Alimentation Couche-Tard's fiscal Q2 earnings grew 4.9% to US$113.5M as revenue climbed 24.2% to US$5.2B; same-store merchandise sales up 2.5% in the U.S., 3.3% in Canada
November 22, 2011
– For the quarter, diluted earnings per share at $0.61 compared to $0.57 last year, an improvement of 7.0%. Diluted earnings per share for the first half-year are up 8.8%.
Same-store merchandise sales up 2.5% in the United States and 3.3% in Canada. In the United States, excluding tobacco products influenced by the deflationary effect of the price strategy of a cigarette manufacturer, the increase is 5.3%. A clear improvement compared to last quarter.
Consolidated merchandise and service gross margin increased by $14.9 million or 2.9%, posting at 33.1%, a decrease of 0.6%.
Same-store motor fuel volume up 0.2% and total volume up 3.3% in the United States, a clear improvement over the last quarter.
Total motor fuel volume up 1.7% considering new sites selling motor fuel but down 3.0% in Canada compared to an increase of 4.9% during the second quarter of fiscal 2011, which was very high given the economic situation.
Motor fuel gross margin in the United States are up, at 17.04¢ per gallon and at 5.56¢ per litre in Canada.
Excluding electronic payment fees, operating expenses represented 27.9% of merchandise and service sales during the second quarter of fiscal 2012 compared to 28.2% during the second quarter of fiscal 2011. This ratio has improved consistently for the last 11 quarters.
Signing of two new agreements for a total of 30 company-operated stores. Since the beginning of the year, the Corporation has signed agreements for the acquisition of 201 company-operated stores, 261 stores operated by independent operators and 63 motor fuel supply agreements. Second quarter earnings do not include the impact of the majority of these transactions. These transactions should have a positive impact, mostly in the second-half of fiscal 2012.
20% increase in the quarterly dividend.
Repurchase of 1,700 Class A multiple voting shares at an average cost of CA$29.40 and 4,353,200 Class B subordinate voting shares at an average cost of CA$28.78.
For its second quarter, Alimentation Couche-Tard Inc. announces net earnings of $113.5 million, up $5.3 million or 4.9% from the comparable period of last fiscal year. The increase is mainly attributable to the drop in financial expenses, to the increased contribution of merchandise and service sales, to the strengthening of the Canadian dollar, to Couche-Tard's sound management of its expenses, as well as the Corporation's lower effective income tax rate. These items were partly offset by the slight decrease of the contribution of motor fuel sales net of expenses related to electronic payment modes.
"Consumers continue to be very price-sensitive, forcing us to maintain promotions on certain products to protect traffic, which we successfully have done since the beginning of the year", declared Alain Bouchard, President and Chief Executive Officer. "Of course, this puts pressure on our margin percentage. But our teams have shown skill and the growth of same-store merchandise sales more than compensated for the decrease in our margin percentage. Once again, we were able to deliver an increase in earnings even though motor fuel margin net of expenses related to electronic payment modes has decreased. However, we are satisfied with these margins in a long-term perspective and maintain that they are relatively comparable year-over-year on a net basis. A more significant impact on earnings is the improvement of same-store merchandise sales in both Canada and the United States compared to the last quarter which is that much more encouraging when you consider that the upcoming quarters should benefit from the incremental contribution of the stores we have recently acquired or that we are about to integrate. Furthermore, we remain very active on the acquisition side and we are currently looking at many interesting possibilities" he concluded.
As for Raymond Paré, Vice-President and Chief Financial Officer, he indicated: "The 8.8% increase in diluted earnings per share for the year to date is quite acceptable in the current economic context. We believe that the outlook for the second-half of the fiscal year is quite positive as we should benefit from the integration of our recent acquisitions. We will pursue our strategy aimed at maintaining our client base and improving the current trend in same-store merchandise sales while continuing to grow our fresh food offering. Motor fuel sales volume remains a challenge considering the persistent economic uncertainty and the high price of the product. Our performance in the United States is noteworthy when one considers that most market indicators seem to point to a decrease in motor fuel consumption. As for the decrease in same-store motor fuel volume in Canada, we have nevertheless improved our gross margin per litre. Total volume for the quarter is up by 1.7% and we are working on strategies aimed at improving the trend in same-store motor fuel volume. It should be noted that the Canadian market accounts for only 16.5% of the Corporation's total motor fuel sales volume and approximately 5.0% of the Corporation's total gross margin which is further reduced by electronic payment method costs, one of our most important operating expenses. Moreover, it is relevant to emphasize once more that in spite of this, same-store merchandise sales have notably increased". Mr Paré concluded: "We continue to use all the tools at our disposal, while maintaining a steady method and a solid balance sheet, to create value. Furthermore, we have continued to be very active with our share repurchase program. In light of this, it is natural to share this growth in value with our shareholders by once again increasing our dividend by 20.0%".
