LAVAL, Quebec -- Even after new acquisitions contributed 27 million additional gallons to its gasoline volume, Alimentation Couche-Tard Inc., Laval, Quebec, saw its overall profit sag 23% in its fiscal third quarter of 2010, primarily based on U.S. gasoline margins. But president and CEO Alain Bouchard is looking on the bright side: "Overall, third quarter's results are satisfying considering the motor fuel gross margin recorded in our U.S. markets. Despite a drop in U.S. motor fuel margins compared to the same period last fiscal year, we considerably improved our performance," [image-nocss] he said.
For its third quarter, Couche-Tard announced net earnings of $54.8 million, down $16.3 million or 22.9%, mainly the result of a 5.33-cents-per-gallon decrease in U.S. motor fuel gross margins, an estimated impact of more than $37 million after income taxes. During the comparable period last fiscal year, U.S. motor fuel gross margins were relatively high, whereas this year's margins are in the low average of expectations based on historical margins. This decrease attributable to motor fuel gross margins was partially offset by the increase in same-store merchandise sales in Canada and the United States, by the contribution from stores acquired as well as by a lower income tax rate.
"On an annual basis, margin is in line with our expectations based on historical margins which average 13 to 15 cents per gallon," Bouchard added. "It is therefore important to remember that it is advisable to analyze this component on a longer period. As a matter of fact, since the beginning of fiscal 2010, the average margin in the United States is 14.54 cents per gallon."
Raymond Pare, vice president and CFO, said, "It is even so extraordinary to see that we increased our earnings per share for the first three quarters despite the facts that our results were deprived from a $85 million after income taxes because of lower fuel margins. We are evolving in a difficult economic situation but we continued to deliver solid sales and profitability indicators. As a matter of fact, we have decreased operating expenses under our control for a fourth quarter in a row, which is quite satisfying.... Historically, motor fuel margin represents only 20% to 25% of total gross margin. The largest part of our earnings comes from merchandise and service sales, which are less volatile."
On January 6, Couche-Tard created along with Shell Oil Products US, a joint venture, RDK Ventures LLC, to operate 100 convenience stores in the Chicago area, including 69 company-operated stores and 31 stores operated by third-party operators. All of the company-op stores will be operated by Couche-Tard's Midwest Division under the Circle K banner, while Shell branded products will continue to be marketed and sold. The stores held by Shell were transferred over to the JV through a combination of purchased and contributed fee and leased sites.
During the third quarter of fiscal 2010, Couche-Tard acquired another three stores through three distinct transactions.
In addition, on January 12, Couche-Tard signed an agreement with Accel Marketing LLC to acquire eight stores in central North Carolina.
On February 16, Couche-Tard acquired from BP West Coast Products LLC its terminal facilities in Phoenix. The terminal is approved for 44,000 barrels per day and has access to petroleum products from refineries on the West Coast and in the Gulf Coast region. Strategically, this acquisition should add efficiencies in Couche-Tard's fuel supply chain servicing its retail network in Phoenix.
Revenues amounted to $4.9 billion in the third quarter of fiscal 2010, up $1 billion, an increase of 26.2% compared to the third quarter of fiscal 2009. The increase is chiefly the result of a $632 million rise in motor fuel revenues resulting from a higher average retail price, the positive impact of $154 million from a stronger Canadian dollar, a $112 million increase generated by acquisitions as well as the growth of same-store merchandise revenues in the United States and Canada and same-store motor fuel volume in Canada.
As for the first three quarters of fiscal 2010, revenues dropped by $351 million, a decrease of 2.7% compared to the first three quarters of fiscal 2009. The decline is mainly the result of a $1.4 billion decrease in motor fuel revenues resulting from a lower average retail price. This factor contributing to the decrease was partially offset by a $734 million increase in revenues generated by acquisitions, a $21 million positive impact of the stronger Canadian dollar, as well as by the growth of same-store merchandise revenues and motor fuel volume in both the United States and Canada.
More specifically, the growth of merchandise and service revenues for the third quarter of fiscal 2010 was $162.6 million, an increase of 10.5% compared to the same period of the previous fiscal year, of which $33 million was generated by acquisitions and $78 million by the appreciation of the Canadian dollar against its U.S. counterpart. Regarding internal growth, as measured by same-store merchandise revenues, it rose by 3% in the United States, attributable to the increase in tobacco products retail prices following the increases in taxes on these products. As for the Canadian market, the increase in same-store merchandise revenues was 4.9%.
In the first three quarters, merchandise and service revenues rose by $322.7 million, a 7.7% increase compared to the same period last fiscal year for reasons similar to those of the third quarter, including an increase in same-store merchandise revenues of 2.7% in the United States and 4.2% in Canada.
Motor fuel revenues increased by $860.9 million or 36.5% in the third quarter of fiscal 2010. The higher average retail price at the pump in the United Stated and Canada created a rise in revenues of $632 million, as shown in the following table, beginning with the fourth quarter of the fiscal year ended April 26, 2009.
Acquisitions contributed 27 million additional gallons in the third quarter of fiscal 2010, or $78 million in revenues, in addition to the increase in revenues of $76 million generated by the appreciation of the Canadian dollar against its U.S. counterpart. As for the same-store motor fuel volume, it dropped slightly by 0.2% in the United States and increased by 1.4% in Canada.
Motor fuel revenues decreased by $673.7 million or 7.8% for the first three quarters of fiscal 2010. Lower average retail prices led to a $1.4 billion drop in motor fuel revenues, while acquisitions contributed 205 million additional gallons, or $546 million in revenues, in addition to the $14 million increase in revenues from the appreciation of the Canadian dollar against its U.S. counterpart. As for the growth in same-store motor fuel volume, it was 1.5% in the United States and 2% in Canada.
For the third quarter of fiscal 2010, the consolidated merchandise and service gross margin remained stable at 33%. In the United States, the gross margin was 32.9%, slightly higher than the 32.8% recorded in the previous fiscal year. As for Canada, the margin fell to 33.1%, a 0.6% decrease due to a less profitable product mix, which put downward pressure on the percent margin while remaining positive in absolute amount given the increase in terms of units sold. In both the United States and Canada, revenues and gross margin reflect Couche-Tard's merchandising strategy in tune with market competitiveness and economic conditions within each market, improved supply terms as well as its revenue mix.
As for the first three quarters of fiscal 2010, the consolidated merchandise and service gross margin was 33.1%. More specifically, it was 32.8% in the United States, an increase of 0.3%, and 33.9% in Canada, a decrease of 0.6%.
During the third quarter of fiscal 2010, the motor fuel gross margin for Couche-Tard's U.S. company-operated stores decreased significantly by 5.33 cents per gallon, from 18.21 cents per gallon last year to 12.88 cents per gallon this quarter. In Canada, the margin rose, reaching 5.16 cents (Canadian) per liter compared to 4.38 (Canadian) cents per liter in the third quarter of fiscal 2009.
As for the 40-week period ended Jan. 31, 2010, the motor fuel gross margin for Couche-Tard's U.S. company-operated stores decreased by 5 cents per gallon, from 19.54 cents per gallon last fiscal year to 14.54 cents per gallon this fiscal year, a drop of 25.6%. In Canada, the margin rose, reaching 5.44 cents (Canadian) per liter compared with 4.76 cents (Canadian) per liter for the comparable period of fiscal 2009.
Couche-Tard currently operates a network of 5,883 convenience stores, 4,142 of which include motor fuel dispensing, located in 11 large geographic markets, including eight in the United States covering 43 states and the District of Columbia, and three in Canada covering all 10 provinces.
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