Alimentation Couche-Tard Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
September 5, 2024

There are 16 speakers on the call.

Operator

Good morning. I would like to welcome everyone to this web conference presenting Helmutations Couche Tard's financial results for the Q1 of fiscal year 2025. All lines will be kept on mute to prevent any background noise. After the presentation, we will answer questions from analysts asked live during the web conference. We would like to remind everyone that this webcast presentation will be available on our website for a 90 day period.

Operator

Also, please remember that some of the issues discussed during this webcast might be forward looking statements, which are provided by the corporation with its usual caveats. These caveats are risks and uncertainties are outlined in our financial reporting. Therefore, our future results could differ from the information discussed today. Our financial results will be presented by Mr. Brian Anish, President and Chief Executive Officer Mr.

Operator

Alex Miller, Chief Operating Officer and Incoming President and Chief Executive Officer and Mr. Felipe de Silva, Chief Financial Officer. Brian, you may begin your conference.

Speaker 1

All right. Thank you, Matthew, and good morning, everyone, and thank you for joining us for the presentation of our Q1 results. As most of you know, this is my last day as Couche Tard's President and CEO. While that makes today bittersweet, I'm incredibly confident that Alex Miller, we've chosen the strongest next leader for Couche Tard and that our best chapters still lay in front of us. Alex will take most of today's Q1 presentation.

Speaker 1

I'll soon hand it over to him. As I mentioned in our last call, I'll remain with Kushar as a special advisor for the next couple of years with a focus on M and A. We have some exciting developments on this front in recent weeks, which Alex will go over in a minute. It's worth noting that along with Alain Bouchard, Alex has been my closest business partner during all the acquisitions, large and small that have taken place during my CEO tenure. We share the same respectful, humble approach to new businesses, as well as Kushar's customary financial discipline.

Speaker 1

Together, we've walked away from many more deals than we've closed. I'm confident as we work together on future growth, the leadership transition will be seamless and we'll continue to bring great value to the business and to our shareholders. Now with that, I'll hand the call over to my good friend and Couche Tard's next President and CEO, Alex Miller.

Speaker 2

Thank you, Brian, and thank you for those kind words. I'm really excited to get started tomorrow. KCT has only had 2 CEOs before me, Elaine Bouchard and Brian Anish. They were both immensely successful. So I know I have massive shoes to fill.

Speaker 2

I want to once again thank both Elaine and Brian for their incredible support and graciousness during this transition time and all the many years that we have worked together. As Brian just mentioned, we have seen some good progress in recent weeks on the M and A front. In mid August, we announced a definitive agreement to acquire GetGo Cafe Markets from supermarket retailer Giant Eagle. GetGo is an innovative food first convenience store experience that operates approximately 270 convenience retail and fueling locations across Pennsylvania, Ohio, West Virginia, Maryland and Indiana. We are really looking forward to bringing GetGo team members into the family, learning more about its extremely popular made to order food and loyalty programs.

Speaker 2

We clearly see some fantastic reverse synergies with this acquisition, and we are looking to close the transaction in 2025, pending regulatory approval. I also want to mention our recent public statement on August 19, confirming the friendly, non binding proposal we sent to 7 and I Holdings. While we do not intend to discuss this further on this call or take questions on the topic, I do want to share a few words about our perspective. We have a deep respect for 7 and I and the business they have built in Japan and around the world, including their great operating model, franchisee network and brand. As you know, we are a company that has led disciplined growth by merging with locally led businesses across the globe.

Speaker 2

In regard to 7 and I, we see a strong opportunity to grow together, enhance our offerings to customers and deliver a compelling outcome for the shareholders, employees and key constituencies of both companies. We are confident in our ability to finance and complete this combination, and we look forward to engaging with 7 and I constructively. Also want to note that we are very pleased with the integration work with our 4 new European countries, as well as with the MAPCO locations we acquired. We are learning from the highly engaged teams on how best to serve their local customers and communities. Now let me get back to the results of the quarter.

Speaker 2

As weakness in consumer behavior persists, we are keeping our focus on our long term strategy and bringing everyday value to our customers. The number one reason customers visit our locations is to quench their thirst. And our several beverage campaigns has been providing exceptional value and exciting exclusive flavors. We are also bringing personalized offers and savings to our most valuable customers through our growing loyalty membership programs. While fuel volumes have been impacted by customers watching their spend, we continue to have healthy fuel margins.

Speaker 2

Overall, we remain confident in the advantages of our globally diversified business to successfully navigate these near term headwinds. Turning now to convenience. Compared to the same quarter last year, same store revenues decreased by 1.1% in the United States, by 2.1% in Europe and other regions, and by 3.9% in Canada, all impacted by constraints on discretionary spending due to challenging economic conditions for lower income consumers. It is also worth noting that Europe had positive performance during the quarter with 0.9% same store sales growth. However, the overall Europe and other region results were again impacted by weak results in our Hong Kong market, driven by an incremental cigarette tax increase.

