Alimentation Couche-Tard — Q4 2024
Transcript Notes
Alimentation Couche-Tard — June 26, 2024
EV Charging Network
2,600+ charge points and counting
Our EV fast-charging network now consists of more than 2,600 charge points, including about 50 charging points for heavy trucks. In North America, our EV rollout plan is progressing toward our deployment target of 200 locations.
Consumer Behaviour Trends
Fuel: seeing positive traffic but lower quantity per visit
Nicotine: traditional cigarette sales are down, but this is being more than offset by other nicotine products.
Beverages: still the #1 reason consumers visit C-stores and this business is performing well.
Same Stores Sales - Even with recent softness in same-store sales, overall they've been steadily growing globally over the last two years, particularly in the US, which saw 2.8% growth on a two-year stack for the quarter.
On the fuel side, we're actually seeing positive traffic on the forecourts globally, but we're seeing lower quantity per visit. So that clearly is a signal that people are watching their spend. Inside the box, we've seen strong private label, but there's also been trade downs to -- from premium brands to lower-tier brands, whether that be in the beer category or others.
Cigarettes has been an issue for the channel. You see Altria and BAT's numbers, they're kind of in that high single-digit unit loss rates. We perform significantly better than that, and our trends continue to improve and our gap continues to widen there. But certainly, I still think that's a big reflection on the state of the consumer. That's more than just price. There's certainly people watching what they spend. On the bright side, the nicotine -- other nicotine category continues to gain strength, and actually in many of our regions, now generates more gross profit than combustible cigarettes.
And then, we finish with beverages. That's the number one reason people come to our stores. We continue to gain traction, particularly as we look at May and June, we've got some great values, great exclusive out there. So, we think we're really providing some very strong value between the Polar Pop and some of the brand work that we've done with partners like Pepsi. So, feel good about the summer months, but there's no doubt that the weakness in consumer behaviour persists.
Beverages Offsetting Tobacco
Focus is on beverages and the Inner Circle loyalty program to continue to drive traffic.
In terms of scale, beverage is one that we think we can leverage. It's got almost 3x the visits of tobacco. So, we're fishing where the fish are, where we've got the ability to really impact big numbers. So, focus on fuel within Inner Circle, focus on beverages are really, really important to offsetting that. But we're also not giving up on that nicotine customer. Our goal is to win with them, focusing on our assortment, our pricing, partnering with companies like Altria on digital relationships with their customers. We now just with Altria in the United States have over 1.2 million digital transactions weekly with them. So, we're providing value that really only some of the chains can that they've got digital capabilities, including loyalty platform. So, we're committed on winning in the big areas and committing on taking share in those areas.
Softness in Germany
Had US$98 million of EBITDA from acquisitions, which also included MAPCO in Q2. Drop is related to softness in the German economy.
Germany is a very large market for us. We picked up 1,200 locations. There's no secret the economy has been soft there, and that's created really a pretty sloppy fuel market. So, we've seen margins in the past quarter in Germany that were really multi-multi-year lows and far below what our normal European business looks like. We've seen some rebound in the most recent weeks to that. And the rest of our countries in Europe, they performed very similar to our legacy businesses in Europe. So, I fully believe that that's just a transitory issue with the German fuel margins specifically.
Tobacco Conversation Details
Tobacco will continue to be a headwind to fight in Canada. European tobacco and nicotine markets are strong and expect small market share gains in U.S. market over time.
Yeah. I'll divide the world into three chunks. I'll start with Canada. It's been a struggle -- multi-year struggle. Our focus is clearly on food and beverages. The tobacco issue in Canada is a lot about illicit. As prices have gone up, consumers have gotten squeezed, the percentage of people buying in the illicit channels continue to rise. And that's a big headwind to fight. So that's going to continue to be a bit of a drag on us in Canada.
In Europe, we actually performed pretty well. Units are fairly flat, which is kind of interesting because it's very different than the US. And we continue to be optimistic about that category. We have one of our larger countries, Netherlands is banning tobacco from the grocery channel, which controls the majority of the volume. So, we think we're very well positioned as that expires July 1st to capture a significant share in that category. So, I feel good about our tobacco business, nicotine business in Europe, and we continue to roll out new products and new innovations in Europe in the alternative space.
US, you see the results from the Goldman report or BAT and Altria publish. We are -- we were running pretty similar to those numbers. If you go back to Q2, Q3, Q4, in Q4, if you would take tobacco out, we would have been a positive same-store sales. If you look at recent end of the quarter and our first full period in Q1, our unit decline is far less than half of what the industry decline is. So, we're widening the gap to the industry so we expect that headwind to moderate for us. I'm not saying we'll fully have it negated in the coming quarter, but between the loyalty and digital activities that we have out there, and really surgical investment in price, we feel good that we're going to be able to continue to take share in that category in a very smart fashion. And we know it's a valuable customer and a great basket.
