Good morning. My name is Chantelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA Second Quarter 2022 Earnings Conference Call. As a reminder, today's conference call is being recorded. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mitchell Freer, Senior Analyst, Investor Relations, you may begin your conference..

Thanks Chantelle, and good morning, everyone. With me are Andrew Clyde, President and Chief Executive Officer; Mindy West, Executive Vice President and Chief Financial Officer; Donnie Smith, Vice President and Controller; and Christian Pikul, Vice President of Investor Relations.

After some opening comments from Andrew, Mindy will provide an overview of the financial results, and then we will open up the call to Q&A. Please keep in mind that some of the comments made during this call, including the Q&A portion, will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

As such, no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, please see the latest Murphy USA Forms 10-K, 10-Q, 8-K and other recent SEC filings.

Murphy USA takes no duty to publicly update or revise any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to Generally Accepted Accounting Principles or GAAP.

We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis as part of our earnings press release, which can be found on the Investors section of our website. With that, I'll turn the call over to Andrew..

Thank you, Mitchell. Good morning, and welcome to everyone joining us today.

Once again, we are certainly pleased with our results this quarter as they clearly demonstrate the earnings power of our advantaged business model, which has outperformed in a variety of different market conditions since our spin and is uniquely built to win in the current environment.

There are three key elements of second quarter performance we want to highlight that are most emblematic of our advantage. The first is our high volume everyday low-price fuel model, which becomes more effective in a higher margin environment. The second is the resilience of our consumer.

Despite known pressures impacting take-home pay, we are clearly seeing our low-price offer resonate to more and more value-seeking customers. And finally, the investments we have made to engage our staff had delivered targeted results of increased engagement, reduced turnover and higher applicant flow without permanently impacting our cost structure.

Looking at our fuel business, we have gained market share over the past six months despite a rising price environment, a feat that would have been difficult to accomplish in an economically viable manner in previous lower margin environments.

Due to the structural change in industry breakeven cost that is driving marginal retailers to preserve margins, rising wholesale prices more rapidly translated to higher prices at the pump.

In this environment, our retail tactics and pricing precision are more -- are far more impactful with greater ability to create separation with lower prices, and that is leading to share market gains.

Our low-price strategy is effective across a wide range of different price and margin environment, but is most economically impactful when industry margins are more robust, all else being equal.

Investing $0.02 to $0.03 when margins are $0.30 and prices are high, where consumers go out of their way to find lower prices is a different proposition than when margins are $0.15 and prices are low, where customers may not be as price-sensitive and you can't get the volume uplift to economically support the volume margin trade-off.

These tactics and strategies have allowed us to capture new customers and grow volumes, the benefit which is further amplified when prices are falling as they have been since mid-June.

In this environment, as lower trending prices temporarily prop up retail margins, our contribution margin growth dramatically is a function of a combination of both higher gallons and higher margins, which allows us to further invest in our low-price position, perpetuating the cycle of share gains.

And this phenomenon isn't unique to Murphy branded stores, QuickChek's high volume business model also benefits in this environment. We understand high fuel prices may be just one of many problems, lower income consumers’ face in an inflationary environment.

It is important to understand that our customers consider the products we sell, especially fuel and tobacco as non-discretionary purchases. They are likely cutting back on other areas of their monthly spend versus their spend at Murphy USA, which is increasing.

A large panel of almost 100,000 Murphy Drive Reward members shows as they are buying a gallon or two less per month, yet the fact that we are growing overall volume, means we are adding new customers and taking share.

These customers not only purchased lower price fuel from us, but we're also seeing improvements in categories attached to fuel inside the store.

Coupled with our innovative ground-up resets in our large format stores executed in the second half of 2021, we are seeing strong growth in packaged beverages specifically, as well as better performance from other center store categories.

Product level innovation is also driving results as evidenced by the proprietary made-to-order ice and frozen energy drinks offered at QuickChek.

Importantly, new tobacco customers seeking greater value or shifting retail brands and coming to Murphy USA, while existing customers really don't have a better value option to trade-down to as targeted promotional activity helps to insulate the category.

As a result, we are not seeing a negative impact in the broader down-trading phenomenon making headlines. At an individual customer level, our MDR panel data shows behavior consistent with our overall trends.

