"We announced weeks ago to our employees internally that salaries were frozen for the next year," Raymond Pare, vice president and CFO, reported on a third-quarter earnings call yesterday. "We also froze hiring for non-store positions [image-nocss] and took reductions of salaries at the executive level.
"We took a 10% reduction. The Board [of Directors] made the same decision this morning and also decided to take a 10% reduction of their pay in order to support [the company] and set an example for the rest of the employees," he added.
Pare said that without any measure, the minimum-wage increase would have cost the company about $20 million.
The actions were not necessitated by the earnings reported on the call.
Net earnings for the 16-week period ended Feb. 1, 2009, reached $71.1 million, or $0.36 per share on a diluted basis, higher by $20.6 million compared to $50.5 million, or $0.24 per share on a diluted basis, last year. Contributing to the third quarter net earnings were earnings stemming from acquisitions, an increase in same-store merchandise sales, higher motor-fuel gross margins in the United States, the increase in same-store fuel volume in Canada and a decrease in financial expenses.
These positive elements were partly offset by the decrease in same-store fuel volume in the United States, by the decrease in fuel and merchandise and service gross margins in Canada and by a higher tax rate compared to last year.
As for the first three quarters of fiscal year 2009, net earnings were at $215.9 million or $1.09 per share on a diluted basis compared to $173.8 million for the comparable period of the previous year.
"I am very satisfied with the results we are presenting today, while I remain realistic," said president and CEO Alain Bouchard. "The levels of same-store sales and gross margins carried out during the quarter are more than satisfactory considering the head winds we are facing and which result from the difficult economic situation.
"Our teams work hard in order to optimize our sales, as well as our margins, and they are consistently looking for cost reduction opportunities because we are very aware that we will not always be able to rely on the favorable contribution of the fuel margins," he added. "Besides, I am very pleased to see that, just like me, our people perceive these turbulent moments like an improvement opportunity and make proper decisions in order to pass through the economic crisis."
Pare underscored that despite the fact the economic crisis was making itself felt in some of its markets, Alimentation Couche-Tard is still in good shape to face it.
"Our operations continue to provide substantial net cash flows," he said. "In addition, we have a very solid financial position, access to liquidities at attractive conditions, as well as good financial ratios. The company meets all its restrictive covenants and none of its borrowings has a maturity before 2012. We are also very well positioned to take advantage of acquisition opportunities."
During the quarter, Couche-Tard implemented its IMPACT program in 54 company-operated stores (130 since the beginning of the fiscal year). As a result, 61.8% of its 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, the company has integrated 31 Irving stores in Canada during the third quarter of fiscal 2009, bringing the integrated number of stores to 234 (110 in Canada and 124 in the United States).
The company expects that the remaining stores included in the initial agreement will be integrated to its network before the end of fiscal year 2009. In addition, pursuant to the agreement, another 19 Irving stores located in the United States were added to the initial 252 stores. These 19 stores were integrated to its network during the second and third quarters of 2009.
Revenues amounted to $3.9 billion in the third quarter of 2009, down $679.2 million, for a decrease of 14.8% compared to the third quarter of 2008. The decline is chiefly the result of an $890.4-million decrease in motor-fuel revenues resulting from a drop in sale price, an adverse impact of $172.6 million from the weakening Canadian dollar and a decrease in same-store motor fuel volumes in the United States. These factors contributing to the decrease were partially offset by a $499.8 million increase generated by acquisitions, the growth of same-store merchandise revenues in the United States and Canada, as well as rising same-store motor fuel volumes in Canada.
For the first three quarters, growth in revenues was $1.1 billion or 9.6%, which boosted sales to $12.8 billion, of which $1.2 billion comes from acquisitions, $492.0 million from higher motor-fuel retail prices in addition to increased same-store merchandise revenues and motor fuel volumes in Canada. These positive items were partially offset by a drop in same-store merchandise revenues and motor-fuel volumes in the United States and the $167.3 million adverse impact of the weakening Canadian dollar. During the first three quarters, 80.0% of revenues came from the United States compared to 80.1% last year.
More specifically, the growth of merchandise and service revenues for the third quarter of 2009 was $40.3 million, an increase of 2.7% compared to the same quarter last year, of which $120.9 million was generated by acquisitions, partially offset by a $96.8 million related to the depreciation of the Canadian dollar against its U.S. counterpart.
Motor fuel revenues decreased by $719.5 million or 23.4% in the third quarter. The lower average retail price at the pump in the United States and Canada created a drop in revenues of $890.4 million.
Acquisitions contributed 174.9 million additional gallons in the third quarter, or $378.9 million in revenues, partially offset by the depreciation of the Canadian dollar against its U.S. counterpart, resulting in a decrease in revenues of $75.8 million. The same-store motor fuel volume fell 6.2% in the United States and rose 6.5% in Canada. In the United States, the negative performance is mainly due to poor economic conditions in the southern part of the country.
For the first three quarters, motor fuel revenues rose $959.2 million, up 12.6%. Acquisitions contributed an additional 324.5 million gallons or $932.0 million in sales, while the rise in the average retail price of motor fuel accounts for $492.0 million of the increase. As for internal growth, the same-store motor fuel volume dropped by 7.1% in the United States but rose by 4.1% in Canada. Finally, motor-fuel revenues were negatively impacted by the depreciation of the Canadian dollar corresponding to approximately $69.7 million.
The merchandise and service gross margin fell by 0.6% in the third quarter of 2009 from 33.6% during the same period last year. In the United States, the gross margin was 32.8%, a slight decrease from 32.9% the previous year but an improvement compared to the 32.3% gross margin posted during the second quarter of the current fiscal year.
During the first three quarters, the merchandise and services gross margin was 33.1%. More specifically, it was 32.5% in the United States and 34.5% in Canada, a decrease of 0.4% in both countries.
During the third quarter, the motor-fuel gross margin for Couche-Tard's company-operated stores in the United States increased by 3.83 cents per gallon, from 14.38 cents per gallon last year to 18.21 cents per gallon this year.
Earnings before interests, taxes, depreciation and amortization (EBITDA)(1) was $168.1 million for the third quarter and $482.8 million for the first three quarters, up 28.7% and 14.7%, respectively, compared with last year. Acquisitions contributed to EBITDA for an amount of $7.3 million during the quarter and $19.3 million during the first three quarters.
In the course of the fourth quarter of 2009, Couche-Tard will pursue its investments with caution in order to, amongst other things, deploy its IMPACT program. The company believes it may be able to realize acquisitions by seizing opportunities arising from the economic climate and from the attractive access to its credit facilities.
In view of current accessibility conditions to capital market and debt, the company believes to be in good position to create value. However, it will continue to exercise patience in order to benefit from a fair price in view of current market conditions.
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 large clientele.
Laval, Quebec-based Alimentation Couche-Tard Inc. is the second largest independent convenience-store operator (whether integrated with a petroleum company or not) in North America in terms of number of stores. Couche-Tard currently has a network of 5,444 convenience stores, 3,607 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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