Speaker 2

To help our customers who are seeking value, we continue to improve and grow our loyalty membership program in the U. S. And Europe. In the U. S, Inner Circle had a 17% increase in fully enrolled customers compared to last quarter.

Speaker 2

For the business units that have been on the program at least 12 months, we are seeing over 20% of transactions coming from Inner Circle members. We are also working closely with our B2B teams so that our fleet card customers can enjoy the perks and rewards of Inner Circle. In Europe, nearly half of all fuel volume is coming through extra loyalty members, and merchandise penetration is seeing strong year over year growth. We recently launched Extra! 2.0 in Sweden as a way to help drive additional traffic in that country.

Speaker 2

With our Win and Food strategy, our primary focus has shifted to enhancing operations and execution rather than growing store count, which is now at more than 5,800 globally. Our operations teams continue to look at ways to improve profitability and reduce spoilage, utilizing our new production planning tools. We are also working hard to become more local in both our food and merchandise offers to best serve the preferences of our extremely diverse global communities. We are seeing strong sales and satisfaction with our limited time offers, including our Kong breakfast sandwich and our Red Bull and wings promotion. Additional items launched during the quarter included Italian panini and roast beef and cheddar sandwiches.

Speaker 2

To further accelerate sales growth looking forward, this month we are launching $3 $4 $5 $ Bundled Meal and Beverage Deals in the U. S. To provide our customer with value offers and help accelerate traffic and unit growth. As we strive to be the number 1 thirst stop across the network, our summer beverage campaigns have provided exceptional value and exciting exclusive flavors. In the U.

Speaker 2

S, these campaigns have been very popular with our customers, leading the unit growth in dispensed beverages. However, the compelling value did compress margins this quarter. We also continued with our exclusive offerings, including Gatorade Lightning Blast, co branded Arizona Tea Dragon Fruit, Celsius Watermelon Lemonade and Mountain Dew Purple Thunder Seasonal. In Europe, packaged beverage sales continue to perform well with energy driving overall category performance. Alcohol sales are also positive in Europe with Ireland leading the way.

Speaker 2

And starting today across Ontario, Canada's largest market, we are pleased that we can now offer a selection of beer, cider, wine and ready to drink alcoholic beverages in our eligible convenience stores. While we continue to have pressure on cigarette sticks globally, we are seeing some stabilization in the U. S. Where we are outperforming our competitive peer group. This is partially due to ongoing efforts around pricing optimization and initiatives we have underway with our supply partners, including brand focused contest and personalization programs for our age verified customers.

Speaker 2

In other nicotine products, strong growth continues across the network. In the U. S, we have expanded our assortment and offers and in our European markets, nicotine pouches are performing especially well. Now we'll turn to mobility. Looking at our fuel business, same store road transportation fuel volumes decreased by 0.8% in the United States, by 1.4% in Europe and other regions, and by 2.1% in Canada.

Speaker 2

Global fuel demand remained unfavorably impacted by challenging economic conditions. And as I mentioned earlier, our fuel margins remained healthy as we continue to work on building value from our fuel supply chain and serving our customers through lower cost sourcing options. Our Europe B2B fuel business had a solid Q1 despite slightly lower volumes than last year. In our legacy business units, the Truck segment showed resilience and maintained volumes, and we are seeing some early wins with B2B customers in our 4 new European countries. In fleet, we continue to focus on developing our customer portfolio.

Speaker 2

In the U. S, the B2B fuel share continues to grow, so we expand our reach and customer base. This is predominantly driven by our fleet segment as our teams improve efficiency and effectiveness across all channels. We are also expanding our truck accessible sites, currently at about 475, which are making it fast and easy for truck drivers to get into our sites, fill up and back on the road. We continue to expand our EV fast charging network in Europe, which now consists of more than 2,800 charge points.

Speaker 2

Over the quarter, we increased the focus on our new European markets as well as in Ireland. In North America, we continued with a disciplined approach to network expansion and site selection. In organic network growth, we are making notable progress on our 500 new stores in 5 year effort. We opened 16 new stores this quarter and are on track to open nearly 100 in North America this fiscal year. As part of our strategic plan, these new stores include both high speed diesel and rural locations.

Speaker 2

Before I conclude, I want to mention the work that we are doing to improve operational excellence. We continue to implement enhancements and back office automation to simplify administrative tasks required of our store team members and managers. We are also preparing for the deployment of our RELX AI supply chain tool across North America, which we expect will improve product availability, reduce store inventory and fully optimize product assortment as it has done in our European business units. Our primary goal with these operational excellence initiatives is to free up our store team members, so they can better serve our customers and make their lives a little easier every day. And looking ahead, while riding out these near term economic headwinds, we are seeing some promising signs in the economy, especially in the U.

Speaker 2

S. As inflation is beginning to ease and interest rates are expected to be lowered in the months ahead. Our hope is that this will lessen some of the pressure on our lower end customers. And in the meantime, we will continue to find ways to provide them with value and ease both inside our stores and on our forecourts. In addition, while same store road transportation fuel volumes remain under pressure, we are encouraged that fuel margins are gradually improving.

