LAVAL, Quebec -- "You know us, we're not wasting any time," Brian Hannasch, president and CEO, said at the start of Alimentation Couche-Tard Inc.'s fiscal 2105 third-quarter earnings call on March 17. "As we speak, I can confirm that our teams are already actively not planning, but implementing our integration plans and realizing synergies for The Pantry."
Laval, Quebec-based Couche-Tard and Cary, N.C.-based The Pantry Inc. closed their $1.7-billion merger transaction--announced Dec. 18, 2014--on March 16, following up the next day with the quarterly call with analysts.
The Pantry operates more than 1,500 convenience stores in 13 Southeast states.
And the convenience-store giant has since announced two additional deals--a relatively small (for Couche-Tard) acquisition of 21 Tiger Tote Food Stores in Texas and 151 dealer supply contracts in Texas, Mississippi and Louisiana from Cinco J Inc., dba Johnson Oil Co., Gonzales, Texas, and a major acquisition by Couche-Tard's Statoil Fuel & Retail of 315 retail and commercial sites in Denmark from A/S Dansk Shell.
And "since the beginning of the year, we've already added more than 65 sites through acquisition of single-company stores, new construction, reconstruction or relocation of existing sites," said Hannasch.
"We have a very solid integration plan for The Pantry, and we'll be working on one for Denmark. We have a strong track record of combining the strengths of companies we acquire with our own. I'm confident these acquisitions will make us an even stronger competitor than we are today and deliver strong results for us," he said.
Regarding the synergies between Couche-Tard and The Pantry, Hannasch said, "We believe we'll be able to realize annual cost productions or expense reductions of about $85 million over the next 24 months, in addition to growing gross profit through increased sales and reduced cost of goods."
Raymond Pare, vice president and CFO, offered more details: "The $85 million synergy is cost driven. In addition to that, we are expecting some top-line improvement on the store basis. The synergies will be in all the categories; for operations and G&A [general and administrative] we already have … very solid trends. We're in fact already basically starting to execute this plan. Hopefully, 75% will be above the store and 25% basically in the stores in term of split around the synergy. … In term of pace, it will be pretty much basically equal or we'll see a small, basically two to three years, equally basically split over two years."
A big question that remains unanswered among the details that the companies have revealed so far about the merger is, will Couche-Tard convert The Pantry's Kangaroo Express stores to the Circle K convenience store brand?
Pare may have let that answer slip during the call. He said, "In term of capital, in addition of course of the rebranding, that should create some solid benefit just by refreshing these stores. We will invest in programs to improve the top line. As usual, our investment will be done with a perspective of returns globally and should be in line with their trend that they have basically in the previous year."
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And Pare also teased more to come: "Our opportunity to create value for the years to come is significant organically. We also continue to have acquisition opportunity--we'll approach these with the same financial discipline as usual."
In terms of financials, for its third quarter of fiscal 2015 ended Feb. 1, 2015, Couche-Tard announced net earnings of $248.1 million, up 36.1% over the $182.3 million for the corresponding period of fiscal 2014.
Highlights:
- Same-store merchandise revenues were up 4.5% in the United States, 1.7% in Europe and 3.6% in Canada.
- Merchandise and service gross margin stood at 32.8% in the United States, at 41% in Europe and at 32.2% in Canada, for a consolidated margin of 33.7%.
- Same-store road transportation fuel volume was up 2.8% in the United States, 2.1% in Europe and down slightly by 0.5% in Canada. Total volume was up 4.3%.
- Road transportation fuel gross margin was at 24.93 cents per gallon in the United States, at 9.81 cents (U.S.) per liter in Europe and at 6.12 cents (Canadian) per liter in Canada.
Couche-Tard operates a network of more than 6,300 convenience stores throughout North America. Its North American network consists of 13 business units, including nine in the United States (under the Circle K brand) in 40 states and four business units in Canada (under the Mac's and Couche-Tard brands) covering all 10 provinces.
In Europe, Couche-Tard operates a broad retail network across Scandinavia (Norway, Sweden and Denmark), Poland, the Baltics (Estonia, Latvia and Lithuania) and Russia, with approximately 2,250 stores--the Statoil Fuel & Retail network it acquired in 2012.
Also, under licensing agreements, about 4,600 stores are operated under the Circle K banner in 12 other countries (China, Guam, Honduras, Hong Kong, Indonesia, Japan, Macau, Malaysia, Mexico, Philippines, Vietnam and United Arab Emirates), which brings to more than 13,100 the number of sites in Couche-Tard's network.
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