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

• Net earnings attributable to shareholders of the Corporation ("net earnings") of $578.6 million ($0.51 per share on a diluted basis) for the second quarter of fiscal 2020 compared with $473.1 million ($0.42 per share on a diluted basis) for the second quarter of fiscal 2019. Excluding certain items for both comparable periods, net earnings for the quarter would have been approximately $571.0 million¹ or $0.51¹ per share on a diluted basis, compared with $0.41¹ per share on a diluted basis for the second quarter of fiscal 2019, an increase of 24.4%.
• Total merchandise and service revenues of $3.5 billion, an increase of 2.3%. Same-store merchandise revenues increased by 3.2% in the U.S., by 3.3% in Europe and by 2.1% in Canada.
• Merchandise and service gross margin decreased in the U.S. and in Canada by 0.4% and 1.1% to 33.9% and 32.6% respectively, the decrease in Canada is entirely attributable to the conversion of the Esso stores, while it increased by 0.2% in Europe to 41.3%.
• Same-store road transportation fuel volume increased by 0.6% in the U.S. and by 0.2% in Canada, while it decreased by 0.6% in Europe, a sequential improvement versus last quarters.
• Road transportation fuel gross margin increased by US 6.41¢ per gallon in the U.S. to US 28.29¢ per gallon, while it decreased by US 0.41¢ per liter in Europe, to US 8.34¢ per liter, entirely attributable to the impact of the currency translations, and by CA 0.53¢ per liter in Canada, to CA 7.89¢ per liter.
• Return on capital employed² at 13.9%, as at October 13, 2019, up 1.3%, driven by higher earnings before interests and taxes.
• Adjusted leverage ratio² continued to improve and reached 1.86 : 1 as at October 13, 2019.
• Circle K rebranding project continues in North America with more than 6,000 stores now displaying the new Circle K global brand.
• Share repurchases totaled $126.5 million during the second quarter of fiscal 2020 and $172.7 million since the inception of the program.
• Subsequent to the end of the second quarter of fiscal 2020, on November 19, 2019, the Corporation announced the closing of the sale of its interests in CAPL as well as an asset exchange agreement with CAPL under which a portion of its U.S. wholesale road transportation fuel operations will be exchanged against CAPL's 17.5% limited partnership interest in CST Fuel Supply LP.

LAVAL, QC, Nov. 26, 2019 /PRNewswire/ - For its second quarter ended October 13, 2019, Alimentation Couche-Tard Inc. (TSX: ATD.A) (TSX: ATD.B) announces net earnings attributable to shareholders of the Corporation of $578.6 million, representing $0.51 per share on a diluted basis. The results for the second quarter of fiscal 2020 were affected by a pre-tax net foreign exchange gain of $11.8 million, pre-tax restructuring costs of $1.9 million, pre-tax acquisition costs of $0.8 million, as well as a tax benefit from the second tranche of the asset exchange with CAPL of which $0.7 million is attributable to shareholders of the Corporation. The results for the comparable quarter of fiscal 2019 were affected by a net tax benefit of $6.2 million stemming from the decrease of the statutory income tax rate in Sweden, a pre-tax compensatory payment to CAPL for the divesture of assets of $5.0 million, pre-tax restructuring costs of $4.8 million, a pre-tax net foreign exchange gain of $3.7 million, as well as pre-tax acquisition costs of $0.7 million. Excluding these items, the adjusted diluted net earnings per share would have been $0.51¹ for the second quarter of fiscal 2020, compared with $0.41¹ for the second quarter of fiscal 2019, an increase of 24.4%, driven by higher road transportation fuel margins in the U.S. and organic growth across our three geographic segments, partly offset by a higher income tax rate, as well as by the net negative impact from the translation of our Canadian and European operations into US dollars. All financial information is in US dollars unless stated otherwise.

 

 

"We continue to experience steady results in our overall business with strong fuel performance and merchandise sales. We saw solid increases in same-store merchandise revenues across our core geographies, even as we cycled strong numbers last year," said Brian Hannasch, President and CEO of Alimentation Couche-Tard.

"In the convenience sector, we are starting to see good traction from the different projects we launched, such as food pilots, our digital upsell platform, and the redesign of our European stores. Customer awareness is growing as our Circle K brand continues to roll out, and we are confident in the positive impact this should have on traffic and loyalty. In the fuel sector, while we experienced some pressure in Europe on a same-store volume basis during the quarter, two-year trends have improved in all three geographies and margins have remained strong," concluded Brian Hannasch. 

Claude Tessier, Chief Financial Officer stated: "In the second quarter of fiscal 2020, our continued operational execution, as well as cost and financial discipline, drove improved operating income, increased the return on capital employed to 13.9% and helped further improve our balance sheet. We continue to generate impressive cash flows and have once again lowered our adjusted leverage ratio this quarter, positioning ourselves well to explore growth opportunities going forward."