Speaker 2

With that, I'll turn it over to Felipe.

Speaker 3

Thank you, Alex. Ladies and gentlemen, good morning. As Alex noted, we are pleased with the progress of our integration of the European retail assets from Total Energy, supported by successful technical pilots across the 4 countries. We see significant potential to grow merchandise sales, particularly in food and beverages, where our established program can be effectively introduced. This integration builds on our Satoi fuel and retail experience, and with stronger capabilities and resources, we expect to accelerate execution.

Speaker 3

We have identified $187,000,000 in synergies over the next 5 years, driven by improved merchandise sales, operational efficiencies and optimized labor management. Additionally, we are making great progress in our fit to serve initiative by using data driven insights to enhance our procurement strategy in the United States. In the coming months, we will extend this approach to our operations in Canada and Europe. I will now go over some key figures for the quarter. For more details, please refer to our MD and A available on our website.

Speaker 3

For the Q1 of fiscal 2025, net earnings attributable to shareholders of the corporation were $790,800,000 or $0.83 per share on a diluted basis. Excluding certain items described in more detail in our MD and A, adjusted net earnings attributable to shareholders of the corporation were approximately $790,000,000 compared with $838,000,000 for the Q1 of fiscal 2024. Adjusted diluted net earnings per share were $0.83 representing a decrease of 3.5 percent from $0.86 for the corresponding quarter of last year. During the Q3, excluding the net impact from foreign currency translation, merchandise and service revenues increased by approximately $232,000,000 or 5.4%, primarily attributable to the contribution from acquisition, which amounted to approximately $312,000,000 partly offset by softness in traffic. Excluding the net impact from foreign currency translation, merchandise and service gross profits increased by approximately $82,000,000 or 5.5%.

Speaker 3

This is primarily attributable to the contribution from acquisitions, which amounted to approximately $110,000,000 partly offset by softness in traffic. Our merchandise and services gross margin decreased by 0.6% in the United States to 33.7%, mainly due to investment to support our summer first campaigns, while it increased by 0.9% in Canada to 34.8%, impacted favorably by a change in product mix. In Europe and other regions, our merchandise and service gross margin decreased by 0.1% to 39.8%, impacted by the integration of certain retail assets from Total Energy, which have a different product mix than our operations in Europe and other regions. Excluding this impact, our gross margin in Europe and other regions would have increased by 1.6%, driven by a favorable change in product mix. Moving on to the fuel side of our business.

Speaker 3

In the Q1 of fiscal 2025, our raw transportation fuel gross margin was €0.4813 per gallon in the United States, a decrease of 0.0192 dollars per gallon, mainly due to the competitive pressure in some of our markets. And in Canada, it was 0.131 dollars per liter, a decrease of 0.14 dollars Canadian per liter, while in Europe and other regions, it was US0.868 dollars per liter, an increase of US0.47 dollars per liter. Notwithstanding the modest decline from the comparable quarter in some regions, fuel gross margins remained healthy throughout the network. Now looking at SG and A. For the Q1 of fiscal 2025, normalized operating expenses increased by 3.8% year over year.

Speaker 3

This is mainly driven by inflationary pressures and incremental investment in technology to support our strategic initiatives, while being partly offset by the continued strategic efforts to control our expenses, including labor efficiencies in our stores. More specifically, we have seen significant results coming from our Easy Office program, which makes it easier for our store associates to complete the administrative task, leading to a reduction of 1.3% of hours in North America in the first fiscal quarter of 2025. Excluding specific items described in more detail in our MD and A, the adjusted EBITDA for the Q1 of fiscal 2025 increased by $73,200,000 or 4.8 percent compared with the corresponding quarter of fiscal 2024, mainly due to the contribution from acquisition, which amounted to approximately $127,000,000 partly offset by softness in traffic and fuel demand as low income consumer remained impacted by challenging economic conditions and by lower road transportation fuel gross margins. From a tax perspective, the income tax rate for the Q1 of fiscal 2025 was 23.1% compared with 22.8% for the corresponding period of fiscal 2024. The increase is mainly stemming from the impact of a different mix in our earnings across the various jurisdictions in which we operate.

Speaker 3

As of July 21, 2024, we recorded a return on equity at 19.8%, and our return on capital employed stood at 12.8%. During the fiscal year, our leverage ratio decreased to 2.13. We also had strong balance sheet liquidity with $1,600,000,000 in cash and an additional $3,300,000,000 available through our main revolving credit facility. Subsequent to the end of the Q1 of fiscal 2025 and under the share repurchase program, we repurchased 8,700,000 shares through a private agreement for an amount of $508,700,000 We also repaid our Canadian dollar denominated senior unsecured notes for CAD 700,000,000 and settled the cross currency interest rate swaps associated with the notes, which had an unfavorable fair value of CAD 51,700,000 at settlement with no impact on earnings. Turning to the dividend.

Speaker 3

The Board of Directors declared yesterday a quarterly dividend of CAD0.175 per share for the Q1 of fiscal 2025 to shareholders on record as of September 13, 2024, and approve this payment effective September 27, 2024. With that, I thank you all for your attention. I will turn the call over again to our incoming President and CEO, Alex Miller.

