Earnings Preview: Couche-Tard

Fresh-food strategy expected to buoy quarterly report

LAVAL, Quebec -- Alimentation Couche-Tard has been coping well with the economic slump and is expected to show continued success today when it releases its third-quarter-earnings report, according to a preview report in The Globe & Mail.

While the economic slump has not been all that tough on the North American convenience-store sector generally, recent lifts from higher gas margins in the U.S., a stronger dollar, and the 322 southern California stores recently bought from Exxon Mobil Corp., suggest Couche-Tard investors can expect better-than-expected Q3 results of 71 cents per share, GMP Securities analyst Martin Landry told the newspaper.

Landry anticipates that Couche-Tard will continue to post healthy earnings growth in the high single to double digits “for the foreseeable future” as it expands its fresh-food program, continues to trim costs and makes more acquisitions.

This morning, Couche-Tard president and CEO Alain Bouchard and his team will likely provide a progress report on the higher-margin fresh-food strategy.

It’s a key area for the North American convenience-store giant, whose U.S. stores operate under the Circle K banner and whose Canadian brands include Mac’s in Ontario. Competition from direct rivals and from chains like Wal-Mart is heating up, and it makes sense to shift into a higher-growth, higher-margin segment to offset shrinking cigarette sales and low-margin gasoline returns, the report stated.

Fresh food accounts for about 18% of gross margins at Couche-Tard, but Bouchard wants to eventually take that to 25%. Earlier this year, Couche-Tard hired Joseph Chiovera, formerly the senior fresh-foods executive at Dallas-base 7-Eleven, to head its foodservice unit, indicating it is serious about moving aggressively on this front.

Besides organic growth, shareholders will no doubt be eager to know more about any acquisition plans, especially after last year’s failed attempt to take over a major U.S. chain, Casey’s General Stores Inc.

Bouchard recently signaled there might be acquisition opportunities in Europe, where oil-and-gas companies have begun to unload their “gas-bar” stores following the U.S. trend.

Laval, Quebec-based Couche-Tard has a network of about 5,800 outlets, most of which are in the United States.