On October 13, 2011, Couche-Tard acquired from Chico Enterprises Inc., 26 company-operated stores operating in the Mid-Atlantic area of the United States. The Corporation owns the real estate for 25 sites while it leases the other one.
On November 8, 9 and 10, 2011, through its RDK joint venture, the Corporation acquired from Supervalu Inc., 27 stores operating in the Chicago area, Illinois, United States. The agreement also includes the transfer to RDK of two vacant land parcels. Out of the 27 stores, 14 are company-operated while the other 13 are operated by independent operators. RDK owns the real estate for 24 sites as well as the two vacant land parcels while it leases the real estate for the three other sites.
On November 16 and 17, 2011, Couche-Tard acquired from ExxonMobil, 33 company-operated stores operating under the "On the Run" banner in Louisiana, United States. The Corporation owns the real estate for 27 sites while it leases the other sites.
In addition, during the second quarter of fiscal 2012, the Corporation acquired seven additional company-operated stores through distinct transactions for a cumulated total of eight stores since the beginning of fiscal 2012.
Internal available cash and credit facilities were used for these acquisitions. The majority of these transactions have been closed after quarter-end. Thus, they did not have any impact on the second quarter results.
In September 2011, Couche-Tard signed an agreement to acquire 11 company-operated stores operating in North Carolina, United States. Assuming the closing of the transaction which is scheduled for December 2011, the Corporation would own the real estate for eight sites while it would lease the other sites. The transaction is subject to standard regulatory approvals and closing conditions.
In October 2011, Couche-Tard signed an agreement to acquire from Dead River Company, 19 company-operated stores operating under the "Dead River Convenience" banner in Maine, United States. One stand-alone quick-service restaurant would also be transferred to the Corporation. Assuming the closing of the transaction which is scheduled for December 2011, the Corporation would own the real estate for 18 sites while it would lease the other sites. The transaction is subject to standard regulatory approvals and closing conditions.
Internal available cash and credit facilities should be used for these transactions.
Considering that many of the announced transactions should close during the third quarter of fiscal 2012, Couche-Tard expects that revenues and earnings of the third and fourth quarters of fiscal 2012 will benefit from the incremental contribution of these acquisitions.
Couche-Tard completed the construction of six new stores during the 12-week period ended October 9, 2011 for a cumulated total of 11 stores since the beginning of fiscal 2012.
Share repurchase program
Program which expired October 24, 2011
Couche-Tard had a share repurchase program which allowed for the repurchase of up to 2,685,335 Class A multiple voting shares and up to 11,621,801 Class B subordinate voting shares. The program expired on October 24, 2011.
During the 12 and 24-week periods ended October 9, 2011 under this program, the Corporation repurchased 1,700 Class A multiple voting shares at an average cost of CA$29.40 and 4,353,200 Class B subordinate voting shares at an average cost of CA$28.78. From October 9, 2011 through October 24, 2011, Couche-Tard repurchased 1,000 Class A multiple voting shares at an average cost of CA$29.50 and 206,700 Class B subordinate voting shares at an average cost of CA$29.28. On a cumulative basis since the implementation of the program, and until its expiration, the Corporation repurchased 13,700 Class A multiple voting shares at an average cost of CA$25.83 and 7,121,500 Class B subordinate voting shares at an average cost of CA$27.34. Having made these repurchases, the number of Class A multiple voting shares and of Class B subordinate voting shares in circulation was reduced and the proportionate interest of all remaining shareholders in the Corporation's share capital was increased on a pro rata basis. All shares repurchased under the share repurchase program were cancelled upon repurchase.
Program effective October 25, 2011 expiring no later than October 24, 2012
During the third quarter of fiscal 2012, Couche-Tard implemented a new share repurchase program. This program allows for the repurchase of up to 2,684,420 of the 53,688,412 Class A multiple voting shares and up to 11,126,400 of the 111,264,009 Class B subordinate voting shares issued and outstanding as at October 11, 2011 (representing 5.0% of the Class A multiple voting shares issued and outstanding and 10.0% of the Class B subordinate voting shares of the public float, as at that date, respectively, as defined by applicable rules). In accordance with Toronto Stock Exchange requirements, the Corporation can repurchase a daily maximum of 1,000 Class A multiple voting shares and of 82,118 Class B subordinate voting shares. When making such repurchases, the number of Class A multiple voting shares and of Class B subordinate voting shares in circulation is reduced and the proportionate interest of all remaining shareholders in the Corporation's share capital is increased on a pro rata basis. The share repurchase period will end no later than October 24, 2012. All shares repurchased under the share repurchase program are cancelled upon repurchase.
