Couche-Tard Profits Drop in Third Quarter

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Couche-Tard Profits Drop in Third Quarter

LAVAL, Quebec -- Alimentation Couche-Tard, operator of more than 5,000 Mac's and Circle K convenience stores throughout North America, saw revenues climb 18.8 percent, to $3.5 billion in the company's third quarter of 2007 -- raising revenues for the first nine months by 21.2 percent to $9.1 billion. Merchandise and service gross margins reached 34.2 percent, a gain of 1 percent.

However, net earnings totaled $43.7 million, an almost 20 percent decrease from the $54.5 million seen in the year-ago period. The decrease was due to lower motor fuel gross margins, as U.S. stores saw margins fall from 17.63 cents per gallon in the year ago period to 13.19 cents per gallon seen in the third quarter of 2007. In addition, increases in expenses related to electronic payment modes negatively impacted the Couche-Tard's profits in the third quarter, the company stated.

"As we did in the first and second quarters of the current fiscal year, we substantially improved our merchandise and service gross margins, driven primarily by better purchasing conditions, our product mix strategy and our IMPACT program which is now implemented in more than 49 percent of our company-operated stores," Alain Bouchard, chairman, president and CEO of Couche-Tard, said in a written statement.

In the third quarter, the company added 198 company-operated stores through acquisition or construction, and opened 45 other sites. So far this year, the company acquired 355 company-operated stores and opened 73.

During the third quarter, Couche-Tard finalized an agreement with Shell Oil Products US and its affiliate, Motiva Enterprises LLC, to acquire the network of 236 Shell-branded stores in various areas of the country. In addition, the company acquired 24 company operated stores from Sparky's in West Central Florida. The acquisitions bring the total number of Couche-Tard stores to 5,360 as of Feb. 4.

Acquisitions made during fiscal 2007 made up around 70 percent of the company's third-quarter sales growth, along with solid contributions from same-store merchandise revenues according to Bouchard.

"We achieved this growth despite the fact that conditions were less favorable in some of our U.S. markets than in the third quarter a year earlier," said Bouchard. "Unlike last year, we did not benefit from the positive impact of the reconstruction period following the 2006 hurricanes in Florida and the Gulf of Mexico, nor the exceptionally good weather conditions that prevailed in our Southwest markets during the third quarter of the previous year; indeed, they were rather unfavorable this quarter."

Motor fuel volumes increased in every market, due to acquisitions and an ongoing price optimization program. However, retail pump prices declined in the third quarter, resulting in a substantial decrease in motor fuel gross margins in the U.S., Bouchard said.

"Remember that the volatility in margins tends to stabilize on an annual basis," he noted.

In the current fourth quarter of fiscal 2007, the company will continue on its acquisition route. It will "take advantage of further expansion opportunities in strategic markets in North America, insofar as they are consistent with our profit and growth criteria. With the benefits of the new stores that have been acquired and opened since the beginning of the year and our focus on our targeted pricing and product mix strategies, we are confident we will achieve strong results for the last quarter and the fiscal year ending April 29," concluded Alain Bouchard.