Strong Q3 Performance by Circle K Goes Beyond Fuel Prices
LAVAL, Quebec — Improved in-store merchandise sales, combined with robust fuel margins and gross profits, led Alimentation Couche-Tard Inc.'s Circle K U.S. convenience store division to a strong 2015 fiscal third quarter for the period ended Feb. 1.
On the merchandise side, U.S. revenues increased by $95 million year over year to $1.495 billion. Merchandise gross profits rose by $33 million to $490 million, while merchandise gross margins lifted slightly to 32.8 percent. On a same-store basis, merchandise revenues improved by 4.5 percent at Couche-Tard's U.S. operations when comparing its latest quarter to 2014's fiscal third quarter.
Sales of foodservice items were especially strong, the company noted, and were key to driving in-store traffic. In fact, Couche-Tard President and CEO Brian Hannasch said higher traffic led to a higher basket ring, allowing the convenience store retailer to forego promotions that could cut into margins.
Fuel sales were another area of particular strength at the Laval, Quebec-based company's Circle K operations. Road transportation fuel gross profit rose by a massive $139 million year over year to $365 million. Also on the rise were U.S. fuel gross margins per gallon, which increased nearly 8 cents year over year to 24.93 cents per gallon.
On a same-store basis, U.S. fuel volumes improved by 2.8 percent year over year.
Although Hannasch acknowledged lower fuel prices certainly helped buoy the bottom line, he said there is more to the story.
"While the headlines may have been fuel margins, our continuous efforts to improve our product offering, in-store execution and customer service have enabled us to once again generate outstanding results with a strong contribution from organic merchandise sales and fuel volume growth," he reported. "…We achieved great performance on all fronts. I assure you this performance is not just about high fuel volumes."
THE PANTRY ACCRETIVE
The fiscal 2015 third-quarter financial results did not include The Pantry Inc., which Couche-Tard officially acquired Monday.
When questioned by an analyst, Hannasch said he cannot predict the future, but noted that the southeastern portion of the United States — The Pantry's primary operating region — has historically been strong when it comes to fuel sales and should be a benefit to Couche-Tard in the future.
The CEO also addressed its purchase announced on Monday of 21 convenience stores, 151 dealer fuel supply agreements and five development properties from Cinco J Inc. (d.b.a. Johnson Oil Co.), Tiger Tote Food Stores and their affiliates, which he said will boost Circle K's Texas operations.
"They are very good, high-volume sites," relayed Hannasch.
Overall, Couche-Tard earned a net profit of $248.1 million in its fiscal third quarter. When removing one-time items, the company earned $289 million vs. $175 million in the year-ago period, an increase of 65 percent.
As of Feb. 1, Couche-Tard had 8,542 convenience stores in its network across North America and Europe, 6,290 of which are company operated.