As of November 18, 2011, since the implementation of this program, Couche-Tard repurchased 1,754,100 Class B subordinate voting shares at an average cost of CA$30.32.
During its November 22, 2011 meeting, considering Couche-Tard's good results and strong balance sheet, the Corporation's Board of Directors (the "Board") decided it was appropriate to amend the quarterly dividend by increasing it by CA$0.0125 per share, which thereby corresponds to CA$0.075 per share.
At the said meeting, accordingly, the Board declared a quarterly dividend of CA$0.075 per share for the second quarter of fiscal 2011 to shareholders on record as at December 2, 2011, payable on December 16, 2011. This is an eligible dividend within the meaning of the Income Tax Act of Canada.
Revenues amounted to $5.2 billion in the second quarter of fiscal 2012, up $1.0 billion, an increase of 24.2%, mainly attributable to an increase in motor fuel sales due to a higher average retail price at the pump, to acquisitions, to the stronger Canadian dollar as well as to the growth of same-store merchandise and service sales in the United States and Canada. These items contributing to the growth in revenues were partially offset by the decrease in same-store motor fuel volume in Canada.
For the first half-year of fiscal 2012, revenues grew by $2.0 billion, an increase of 24.1% compared to the first half-year of fiscal 2011 for reasons similar to those mentioned for the quarter.
More specifically, the growth of merchandise and service revenues for the second quarter of fiscal 2012 was $68.0 million or 4.6%, of which approximately $23.4 million was generated by a stronger Canadian dollar. As for internal growth, same-store merchandise revenues increased by 2.5% in the United States and 3.3% in Canada. For the Canadian and U.S. markets, the variance in same-store merchandise sales is attributable to Couche-Tard's merchandising strategies, to the economic condition in each of its market as well as to the investments made to enhance service and the offering of products in the its stores. In the United States, a cigarette manufacturer modified its supply terms and price structure, at the beginning of the first quarter of fiscal 2012, in order to encourage retailers to decrease or maintain low unit prices on certain of its products, which has put a deflationary pressure on the Corporation's cigarettes sales. Thus, Couche-Tard estimates that excluding tobacco products sales, its same-store merchandise sales in the United States increased by 5.3 %. However, Couche-Tard seems to hold up well in comparison to other retailers and it maintains its attention on balancing in-store traffic and margin level as well as on its market share as always.
In the first half-year of fiscal 2012, merchandise and service revenues rose by $120.8 million, a 4.0% 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 2.0% in the United States and 1.5% in Canada.
Motor fuel revenues increased by $935.5 million or 35.1% in the second quarter of fiscal 2012, of which $55.0 million stems from acquisitions and approximately $22.0 million were generated by the appreciation of the Canadian dollar against its U.S. counterpart. The still fragile economy and higher retail prices at the pump have put downward pressure on motor fuel consumption, which can explain the near stagnation of same-store motor fuel volume in the United States which increased by only 0.2% as well as the drop of 3.0% in Canada. This seems to be confirmed by the U.S. Federal Highway Administration's July, August and September 2011 Traffic Volume Trends reports which show that, month over month, travel on U.S. roads and streets declined by 2.5% in July, 1.7% in August and 1.5% in September. Additionally, in certain Canadian regions, competition caused by the sale of low-priced motor fuel on certain native reserves has adversely affected the Corporation's fuel sales. Nevertheless, total motor fuel volume increased by 3.3% in the United States and by 1.7% in Canada.
For the first half-year of fiscal 2012, motor fuel revenues increased by $1.9 billion or 35.3% of which approximately $56.0 million were generated by the appreciation of the Canadian dollar against its U.S. counterpart. Same-store motor fuel volume dropped by 0.7% in the United States and 2.0% in Canada. The higher average retail price of motor fuel generated an increase in revenues of approximately $1.6 billion.
The consolidated merchandise and service gross margin grew by $14.9 million or 2.9% in the second quarter of fiscal 2012. The consolidated margin was 33.1%, a reduction of 0.6% compared with the same quarter of fiscal 2011. In the United States, the gross margin is down 0.3% to 32.7% while in Canada, it fell by 1.2% to 33.9%. This performance reflects changes in the product-mix, the improvements brought to supply terms as well as Couche-Tard's merchandising strategy in tune with market competitiveness and economic conditions within each market. More precisely, these margin reductions reflect more aggressive promotions in certain categories to protect store traffic. However, in terms of absolute dollars, the increase in same-store merchandise sales more that offset the decrease in margin percent of these products, demonstrating that Couche-Tard's strategies paid off.
