Couche-Tard strategic plan aims to double net profit in five years
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Quebec 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.
Couche-Tard & CrossAmerica complete first in series of asset swaps
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Alimentation 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.