LAVAL, Quebec Alimentation Couche-Tard Inc. said record results for the 52-week period ended April 24, 2005, primarily reflect Circle K's major contribution for the full year, its integration and high U.S. motor fuel gross margins. Adding to this strong U.S. network contribution, the Canadian network performed well and also made a significant contribution to financial results. This growth came despite Canadian markets facing unfavorable weather conditions in the summer of 2004 and Florida suffering damages from four hurricanes.
We generated cash flows [image-nocss] of $404.3 million while investing $320.2 million in capital including fixed assets and three small business acquisitions, and we ended the year with $312 million in cash. Subsequent to the integration, our organization is flexible and structured into autonomous and skilled teams, which is vital to undertake a new growth phase. In addition to successfully completing the integration, Circle K's business units drew up business plans and various concrete projects to build upon their markets' potential. In 2005-2006, therefore, we can further focus on leveraging Circle K's strong potential, said Alain Bouchard, president and CEO.
One of the year's highlights was the successful completion of the integration of Circle K's operations into the Couche-Tard operating model, with the following major accomplishments:
The achievement of $76.7 million in synergies during the year. Of these total synergies, $16.1 million were improvements in purchasing and $60.6 million related to reductions in operating, selling, general and administrative costs; The commencement of the initial rollout of the new point-of-sale (POS) systems with scanning into 381 stores by April 24, 2005, with the remaining 607 stores to be completed by the end of 2005; The implementation and smooth running of a decentralized structure within two large markets: Eastern and Western North America; and Several initiatives in the Circle K business units to increase store revenues and profitability.
During the year, Couche-Tard experienced significant increases in motor fuel retail prices in its U.S. markets, primarily attributable to volatile world prices for crude oil. The average retail price of motor fuel in the U.S. markets amounted to $1.94 per gallon in fiscal 2005 compared with $1.37 per gallon in fiscal 2004 (including Circle K's historical results). For each of the four quarters commencing in first-quarter fiscal 2005, motor fuel gross margins for the company-operated stores in the U.S. markets stood at 16.24, 12.44, 16.30 and 11.26 cents per gallon, respectively, with an average of 14.17 cents per gallon for the year compared with 14.30 cents per gallon for the previous year (including Circle K's historical results).
For the 12-week period ended April 24, 2005, revenues totaled $2.41 billion, compared with $2.29 billion for the same period last year, an increase of 5.2% or $120 million.
U.S. revenues rose to $1.87 billion, up by $76.7 million or 4.3% over the last quarter a year earlier. This reflects the impact of the lower exchange rate, 3% fewer stores in operation as we continue to divest the lower-performing stores, which were more than offset by increased motor fuel retail prices. Growth of average merchandise revenues per store was 6.6% compared with 4.1% in the same quarter last year. The growth of average merchandise revenues per store reflects the efforts to increase revenues and gross margins through price optimization, changing product mix, the impact from investment in Store 2000 Concept conversions and the increase in tobacco tax with the resultant increase in the selling price of tobacco products.
Growth of average motor fuel volume per store was 4.5% compared with 8% in the corresponding quarter a year earlier. The company completed its major rebranding of several motor fuel locations in the summer of 2003 in its Midwest market, which resulted in significant increases in motor fuel volume in fourth-quarter fiscal 2004 compared with the same period in fiscal 2003.
In Canada, revenues amounted to $538.1 million, up 8.7% or $43.2 million. Growth in average merchandise revenues per store stood at 3.3% for the fourth quarter of fiscal 2005, down slightly from 3.5% last year. Overall, Canadian markets performed reasonably well. Growth of average motor fuel volume per store, in the fourth quarter of fiscal 2005, reached 7.4% compared with 5.5% in the prior year due to the influence of certain pricing strategies.
Gross profit totaled $431.3 million, compared with $449.8 million, a decrease of 4.1% or $18.5 million, which reflects increases of $7 million in the aggregate, offset by $25.5 million due to the impact of lower exchange rate.
Consolidated merchandise and service gross margin was 33%, up slightly from 32.8% for the same period last year. It should be noted that Circle K's gross margin is slightly lower than the balance of the network due mainly to its different product mix, which will gradually be improved. In Canada, gross margin was up 0.8%, at 34%. In the United States, the gross margin stood at 32.5%, slightly down from 32.7% last year.
Motor fuel gross margin decreased in Canada to 4.60 cents per liter versus 4.81 cents per liter in the fourth quarter of the previous year reflecting the competitive market conditions. Gross margin in the United States fell to 11.26 cents per gallon from 12.30 cents per gallon for the comparable period of 2004 which reflects the volatility of our motor fuel business this past year.
