‘Clever’ Couche-Tard Posts Record Earnings

By 
Greg Lindenberg, Editor, CSP

Couche-Tard

LAVAL, Quebec -- Controlling expenses and integrating acquisitions has allowed Alimentation Couche-Tard Inc. to post record net earnings and operating cash flow for its fourth quarter ended April 30, 2017, it said.

“During the last quarter, we continued to experience strong results in Europe while observing softer conditions in the broader North American retail industry, as well as a weak fuel margin environment in the United States, which both contributed to a slowdown in our organic growth in these regions,” said Brian Hannasch, president and CEO of Couche-Tard.

“At Circle K and Couche-Tard, we thrive on selling people time, a main focus of our global brand strategy,” he said. “Despite the challenges we faced in North America, we delivered 36.8% growth in adjusted diluted earnings per share, which is a true testament to our many strengths. We continue to benefit from our geographic diversification, our excellence in integrating acquisitions and realizing associated synergies and our strong cost-control culture—a pursuit of our ongoing quest for financial efficiency.”

CFO Claude Tessier said, “Overall, our proven ability to manage and control expenses, to grow organically and to successfully integrate acquisitions has allowed us to post record net earnings and operating cash flow, which we cleverly used to further deleverage our balance sheet.”

Here are more details on the company’s quarter and year …

Earnings highlights

Circle K
  • For its fourth quarter ended April 30, 2017, Couche-Tard reported net earnings of $277.6 million, compared with $203.9 million for the fourth quarter of fiscal 2016, an increase of $73.7 million or 36.1%.
  • Couche-Tard’s revenues were $9.6 billion for fourth-quarter fiscal 2017, up by $2.2 billion, an increase of 30.1% compared with the corresponding quarter of fiscal 2016, mainly attributable to a higher average road-transportation fuel selling price, to the contribution from acquisitions, to the continued growth in same-store merchandise revenues and road-transportation fuel volumes in the United States and in Europe, as well as to the effect of the 13th week in fourth-quarter fiscal 2017. For fiscal 2017, revenues were $37.9 billion, an increase of $3.8 billion, or 11.0%, compared with fiscal 2016.
  • The growth in merchandise and service revenues for fourth-quarter fiscal 2017 was $254.7 million. Same-store merchandise revenues increased by 1.6% in the United States, by 2.7% in Europe and decreased by 0.9% in Canada. Merchandise and service gross margin decreased by 0.4% in the United States to 33.3%. Gross margin increased by 0.9% in Europe and by 1.8% in Canada, reaching 44.0% and 34.7%, respectively. For fiscal 2017, the growth in merchandise and service revenues was $652.2 million. Road-transportation fuel revenues increased by $1.9 billion in fourth-quarter fiscal 2017. Same-store road-transportation fuel volumes saw growth of 1.7% in the United States and of 0.7% in Europe. Same-store volumes decreased by 0.2% in Canada.
  • Road-transportation fuel gross margin decreased by 1.31 cents per gallon (CPG) in the United States to 15.47 CPG. In Europe, gross margin increased by 0.09 U.S. cents per liter (CPL) to 7.83 CPL and increased by 1.54 U.S. CPL in Canada to 6.33 CPL. For fiscal 2017, road-transportation fuel revenues increased by $2.7 billion.
  • The company’s quarterly cost control was “strong,” it said, with an increase of only 2.3% on a comparable basis, despite the extra week in the fourth quarter of fiscal 2017. Excluding this extra week, Couche-Tard believes that expenses were relatively flat to the previous year.

Rebranding progress

Rebranding Circle K

This year, Couche-Tard converted more than 2,400 of its c-stores worldwide to the new, global Circle K brand.

“We successfully completed our rebranding project in Scandinavia and launched our new Circle K global convenience brand in Poland and the Baltic countries while the rollout in North America is progressing steadily and, up to now, results have been very encouraging,” said Hannasch. “More than 1,300 stores in North America and more than 1,200 stores in Europe are now proudly displaying our new global brand.”

In connection with this rebranding, the company recorded a depreciation and amortization expense of $5.3 million to earnings for fourth-quarter fiscal 2017.

