Couche-Tard posts record results
LAVAL, Quebec -- Alimentation Couche-Tard Inc. has announces record results for the 12-week period ended July 17, 2005.
We are very pleased with the achievement of this strong performance. We are particularly pleased with the increases of 9.6% in our merchandise and service revenues, of 10.5% in related gross profit and of 13.5% in the motor fuel volume in our U.S. markets. These results reflect our efforts in improvements to our in-store marketing and merchandising and the selective competitive pricing in our motor fuel business. We generated cash of $42.1 [image-nocss] million [the company said it is now reporting all results in U.S. dollars] after investing $33.1 million in fixed assets and ended the quarter with $294.8 million in cash and cash equivalents. We have started fiscal year 2006 in a strong position and we expect to continue these efforts throughout the year, said Alain Bouchard, president and CEO.
During the quarter ended July 17, 2005, Couche-Tard experienced further increases in the retail price of motor fuel in its U.S. markets, primarily attributable to the volatility in the world prices for crude oil. The average retail price of motor fuel in its U.S. markets amounted to $2.18 per gallon for the 12-week period ended July 17, 2005, compared with $1.92 per gallon for the 12-week period ended July 18, 2004.
Motor fuel gross margin experiences volatility primarily as a result of the competition and the volatility of the cost of product. Although the motor fuel gross margins can be volatile quarter to quarter, they generally average out to more normal levels on an annual basis. For each of the four quarters commencing in the second quarter of fiscal 2005, motor fuel gross margins for the company-operated stores in the U.S. markets stood at 12.44 cents, 16.30 cents, 11.26 cents and 14.86 cents per gallon, respectivelywith an average of 13.90 cents per gallon for the year ended July 17, 2005 compared with 14.30 cents per gallon for the previous 12-month period ended July 18, 2004 (including Circle K's historical results). Motor fuel gross margin in the company's U.S. markets was 14.86 cents per gallon for the first quarter this year compared with 16.24 cents per gallon for the same period last year.
During the 12-week period ended July 17, 2005, Couche-Tard opened 19 new stores and 19 quick-service restaurants (QSRs) and implemented its Store 2000 Concept in 59 stores, including 11 new stores.
For the 12-week period ended July 17, 2005, Couche-Tard achieved revenues of $2.18 billion, compared with $1.83 billion for the same period in fiscal 2005, an increase of 19.1% or $347.7 million. The company recorded 76.2% of its revenues in the United States, essentially the same as 76.3% in the first quarter last year.
In the United States, revenues totaled $1.66 billion, an increase of 18.8% or $263.1 million. Growth of same-store merchandise revenues was 5.6% over the same period last year. The growth of same-store merchandise revenues reflects the efforts to increase revenues and gross margins through price optimization, changing product mix, the results from investment in Store 2000 Concept and the increase in tobacco tax with the resultant increase in the selling price of tobacco products. This growth is slightly below last year, reflecting the different stages of execution of the various programs, including price optimization strategy, in Couche-Tard's U.S. divisions. The growth of same-store motor fuel volume of 10.3% reflects the positive impact of certain pricing strategies adopted, particularly in the Southwest markets.
In Canada, revenues amounted to $519.1 million, up 19.5%, or $84.6 million of which $49 million or 11.3% was generated from merchandise and service revenues and, in particular, in the higher margin categories including foodservice. Growth of same-store merchandise revenues was 5.2% compared with the same period in the previous year, which reflects aggressive pricing on generic tobacco and certain dairy categories.
Growth of same-store motor fuel volume was 5.1% over the same period in the previous year due to certain pricing strategies.
Gross profit grew by 9.2% or $34.5 million to $408.8 million, compared with $374.3 million for the same quarter last year. This increase is mainly due to higher revenues.
Consolidated merchandise and service gross margin was 33.1%, up from 32.8% in the same period last year. The gross margin in Canada was 34.1%, up from 33.6% in the first quarter 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 gross margin in U.S. operations was 32.6%, up slightly from the same period last year.
Efforts continue to improve gross margin through price optimization and changes to the product mix emphasizing higher-margin items. These efforts have resulted in higher gross margins in certain categories and lower gross margins in other categories with resultant increase in sales. Also, tobacco gross margins have come under competitive pressures in certain areas which has had a slightly downward influence on the improvements to gross margins achieved in other categories during the 12-week period ended July 17, 2005.
