Alimentation Couche Tard Q4 profits nearly doubles despite lower revenues

Alimentation Couche-Tard Inc. beat expectations as it capped its fiscal year with profits nearly doubling in the fourth quarter despite a revenue decrease mainly due lower fuel demand because of COVID-19.

The Laval, Que.,-based convenience store operator reported after markets closed that it earned US$576.3 million or 52 cents per share for the period ended April 26. That compared with US$293.1 million or 26 cents per share a year earlier.

"This year, Couche-Tard became a better, and stronger company,'' said CEO Brian Hannasch. "Our agile, decentralized model and advancements in operational excellence allowed us to face the unprecedented challenges of the COVID-19 crisis and fare far better than many other businesses."

Reporting in U.S. dollars, Couche-Tard results were affected by a pre-tax gain of $41 million on the sale of its U.S. wholesale fuel business, a $22.8 million foreign exchange gain and $4.6 million adjustment on deferred taxes.

Excluding one-time items, adjusted profits were $521 million or 47 cents per diluted share, up from $289 million or 26 cents per share a year earlier.

Revenues decreased 26.1% to $9.69 billion from $13.11 billion, largely due to 34% decrease in fuel volumes.

"We also had a strong fourth quarter with positive traffic trends to begin with before we endured significant decline in traffic and fuel volumes with the pandemic stay-at-home orders implemented across our global footprint,'' Hannasch added.

He said customers changed their shopping behaviours by purchasing more at each visit, including more impulse and emergency items.

Implementation of physical distancing measures decreased traffic across its entire network, starting mid-March in Europe and slightly later in North America.

Merchandise product demand shifted during the pandemic, which hurt margins.

Merchandise and service revenues decreased 2.6% to $3.2 billion with same-store revenues falling 0.5% in the U.S., 6.5% in Europe and increased 4.7% in Canada.

Merchandise gross margin decreased 0.9% in the U.S. to 33%, by 1.2% in Europe to 40.6%, and 1.2% in Canada to 31.8%.

Fuel sales declined rapidly during the first weeks after stay-at-home orders, but margins remained healthy.

Same-store road transportation fuel volume decreased 18.3% in the U.S., 13.4% in Europe, and 23.5% in Canada.

The retailer was expected to earn an adjusted profit of 43 cents per share on $9.36 billion of revenues, according to financial markets data firm Refinitiv

For the full-year, it earned $2.35 billion or $2.09 per share on $54.1 billion of revenues, up from $1.83 billion or $1.62 per share on $59.12 billion of revenues in 2019.

The results demonstrated Couche-Tard's resiliency with better-than-expected same-store sales, said Derek Dley of Canaccord Genuity.

He said the 0.5% decrease in U.S. same-store merchandise sales was much better than his estimate for an eight% decrease.

Fuel margins rose to a record 46.9 cents US in the United States and were high in Europe and Canada as well, Dley added in a research note.

"With consolidation likely to accelerate over the next six to 18 months, in our view, we believe Couche-Tard is in an advantageous position to take advantage of what is likely to become a 'buyers' market,'' he said.