy now holds an 85% interest in the partnership, and the remaining 15% interest is owned by an affiliate of DTE Energy. Now turning to Refining and Supply. Refining and Supply incurred a loss of $17 million pretax in the third quarter of 2011. Operationally, we had the best quarter since the third quarter of last year even with the economic rate cuts in September and production impacts related to hurricane activity. July and August were both profitable for this segment, but the Northeast market margins deteriorated rapidly in September and remained well below cash operating costs during most of the month. With respect to our Q3 margin realizations, I refer you to Slides 6 and 7 for more detail on the refining system crude costs and product differentials versus our benchmark. As you can see on Slide 6, our Refining and Supply benchmark averaged $5.87 per barrel for the third quarter and margin capture averaged 83%. Crude costs were $0.20 per barrel, above benchmark for the quarter. While West African crude differentials continued to be high, in the third quarter, we were able to offset those differentials to a large degree with higher-than-normal purchases of high-asset crudes and also crude from the strategic petroleum reserve, both of which were priced at a substantial discount to Dated Brent. On the product side, our realizations were improved from the last 3 quarters but still lower than benchmark as yield gains were poor, as were margins of non-crack products like propane and butanes, due to higher crude cost. The refining market environment continues to be challenging through October, in particular related to the strong differentials for light, sweet, West African crudes. Finally, let me take a few minutes to discuss our financial position at the end of September. In conjunction with that, I direct you to Slides 8 and 9. From a fund flow perspective, in the third quarter, we had a net use in cash of approximately $96 million at Sunoco, excluding Sunoco Logistics and SunCoke. Cash declined from the end of the prior quarter due to temporarily builds in working capital largely related to crude activity as we implemented economic rate cuts, which impacted the inventory and payables balances at quarter end. Absent any significant fluctuations in the crude price, we expect reductions in working capital levels during the fourth quarter to yield positive cash flows of approximately $300 million. Other cash activity during the third quarter included approximately $767 million in proceeds received by the Sunoco parent related to the separation of SunCoke. This consists of approximately $575 million that was received via distribution of a portion of the proceeds of SunCoke's $700 million of borrowings and $192 million net of fees from the IPO of 13.3 million shares of SunCoke. The company also successfully completed the purchase -- the repurchase of $500 million in common stock. Last week, Sunoco received proceeds of approximately $85 million with the sale of the Frankford chemical facility. We ended the quarter with cash exceeding debt by approximately $389 million, excluding Sunoco Logistics and SunCoke, and net-debt-to-capital of approximately negative 43% at the Sunoco level, excluding SXL and SunCoke. At September 30, we had $1.5 billion in cash and approximately $1.4 billion of available committed borrowing capacity at Sunoco. The fourth quarter cash flows benefit from approximately $100 million of proceeds from the sale of the Haverhill facility, which closed in late October, in addition to the expected release of working capital previously mentioned. Looking ahead, we continue to work diligently on the refining exit and the associated sales process as well as the comprehensive strategic review of the company. Additionally, we will be evaluating the timing to complete the separation of the SunCoke business. In the meantime, we also continue to take appropriate actions that will assist us in maintaining our financial flexibility to pursue attractive opportunities in our growth businesses and ride out the volatile refining environment. With that, I'll ask the moderator to open the lines for questions.

[Operator Instructions] And our first question comes from Jeff Dietert of Simmons. Jeffrey A. Dietert - Simmons & Company International, Research Division: There's been press reports that Sun Logistics has got a rail project at Eagle Point, and I was just wanting to see if there's a flow-through benefit to Marcus Hook in Philadelphia and what those volumes might look like and how rapidly that could impact the refineries.

Thanks, Jeff. You kind of got 2 different questions there. We obviously would be interested in running crudes like Bakken that would improve our crude cost position of the East Coast refineries. And so we're always looking for those kinds of opportunities, and some of them have started to become available in relatively small volumes in the Northeast. And if it makes economic sense, we will avail ourselves of those opportunities. Likewise, Sunoco Logistics is always looking for the opportunity to expand its services and optimize its assets. However, currently, SXL does not have or own any assets to bring Mid-Continent crudes to the Northeast. Jeffrey A. Dietert - Simmons & Company International, Research Division: Is there a project under construction that in would allow for Bakken crude to be delivered in the first quarter?

