LAVAL, Quebec -- Alimentation Couche-Tard Inc. achieved strong growth during the second quarter ended Oct. 9, 2005. Net earnings increased by $17.2 million, or 44.9%, to $55.5 million or 27 cents per share, compared with $38.3 million or $0.19 per share in the same period of the previous year.
The company further raised its position in the North American convenience store industryfrom fourth to thirdwhile remaining the most profitable independent c-store operator not integrated with a petroleum company, it said.
Our results demonstrate [image-nocss] that Couche-Tard has successfully adapted to oil market conditions while remaining competitive. In this market, which was particularly volatile during the period, we achieved satisfactory results overall by adopting a pricing strategy in certain markets to increase volume, despite the surge in pump prices, a shortage of motor fuel in some regions and the competition, said Alain Bouchard, chairman, president and CEO. "In the merchandise and services category, in both our U.S. and Canadian markets, we continue to reap the benefits of our improved purchasing terms, the ongoing betterments in our stores' product mix, our pricing strategies and the implementation of our IMPACT concepts."
The company recently added various marketing and merchandizing approaches and components to its Store 2000 differentiation concept, which it renamed under one acronymIMPACT (Innovation, Marketing and People at Alimentation Couche-Tard). "This acronym reflects not only the impact our differentiation strategies have on our customers, sales and earnings, but also the diversity of the dynamic concepts designed by our teams in order to create an inviting environment for customers," Bouchard said.
He added that The company improved profitability as operating, selling, administrative and general expenses as a percentage of revenues were further lowered during the quarter. "Our expansion initiatives are continuing and, according to the three acquisition agreements signed during the second and the third quarters, we expect to add 49 stores in the United States shortly," he said.
During the quarter, Couche-Tard experienced further increases in the retail price of motor fuel in its U.S. and Canadian markets. The average retail price of motor fuel in its U.S. markets amounted to $2.62 per gallon for the 12-week period ended October 9, compared with $1.86 per gallon for the 12-week period ended Oct. 10, 2004. The gross margin on motor fuel revenues varies primarily as a result of product cost volatility and competition.
Although motor fuel gross margins can be volatile from one quarter to the next, they generally even out on an annual basis, said The company. For each of the last four quarters commencing with the third quarter of fiscal 2005, motor fuel gross margins for The company-op stores in the U.S. markets stood at 16.30 cents, 11.26 cents, 14.86 cents and 17.05 cents per gallon respectively, with a weighted average of 14.96 cents per gallon for the 12 months ended October 9, compared with 13.25 cents per gallon for the previous 12 months ended Oct. 10, 2004 (including Circle K's historical results). The motor fuel gross margin for the U.S. company-op stores was 17.05 cents per gallon for the second quarter this year, compared with 12.44 cents per gallon for the same period last year. If the motor fuel gross margin for the second quarter this year had been the same as for the same period last year, motor fuel gross profit from company-op U.S. stores would have been approximately $20.1 million lower.
The higher retail prices for motor fuel this quarter resulted in increased credit card expense, which is based on a percentage of the retail selling prices. The increase in credit card expense for the second quarter of this fiscal year in the U.S. markets is $6 million over the second quarter of last year. Including Canada, total credit card expense increased by $6.8 million over the second quarter last year.
During the 12 weeks ended Oct. 9, 2005, Couche-Tard opened 20 new company-op stores and 14 quick-service restaurants (QSRs) and implemented its IMPACT concepts in 96 stores, including five new stores. Five affiliated stores were converted into company-op stores and four company-op stores were converted into affiliated stores. The company added 14 affiliated stores to its network whereas 14 other stores were removed. Finally, Couche-Tard closed 24 company-op stores.
During the second quarter of this year, Florida and the Gulf of Mexico were affected by two hurricanes, which resulted in some damages to certain sites. Losses, including damages related to fixed assets and inventory spoilage are estimated to result in net claims of about $10 million. In total, 105 sites were affected to various degrees, 19 of which are still closed. Of these sites, The company expects that 11 will remain permanently closed because they did not have the potential to meet their contribution expectations, six sites should be reopened within six months and two within a year. As of October 9, and from the date of occurrence of those events, The company estimated that it has lost about 1,500 store-days.
For the 12 weeks ended October 9, The company achieved revenues of $2.39 billion, compared with $1.84 billion for the same period in fiscal 2005, an increase of 29.9% or $551.6 million. The company recorded 76.6% of its revenues in the United States, compared with 75.3% in the second quarter last year. U.S. revenues totaled $1.83 billion, an increase of 32% or $443 million, of which $397.4 million or 89.7% was generated from motor fuel revenues. The growth of same-store motor fuel volume (2.2%) was negatively impacted somewhat by the surge in pump prices and a shortage of motor fuel in certain regions, but also reflected the positive impact of certain pricing strategies adopted to increase volume, particularly in the Southwest U.S. markets.
Growth of same-store merchandise revenues was 5.9% over the same period last year. This growth reflects efforts made to increase revenues and gross margins through price optimization, changing product mix, the results from investment in the IMPACT concepts conversions and the increase in tobacco tax in some regions with the resulting increase in the selling price of tobacco products.
In Canada, revenues amounted to $562.8 million (U.S.), up 23.9%, or $108.6 million, of which $62.9 million or 57.9% was generated from motor fuel revenues. The growth of same-store motor fuel volume stood at 0.9% compared with the same quarter in the previous year, which reflects pressure on consumer spending caused by the sharp jump in motor fuel prices.
