LAVAL, Quebec -- Alimentation Couche-Tard Inc. kept up its momentum and achieved strong growth during the third quarter ended Jan. 29, 2006, it said.
The company said that it benefits from an excellent cash position to further expand. Last week, as reported in CSP Daily News, the company announced the purchase of 40 convenience stores and the assumption of an additional 13 fuel supply contracts in the Indianapolis area from Shell Oil Products US.
Its store network continued to grow and gain strength, it said, exceeding the new [image-nocss] store objective set for the entire year within the first nine months of the year. During the first nine months of fiscal 2006, Couche-Tard acquired and opened a total of 106 stores and 43 quick-service restaurants while implementing its IMPACT concepts in 246 locations, including 29 new stores.
For the 16-week period ended Jan. 29, 2006, the company achieved revenues of $2.94 billion, compared with $2.4 billion for the same period in fiscal 2005, an increase of 22.7% or $544 million. The company recorded 77.5% of its revenues in the United States, compared with 75.9% in the third quarter last year.
In the United States, revenues totaled $2.28 billion, an increase of 25.2% or $458.7 million, of which $396.7 million or 86.5% was generated from motor fuel revenues. The growth of same-store motor fuel volume was 6.9%, which reflects the positive impact of certain pricing strategies designed to increase volume. Growth of same-store merchandise revenues was 6% over the same period last year.
This growth reflects efforts made to increase revenues and gross margins by implementing new pricing strategies on certain product categories designed to increase volume and by modifying product mix, as well as the results from investment in the company's IMPACT concepts conversions and the increase in tobacco tax in some regions with the resultant increase in the selling price of tobacco products.
In Canada, revenues amounted to $662.7 million (U.S.), up 14.8%, or $85.3 million, of which $50.4 million or 59.1% was generated from motor fuel revenues. The growth of same-store motor fuel volume stood at 2% compared with the same quarter in the previous year, which reflects pressure on consumer spending caused by the sharp jump in the retail price of motor fuel. Growth of same-store merchandise revenues was 2.9% compared with the same period in the previous year, reflecting the launch of new products that were well received by the customers as well as the results from investment in the company's IMPACT concepts conversions.
Gross profit grew by 13% or $61.2 million to $530.3 million, compared with $469.1 million for the same quarter last year. This increase is mainly due to higher sales overall, higher gross margins on merchandise and service and high motor fuel margins.
The consolidated merchandise and service gross margin was 33.2%, up from 32.5% in the same period last year. The gross margin in Canada was 33.4%, up from 33% in the third quarter of the previous year. In the United States, the gross margin was 33.1%, up from 32.3% for the third quarter of 2005. In both Canada and the United States, the increase in gross margin was due to improvements in purchasing terms and product mix; however, in the United States, the increase in gross margin was restricted by certain pricing strategies in western markets and by competitive pressure on tobacco gross margins in certain regions.
The motor fuel gross margin increased to 4.31 cents (Canadian) per liter in Canada from 4.15 cents (Canadian) per liter in the third quarter of the previous year. The motor fuel gross margin in the United States also increased to 17.63 cents per gallon, compared with 16.30 cents per gallon for the corresponding period of the previous year. These increases primarily reflect the volatile nature of the motor fuel business and the selective pricing strategy implemented in certain areas of the United States to stimulate sales volume.
During the 40-week period ended Jan. 29, 2006, Couche-Tard acquired 49 sites in the U.S., including 41 company-operated stores and eight affiliated stores. It has also added 57 new company-operated stores and 43 QSRs and implemented its IMPACT concepts in 246 stores, including 29 new stores. One affiliated store was converted into a company-operated store and eight company-operated stores were converted into affiliated stores. Couche-Tard also added 86 affiliated stores to its network whereas 61 other stores were removed. Finally, the number of the company-operated stores was reduced by 74, including 13 stores that were closed on a permanent basis due to hurricane-related damages. In total, 163 sites were affected to various degrees, 20 of which are still closed. Of these sites, the company expects that approximately 13 will remain permanently closed because they did not have the potential to meet its contribution expectations, five sites should be reopened within six months while the other two should reopen in fiscal year 2008. As at Jan. 29, 2006, and from the date of occurrence of those events, Couche-Tard estimates that it has lost approximately 4,100 store-days.
For the 40-week period ended January 29, 2006, the company achieved revenues of $7.52 billion compared with $6.08 billion for the same period in fiscal 2005, an increase of 23.8% or $1.44 billion. It recorded 76.8% of its revenues in the United States, compared with 75.9% for the first 40 weeks of last year.
In the United States, revenues totaled $5.77 billion, an increase of 25.3% or $1.16 billion, of which $1.02 billion or 87.6% was generated by motor fuel revenues. The growth of same-store motor fuel volume was 6%, which reflects the positive impact of certain pricing strategies designed to increase volume. Growth of same-store merchandise revenues was 5.6% over the same period last year. This growth reflects efforts made to increase revenues and gross margins by implementing new pricing strategies on certain product categories designed to increase volume and by changing product mix, as well as the results from investment in the company's IMPACT concepts conversions and the increase in tobacco tax in some regions with the resultant increase in the selling price of tobacco products.
In Canada, revenues amounted to $1.74 billion, up 19%, or $278.5 million, of which $148.9 million or 53.5% was generated from motor fuel revenues. Growth of same-store motor fuel revenues was 2.8% compared with the first three quarters of the previous year due in part to the negative impact of the pressure on consumer spending caused by the sharp jump in the retail price of motor fuel. Merchandise and service revenues increased by $129.6 million over the same period in fiscal 2005. Growth of same-store merchandise revenues was 4.1% compared with the same period in the previous year, reflecting the launch of new products that were well received by the customers as well as the company's pricing strategies on certain product categories designed to increase volume and the results from investment in its IMPACT concepts conversions.
