Couche-Tard expects inflation pressure to remain ‘heavy’ next quarter

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Convenience-store giant Alimentation Couche-Tard Inc. posted a double-digit increase in earnings for its fiscal first quarter of 2023, but expects inflationary pressures to continue to weigh on expenses into at least the next quarter.

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While revenue from road transportation fuel sold at its gas station properties soared, executives at the company, known for its Circle K and Couche-Tard brands, said during an earnings call Wednesday that demand for fuel remained “unfavourably impacted” by high prices due to increased crude oil costs. Work from home trends and rebranding activities also weighed on demand.

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Chief financial officer Claude Tessier said inflationary pressures also drove up the company’s normalized operating expenses, which increased by 7.3 per cent from the previous fiscal year. He said higher occupancy costs, rising minimum wage and incremental store investments were notable factors.

“No doubt this has once again been a challenging quarter, especially in terms of inflation and high fuel prices and the impact that has on our customers and our team members,” chief executive Brian Hannasch said.

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The CEO said private label products, like their beer and confectionaries, performed strongly as customers transitioned from premium products to budget. “Clearly, some consumers out there are looking for value,” he said.

While fuel prices have started to come down and staffing shortages are improving, Tessier said inflation was still an issue.

“It’s difficult to call that inflation’s gonna ease in the future quarters. I think we can expect that the next quarter is going to be still a heavy quarter in terms of expense,” the CFO said.

Executives said they do expect this growth rate to temper a little in regards to credit card fees as fuel prices finally come down. These fees are charged by credit card companies at a percentage of the selling price.

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The company reported net earnings of US$872.4 million in the first quarter, ended July 17, a 14.1 per cent increase from the prior year. This represents $0.85 per diluted share, up from the previous year’s $0.71 per diluted share.

The quarterly results were affected by pre-tax acquisition costs of US$1.2 million, as well as by a pre-tax net foreign exchange loss of US$1 million.

It closed its proposed acquisition of Cape D’Or Holdings Limited, Barrington Terminals Limited and other related entities that operate in Atlantic Canada on Tuesday. These include independent convenience stores and fuel stops under the Esso, Go! Store and Wilsons Gas Stops brands. 

“We’re excited about welcoming these great stores and family members to the Couche-Tard family and expanding our reach in Atlantic Canada,” chief executive Brian Hannasch said. 

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However, as per its agreement with the Competition Bureau, Couche-Tard had to divest 34 of the 79 company-owned Wilsons locations, one of two dealer-operated locations and 12 of 137 dealer-owned locations in Atlantic Canada.

“I think we had a very good understanding of what we were bidding on…. We feel good about the price at which we acquired the network and the asset quality we have,” Hannasch said.

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