250 Stores in Six Months

Couche-Tard stands firm on acquisition goals for its fiscal 2008

Published in CSP Daily News

By  Steve Holtz, Online News Director & Beverage Editor

LAVAL, Quebec -- Something is in the works at Alimentation Couche-Tard (ACT). Half way through it fiscal 2008, the acquisition-hungry retailer has purchased a mere 34 stores. However, during a second-quarter conference call with analysts yesterday, president and CEO Alain Bouchard said he's still confident the company will achieve the 200-300 store acquisitions it predicted six months earlier.

Bouchard said the company has reviewed several acquisition opportunities in the United States over the past few months, but most are asking unacceptable [image-nocss] prices or multiples. We are growth-driven but not at any price, he said. I feel some of our shareholders are getting impatient, but I think they will appreciate our discipline.

Bouchard added, however, it is unlikely that near-future growth will come via BP's recently announced plan to sell off its remaining 700 company-owned stores in the United States because of the structure of the deals they are seeking.

They sell to buyers that take their franchise agreement with either ampm or BP Connect, said the top executive of the company that operates the Circle K chain. So if these stores include that, I don't see us buying many of their assets, if any. We will certainly be in touch with them.

In reporting the company's second-quarter results, Bouchard noted that sales generated by stores acquired in the last 12 months powered ACT to a robust performance. Revenues for the 12-week period ended October 14, 2007, rose 26.8% to reach $3.5 billion. Of the $740.1 million increase, $504.3 million was generated by stores acquired in the past 12 months.

Net earnings were $54.2 million, or $0.26 per share diluted, compared to $74.7 million, or $0.36 per share diluted, last year. This is mainly due to the impact of U.S. fuel margins, which were at an extraordinary level a year ago, Bouchard said. Restated with the same margin for both periods, net earnings would have increased by 12.1%.

Last year's second quarter is a tough comparable because of the U.S. gas margin, said Bouchard. I'm happy with our performance. Our in-store merchandise same store revenue growth and recovery in certain markets shows that our pricing and strategies are on target.

U.S. motor-fuel margins were 13 cents per gallon on average for the just-ended quarter, compared to almost 21 cents last year. Bouchard said he is confident that slide is over.

During the second quarter, Couche-Tard implemented its IMPACT store redesign program in 147 company-operated stores. As a result, 56.2% of the company-operated stores have now been converted to the IMPACT program, which gives the company considerable opportunity for future internal growth, he said.

Revenues amounted to $3.5 billion for the 12-week period ended October 14, 2007, up

$740.1 million, for an increase of 26.8%, of which $504.3 million is attributable to the major acquisitions carried out over the past 12 months. For the first six months of the year, Couche-Tard's growth in revenues was $1.5 billion or 25.9%, which boosted its revenues to $7.1 billion, of which $1.1 billion is attributable to the major acquisitions. The proportion of its business in the United States is now 79.9% compared with 78.0% for the 24-week period ended October 15, 2006.

Merchandise and service revenues grew $185.1 million or 17.2%, of which $92.6 million was generated by the stores acquired during the past 12 months and $32.6 million was generated by the 8.3% appreciation of the Canadian dollar against its U.S. counterpart. Internal growth, as measured by the increase in same-store merchandise revenues, was 4.2% in the United States and 6.6% in Canada.

Growth in the United States followed the positive trend seen in the first quarter and stems primarily from Couche-Tard's aggressive promotions in certain customized categories and from its continued implementation of one of its key success factors: the IMPACT program.

During fiscal 2008, Couche-Tard will pursue its investments to deploy the IMPACT program in approximately 400 stores and build or acquire approximately 60 stores on an individual basis. The company's capital budget for the fiscal year 2008 is approximately $300.0 million, which Couche-Tard plans to finance with its net cash provided by operating activities.

The company is still confident to be able to carry out approximately 250 store acquisitions. We will not change our approach [to acquisitions], Bouchard said. And, again, I am confident that we will achieve the 200-300 stores this year and more to come over time.

Laval, Quebec-based Alimentation Couche-Tard Inc. is the leader in the Canadian convenience-store industry. In North America, Couche-Tard is the second-largest independent convenience-store operator in terms of number of stores. Couche-Tard operates a network of 5,637 convenience stores, 3,434 of which include motor-fuel dispensing, located in nine large geographic markets, including six in the United States covering 29 states and three in Canada covering six provinces.

By Steve Holtz, Online News Director & Beverage Editor
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