The Circle K store on Parliament St. in Toronto’s Cabbagetown neighbourhood, is photographed on May 21 2020.Fred Lum/The Globe and Mail
Alimentation Couche-Tard Inc. ATD-T has launched a new strategy to boost revenue and profit over the next five years that zeroes in on the stuff its Circle K stores have always been known for – selling fuel, nicotine and drinks – in a retail environment that remains shaky in many parts of the world.
At a meeting with analysts and investors in Toronto Wednesday, executives with the Laval, Que.-based convenience store giant outlined a new blueprint called “Core plus more” that builds on the company’s traditional strengths in those three categories, which together make up 90 per cent of its revenue and about 75 per cent of gross profit. The company also plans to lean harder into food.
Chief executive officer Alex Miller said that while much of the investor interest in Couche-Tard in recent years has been focused on its appetite for takeovers, it was important for his team to shift focus back to its ability to drive sales from existing operations. The company pulled the plug last year on an effort to buy Japan’s Seven & i, owner of the 7-Eleven chain, saying its competitor failed to engage constructively in talks.
“I wanted to focus solely on organic growth for this session and for the ultimate guidance that we provided because we don’t know what and how much M&A we will do in a five-year period,” Mr. Miller said in an interview. He said deal flow is “really active” at the moment, but asset prices are high based on what sellers are asking.
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After a solid trajectory of profit growth over the past two decades, Couche-Tard’s business has come under pressure more recently as belt-tightening consumers deal with higher debt levels and inflation. The company tallied same-store sales growth across all its geographies for the second consecutive quarter in November, and it’s now trying to maintain that momentum.
With its new strategic push, Couche-Tard expects it can generate year-over-year adjusted earnings-per-share growth of 10 per cent or more from fiscal 2026 through 2030, and an expansion of between 2 per cent and 3 per cent in comparable same-store merchandise sales. It says it can achieve a compound annual growth rate of at least 4 per cent for total merchandise and service revenue.
The forecast assumes no major changes to the wider macroeconomic environment and doesn’t take into account any significant potential acquisitions, Couche-Tard said. The company said it expects free cash flow in the current fiscal year ending in April to reach US$2.5-billion.
Couche-Tard aims to expand its store network, with plans for at least 750 new locations over the next five years. The company could do more, but it won’t “chase volumes at the expense of returns,” said Aaron Brooks, senior vice-president of real estate and fuel customer.
For years, Couche-Tard executives have fielded questions about the death of gasoline-powered autos and what that might mean for its extensive network of fuel stations. But regulatory changes in North America and Europe, including Canada’s move this month to scrap mandatory electric vehicle sales targets, suggest that peak gasoline demand won’t be a reality for several more years.
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Couche-Tard serves not only individual drivers gassing up and charging their electric cars, but it also sells fuel directly to businesses. The company expects the gross profit on its road transportation fuel business to grow in line with inflation over the next five years.
Meantime, while cigarettes are declining in popularity overall, Couche-Tard management predicts nicotine demand will continue to increase through alternative products such as pouches and vape pens. The company will capture an outsized share of that shift, said Louise Warner, executive vice-president of Couche-Tard’s North American operations.
“Fuel and nicotine, these are mature products,” Ms. Warner told the audience in Toronto. “Many of you will think that these are declining products. We don’t see it that way.”
Company executives are perhaps most bullish about the drinks category and anyone who’s been in a corner store recently can see that the coolers are packed with a variety of beverages that leave shoppers spoiled for choice. Demand is growing and seven in 10 customers who walk into a Couche-Tard store now buy a beverage of some kind, Ms. Warner said, whether it be an energy drink, fountain drink or coffee.
“This company has been built through acquisitions,” delivering the scale and global footprint it has today, said chief financial officer Felipe Da Silva. “But the focus is now to prove that we… can grow the profitability of this baseline consistently and organically.”
Couche-Tard operates in 29 countries and territories with close to 17,300 stores. It employs about 149,500 people.
“Couche-Tard has a formidable scale, and it is clear this scale advantage can translate in share gains in this fragmented market which is still made up of a majority of single store operators,” Stifel analyst Martin Landry said in a research note. “We believe that all the pieces of the puzzle are in place for management to execute and deliver on its plan.”