There's a very modest 1% mix shift from premium to discount cigarette brands, while individuals are purchasing about 5% fewer units versus the prior year. So, while individuals may participate in minimal down-trading across units and categories, we are seeing more than enough retailer down-trading where Murphy benefits to offset it.

And as we said in the past, these new customers tend to be sticky once we convert them to the Murphy brand and communicate with them through MDR to increase and reinforce their loyal behaviors.

Across other categories, promotional activity in energy drinks and candy has insulated them from trading down as well, while we do see small shifts downward in enhance and flavored water to base water products.

Of course, everyday low prices get customers in the store, but our model works exceptionally well because of our engaged staff who are fantastic at upselling and providing the high-level of friendly customers -- friendly service customers want in order to become more loyal.

To increase engagement, we have invested in an appreciation bonus for our staff, which is payable over the 100 days of summer. The intended outcome of this program was clear.

Help engage our employees to maintain sales momentum, increase retention and employee wellbeing, attract new applicants and increased store hours of operation and reduce overtime hours.

We are clearly seeing the benefits of these investments in our results and in our staff surveys, which when coupled with our very strong employee value proposition, has resulted in applicant flow returning to near pre-COVID levels.

But most importantly, similar to the enhanced commission program we offered in 2021, this investment supports the business without permanently eroding the low-cost operating model that underpins our low-price position and ensures the long-term sustainability of the business.

As a result of the one-time cost of this program, which approximates $500 per store month on full year results, coupled with other inflationary pressures on wages, store supplies and maintenance costs, we expect store level operating cost to exceed our originally guided range of $29,500 to $31,000 per store month.

Our revised guided range is $31,500 to $32,500 per store month, which although above our original forecast, has been more than offset by our participation in the higher industry-wide fuel margins and our strong merchandise performance.

Given the operation and financial results we have delivered, it's also clear to us that this is an attractive business to invest in. Given our high volume model, larger formats and improved merchandise offer, it's a great time to be opening new stores and growing our network.

We are building great looking, high performing new stores and are on track to deliver nearly twice the stores as we did in 2021. In addition, we are on track to complete 35 raze-and-rebuilds this year, which are helping to diversify our merchandise mix and grow contribution margin.

In addition to investing in new store growth, share repurchase continues to be our preferred use of free cash flow. To that end, we bought back over $200 million worth of our stock in the second quarter.

We have a clear view of the dramatically improved earnings power of our business, coupled with the management team that remains committed to maximizing shareholder value and we confidently took advantage of the opportunity to invest in ourselves.

When compared to M&A opportunities that occasionally across our desk, the stark difference in the quality, consistency and profitability of our network stands out.

Given the relative attractiveness of buying someone else's stores and paying a premium price to do so, we are far more motivated to buy a larger interest in our own advantaged stores at a discount, a practice that has generated significant value for long-term shareholders since our spin.

I'll now hand it over to Mindy for a quick review of some key financial metrics.

Mindy?.

Thanks Andrew and good morning, everyone. Revenue for the second quarter of 2022 was $6.8 billion compared to $4.5 billion in the year ago period. Average retail gasoline prices were $4.21 per gallon versus $2.73 per gallon in the second quarter of 2021. Second quarter EBITDA was $317 million versus $245 million in the year ago period.

Net income for the quarter was $183.3 million versus $128.8 million in 2021, and the effective tax rate in the second quarter was 24%.

Total debt on the balance sheet as of June 30, 2022 was approximately $1.8 billion, of which approximately $15 million is captured in current liabilities, representing the 1% per annum amortization of the term loan and the remainder of reduction in long-term lease obligations as they are paid through operating expense.

Our $350 million revolving credit facility had a zero outstanding balance at quarter-end and is still currently undrawn. These figures result in gross adjusted leverage ratio that we report to our lenders of approximately 1.8 times.

Cash and cash equivalents totaled $240 million as of June 30, down just slightly from the $256 million we reported at year-end 2021. I will now turn the call back over to Andrew..

Thanks Mindy. Before we turn to questions, I would note that July performance has been nothing short of exceptional as we benefit from the falling price environment that was inevitable, being well-positioned from a volume and share standpoint when prices turn further accelerated our momentum.

Month-to-date volumes are up about 9% year-over-year for the combined chains, with margins double of what they were last year month-to-date. Same-store volumes continue to fluctuate between 90% and 100% of 2019 levels, depending on the relative pricing environment and dynamics across the two periods.

