Convenience Central
Join our community
extra content

Couche-Tard strategic plan aims to double net profit in five years

UnknownQuebec convenience store giant Alimentation Couche-Tard aims to double its net earnings in the next five years.

The company, which primarily operates under the Circle K banner, says it will achieve the target through a combination of organic growth and further acquisitions.

Chief executive Brian Hannasch describes the goal as “ambitious” but one that can be achieved by remaining true to its core business while maximizing its strengths.

Couche-Tard’s net profit grew 10% last year to US$1.8 billion while adjusted earnings per share were up 27.7% to $3.32 as revenues increased 15%t to US$59.1 billion.

The retailer has become one of the world’s largest convenience store chains through a series of acquisitions and adoption of coffee, food and cold beverage programs that grew by double digits last year.

Analyst Keith Howlett of Desjardins Capital Markets says doubling its profitability will depend on sustained sales momentum and expanded gross margins that will likely come from a shift in product mix to high margin food service.

Last week, Couche-Tard missed expectations as its net income attributable to shareholders decreased 25% to US$293.1 million in the fourth quarter of its fiscal year on a dip in revenues.

The company says it earned 52 cents per share for the period ended April 28, down from 69 cents per share or $391 million a year earlier. The company received a net tax benefit of $69.7 million in the fourth-quarter of fiscal 2018 from U.S. tax cuts.

Adjusted profits of 52 cents per share compared with 59 cents per share in the fourth quarter of 2018.

Revenues fell 3.7 per cent to $13.1 billion from $13.6 billion.

The retailer was expected to earn 54 cents per diluted share in adjusted profits on $13.3 billion of revenues, according to analysts polled by Thomson Reuters Eikon.

For the full year, Couche-Tard’s net profit increased 10% to $1.8 billion or $3.25 per share, up from $1.67 billion or $2.95 per share in 2018. Adjusted earnings were up 27.7 per cent to $3.32 per share. Revenues were $59.1 billion, up 15% from $51.4 billion.

Ontario to issue 50 new cannabis store licences: What could this mean for c-stores?

cannabisOntario is set to get 50 more cannabis stores starting in October, and applicants will have to first show they have their finances and retail space ready to go.

The announcement June 26th comes as some of the first 25 of the province’s legal pot shops that were supposed to open April 1 are still not up and running.

Those initial retailers were chosen through a lottery to open Ontario’s first brick-and-mortar cannabis stores—when the drug became legal recreationally last October it was only available online through the government-run Ontario Cannabis Store—and that lottery system has faced criticism for not including a merit component.

In other Canadian jurisdictions allowing for the private sale of cannabis, successful retailers often include convenience stores. For instance, of the 24 retailers selected to qualify for cannabis sales in Newfoundland and Labrador, one is a convenience store in Labrador City. Last summer, a Co-op gas-bar in Calgary was given the green light.

Convenience operators in Ontario are watching the situation. One of the questions is whether the government will allow cannabis stores-within-a-store or insist they be entirely separate.

Either way, convenience-store operators like Alimentation Couche-Tard, which has a large number of Ontario locations, are well positioned.

“We have the ability to sell this product while meeting all government requirements (and) we can train our staff on verifying the identity of all consumers, regardless of their age,” Couche-Tard founder and executive chairman Alain Bouchard foreshadowed at the company’s 2017 annual meeting.

In February 2019, Alimentation Couche-Tard Inc. entered into a multi-year trademark license agreement with Canopy Growth Corporation, one of the winners of the Alcohol and Gaming Commission of Ontario’s Expression of Interest Application Lottery, who was preparing to operate a “Tweed” branded retail store in London, Ont. The store opened in May in a shopping plaza that is also home to Walmart, LCBO, Beer Store, Movie Theatre, Farm Boy and others.

In a release, the new partners stated: “Through this partnership, Alimentation Couche-Tard is aiming to lean on Canopy Growth’s cannabis expertise and leverage its experience with other age-restricted products to focus on the safe, responsible and lawful sale of cannabis, consistent with the legislation enacted by the federal and provincial governments. As two Canadian-made and globally-positioned companies, the London location will serve as an important entry to market that could lead to future international opportunities.”

“Alimentation Couche-Tard is excited about taking a leadership role in the development of cannabis retailing excellence in this major Canadian market. We believe the Ontario Cannabis Store and private retailers will co-exist under a tightly regulated framework with common goals to protect public health and safety,” said Couche-Tard president and CEO Brian Hannasch.

The Alcohol and Gaming Commission of Ontario will hold a lottery on Aug. 20 for the next 42 retail store authorizations. Another eight stores will be located on First Nations reserves through a separate process.

For this lottery, applicants will have to show evidence that if they are selected, they have already secured retail space that could be used as a store and that they have enough capital to open it, the AGCO said.

One licenced cannabis producer said the latest initiative will position the industry for significant sales growth in Canada’s largest province.

“After the first 25 stores began to open in Ontario, the industry saw overall sales of cannabis basically double,” Dr. Avtar Dhillon, executive chairman and president of Emerald Health Therapeutics said in a statement.