Speaker 2

Thank you, Felipe. As I said earlier in the call, I'm looking forward to getting started as President and CEO tomorrow. I have a strong bench of executive leaders supporting me, and we are optimistic about the future of our globally diversified business.

Speaker 4

We have

Speaker 2

a strong balance sheet, the right long term strategy and exciting growth potential. Most of all, we have some of the best people and customers in the industry, and I'm deeply grateful for their continued support and commitment to our journey of becoming the world's preferred destination for convenience and mobility. On that note, let's turn it over to the operator to answer analyst questions.

Speaker 5

Thank you. Your first question comes from Irene Nattel with RBC Capital Markets. Your line is now open.

Speaker 6

Thanks and good morning everyone. Before I ask my question, I just want to say thank you to Brian, congratulations and wishing you all the best. It's been a pleasure. Moving on to my question, I understand that you're not going to specifically address 7NI, but it would be very helpful if you would remind us of your criteria for M and A, sort of what kind of hurdle rates, how you approach it, your views on the balance sheet and maybe you could even frame it within the context of the get go transaction.

Speaker 3

Yes. Thank you. Thank you, Irene. So as you know, historically, we have been very we have always had a very disciplined financial approach, and we aim to continue at that. We have demonstrated that again with the get go transaction with a single digit multiple there.

Speaker 3

And but for us, as it's very important, it's always looking at returns. It's not that multiple that important. It's more about returns. And as you know on that, again, we have always aimed at looking at 15% return on capital employed on year 3. That's our goal.

Speaker 3

Of course, we are emphasizing always on how we can get the best in terms of synergies. And that has been our approach, and we will continue to do that for any transaction that we have been looking at and will be looking at in the future. In terms of balance sheet, as you know, we have always said that our corporate level in terms of leverage is 2.25 times. That's where we want to be, I would say, on the long term. But having said that, when we wanted to be active on the M and A side, we believe that we have the power to do it.

Speaker 3

So as you know, we have we believe at least $10,000,000,000 availability in terms of balance sheet means that we know that we can go up to 3.75 times leverage with no impact on our credit ratings. That's, I would say, something that we are clear. But at the same time, you know that we it doesn't prevent us to even consider a higher leverage if needed, but always keeping in mind a financial and disciplined approach and looking also at the deleverage. We have been historically a company that has been able to deleverage quickly, and that's something that we will continue to do. So very confident about our ability to be disciplined.

Speaker 3

We have the solid and robust balance sheet. We have a stronger syndicate and bank and partners that to help us there. So we aim to continue to do that in the future.

Speaker 6

Thank you. That's very helpful. And then just finally, as far as GECO goes, a follow-up question. How are you thinking about the approval process from a competition perspective? And what are you thinking more broadly about views right now with respect to major M and A?

Speaker 2

Yes, I think, hi Irene. Thanks for the question. Yes, we have some overlap with GECO, but it's not material at all. And we'll go through the regular HSR process and engagement with the FTC. And we have quite a bit of experience doing that.

Speaker 2

And again, we expect to be able to close this transaction in calendar 2025.

Speaker 5

Thank you. Your next question comes from Michael Van East with TD Cowen. Your line is now open.

Speaker 4

Hi, thank you. I wanted to talk a little bit more about the U. S. Same store sales. It seems like you had some of the promo campaigns appear to be mostly focused on the beverage category.

Speaker 4

Wondering if it was on other categories as well and what to what degree you considered it successful? And then would you be able to break out same store sales excluding tobacco because tobacco is a big part of your in store sales and seems to be a big drag still. So I'm wondering what that is, a lot of companies back it out.

Speaker 2

Yes, sure. Thanks for the question. Yes, we invested heavily in the quarter into primarily thirst initiatives. The summer is our prime beverage time. We and we grew units.

Speaker 2

We grew traffic because of those units. While our overall traffic was still negative, we did improve traffic and had several weeks in business units that were positive, but it came at a cost. It came at a cost that you see on our margin line. We thought it was important to drive that traffic and we don't see that continuing kind of quarter over quarter with those level of investment. On tobacco, as we mentioned, I think we're feeling cigarettes are stabilizing.

Speaker 2

When we look at tobacco as a whole, when we include our significant growth in other nicotine, along with our outperformance of the industry in sticks, it actually would have been positive to our same store sales and we would have been negative 0.6 excluding tobacco.

Speaker 4

So excluding other tobacco products and cigarettes, you would have been negative 0.6?

Speaker 2

Not to you. Excluding tobacco excluding cigarettes? Yes.

Speaker 4

Excluding cigarettes in total or other tobacco products as well?

Speaker 3

No. Actually, when you look at the and that's something that is interesting for us, Michael, is that when we look at the total tobacco category, actually it's growing faster than the total box. So we see we continue to see a very strong momentum on the over nicotine product, high single digit growth there, actually in U. S, but also in Europe as well. So when you look at the total tobacco, actually, we where we see a good momentum there.