Since last week, we have been at roughly 100% to 2019 performance. When you combine the fuel share gains with the staffing investments, merchandise performance also remains very strong across sales, margin, margin rate, units and transactions.

In short, our affordable model, delivered responsibly by our engaged staff, is winning and enabling us to meet our broader commitments to the communities we serve, while staying aligned with our investors. Affordable, responsible, engaged, committed and aligned. These five pillars are at the core of our sustainable business strategy.

As such, we use them to frame our latest ESG summary report now posted on our corporate website and I encourage you all to take a look at that. With that, we can open up the lines for questions from the operator..

[Operator Instructions] Our first question comes from Ben Bienvenu with Stephens. Your line is open..

Hey, thanks. Good morning..

Good morning, Ben..

I want to ask, given the share gains that you've realized, what do you see from repeat behavior of those new customers? Are they signing up for MDR? And then, what in your mind would it take for those customers to then switch back again to either where they were going before or some other outlets?.

Yes. That's a great question. So, we are seeing a large increase in new MDR members and participants, especially in the last three to six months. So, they are seeking value, not only from our lower street price, but the benefits that come with that.

The one thing that we noted, Ben, probably in the 20 -- 2016, 2017, 2018 period when prices were just materially lower for a long period of time is consumers just aren't as price-sensitive on the margin when prices get lower.

As long as we're in a higher price environment and their paychecks are impacted by inflation across everything that they buy, it's a great environment to gain those customers and create stickiness.

What I would say on the tobacco side, especially is, we have retained a significant share of those customers that we gained during the panic pantry loading period. Our carton sales remained at about 57% of our total, and we were in the 40% range pre-COVID, the industry has gone down to 12% from about 13%.

So, depending on the category, we see different levels of stickiness, but this is certainly a great environment to gain and retain customers. But if we get back below $2 a gallon, that's probably the environment where they just don't go out of their way as far for lower prices because they're just generally doing better..

Okay. All right. Great. That makes sense. Shifting gears a little bit to organic growth on the new store side. I know you started out the year, a little bit behind schedule as there are broad-based delays in construction time lines.

What does your pipeline look like as you start to look-forward to 2023? Should we expect unit growth to accelerate off of these levels? And can you talk to us a little bit about what that targeted level might look like going forward?.

Sure. So, we continued to be on track for our numbers this year. We have had delays, whether it's permitting or getting folks and the permitting organizations to come out and certify stores and get the operational licenses. Utilities have been a source of some delays and frustrations et cetera.

But nothing like the more structural impact of the underground tanks that we had a year ago.

I would say right now, the real-estate pipeline is more conducive to a 40, 45 to 50-type range versus a 60 store range next year, largely just as a function of some inflation in real-estate prices and valuations that we held the line on in terms of not wanting to overpay and we'll continue to be judicious from a return standpoint.

I think, importantly, though, the raze-and-rebuild program not only allows us to load level that from a construction and a modular build provider standpoint, certainly on the Murphy branded stores, but also allows us to accelerate those high-performing kiosks into even higher-performing 1,400 square foot store.

So, to the extent we're still in the 40s range next year on our guidance, we'll look to continue to make that up with the raze-and-rebuilds.

And the QuickChek portfolio continues to present new growth opportunities there as we rebuild that pipeline from a period in which during their sale period, they'd let their pipeline fall off significantly and so we've been building that back..

Okay. Great. Thanks so much..

Our next question comes from Anthony Bonadio with Wells Fargo. Your line is open..

Hey. Good morning, guys. Thanks for taking my question. I just want to start with the labor market. You guys raised store OpEx guidance on incremental labor pressure and added that one-time support bonus, which to me implies a challenging labor backdrop.

General commentary from retailers and even some of your peers seems to be that the labor market has been improving as the year progresses.

Can you just dig in a little bit more on what you're seeing there and help us reconcile all of that, especially given the fact that you tend to under-index towards that headwind?.

Sure. Pre-COVID, if I go back to the beginning of 2020, our applicant pool was north of 20,000. At any given time, we'd experienced periods where that applicant pool was below 10,000. We looked at our higher to term ratio, it had gone negative and then stabilized at about 1%.

And the impact of that was we had to cut back on hours of operation at our store. We had higher overtime. We pushed store managers above kind of a social contract, a number of the hours we're working as we work to make ends meet.