Brian Hannasch Retirement
Time is right and Alex is ready.
I turn 58. Nothing magic. I'd always kind of said somewhere between 58 and 60. It just seemed a little bit elegant, 35 years in the industry: 25 years with Couche‑Tard, 10 with ACC. And then, candidly looking at Alex, we've been working on this transition for -- since 2019, so five years and he's ready. The time is right and he's got a good team, so it just seems like the right moment. The company is at a great place and its best days are ahead of it. So, this feels like the right time to explore something else.
M&A Landscape
First and foremost commitment to shareholders is to be disciplined.
More deals coming across the desks, with some approaching the same size as Total Energies. Looking to land a few in the upcoming quarters.
Yeah. Again, we can't ever guarantee landing anything, and our first and foremost commitment to our shareholders is to be disciplined. That said, we went through four or five years pre-Total with a pretty quiet period as we had large gaps in what we believed were appropriate values and what sellers' expectations were. Recently, I would say in the last couple of months, we've seen quite a few deals come across our desk, a mix of both Europe and North America, and a mix of size, some approaching the Total size and some that are just nice tuck-ins for us. So, again, we'll remain disciplined, we commit to that, but we'd like to think we can land a few opportunities over the coming quarters.
Operating Expense Efficiency
$400 million of cost savings out of $800 million planned over 5 years already since announcing this plan.
Operating expenses were down 7% on a normalized run rate in the quarter.
Company has not necessarily used is scale to optimize operating expenses, expect this to be accretive to EPS going forward.
So, as I mentioned earlier, we remain very confident on the guidance. We always say that, for us, it's beating inflation by 1% on the same-stores' OpEx. I would say that that's where we feel comfortable in terms of guidance. Of course, always aiming at beating that. That's what we have been able to do on the last three, four quarters.
So, when I was mentioning earlier, a lot of things happening in store in terms of productivity, the tools that we are, I would say, putting in place there to help productivity, I was mentioning 3% less hours in US, but that's true as well in Canada. In Europe, we see that productivity I would say across the network. And again, we are doing a lot on the back-office, so how to reduce the administrative task from the store point of view, but as well how we can streamline our back-office from finance to HR to maintenance, real estate, marketing, all these -- customers, call centers, all these, I would say, activity processes that we have in the back-office. We are here partnering with organization or companies that are doing that very well, their core business, leveraging that, and with our scale, actually, achieving great savings. So, we continue to believe that there is still a lot to do there.
Brian was mentioning that we have been a very lean company and cost-focused, but the reality is that when we look at the way we organize and we have not necessarily used our leverage -- our scale to leverage our expertise
For example, on the GNFR, we are, I would say, just at the beginning of the journey, how to standardize what we use in terms of supply in our stores, in our back-office. I think here we have a huge opportunity to leverage, and that's what we are today working on, and expect that in the next 18, 24 months we'll see a very strong result as well on that.
Fresh Food Growth
Food is now 12% of sales with a target to reach 20%.
We grew food again this quarter. We're up to about 12% of our sales for food now across our network in our mix. Our goal is to get to 20%. If you look at the quarter, we were up 144 bps of margin, and for the full year, we were up 330 bps. So that's a pretty significant improvement, a lot more dollars to the bottom-line from food in this fiscal year.
Long-Term Fuel Margins
Optionality to supply themselves at scale with a 1000+ truck fleet will be a differentiator long-term.
Smaller players will continue to get squeezed over time, this will lead to further consolidation in the industry.
There's a couple of pieces, and we've talked about it in previous quarters. So one, just in terms of the buy side, as we've transitioned to the Circle K brand, the optionality we have to supply ourselves in conjunction with our partners with Musket just fantastic. We built out a transportation fleet of over 1,000 trucks that were able to capture both location and time arbitrages that most of the industry can't candidly. So that's differentiation.
When you look at your OPUS reports, you see that a lot of cores were outperforming OPUS low significantly. And we think that's sustainable. It will cycle a bit. We've been through two quarters of really, really relatively no volatility. When volatility happens, we are able to harvest that. So that's on the cost of goods side.
In terms of just the overall market behavior, you see the loss in the channel of units and traffic that's largely impacting the individual site players. And so, it's possible that this becomes an industry a little bit of have and have nots. And as those smaller players -- less effective players have less traffic, but their cost continue to rise like ours do that their unit breakeven margin continues to go up. And so we think that's -- that incremental margin requirement of a single-site operator is going to continue to underpin a very strong margin in the United States and candidly globally. Again, will that look the same every quarter? No, but we feel that the guidance we gave at our Investor Day, which is kind of low 40%s, we still feel very good about that as a go-forward run rate.
Share Buybacks Continue
We renewed our share repurchase program, now authorized to buy back more than 78.1 million common shares, representing 10% of our public float. This tactical action highlights our firm commitment to returning capital to our shareholders.
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