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LAVAL, Quebec — Alimentation Couche-Tard Inc. has completed a review of fuel partners and agreements at Southeastern U.S. convenience stores acquired from The Pantry Inc. and will change the fuel branding at more than 1,000 locations in this region, Brian Hannasch, president and CEO, stated Tuesday during the company’s 2016 fiscal third-quarter earnings conference call.
Couche-Tard, parent of the Circle K brand, paid a one-time pre-tax charge of $9.2 million on early termination of certain fuel supply contracts and a $4.1 million pre-tax net foreign exchange loss related to the rebranding effort. Another charge of slightly more than $3 million will be paid by Couche-Tard in its current 2016 fourth quarter, Hannasch added.
Despite the charges, the chief executive stressed the move will be excellent in the long-term, as Couche-Tard can achieve higher fuel volumes and better pricing conditions.
The rebranding will cover approximately two-thirds of the convenience stores Couche-Tard acquired from The Pantry. The sites, formerly branded as Marathon, CITGO and Valero at the forecourt, will now be branded Circle K, BP, Shell and Exxon, said Hannasch.
“We want to have brands that resonate more strongly with consumers in the Southeastern U.S.,” he said.
The CEO added Couche-Tard has already completed “soft” rebrandings at 360 of the 1,000 c-stores, with all soft rebrandings to be completed within four months. Complete rebrandings of all of these sites will take place in the summer.
Concurrently, Hannasch noted Couche-Tard continues to rebrand in-store operations to the Circle K brand. According to Hannasch, 135 U.S. c-stores have converted to the Circle K banner thus far. On a global basis, the conversion to the Circle K brand will take a few years, the company revealed.
Q3 EARNINGS HIGHLIGHTS
While a change is needed at the forecourt at former The Pantry Kangaroo Express locations, Couche-Tard is quite pleased with in-stores sales at these c-stores. In fact, this acquisition was a main reason for the Laval-based company’s strong earnings at its U.S. division. For its 2015 fiscal third quarter ended Jan. 31, U.S. same-store merchandise revenues grew 5 percent year over year in the United States, with merchandise and service gross margin improving by 0.5 percent. U.S. merchandise and service revenues were $2.157 billion for Couche-Tard’s fiscal third quarter, an increase of 44.2 percent compared to the quarter ended Feb. 1, 2015. Merchandise and service gross profits rose a robust 46.3 percent year over year to $717 million.
U.S. same-store fuel volumes increased by 6.2 percent year over year. U.S. fuel revenues totaled $4.3 billion, a 16-percent year-over-year rise.
Fuel gross margins came in at 19.9 cents per gallon, a decline of slightly more than 5 cents per gallon. Hannasch relayed the company expected the decline as the fuel margin environment was very strong in the year-ago period.
Companywide, Couche-Tard reported a net profit in its fiscal third quarter of $274 million, an increase of 10.4 percent vs. the $248 million profit achieved in 2015’s fiscal third quarter.
As of Jan. 31, Couche-Tard had 7,790 company-operated c-stores. When adding in franchised, licensed and other c-store locations, the company had 10,197 locations as of the same date.
NO MLP IN FUTURE?
When questioned by a financial analyst during the conference call, Hannasch stated Couche-Tard has no plan to formulate a master limited partnership (MLP) in the United States.
However, in questions gathered during the morning, a different analyst asked if Couche-Tard would consider purchasing an MLP, likely referring to recent rumors the company has an interest in buying Sunoco LP.
Hannasch responded the company has also read acquisition rumors involving its company and that it has not ruled out purchasing an MLP, as one factor trumps the structure of a company.
“We are looking for value,” concluded Hannasch.