We are not making any disclosures on the forward projects for SXL at this time. Jeffrey A. Dietert - Simmons & Company International, Research Division: Okay, all right. And do you see the ability to ramp up rail deliveries of Bakken crude into the East Coast as a factor that would change the strategic value of refining assets in the Northeast?

I think it's a factor that might be considered beneficial to the potential sale of these locations and the value that someone would put on them. Jeffrey A. Dietert - Simmons & Company International, Research Division: Got you, got you. And I guess, depending on where refining margins go, would you look at closing a refinery earlier that the July date if it were not generating positive cash flow?

No -- as we have done all along, we continue to evaluate the market environment and the financial performance of our locations. And if at any point we believe it's in the best interest of the shareholders to either stop operating the facilities or change their utilization rate up or down, even if that's before July 2012, we would take the appropriate action.

Our next question comes from Paul Sankey of Deutsche Bank.

What is the book value now of the refineries remaining?

Approximately $400 million.

Is that approximately split between the 2?

I -- no, I wouldn't say that, Paul. So I'm not going to give you a split. We'll have -- it's approximately $400 million, and we'll have a little bit more disclosure on that in our Q.

Okay. And just to be clear, the process is currently to sell the refineries, and if they aren't sold within a reasonable timeframe before next July, they'll be shut?

Well, we're going through a very formal sales process now and Crédit Suisse is running that for us. And as you know, these are fairly formal processes and we're kind of working through that. And if we cannot sell the refineries, we will exit the refining business. There'll be a closure.

I understand. And I heard you say that there's nothing to say on the strategic process, so I was just wondering what the best guess on the timing of that process would be in terms of when we can be told something.

Yes, Paul, I know everybody's anxious for that. And we really haven't set a timetable for it. We'll do the work we need to do. And when we have something we think is worth updating, we'll do so.

Great, that's helpful. And then if I could just sort of follow up finally on Jeff's questions. What are the obstacles to getting Mid-Con crude into the Northeast?

Well, basically, the logistics of it: getting enough rail cars, having places to unload them, being able to unload trucks and whether or not people believe that putting the assets in to do those things will get a return, given that the kind of differentials are not guaranteed. So people make a bet as to whether they think they will last long enough to get a return to make those kinds of investments.

Sure, and the focus is trains and trucks, as opposed to pipes?

At this point, yes. Having said that, there may be situations where, once you use trains and trucks to get it to a collection point, that you could move it by pipe.

Our next question comes from Evan Calio of Morgan Stanley.

Truly is the new Robert Baron era in crude railing. I know the Sunoco Logistics share lockup expires November 21. You mentioned, within a year of the IPO, you would effectuate the spin. I mean, can you just update how you're thinking about the timing? Is it predicated on the completion of the strategic review? Is it you're waiting for the 2012 coal contracts to price? Or any kind of color how you're thinking about that?

Evan, it's Brian. I mean, what we would say is that November, late November is obviously the earliest we could do it. Or July 2012 is generally when we said we would do it before. As we think about the timing, there are a number of factors, some of which you mentioned, but also in general, the progress in the business, achievement of some of the -- their larger milestones at SunCoke, market conditions, more clarity on their outlook, the influence of Sun shareholders and the preference of Sun shareholders. And ultimately, the final determination will be made by Sunoco's Board when the Sunoco Board and ourselves thinks it's in the best interest of Sunoco's shareholders. And I'll just remind everybody that it was the overwhelming view of Sunoco shareholders that the business should be separated, and in June 2010, we did announce the separation. In July of 2011, we did an IPO with some very fortunate timing before a major market dislocation. So I think we're clearly on the path towards separation, and I think shareholders will have to have the faith in us that we'll make the determination around the last step of the process. When it's -- when we think it's the right timing and once we have something more to say on that, we'll really say it.

On the pricing of the contracts for SXC, SunCoke, are you guys going to release that into year end? Is it changed? Because you'd normally do it in -- early the following year. Might we expect that data before year end?

Evan, I mean, we're not the management team of SunCoke. We're on the Board and we obviously have some influence there, but it's really not fair for me to answer that question on behalf of SunCoke management. And when -- if SunCoke management has something to say about 2012 results, they'll say it when they're ready to say it, when it's the right time to say it.

