Couche-Tard Produces Strong Quarterly Results Despite Latest COVID-19 Surge

LAVAL, Quebec — Alimentation Couche-Tard Inc. weathered the latest COVID-19 surge and reported strong results for the third quarter of its 2022 fiscal year. 

"Two years after the start of the pandemic and during a quarter where the Omicron variant surged across our global network, I am pleased to announce that we had strong results during the third quarter in both convenience and fuel," President and CEO Brian Hannasch said during the company's Q3 earnings call, held on March 16. 

"Same-store merchandise sales were particularly strong in Europe as well as in the U.S., with our freshly prepared food programs and packaged beverages among the main drivers of continued growth," he reported.

Hannasch did note, however, that even with the convenience store operator's strong overall third-quarter results, the Omicron strain of COVID-19 and work-from-home trends did impact the later part of the quarter.

"The Omicron impact during the back half mainly affected our large and urban areas in North America and Europe where we saw renewed lockdowns. However, we continue to achieve healthy fuel margins and benefit from our strategic initiatives that we are remaining laser-focused on. We worked hard to overcome the historic labor and supply chain issues in our industry and are pleased to report significant improvement in more recent periods, as well as progress across many of our key priorities," he said.

Q3 by the Numbers

Overall, Couche-Tard's net earnings were $746.4 million for the third quarter of fiscal 2022, compared to $607.5 million for the third quarter of fiscal 2021.

Total merchandise and service revenues reached $4.8 billion, an increase of 5.8 percent. Merchandise and service gross margin increased by 1 percent in the U.S. to 33.6 percent and by 0.2 percent in Canada to 31.6 percent, while decreasing 0.7 percent in Europe and other regions to 37.8 percent, impacted by the integration of Circle K Hong Kong.

Compared to the same quarter a year ago, same-store merchandise revenues increased by 3.7 percent in the U.S. and by 7.2 percent in Europe and other regions, while decreasing 0.8 percent in Canada. One a two-year stack basis, same-store merchandise revenues increased by a compound annual growth rate of 3.4 percent in the U.S., 5 percent in Europe, and 2.1 percent in Canada, according to the earnings report. 

"Across the network, our Fresh Food, Fast programs continue to grow with over 2,900 stores now open in North America and over 300 in Europe. And we're seeing strong year-over-year growth," Hannasch said. "In the U.S., where we have the majority of our Fresh Food, Fast sites, we've seen same store year-over-year gains in excess of 20 percent. We've continued to launch a variety of operational tools to continue to drive the simplicity and reduce labor hours, making it easier for our store teams to merchandise and produce these great products."

In the face of continued supply chain challenges, Couche-Tard has modified its supplier base to provide redundancy and improve its stock positions, according to the chief executive.

"A pipeline of new items is also prepared to enter our stores as we continue to refine our assortment and make every effort to get into the chicken sandwich business," he added. "As the markets reopened, we are excited about the opportunities in front of us to promote and sample this great program in the coming weeks and months."

Category Snapshots

As for specific product categories, the dispensed beverages category at Couche-Tard is benefitting from the retailer's Sip & Save subscription program, which has been expanded to include online enrollment. There are 400,000 active subscribers in the program.

Couche-Tard's global banner, Circle K, launched the Sip & Save program in May 2021.

"We have very strong positive feedback from our customers, and we continue to look for opportunities to make it even easier for our customers to benefit from this program," Hannasch said. "While it's certainly in the short term, [and] probably impacts our sales in the expense category, we think the ongoing loyalty and increase in traffic that we're seeing is a good move for us over the long term."

The packaged beverages category at Couche-Tard is also strong, driven by unit growth led by sports drinks and energy drinks.

"Assortment, promotional activity and supply chain management will be the core focus in the coming quarters as customers begin to shift back to immediate consumption and more normalized shopping patterns. And quite honestly as we prepare for, hopefully, an exciting summer as the societies are open," Hannasch said.

Additionally, the retailer's age restricted category was up slightly in the latest quarter vs. a year ago. The company's U.S. business units continue to focus on wine and other age restricted products, while Couche-Tard's convenience stores in Europe continue to generate good sales results in the other tobacco products category. 

Laval-based Alimentation Couche-Tard operates in 26 countries and territories with more than 14,100 stores, of which approximately 10,800 offer road transportation fuel. With its well-known Couche-Tard and Circle K banners, it is one of the largest independent convenience store operators in the U.S. and a leader in the c-store industry and road transportation fuel retail in Canada, Scandinavia, the Baltics, as well as in Ireland. The company also has an important presence in Poland and Hong Kong.