And I would say beginning in about April of this year, we saw improvements in that applicant flow, getting over 20,000 again for the first time. That's continued into May and June and July. And so, we feel much better about the applicant flow.

I would say on the margin, we probably have to go through a few more applicants to get the staff we need and you still have the challenge of signing up a new staff member and are they going to stay past the end of the week or not. So, we feel the frustration our store managers have in getting out there. But it's overall looking a lot better.

And frankly, that's one of the reasons why we just proactively said let's institute this appreciation bonus even on the heels of some improvement. We had great momentum from Q1 going into the 100 days of summer. We were starting to see some positive trends. We wanted to sustain those.

If you go into one of our stores, our associates are wearing a bunting that says, want free gas? Ask us how. And effectively, that's what that bonus will do is pay for a new associates gas purchases. And so, it's having an impact. It's allowed us to increase hours of operation. We have fewer stores at risk over time has come down.

But I would say we're still not out of the woods yet. We're still feeling some of the pressures from the labor market, but it is getting better..

Got it. That's really helpful. Thank you. And then, just on fuel margins. I know you've flagged an acceleration into the July period, which certainly checks out given what we're seeing now on the OPUS data.

I guess, what I'm trying to understand here is, obviously, some of that acceleration is driven by the decline in fuel prices we've seen over the last few weeks.

But is there any sense you can give us in terms of how much of that unwinds as prices ultimately find some stability?.

Look, I don't know where the long-run equilibrium margin is going to settle at. I mean, that's been a point of discussion for years even when margins were $0.16, let alone $0.26. What we do know is that the structural cost challenges impacting the smaller retailers continues to be significant.

Credit card fees, for example, are significantly higher and consume a big portion of that incremental fuel margin that we earned. So, as higher prices come down, there's a little bit less pressure on credit card fees. Some of the supply chain issues aren't going to go away overnight either.

To the extent some firms have traded volume for margin, trying to recapture penny profit. Their unit economics continue to be higher as a result of that. So, I think it's anyone's guess where we end up leveling out that.

And frankly, there's no certainty that prices aren't going to run right back up to where they are if we see more geopolitical unrest or disruptions in the fuel supply chain or other impacts.

So, what I would say is, we're built to win in any environment with the high volume position we have and the position we got ourselves in as prices were going up, gaining share, it even gave us more momentum now that prices are falling.

So, I think we've got our pricing position well designed where we like it, and we're just going to work -- this is going to work out really well as long as we continue to see the volatility, whether prices are very high or high or moderate to a lower level..

Got it. Thanks so much, guys and congrats on the solid quarter..

Thank you..

Your next question comes from Bonnie Herzog with Goldman Sachs. Your line is open..

Thank you. Hi, Andrew..

Good morning, Bonnie..

Good morning. I was hoping you could maybe help us understand the monthly cadence of your fuel margins during Q2. And I'm asking in the context of during the quarter, crude oil costs are rising pretty much, I think, most of the quarter.

So, just trying to get a sense of your strong margins in a sense seem a bit contrary to how things, of course, typically work when crude is rising, well aware of the structural changes, which I appreciate, but just helpful to hear about the monthly payments by quarter, please?.

Yeah.

Mindy, you want to take that?.

Sure. Hi, Bonnie. Yes. I can answer that question for you. So, during the month of April, our margins were more $0.26 in May. They're about $0.18, $0.185 and then June rebounded to almost $0.35 a gallon.

The interesting thing that happened during the month of May was not that we had volatility in the market, but it has -- because we still had a consistently rising market at that time, but it had to do when the price rises took place because three out of four weekends from the end of April through Memorial Day, the price rises occurred on Friday.

And typically, the market does not like to restore on Friday. And so what that does is, it essentially freezes you in place at a lower margin than you anticipated. And in fact, that also happened Friday before Memorial weekend as well.

And so that helped to contribute to industry-wide margins being lower in the month of May than they otherwise would have had those price increases happened during earlier in the week or middle of the week.

What we did see though was by the time that happened, the third time we did start to see some market restorations occurring even in the weekend days, which we also selectively supported. So that's kind of an overview of how the margins shook out for the quarter, just a very interesting month of May and the timing of the price increases..

No, that's super interesting and very helpful. So, I appreciate that color. And then -- so you mentioned that in July -- Andrew, I think you mentioned that what you're seeing in July so far is double what it was last year.