Okay. And maybe lastly, I mean, I know you'd be clearly exploring strategic alternatives for the refineries yet. I mean, do you see any synergies for a potential buyer on Marcus Hook with Conoco's trainer asset. That's literally side-by-side in both assets for sales and some unit synergies, not particularly for Sunoco, but do you -- can you talk through potentially some synergies of combining those 2 assets?

Yes. I think that, that is really up to those who are looking at the assets and what they might or might not see in that combination. I mean, as you point out they do sit next to each other, in general if you look at past behavior in the industry when you've had situations like that, there tends to be some synergies available to do it. And generally, it would be around also capital avoidance opportunities. So not for me to speculate on what those who have shown interest in the process are thinking about this, but I just would point you to some of the past behavior on these kinds of situations.

Okay. If I could just slip in this last smaller one: Can you kind of run me through your share count? I thought it would be -- was there some option issuance or something. I thought it would be lower with the net of the buyback?

No. I think the weighted average, it should be around 108.

Yes, that's -- you got to do -- you got to weight the number through the quarter, Evan, based on the timing when the shares came out, so the share count number is approximately 108.

Our next question comes from Doug Leggate of Bank of America.

Forgive me for this one, but it sounds like you're a tad more optimistic on a sale, as opposed to closure. I'm just wondering if you -- if we are picking that up wrong or if there's any color you could offer around that.

Yes, what I would say, Doug, is we're running the sales process and the sales process will determine the outcome. And I wouldn't say we're telegraphing a negative or a positive message. We're just -- we're running the sales process. It's a formal process and we're going through that now.

So at what point, Brian, would you decide to liquidate the inventory?

Well, that would happen in -- if there's a sale or if there's a closure, basically.

And I recollect that number -- I think you said it was like a couple hundred million dollars after tax, does that still sound about right?

That is still our best estimate, yes.

Okay. And again, forgive me for the arithmetic here, but just going through your slide pack. So can you just clarify then, what is the actual cash and net debt for Sunoco ex SXL, SXC? Is that the $389 million number?

It is, Doug..

Okay. So what have you then got left to come in, in terms of sales proceeds? Because I understand you've still got some chemicals outstanding and a couple of 0s?

Well, we've sold the Goradia -- we've sold to Goradia our remaining chemical plant, it closed a couple of days ago, actually. And that had proceeds of approximately $100 million.

That's after tax?

Yes.

And in addition to that, we have the note from PBF for Toledo still outstanding for $200 million and the potential earnout from the sale of Toledo, which was $125 million in pretax.

And I guess the 0 from SXL, right?

Right, exactly.

So obviously, what I'm trying to do is net of cash proceeds against unfunded liabilities. So I guess the final question for me then is -- there's 2, as I understand it, lumps of potential unfunded liabilities. The first one is your healthcare environmental lump, and the second one is really dependent, I guess, on whether or not you close the refineries. So if you could just kind of walk us through what the scenarios are. The healthcare environmental, does that go with the refinery sale? Do you avoid the severance charges if the refinery sale goes through? If you could just help us with a little bit of that, and I'll leave it there.

Yes, I guess what I would say, Doug, is it really depends what the refinery sale is and if there is one. So I can't speculate as to what a sale looks like when it hasn't happened. And it's much too early in the process to have a sense of those things.

Well just that -- can I get some clarity then? The healthcare and the environmental liability, is that related to refining, or does that stay with Sunoco regardless?

Well, most of the healthcare that you're thinking about relates to retirees of Sunoco, so it would be most probable for that to stay with Sunoco.

And that number is still around about $500 million in total?

Well, including pension and using today's discount rates, approximately, yes.

Our next question comes from Faisel Khan of Citigroup.

On the potential cost of shutting down the refineries. I think you guys had mentioned in your last call that the inventory liquidation and all the costs associated with some of the environmental remediation was kind of in a $200 million number range. Is that correct, or am I thinking about that the wrong way?

No, what we said is that -- no, you're thinking about it in the right way. And what we basically said is that, if we shut down the refineries, liquidate the inventory, pay off the associated crude payables, pay the associated LIFO taxes, ex the severance, et cetera, that the net cash proceeds of all of that is approximately $200 million based upon current crude prices and our best estimates. There's a lot of moving pieces in there, some of which could be higher, some of which could be lower. But our best estimate is that it will net about $200 million of cash. And we still see that as our best estimate today if there is a closure.

