These items contributing positively to net earnings were partially offset by an increase in electronic payment modes resulting from higher average motor fuel retail prices, it added.
"There is nothing like finishing a year on a great note and starting another one the same way. During fiscal 2010, we posted a record year, and we are starting fiscal 2011 with a record quarter," said president and CEO Alain Bouchard. "It's even better when the results are supported by what makes us what we are: in-store sales. Indeed, during the quarter, same-store merchandise sales as well as the merchandise and service margin both showed interesting growth. When we combine this performance to our cost-containment efforts and to a good motor fuel margin in the United States, we get a quarter of which we can be proud."
He added, "As for Casey's, of course, I am disappointed by the decision of their board of directors to reject our offers and to create obstacles without even opening the dialog. But I still believe that the combination of Casey's and Couche-Tard is in the best interest of both companies' shareholders and other stakeholders; however, we will continue to evaluate our options and take decisions based on the actions of Casey's board of directors and its shareholders."
Raymond Pare, vice president and CFO, said, "In addition to being encouraging on the operational side since growth in earnings is mostly due to the growing contribution of merchandise and service sales, this quarter's excellent performance allowed us to improve our financial position and the strength of our balance sheet which were already strong. Thus, we are in an even better position to realize our growth projects while remaining prudent. For many years, we have shown that our organic growth is as solid as our growth due to acquisitions."
He added, "It is clear that the core of our results rests principally with our merchandise and service sales which represented 76% of our gross margin for the 52-week period ended July 18, 2010. Finally, the volatility of the fuel portion decreases greatly when it is viewed on an annual basis rather than short-term."
Revenues amounted to $4.3 billion in the first quarter of fiscal 2011, up $597.8 million, an increase of 16.3%, chiefly attributable to the growth of merchandise revenues, to an increase in motor fuel sales due to higher average retail prices at the pump, to the rise in motor fuel volume sold in the United States and Canada as well as to the stronger Canadian dollar.
More specifically, the growth of merchandise and service revenues for the first quarter of fiscal 2011 was $128.0 million or 9.2%, of which approximately $45 million was generated by a stronger Canadian dollar. Internal growth, as measured by the growth in same-store merchandise revenues, was 4.4% in the United States while it stood at 6.6% in Canada. For the Canadian and U.S. markets, growth of same-store merchandise sales is attributable to Couche-Tard's merchandising strategies, to the economic condition in each of its region as well as to the investments the company made to enhance the offering of products and services in its stores. The U.S. market benefited from a tax increase on tobacco products in Florida.
Motor fuel revenues increased by $469.8 million or 20.6% in the first quarter of fiscal 2011, of which $86 million stems from additional gallons due to a growing number of sites offering motor fuel and approximately $38 million were generated by the appreciation of the Canadian dollar against its U.S. counterpart. Same-store motor fuel volume grew by 1.1% in the United States and 5.4% in Canada. The higher average retail price of motor fuel generated an increase in revenues of $249 million.
The consolidated merchandise and service gross margin was 33.6% in the first quarter fiscal 2011, up 0.4% compared with the same quarter of fiscal 2010. In the United States, the gross margin was 32.9% while it was 35.1% in Canada, a 0.1% and 0.9% increase, respectively. These increases reflect a more favorable product-mix, the improvements Couche-Tard brought to its supply terms as well as a merchandising strategy in tune with market competitiveness and economic conditions within each market.
The motor fuel gross margin for company-operated stores in the United States increased by 3.69 cents per gallon, from 15.43 cents per gallon last year to 19.12 cents per gallon this year. In Canada, the gross margin slightly fell to 5.26 (Canadian) cents per liter compared with 5.76 (Canadian) cents per liter for the first quarter of fiscal 2010.
Earnings before interests, taxes, depreciation and amortization (EBITDA) was $229.7 million for the first quarter of fiscal 2011, up 28.8% compared with the first quarter of the previous fiscal year. Depreciation expense increased due to the investments made through acquisitions, replacement of equipment, the addition of new stores and the ongoing improvement of Couche-Tard's network.
The stronger Canadian dollar, it had a favorable impact of approximately $4 million on net earnings.
During the first quarter of fiscal 2011, net cash from Couche-Tard's store operations reached $163.8 million, up $85.6 million from the first quarter of fiscal year 2010 mainly due to higher net earnings and more favorable changes in working capital.
During the first quarter of fiscal 2011, investing activities were primarily for the acquisition of six stores for an amount of $6.9 million and for capital expenditures for an amount of $26.3 million. Capital investments were primarily for the replacement of equipment in some stores to enhance the offering of products and services, the addition of new stores as well as the ongoing improvement of the company's network.
During the first quarter of fiscal 2011, Couche-Tard acquired six stores through five transactions, it said. And on June 24, 2010, the company signed an agreement to acquire 10 company-operated stores from Compac Food Stores Inc. Nine of the stores are located in the greater Mobile, Ala., area and one is located in Pensacola, Fla. The transaction is anticipated to close in September 2010 and is subject to standard regulatory approvals and closing conditions. According to a confidentiality agreement between the parties, Couche-Tard would not disclose the purchase price, to be paid with available internal cash.
On April 9, 2010, Couche-Tard publicly submitted a proposal to Casey's General Stores Inc. board to acquire all of the outstanding shares of common stock of Casey's for $36 per share, payable in cash. Casey's has 1,531 stores in nine states as of June 30, 2010.
On July 22, 2010, Couche-Tard increased its tender offer to $36.75 per share in cash. The revised proposal has a total value of approximately $1.9 billion on a fully diluted basis, including net debt of Casey's of approximately $28 million and will expire on August 30, 2010.
The increased offer represents a 26% premium over the one-year average closing share price of Casey's as of April 8, 2010 (the last trading day prior to the public disclosure of the proposal), a 20% premium over the 90-calendar day average closing share price of Casey's as of April 8, 2010, and a 16% premium over the closing price of $31.59 per share of Casey's on April 8, 2010. The increased offer also represents a 12% premium to the all-time and 52-week high trading price of common stock of Casey's trading prior to April 8, 2010.
On August 19, 2010, Couche-Tard mailed a letter to the shareholders of Casey's along with its definitive proxy materials in connection with the 2010 annual meeting of shareholders of Casey's to be held on September 23, 2010. The company is soliciting votes to, among other things, elect its slate of eight highly qualified, independent candidates to the Casey's board.
(See additional coverage in this issue of CSP Daily News, andclick here for previous coverage of the Casey's/Couche-Tard saga.)
In the course of the fiscal 2011, Couche-Tard expects to pursue its investments with caution in order to, amongst other things, improve its network. Given the economic climate and its attractive access to capital, Couche-Tard believes to be well positioned to realize acquisitions and create value; however, Couche-Tard will continue to exercise patience in order to benefit from a fair price in view of current market conditions. The company also intends to keep an ongoing focus on its supply terms and operating expenses.
In line with its business model, Couche-Tard intends to continue to focus its resources on the sale of fresh products and on innovation, including the introduction of new products and services, in order to satisfy the needs of its large clientele.
Laval, Quebec-based Couche-Tard operates a network of 5,878 c-stores, 4,141of which include motor fuels dispensinglocated in 11 large geographic markets, including eight in the United States (operating primarily under the Circle K name) covering 43 states and the District of Columbia, and three in Canada (operating primarily under the Mac's and Couche-Tard names) covering all 10 provinces.
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