Speaker 4

Okay. But sorry, I wasn't 100% clear. When you said you were down 0.6%, was that just excluding cigarettes?

Speaker 1

Yes.

Speaker 3

Yes.

Speaker 4

Okay. Thank you. And then, I guess, when you look at other some of your peers, you've got a range where some are declining and some are increasing, excluding cigarettes. Where are you feeling the pressures the most?

Speaker 3

I think what Alex mentioned earlier is that during the quarter, we have decided to invest heavily on the beverage and cold category, cold beverage category and kind of impacting our average basket, kind of self inflicted. So and that has been quite significant to VEONET because we wanted to provide a great value there. But we feel good in the sense that we have seen a positive reaction in terms of traffic, but also in terms of units. We believe that it was the right thing to do. But yes, on the short term, it has an impact on the same store performance and yes, coming mainly from the cold beverage category.

Speaker 4

Okay. And thank you. And then just on the cigarettes, so you say it's stabilized, that's specific for Couche Tard, I'd assume because the data coming out of the cigarette manufacturers still seems to be significantly negative?

Speaker 2

That is correct. I think our over performance against that industry, the industry data and the efforts we're taking around price optimization, using our digital tools, partnering with our big vendors, we are materially outperforming the industry and we do feel like we've stabilized to some degree.

Speaker 5

Your next question comes from Bonnie Herzog with Goldman Sachs.

Speaker 7

I had a question on the health of the consumer. It seems like across your network, you've seen maybe a bit more pressure on consumer spending and traffic versus peers. So I guess hoping for a little bit more color on why this might be. And then could you give a little more color on the changes in consumer behavior you're seeing at the pump or on inside sales and really how those have evolved recently? And then finally, you touched on this a bit, but could you highlight possibly some of your key initiatives that you've implemented to ultimately offer more value for the consumer to drive faster traffic and sales?

Speaker 2

Yes. Bonnie, I don't think we feel at all bad about how we're performing against our peers. Our data certainly suggests that we are taking share across our convenience space at a level that is fairly pronounced and quite strong. So we feel really good about how we're performing inside the industry. And we will continue to focus on doing that.

Speaker 2

I think the consumer is stretched. Why do we say that? Less visits, lower baskets. Fuel is a great example of that. We actually have higher traffic to our forecourts, but the average fill is down to a level that leads to negative same store volume.

Speaker 2

So we just see that consistently from our consumers in our transactions. I think your final question was what are we doing? We're looking to leverage our scale and our relationship with our vendors to show value on products that our data suggests our customers really care about. And we will continue to do that. I think going forward, we're really going to focus on meal bundles and leveraging our service expertise with food to drive that and also continuing to focus on private label.

Speaker 2

Our private label, we see customers choosing private label. Private label is growing for us high single digits, low double digits in all of our geographies. We will add over 100 products in private label this year and look to continue to push those.

Speaker 7

Okay, that's helpful. And then just to clarify, post your quarter or just thinking about in August, how have things been trending? Are you seeing improvements? Are things weakening with the consumer? Just curious to get that perspective from you.

Speaker 7

Thank you.

Speaker 2

I think it's been pretty consistent. I think it's been pretty consistent.

Speaker 7

Okay. Thank you. I'll pass it on.

Speaker 5

Your next question comes from Bobby Griffin with Raymond James. Your line is now open.

Speaker 7

Good morning. This is Alessandra Jimenez on for Bobby Griffin. Thank you for taking our question. I first wanted to follow-up on promotions. Do you plan to invest in margin outside of the 3rd category to help drive traffic and market share?

Speaker 7

And then a follow-up to that, are you seeing anything notable from competitor behavior on pricing, either on the merchandise or fuel sales or have competitors been pretty rational thus far?

Speaker 2

We always run promotions really across our footprint or our merch categories. We always do that. I think our investments in data and our investments in digital, I think we'll continue to get smarter at what promotions we should be running and which ones resonate with our customers. But we always run promotions across basically all areas of our stores. I think we'll likely lower the number of promotions and be more targeted using our data to advise us.

Speaker 2

And remember the second part of the question?

Speaker 7

Just competitor behavior on pricing on merchandise and fuel. Have you seen them be rational?

Speaker 2

Yes. I mean, we see our industry continues to behave very rationally.

Speaker 7

Okay, perfect. Thank you so much.

Speaker 5

Your next question comes from Anthony Bonadio with Wells Fargo. Your line is now open.

Speaker 8

Yes. Hey, good morning, guys. I wanted to ask about the Department of Labor overtime rules in the U. S. I believe that's currently set to go into effect in January, or at least the second raise.

Speaker 8

Realize there's quite a bit of uncertainty still in terms of the final outcome, but can you just talk about the impact to your business if that were to go into effect and just how you're thinking about mitigating any headwind there?

Speaker 2

Yes, I don't think we expect to have any type of material impact from that is what our analysis suggests.

Speaker 1

The vast majority of our managers there are paid hourly, so it will be very minimal.