During the first half-year of fiscal 2012, the consolidated merchandise and service gross margin grew by $29.9 million or 3.0%. The consolidated margin was 33.3%. More specifically, it was 33.0% in the United States, an increase of 0.1%, and 34.0% in Canada, a decrease of 1.1%.
During the second quarter of fiscal 2012, net cash from the operation of Couche-Tard's stores reached $170.1 million, down $56.3 million compared to the second quarter of fiscal year 2011, mainly due to a less favorable change in working capital, including the reduction in accounts payable. During the first half-year of 2012, net cash from operation of the Corporation's stores reached $385.4 million, up $5.7 million from the comparable period of fiscal 2011, mainly because of higher net earnings, partially offset by a less favorable change in working capital.
During the second quarter of fiscal 2012, Couche-Tard's investing activities were primarily for the acquisition of eight stores and 63 motor fuel supply agreements for a total amount of $23.4 million and for net capital expenditures and other assets for an amount of $74.9 million. Since the beginning of the fiscal year, Couche-Tard acquired 21 stores and 63 motor fuel supply agreements for a total amount of $37.8 million and disbursed a total of $95.4 million for net capital expenditures and other assets. Couche-Tard's capital investments were primarily for the replacement of equipment in some of its stores to enhance the offering of products and services, the addition of new stores as well as the ongoing improvement of its network.
During the second quarter of fiscal 2012, the increase in debt amounted to $80.5 million while Couche-Tard paid $123.2 million under its share repurchase program and $23.5 million in dividends.
Financial Position as at October 9, 2011
As shown by the indebtedness ratios included in the "Selected Consolidated Financial Information" section and net cash provided by operating activities, Couche-Tard's financial position is excellent.
Its total consolidated assets amounted to $4.1 billion as at October 9, 2011, an increase of $128.9 million over the balance as at April 24, 2011. This increase stems primarily from the rise in cash resulting from cash flows provided by operating activities.
For the 52-week period ended October 9, 2011, Couche-Tard recorded a return on capital employed of 17.5%1.
Shareholders' equity amounted to $2.0 billion as at October 9, 2011, up $60.3 million compared to April 24, 2011, mainly reflecting net earnings of the first half-year of fiscal 2012, partially offset by dividends declared, shares repurchased and the decrease in accumulated other comprehensive income following the weakening of the Canadian dollar as at the balance sheet date. For the 52-week period ended October 9, 2011, Couche-Tard recorded a return on equity of 19.7%2.
For the remainder of fiscal year 2012, Couche-Tard expects to pursue its investments with caution in order to, amongst other things, improve its network. Given the economic climate and its attractive access to capital, Couche-Tard believes to be well-positioned to realize acquisitions and create value. However, the Corporation will continue to exercise patience in order to benefit from a fair purchase price in view of current market conditions. Couche-Tard also intends to keep an ongoing focus on supply terms and operating expenses.
The Corporation will also focus its efforts to integrate into its network stores recently acquired or in process of being acquired. Thus, more than 430 stores should be integrated into Couche-Tard's network in the course of the third and fourth quarters of fiscal 2012, which, Couche-Tard believes, should contribute to the increase in its sales and earnings significantly over the upcoming quarters.
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 its large clientele.
Alimentation Couche-Tard Inc. 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 Corporation or not) in terms of number of company-operated stores. As of October 9, 2011, Couche-Tard had a network of 5,715 convenience stores, 4,107 of which include motor fuel dispensing. The network consists of 13 business units, including nine in the United States covering 42 states and the District of Columbia, and four in Canada covering all ten provinces. More than 53,000 people are employed throughout Couche-Tard's retail convenience network and service centers.
The statements set forth in this press release, which describes Couche-Tard's objectives, projections, estimates, expectations or forecasts, may constitute forward-looking statements within the meaning of securities legislation. Positive or negative verbs such as "plan", "evaluate", "estimate", "believe" and other related expressions are used to identify such statements. Couche-Tard would like to point out that, by their very nature, forward-looking statements involve risks and uncertainties such that its results, or the measures it adopts, could differ materially from those indicated or underlying these statements, or could have an impact on the degree of realization of a particular projection. Major factors that may lead to a material difference between Couche-Tard's actual results and the projections or expectations set forth in the forward-looking statements include the effects of the integration of acquired businesses and the ability to achieve projected synergies, fluctuations in margins on motor fuel sales, competition in the convenience store and retail motor fuel industries, exchange rate variations, and such other risks as described in detail from time to time in the reports filed by Couche-Tard with securities authorities in Canada and the United States. Unless otherwise required by applicable securities laws, Couche-Tard disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking information in this release is based on information available as of the date of the release.