Growth of same-store merchandise revenues was 4.4% compared with the same period in the previous year reflects The company's pricing strategies on certain product categories designed to increase volume, the results from investment in the IMPACT concepts conversions and Canada's favorable weather conditions this summer.
Gross profit grew by 15.9% or $57.6 million to $420.8 million, compared with $363.2 million for the same quarter last year. This increase is mainly due to higher sales and high motor fuel margins.
The consolidated merchandise and service gross margin was 33.1%, down slightly from 33.3% in the same period last year. The gross margin in Canada was 33.6%, down from 33.8% in the second quarter of the previous year, reflecting pricing strategies on certain product categories. In the United States, despite The company's continued efforts regarding price optimization and changes to the product mix in higher margin categories, the gross margin was 32.8%, compared with 33.1% for the second quarter of 2005. The decrease was primarily due to certain pricing strategies in the western U.S. markets and to competitive pressure on tobacco gross margins in certain regions, which offset the effect of gross margin
improvements achieved in other categories during the period.
The motor fuel gross margin increased to 6.02 cents (Canadian) per liter in Canada from 4.63 cents in the second quarter of the previous year. The motor fuel gross margin in the United States increased significantly to 17.05 cents per gallon, compared with 12.44 cents per gallon for the corresponding period of the previous year. These increases primarily reflect the volatile nature of the motor fuel business and the selective pricing strategy implemented in certain areas to stimulate sales volume.
During the 24 weeks ended October 9, The company opened 37 new company-op stores and 33 QSRs and implemented its IMPACT concepts in 155 stores, including 16 new stores. Seven affiliated stores were converted into company-op stores and six company-op
stores were converted into affiliated stores. It also added 44 affiliated stores to its network whereas 40 other stores were removed. Finally, it closed 27 company-op stores, including 11 stores that were closed on a permanent basis due to hurricane-related damages.
For the 24 weeks ended October 9, 2005, the company achieved revenues of $4.57 billion compared with $3.67 billion for the same period in fiscal 2005, an increase of 24.5% or $899.3 million. The company recorded 76.4% of its revenues in the United States, compared with 75.8% for the first
24 weeks of last year.
In the United States, revenues totaled $3.49 billion, an increase of 25.3% or $706.1 million. The growth of same-store motor fuel volume of 6.2% reflects the positive impact of certain pricing strategies adopted, particularly in the company's Southwest U.S. markets. The increase was tempered somewhat by the surge in pump prices and a shortage of motor fuel in certain regions. Couche-Tard recorded motor fuel revenues of $2.19 billion, up 39.7% or $623.1 million compared with the same six-month period of the previous year. Growth of same-store merchandise revenues was 5.7% over the same period last year. The growth of same-store merchandise revenues reflects efforts made to increase revenues and gross margins through price optimization, changing product mix, the results from investment in the IMPACT concepts conversions and the increase in tobacco tax in some regions with the resultant increase in the selling price of tobacco products.
In Canada, revenues amounted to $1.08 billion, up 21.7%, or $193.2 million, of which $98.5 million or 51% was generated from motor fuel revenues. Growth of same-store motor fuel revenues was 3.3% compared with the first six months of the previous year due in part to the negative impact of the sharp increase in the price of motor fuel. Merchandise and service revenues increased by $94.7 million over the same period in fiscal 2005. Growth of same-store merchandise revenues was 4.8% compared with the same period in the previous year reflecting The company's pricing strategies on certain product categories designed to increase volume.
Gross profit grew by 12.5% or $92.1 million to $829.6 million, compared with $737.5 million for the same six-month period of the previous year. This increase is mainly due to higher sales and high motor fuel margins.
The consolidated merchandise and service gross margin was 33.1%, unchanged from last year. The gross margin in Canada was 33.8%, up from 33.7% in the first six months of the previous year reflecting the impact of improvements in purchasing terms and changes in product mix with a focus on higher margin items. The increase in gross margin was partially offset by The company's pricing strategies on certain product categories designed to increase sales. In the United States, despite continued efforts regarding price optimization and changes to the product mix in higher margin categories, the gross margin was 32.7% compared with 32.8% for the first half of fiscal 2005. The decrease was primarily due to certain pricing strategies adopted in the western U.S. markets and to competitive pressure on tobacco gross margins in certain regions, which offset the effect of gross margin improvements achieved in other categories during the 24 weeks ended October 9.
The motor fuel gross margin increased to 5.39 cents (Canadian) per liter in Canada from 4.91 cents in the first six months of the previous year. The motor fuel gross margin in the United States posted a significant increase, reaching 15.94 cents per gallon compared with 14.30 cents per gallon for the corresponding period of the previous year. These increases primarily reflect the volatile nature of the motor fuel business, partially offset by the company's selective pricing strategy implemented in certain areas to increase sales volume and by strong competition in some regions.
Net earnings increased by $23.2 million, or 26.9%, to $109.6 million or 54 cents per share, compared with $86.4 million or 43 cents per share in the same period of the previous year.
Our network development, site and product mix improvement and price optimization strategy, as planned for the current fiscal year, is proceeding on track. During the next two quarters, we will pursue this program in order to achieve our objective of implementing our IMPACT concepts in about 400 sites, adding some 60 QSRs and about 100 new stores through openings and small acquisitions, as scheduled for the fiscal year ending in April 2006. We will continue our solid efforts to further improve our sales and profit margins through different initiatives," said Bouchard.
Laval, Quebec-based Couche-Tard operates a network of 4,853 convenience stores, 3,007 of which include motor fuel dispensing, located in eight large geographic markets, including three in Canada and five which cover 23 American states.
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