Faisel, I'll add one thing. What Brian said is absolutely correct on the cash that's triggered by the closure. But I would point out, because you mentioned environmental, that there are ongoing remediation costs that would show up as an operating expense on the go-forward.

Okay. And what are those expenses on the annualized basis? That's your kind of your normal OpEx per barrel, I take it? Is that right?

No. This is just -- and it's not a material number. But I just wanted to clarify that there are ongoing remediation costs on the environmental side that will continue when the refineries are shut down.

Okay, got you. And right now what are your -- what are you operating the refineries at? What kind of utilization rate are you operating them at right now?

As you know, we don't generally talk about the current, so we only talk about how we did in the past. And for the third quarter, our utilization for the system was 90%. That was despite Hurricane Irene and the fact that in September, due to a poor-margin environment, we reduced our utilization to 87%.

Okay, got you. And then the working capital number you talked about in the fourth quarter, the $300 million, is that just related to the timing of crude? Or is there something different that you're doing with the plants?

No. It's really, Faisel, based upon the fact that we cut our runs in September. So basically, our crude inventory position was artificially high in September, our payable position was low. And so as that unwinds itself in Q4, based upon common crude prices, that generates approximately $300 million of cash.

Got you. That makes sense. And last question for me. On a -- SXL is clearly growing at a pretty decent clip. I guess what I'm trying to understand also is that, if SXL wanted to do sort of a larger sort of transaction, it seems like you guys have a fair amount of liquidity, at the C corp level and the GP level. Would you guys be willing to support sort of a larger deal for SXL if you had to or if they wanted to do something different?

Yes, Faisel, we would, and I think you will see that we've done that in a few cases in the past. And if it's a situation that we believe is in the best interest of both equity holders, we would do that. Just as a reminder, Sunoco, through the general partner, receives almost 50% of the cash flows today. It's a little less than 50% and it's ramping up quickly and will be 50% or more in a couple of years. So there's a kind of built-in incentive for Sunoco to support a process that allows the distribution growth to get us into the higher share or split of the cash flows.

[Operator Instructions] And our next question comes from Chi Chow with Macquarie Capital.

Now that -- I had a question on retail growth. Are you now open to potentially looking at geographic expansion with the potential that you're not really beholden to finding ratable offtake for your refining production?

I'd like to answer that question with a yes. However, I don't -- we don't look at it as advantageous to just go anywhere where we could buy some stations. We think that it's better for us to really concentrate our growth in those areas where we have logistic advantages and to try to increase the density of our footprint where we are. And if that means adjacent, so slightly starting to move into areas that are adjacent to where we are, we would certainly be interested in that. And you will have seen some of that going into Alabama. We're already in Florida, we're already in I-95 Corridor. We don't tend to be as dense in Southeast as we are in the Northeast, but we're not looking, for example, to go to California or to go far afield.

All right. How's it been, trying to develop the brand in these regions that you're cracking into?

I'm not sure I completely understand your question but let me talk about what we're trying to achieve here. We have a very well-known brand in the Northeast region and a brand that's more widely known mostly because of the affiliation that we have with NASCAR. And so in those marketplaces where NASCAR is popular, generally people know about the Sunoco brand. And we want to be an outstanding fuel retailer that has a compelling convenience offer. And so we score very well as a fuel retailer. We score about average as a convenience retailer. So a big part of unlocking the value here is, one, by increasing the number of stores that we own and operate and enjoy more of the convenience margin. And the other is to create compelling offers that get people from the forecourt into the store. The margins in general are better on convenience than they are on fuel. So what we're trying to do is move our margin mix to have a bigger percentage of the margin coming from convenience.

And what are some of those strategies, Lynn? Can you talk about that? Are you looking at a private label or anything along those lines?

Most of it has to do with engaging customers in the stores more, using -- use of social media, for example, creating offers that are more tailored so that you get the benefits of sort of your global buy, and though I mean that throughout our whole network, but yet being able to tailor the offerings more locally using social media as a way to understand how to put in the stores and make the offers that our customers in a particular local area want.

And we are currently showing no further questions. I'll turn it back to Lynn Elsenhans to close the call.

Okay. Well, thank you, all, for joining our call this evening. Brian and Clare will be available for additional follow-ups that you may have tonight or tomorrow morning. Have a great evening. Thanks.

Thank you for participating in today's call. You may disconnect your lines at this time.