Speaker 8

Understood. And then just on gas, I know you guys mentioned an uptick in competitive pressure on the U. S. As it pertains to margin. I think that's the first time that's been mentioned, at least in recent memory.

Speaker 8

Can you just talk about a little more about what you're seeing there and any thoughts on how that evolves?

Speaker 2

I don't believe we are. We feel pretty good about our fuel margins, the competitors continuing to act rationally. Our margins have been quite stable. I think they were quite solid this period and we're seeing that continue. So on the box, we are we pushed some really heavy summer promotions to drive traffic into our stores and that impacted our margins this quarter.

Speaker 2

But again, we don't expect that to continue as a theme going forward.

Speaker 4

Thanks, guys.

Speaker 5

The next question comes from Mark Petrie with CIBC. Your line is now open.

Speaker 9

Yes, good morning and thanks Brian for all the conversation over the years and certainly wish

Speaker 3

you all the

Speaker 9

best and congratulations to Al again. On the SG and A, the organic increase was a little bit higher than what we've seen from you over the last year. I know you're still getting lower labor hours, but I think the decrease moderated from what you posted in Q4 and last year. So are the results that we're seeing today or we saw in Q1 simply a matter of cycling some of the early and substantial benefits that you've had from your strategic initiatives? Or what are the drivers there?

Speaker 9

And how are you thinking about that organic increase to be trending through the balance of the year?

Speaker 3

Hey, Marc. Thanks for the question. Let me start with, I would say, the part of your question is we remain very confident on our ambition to beat inflation by 1% on in terms of SG and A growth. So that's what we want to achieve. And again, we believe that we have the initiative to get there.

Speaker 3

That doesn't mean that quarter over quarter, we can have some variation. And that's one of the example in Q1. When you look at this, a 3.8% growth on a normalized level for SG and A, a significant component of that is coming from the investment that we're doing on the technology side. As mentioned by Alex earlier, we're investing to become more digital, a retailer engaging more on a digital way with our customers. Also making sure that we are centering our technology infrastructure.

Speaker 3

So that's something that we had in our strategic road map and we're investing on that. So that's one of the reasons why you have seen the Q1 growing slightly over the inflation. Having said that and you pointed out in your question, we see positive things happening in terms of productivity, our easy office and obviously all the productivity initiatives that we have in are bringing very good fruits, 1.3% decrease in hours. We see also our share service center initiatives moving in the right direction as well. So overall, our fit to serve goal of €800,000,000 over the next 5 years.

Speaker 3

We have already identified all the initiatives. So no concerns at all about the goal of beating inflation by 100 basis points in over the course of the fiscal year and over the next 5 years.

Speaker 9

Okay. Appreciate the comments. All of

Speaker 2

us. Thanks, Mark.

Speaker 5

Your next question comes from Chris Lee with Desjardins. Your line is now open.

Speaker 10

Good morning, everyone. Just maybe I'll start with a clarification question. Sophie, I think in the early opening remarks, you mentioned the multiple that you paid for get go. Was it you said single digit EBITDA multiple? Did I hear that

Speaker 4

correctly? Yes.

Speaker 1

Okay. And

Speaker 10

that's pre synergies, right, I'm guessing?

Speaker 3

Exactly.

Speaker 10

Perfect. Okay. And then just another question I have is just thanks for all the great comments you guys have been putting out in terms of the merchandising store sales trends in the U. S. I just want to more maybe ask more directly, like what are you guys seeing so far in Q2 to date in terms of merchandise same store sales?

Speaker 10

Is this still trending negative or is it back to positive given that the year ago comparison obviously has become easier?

Speaker 2

Thus far, it's been fairly consistent with where we've been in the last couple of quarters, kind of 6 weeks into the quarter.

Speaker 3

As

Speaker 1

we enter the fall, we should begin to lap some maintenance from last year and cycle that.

Speaker 2

I think we start to lap some more difficult things. I think we feel good about our ability to continue to take share and continue to use Inner Circle to drive additional trips and provide value that should assist us.

Speaker 10

Okay. But so far it's still trending slightly negative. Is that what I'm hearing? Yes. Okay.

Speaker 10

And then just in terms of your comment about obviously made some heavy investment in pricing in the summer months. You don't expect it to continue. Just again from a gross margin perspective, do you then expect gross margin to be more or less stable in the current quarter or is it still trending negative because of investments that you're making in the bundle offers and etcetera?

Speaker 3

So we actually, we expect actually to see a gross margin rebounding over the next coming quarters, okay? So we are investing heavily in the summer campaigns because, again, we just wanted to make sure that we were shouting enough to the customer that we were here for value. But over the next coming quarters, we'll continue that and making sure also that we are asking suppliers to participate in the funding and using more and more of the loyalty capabilities to be smarter in terms of investments. So you should expect GP and mainly in U. S.

Speaker 3

Coming back to a more normal level.

Speaker 10

Perfect. And my last question is just in terms of acquisitions, it was noted in the press release, I think acquisition contributed about 127,000,000 dollars of EBITDA growth in the quarter. Is the vast majority from Total? And if that's the case, it does seem like there was a nice sequential improvement versus Q4. Am I reading this correctly?

