LAVAL, Quebec -- Alimentation Couche-Tard Inc. reported a 53.6% decline in fourth-quarter profit, precipitated mostly by lower U.S. motor fuel margins. Net earnings for the fourth quarter of 2008 were $15.5 million (8 cents per share on a diluted basis) compared with $33.4 million (16 cents per share on a diluted basis) last year. Higher gasoline prices represented $475.5 million of the $733.2 million sales increase. Fuel margins in the United States fell to 10.02 cents a gallon from 13.12 cents, due to increases in product costs.
"The past quarter was extremely challenging in the United [image-nocss] States," said Alain Bouchard, chairman, president and CEO in a statement. "We faced turbulence on several fronts, namely an economic slack in our southern divisions combined with motor fuel margins far below historical averages, compounded by electronic payment modes expenses exceeding the four cents per gallon average this quarter. Given these circumstances, our operational teams focused on in-store execution and on maintaining our market share. We expect to be fully prepared when better market conditions arise. I would also add that we have an excellent balance sheet and a solid cash position which we fully intend to leverage when growth opportunities will arise."
Revenues for the 12-week period ended April 27, 2008, showed an increase of 24.7%, reaching $3.7 billion, an increase of $733.2 million. An amount of $475.5 million stems from rising motor fuel prices, $120.1 million result from major acquisitions and $89.8 million were generated from the appreciating value of the Canadian dollar.
Revenues amounted to $3.7 billion for the 12-week period ended April 27, 2008, up $733.2 million, for an increase of 24.7%, of which $475.5 million is attributable to soaring motor fuel prices, $120.1 million results from major acquisitions (seven stores or more that have not been in operation for a full 12-month period during fiscal 2008) and $89.8 million were generated from the appreciating value of the Canadian dollar. For the fiscal year, Couche-Tard's growth in revenues was $3.3 billion or 27.2%, which boosted its revenues to $15.4 billion. The proportion of its business in the United States is 80.5% compared with 79.7% for the previous year. For the fourth quarter of fiscal 2008, growth of same-store merchandise revenues in the United States stood at 0.1% and 2.2% in Canada.
Anemic growth in the United States is explained by difficult economic conditions, especially in the southern part of U.S. The situation was magnified by a significant rise in motor fuel retail price at the pump, leaving that much less margin on consumers' personal disposable income for in-store purchases. Finally, a tightened application of immigration laws in Arizona noticeably affected sales within the business unit whose stores had a strong concentration of Hispanic consumers.
In Canada, Couche-Tard said it believes the performance to be satisfactory given the competitive landscape in Central and Eastern Canada, the growing smuggling on tobacco products and changing weather conditions. To achieve this level of performance, business units in Canada marketed and featured products in growing demand, including value brand cigarettes and certain beverages.
Additionally, business units in the United States and Canada both pursued the implementation of one of Couche-Tard's key success factors: the IMPACT program. During the fourth quarter, Couche-Tard implemented its IMPACT program in 93 company-operated stores, for a total of 422 stores since the beginning of fiscal 2008. As a result, 61.3% of the company-operated stores have now been converted to the IMPACT program, which gives the Company considerable opportunity for future internal growth.
During fiscal 2008, merchandise and service revenues grew by $583.7 million or 12.6%, of which $268.1 million was generated by major acquisitions and $168.5 million was generated by the 9.1% appreciation of the Canadian dollar against its U.S. counterpart. Internal growth, as measured by the growth of same-store merchandise revenues, was 2.5% in the United States and 4% in Canada.
Motor fuel revenues increased by $656 million or 34.8% for the 12-week period ended April 27, 2008, of which $475.5 million st ems from a higher average retail price at the pump in the Company's U.S. and Canadian company-operated stores.
The major acquisitions contributed 30.3 million additional gallons during the 12-week period, or $96.5 million in revenues. The appreciation of the Canadian dollar against its U.S. counterpart was also responsible for $40.9 million of the increase. The same-store motor fuel volume rose 0.9% in the United States and 5.8% in Canada. The poor performance in the United States can be explained by the unfavorable economic climate in the South and by the drop in demand resulting from the sharp increase in retail prices at the pump. This was partially offset by pricing strategies focusing on maintaining customer traffic.
Growth in Canada is primarily due to the strong economy in Western Canada combined with the popularity and improvement of the CAA program in Quebec and a more focused pricing strategy in Ontario.
For fiscal 2008, motor fuel revenues rose $2.7 billion, up 36.1%, of which $1.2 billion stem from higher prices at the pump in company-operated stores in the United States and Canada. Major acquisitions contributed 412.2 million additional gallons during 2008, or $1.2 billion in revenues. The appreciation of the Canadian dollar against its U.S. counterpart was also responsible for $128.8 million of the increase. The same-store motor fuel volume fell 0.2% in the United States and rose 6.3% in Canada.
Merchandise and service gross margin was 33.7% in fourth-quarter 2008, compared with 33.9% in fourth-quarter 2007. In the United States, the gross margin was 33.2%, identical to last year. The company was successful in maintaining its gross margin in the U.S. because its business units were able to transfer to the consumer a fair portion of cost price increases driven by the marked worldwide price increase in certain commodities and raw materials. In Canada, the margin fell to 34.7%, resulting mainly from aggressive promotions in the milk and cigarettes product segments, from a temporary and unfavorable change in the product mix, as well as from nonrecurring supplier rebates received during the fourth quarter of fiscal 2007.
For fiscal 2008, the merchandise and service gross margin was 33.6%, with 33% in the United States, a 0.6% decrease, and 34.9% in Canada, down from 35.1% in 2007. In the United States, the drop is primarily due to aggressive and targeted promotions during the first three quarters. In addition, some acquisitions with discount-based strategies have also lowered the gross margin in the U.S.
Motor fuel gross margin for company-operated stores in the United States fell 3.10 cents per gallon, from 13.12 cents per gallon last year to 10.02 cents per gallon this quarter. The significant drop in margin results from marked and successive increases in product costs that the company's business units were not able to transfer immediately to the consumers because of very competitive market conditions. For fiscal year 2008, the motor fuel gross margin for company-operated stores in the United States reached 13.58 cents per gallon compared to 14.90 cents per gallon last year.
Operating, selling, administrative and general expenses rose by 1.9% as a percentage of Earnings before interests, taxes, depreciation and amortization (EBITDA) was $63.7 million in the fourth quarter, down 35.7% compared with last year, primarily due to weak motor fuel margins and the increase in certain operating expenditures such as electronic payment. For the year, EBITDA decreased 1.5% to $484.6 million, of which $32.6 million stems from major acquisitions.
Depreciation and amortization of property and equipment and other assets increased primarily due to investments made over the past 12 months through acquisitions and due to the ongoing implementation of the IMPACT program in the network.
Laval, Quebec-based Couche-Tard operates a network of 5,119 c-stores, 3,273 of which include motor fuel dispensing, located in 11 large geographic markets, including eight in the United States covering 29 states and three in Canada covering six provinces.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.