During the comparable period last fiscal year, motor-fuel gross margins in the United States were unusually high, according to the company, whereas this year's margins are closer to expectations.
Net earnings reflect Couche-Tard's prudent management of operating expenses, the [image-nocss] increase in same-store merchandise sales and motor-fuel volume, the contribution from acquisitions, the decrease in electronic-payment mode expenses due to lower motor fuel prices, as well as lower financial expenses, according to the company. These positive results were partially offset by a higher income tax rate, a weakened Canadian dollar and a higher depreciation expense.
"Except for the motor-fuel gross margin in the United States, our key performance indicators continued to improve over the second quarter. However, we feel economic conditions remain fragile," said president and CEO Alain Bouchard. "Accordingly, we prefer to remain cautious. Our second-quarter performance is nonetheless remarkable considering that the United States motor-fuel gross margin was unusually high during the comparable period last fiscal year."
Raymond Par a, vice president and CFO, added, "Our key indicators are rising in both the United States and Canada: same-store merchandise sales and motor fuel volume, merchandise and service gross margin, as well as our debt ratios. Last but not least, our operating expenses have decreased for a third quarter in a row. These results are very encouraging, especially considering that our teams are working very hard to improve the networks efficiency, product offering and customer service."
Operating Results
Revenues amounted to $3.8 billion in the second quarter of fiscal 2010, down $730.6 million, a decrease of 16.0% compared to the second quarter of fiscal 2009. The decline is chiefly the result of a $958.0-million decrease in motor-fuel revenues resulting from a lower sale price and an adverse impact of $22.0 million from a weaker Canadian dollar.
These factors were partially offset by a $145.0 million increase generated by acquisitions, as well as by the growth of same-store merchandise revenues and motor-fuel volume in both the United States and Canada.
Although lower motor-fuel sale prices may decrease total revenues, they nevertheless have a positive impact on results for several reasons: They prompt consumers to use their car more often. Hence, they are more likely to purchase more volume of motor fuel. Lower motor fuel prices leave more money in a consumer's pocket for purchases that carry higher margins, such as in-store merchandise.] Credit-card expenses are largely tied into motor fuel sale prices. Therefore, the lower the price is, the lower credit-card expenses are. Barring a wild and rapid shift in prices, motor fuel sale prices do not directly influence margins per unit (cents per gallon). In fact, these margins are rather dependent on supply and demand as well as market competitiveness. Hence, the relative margin (percentage of sales) has a tendency to increase when the retail prices decrease, the company said. As for the first half-year of fiscal 2010, revenues dropped by $1.4 billion, a decrease of 15.5% compared to the first half-year of fiscal 2009. Like for the second quarter, the decline is mainly the result of a $2.0-billion decrease in motor-fuel revenues resulting from a lower sale price and an adverse impact of $127.0 million from a weaker Canadian dollar.
These factors contributing to the decrease were partially offset by a $623.0-million increase in revenues generated by acquisitions, as well as by the growth of same-store-merchandise revenues and motor-fuel volume in both the United States and Canada.
More specifically, the growth of merchandise and service revenues for the second quarter of fiscal 2010 was $71.3 million, an increase of 5.3% compared to the same period last fiscal year, of which $38.0 million was generated by acquisitions, partially offset by a $11.0 million related to the depreciation of the Canadian dollar against its U.S. counterpart.
Regarding internal growth, as measured by same-store merchandise revenues, it rose by 2.9% in the United States, mainly because of the increase in tobacco products retail prices following the increases in taxes on these products. As for the Canadian market, the increase in same-store merchandise revenues was 5.2%.
In the first half-year, merchandise and service revenues rose by $160.1 million, a 6.0% increase compared to the same period last fiscal year for reasons similar to those of the second quarter, including an increase in same-store-merchandise revenues of 2.7% in the United States and 3.8% in Canada.
Motor-fuel revenues decreased by $801.9 million, or 25.0%, in the second quarter of fiscal 2010. The lower average retail price at the pump in the United Stated and Canada created a drop in revenues of $958.0 million.
Acquisitions contributed 37.0 million additional gallons in the second quarter of fiscal 2010, or $107.0 million in revenues, partially offset by the depreciation of the Canadian dollar against its U.S. counterpart, resulting in a decrease in revenues of $11.0 million. As for the growth in same-store motor-fuel volume, it was 3.9% in the United States and 3.3% in Canada.
For the first two quarters of fiscal 2010, acquisitions contributed 177.7 million additional gallons, or $467.0 million in revenues, partially offset by the depreciation of the Canadian dollar against its U.S. counterpart, resulting in a decrease in revenues of $62.0 million. As for the growth in same-store motor-fuel volume, it was 2.8% in the United States and 2.4% in Canada.
In summary, the company's internal growth and the contribution of its acquisitions are good considering the economic turmoil, both in terms of merchandise and service revenues and motor-fuel volume.
For the second quarter of fiscal 2010, the consolidated merchandise and service gross margin recorded a 0.2% increase in the second quarter of fiscal 2010 to 33.2%.
In the United States, despite additional tax increases on tobacco products on July 1, 2009, in Florida and Mississippiwhich add to the significant federal tax increase that became effective April 1, 2009the gross margin was 32.6%, an increase from 32.3% last fiscal year. As for Canada, the margin rose to 34.6%, a 0.2% increase. In both the United States and Canada, gross margin reflects the company's merchandising strategy in tune with market competitiveness and economic conditions within each of its market, as well as improvements to its supply terms.
During the first half-year of fiscal 2010, the merchandise and service gross margin was 33.2%. More specifically, it was 32.7% in the United States, an increase of 0.4%, and 34.4% in Canada a decrease of 0.5%. In Canada, as indicated in the Company's first quarter report, the gross margin this fiscal year compares to a gross margin last year that benefited from non-recurring amounts in the first quarter.
During the second quarter of fiscal 2010, the motor-fuel gross margin for company-operated stores in the United States decreased by 9.10 cents per gallon, from 24.88 cents per gallon last year to 15.78 cents per gallon this year. It should be noted that last year's gross margin was unusually high, whereas this year's is closer to expectations based on results from recent years.
As for the 24-week period ended October 11, 2009, the motor-fuel gross margin for company-operated stores in the United States decreased by 4.86 cents per gallon, from 20.47 cents per gallon last fiscal year to 15.61 cents per gallon this fiscal year.
Outlook
In the course of the fiscal year 2010, Couche-Tard expects to pursue its investments with caution in order to, among other things, deploy its store redesign IMPACT program. Given the economic climate and the company's attractive access to capital, Couche-Tard believes to be well positioned to realize acquisitions and create value. However, the company will continue to exercise patience in order to benefit from a fair price in view of current market conditions. The company also intends to keep an ongoing focus on its supply terms and its operating expenses.
Finally, in line with its business model, Couche-Tard intends to 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 their large clientele.
Alimentation Couche-Tard Inc., Laval, Quebec, is the leader in the Canadian convenience store industry. In North America, Couche-Tard is the largest independent convenience-store operator (whether integrated with a petroleum company or not) in terms of number of stores. Couche-Tard currently operates a network of 5,904 convenience stores, 4,128 of which include motor fuel dispensing, located in 11 large geographic markets, including eight in the United States covering 43 states and the District of Columbia, and three in Canada covering all 10 provinces.
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