Alimentation Couche-Tard announces its results for its first quarter of fiscal year 2019

• Net earnings attributable to shareholders of the Corporation ("net earnings") of $455.6 million ($0.81 per share on a diluted basis) for the first quarter of fiscal 2019 compared with $364.7 million ($0.64 per share on a diluted basis) for the first quarter of fiscal 2018. Excluding certain items for both comparable periods, net earnings for the quarter would have been approximately $498.0 million¹ or $0.88¹ per share on a diluted basis, compared with $0.67¹ per share on a diluted basis for the first quarter of fiscal 2018, an increase of 31.3%.
• Total merchandise and service revenues of $3.5 billion, an increase of 27.6%. Same-store merchandise revenues increased by 4.2% in the U.S., by 7.3% in Europe and by 6.6% in Canada.
• Merchandise and service gross margin increased by 0.2% in the U.S., to 33.5%, and by 0.3% in Europe, to 42.4%, while it decreased by 0.5% in Canada, to 34.5%, mainly driven by changes in product mix.
• Total road transportation fuel volumes grew by 31.9%. Same-store road transportation fuel volumes increased by 0.6% in the U.S., while same-store volumes decreased by 0.1% in Europe and by 3.3% in Canada.
• Road transportation fuel gross margin increased by US 1.95¢ per gallon in the U.S. to US 22.70¢ per gallon, by US 0.24¢ per litre in Europe, to US 9.21¢ per litre and by CA 0.69¢ per litre in Canada, to CA 8.91¢ per litre.
• Current annual synergies run rate related to the CST Brands Inc. ("CST") integration reached approximately $189.0 million.
• Following strong debt repayments, adjusted leverage ratio continued to improve and reached 2.86:1.
• Circle K rebranding project continues in North America and Ireland. More than 3,650 stores in North America and more than 1,700 stores in Europe now display the new Circle K global brand.
• Return on equity and return on capital employed at 24.8% and 12.3%, respectively, on a pro-forma basis.

LAVAL, QC, Sept. 5, 2018 /PRNewswire/ - For its first quarter ended July 22, 2018, Alimentation Couche-Tard Inc. (TSX: ATD.A) (TSX: ATD.B) announces net earnings attributable to shareholders of the Corporation of $455.6 million, representing $0.81 per share on a diluted basis. The results for the first quarter of fiscal 2019 were affected by a $55.0 million pre-tax impairment charge on CrossAmerica Partners LP's ("CAPL") goodwill, pre-tax restructuring costs of $1.5 million, a pre-tax net foreign exchange loss of $1.0 million as well as pre-tax acquisition costs of $0.5 million. The results for the comparable quarter of fiscal 2018 were affected by pre-tax restructuring and integration costs of $43.2 million (of which $5.2 million was attributable to non-controlling interest), a pre-tax net foreign exchange loss of $20.3 million, a $13.4 million tax recovery following an internal reorganization, an $11.5 million pre-tax gain on the disposal of a terminal, an $8.8 million pre-tax gain on the investment the Corporation held in CST, a $3.7 million pre-tax accelerated depreciation and amortization expense in connection with the Corporation's global brand initiative, as well as pre-tax acquisition costs of $3.3 million. Excluding these items, the adjusted diluted net earnings per share would have been $0.88 for the first quarter of fiscal 2019, compared with $0.67 for the first quarter of fiscal 2018, an increase of 31.3%, driven by the contribution from acquisitions, higher road transportation fuel margins, organic growth, as well as lower income tax rate, partly offset by higher financing expenses following the Corporation's recent acquisitions. All financial information is in US dollars unless stated otherwise.

"Overall, we are very pleased with the results this quarter. In particular, we had strong year-over-year same-store merchandise revenues increases across the network in the U.S., Canada, and Europe with a good balance of in-store traffic and basket growth while we were able to maintain or improve underlying margins in most geographies", stated Brian Hannasch, President and CEO of Alimentation Couche-Tard. "During the quarter, we had parts of our network that benefited from better weather than last year, particularly in Europe and Eastern Canada. As first seen in the fourth quarter of fiscal 2018, all geographies also continue to see improving traffic trends, partially driven by the ramping up of our promotional marketing and advertising initiatives, as well as by strong consumer spending." 