In Scandinavia, “the challenge was to successfully transition from the well-established Statoil brand without affecting customer traffic in stores,” he said. “We are pleased to report outstanding results and that our integration teams surpassed the desired results with increased customer traffic at the rebranded sites, all the while managing the initial risks identified for the company, a performance that exceeded our expectations.”

Deals aplenty

CST Brands Corner Store

After the end of the quarter, in May, Couche-Tard acquired 53 company-operated c-stores operating under the Cracker Barrel brand in Louisiana.

On July 10, after the end of the quarter, Couche-Tard entered into an agreement to acquire Holiday Stationstores Inc., Bloomington, Minn., which operates a network of 522 locations—374 corporate stores and 148 franchisees in the U.S. Midwest and Alaska.

Following the closing in late June of the deal to acquire CST Brands Inc. and CrossAmerica Partners LP, “the next months will also be dedicated to the integration and the identification and evaluation of potential costs synergies as well as working on welcoming CST and CAPL to the Couche-Tard/Circle K family,” Hannasch said.

“With the CST transaction having closed, we remain committed to our usual financial discipline so that we can continue to thrive on our capacity to seek out the right acquisitions at the right price for the benefit of our stakeholders,” said Tessier.

Couche-Tard completed the acquisition of CST and its CrossAmerica master limited partnership (MLP) on June 28 in an all-cash transaction valued at $48.53 per share, with a total enterprise value of approximately $4.4 billion including net debt.

Based in San Antonio, CST has more than 2,000 c-stores throughout the U.S. Southwest, with a major presence in Texas, New York and Eastern Canada.

Couche-Tard also sold a significant portion of CST’s Canadian assets, including 159 company-operated c-stores, to Parkland Fuel Corp., Red Deer, Alberta, for approximately $745.7 million. Couche-Tard retained 157 of CST’s company-operated sites in Canada.

Also in late June, Couche-Tard entered into an agreement to sell 70 company-operated c-stores to Empire Petroleum Partners LLC, Dallas, to satisfy Federal Trade Commission (FTC) regulatory requirements associated with the CST acquisition. It expects the deal to close in the second quarter of fiscal 2018.

Acquisition math

Holiday Stationstores

Once the transaction with Empire is completed, Couche-Tard will have added 1,263 sites to its North American network because of the CST acquisition, for a value of approximately $3.7 billion.

Since April 24, 2016, it has added more than 2,000 stores through new openings and acquisitions, including CST and Cracker Barrel.

Following the acquisition of CST, Couche-Tard also became the general partner of CrossAmerica, owns 100% of its incentive distribution rights (IDR) and holds a 20.5% equity investment. It supplies motor fuel under various brands to more than 1,100 U.S. locations. The combination of CrossAmerica, with its existing wholesale network of more than 700 stores, will make Couche-Tard a leading wholesaler of motor fuel in the United States.

At the acquisition date, Couche-Tard repaid all of CST’s outstanding revolving credit loans and term loans and also launched the process to allow Couche-Tard to repay all of CST’s outstanding senior notes, which it expects to complete by the end of July 2017.

To finance this acquisition, as well as the payments of CST’s outstanding debt, Couche-Tard on June 27 entered into a new credit agreement consisting of an unsecured nonrevolving acquisition credit facility of an aggregate maximum amount of $4.3 billion. It is available exclusively to finance the acquisition of CST and the repayment of any of CST’s and its subsidiaries’ outstanding debt.

Laval, Quebec-based Couche-Tard's network includes 9,424 c-stores in North America, including 8,077 stores selling motor fuel. Its North American network consists of 18 business units, including 14 in the United States covering 42 states and four in Canada covering all 10 provinces. Brands include Circle K, Couche-Tard, Corner Store, The Pantry, Nice N Easy, Flash Foods and Holiday.

In Europe, Couche-Tard operates a retail network across Scandinavia, Ireland, Poland, the Baltics and Russia that includes 2,754 stores. And it licenses more than 1,700 Circle K stores in China, Costa Rica, Egypt, Guam, Honduras, Hong Kong, Indonesia, Macau, Malaysia, Mexico, the Philippines, the United Arab Emirates and Vietnam, which brings the worldwide total network to more than 15,000 stores.