Couche-Tard 4Q Net Earnings Up More Than 80%

Same-store merchandise sales up 3.2% in U.S., 6.9% in Canada

Published in CSP Daily News

LAVAL, Quebec -- For its fourth quarter, Alimentation Couche-Tard Inc. has announced net earnings of $68.8 million, up $30.8 million or 81.1%. The increase mainly reflects a 2.83 cents per gallon increase in motor fuel gross margin in the United States, an increase in same-store merchandise sales in Canada and the United States, the contribution of stores acquired, Couche-Tard's management of expenses, a $8.7 million nonrecurring gain, net of taxes, on disposal of Casey's General Stores Inc. shares, the reversal of certain provisions following their final analysis, as well as a [image-nocss] lower income tax rate.

These items contributing positively to net earnings were partially offset by a decrease in the consolidated merchandise and service percentage gross margin due to a change in product mix from cigarette sales and an increase in electronic payment modes resulting from higher average motor fuel retail prices.

"I am very pleased with the efforts deployed during the fourth quarter and throughout fiscal 2010 which ultimately produced excellent quarterly results and a record-breaking year," said Alain Bouchard, president and CEO. "The impact of our efforts reaches well beyond the last fiscal year. In fact, I believe our team's dynamic approach secured the company's competitive position for years to come, as evidenced by our continued focus on our network and current operations."

Raymond Pare, vice president and CFO, said, "What's extraordinary is the $49 million, or 19.3%, increase in fiscal 2010 net earnings, despite a drop of 3.09 cents per gallon in motor fuel gross margins in the Unites States as compared to fiscal 2009. This means we caught up with a shortfall of roughly $75 million on net earnings, or 0.40 cents per share on a diluted basis, with increased sales from existing stores and acquisitions and by controlling expenses. The performance of the quarter is in line with that of the one of previous quarters and reflects our ongoing focus on sales combined with sound management of margins, acquisitions that improve our bottom line and tight control over expenses.

Revenues amounted to $4 billion in the fourth quarter of fiscal 2010, up $1 billion, an increase of 33.7% compared to the fourth quarter of fiscal 2009. The increase is chiefly the result of a $623 million rise in motor fuel revenues resulting from a higher average retail price, the positive impact of $129 million from a stronger Canadian dollar, the $61 million increase generated by acquisitions as well as the growth of same-store merchandise revenues in the United States and Canada and the growth of same-store motor fuel volume in Canada.

As for fiscal 2010, revenues rose $658.5 million, an increase of 4.2% compared to fiscal year 2009, mainly attributable to a $796 million increase in sales due to acquisitions, the $194 million positive impact of the stronger Canadian dollar and the growth of same-store merchandise revenues and motor fuel volume in both the United States and Canada. The factors contributing to the increase were partially offset by a decrease of $763 million in motor fuel sales due to lower average retail prices.

More specifically, the growth of merchandise and service revenues for the fourth quarter of fiscal 2010 was $142.4 million, an increase of 11.7% compared to the same period of the previous fiscal year, of which $71 million was generated by the appreciation of the Canadian dollar against its U.S. counterpart and $18 million by acquisitions.

Regarding internal growth, as measured by same-store merchandise revenues, it rose by 3.2% in the United States, partly due to the increase in the retail price of tobacco products following the increases in taxes on these products. As for the Canadian market, the increase in same-store merchandise revenues was 6.9%. These performances were satisfactory considering the difficult economic context.

As for fiscal 2010, merchandise and service revenues rose by $465.1 million, a 8.6% increase compared to the same period last year for reasons similar to those of the fourth quarter, including an increase in same-store merchandise revenues of 2.9% in the United States and 4.8% in Canada.

Motor fuel revenues increased by $867.1 million or 33.7% in the fourth quarter of fiscal 2010. The higher average retail price at the pump in the United Stated and Canada created a rise in revenues of $623 million, as shown in the following table, beginning with the first quarter of the fiscal year ended April 26, 2009:

On Feb. 16, 2010, Couche-Tard acquired terminal facilities located in Phoenix from BP West Coast Products LLC, including 16 storage tanks with a capacity of 220,000 barrels. The terminal is approved for 44,000 barrels per day and has access to petroleum products from refineries on the West Coast and in the Gulf Coast. Strategically, this acquisition should add efficiencies in Couche-Tard's fuel supply chain servicing its retail network in the region of Phoenix.

On April 6, 2010, Couche-Tard acquired eight company-operated stores in central North Carolina from Accel marketing LLC.

During the fourth quarter of fiscal 2010, Couche-Tard acquired another seven stores through seven distinct transactions.

Acquisitions contributed 15.6 million additional gallons in the fourth quarter of fiscal 2010, or $44 million in revenues, in addition to the increase in revenues of $58 million generated by the appreciation of the Canadian dollar against its U.S. counterpart. As for the same-store motor fuel volume, it dropped slightly by 0.7% in the United States and increased by 4.2% in Canada.

Motor fuel revenues increased by $193.4 million or 1.9% in fiscal 2010, of which $589 million or 220.8 million gallons stem from acquisitions, which further adds to the $92 million increase in revenues from the appreciation of the Canadian dollar against its U.S. counterpart. Same-store motor fuel volume grew by 1% in the United States and 3% in Canada. Revenues dropped by $763 million due to a lower average retail price at the pump.