Motor fuel gross margin decreased to 4.76 cents (Canadian) per liter in Canada, from 5.20 cents (Canadian) per liter in the first quarter of the previous year reflecting the increase in competitive activity, particularly in segments of Central Canada market. Motor fuel gross margin in the United States was 14.86 cents per gallon, down from 16.24 cents per gallon for the corresponding period of the previous year, reflecting both the selective pricing strategy implemented in certain areas to stimulate volume and the volatile nature of the motor fuel business.
Operating, selling, administrative and general expenses increased by $21.2 million or 7.7% over the first quarter of the previous year. This includes an increase of $4.3 million in credit card expense, which relates primarily to the increase in the retail price of motor fuel. As a percentage of total revenues, operating, selling, administrative and general expenses declined by 1.4% due to lower operating costs associated with higher motor fuel revenues, which account for a larger proportion of total revenues. As a percentage of merchandise and service revenues, operating, selling, administrative and general expenses declined by 0.5%.
Operating income for the first quarter of the year increased by 9.6%, or $7.7 million, to $88.1 million compared with $80.4 million earned in the same period of the previous fiscal year.
Gross capital expenditures for the 12-week period ended July 17, 2005 were $33.1 million. The company's capital expenditures primarily relate to expenditures on the implementation of its Store 2000 Concept, investment in new stores including a small number of existing stores, the replacement of equipment in some of its stores, including upgrading of petroleum infrastructure at a number of locations and for installation of point-of-sale (POS) systems, including scanning, at the Circle K company-operated stores that do not currently have this technology.
In connection with the Circle K acquisition, Couche-Tard expects to make certain capital improvements of up to $18.6 million at the Circle K stores, currently expected to begin in the third quarter of this year until December 2008, to comply with the requirements of the Americans with Disabilities Act. The company expects to fund these improvements with cash flows generated from operations.
Cash provided from operating activities amounted to $58.9 million in the 12-week period ended July 17, 2005, compared with $74.5 million in the 12-week period ended July 18, 2004. This represents a decrease of $15.6 million, which relates to the net change in noncash working capital items relating primarily to the increases in accounts receivable and inventory and a reduction in accounts payable amounting to a use of cash of $41.1 million in the aggregate, reduced by a decrease of income taxes receivable of $20.1 million. Accounts payable decreased by $13.6 million during the quarter, which reflects payments made in respect of accounts payable for fixed asset purchases which were made at a relatively higher level in the fourth quarter of last year. Cash flows at the level of net earnings plus depreciation and amortization, loss on disposal of fixed and other assets and future income taxes amounted to $78.4 million (or 39 cents per share), an increase of $13 million or 19.9% over the $65.4 million (or 33 cents per share) generated during the 12-week period ended July 18, 2004.
Net cash used in investing activities for the 12-week period ended July 17, 2005 amounted to $15.9 million compared with net cash used of $22.2 million for the 12-week period ended July 18, 2004. Investment in fixed assets amounted to $33.1 million, compared with $19.5 million for the 12-week period ended July 18, 2004. These capital expenditures were primarily for existing store improvements and equipment, new-store development, information systems, expenditures related to motor fuel facilities in compliance with regulatory requirements and replacement of fixed assets damaged by the Florida hurricanes. Cash generated from sale and leaseback transactions amounted to $16.8 million in the 12-week period ended July 17, 2005.
Growth Outlook: With the integration of Circle K operations successfully completed last year, we are focused on our priorities as set out in our last Annual Report namely to invest in our existing store base, adding approximately 400 stores with our Store 2000 Concept, approximately 60 QSRs and approximately 100 new store locations through new store development and small acquisitions, Bouchard said. Additionally, we will also focus on executing our plans for improvement to sales and margins through a variety of actions, including price optimization. With the successful integration of Circle K behind us and considering our strong financial position, we will seek out a larger-scale acquisition opportunity and, as stated previously, we will continue to assess the possibility of participating in the development of the Circle K network of international licensees.
Recently, Couche-Tard signed a master franchise agreement for the Circle K brand with a subsidiary of Grupo Kaltex, S.A. de C.V. (Kaltex), a Mexico-based company. The agreement provides for the opening of 250 Circle K stores in the next five years there.
Laval, Quebec-based Couche-Tard operates a network of 4,861 convenience stores, 3,016 of which include motor fuel dispensing, located in eight large geographic markets, including three in Canada and five which cover 23 American states.