LAVAL, Quebec -- Floods, pipeline disruptions and hurricanes, all of which affected Alimentation Couche‑Tard Inc.’s fiscal second-quarter 2017, couldn’t slow the company’s rollout of its global Circle K convenience-store rebranding initiative, Brian Hannasch, president and CEO, Alimentation Couche-Tard, said during the company’s earnings call.
“Our global Circle K brand rollout continues to proceed as planned and continues to gain momentum,” he said. The company has rebranded 1,430 stores globally, 777 in the United States and 653 in Europe.
“We have observed that changing the brand from Statoil to Circle K in Europe has, in fact, increased customer traffic at the rebranded sites. This performance exceeded our expectations as a decline in customer traffic can usually be expected when replacing established brands,” he said.
The quarter was a “very active” one for acquisitions, he also said.
In August, the company signed an agreement to acquire CST Brands for $4.4 billion, “strategically strengthening our positioning in both the U.S. Sun Belt and eastern Canada.”
Also in August, Couche-Tard signed a deal to buy 53 Cracker Barrel convenience stores in Louisiana from American General Investments LLC and North American Financial Group LLC.
In September, Couche-Tard received approval from the Canadian Competition Bureau to add 278 Imperial Oil sites in Ontario and Quebec, which the company integrated into its network in October.
“Via these transactions alone, close to 1,600 more stores will be flying the Circle K and Couche-Tard banners in North America,” said Hannasch.
“To attest to our ability to balance acquisitions with organic growth, same-store metrics continued to expand on both continents,” he said, “fueled by the growing popularity of our expanded foodservice offering, our effective merchandising strategies, as well the rollout of our coffee concept, Simply Great Coffee, in a growing number of stores in North America.”
Weather or Not
“During the quarter, our activities in the U.S. were negatively affected by events outside the normal course of business, including floods in Louisiana in August, the Colonial Pipeline leak in September, as well as Hurricane Matthew in October,” he said.
At various levels, these events affected more than 500 of our stores, mainly through loss of merchandise and fuel sales and incremental expenses, including inventory losses and cleanup costs.
“We were however able to limit the impact on our earnings through preventive actions. As such, we estimate that these events had a combined negative impact of approximately $4 million before income taxes on our results of the second quarter of fiscal 2017,” he said.
For the quarter, Couche-Tard announced net earnings of $324 million, compared to net earnings of $415.7 million for the previous year’s period, a decrease of $91.7 million or 22.1%.
Hannasch attributed this decrease to lower fuel margins in the United States, compared with unusually high fuel margins in the 2015 period. The effect of Couche-Tard’s continued organic growth and growth from acquisitions also contributed to the decrease in net earnings.
Couche-Tard’s revenues were $8.4 billion for the quarter, up by $8.7 million or 0.1% compared with the same period in the previous year, mainly attributable to the contribution from acquisitions and recently opened stores as well as to the continued growth in same-store merchandise revenues and fuel volumes in both North America and Europe. These items, which contributed to the growth in revenues, were partly offset by a lower fuel average selling price and to the disposal of the company’s lubricants business during the second quarter of fiscal 2016.
The growth in merchandise and service revenues for the quarter was $129 million, or 5.2%. Same-store merchandise revenues increased by 2.3% in the United States, by 3.4% in Europe and by 1.2% in Canada.
“Same-store merchandise revenues were once again up at all of our geographies due to effective merchandising strategies to the encouraging reaction from our customers to the launch of our new global brand and then growing popularity of our expanded foodservice and private-label offerings,” Hannasch said.
Fuel revenues decreased by $174.5 million in the quarter, or 3%. Same-store fuel volumes increased by 3.5% in the United States and by 0.1% in Europe, the company said, due to, among other things, the positive response from customers to the Circle K rebranding initiatives, to fuel branding and micro-market strategies, as well as to the growing contribution from premium fuel. Fuel rebranding activities in the U.S. Southeast, in addition to the negative combined effect of the floods, the Colonial Pipeline leak and Hurricane Matthew. In Canada, same-store fuel volumes decreased by 0.8%, still impacted by a challenging economy in western Canada.
Laval, Quebec-based Couche-Tard’s global retail network includes more than 12,300 locations, primarily under the Circle K brand. In North America, its network consists of approximately 8,000 c-stores, including more than 6,600 stores selling motor fuel. It has 15 business units, including 11 in the United States covering 41 states and four in Canada covering all 10 provinces. In Europe, Couche-Tard operates a retail network across Scandinavia, Ireland, Poland, the Baltics States and Russia through 10 business units. Of the more than 2,750 stores, most sell motor fuel and c-store products, while the others are unmanned automated fueling sites.
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