LAVAL, Quebec -- Alimentation Couche-Tard Inc. said that Richard Fortin stepped down as CFO yesterday to become chairman of the board, effective October 12. He will continue to sit on the Executive Committee. Alain Bouchard, currently acting as chairman, president and CEO, will remain as president and CEO. Raymond Paré, currently vice president of corporate finance and treasurer, will be promoted to the position of vice president and CFO. The changes come as the company's first-quarter profit fell 32% after higher gasoline prices led to "more careful" spending by consumers.
Concerning [image-nocss] the new management role, Fortin said, "I carefully weighed and prepared this change which meets two key objectives: I will be free to devote more time to personal ventures while continuing to actively contribute to the company's strategic direction ranging from development to financials."
Bouchard said, "We are delighted that Mr. Fortin agreed to remain in an active capacity as chairman while also continuing to sit on the Executive Committee. As a result, we can still tap into his tremendous experience and knowledge of the convenience industry."
He said Paré's new role underscores the company's dedication to promote talents within its own ranks when possible and to ensure a seamless transition as the company continues to grow. Paré joined Couche-Tard five years ago and has since been working closely with Fortin on all major company initiatives. More recently, Paré successfully headed a number of key projects, namely by monetizing certain property holdings and increasing the company's credit facilities, which he had previously obtained. "Under Paré's lead, our discipline and financial strength will remain intact," added Bouchard.
Net earnings for the 12-week period ended July 20, 2008, were $47.2 million, down $21.9 million compared with the $69.1 million recorded last year. During the first quarter, net earnings were impacted by a non-recurring income tax expense of $8.3 million, related to a corporate reorganization. The impact of this nonrecurring income tax expense on the company's annual income tax rate should unwind before the end of fiscal 2009 by the realization of related tax benefits.
"We definitely continue to be affected by the consequences of the difficult economic conditions in the U.S.," said Bouchard. "Once again, numerous obstacles stood before us, the most important being the economic slowdown and the sharp increase of motor fuel retail prices. These two realities have one thing in common: they negatively affect our volumes as well as our margins since, in this context, consumers are more careful with their spending. Lately, a statistic was brought to my attention, which illustrates this point: according to the U.S. Federal Highway Administration, during June 2008, Americans drove 4.7% less compared with the same period last year. That being said, we believe that because of our strong network and excellent teams as well as our good financial position, we have been able to play our game well and I am confident that we will continue to do so during the next periods."
Revenues amounted to $4.3 billion in the first quarter of 2009, up $745.5 million, for an increase of 20.9%, of which $674.9 million is related to the increase in motor fuel retail prices, $86.8 million is attributable to the major acquisitions and $49.5 million was generated by the 6.4% appreciation of the Canadian dollar against its U.S. counterpart. These positive factors were partially offset by the decrease in volume of motor fuel sold. The proportion of Couche-Tard's business in the United States was 80.6% compared with 80.1% last year.
More specifically, the growth of merchandise and service revenues for the first quarter was $39.4 million or 3.1%, of which $16.5 million was generated by the major acquisitions and $26.2 million was generated by the appreciation of the Canadian dollar against its U.S. counterpart. Regarding internal growth, as measured by the growth in same-store merchandise revenues, it remained stable in the United States and decreased by 0.7% in Canada. The absence of internal growth in the United States illustrates the economic slowdown in some regions, especially in the southern part of the country. The situation was magnified by a significant rise of 31.2% in the average retail price at the pump, leaving that much less margin on consumers' personal disposable income for in-store purchases. In the same manner, a tightened application of immigration laws in Arizona noticeably affected sales within the business unit whose stores had a strong concentration of Hispanic consumers.
Lastly, in an effort to maintain and even improve its position, despite the negative effect of the unfavorable economic conditions, Couche-Tard continued to implement one of its key success factors: its IMPACT program. As for the Canadian market, its Western Canada business unit contributed positively to the growth by applying a strategy with regards to tobacco products, which differentiates it from competitors and allows it to be identified as the place to go to purchase tobacco products. In its Eastern and Central Canada business units, the decrease in internal growth was due to unfavorable weather conditions and the negative effect of smuggling on tobacco products.
Motor fuel revenues increased $706.1 million or 30.6% in the first quarter, of which 95.6% stems from a higher average retail price at the pump in its U.S. and Canadian company-operated stores.
Major acquisitions contributed 17.9 million additional gallons in the first quarter, or $70.3 million in revenues. The appreciation of the Canadian dollar against its U.S. counterpart was also responsible for $23.3 million of the increase. Same-store motor fuel volume fell 4.5% in the United States and rose 2.8% in Canada. In the United States, the negative performance is mainly due to poor economic conditions in the southern part of the country and to the overall decline in consumer demand resulting from the sharp increase in retail prices at the pump.
Lately, a press release published by the U.S. Federal Highway Administration (FHA) reported that Americans drove 4.7% less in June 2008 compared with the same period last year. This represents the most important decline ever recorded, the company said. During this month, crude oil prices increased from approximately $126 to $143 per barrel. In Canada, the growth is considered to be excellent taking into account the 24.5% increase in motor fuel retail prices and the unfavorable weather conditions experienced during the quarter. The growth is therefore mainly due to a more focused pricing strategy in Ontario, combined with the popularity of the CAA program in Quebec. In addition, in Canada, these positive factors were partially offset by the slowdown in Alberta's economic growth.
Merchandise and service gross margin was 33.4% in the first quarter of 2009, identical to the corresponding period of 2008. In the United States, the gross margin was 32.4%, a slight decrease from 32.7% the previous year.
Major acquisitions that have a lower gross margin than the existing network also had a negative impact on the overall gross margin in the United States, but it should improve following the implementation of its integration strategies, it said.
The motor fuel gross margin for the company-operated stores in the United States decreased 1.18 cents per gallon, from 16.73 cents per gallon last year to 15.55 cents per gallon this year. In Canada, the margin rose, reaching 5.53 cents per liter compared with 5.00 cents per liter in fiscal 2008.
Laval, Quebec-based Couche-Tard currently operates a network of 5,395 convenience stores, 3,556 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.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.