Couche-Tard Prepares for 'Promising Few Quarters'

Circle K parent expresses optimism in fuel, cigarette, general in-store sales

Steve Holtz, Editor in Chief, CSP Daily News

Alain Bouchard

LAVAL, Quebec -- For the past several quarters, Alain Bouchard's tone has been reserved. The president and CEO of Alimentation Couche-Tard, parent company of the Circle K convenience store chain in the United States, has generally peppered his earnings reports with talk of a "challenging economy" and "persistent competitive landscape."

That changed this week, when Bouchard spoke with genuine optimism for store sales in the U.S. "In the U.S., we see a better trend lately; the consumer more confident. It's promising for the next few quarters," he said Tuesday.

Click here to read a complete third-quarter earnings report.

Part of the change of attitude is perspective; another part is a change in company numbers that suggest a stronger future for the retailer.

"[Our] merchandise and services margin increased by almost 31%. Fuel margin increased by more than 169%," Bouchard said. "Expenses we control, not related to acquisition, increased by only 0.2%"

The chain also saw gasoline volumes grow even as U.S. traffic volume continue to stagnate.

"Same-store volume was up 0.8% in the U.S.," said vice president and CFO Raymond Pare. "The performance in the U.S. is still satisfying in light of the traffic volume trend as reported by the U.S. Federal Highway Administration, which showed that year over year, traffic in the U.S. increased only by 0.3% in October 2012, by 0.8% in November 2012, and decreased by 2.9% in December 2012."

On the other side of the coin, Couche-Tard saw reason to be optimistic about cigarette sales, a thorn in its side for the past year.

In the first quarter of the 2013 fiscal, Couche-Tard saw cigarette sales drop by 3.8%. For the most recent quarter, the decline eased up, amounting to only 1.8%, a relief for the company, which has struggled since Altria's Philip Morris instituted its Marlboro Leadership Price option, even spurring the chain to introduce its own private-label cigarette--Crown--in February 2012.

"We've done a full-wheel turn with MLP, so we see the entrance of this declining, and we're starting to see some improvement with our Crown initiative," Bouchard said. He also referenced another issue with a major tobacco company, offering few details.

"I hate to have that kind of dispute with a major supplier, but it's not always easy," he said. "The issue … was resolved in January. We started to reposition our displays and products and agreement and different pricing in all our stores four weeks ago. Already we see some improvement. … I'm very, very encouraged with the numbers we see right now."

Still, Pare maintained a more somber tone.

"In the U.S., just like in the last few quarters, the cigarette category remains a challenge on a short-term basis," he said. "We continue to monitor the situation closely with the objective to maintain and even improve the contribution from this category. Our proprietary cigarette brand, Crown, is an integral part of our strategy and continues to grow throughout the U.S."

Without the cigarette category, same-store merchandise sales in the U.S. increased by 2.6%. It's a healthy enough number to keep Bouchard in the black.

"In North America, we have our challenges in all divisions, but in general, we are seeing signs of improvement," he said. "We don't want to share the specifics, but I'm confident in North America for the coming quarters."

Laval, Quebec-based Couche-Tard's network currently includes almost 6,200 c-stores throughout North America, including approximately 4,500 stores with fuel. It has agreements for the supply of motor fuel to more than 350 sites operated by independent operators. Its North American network consists of 13 business units, including nine in the United States covering 40 states and the District of Columbia (under the Circle K banner) and four in Canada covering all 10 provinces (under the Couche-Tard and Mac's banners).

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
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