Alimentation Couche-Tard feels ongoing pain from weak economy in Western Canada

Challenging economic conditions in Western Canada

MONTREAL — Challenging economic conditions in Western Canada continued to weigh down on Alimentation Couche-Tard in the third quarter, despite the addition of 278 former Esso locations in Ontario and Quebec, the company said Tuesday.

While Canadian fuel margins increased, merchandise revenues from stores open for at least a year decreased by 0.9 per cent as a result of the region’s struggling economy, while same-store fuel sales were off 0.8 per cent, the convenience store operator said.

“Canada was flat without Esso,” CEO Brian Hannasch told analysts during a conference call.

Eastern Canada was stronger while western provinces, particularly Alberta, were the weak point.

“That trend has continued really since we saw the decline in crude oil prices from the low $100s to as low as the $20s,” he said.

Hannasch said the expansion in Ontario that primarily came with the Esso deal should help Canadian fuel margins since they have historically been higher in the province than other parts of the country.

Chief financial officer Claude Tessier added that the higher Canadian fuel margins should be sustainable because Couche-Tard is now more exposed to Central Canadian markets.

During the quarter, Couche-Tard (TSX:ATD.B) reported higher overall net income as revenue rose 22 per cent, largely due the acquisition of Esso locations and operations in the United States and Europe.

The Laval, Que.-based company said it earned US$287 million or 50 cents per share in the quarter ended Jan. 29, up from US$274 million or 48 cents per share in the comparable period last year.

Adjusted earnings were 53 cents per share, about the same as last year, but well below analyst forecasts of 66 cents per share, according to Thomson Reuters.

Revenue at the company, which reports in U.S. currency, rose to $11.4 billion from $9.33 billion a year earlier.

Hannasch said the convenience store chain was negatively affected during the quarter by a weak U.S. retail environment particularly in January, weather challenges including a hurricane, ice storm and flooding, and an increase in the legal age to purchase cigarettes to 21 from 18 in California.

Couche-Tard’s banners in Canada include Mac’s, though it’s switching to Circle K as its global brand everywhere but Quebec, where Couche-Tard will remain the company’s main banner.

Hannasch said the company is accelerating the pace of its rebranding to Circle K, which now accounts for more than 1,000 stores in North America and 910 in Europe. It hopes to have 1,700 stores rebranded in North America by the end of the fiscal year, with another 2,500 locations added next year.

With the acquisition of Esso stations complete, Couche-Tard is anticipating the closing of the US$3.4-billion purchase of CST Brands to be finalized in the summer, a few months later than previously forecast.

The CST deal is prompting the company to examine its entire global real estate portfolio to see if it could realize bigger profits by selling some locations for residential or other developments.

“We’re going to take a really hard look and see us in the coming months come out with a strategy to divest some non-core assets as part of that purchase,” he added.

Shares of Couche-Tard closed at $58.85, down 4.77 per cent, on the Toronto Stock Exchange after analysts described the results as disappointing.

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