Couche-Tard looks to double net profit in five years

Quebec convenience store giant Alimentation Couche-Tard is aiming to double its net earnings in the next five years even after seeing its operations dramatically expand in North America and Europe, the company's chief executive said Wednesday.

The company, which primarily operates under the Circle K banner, said it would achieve the target through a combination of organic growth and further acquisitions.

Chief executive Brian Hannasch described the goal as "ambitious" but one that could be achieved by remaining true to its core business while maximizing its strengths.

"It's founded on the understanding of the current and future market dynamics, upcoming trends in convenience and fuel as well as our deeply rooted aspirations to improve the customer journey and drive more traffic into our locations,'' he said during a conference call about its fourth-quarter and 2018 results.

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% to US$59.1 billion.

The retailer has become one of the world's largest convenience store chains through a series of acquisitions and expansion of its high-profit food services operations. This includes the expansion of coffee, food and cold beverage programs that grew by double digits last year.

"We're also seeing increased customer loyalty to frozen beverages in Canada and have began a faster frozen beverage pilot in Ireland," Hannasch added.

Analyst Keith Howlett of Desjardins Capital Markets said doubling its profitability would depend on sustained organic sales momentum and expanded gross margins.

"Gross margin expansion will likely require a shift in product mix to food service," he wrote in a research note.

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 Laval, Que.-based convenience store chain, which reports in U.S. dollars, said 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 were 52 cents per share, two cents per share below analyst forecasts, compared with 59 cents per share in the fourth quarter of 2018.

Revenues fell 3.7% to $13.1 billion from $13.6 billion.

Couche-Tard said same-store sales rose across its network in the quarter despite fuel shortages in Texas and Arizona because of a supplier issue. Merchandise revenue for stores open at least a year grew 3.4% in the U.S., 4.2% in Canada and 4.7% in Europe.

Same-store fuel volumes increased 0.3% in the U.S., but fell by 0.4% in Canada, which it said was an improvement from the prior quarter because of the impact of its new partnership with Loblaw's PC Optimum loyalty program at Esso locations.

The convenience store company added that alternative tobacco products were strong performers in the quarter, with minimal impact from e-cigarette makers Juul Labs pulling its flavoured products.

Hannasch said the company supported industry efforts to ensure tobacco wasn't sold to customers below 21 years old and he minimized the impact of San Francisco's recent ban on e-cigarettes.

"We have very few stores in San Francisco, which is a city that has often taken stances on many issues that are not consistent with the rest of the country," he said.