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TORONTO -- First-quarter profit at Alimentation Couche-Tard Inc., North America's third-largest c-store operator, fell as the company was hit by unusual items.
The Laval, Quebec-based company said yesterday it earned $44.6 million, or 21 cents a share, in the quarter ended July 23, down from a profit of $54.1 million, or 26 cents a share, a year earlier -- a decrease of $9.5 million, Reuters reported.
Couche-Tard attributed the decline to a retroactive income tax expense of $9.9 million that the company incurred related to a change in Quebec's corporate tax rates, along with the negative impacts of the lower margin on motor fuel, and higher electronic payment modes related expense. Excluding these items, the chain's net earnings would have been $61.7 million, or 30 cents a share on a diluted basis -- a 14 percent increase over the first quarter of the previous year, Reuters said.
Revenue rose 30.9 percent to $2.86 billion as Couche-Tard continued to beef up its U.S. network with acquisitions. During the quarter, it acquired 90 company-operated stores from Spectrum Stores, and opened or built 53 affiliated stores and eight company-operated stores. The company has since acquired 24 Stop-n-Save stores in Louisiana, signed an agreement to acquire 24 Sparky's stores in west-central Florida and entered into another agreement to acquire 54 Holland Oil/Close to Home stores in Ohio.
"The first quarter featured solid growth in total revenues and in merchandise and service gross margins, both in Canada and the U.S. Our innovation and product mix strategies made a substantial contribution to this growth," Alain Bouchard, Chairman of the Board, President and Chief Executive Officer, said in a written statement.
In the U.S., growth of same-store merchandise revenues was 4.7 percent, compared to 2.9 percent in Canada. The cigarettes, beverages and foodservice categories recorded the most significant increases, with combined growth of $55 million. Energy drinks and water posted the sharpest increase in the beverage category. With an increasing number of beer caves in the U.S. markets, this category was also able to record constant growth in sales, the report said.
Motor fuel revenues increased by 48 percent or $572.3 million, of which $324.8 million is due to a higher average retail price at the pump in the U.S. and Canada. Growth in same-store motor fuel volume was 3.6 percent in the first quarter of fiscal 2007 in the U.S.; 3.4 percent in Canada. These increases mainly reflect the company's selective pricing strategies in certain regions of the U.S. to stimulate sales, which was partially offset by the volatile nature of the motor fuel business and strong competition in some regions, according to Reuters.
The merchandise and service gross margin was 34.1 percent, an increase of 1 percent over the 33.1 percent for the same quarter of fiscal 2006. The merchandise and service gross margin in the United States was 33.6 percent, also up 1 percent.
Both in the company's U.S. and Canadian markets, improvements in purchasing terms; changes in product mix with a focus on higher-margin items; the launch of new products that were well received by customers and generated higher margins; as well as the implementation of the IMPACT program in an increasing number of stores; are behind the increase in gross margin. However, the increase in merchandise and service gross margin in the U.S. and Canada was also affected by the company's pricing strategies on certain product categories designed to increase volume, the report said.
Looking to future, Bouchard said, "Quality of management and cost control at every level of our organization remain a priority, along with innovation, deployment of our IMPACT program and the ongoing expansion of our network in strategic markets. As planned and announced, we will continue to invest over the coming periods to have our IMPACT program implemented in some 500 stores by the end of fiscal 2007, while closing current acquisitions and taking advantage of new expansion opportunities consistent with our growth objectives in our North American markets."
Couche-Tard currently operates a network of 5,144 convenience stores, 3,180 of which include motor fuel dispensing. It's the third largest c-store operator and the second largest independent (not integrated with a petroleum company) operator in North America.