Gross profit grew by 12.7% or $153.3 million to $1.36 billion, compared with $1.21 billion for the same nine-month period of the previous year. This increase is mainly due to higher sales and high motor fuel margins.
The consolidated merchandise and service gross margin was 33.1%, up from 32.8% in the same period last year. The gross margin in Canada was 33.7%, up from 33.4% in the first three quarters of the previous year reflecting the impact of improvements in purchasing terms and changes in product mix with a focus on higher margin items. The increase in gross margin in Canada was partially offset by the company's pricing strategies on certain product categories designed to increase sales. In the United States, we maintained our efforts regarding price optimization and changes to the product mix in higher margin categories. As a result, gross margins were higher in certain categories and lower in other categories where revenues rose. Overall, these strategies resulted in an increase in gross margin in the United States to 32.9% compared with 32.6% for the first three quarters of fiscal 2005; however, the positive impact of the Company's strategies was partially offset by competitive pressure on tobacco gross margins in certain regions.
The motor fuel gross margin increased to 4.96 cents (Canadian) per liter in Canada from 4.61 cents (Canadian) per liter in the first three quarters of the previous year. The motor fuel gross margin in the United States also increased, reaching 16.63 cents per gallon compared with 15.11 cents per gallon for the corresponding period of the previous year. These increases primarily reflect the volatile nature of the motor fuel business, partially offset by the company's selective pricing strategy implemented in certain areas of the United States to increase sales volume and by strong competition in some regions.
"These results are of even greater interest given that by eliminating the effect of the higher gasoline margin in the [United States], net of the increase in credit card expense generated by the rise in retail prices of motor fuel, net earnings were up 43% over last year's figure, thereby confirming the effectiveness of our strategies, said Alain Bouchard, chairman, president and CEO.
He added, The sustained improvement in our merchandise and service gross margins attests to the effectiveness of our pricing and product mix strategies in our Canadian markets and even more so in the United States, where the implementation of our IMPACT concepts is contributing to improve our stores' profitability. Although the oil market remained volatile in the third quarter, we continued to benefit from our pricing strategies in some markets. Considering our strong growth period after period, our available cash, our solid balance sheet and our robust network, we are pleased to be able to further increase our shareholders' return on investment by paying them a quarterly dividend. And we can do so without compromising our growth strategy.
The average retail price of motor fuel in Couche-Tard's U.S. markets amounted to $2.33 per gallon for the 16-week period ended Jan. 29, 2006, compared with $1.91 per gallon for the 16-week period ended Jan. 30, 2005.
The gross margin on motor fuel revenues varies primarily as a result of product cost volatility and competition. Although motor fuel gross margins can be volatile from one quarter to the next, they generally even out on an annual basis. For each of the last four quarters commencing with the fourth quarter of fiscal 2005, motor fuel gross margins for the company-operated stores in the U.S. markets stood at 11.26 cents, 14.86 cents, 17.05 cents and 17.63 cents per gallon, respectively, with a weighted average of 15.43 cents per gallon for the year ended Jan. 29, 2006, compared with 14.44 cents per gallon for the previous 12-month period ended Jan. 30, 2005.
Net of credit card expense, these same gross margins were 7.90 cents, 11.23 cents, 12.78 cents and 13.67 cents per gallon, with a weighted average of 11.61 cents per gallon for the 12-month period ended Jan. 29, 2006, compared with 11.16 cents per gallon for the 12-month period ended Jan. 30, 2005. The motor fuel gross margin for the U.S. company-operated stores was 17.63 cents per gallon for the third quarter this year compared with 16.30 cents per gallon for the same period last year. For the third quarter of the current year, this increase in the motor fuel gross margin had a positive impact of $8.1 million on the company's operating income. Net of the increase in credit card expenses generated by the rise in retail prices of motor fuel, the positive impact is only $4 million.
During the 16-week period ended Jan. 29, 2006, Couche-Tard acquired 49 sites in the United States, located in New Mexico, Tennessee and Ohio, including 41 company-operated stores and eight affiliated stores. It has also added 20 new company-operated stores and 10 QSRs and implemented its IMPACT concepts in 109 stores, including 13 new stores.
One affiliated store was converted into a company-operated store and two company-operated stores were converted into affiliated stores. During the quarter, the Couche-Tard also added 33 affiliated stores to its network, while 16 other stores were removed.
The number of company-operated stores was reduced by 31, including two that were closed on a permanent basis due to hurricane-related damages that happened in the second and third quarters of this year. A total of 58 sites were affected to various degrees, one of which is still closed. This site will be permanently closed because it does not have the potential to meet the company's contribution expectations, it said.
Also, during the quarter, Couche-Tard entered into an agreement with ConocoPhillips Company resulting in the addition of 75 new franchises operating under the Circle K banner in western United States.
The company will continue to expand its store and QSR networks in North America. Our development teams are still very active by doing evaluation of many business acquisition opportunities. Everything is on track for us to close the year ending April 30, 2006, with highly satisfactory growth," said Bouchard.
Laval, Quebec-based Couche-Tard currently operates a network of 4,909 c-stores, 3,028 of which include motor fuel dispensing, located in eight large geographic markets, including three in Canada and five which cover 23 American states.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.