Speaker 3

Perfect. Yes. Yes. Yes. Yes.

Speaker 3

We are seeing a good much, much better trend there, feeling good about again about the teams and what they are doing and the synergies. So yes, it's moving in the right direction, Chris.

Speaker 10

Thanks very much. And Brian, it's been a pleasure. And if you're ever in Ontario, let me know. I'll gladly buy you beer at our neighborhood Circle K store.

Speaker 4

That's awesome. I never thought I'd see that in my career, but made it by one day.

Speaker 10

Thanks very much guys.

Speaker 4

Thank you, Chris. Thank you.

Speaker 5

Your next question comes from Tamy Chen with BMO Capital Markets. Your line is now open.

Speaker 11

Hi, good morning. Thanks for the question.

Speaker 7

I wanted to focus a

Speaker 11

bit more on Europe. First, your standalone business excluding Total Energy for a second here. So I think you said that the Europe only merchandise comp was the positive 0.9%. I think that was a little bit better sequentially, but as I recall 2 quarters ago, your Europe ex Hong Kong business was comping at something like mid-two percent range. So I just wanted to ask if you can just recap what's been going on in Europe.

Speaker 11

I guess it's the same macro challenges, but I thought in that region, your standalone Europe business, you were more exposed to the middle or higher income cohort. And so these macro pressures that wouldn't have been as pronounced as it would be in the U. S.

Speaker 2

Yes, you are correct with the 0.9% when we exclude Hong Kong for the performance and it is a little lower than they have been. We are experiencing some of the same macro pressures in our Europe in our legacy European business, with traffic being a challenge. But the business continues to perform quite well. We would continue to focus on our thirst initiatives, our food initiatives, which make up large percentages of our sales. Other nicotine is growing very nicely in Europe.

Speaker 2

And our European business continues to perform quite well. So I guess to summarize, some of the same challenges around the macro environment and to our consumers, but it is performing pretty well, and we envision that it will continue to do so.

Speaker 11

Okay. Thank you for that. And my follow-up is, and now I want to talk more on TotalEnergies. I think last quarter, it sounded like one of the big challenges that hurt the earnings contribution from that business was Brian, you talked quite a bit about fuel margin in Germany. It was very depressed.

Speaker 11

I think you were saying that was starting to recover. Can you update us a bit on that? Was that what helped with the sequential improvement in earnings contribution from Total? Or was it something else like the synergies execution part? Thank you.

Speaker 3

So the specific to Germany, the CPL remains low actually, but it's more temporary situation, more due to the situation of the market. So we did that. There's no change on the long term view that we see margin going improving over time in Germany. And actually, so the sequential improvement of the profitability is more coming from the implementation of synergies on the box side, the cost also that we start to adjust to our existing model. So it's more coming from this side actually, the sequential improvement.

Speaker 5

Your next question comes from Martin Landry with Stifel. Your line is now open.

Speaker 12

Hi, good morning. I have a couple of questions on GetGo, given the sizable acquisition that it is. I was wondering, you talk about GetGo having a pretty successful make to order food program. So can you share with us what's the proportion of food that represents of total merchandise sales? Also wondering if you could talk a little bit about expected synergies in terms of size that could be realized?

Speaker 12

And then lastly, just timing of closing, you're seeing 2025 is a pretty wide range. I was wondering if you could just narrow that a little bit, it would be helpful for our modeling.

Speaker 2

Yes, I think we feel great about, get go. First of all, these are really high quality assets, high quality throughputs in both fuel and merch. You ask about food, it's kind of high teens, low 20s. They have their full food offer in 123 stores that you can order on their kiosk. They we're really excited about the reverse synergies from this file.

Speaker 2

They have My Perks loyalty program that is profound, it's deep penetration. We would see learnings in food and they're ready to go food. And I think we'll bring them some things on the procurement side, in merch and in fuel and likely our cost leadership usually flows through as well. So we feel really good and I would say GECO is a little unique in that I really view it as a forward partnership. I've gotten to know Bill, Dave and Justin, their leadership as we've been doing this.

Speaker 2

They share a similar culture to us. This is going to allow them to focus on their grocery stores and grow their grocery stores, and we will be their convenience and fuel partner and look to grow our joint loyalty program and do things across warehousing, commissary that we think are really unique. So this is really about a forward partnership with a company that we share a close culture and we're super excited about it.

Speaker 12

Okay. And historically, I mean, you've been able to generate or bump the EBITDA you've acquired in most of your transactions by 30% to 50%. Is this could that be the case for GetGo?

Speaker 3

We don't provide guidance on that, but I would say the let's be conservative on that, and I would go for the lowest range that you mentioned. But we are, as mentioned by Alex, we'll be convincing over time about the progress on the synergies. But on the reverse synergy, I would believe that there is, yes, a lot to be done there.

Speaker 12

Okay. Thank you. Best of luck.

Speaker 5

The next question comes from John Zamparo with Scotiabank. Your line is now open.