Brian Hannasch continued: "I am also pleased with our fuel volumes and margins in the U.S. and in Europe in the facing of rising retail prices. In the U.S., we had generally healthy margins as well as improvement in volumes in the business units with CST sites. Also, while we did see volume growth in most of Canada, our Esso branded stores were affected by a temporary gap in loyalty programs this quarter."

"This quarter marked the one-year anniversary of our CST acquisition, and I am very proud of the integration and results. It all starts with people, and we have added a lot of great people to the Couche-Tard family who have done an amazing job turning around trends. Once again this quarter, we had good same-store merchandise growth, and we continued to realize impressive synergies. We are also well on our way in rebranding the former Corner Stores locations to Circle K with the initiative starting in the Rocky Mountain Business Unit, and the "We are Circle K" campaign in full swing across Texas," concluded Brian Hannasch. 

Claude Tessier, Chief Financial Officer stated: "Our solid results this quarter have once again generated strong cash flow that is allowing us to accelerate our deleveraging plan as evidenced by our adjusted leverage ratio of 2.86:1. While in-store hourly-wage rate pressures brought this quarter's growth in expenses to higher levels than in the past, we have effectively kept the rest of our cost increases in line with inflation. As always, this cost control is due to our rigorous financial discipline and focus on increasing value for our shareholders."

Significant Items of the First Quarter of Fiscal 2019

• During the quarter, as part of our costs reduction initiatives and the search for synergies aimed at improving our efficiency, we made the decision to proceed with the restructuring of certain of our European operations. As such, an additional restructuring expense of $1.5 million was recorded during the first quarter of fiscal 2019.
• As at July 22, 2018, our annual synergies run rate for the CST acquisition reached approximately $189.0 million. These synergies should result in reductions in operating, selling, administrative and general expenses, as well as improvements in road transportation fuel and merchandise distribution and supply costs. We expect that our synergies will reach $215.0 million¹ over the 3 years following the close of the transaction.
• During the quarter, we adjusted our assessment of the fair value of the assets acquired, the liabilities assumed and the goodwill for the Holiday acquisition. The preliminary adjustments, which are subject to material adjustments until the process is completed, had the following impact on our previously reported net earnings:

• The rollout of the Circle K brand in North America and Ireland is progressing steadily. As of July 22, 2018, more than 3,650 stores in North America, including close to 300 stores acquired from CST, and more than 1,700 stores in Europe are now proudly displaying our new global brand.
• During the quarter, we performed our annual goodwill impairment test. As a result of the reduction in the fair value of the Incentive Distribution Rights and in CAPL's market capitalization, we recorded a $55.0 million impairment charge to Depreciation, amortization and impairment of property and equipment, goodwill, intangible assets, and other assets on the consolidated statement of earnings. We do not anticipate that the decrease in CAPL's market capitalization nor the impairment charge will have a significant impact on our future earnings or cash flows.

Changes in our Network

• On July 3, 2018, we sold to Irving Oil Ltd. 13 retail sites in the Canadian Atlantic provinces for a cash consideration of approximately $30.0 million. This transaction resulted in a gain of $4.5 million. These stores, which will continue to be operated by Couche-Tard, were previously acquired through the CST acquisition.
• We completed the construction, relocation or reconstruction of 10 stores during the first quarter of fiscal 2019. As of July 22, 2018, 32 stores were under construction and should open in the upcoming quarters.

Summary of changes in our store network during the first quarter of fiscal 2019

The following table presents certain information regarding changes in our store network over the 12-week period ended July 22, 2018:

Exchange Rate Data

We use the US dollar as our reporting currency, which provides more relevant information given the predominance of our operations in the United States.

The following table sets forth information about exchange rates based upon closing rates expressed as US dollars per comparative currency unit:

Summary analysis of consolidated results for the first quarter of fiscal 2019

The following table highlights certain information regarding our operations for the 12-week periods ended July 22, 2018 and July 23, 2017. CAPL refers to CrossAmerica Partners LP.

Revenues

Our revenues were $14.8 billion for the first quarter of fiscal 2019, up by $4.9 billion, an increase of 50.2% compared with the corresponding quarter of fiscal 2018, mainly attributable to the contribution from acquisitions, to a higher average road transportation fuel selling price, to organic growth, as well as to the positive net impact from the translation of revenues of our Canadian and European operations into US dollars.

