Alimentation Couche-Tard Announces its Results for its First Quarter of Fiscal Year 2020

Quarter

• Net earnings attributable to shareholders of the Corporation ("net earnings") of $538.8 million ($0.95 per share on a diluted basis) for the first quarter of fiscal 2020 compared with $455.6 million ($0.81 per share on a diluted basis) for the first quarter of fiscal 2019. Excluding certain items for both comparable periods, net earnings for the quarter would have been approximately $548.0 million¹ or $0.97¹ per share on a diluted basis, compared with $0.87¹ per share on a diluted basis for the first quarter of fiscal 2019, an increase of 11.5%.
• Total merchandise and service revenues of $3.6 billion, an increase of 1.6%. Same-store merchandise revenues increased by 2.5% in the U.S., by 0.7% in Europe and by 0.3% in Canada.
• Merchandise and service gross margin increased by 0.5% in the U.S. to 34.0%, while it decreased by 0.9% in Europe to 41.5%, and by 1.6% in Canada to 32.9%.
• Same-store road transportation fuel volume increased by 0.6% in the U.S. and by 0.4% in Canada, while it decreased by 1.6% in Europe.
• Road transportation fuel gross margin increased by 4.16¢ per gallon in the U.S. to 26.86¢ per gallon, while it decreased by US 0.77¢ per liter in Europe to US 8.44¢ per liter, and by CA 1.51¢ per liter in Canada to CA 7.40¢ per liter.
• Circle K rebranding project continues in North America with more than 5,800 stores now displaying the new Circle K global brand.
• Return on capital employed² at 13.2%, up 60 basis points, driven by higher earnings before interests and taxes.
• Adjusted leverage ratio² continued to improve and reached 2.03 : 1 partly driven by debt repayment of $150.0 million.
• Approval, on September 4, 2019, of a two-for-one split of all the Corporation's issued and outstanding Class "A" and Class "B" shares on record as at September 20, 2019.
• Adoption, on April 29, 2019, of the new International Financial Reporting Standards on lease accounting ("IFRS 16") with significant impacts on the presentation of statement of earnings, cash flows and balance sheet, without impact on strategy or financial framework.

LAVAL, QC, Sept. 4, 2019 /PRNewswire/ - For its first quarter ended July 21, 2019, Alimentation Couche-Tard Inc. ("Couche-Tard" or the "Corporation") (TSX: ATD.A) (TSX: ATD.B) announces net earnings attributable to shareholders of the Corporation of $538.8 million, representing $0.95 per share on a diluted basis. The results for the first quarter of fiscal 2020 were affected by a pre-tax net foreign exchange loss of $6.5 million, an income tax expense of $4.5 million (of which $3.5 million is attributable to shareholders of the Corporation) following the asset exchange transaction with CAPL, as well as pre-tax acquisition costs of $0.2 million. The results for the comparable quarter of fiscal 2019 were affected by a $55.0 million pre-tax impairment charge on CAPL's goodwill, pre-tax restructuring costs of $1.5 million, a pre-tax net foreign exchange loss of $1.0 million, as well as pre-tax acquisition costs of $0.5 million. Excluding these items, the adjusted diluted net earnings per share would have been $0.97¹ for the first quarter of fiscal 2020, compared with $0.87¹ for the first quarter of fiscal 2019, an increase of 11.5%, driven by higher road transportation fuel margins in the U.S., and lower financing costs following deleveraging, partly offset by higher income tax rate. All financial information is in US dollars unless stated otherwise.

 

"We had steady growth in our convenience segment this quarter even as we cycled against an exceptional first quarter last year.  While all our regions saw increases in same-store sales, I am especially proud of the innovations taking place in our network to improve our offer and the customer journey," stated Brian Hannasch, President and CEO of Alimentation Couche-Tard. "This quarter, we launched our Easy Pay loyalty program nationally in the U.S., expanded our digital upsell platform to over 5,700 locations, started piloting home delivery in Texas, and progressed with our popular food-to-go initiatives in Europe.  We leveraged national promotions and targeted local campaigns to increase the Circle K brand exposure, and we are working hard to learn more about our customers and making their lives a little easier every day."

"While fuel volume were healthy and fuel margins remained strong in the U.S., we continue to feel pressure in our European business from a competitive backdrop and unfavorable weather conditions.  Across the board, our focus is on executing our growth strategy in terms of pricing, loyalty programs and mobile payment, and broadening awareness of our Circle K Fuel brand.  In the U.S., we reached our 2,000^th location dispensing the Circle K Fuel Brand as we push forward our global priority to bring more traffic to our sites and enhance our margins", concluded Brian Hannasch.

