Couche-Tard: "Not Ready to Say the Recession is Behind Us"

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Couche-Tard: "Not Ready to Say the Recession is Behind Us"

LAVAL, Quebec -- Alimentation Couche-Tard Inc.'s first quarter net earnings were positively affected by sound management of its operating expenses, as well as acquisitions and an increase in same-store merchandise revenues and motor fuel volume.

In addition, the convenience store retailer said it benefited from a decrease in expenses related to electronic payment modes, which were created by lower motor fuel retail prices, a decrease in financial expenses and a lower effective income tax rate.

These positive items were partially offset by the weakening Canadian dollar and a slight decrease in its merchandise and service consolidated gross margin.

"Our teams managed to find concrete and effective solutions to overcome pitfalls we are facing, namely the recession, the important and repetitive tax increases on tobacco products, as well as the numerous minimum wage increases," stated Alain Bouchard, president and chief executive officer. "I therefore believe our first quarter results were satisfying. However, given the fact that economic conditions remain difficult, we must remain prudent. I am still not ready to say the recession is behind us."

Raymond Pare, vice president and chief financial officer added: "Same-store motor fuel volume in the United States is growing, which is good news considering the performance recorded in the previous quarters. I also feel positive about the merchandise and service gross margin improvement in the U.S. These are indicators that our operations in the U.S. are progressing well. This adds to our cost reductions initiatives, which are generating interesting results in both Canada and the U.S."

The convenience store chain's revenues amounted to $3.7 billion in the first quarter of fiscal 2010—down $643.9 million, a decrease of 14.9 percent compared to the first quarter fiscal 2009. The decline is chiefly the result of a $1.1 billion decrease in motor fuel revenues resulting from the lower sale price and an adverse impact of $100 million from the weakening Canadian dollar. These contributing factors were partially offset by a $471-million increase generated by acquisitions, as well as by the growth of same-store merchandise revenues and motor fuel volume both in the United States and Canada.

More specifically, the growth of merchandise and service revenues for the first quarter of fiscal 2010 was $88.8 million, an increase of 6.8 percent compared to the same period last fiscal year. Acquisitions generated $117 million, partially offset by a $53 million decrease related to the depreciation of the Canadian dollar against its U.S. counterpart.

Internal growth—as measured by growth in same-store merchandise revenues—rose 2.4 percent in the United States, mainly because of the increase in tobacco products’ retail prices following recent tax increases. As for the Canadian market, the increase in same-store merchandise revenues was 2.6 percent, Couche-Tard reported.

Motor fuel revenues decreased $732.7 million, or 24.3 percent in the first quarter fiscal 2010. The lower average retail price at the pump in the United States and Canada created a drop in revenues of $1.1 billion.

Acquisitions contributed 141 million additional gallons in the first quarter, or $361 million in revenues, but offset by the depreciation of the Canadian dollar, resulting in a decrease in revenues of $47 million. As for the growth in same-store motor fuel volume, it was 1.6 percent in the U.S. and 1.5 percent in Canada.

The company’s performance in the United States is an improvement over the previous four quarters, which posted same-store volume decreases because of the harsh economic conditions, according to Couche-Tard.

Its merchandise and service gross margin fell slightly, by 0.2 percent, in the first quarter, from 33.4 percent during the same period in fiscal 2009. In the United States, despite July 1 tax increases on tobacco products in Florida and Mississippi, plus the significant federal tax increase effective April 1, the gross margin was 32.8 percent—an increase from 32.4 percent the previous year.

In both the United States and Canada, the gross margin reflects Couche-Tard's merchandising strategy in tune with market competitiveness and economic conditions within each market, and the fact that some recent acquisitions posted a lower gross margin than the existing network, thereby lowering the overall gross margin. This latter situation should improve as integration and improved supply terms strategies are implemented, the company stated in its earning release.

During the first quarter, motor fuel gross margin for company-operated stores in the United States decreased 0.12 cents per gallon, from 15.55 cents per gallon last year to 15.43 cents per gallon this year.

For the first quarter of fiscal 2010, operating, selling, administrative and general expenses rose 1.9 percent compared to the first quarter fiscal 2009. These expenses increased 11.5 percent due to acquisitions, while they decreased 3.3 percent and 2.6 percent, respectively, because of the weaker Canadian dollar and the decrease in expenses related to electronic payment modes. Excluding these items, expenses decreased 3.7 percent.

Moreover, excluding expenses related to electronic payment modes for both periods, expenses in proportion to merchandise and service sales decreased 0.9 percent. Couche-Tard cited its management of other controllable expenses and the cost reduction measures it put in place as the main reasons for the decrease.

In providing its outlook for the remainder of this fiscal year, Couche-Tard said it expects to pursue investments with caution in order to deploy its IMPACT program, among other things. Given the economic climate and its attractive access to capital, the company said it is well positioned to realize acquisitions and create value.

However, Couche-Tard noted it will continue to exercise patience in order to benefit from a fair price in terms of current market conditions. Couche-Tard also intends to keep an ongoing focus on its supply terms and operating expenses.

Additionally, in line with its business model, Couche-Tard said it 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.

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