More specifically, total merchandise and service revenues for the first quarter of fiscal 2019 were $3.5 billion, an increase of $768.0 million compared with the corresponding quarter of fiscal 2018. Excluding CAPL's revenues, as well as the positive net impact from the translation of our Canadian and European operations into US dollars, merchandise and service revenues increased by approximately $722.0 million or 26.0%. This increase is primarily attributable to the contribution from acquisitions, which amounted to approximately $584.0 million, and to organic growth. The success of our strategies to drive traffic in stores as well as more favorable weather conditions in several regions contributed to our great results in all geographies. Same-store merchandise revenues increased by 4.2% in the United States, continuing on the improved trends from the last quarter. Same-store merchandise revenues increased by 5.4% in our CST U.S. stores network, driven by the success of our rebranding activities and improvements made to our offering. In Europe, same-store merchandise revenues increased by 7.3%, thanks to the success of our rebranding activities and the rollout and improvements of our food programs. In Canada, same-store merchandise revenues increased by 6.6%, partly driven by strong performance of our CST Canada sites which posted a growth in merchandise revenues of 7.6% as well as by higher taxes on cigarettes and other tobacco products.

Total road transportation fuel revenues for the first quarter of fiscal 2019 were $10.9 billion, an increase of $4.1 billion compared with the corresponding quarter of fiscal 2018. Excluding CAPL's revenues, as well as the net positive impact from the translation of revenues of our Canadian and European operations into US dollars, road transportation fuel revenues increased by approximately $3.6 billion or 52.3%. This increase was attributable to the contribution from acquisitions, which amounted to approximately $1.9 billion, as well as to the impact of a higher average road transportation fuel selling price, which had a positive impact of approximately $1.7 billion. Same‑store road transportation fuel volumes in the United States increased by 0.6%, including the nice performance of our CST U.S. network, which posted same-store road transportation fuel volumes growth of 1.0%. In Europe, same‑store road transportation fuel volumes decreased by 0.1%. In Canada, same‑store road transportation fuel volumes decreased by 3.3%, due to a temporary gap in loyalty program in our Esso stores and to our continued strategy in our CST stores aimed at growing overall profitability.

The following table shows the average selling price of road transportation fuel in our various markets, starting with the second quarter of the fiscal year ended April 30, 2017:

Total other revenues for the first quarter of fiscal 2019 were $341.5 million, an increase of $94.1 million compared with the corresponding quarter of fiscal 2018. Excluding CAPL's revenues, other revenues increased by $83.4 million in the first quarter of fiscal 2019, primarily driven by an increase in aviation fuel demand and an increase in other products fuel selling price.

Gross profit

Our gross profit was $2.2 billion for the first quarter of fiscal 2019, up by $478.3 million, an increase of 27.5% compared with the corresponding quarter of fiscal 2018, mainly attributable to the contribution from acquisitions, to higher fuel margins, to organic growth, to the net positive impact from the translation of operations of our Canadian and European operations into US dollars, as well as to the contribution from CAPL.

In the first quarter of fiscal 2019, our merchandise and service gross profit was $1.2 billion, an increase of $263.2 million compared with the corresponding quarter of fiscal 2018. Excluding CAPL's gross profit, as well as the net positive impact from the translation of our Canadian and European operations into US dollars, merchandise and service gross profit increased by approximately $249.0 million or 25.9%. This increase is attributable to the contribution from acquisitions, which amounted to approximately $193.0 million and to our organic growth. Our gross margin increased by 0.2% in the United States to 33.5% and by 0.3% in Europe to 42.4%. In Canada, our gross margin decreased by 0.5% to 34.5%, mainly as a result of changes in our product mix as well as from the impact of the conversion of certain Esso agent sites to company-operated stores.

In the first quarter of fiscal 2019, our road transportation fuel gross profit was $933.1 million, an increase of $208.2 million compared with the corresponding quarter of fiscal 2018. Excluding CAPL's gross profit, as well as the net positive impact from the translation of our Canadian and European operations into US dollars, our first quarter of fiscal 2019 road transportation fuel gross profit increased by approximately $172.0 million or 23.7%. Our road transportation fuel gross margin was 22.70¢ per gallon in the United States, an increase of 1.95¢ per gallon. In Europe, the road transportation fuel gross margin was US 9.21¢ per litre, an increase of US 0.24¢ per litre, while in Canada, the road transportation fuel gross margin was CA 8.91¢ per litre, an increase of CA 0.69¢ per litre still driven by the inclusion of the CST stores in our network and different pricing strategies.