So, is that an acceleration then from June, what you saw just to put it in context?.

Yeah. So, when those spot prices fall, the Street price is lagging is the -- typically the higher priced retailers are only replenishing their product once a week, maybe longer than that now. So, there's two things. One is, you have a different pricing environment, kind of a steeply falling environment.

We look at our differentials this year versus the same time last year, so they're probably wider in gaining share as well. So, every month is -- frankly, every week out of every month is going to be a different price environment, and our tactics in those environments may look a little differently.

And then, I think, it goes without saying, we've talked about it before in that rising price environment, we have positive benefits from the accounting timing differences on product supply. In the falling price environment, it works the other way where there's typically some offsets..

Yeah. And that -- actually, that was going to be my second question, Andrew. Just trying to understand the driver, so the key drivers behind your PS&W outperformance, you're continuing to see it.

Just trying to get a sense of how sustainable that is? And how do we think about any maybe inventory timing benefits that you possibly found in the quarter? I think that was something you saw in Q1. Just wondering if that continues, and how to look at it going forward. Thanks..

Yeah. Well, the timing difference is just a function of our prices rising or falling. So, we had a benefit in Q2 as prices generally rose throughout the quarter. July certainly started off with falling prices as they did the last half of June.

And so, if we continue to see falling prices throughout the summer, you'll see an equal and opposite effect on a portion of the product supply contribution. The other component is just the net supply cost versus our OPIS low transfer price net of the RINs.

And given the tight supply chain and inventories are getting better, but as the supply chain was especially tight, you didn't see refiners just dumping product at the wholesale racks, which they would do in a very loose environment. So, generally, the supply margin has -- net of RINs has been stronger due to the tightness in the market.

If gasoline continues to loosen up, either because of lower demand, higher utilization, et cetera, that component might weaken a little bit as a result. But you're talking $0.01 to $0.02 variability across that versus several cents on the retail side..

All right. Thank you very much..

Your next question comes from Bobby Griffin with Raymond James. Your line is open..

Good morning, everybody. Thanks for taking my questions. I guess first, Andrew and Mindy, I want to maybe switch back over to merchandise margin. Really nice performance this quarter, despite a pretty tough supply chain in kind of inflationary environment.

So, can you maybe further unpack some of the drivers behind that new programs, some new innovation you and your partners have done, Murphy's Drive Rewards, is anything kind of what's helping the merchandise margin grow and then the sustainability of this performance going forward?.

Sure. I think the biggest gap certainly from a merchandise sales standpoint would be a lot of lottery in this period versus the same period last year and that also contributed in part to the better unit rate. So, I think that from a sales standpoint, that's probably the biggest driver there.

One of the things that we continue to see is strong tobacco growth from a margin contribution standpoint. And there's a lot of discussion around down-trading. And what we're finding is actually there's more new customers coming to us from other retailers that more than offset any down-trading that we're seeing.

And even our down-trading, I mean, we looked at about 80,000 customers that bought cigarettes from us a year ago and again this period. And of those, about 56,000 only bought premium a year ago. And the majority of those, 92% still just bought premium products. Only about 8% went to discount products.

And even more interesting, 11,000 of that 80,000 only bought discount cigarettes in 2021. And 2,000 of them or 17% traded up to premium products, given some of the promotional activity. And those that bought a mix, their premium mix was 56% and it went 54%. So, it really didn't change.

And so if our existing customer is only buying about half a pack less per week, the share gains that we're having both on premium and especially on discount cigarettes reflect a lot of new customers coming from other retailers. So that's a big driver on the tobacco side.

As I mentioned in the main script, the resets we did last year in our larger format stores really drove acceleration around packaged beverage and center of store categories, also food and beverage margin contribution improved significantly at Murphy and sales improved significantly at QuickChek.

So, we're seeing good growth across all the categories and all the formats and brands..

Okay. Very good. And then secondly, on the one-time kind of bonus payment investment for employees given some of the labor issues, is -- should we think about this as you're kind of evaluating there's a chance this could have to become permanent if the labor market stays the same.

And what I mean by permits, it rolls into permanent wages for the staff? Or like just I don't know anything to help us kind of put in context why it could be temporary, or what would drive it to be more kind of a permanent increase like we saw with some of these bonuses during the COVID period..

