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Alimentation Couche-Tard Announces its Results for its Third Quarter of Fiscal Year 2020

Cision


  • Net earnings attributable to shareholders of the Corporation ("net earnings") of $659 .9 million ( $0 .59 per share on a diluted basis) for the third quarter of fiscal 2020 compared with $612.1 million ( $0.54 per share on a diluted basis) for the third quarter of fiscal 2019. Excluding certain items for both comparable periods, net earnings for the quarter would have been approximately $583.0 million 1 or $0.52 1  per share on a diluted basis, compared with $602 .0 million 1 or $0.53 1  per share on a diluted basis for the third quarter of fiscal 2019, a 1.9% decrease of the adjusted net earnings per share on a diluted basis.
  • Total merchandise and service revenues of $4.3 billion , an increase of 2.6%. Same-store merchandise revenues increased by 3.0% in the U.S., by 2.1% in Europe and by 4.2% in Canada .
  • Merchandise and service gross margin increased by 0.3% in the U.S. to 34.0%, and by 0.5% in Europe to 42.3%, while it decreased by 0.2% in Canada to 32.9%. Excluding the impact from the conversion of the Esso stores from the agent model to the corporate model, the margin in Canada would have shown positive growth.
  • Same-store road transportation fuel volume increased by 0.1% in the U.S., while it decreased by 0.8% in Europe and by 3.1% in Canada .
  • Road transportation fuel gross margin decreased by 2.38¢ per gallon in the U.S. to 27.04¢ per gallon, and by CA 0.05¢ per liter in Canada to CA 8.06¢ per liter, while it increased by US 0.20¢ per liter in Europe to US 8.50¢ per liter.
  • On November 19, 2019 , the Corporation sold its interests in CrossAmerica Partners LP ("CAPL"), which resulted in a pre-tax net gain on disposal of $61 .5 million. On the same date, the Corporation announced an asset exchange agreement with CAPL under which a portion of its U.S. wholesale road transportation fuel operations will be exchanged, receiving in return CAPL's 17.5% limited partnership interest in CST Fuel Supply LP, bringing the Corporations interest in this entity to 100%.
  • Circle K rebranding project continues in North America with more than 6,250 stores now displaying the new Circle K global brand, representing more than 85.0% of the North American project scope.
  • 12.0% increase of the quarterly dividend, from CA 6.25¢ to CA 7.00¢.
  • The Corporation announced, subject to TSX approval, its intention to renew the share repurchase program which would allow it to repurchase up to 4.0% of its Class B subordinate voting shares.
  • Share repurchases totaled $64 .2 million during the third quarter of fiscal 2020 and $236 .9 million for the first three quarters of fiscal 2020..
  • Successful issuance of US-dollar-denominated senior unsecured notes totaling $1.5 billion at favorable terms.

LAVAL, QC, March 17, 2020 /PRNewswire/ - For its third quarter ended February 2, 2020, Alimentation Couche-Tard Inc. (TSX: ATD.A) (TSX: ATD.B) announces net earnings attributable to shareholders of the Corporation of $659.9 million , representing $0 .59 per share on a diluted basis. The results for the third quarter of fiscal 2020 were affected by a pre-tax net gain of $61.5 million on the disposal of its interests in CAPL, a positive impact on income tax of $29 .0 million from an adjustment to deferred tax assets, a pre-tax net foreign exchange gain of $5.4 million , pre-tax acquisition costs of $2.9 million , as well as pre-tax restructuring costs of $1.7 million . The results for the comparable quarter of fiscal 2019 were affected by a pre-tax gain on the disposal of the marine fuel business of $3 .2 million, pre-tax restructuring costs of $1 .6 million, a pre-tax net foreign exchange gain of $1 .5 million, as well as pre-tax acquisition costs of $0.6 million . Excluding these items, the adjusted diluted net earnings would have been approximately $583.0 million 1 or  $0.52 1 per share on a diluted basis for the third quarter of fiscal 2020, compared with $602 .0 million 1  or  $0.53 1 per share on a diluted basis for the third quarter of fiscal 2019, a 1.9% decrease of the adjusted net earnings per share on a diluted basis, driven by lower road transportation fuel margins in the U.S. compared with the markedly high margins of the previous year, by higher labor costs, as well as incremental investments to support our strategy, partly offset by strong organic growth in our convenience operations. All financial information presented is in US dollars unless stated otherwise.