The road transportation fuel gross margin of our company-operated stores in the United States and the impact of expenses related to electronic payment modes for the last eight quarters, starting with the second quarter of the fiscal year ended April 30, 2017, were as follows:

As demonstrated by the table above, road transportation fuel margins in the United States can be volatile from one quarter to another but tend to be relatively stable over longer periods. Margin volatility and expenses related to electronic payment modes are not as significant in Europe and Canada.

In the first quarter of fiscal 2019, other revenues gross profit was $59.2 million, an increase of $6.9 million compared with the corresponding quarter of fiscal 2018. Excluding CAPL's gross profit, other revenues gross profit decreased by $3.8 million in the first quarter of fiscal 2019.

Operating, selling, administrative and general expenses ("expenses")

For the first quarter of fiscal 2019, expenses increased by 27.3%, compared with the first quarter of fiscal 2018, but increased by only 3.6% if we exclude certain items as demonstrated by the following table:

Growth in expenses was primarily driven by higher minimum wages in certain regions, higher expenses needed to support our organic growth, by the conversion of CODO stores into company-operated stores and by proportionally higher operational expenses in our recently built stores, as these stores generally have a larger footprint and higher sales than the average of our existing network. Excluding the impact of higher hourly wages, growth in our expenses is generally in line with inflation, as we continue to rigorously focus on controlling costs throughout our organization, while ensuring we maintain the quality of service we offer to our customers.

Earnings before interest, taxes, depreciation, amortization and impairment (EBITDA) and adjusted EBITDA

During the first quarter of fiscal 2019, EBITDA increased from $689.7 million to $910.0 million, a growth of 31.9% compared with the same quarter last year. Excluding the specific items shown in the table below from EBITDA of the first quarter of fiscal 2019 and of the corresponding period of fiscal 2018, the adjusted EBITDA for the first quarter of fiscal 2019 increased by $182.2 million or 25.5% compared with the corresponding period of the previous fiscal year, mainly through the contribution from acquisitions, higher fuel margins, organic growth and the net positive impact from the translation of the results of our Canadian and European operations into US dollars. Acquisitions contributed approximately $143.0 million to the adjusted EBITDA of the first quarter of fiscal 2019, while the variation in exchange rates had a net positive impact of approximately $8.0 million.

It should be noted that EBITDA and adjusted EBITDA are not performance measures defined by IFRS, but we, as well as investors and analysts, consider that those performance measures facilitate the evaluation of our ongoing operations and our ability to generate cash flows to fund our cash requirements, including our capital expenditures program and payment of dividends. Note that our definition of these measures may differ from the one used by other public corporations:

Depreciation, amortization and impairment of property and equipment, goodwill, intangible assets, and other assets ("depreciation")

For the first quarter of fiscal 2019, our depreciation expense increased by $131.2 million. Excluding CAPL's results as well as the $55.0 million impairment charge on CAPL's goodwill, the depreciation expense increased by $43.4 million for the first quarter of fiscal 2019, mainly driven by the impact from investments made through acquisitions, the replacement of equipment, the addition of new stores and the ongoing improvement of our network.

Net financial expenses

Net financial expenses for the first quarter of fiscal 2019 were $77.7 million, an increase of $18.5 million compared with the first quarter of fiscal 2018. Excluding the net foreign exchange losses of $1.0 million and $20.3 million as well as CAPL's financial expenses of $7.0 million and $0.2 million recorded in the first quarters of fiscal 2019 and fiscal 2018, respectively, net financial expenses increased by $31.1 million. This increase is mainly attributable to our higher average long-term debt in connection with our recent acquisitions, partly offset by the repayments made. The net foreign exchange loss of $1.0 million for the first quarter of fiscal 2019 is mainly due to the impact of foreign exchange variations on certain cash balances and working capital items.

Income taxes

The income tax rate for the first quarter of fiscal 2019 was 16.6% compared with an income tax rate of 21.9% for the first quarter of fiscal 2018. Excluding the tax benefit stemming from the internal reorganization of the first quarter of fiscal 2018, our income tax rate would have been 24.8% for the first quarter of fiscal 2018. The decrease in the income tax rate of the first quarter of fiscal 2019 stems from a lower statutory income tax rate in the U.S. as well as from the impact of a different mix in our earnings across the various jurisdictions.

Net earnings attributable to shareholders of the Corporation ("net earnings") and adjusted net earnings attributable to shareholders of the Corporation ("adjusted net earnings")

Net earnings for the first quarter of fiscal 2019 were $455.6 million, compared with $364.7 million for the first quarter of the previous fiscal year, an increase of $90.9 million or 24.9%. Diluted net earnings per share stood at $0.81, compared with $0.64 the previous year. The translation of revenues and expenses from our Canadian and European operations into US dollars had a net positive impact of approximately $6.0 million on net earnings of the first quarter of fiscal 2019.

Excluding the items shown in the table below from net earnings of the first quarter of fiscal 2019 and of fiscal 2018, adjusted net earnings for the first quarter of fiscal 2019 would have been approximately $498.0 million, compared with $381.0 million for the first quarter of fiscal 2018, an increase of $117.0 million or 30.7%. Adjusted diluted net earnings per share would have been approximately $0.88 for the first quarter of fiscal 2019 compared with $0.67 for the corresponding period of fiscal 2018, an increase of 31.3%.

The table below reconciles reported net earnings to adjusted net earnings:

It should be noted that adjusted net earnings is not a performance measure defined by IFRS, but we, as well as investors and analysts, consider this measure useful for evaluating the underlying performance of our operations on a comparable basis. Note that our definition of this measure may differ from the one used by other public corporations.

Dividends

During its September 5, 2018 meeting, the Corporation's Board of Directors declared a quarterly dividend of CA 10.0¢ per share for the first quarter of fiscal 2019 to shareholders on record as at September 14, 2018, and approved its payment for September 28, 2018. This is an eligible dividend within the meaning of the Income Tax Act (Canada).

Profile

Couche-Tard is the leader in the Canadian convenience store industry. In the United States, it is the largest independent convenience store operator in terms of the number of company-operated stores. In Europe, Couche-Tard is a leader in convenience store and road transportation fuel retail in the Scandinavian countries (Norway, Sweden and Denmark), in the Baltic countries (Estonia, Latvia and Lithuania), as well as in Ireland and also has an important presence in Poland.

As of July 22, 2018, Couche-Tard's network comprised 9,978 convenience stores throughout North America, including 8,691 stores with road transportation fuel dispensing. Its North American network consists of 19 business units, including 15 in the United States covering 48 states and 4 in Canada covering all 10 provinces. Approximately 105,000 people are employed throughout its network and at its service offices in North America. In addition, through CrossAmerica Partners LP, Couche-Tard supplies road transportation fuel under various brands to approximately 1,300 locations in the United States.

In Europe, Couche-Tard operates a broad retail network across Scandinavia, Ireland, Poland, the Baltics and Russia through ten business units. As of July 22, 2018, Couche-Tard's network comprised 2,723 stores, the majority of which offer road transportation fuel and convenience products while the others are unmanned automated fuel stations which only offer road transportation fuel. Couche-Tard also offers other products, including stationary energy, marine fuel and aviation fuel. Including employees at branded franchise stores, approximately 25,000 people work in its retail network, terminals and service offices across Europe.

In addition, under licensing agreements, more than 2,000 stores are operated under the Circle K banner in 16 other countries and territories (Cambodia, China, Costa Rica, Egypt, Guam, Honduras, Hong Kong, Indonesia, Macau, Malaysia, Mexico, Mongolia, the Philippines, Saudi Arabia, the United Arab Emirates and Vietnam), which brings the worldwide total network to more than 16,000 stores.

For more information on Alimentation Couche-Tard Inc. or to consult its quarterly Consolidated Financial Statements and Management Discussion and Analysis, please visit: http://corpo.couche-tard.com.

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 "believe", "can", "shall", "intend", "expect", "estimate", "assume" 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 in 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.

Webcast on September 6, 2018, at 8:00 A.M. (EDT)

Couche-Tard invites analysts known to the Corporation to send their two questions to its management before 7:00 P.M. (EDT) on September 5, 2018.

Financial analysts, investors, media and any individuals interested in listening to the webcast on Couche-Tard's results which will take place online on September 6, 2018, at 8:00 A.M. (EDT) can do so by either accessing the Corporation's website at http://corpo.couche‑tard.com by clicking in the "Investor Relations/Corporate presentations" section or by dialing 1-866-865-3087 or the international number 1-647-427-7450, followed by the access code 6296798#.

Rebroadcast: For individuals who will not be able to listen to the live webcast, a recording of the webcast will be available on the Corporation's website for a period of 90 days.

SOURCE Alimentation Couche-Tard Inc.

Related Links

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