“Adult-use consumers are showing a preference for going into a physical location where they can interact with educated, savvy budtenders and we anticipate that the further expansion of physical stores in Ontario and Canada will strongly serve the growth of legal cannabis sales.”

The Ontario government decided on an initial round of just 25 stores, citing national supply issues, but that appears to be easing.

“Our government is continuing to take a responsible approach to opening cannabis stores across Ontario, allowing private sector businesses to build a safe and convenient retail system to combat the illegal market,” Finance Minister Rod Phillips said in a statement.

“With marginal improvements in national supply, we are proceeding to issue up to 50 new cannabis store licences.”

Attorney General Doug Downey said in a statement that a phased approach is still necessary.

“While the federal supply issues persist, we cannot in good conscience issue an unlimited number of licences to businesses,” he wrote.

Omar Khan, a vice-president with Hill+Knowlton Strategies who advises several clients in the cannabis industry, said the announcement is a positive step, but called for further action.

“If the government wants to eliminate the illicit market they will need to ensure that consumers are able to access legal product offerings conveniently and in a timely manner,” he said in a statement.

“This means moving aggressively towards an open licensing system as soon as the national supply situation permits, and working with the private sector to significantly improve the current online customer retail experience.”

The 42 new stores selected through the lottery will be distributed regionally, with 13 in the city of Toronto, six going to the Greater Toronto Area, 11 in the west region, seven going to the east region, and in the north, one each in Kenora, North Bay, Sault Ste. Marie, Thunder Bay and Timmins.

Stores will be allowed to open in any municipality regardless of population if the community did not opt out of having cannabis stores.

The process for First Nation stores will start in July on a first-come, first-served basis.

With files from Canadian Press. 

Couche-Tard & CrossAmerica complete first in series of asset swaps

Couche-Tard CrossAmerica Logos_Sm_121718Alimentation Couche-Tard Inc. and CrossAmerica Partners LP completed the first transaction in an asset swap pact.

The two companies entered into the Asset Exchange Agreement in December 2018. As part of this exchange agreement, CrossAmerica will receive 192 company-operated convenience and retail fuel stores in the United States. Of the sites, 162 are fee-based and 30 are leased. The transaction is valued at $184.5 million.

CrossAmerica’s general partner, CrossAmerica GP LLC, is a wholly owned subsidiary of Couche-Tard.

For its part, Couche-Tard’s Circle K division will receive the real estate property for 56 U.S. company-operated convenience and retail fuel stores currently leased and operated by Couche-Tard/Circle K.

In addition, Circle K will receive 17 company-operated stores in the upper Midwest region of the U.S. Fourteen of the sites are fee-based and three are leased. All of the 17 sites are currently part of CrossAmerica’s retail segment.

Those assets also have an aggregate value of approximately $184.5 million.

In this first transaction, Couche-Tard transferred to CrossAmerica 60 (52 fee and eight leased) U.S. company-operated convenience and fuel retail stores having an aggregate value of approximately $58.1 million.

In exchange, CrossAmerica transferred to Couche-Tard assets having an aggregate value of approximately $58.3 million. These assets include all 17 of the Upper Midwest properties and the real property for eight master-lease properties, according to the two companies.

Before the completion of the first tranche, Couche-Tard struck dealer agreements for Circle K c-stores transferred to CrossAmerica. The pacts included leases and fuel supply agreements with independent dealers who will lease and operate the stores.

These agreements were assigned to CrossAmerica as part of the exchange.

Under a Sub-Jobber Agreement, Couche-Tard will supply fuel to CrossAmerica for resale to the dealers at those 60 stores after the exchange. The terms of that agreement were unanimously approved by the independent Conflicts Committee of the board of CrossAmerica’s general partner in December.

The existing fuel supply arrangements for the eight master lease properties will remain unchanged.

When the two companies first agreed to the asset swap, they expected the exchange to take place through a series of tranches over 24 months. However, the two now anticipate completing the transactions by the end of the first quarter of calendar year 2020.

“We are very pleased with the process we have established to make this a smooth and fast transition. We have identified very strong operators to maximize the potential of the sites we are taking over from Circle K and have a strong pipeline for the remaining 132 sites,” said Gerardo Valencia, CEO and President of CrossAmerica.

Laval-based Alimentation Couche-Tard is the leader in the Canadian convenience store industry. In the United States, it is the largest independent convenience store operator in terms of the number of company-operated stores. In Europe, Couche-Tard is a leader in convenience store and road transportation fuel retail in the Scandinavian countries (Norway, Sweden and Denmark), in the Baltic countries (Estonia, Latvia and Lithuania), as well as in Ireland and has an important presence in Poland.

Allentown, Pa.-based CrossAmerica Partners is a wholesale distributor of motor fuels, and owner and lessor of real estate used in the retail distribution of motor fuels.  Formed in 2012, it is a distributor of branded and unbranded petroleum for motor vehicles in the U.S. and distributes fuel to more than 1,200 locations and owns or leases approximately 900 sites. With a geographic footprint covering 31 states, it has well-established relationships with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf, Citgo, Marathon and Phillips 66.

Originally published at Convenience Store News.