______________________________________

1

Please refer to the section "Net earnings attributable to shareholders of the Corporation ("net earnings") and adjusted net earnings attributable to shareholders of the Corporation ("adjusted net earnings")" of this press release for additional information on this performance measure not defined by IFRS. This performance measure, for the 16-week period ended February 3, 2019, has been adjusted for the estimated pro forma impact of IFRS 16.

 

"We had an overall strong performance, especially in the convenience sector where we are seeing impressive results from our strategic initiatives and improvements in our offerings. We are excited about the expansion of our food at scale program and remain very pleased with initial acceptance by our customers. Over the coming months, we will apply these learnings and increase the pace of our rollout in new business units. Our cross-functional teams are preparing our stores and training employees for this critical advancement in our food journey," said Brian Hannasch , President and CEO of Alimentation Couche-Tard.

"We continue to experience positive trends in our U.S. fuel business with steady same-store fuel volumes, which outperformed the industry once again. We also realized strong fuel margins this quarter, with only a slight decline year-over-year even as we cycled against an exceptional fuel environment last year. Additionally, we reached new milestones in our fuel and mobility work including the expansion of our Circle K Fuel brand to more than 2,300 sites in North America , and significant advancements in deploying electric vehicle rapid charging points in Europe , now totaling 400 points at 90 stations across Norway alone," concluded Brian Hannasch .

Claude Tessier , Chief Financial Officer, stated: "Our team continued to execute well against our plan during the third quarter of fiscal 2020 and this once again drove strong cash flow generation. While operating expense growth was higher than in past periods, mainly due to a tightening labor backdrop and incremental investment in capabilities to support our strategic initiatives, we are doubling efforts to optimize our cost structure and drive efficiencies in all areas of our business. We also maintained our usual balanced capital allocation approach, paying down our maturing debt obligations, returning cash to shareholders through share repurchases, and raising our quarterly dividend payment by 12%. Importantly, we issued $1 .5 billion in unsecured notes at favorable terms, demonstrating investor confidence in our strategy and our ongoing execution. As a result of these efforts, our balance sheet is healthier than ever, placing us in a solid position to take advantage of future growth opportunities."

Significant Items of the Third Quarter of Fiscal 2020

  • The rollout of our Circle K brand in North America is progressing steadily. As of February 2, 2020 , more than 6,250 stores in North America , including 945 stores acquired from CST, now proudly display our new global brand. This represents more than 85.0% of our overall North American project.
  • On December 13, 2019 , we fully repaid, at maturity, our $600.0 million US-dollar-denominated senior unsecured notes issued on December 14, 2017 . On November 1, 2019 , we fully repaid, at maturity, our CA $450.0 million ( $341.4 million ) Canadian-dollar-denominated senior unsecured notes issued on November 1, 2012 , and settled the associated cross-currency interest rate swaps.
  • On January 22, 2020 , we issued US-dollar-denominated senior unsecured notes totaling $1.5 billion , consisting of a $750.0 million tranche with a coupon rate of 2.950% and maturing in 2030, as well as a $750.0 million tranche with a coupon rate of 3.800% and maturing in 2050.
  • During the third quarter and first three quarters of fiscal 2020, we repurchased 1,996,992 and 7,657,960 Class B subordinate voting shares, respectively. These repurchases were settled for net amounts of $64 .2 million and $236 .9 million, respectively. Subsequent to the end of the quarter, 4,660,240 Class B subordinate voting shares were repurchased, for a net amount of $137 .9 million.
  • On March 17, 2020 , we announced, subject to TSX approval, our intention to renew the share repurchase program which allows us to repurchase up to 4.0% of our Class B subordinate voting shares.
  • During the third quarter of fiscal 2020, as part of our cost's reduction initiatives and the search for synergies aimed at improving our efficiency, we made the decision to proceed with the restructuring of certain of our operations. As such, an additional restructuring expense of $1.7 million was recorded to earnings of the third quarter of fiscal 2020.