Operating, selling, administrative and general expenses were $346.9 million in fourth-quarter fiscal 2005, which is $22.6 million lower than last year, reflecting the lower exchange rate, the additional synergies realized in 2005 and the increase in credit card fees of $3.9 million. Overall, operating, selling, administrative and general expenses decreased as a percentage of merchandise and service revenues from 33.2% last year to 32.1% this year.
Depreciation and amortization of fixed assets and other assets was $26.5 million in fourth-quarter fiscal 2005 compared with $27 million for the same quarter last year.
Financial expenses decreased by $3.6 million from $12.7 million to $9.1 million. The decrease results primarily from lower outstanding debt which resulted from the repayment, in the fourth quarter last year, of a portion of debt from the proceeds of the sale and leaseback transactions completed in March and April 2004.
Net earnings amounted to $40 million or 20 cents per share (19 cents per share on a diluted basis), compared with $20 million or 10 cents per share (10 cents per share on a diluted basis), an improvement of 100%. Applying the effective income tax rate to fourth-quarter 2005 and without the writeoff of the financing costs in fourth-quarter 2004, net earnings would have totaled $33.1 million or 16 cents per share on a diluted basis for 2005 and $26.3 million or 13 cents per share on a diluted basis for the same period last year.
Cash flows from operating activities amounted to $234.5 million, compared with $121.2 million for the fourth quarter last year, an increase of $113.3 million. Cash and cash equivalents totalled $312 million as at April 24, 2005, up from $209.3 million as at April 25, 2004.
Cash used in fourth-quarter 2005 amounted to $119.2 million, including $101.8 million invested in fixed assets, mainly for implementing the Store 2000 Concept in 119 stores, including 23 new stores, the opening of 20 quick-service restaurants (QSRs), ongoing technological improvements, capital maintenance network-wide and replacement of fixed assets damaged by the Florida hurricanes. Also, the company acquired 28 stores for $43.9 million in the United States and realized $23.2 million from the sale and leaseback of 10 of these sites.
During the 52-week period ended April 24, 2005, Couche-Tard completed three small business acquisitions for a total of 49 stores, opened 44 QSRs, and implemented its Store 2000 Concept in 223 stores, including 54 new stores.
For the 52-week period, Couche-Tard achieved revenues of $10.22 billion, compared with $5.87 billion in fiscal 2004, a major increase of 74.1% or $4.35 billion, including an additional $3.84 billion from Circle K. The company recorded 76.3% of its revenues in the United States, up from 62.7% the previous fiscal year.
U.S. revenues totaled $7.79 billion, an increase of $4.11 billion reflecting the additional $3.84 billion in revenues from Circle K and the internal growth in the American network. Growth of average merchandise revenues per store, which is based on U.S. dollars (excluding Circle K), was 10.4% over the prior year, while growth of average motor fuel volume per store (excluding Circle K) was 6.3% over the prior year. The growth of average merchandise revenues per store reflects the efforts to increase revenues and gross margins through price optimization, changes in product mix, the impact from investments in Store 2000 conversions and the increase in tobacco tax with the resultant increase in the selling price of tobacco products. The average motor fuel volume per store increase reflects the positive consumer response to our rebranding of several motor fuel locations to nationally recognized brands and the impact of investments in Store 2000 Concept conversions.
In Canada, revenues amounted to $2.42 billion, up by 10.7%, or $233.4 million, of which $66.5 million or 28.5% was generated from merchandise and service revenues and in particular in the higher margin categories including foodservice. Growth of average merchandise revenues per store was 2.6% compared with the previous year which reflects the aggressive pricing on generic tobacco and certain dairy categories. Growth of average motor fuel volume per store was 6.6% over the previous year due to certain pricing strategies.
Gross profit grew by 62.3% or $760.0 million to $1.98 billion, compared with $1.22 billion for the previous year. This increase is mainly due to higher revenues, particularly additional revenues from Circle K and higher motor fuel gross margins, in particular from Circle K.
Consolidated merchandise and service gross margin was 32.9%, up from 32.6% in the previous fiscal year. The gross margin in Canada was 33.5%, up from 32.5% in previous year reflecting the impact of improvements in purchasing terms and changes in products mix with a focus on higher margin items. The gross margin in the U.S. operations was 32.6%, unchanged from last fiscal year. Efforts continue to improve gross margin through price optimization and changes to the product mix emphasizing higher margin items. These efforts resulted in higher gross margins in certain categories and lower gross margins in other categories with resultant increase in sales. Also, tobacco gross margins have come under competitive pressures in certain areas. The result of these dynamic variables, in the aggregate, was an unchanged gross margin in fiscal 2005 compared to last year.
