7 Highlights From Couche-Tard’s First-Quarter 2019

Greg Lindenberg, Editor, CSP

couche tard logo

LAVAL, Quebec -- Strong same-store sales growth characterized Alimentation Couche-Tard Inc.’s first-quarter fiscal 2019.

The global convenience-store retailer reported net earnings of $455.6 million, compared to net earnings of $364.7 million for the same period in the previous fiscal year, driven by the contribution from acquisitions, higher fuel margins, organic growth and other factors.

“We are very pleased with the quarter, highlighted by strong year-over-year same-store sales growth across the network, with a good balance of traffic and basket growth,” Brian Hannasch, president and CEO, said on the Sept. 6 earnings call.

Here are some of the quarter’s highlights. …

1. Same-store sales

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Companywide, Couche-Tard reported total merchandise and service revenues of $3.5 billion, an increase of 27.6%. Merchandise and service gross margin increased by 0.2% in the United States, to 33.5%, mainly driven by changes in product mix.

In the United States, same-store merchandise revenue increased 4.2%, with a “good performance in the majority of the U.S. business units, including stronger sales at the [recently acquired] CST sites,” said Hannasch.

“Also, as first seen in the fourth quarter of 2018, we continue to see improving traffic trends in the U.S., particularly driven by the ramping up of our traffic-driving and promotional activities,” he said. “I believe we are seeing a combination of results of the focused work by our global marketing teams and business units in improving traffic trends and basket size and also strengthening consumer confidence.”

Photograph courtesy of Shutterstock 

2. Fuel

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Total road transportation fuel volumes grew by 31.9% for the quarter. Road transportation fuel gross margin increased by 1.95 cents per gallon (CPG) in the United States to 22.70 CPG.

"I am also pleased with our fuel volumes and margins in the U.S. and in Europe in the face of sharply higher retail prices,” Hannasch said. “We had generally healthy margins compared with the previous quarters, as well as an improvement in volumes in the business units with CST sites.”

In the United States, same-store road transportation fuel volumes increased by 0.6%.

“We also continue to focus on partnering with the right fuel brands in building differentiation into the Circle K brand, as seen in our Top-Tier additive offer that we've rolled out the selected U.S. business units,” he said. “We're also working out how to bring more value at our forecourts, including improving the speed of our pumps, our lighting and more discipline around the painting and cleaning cycles so that our customers' fuel experience can be a core differentiator at our sites.”

Photograph courtesy of Shutterstock 

3. CST update

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The quarter also marked the one-year anniversary of Couche-Tard’s acquisition of CST Brands Inc. Hannasch said he is “very proud of the integration and results. It all starts with people, and we have added a lot of great people to the Couche-Tard family who have done an amazing job turning around trends.”

CST sites had “good” same-store merchandise results for the quester, giving the U.S. network an increase of 5.4%, “driven by the success of our rebranding, improvements in our store layouts and other traffic-driving activities,” he said.

Same-store road transportation fuel volumes were up 1% at the CST sites in the United States for the quarter, continuing a positive trend and improving results quarter over quarter.

“We continue to realize impressive synergies related to the CST acquisition, which have reached approximately $189 million since the acquisition,” said Hannasch.

4. Rebranding update

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“We are also well on our way in rebranding the former [CST] Corner Stores locations to Circle K with the initiative starting in the Rocky Mountain business unit, and the ‘We are Circle K’ campaign is in full swing across Texas," Hannasch said.

The rollout of the Circle K brand in North America and Ireland is progressing steadily, said Hannasch. The new global Circle K brand and offering is in place at about 36% of U.S. sites and about 62% of European sites, he said. As of July 22, 2018, more than 3,650 stores in North America, including close to 300 stores acquired from CST and more than 1,700 stores in Europe, are now displaying the global brand.

5. Holiday update

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First-quarter 2018 “saw lots of activity and integration in reverse synergy work at our Holiday acquisition,” Hannasch said. Couche-Tard announced in July 2017 that it would acquire 522 c-stores from Bloomington, Minn.-based Holiday Stationstores. “Through the collaboration of our integrated leadership team, we're looking at ways to make Holiday significant food programs work to scale in a meaningful way in other parts of our organization.”

Holiday has “a very, very strong, disciplined team that's built a great brand up in the Northern Tier of the U.S.,” he said. Holiday has “great” operational disciplines, including labor management, store communications and traffic-driving new-to-industry store layouts. “These are all areas that we're looking at and focusing on how we bring them into our wider network,” he said.

6. New format

circle k forecourt

Couche-Tard’s Heartland Division opened a new Circle K c-store in Rockford, Ill., on July 27. The 4,351-square-foot store is a “flagship” for the division.

“The site is really pretty representative of the new sites we’ve been building the last couple of years in United States, both in terms of footprint and offer, including … a very strong focus on dispense beverage and food. It will continue to refine the food concepts and beverage concepts, including what we've learned from Holiday and CST. … This site is pretty representative, and we've been overall very pleased with the consumer response and the returns we're getting on the new-to-industry sites.”

Photograph courtesy of Greg Lindenberg 

7. Other changes to the network

irving oil

On July 3, 2018, Couche-Tard sold 13 retail sites in the Atlantic provinces in Canada to Irving Oil Ltd. for approximately $30 million. Couche-Tard acquired the stores, which Couche-Tard will continue to operate, through the CST acquisition.

The company also completed the construction, relocation or reconstruction of 10 stores during the quarter. As of July 22, 2018, it had 32 stores under construction that are slated to open in upcoming quarters.

Laval, Quebec-based Couche-Tard's retail network includes 9,978 c-stores in North America in 48 U.S. states and all 10 provinces in Canada, primarily under the Circle K and Holiday brands. Through CrossAmerica Partners LP, Allentown, Pa., Couche-Tard supplies motor fuel to approximately 1,300 U.S. locations. In Europe, Couche-Tard operates a retail network in Scandinavia, Ireland, Poland, the Baltics and Russia of 2,723 c-stores and automated fuel stations. Also, licensees operate more than 2,000 stores under the Circle K banner in 16 other countries (Cambodia, China, Costa Rica, Egypt, Guam, Honduras, Hong Kong, Indonesia, Macau, Malaysia, Mexico, Mongolia, the Philippines, Saudi Arabia, the United Arab Emirates and Vietnam), bringing the worldwide total to more than 16,000 stores.