Changing customer behavior, basket growth, ‘healthy’ fuel margins contribute to strong performance
By Greg Lindenberg on Sep. 02, 2020
LAVAL, Quebec — Alimentation Couche-Tard Inc. had an “exceptional” quarter, Brian Hannasch, president and CEO, said in announcing the results of the global convenience-store company’s first-quarter fiscal 2021. It reported net earnings of $777.1 million, compared to net earnings of $538.8 million for the same fiscal 2020 period.
“During these unprecedented times, I continue to be inspired by our team members resilience, commitment to each other and to our communities,” he said on the Laval, Quebec-based company’s earnings call on Sept. 2, concerning the COVID-19 pandemic. Before diving into the details of the quarter, he also touched on Hurricane Laura, which he said was the strongest storm ever in Louisiana, an important market for the Circle K brand. “While we had damage and flooding in our stores in Laura's path, we're fortunate that none of our employees were injured, and we've already reopened the vast majority of our locations,” he said, thanking them for their dedication.
“We had an exceptional quarter, both financially and operationally as we see an increase in shopping occasions and solid execution by our teams to take advantage of changing consumer behaviors during this COVID-19 period,” Hannasch said. “This led to a very strong same-store merchandise sales across the network, driven primarily by larger baskets as consumers are certainly consolidating shopping trips.”
The company reported same-store merchandise sales increases of 7.7% in the United States, 19.9% in Canada and 3.4% in Europe, he said. “We saw strengths across many categories, especially alcohol, packaged beverage, lottery and various grocery items in addition to tobacco.”
Hannasch attributed the growth to the gradual reopening of some economies, and to continued strength in the average basket size driven by trip consolidation. Fuel margins remained “healthy” across the company’s network, he said, and fuel volumes have shown steady improvement, especially in Europe where countries have already returned to more normal behaviors ahead of the United States.
“This quarter, we pushed forward our Fresh Food, Fast program in the U.S.,” he said. “This may be the largest endeavor the company has ever undertaken in my career. The temporary pause on food store training and openings due to COVID has ended and we have nearly 875 stores up and running and remain on target.” Hannasch said the company expects to roll it out to 1,500 stores by October.
“The ease of preparation and notable quality of our products are leading to high customer satisfaction and to increased sales compared to our benchmark non-food stores,” he said, but provided no details on the program. “We also advanced in our innovation journey with the continued piloting and rollout of frictionless options for delivery and payment, as well as with our dynamic pricing capabilities both at the fuel pumps and in our stores.”
For the quarter, same-store fuel volumes decreased 21.2% in the United States, 12.4% in Europe and 25.6% in Canada compared to last year, said Hannasch. “Despite these declines, we continue to realize healthy fuel margins across the network.” During the quarter, it converted more locations to the Circle K fuel brand, bringing the total to more than 2,350 sites in North America.
On the financial side, Couche-Tard “delivered another solid quarter in the face of a challenging and unprecedented macroeconomic environment caused by the COVID-19 pandemic,” CFO Claude Tessier said. “Our first-quarter performance once again demonstrated the resilience of our agile business model, both from a financial and an operational standpoint. Throughout the quarter, we remained focused on maximizing cash flows by containing costs and reducing non-critical capital expenditures to best navigate the turbulence and emerge from the crisis in a position of strength. I am especially proud of our teams' execution, as we generated record free cash flow and exited the quarter with a healthy leverage ratio and liquidity of nearly $5.8 billion through our available cash and undrawn operating credit facility. We stand ready to invest once again in our operations in support of our five-year growth plan, as the various economies in which we operate gradually ramp up."
During the quarter, Couche-Tard closed the fifth transaction of the December 2018 asset exchange agreement with CrossAmerica Partners LP, Allentown, Pa. In this fifth transaction, Couche-Tard transferred 29 U.S. Circle K stores for a total value of approximately $32 million. In exchange, CrossAmerica transferred the real estate for 13 properties of an equivalent value. The companies expect to exchange the remaining assets of this agreement in the second half of calendar-year 2020.
Also during the quarter, Couche-Tard acquired one company-operated store and completed the construction of 16 stores and the relocation or reconstruction of eight stores. As of July 19, 2020, it had another 23 stores under construction.
Meanwhile, in late August, Couche-Tard acquired 10 company-operated stores from Wadsworth Oil Co. Clanton Inc., all located in Alabama and operating under The Store brand.
Couche-Tard is No. 2 in CSP's 2020 Top 202 ranking of U.S. c-store chains by number of company-owned retail outlets.
Laval, Quebec-based Couche-Tard’s retail network consists of about 9,900 c-stores in North America, approximately 5,900 in the United States under the Circle K and Holiday Stationstores banners, and the rest in Canada under the Circle K and Couche-Tard banners. It also operates or licenses c-stores in 22 other countries or territories worldwide.
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