LAVAL, Quebec -- During fiscal 2008, Alimentation Couche-Tard Inc. will pursue its investments in order to deploy its IMPACT marketing innovation program in approximately 400 stores and build or acquire approximately 60 stores on an individual basis. The company's capital budget for the fiscal year 2008 is approximately $300 million, which it plans to finance with its net cash provided by operating activities. The company said it is confident that it will be able to carry out approximately 250 store acquisitions.
Couche-Tard extended its strong performance [image-nocss] into a new fiscal year with revenues of $3.6 billion in first-quarter 2008, an increase of $716.4 million or 25.1%.
Net earnings for the 12-week period ended July 22, 2007, grew 54.9% to $69.1 million, equal to 34 cents per share or 33 cents on a diluted basis. Net earnings for first-quarter 2007 were reduced by an unusual tax expense of $9.9 million. Excluding this factor, net earnings grew by 26.8%.
"We are very pleased with this momentum," said Alain Bouchard, chairman, president and CEO of the Laval, Quebec-based convenience store company. "It shows that initiatives such as our IMPACT program as well as our branding and pricing strategies are producing solid internal growth despite tough markets right now, especially in the south of the United States. Also, the company-operated stores acquired during the last 12 months are already profitable, and they have yet to reach their full potential."
On June 5, 2007, Couche-Tard finalized, with Sterling Stores LLC, the acquisition of 28 company-operated stores operating under the Sterling banner and five land parcels, all located in northwest Ohio. During the quarter, the company also acquired four other stores through four separate transactions.
During the first quarter, Couche-Tard implemented its IMPACT program in 67 company-op stores. As a result, 52.4% of the company-op stores have now been converted to the IMPACT program.
Revenues amounted to $3.6 billion for the 12-week period ended July 22, 2007, up $716.4 million for an increase of 25.1%, of which $572.6 million is attributable to the acquisitions carried out over the past 12 months. The company earned 80.1% of its revenues in the United States, compared with 77.9% in the same quarter of the previous year.
Merchandise and service revenues grew $169.4 million or 15.5%, of which $102.8 million was generated by the stores acquired during the past 12 months and $16.3 million was generated by the 3.9% appreciation of the Canadian dollar against its U.S. counterpart. Internal growth, as measured by the increase in same-store merchandise revenues, was 3.5% in the United States and 5.4% in Canada.
This satisfactory growth of 3.5% in the United States stems primarily from Couche-Tard's pricing strategies customized for the competitive environment of each of their six region markets. More, the implementation of beer caves in their IMPACT renovations continues to provide sustained growth in this product category. The Canadian market continues to benefit from the ongoing economic boom in Western Canada. The Eastern and Central regions of the country also performed well with their customized product offering and promotions.
Motor fuel revenues increased $547 million or 31%, of which $67.6 million stems from a higher average retail price at the pump in the U.S. and Canadian company-op stores.
The stores acquired over the past 12 months contributed 142.3 million gallons during the first quarter, or $469.8 million in revenues. Internal growth, as measured by same-store motor fuel volume, fell 1.8% in the United States and rose 7.6% in Canada. In first-quarter 2008, Southeast and Florida/Gulf Coast regions made efforts to rebuild their clientele, following their strategies of the last quarter of fiscal 2007. These efforts were not done at the expense of the margin. In the U.S. Great Lakes region, Couche-Tard's competitors had recourse during the quarter to very aggressive promotions in which the company did not participate, choosing to preserve their margin. This strategy was positive on the margin of that region.
In Canada, growth is due to the strong economy in Western Canada combined with the pricing strategies implemented in Central Canada and the growing popularity of the CAA program in Quebec.
Merchandise and service gross margin was 33.4% in first-quarter 2008, down from 34.1% in first-quarter 2007. In the United States, the gross margin was 32.7%, down from 33.6% last year and in Canada, it fell slightly to 34.8% from 34.9% last year. In the United States, facing an unstable economic environment and continuous high motor fuel retail prices, many of Couche-Tard's regional markets chose to be conservative and selected strategies aiming to maintain and increase their customer base. This involved customized, aggressive promotions that did not pass increased supply costs completely to customers. These strategies will be re-assessed as customers and competitors become more responsive to retail price increases. Also, some of the stores acquired during the last 12 months were pursuing a discount strategy that has also depressed margins and will require some time to reposition.
In Canada, the slight drop in gross margin also results from the company's more aggressive pricing strategies and from a more important percentage of lower margin items in its product-mix.
Motor fuel gross margin for the company-operated stores in the United States increased to 16.73 cents per gallon compared with 13.60 cents per gallon the previous year. The trend in Canada was similar-the motor fuel gross margin was 5 cents per liter compared with 4.75 cents per liter for the quarter ended July 23, 2006. As Couche-Tard stated in previous quarters, the volatility of gross margin from one quarter to another tends to stabilize on an annual basis.
Couche-Tard currently operates a network of 5,615 convenience stores, 3,444 of which include motor fuel dispensing, located in nine large geographic markets, including six in the United States covering 29 states and three in Canada covering six provinces.
In 1998, Couche-Tard launched its Store 2000 concept, now known as the IMPACT program (Innovation-Marketing-People-Alimentation-Couche-Tard).Under the IMPACT program, to which our people actively contribute, the product and service mix is designed to create a more attractive ambience that appeals to consumers and boosts high-margin product sales. Consumers are not buying what they bought 20 years ago. They have many choices now for the same product. That means our stores have to evolve and also offer more choice with better ambience.
Each site chosen is adapted to the socio-economic and cultural uniqueness of the local community with the assistance of a multidisciplinary team made up of specialists in the fields of marketing, merchandising, real estate services, interior design and operations. The large-scale implementation of an IMPACT program generally involves an extensive foodservice program and may include a QSR. Couche-Tard introduces a simplified version of the concept in markets that are unable to absorb a large-scale conversion. The cost of a large-scale implementation of the IMPACT program normally ranges between $150,000 and $200,000, compared with a partial or simplified conversion, which costs between $60,000 and $80,000. Management believes there is an opportunity to boost gross profits by expanding this concept, particularly in certain Circle K stores.
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