Claude Tessier, Chief Financial Officer, stated: "During the first quarter of fiscal 2020, we once again generated impressive cash flows which we used to invest in our network, repay our debt and return cash to our shareholders through dividends and our share repurchase program. On the expense side, our teams across the network worked diligently on cost containment which yielded a nice sequential improvement resulting in lower cost growth than the previous two quarters. The optimization of our cost base will remain a focus area over the next quarters as we remain committed to our usual cost discipline. I am pleased that these combined efforts have led to the continued increase in our return on capital employed and demonstrated our continual commitment to our customary financial discipline and increasing value for our shareholders."

Significant Items of the First Quarter of Fiscal 2020

• The rollout of our Circle K brand in Europe was completed during the quarter, while in North America it is progressing steadily. As of July 21, 2019, more than 5,800 stores in North America, including 789 stores acquired from CST, now proudly display our new global brand.
• On August 7, 2019, subsequent to the end of the quarter, we announced the closing of an investment in Fire & Flower Holdings Corp. ("Fire & Flower"), a leading independent cannabis retailer based in Alberta, Canada. We invested approximately $26.0 million in the form of unsecured convertible debentures to obtain a 9.9% ownership interest in Fire & Flower upon conversion. We have also been issued Common Share purchase warrants, that, if exercised in full in accordance with the terms thereof, would subsequently increase our ownership interest to 50.1%. Through this investment, we aim to combine our expertise in scaling retail stores with Fire & Flower's retail experience and proprietary HiFyre^TM digital platform to capitalize on new cannabis markets as they emerge.
• On May 28, 2019, we repaid, without penalty, $150.0 million of our $300.0 million US-dollar-denominated senior unsecured notes issued on December 14, 2017 and maturing on December 13, 2019. On August 13, 2019, subsequent to the end of the quarter, we repaid, without penalty, the remaining $150.0 million of these notes.
• During the first quarter of fiscal 2020, we repurchased 764,174 Class B subordinate voting shares under our share repurchase program, for a net amount of $46.2 million. In addition, subsequent to the end of the quarter, we repurchased an additional 740,892 Class B subordinate voting shares, for a net amount of $45.1 million, totaling 1,505,066 Class B subordinate voting shares and $91.3 million since the launch of the program. All shares repurchased were cancelled.
• During its September 4, 2019 meeting, the Board of Directors approved a two-for-one split of all the Corporation's issued and outstanding Class A multiple-voting shares and Class B subordinate voting shares on record as at September 20, 2019 and payable on September 27, 2019. This share split was approved by regulatory authorities.

Changes in our Network

• During the first quarter of fiscal 2020, we acquired eight company-operated stores through distinct transactions.
• During the first quarter of fiscal 2020, we completed the construction of 12 stores and the relocation or reconstruction of 9 stores. As of July 21, 2019, 32 stores were under construction and should open in the upcoming quarters.
• In May 2019, we closed the first transaction of the asset exchange agreement with CAPL. In this first transaction, 60 Circle K U.S. stores have been exchanged against 17 company-operated stores owned and operated by CAPL and the real estate for 8 properties held by CAPL, for a total value of approximately $58.0 million. Following the exchange transaction, we performed a re-evaluation of our deferred tax assets and liabilities which generated an income tax expense of $4.5 million, of which $3.5 million is attributable to shareholders of the Corporation. The remaining tranches are expected to be completed by the end of the first quarter of calendar year 2020.

Summary of changes in our store network during the first quarter of fiscal 2020

The following table presents certain information regarding changes in our store network over the 12-week period ended July 21, 2019:

 

 

New Accounting Standard Adopted by the Corporation

As of April 29, 2019, we have adopted IFRS 16, Leases, which requires lessees to recognize on the balance sheet a lease liability reflecting future lease payments and a right-of-use asset for virtually all lease contracts, except with respect to lease contracts that meet limited exception criteria. As permitted under the specific transition provisions in the standard, we have elected not to restate our comparative figures for the 2019 financial year. The tables below present the estimated pro forma impact of the change in accounting policy on our previously reported results:

 

 

 

In order to facilitate the understanding of our financial performance, we have adjusted some of our previously reported performance measures. All adjustments related to IFRS 16 are clearly identified and are based on the calculations presented in the tables above.

The adoption of the new accounting standard affected the following specific items in the opening balance sheet on April 29, 2019: