Couche-Tard Builds on Rebranding Efforts, Footprint in Q3

LAVAL, Quebec — Alimentation Couche-Tard Inc. is weathering the industry's challenges as it continues to bring its new Circle K brand to all its convenience stores.

"Notwithstanding the headwinds seen in the overall retail industry during the quarter, we continue seeing positive results," said President and CEO Brian Hannasch in announcing the company's earnings for the third quarter of its fiscal year 2017.

According to Hannasch, merchandise and service gross profits were up 39 percent and 10.9 percent, respectively. Couche-Tard also increased its road transportation fuel volumes by 15.7 percent "through the contribution from our acquisitions and strong organic growth in the U.S. and Europe, while our teams once again delivered a strong performance on the cost control front."

Couche-Tard's Circle K rebranding continues to be a success in Europe, Hannasch said, and the convenience retailer has picked up the pace of those efforts in the United States.

"I am proud of the work being done in order to quickly consolidate our position as leaders in the convenience store industry and therefore bringing us closer to becoming the world's preferred destination for convenience and fuel," he commented.

In addition, Couche-Tard is seeing positive results from the integration of Esso.

"The transition went smoothly, we experience very positive response from consumers to our rebranding and merchandising initiatives and we anticipate delivering solid synergies," the executive added.

Speaking on Couche-Tard's pending acquisition of San Antonio-based CST Brands Inc., he noted the deal is expected to close early in the company's fiscal year 2018, adding "the teams continue to be hard at work, actively planning the transition and identifying potential synergies and best practices.

"We have confirmed there is a lot of talent at CST and we are getting great collaboration from their teams, which is a key success factor in this process," Hannasch said.

NOTABLE MOVES

In all, Couche-Tard's third quarter was marked with several significant items, according to the company. They included:

• More than 1,000 stores in North America and 910 stores in Europe now carry the new Circle K global convenience brand. In connection with this rebranding, a depreciation and amortization expense of $8.4 million was recorded to earnings of the third quarter of fiscal 2017.
• In connection with The Pantry integration, the company reached its 24-month cost reduction annual run rate objective of $85 million, and surpassed its merchandises and services supply cost reduction objective of $27 million.
• Couche-Tard also met its target for fuel synergies associated with the fuel rebranding of approximately 1,000 stores in the Southeastern region of the U.S. associated with The Pantry deal.
• Activities in the U.S. were negatively impacted by floods and power outages resulting from Hurricane Matthew in October, which affected, at various levels, more than 500 of the company's stores, mainly through the loss of sales and incremental expenses, including inventory losses and clean-up costs.
• As part of cost reduction initiatives and the search for synergies aimed at improving efficiency, Couche-Tard decided to proceed with the restructuring of certain activities of its European operations.

NETWORK CHANGES

Couche-Tard also saw several changes to its network during the quarter. They included:

• The approval from the Canadian Competition Bureau to acquire 278 sites from Imperial Oil. Of the sites, 228 are located in Ontario, mostly in the Greater Toronto Area, and 50 sites are located in the Greater Montreal area. The integration of the sites began on Sept.12 and was completed on Oct. 27.
• On Oct. 31, the company sold all its shares in A/S Dansk Fuel to DCC Holding A/S, a subsidiary of DCC plc, for a total cash consideration of $71.5 million.
• On Nov. 15, Couche-Tard completed the acquisition of 23 company-operated sites located in Estonia from Sevenoil Est OÜ and its affiliates. Eleven sites are full-service fuel stations and 12 are unmanned automated fuel stations.

As of Jan. 29, Laval-based Couche-Tard's network comprised 8,081 convenience stores throughout North America, including 6,710 stores with road transportation fuel dispensing. Its North American network consists of 15 business units, including 11 in the United States covering 41 states and four in Canada covering all 10 provinces.

In Europe, Couche-Tard operates a broad retail network across Scandinavia, Ireland, Poland, the Baltics states and Russia through ten business units. As of Jan. 29, Couche-Tard's network comprised of 2,766 stores, the majority of which offer road transportation fuel and convenience products while the others are unmanned automated fuel sites which only offer road transportation fuel.

In addition, under licensing agreements, close to 1,700 stores are operated under the Circle K banner in 13 other countries and territories worldwide.