He added, "Despite lower motor fuel volumes resulting from supply issues and temporary store closures [image-nocss] due to hurricanes compounded by the overall drop in demand, our U.S. divisions units recorded a good performance by deriving significant motor-fuel gross margins. However, we remain prepared to deal with the significant challenge created by the difficult economic conditions, although these same conditions could also allow us to realize acquisitions at potentially advantageous terms given our solid financial position."
Net earnings for the 12-week period ended Oct. 12, 2008, reached $97.6 million, or $0.49 per share on a diluted basis, significantly higher by $43.4 million compared to $54.2 million, or $0.27 per share on a diluted basis, last year.
Contributing to the second-quarter net earnings were the sharp increases in motor-fuel gross margins in the United States, which fully offset the 10.6% decrease in same-store motor-fuel volumes in the U.S. As part of this decrease, 1.7% is attributable to the impact of fuel-supply issues and temporary store closures in the wake of hurricanes, the remaining being attributable to the general economical conditions.
On the demand side, for August only, as per the U.S. Federal Highway Administration and considering the weighting of Couche-Tard's stores in each U.S. state, the decrease in distance travelled on U.S. highways in concerned states is 6.8%. Also in the United States, the company's results were supported by the merchandise and service revenues contribution despite a slight decrease of 1.0% in same-store revenues due in part to the impact of the hurricanes and a gross margin of 32.3%.
IMPACT Program
During the quarter, Couche-Tard implemented its IMPACT program in 32 company-operated stores (76 since the beginning of the fiscal year). As a result, 58.8% of the company-operated stores have now been converted to the IMPACT program.
In connection with its commercial partnership with Irving Oil put in place during the first quarter of 2009 and relating to 252 convenience stores, Couche-Tard has integrated seven Irving stores in Canada during the second quarter of fiscal 2009, bringing the integrated number of stores to 203 from the initial 252 (79 in Canada and 124 in the U.S.).
The company expects that the remaining stores included in the initial agreement will be integrated with its network before the end of fiscal year 2009. In addition, pursuant to the agreement, another 13 stores in the United States were added to the initial 252 stores. These 13 stores were integrated with Couche-Tard's network during the second quarter.
In addition to the agreement described above, Couche-Tard integrated another 13 Irving stores in the United States during the second quarter.
Effective Nov. 7, 2008, Couche-Tard acquired, from Gate Petroleum Company, seven company-operated stores operating under the Gate banner in the Greensboro and Raleigh areas in North Carolina.
Operating Results
Revenues amounted to $4.6 billion in the second quarter of 2009, up $1.1 billion, for an increase of 30.2% compared to the second quarter of 2008, of which $707.5 million is related to the increase in motor-fuel retail prices, and $580.4 million is attributable to major acquisitions.
These factors contributing to the increase were partially offset by a decrease in same-store motor-fuel volume and a slight decrease in same-store merchandise revenues in the United States, as well as a 2.1% depreciation of the Canadian dollar against its U.S. counterpart.
For the first half-year, the growth in merchandise and services revenues was $1.8 billion or 25.5%, which boosted the revenues to $8.9 billion, of which $1.4 billion comes from higher motor-fuel retail prices, $667.3 million is attributable to major acquisitions, and $31.7 million comes from the appreciation of the Canadian dollar. Once again, these positive items where partially offset by a drop in same-store motor-fuel volumes and a slight decrease in same-store merchandise revenues in the United States. During the first two quarters, 80.3% of the company's revenues came from the United States, compared to 79.9% last year.
More specifically, the growth of merchandise and service revenues for the second quarter was $84.0 million, an increase of 6.7% compared to the same quarter last year, of which $97.7 million was generated by major acquisitions, partially offset by a $8.8 million depreciation of the Canadian dollar against its U.S. counterpart.
Regarding internal growth, as measured by the growth in same-store merchandise revenues, it fell by 1.0% in the United States while increasing by 1.4% in Canada. The decrease in the U.S. illustrates the economic slowdown in some regions, especially in the southern part of the country. The situation was magnified by a significant rise of 34.4% in the average motor-fuel retail price at the pump compared to the second quarter last year, leaving that much less margin on consumers' personal disposable income for in-store purchases.
In-store sales in the United States were also affected by motor-fuel-supply issues and temporary store closures in some U.S.-based business units in the wake of hurricanes. In the same manner, a tightened application of immigration laws in Arizona noticeably affected sales within that business unit, the stores of which had a strong concentration of Hispanic consumers.
The major acquisitions contributed 131.7 million additional gallons in the second quarter, or $482.7 million in revenues, partially offset by the depreciation of the Canadian dollar against its U.S. counterpart, resulting in a decrease in revenues of $8.9 million. Same-store motor-fuel volume fell 10.6% in the United States and rose 2.2% in Canada.
For the 24-week period ending October 12, 2008, the motor-fuel gross margin of company-operated stores in the United States stood at 20.47 cents per gallon, compared to 14.83 cents per gallon during the first two quarters of last year. In Canada, the margin rose slightly to 5.05 cents per liter in the first half of the year compared to 5.03 cents per liter last year.
Operating, selling, administrative and general expenses, for the second quarter and the first half-year, rose 16.5% and 12.0%, respectively, compared with last year. For the second quarter, higher expenses related to major acquisitions, including Irving stores, account for 10.6% of the increase, the rise in electronic payment modes expenses accounts for 1.5%, while a 1.1% increase is due to the combined impact of the conversion expenses of certain motor fuel equipment in order to comply with ethanol distribution standards and of the increase in rental charges. The remaining difference of 3.3% is chiefly due to the normal increase of the operating expenses mainly caused by inflation.
Outlook
In the course of fiscal 2009, Couche-Tard will pursue its investments with caution in order to, amongst other things, deploy its IMPACT program. The company also intends to attempt to realize acquisitions by seizing opportunities arising from the economic climate and attractive conditions to secure cash. In view of current accessibility conditions to capital market and debt, Couche-Tard believes to be in good position to create value.
Finally, in line with its business model, Couche-Tard will continue to focus its resources on the sale of fresh products and on innovation, including the introduction of new products and services, in order to satisfy the needs of its growing clientele.
Laval, Quebec-based Alimentation Couche-Tard Inc. is the second-largest independent convenience-store operator in North America (whether integrated with a petroleum company or not) in terms of number of stores. Couche-Tard currently operates a network of 5,416 convenience stores, 3,574 of which include motor fuel dispensing, located in 11 large geographic markets, including eight in the United States covering 33 states and three in Canada covering 10 provinces.
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