Changes in our Network

  • On November 19, 2019 , we announced the closing of the sale of our interests in CAPL, representing 100% of the equity interests of the sole member of the General Partner, 100% of the incentive distribution rights and 21.7% of the outstanding common units of CAPL to investment entities controlled by Joe Topper , the founder of CAPL and a member of the board of directors of its General Partner for an amount of $190.0 million . We recognized a pre-tax net gain on disposal of $61 .5 million in relation to this transaction. The decision to divest our interests in CAPL was based on the outcome of a strategic review. This transaction also led to the release of a deferred tax asset valuation allowance of $29.0 million in relation with capital losses which were not expected to be used before their expiration date.
  • On November 19, 2019 , we also announced an asset exchange agreement with CAPL under which we will transfer a portion of our U.S. wholesale road transportation fuel operations, which consists of wholesale fuel supply contracts covering 387 sites and 45 fee and leasehold properties, receiving in return CAPL's 17.5% limited partnership interest in CST Fuel Supply LP (" November 2019 asset exchange agreement"), bringing our interest in this entity to 100%. Subject to regulatory approvals, the November 2019 asset exchange agreement is expected to be completed in the first half of calendar 2020.
  • On February 25, 2020 , subsequent to the end of the third quarter of fiscal 2020, we closed the third transaction of the asset exchange agreement with CAPL (" December 2018 asset exchange agreement"). In this third transaction, we transferred 10 Circle K U.S. stores for a total value of approximately $11.0 million . In exchange, CAPL transferred the real estate for 5 properties for a total value of approximately $10.0 million . The remaining tranches of the December 2018 asset exchange agreement are expected to be completed in the first half of calendar 2020.
  • On January 13, 2020, we acquired 17 stores from a franchise operator. These convenience stores operate under the Holiday banner in South Dakota and Minnesota , within the United States .
  • During the third quarter of fiscal 2020, we acquired 1 company-operated store, reaching a total of 10 stores since the beginning of fiscal 2020.
  • During the third quarter of fiscal 2020, we completed the construction of 13 stores and the relocation or reconstruction of 7 stores, reaching a total of 68 stores since the beginning of fiscal year 2020. As of February 2, 2020, another 40 stores were under construction and should open in the upcoming quarters.

Summary of changes in our store network during the third quarter of fiscal 2020

The following table presents certain information regarding changes in our store network over the 16-week period ended February 2, 2020:

 




16-week period ended February 2, 2020

Type of site

Company-
operated

CODO

DODO

Franchised and
other affiliated

Total

Number of sites, beginning of period

9,735

452

1,039

1,297

12,523

Acquisitions

18

18

Openings / constructions / additions

13

1

7

25

46

Closures / disposals / withdrawals

(36)

(3)

(20)

(32)

(91)

Store conversion

2

(1)

(1)

Number of sites, end of period

9,732

449

1,025

1,290

12,496

Circle K branded sites under licensing agreements





2,384

Total network





14,880

Number of automated fuel stations included in the period-end figures

980

10

990

 

New Accounting Standard Adopted by the Corporation

As of April 29, 2019 , we adopted IFRS 16, Leases , which requires lessees to recognize on the balance sheet a lease liability reflecting future lease payments and a right-of-use asset for virtually all lease contracts, except with respect to lease contracts that meet limited exception criteria. As permitted under the specific transition provisions in the standard, we have elected not to restate our comparative figures for the fiscal year 2019. The tables below present the estimated pro forma impact of the change in accounting policy on our previously reported results:

 

...



16-week period ended February 3, 2019

(in millions of US dollars)

Pre IFRS 16
As reported

Excluding: rent
under IAS 17

Including:
depreciation
and interests (1)

Other

Total estimated
pro forma IFRS
16 adjustments

Pro forma -
IFRS 16

Total estimated
pro forma IFRS
16 impacts
attributable to
shareholders of
the Corporation

Revenues

16,515.0

11.0

11.0

16,526.0

6.0

Cost of sales

13,681.1

13,681.1

Gross profit

2,833.9

11.0

11.0

2,844.9

6.0









Operating, selling, administrative and general expenses

1,698.6

(122.0)

9.0

(113.0)

1,585.6

(112.0)

Restructuring costs

1.6

1.6

Gain on disposal of property and equipment and other assets

(6.5)

(6.5)

Depreciation, amortization and impairment

305.2

(6.0)

118.0

112.0

417.2

108.0

Total operating expenses

1,998.9

(128.0)

118.0

9.0

(1.0)

1,997.9

(4.0)

Operating income

835.0

128.0

(118.0)

2.0

12.0

847.0

10.0