Couche-Tard Q3 results and growth strategies

Date : 22 March 2021

Charles Chan

Senior Retail Analyst

We review Couche-Tard’s third quarter performance and growth strategies.

Key numbers

  • Total revenue down 20.8% to $13.2bn YoY
    • Merchandise and service revenues up 5.6% to $4.5bn YoY
    • Road transportation fuel revenues down 29.7% to $8.5bn YoY
    • Other revenue down 40.9% to $148m
  • Same-store merchandise sales up 4.7% in Canada, 2.9% in the US and 2.8% in Europe and other regions
  • Operating income down 3.9% to $834.6m YoY
  • Net earnings down 7.9% to $607.5m YoY

Total revenue impacted by fuel sales, but merchandise remains robust

Total merchandise sales grew 5.6% YoY, primarily attributable to growth in basket size despite softness in customer traffic. Contribution from acquisitions also supported growth. Tobacco, packaged beverage, alcohol and grocery products categories continued to perform well.

COVID-19 continued to negatively impact fuel demand and fuel selling price. While the disposal of a portion of the retailer’s U.S. wholesale fuel business in fiscal 2020, as well as the disposal of its interests in CrossAmerica Partners LP (CAPL) also affected road transportation and fuel revenues. Lockdowns and other restrictions meant that same-store road transportation fuel volume decreased by 15.7% in the U.S, by 10.3% in Europe and other regions, and by 19.9% in Canada.

Earlier this year, we outlined five global trends that will shape the convenience channel this year and beyond. See how Couche-Tard is tracking against some of our global convenience trends below.

Physical expansion will recover

Physical expansion in convenience retail is much more fluid compared to larger formats. While this has slowed since the pandemic, plans that were placed on hold are being relaunched, and investment in new locations recovering. Couche-Tard has vast experience in growing its store network via mergers acquisitions, and continues to grow its network organically: 

  • On December 21, 2020, it completed the acquisition of Circle K HK for HKD3bn ($381.2 m). Circle K HK operates a network of Circle K convenience stores, with 341 company-operated stores in Hong Kong and 32 franchised stores in Macau. Circle K HK results are now included in Couche-Tard’s consolidated financial statements
  • On November 12, 2020, it acquired seven company-operated stores from Pride C-Stores Inc., all located in Indiana, within the United States
  • Couche-Tard acquired five company-operated stores, reaching a total of seven single-site acquisitions since the beginning of fiscal 2021
  • The retailer completed the construction of 13 stores and the relocation or reconstruction of 10 stores, reaching a total of 61 stores since the beginning of fiscal 2021
  • Outside the reported period (on March 22), however, Couche-Tard signed a deal to sell 49 stores in Oklahoma to Casey's General Stores Inc. for US$39m. This is expected to close by July 31. Following a strategic review, the retailer is also looking to sell 306 other sites (269 in the U.S and 37 in Canada)

Future proofing convenience

Format innovation will help future-proof convenience, with retailers launching new concepts to test initiatives, e.g. mission-focused formats, vending, drive through convenience stores and mini ‘dark stores.’

Rather than having specific R&D divisions or departments, Couche-Tard uses its markets and stores as R&D labs. Earlier this year, it launched a frictionless store in Canada. Norway is the retailer’s EV lab. While Lithuania was recently chosen to be a new concept and merchandising lab. It recently launched its new pilot Horizon stores in Lithuania, featuring new products, new equipment and new look and feel. Three of these new concept stores operate in Sweden and three in Lithuania (Vilnius), and the retailer aims to open more this year.

Source: Couche-Tard

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