Acquisitions Aid Alimentation Couche-Tard

Additional c-stores in Southwest, Southeast benefit earnings, offset revenue decline

Greg Lindenberg, Editor, CSP

Alimantation Couche-Yard Mac's Circle K Statoil convenience stores

LAVAL, Quebec -- For its third quarter of fiscal 2014, Alimentation Couche-Tard Inc. reported net earnings of $182.3 million, compared to $142.2 million for the third quarter of the previous fiscal year, an increase of $40.1 million or 28.2%.

"The third-quarter earnings benefited from strong organic growth from merchandise and services as well as from road transportation fuel across all of our markets despite unfavorable weather in several of our markets. … We also benefited from the contribution from recent acquisitions," said Alain Bouchard, president and CEO.

In Oct. 2013, the company acquired 11 company-operated stores, nine of which are located in Florida and the other two in Georgia, from Publix Super Markets Inc. In Nov. 2013, Couche-Tard acquired 23 company-operated stores operating in New Mexico, United States from Albuquerque Convenience & Retail LLC.

In addition, during the quarter, it acquired two additional company-operated stores.

In Feb. 2014, Couche-Tard's Mexican operator, Circulo K, under its licensing agreement, reached an agreement to acquire 878 stores in Mexico.

The company also completed the construction of eight new stores during the 16-week period ended Feb. 2, 2014, and of 14 new stores during the 40-week period ended Feb. 2. As of that date, it had 15 stores under constructions that are slated to open in the following quarters.

"We have slowed down the new-to-industry stores for the last fiscal [period]--we are focusing on debt reimbursement--so we will have quite a big number of stores that are ready to go for the next fiscal [period]," said Bouchard. "Bigger stores with more foodservice offerings, better aligned between the divisions, so we are going with two different formats instead of five or six."

Revenues were $11.1 billion in the quarter 2014, down $373.9 million, a decrease of 3.3%. The decrease was partly offset by the contribution from acquisitions as well as by the growth in same-store merchandise revenues and road transportation fuel volume in North America and Europe.

More specifically, the growth of merchandise and service revenues for the quarter was $1.9 million or 0.1%.

Same-store merchandise revenues increased by 3.8% in the United States and 2.2% in Canada, which is really noteworthy considering the unfavorable weather which affected many of the company's markets in North America. In both countries, Couche-Tard continued to favor pricing strategies aimed at boosting in-store traffic, which helped it gain momentum in terms of transactions count while the fresh food category continued to post growth in several markets.

Road transportation fuel revenues decreased by $150.9 million or 1.9% in the quarter. This decrease was mainly attributable to the divesture and closure of stores as part of Couche-Tard's efforts to improve the quality of its network, among other factors.

Items that contributed to the reduction in revenues were partly offset by the $204.6 million contribution from acquisitions and by organic growth. In the United States and in Canada, same-store road transportation fuel volume increased by 1.3% and by 2.1%, respectively while in Europe, same-store road transportation fuel volume increased by 2.7%.

In the quarter, the consolidated merchandise and service gross margin was $780.7 million, a contraction of $8.6 million or 1.1% compared with the corresponding quarter of fiscal 2013.

In the quarter, the road transportation fuel gross margin for company-operated stores in the United States decreased by 0.78 cents per gallon, from 17.80 cents per gallon last year to 17.02 cents per gallon this year. In Canada, the gross margin is almost flat to 5.87 cents per liter compared with 5.88 cents per liter for the third quarter of fiscal 2013. In Europe, the total road transportation fuel gross margin was 11.44 cents per liter for the quarter, an increase of 1.70 cents per liter compared with 9.74 cents per liter for the third quarter of fiscal 2013.

As of Feb. 2, 2014, Laval, Quebec-based Couche-Tard's network has 6,221 c-stores throughout North America, including 4,724 stores with fuel dispensing. Its North American network consists of 13 business units, including nine in the United States (as Circle K) covering 38 states and the District of Columbia and four in Canada covering all 10 provinces (as Mac's and Couche-Tard).

In Europe, Couche-Tard operates the Statoil retail network across Scandinavia (Norway, Sweden, Denmark), Poland, the Baltics (Estonia, Latvia, Lithuania) and Russia with 2,263 stores, most of which offer road transportation fuel and convenience products, while the others are unmanned automated stations that offer road transportation fuel only. And under licensing agreements, about 4,200 stores operate under the Circle K banner in 10 other countries worldwide (China, Guam, Honduras, Hong Kong, Indonesia, Japan, Macau, Mexico, Vietnam and United Arab Emirates), which brings to more than 12,600 the number of sites in Couche-Tard's network.

Part of CSP's 2014 Convenience Top 101 retailers