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Couche-Tard CEO Optimistic about Company's Position

LAVAL, Quebec -- Alimentation Couche-Tard president and CEO Alain Bouchard said the company is in a good position to face the current economic crisis, and he believes the obstacles the c-store industry is now facing will make Couche-Tard even stronger.

Bouchard made these comments during a conference call yesterday during which the company announced its third-quarter results. Among the highlights:

-- Third-quarter net earnings were $71.1 million, compared to $50.5 million last year.
-- Same-store merchandise sales increased 0.5 percent in the U.S.; 4.7 percent in Canada.
-- Merchandise and service gross margin decreased slightly by 0.1 percent in the United States, while decreasing by 1.2 percent in Canada.
-- Same-store fuel sales increased 6.5 percent in Canada, but decreased 6.2 percent in the U.S.
-- Motor fuel gross margin was 18.21 cents per gallon in the U.S. and at Canadian 4.38 cents per liter in Canada.

Driving the third-quarter net earnings were earnings stemmed from acquisitions; an increase in same-store merchandise sales; higher motor fuel gross margins in the United States; an increase in same-store fuel volume in Canada; and a decrease in financial expenses. These positive elements were partially offset by a decrease in same-store fuel volume in the United States; a decrease in fuel and merchandise and service gross margins in Canada; and by a higher tax rate compared to last year taking into account the reversal of an unusual income tax expense that occurred in the third quarter of 2008.

"I am very satisfied with the results we are presenting today while I remain realistic," Bouchard said in a statement. "The levels of same-store sales and gross margins carried out during the quarter are more than satisfactory considering the headwinds we are facing and which result from the difficult economic situation. Our teams work hard in order to optimize our sales as well as our margins, and they are consistently looking for cost reduction opportunities because we are very aware that we will not always be able to rely on the favorable contribution of the fuel margins," he continued.

"Besides, I am very pleased to see that, just like me, our people perceive these turbulent moments like an improvement opportunity and make proper decisions in order to pass through the economic crisis," Bouchard concluded in his statement.

Raymond Paré, Couche-Tard vice president and CFO, underlined that despite the fact the economic crisis is making itself felt in some of the chain’s markets, Couche-Tard is still in good shape to face it. "Our operations continue to provide substantial net cash flows. In addition, we have a very solid financial position, access to liquidities at attractive conditions, as well as good financial ratios. The company meets all its restrictive covenants and none of its borrowings has a maturity before 2012," he stated. "We are also very well positioned to take advantage of acquisition opportunities."

During the conference call, Bouchard noted the company added 51 stores in the third quarter, including 37 Irving Oil stores, and concluded an acquisition of seven company-operated stores in North Carolina. It also signed an agreement to acquire 13 stores in Quebec operating under the Petro-T brand, as previously reported by CSNews Online.

"We have worked on other opportunities although we have not had success yet," the CEO said, adding that the biggest challenge has been the asking price demanded by sellers. "We believe it is better to be patient and wait for the right opportunity at the right price … rather than add stores for the wrong reasons. Considering the cash flow we are generating and our [infrastructure], we will be there for the right opportunities."

During the third quarter, Couche-Tard also implemented its IMPACT program in 54 company-operated stores (130 since the beginning of the fiscal year). To date, 61.8 percent of its company-operated stores have now been converted to the IMPACT program. The company is behind its IMPACT targets, and Paré said the slowdown stems from the retailer’s decision to reduce its capital budget this fiscal year.

"We’re just slowing down the pace and are being more cautious in how we are spending. We’re doing the best projects first, and are postponing those projects we can for a year or two. The idea is to keep as much money as possible to be ready for any potential acquisitions," the CFO told investors during yesterday’s conference call.

In connection with its commercial partnership with Irving Oil -- put in place during the first quarter of 2009 and relating to 252 c-stores -- Couche-Tard integrated 31 Irving stores in Canada during the third quarter of fiscal 2009, bringing the integrated number of stores to 234 (110 in Canada and 124 in the U.S.). The chain expects the remaining stores included in the initial agreement to be integrated before the end of this fiscal year.

In addition, pursuant to the agreement, another 19 Irving stores located in the United States were added to the initial 252 stores. These 19 stores were integrated to Couche-Tard’s network during the second and third quarters of 2009, the company stated.

In terms of franchises, following the Jan. 30 sale by ConocoPhillips of 314 stores that were operating under the Circle K banner, Couche-Tard signed new franchise agreements for the same stores with the new buyers, Convenience Retailers LLC and PCF Saleco LLC. In addition, on Jan. 26, the company finalized another franchise agreement with Jump Oil Co. for the conversion of 45 of its Missouri stores to the Circle K brand.

Looking ahead to the fourth quarter, Couche-Tard said it will pursue investments with caution in order to, amongst other things, deploy its IMPACT program. The company believes it may be able to realize acquisitions by seizing opportunities arising from the economic climate and from the attractive access to its credit facilities. In view of current accessibility conditions to capital market and debt, the company also believes it is in good position to create value. However, the chain said it will continue to exercise patience in order to benefit from a fair price in view of current market conditions.
Finally, in line with its business model, Couche-Tard stated it will 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 a leader in the Canadian convenience store industry and the second largest independent convenience store operator in North America (whether integrated with a petroleum company or not) in terms of number of stores. Couche-Tard currently has a network of 5,444 convenience stores, 3,607 of which include motor fuel dispensing, located in 11 large geographic markets, including eight in the United States covering 33 states and three in Canada covering ten provinces.
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