Well, first of all, we called it an appreciation bonus for the 100 days of summer. So, when the 100 days of summer is over, it's over from that standpoint. I mean, it's really kind of designed to, as I said, continued momentum from Q1. I appreciate the staff support their engagement and wellbeing.

The idea was, hey, can we get part-time workers to work a few more hours because of the way the incentive was designed, could we get folks to work an extra shift, would that relieve some of the pressure on our store managers, impacting turnover and engagement, et cetera.

So, it was a very focused investment that's not built into the base wage rate for which other incentives or benefits are calculated off of. We did do a summer commission program last year, but it was a commission program, so it was directly tied to sales. So, we're always looking for innovative ways to incentivize our staff.

I can't remember the number, but I think it was something like $1 million to $2 million worth of prices associated with competitions have been paid out as another way to motivate and encourage our staff. So, we look at it through the lens of what's effective in driving engagement, maintaining the sales momentum, et cetera.

And can we do it in ways that don't structurally add to our cost base where you're having to add on top of that every year when you have your salary increases or you determine benefits like our 401(k) benefits that we pay..

Very good. I appreciate the details. Congrats again on a good quarter and a good start to July..

Great. Thank you..

[Operator Instructions] Your next question comes from Carla Casella with JP Morgan. Your line is open..

Hi. It's Carla Casella. One just thing I missed, Mindy, you mentioned the gas price per gallon in the quarter. And then, I've got some other questions..

I'm sorry, what was your question?.

Could you give the price of the average price per gallon in the quarter versus last year? I think, you gave it and I just missed it..

I did give you that. It was -- hang on. $4.21 versus $2.73..

Okay. That's okay. Great.

And then, I guess, similarly on that, the labor question, aside from the one-time that you're paying, where -- how should we think about inflation, I guess, labor and other? And when is -- when do you see the peak inflation in the business? Are we past the peak?.

I think that's one of those million dollar questions, Carla, in terms of where the peak is. I think we've benefited from probably a lag given some of our contracts. And so, as you see renewals, some of those lags may kick-in.

But at the same time, as our suppliers' input costs are coming down, given our scale and buying power, we're going to certainly seek to minimize that.

Some of the cost pressures we talked about on the last call, for example, like garbage bags or thermal paper, any items around supplies or maintenance that have either a petroleum, petrochemical input or a high labor input are likely going to remain high for a little bit before coming down.

And so, it's not really clear when you would start to see deflation and prices coming down. But certainly, we're remaining innovative and looking for ways to beat inflation, which is typically our objective and which is why we designed our incentive bonus in a way that doesn't permanently add to our salary line..

Okay. And then, you gave a number for the higher cost per store.

I think, it was SG&A, but do you have what the overall amount would -- we should expect to see for the quarter?.

I'm sorry, Carla, you broke up.

For what amount?.

You gave an amount on the higher store level operating. I don't want to say this, kind of the exact word you used.

I want to say store level operating costs, and how much higher it was on a per -- I think you gave a per store hour basis, but did you give a growth number?.

Yeah. So, our new guided range is $31,500 to $32,500 per store month..

Okay..

And so, you could take the number of stores times 12 times that number and get to the answer..

Okay. Simple as that. Okay. Great. And then, one last one. Just on the -- your continued open locations and the raze-and-rebuilds, which is great to see.

Did you give an amount that you see your average construction cost going up year-over-year? Or -- and -- or how far out are you contracted on construction costs?.

We have not given that amount, and it varies. And we've got different construction partners with different contracts. We have a modular building, partner with a long-term contract and other items.

So, we are seeing inflation in those costs, but we have -- not given new pro formas with inflated cost, what I would say is, we're very return focused at the end of the day.

And so, when we look at the new construction cost or higher real estate cost or whatever the input would be, even higher labor cost or payment fees, we're also looking at the improvements we've made in merchandise, our expectations for volume and volume growth in the higher unit margin, and structurally, what is a range in which we can plan around at a minimum to establish returns.

And so that's really our focus more than some average construction costs, which might vary depending on are you building more stores in Texas versus Colorado versus Florida versus New Jersey..

Okay. Thank you..

We have reached the end of the question-and-answer session. I will turn the call back over to Andrew Clyde for closing remarks..

Great. Well, thank you for joining in today and encourage you to take a close look at our results for the quarter, as well as our ESG summary report, which we posted yesterday on our corporate website. Thank you, and look forward to talking again next quarter..

This concludes today's conference call. You may now disconnect..