Speaker 13

Great. Thank you very much. I wanted to ask on the loyalty program and on Inner Circle in the U. S. It seems like you're clearly getting good traction in growing that program.

Speaker 13

I wonder, are you also seeing outperformance on merchandise sales in the business units where you've deployed that? And is there anything you can quantify on that front?

Speaker 2

First of all, thank you for the coverage. We appreciate it. Yes, I think, as I mentioned earlier, we continuously seem to be growing what we see as market share out performance versus our industry. And that has coincided with our Inner Circle launch and what's happening. And we see that performance, the business units are at different levels of maturity.

Speaker 2

Not a linear equation, but I think at a macro sense, we feel like Inner Circle is certainly helping us, take market share and win against our competitive set.

Speaker 13

Okay, that's helpful. And then just one follow-up on Europe on the tobacco side. I think you'd said last call you expect a pickup in volumes in the Netherlands because of the ban in sales at grocery stores. Are you starting to see the uplift you'd hope for in that category?

Speaker 2

We absolutely are. We are seeing 40% to 50% uplift already and we've expanded our SKU range over there and it's very early days, but we absolutely are seeing it.

Speaker 13

Okay, great. I appreciate the color. Hats off and best wishes to you, Brian, and congratulations to you,

Speaker 2

Alex. Thank you.

Speaker 5

Your next question comes from Luke Cannon with Canaccord Genuity. Your line is now open.

Speaker 14

Thanks. Good morning. I wanted to start with a follow-up to the discussion on the U. S, the meal deals, the $3, $4, $5 meal deals that you're rolling out there. Just overall, all else equal, Felipe, I know you mentioned that you expect merchandise margins to rebound in the near future and I imagine that's a handful of initiatives driving that.

Speaker 14

But just focusing on the meal deals for a second here, at those price points, do you still expect that to be accretive to U. S. Merchandise margins all else equal or is this similar to the investments in beverage where it's more of a focus on driving traffic at this point?

Speaker 2

We do believe it will be accretive. I think for a couple let me start with most people that buy food from us, they're also going to buy a drink. And we have some unique capabilities in just the tremendously broad SKU set that we sell and specifically energy drinks, which is a huge growth category that we are a destination for. So we believe this is a large opportunity. Our vendors are really eager to lean in on partnering with us on food service and providing value across meal bundles.

Speaker 2

And we have great relationships with them. We are partnering with them. So they are really helping fund some of the value that the consumer realizes here.

Speaker 14

Okay, thanks. And then my second question here is just on Fit2Serve. If I remember correctly last call, I think roughly half of that $800,000,000 ambition had been achieved. Where do things stand as of today on that front?

Speaker 3

We are we continue to progress on the execution of it. As I mentioned earlier, we already identified actually the €800,000,000 We see the path there. And hopefully, the execution will go faster than the 5 years that we initially planned, but we are moving in the right direction.

Speaker 14

Okay. Thank you very much.

Speaker 5

Your last question comes from John Royall with JPMorgan. Your line is now open.

Speaker 15

Hi. Good morning. Thanks for taking my question. So I just wanted to see if you could talk about your approach to buy versus build in terms of prepared foods. You're building a food program organically, but do you consider it to be a key part of your M and A strategy to accelerate those efforts by acquiring a chain that has a strong capability in Prepared Foods?

Speaker 15

I'm just trying to understand how important a food capability is to your criteria on the M and A side.

Speaker 2

I think for some period of time, we have been targeting what we call high quality assets, so larger boxes, bigger volumes, quality real estate, higher merge sales and food is one element of that, that is certainly in scope for us. I think GetGo is a perfect example of that. Again, they are a food first retailer. They have a very robust food program inside their cafe markets. And so the GetGo is a perfect example of what we are targeting inside of M and A and how food plays into that.

Speaker 4

Thank you.

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Key Takeaways

  • Helmutations Couche Tard’s long‐time CEO Brian Anish steps down today, with Alex Miller succeeding him and Anish remaining as a special advisor focused on M&A to ensure a seamless leadership transition.
  • The company announced a definitive agreement to acquire GetGo Café Markets (≈270 locations), citing “reverse synergies” in made‐to‐order food and loyalty programs, with closing expected in 2025 pending regulatory approval.
  • Q1 results showed adjusted net earnings of $790 million or $0.83 per share (‐3.5%), same‐store convenience revenues down 1.1% in the U.S., 2.1% in Europe/other and fuel volumes down ~1% globally, while fuel margins remained healthy.
  • Membership programs continue to drive growth, with U.S. Inner Circle enrollments up 17% QoQ and >20% of U.S. transactions from members, while in Europe over 50% of fuel volume comes via loyalty, supported by new AI supply‐chain and digital personalization tools.
  • Integration of TotalEnergies retail assets is on track, with €187 million of synergies identified over five years, and continued focus on the Fit2Serve data-driven procurement initiative to improve margins and operational efficiency.
AI Generated. May Contain Errors.
Earnings Conference Call
Alimentation Couche-Tard Q1 2025
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