Significant Items of the Second Quarter of Fiscal 2020

• The rollout of our Circle K brand in North America is progressing steadily. As of October 13, 2019, more than 6,000 stores in North America, including 880 stores acquired from CST, now proudly display our new global brand.
• On August 7, 2019, we invested an amount of CA $26.0 million ($19.5 million) in Fire & Flower Holdings Corp. ("Fire & Flower"), a leading independent cannabis retailer based in Alberta, Canada. This investment is in the form of unsecured convertible debentures which would result in a 9.9% ownership interest in Fire & Flower upon conversion. We have also been issued Common Share purchase warrants, that, if exercised in accordance with the terms thereof, would subsequently increase our ownership interest in Fire & Flower up to 50.1%. As at October 13, 2019, the unsecured convertible debentures were not converted, and no Common Share purchase warrants were exercised.
• On August 13, 2019, we repaid, without penalty, the remaining $150.0 million balance of our $300.0 million US-dollar-denominated senior unsecured notes issued on December 14, 2017 and maturing on December 13, 2019. On November 1, 2019, subsequent to the end of the second quarter of fiscal 2020, we fully repaid, at maturity, our CA $450.0 million ($341.4 million) Canadian-dollar-denominated senior unsecured notes issued on November 1, 2012, and settled the associated cross-currency interest rate swaps.
• On September 4, 2019, 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 as at September 20, 2019. This share split was approved by regulatory authorities and occurred on September 27, 2019. All share and per-share information in this document has been adjusted retroactively to reflect this share split.
• During the second quarter and the first half-year of fiscal 2020, we repurchased 4,132,620 and 5,660,968 Class B subordinate voting shares, respectively. These repurchases were settled for net amounts of $126.5 million and $172.7 million, respectively.

Changes in our Network

• During the second quarter of fiscal 2020, we completed the construction of 20 stores and the relocation or reconstruction of 7 stores, reaching a total of 48 stores since the beginning of fiscal 2020. As of October 13, 2019, another 49 stores were under construction and should open in the upcoming quarters.
• During the second quarter of fiscal 2020, we acquired one company-operated store, reaching a total of nine stores since the beginning of fiscal 2020.
• In September 2019, we closed the second transaction of the asset exchange agreement with CAPL. In this second transaction, we transferred 56 Circle K U.S. stores for a total value of approximately $50.0 million. In exchange, CAPL transferred the real estate for 19 properties for a total value of approximately $51.0 million. Following the exchange transaction, we performed a re-evaluation of our deferred tax assets and liabilities which generated a net income tax benefit of $0.1 million, of which $0.7 million is attributable to shareholders of the Corporation. For the first half-year of fiscal 2020, the total net income tax expense was $4.4 million, of which $2.8 million are attributable to shareholders of the Corporation. The remaining tranche is expected to be completed by the end of the first quarter of calendar year 2020.
• On October 29, 2019, subsequent to the end of the second quarter of fiscal 2020, we reached an agreement to acquire 17 stores from a franchise operator. These convenience stores operate under the Holiday banner in South Dakota and Minnesota, within the United States. The transaction is anticipated to close in the third quarter of fiscal year 2020 and is subject to the standard regulatory approvals and closing conditions. We expect to finance this transaction using our available cash and existing credit facilities.
• On November 19, 2019, subsequent to the end of the second quarter of fiscal 2020, we announced the closing of the sale of our interest in CAPL, following the outcome of a strategic review.
• On November 19, 2019, subsequent to the end of the second quarter of fiscal 2020, we also announced an asset exchange agreement with CAPL under which we will transfer a portion of our U.S. wholesale road transportation fuel operations, which consists of wholesale fuel supply contracts covering 387 sites and 45 fee and leasehold properties, against CAPL's 17.5% limited partnership interest in CST Fuel Supply LP ("November 2019 asset exchange agreement"). Subject to regulatory approvals, the November 2019 asset exchange agreement is expected to be completed by the end of the first quarter of calendar 2020.

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

The following table presents certain information regarding changes in our store network over the 12-week period ended October 13, 2019:

 

 

New Accounting Standard Adopted by the Corporation

As of April 29, 2019, we 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 fiscal year 2019. 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.

Exchange Rate Data

We use the US dollar as our reporting currency, which provides more relevant information given the predominance of our operations in the United States.

The following table sets forth information about exchange rates based upon closing rates expressed as US dollars per comparative currency unit:

 

 

Summary Analysis of Consolidated Results for the Second Quarter and First Half‑year of Fiscal 2020

The following table highlights certain information regarding our operations for the 12 and 24-week periods ended October 13, 2019 and October 14, 2018. CAPL refers to CrossAmerica Partners LP.