Motor fuel gross margin decreased slightly to 4.61 cents per liter in Canada, down from 4.77 cents per liter in the previous year reflecting the increase in competitive activity, particularly in segments of Central Canada. Motor fuel gross margin in the U.S. operations increased to 14.17 cents per gallon from 11.57 cents per gallon in the previous year. (Including Circle K's historical results, the motor fuel gross margin in the U.S. would have been 14.30 cents per gallon for fiscal 2004.)
Operating, selling, administrative and general expenses increased by $554.4 million or 56% over the previous fiscal year. The increase is mainly attributable to the acquisition of Circle K on Dec. 17, 2003. It should be noted that there were major increases in the retail price of motor fuel this year, particularly in Couche-Tard's U.S. markets, with a resultant increase in credit card fee expense. (Including Circle K's historical results, credit card fee expense increased by approximately $22.5 million over the previous year (about $15.2 million after tax)). As a percentage of total revenues, operating, selling, administrative and general expenses declined by 1.7% due to lower operating costs associated with higher motor fuel revenues, which account for a larger proportion of total revenues. As a percentage of merchandise and service revenues, operating, selling, administrative and general expenses remained about the same as last year.
Depreciation and amortization of fixed and other assets increased by 37.7% to $106.3 million in fiscal 2005. This increase is due mainly to the acquisition of Circle K and capital expenditures made during fiscal 2005.
Operating income for fiscal 2005 more than doubled to $333 million, an increase of $176.4 million or 112.6% over the $156.6 million earned in the same period of the previous fiscal year. This increase is primarily attributable to the results of Circle K.
Financial expenses totaled $38.9 million, up by $7.8 million or 25.1% over last year due to the higher borrowings to finance the Circle K acquisition. Financial expenses were reduced by a $6.9 million favorable benefit from the interest rate swaps entered into in March 2004.
Net earnings increased by $124 million or 164.2% to $199.5 million or 99 cents per share (97 cents per share on a diluted basis), compared with $75.5 million or 42 cents per share (40 cents per share on a diluted basis) in the previous year.
Net earnings for 2005 were negatively affected by, among other factors, the additional credit card fee expense in our U.S. markets (primarily resulting from higher motor fuel retail prices) amounting to approximately $14.4 million (7 cents per share on a diluted basis). Including Canada, credit card fee expense increased by approximately $15.2 million (7 cents per share on a diluted basis).
Cash provided from operating activities amounted to $404.3 million in fiscal 2005 compared with $314.2 million in fiscal 2004, an increase of $90.1 million, reflecting largely the contribution of Circle K for the full fiscal year. Cash flows at the level of net earnings plus depreciation and amortization, writeoff of financing costs, loss on disposal of fixed and other assets and future income taxes amounted to $330.8 million (or $1.64 per share), an increase of $187.3 million or 130.5% over the $143.5 million (or 80 cents per share) generated during the prior fiscal year.
Net cash used in investing activities amounted to $283.3 million in fiscal 2005, including $85.2 million for three small business acquisitions comprising 49 stores. In fiscal 2004, net cash used in investing activities amounted to $761.2 million, including $984.3 million for the purchase of Circle K and $41 million for the purchase of 43 Clark stores. Also, in fiscal 2005 investment in fixed assets amounted to $235 million, compared with $115.2 million for fiscal 2004. These capital expenditures were primarily for existing store improvements and equipment, new store development, information systems, expenditures related to motor fuel facilities in compliance with regulatory requirements and replacement of fixed assets damaged by the Florida hurricanes. Cash generated from sale and leaseback transactions amounted to $25.6 million in fiscal 2005 compared with $379.5 million in the prior year.
Our growth will continue to come from our Store 2000 Concept, which we will implement in approximately 400 locations during 2005-2006, as well as various projects focused on operational excellence both in our Canadian and U.S. networks. We plan to further expand by opening some 100 new stores and about 60 QSRs in 2005-2006, combined with acquisitions of small and mid-sized chains, especially in some U.S. markets where we want to broaden our current networks to a total of 500 to 600 stores. What's more, our financial position would allow us to contemplate a larger-scale acquisition if the opportunity should arise, and we continue to assess the possibility of participating in the development of the Circle K network of international licensees, Bouchard said.
Laval, Quebec-based Couche-Tard currently operates a network of 4,845 c-stores, 3,013 of which include motor fuel dispensing, located in eight large geographic markets, including three in Canada and five which cover 23 American states.
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