For the fourth quarter of fiscal 2010, the consolidated merchandise and service gross margin dropped by 0.6% to 33%. In the United States, the gross margin was 33%, down from 33.6% recorded in the previous fiscal year. During the fourth quarter of fiscal 2009, Couche-Tard raised tobacco products prices before the tax increase on these products, thereby increasing the gross margin. As for Canada, the margin fell to 32.9%, a 0.9% decrease due to the greater proportion of cigarettes sales in the product mix, which put downward pressure on the percent margin while remaining positive in absolute dollars given the increase in terms of units sold. In both the United States and Canada, revenues and gross margin reflect Couche-Tard's merchandising strategy in tune with market competitiveness and economic conditions within each market as well as improved supply terms.

For fiscal 2010, the consolidated merchandise and service gross margin was 33.1%. More specifically, it was 32.8% in the United States, the same as fiscal 2009, and 33.7% in Canada, a decrease of 0.6% for reasons similar to those of the fourth quarter. In Canada, as indicated by Couche-Tard in its first quarterly report, the gross margin for fiscal 2010 compares to a margin that benefited from nonrecurring amounts in the first quarter of fiscal 2009 related to obligations towards dealers in the Western Canada division as well as from retroactive adjustments to certain suppliers rebates.

During the fourth quarter of fiscal 2010, the motor fuel gross margin for Couche-Tard's company-operated stores in the United States increased by 2.83 cents per gallon, from 11.38 cents per gallon in the fourth quarter of fiscal 2009 to 14.21 cents per gallon this quarter. In Canada, the margin dropped, reaching 4.85 cents (Canadian) per liter compared to 5.62 cents (Canadian) per liter in the fourth quarter of fiscal 2009.

For fiscal 2010, the motor fuel gross margin for Couche-Tard's company-operated stores in the United States decreased by 3.09 cents per gallon, from 17.55 cents per gallon last fiscal year to 14.46 cents per gallon this fiscal year, a drop of 17.6%. In Canada, the margin rose, reaching 5.31 cents (Canadian) per liter compared with 4.97 cents (Canadian) per liter for fiscal 2009.

Contrary to the average motor fuel margin in fiscal 2009, which was unusually high in the United States, the margin for fiscal 2010 is closer to expectations based on historical margins.

Earnings before interests, taxes, depreciation and amortization (EBITDA) were $150.5 million for the fourth quarter of fiscal 2010, up 43.3% compared to the comparable period of the previous fiscal year, and were $646.6 million in fiscal 2010, up 10%. Acquisitions contributed to EBITDA for an amount of $3.5 million during the fourth quarter and $28.1 million in fiscal 2010.

For fiscal 2010, net earnings were $302.9 million ($1.64 per share or $1.60 per share on a diluted basis), compared to $253.9 million the previous fiscal year ($1.31 per share or $1.29 per share on a diluted basis), an increase of $49 million or 19.3%, despite a motor fuel gross margin in the United States inferior to last fiscal year by 3.06 cents per gallon, which represents a decrease of approximately $75 million in net earnings, or 40 cents per share on a diluted basis. It should be noted that the motor fuel margin in the United States for fiscal 2009 was particularly high while the fuel margin for fiscal 2010 is in line with Couche-Tard's expectations considering historical margins.

For the fourth quarter and fiscal year 2010, the stronger Canadian dollar had a favorable impact on net earnings of $1.9 million and $1.5 million, respectively.

For the fourth quarter and fiscal 2010, the nonrecurring gain from disposal of Casey's shares and the non recurring reversal of provisions had a positive impact of 6 cents and 2 cents per share on a diluted basis, respectively. Accordingly, for the fourth quarter, excluding these items, net earnings would have been $53.8 million or 29 cents per share on a diluted basis, which represents an increase of $15.8 million or 41.6%. For fiscal 2010, net earnings would have been $287.9 million or $1.52 per share on a diluted basis, which corresponds to an increase of $34 million or 13.4%.

During the fourth quarter of fiscal 2010, net cash from operating activities reached $276.1 million, up $68.2 million from the fourth quarter of fiscal year 2009, chiefly due to higher net earnings and changes in working capital, including an increase in accounts payables.

During fiscal 2010, net cash from store operations reached $490.8 million, down $12 million from fiscal year 2009 mainly due to changes in working capital, partially offset by higher net earnings. The negative variance in the working capital is partly due to an increase in debit- and credit-card receivables and higher motor fuel inventory, resulting respectively from increased retail price and cost of motor fuel.
Investing activities

In the course of the fiscal 2011, Couche-Tard expects to pursue its investments with caution in order to, amongst other things, improve its network. Given the economic climate and its attractive access to capital, Couche-Tard believes that it is well positioned to realize acquisitions and create value; however, Couche-Tard will continue to exercise patience in order to benefit from a fair price in view of current market conditions. The company also intends to keep an ongoing focus on its supply terms and operating expenses. Finally, in line with its business model, Couche-Tard intends to continue to focus its resources on the sale of fresh products and on innovation, including the introduction of new products and services, in order to satisfy the needs of its large clientele.

Laval, Quebec-based Couche-Tard operates a network of 5,878 convenience stores, 4,146 of which include motor fuel dispensing, located in 11 large geographic markets, including eight in the United States covering 43 states and the District of Columbia, and three in Canada covering all ten provinces.