Q3 2022 Alimentation Couche-Tard Inc Earnings Call
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Good morning.
I would like to welcome everyone to this web conference presenting any amount that's helped pushed our financial results for its third quarter of fiscal year 2022, all lines will be kept on mute to prevent any background noise.
After the presentation, we will answer questions from analysts asked life. During the web conference, we would like to remind everyone that this webcast presentation will be available on our website friend 90 day period.
Also please remember that some of the issues discussed during this webcast might be forward looking statements, which are provided by the corporation with its usual caveat. These caveats for risks and uncertainties are outlined in our financial reporting and therefore, our future results could differ.
From the information discussed today.
Our financial results will be presented by Mr. Brian <unk>, President and Chief Executive Officer, and Mr. Claude <unk>, Chief Financial Officer, Brian You May begin your conference.
Thank you Philip and good morning, everyone.
Thanks for joining us for this presentation of our third quarter 2022 results.
Two years after the start of the pandemic and during the quarter, where the omni crime variant surged to car across our global network I am pleased to announce that we had strong results during the third quarter in both convenience and in fuel.
Same store merchandise sales were particularly strong in Europe as well as in the U S with our freshly prepared food programs and packaged beverages. Among the main drivers of continued growth.
Across the business in fuel volumes and traffic we saw strong results early in the quarter, but both were impacted by work from home orders and the rise in COVID-19 cases, with the spread of omni kron, particularly towards the back half of the quarter.
Beyond the current impact during the back half mainly affected our large in urban areas in North America, and Europe , where we saw renewed lockdowns Howard we continue to achieve healthy fuel margins and benefit from our strategic initiatives that were remaining laser focused on.
We've worked hard to overcome the historic labor and supply chain issues in our industry and are pleased to report significant improvement in more recent periods as well as progress across many of our key priorities I'll go into these more detail on these initiatives during that presentation, but before moving to those results I want to take a moment to comment on our decision to suspend our operations in <unk>.
Russia.
And our.
We made it clear that we can them rushes aggression against the Ukraine and the human impact, it's having in both Ukrainians and Russians.
As such we made the decision to suspend operations effectively immediately.
<unk> been in in Russia for nearly three decades and has been incredibly proud of our Russian team and their dedicated service to our customers and our communities in Russia.
There are 38 circle K stores located in St. Petersburg, Murmansk and scope as well as a 320 employees and we are committed to take care of them in a responsible and safe manner as we wind down our operations.
Our Hearts go out to all those impacted by the violence unfolding in that region since the beginning of the crisis. We've been deeply moved by the outpouring of generosity birth local circle K teams in Poland, the Baltic countries and across our European network who've been helping refugees with free fuel food beverages housing and donations to a myriad of charities.
Early on Costar donated nearly one $5 million to the Red Cross and we started a global campaign to raise further funds for the Ukrainian people, including matching customer donations in all of our European stores and providing a platform for our global team members to make donations to the Red Cross.
Now, let me turn to our results and I'll begin with convenience compared to the same quarter last year same store merchandise revenues increased three 7% in the U S seven 2% in Europe , and other regions and decreased 8% in Canada.
Convenience activities performed well on a two year stack basis as same store merchandise revenues increased on a compound annual growth rate of three 4% in the U S, 5% in Europe , and two 1% in Canada.
Across the network, our fresh food fast programs continue to grow with over 2900 stores now opened in North America and over 300 in Europe , and we're seeing strong year over year growth in the U S, where we have the majority of our fresh food fast sites, we've seen same store year over year gains in excess of 20%.
And we've continued to launch a variety of operational tools to continue to drive the simplicity and reduced labor hours, making it easier for our store teams.
Merchandise and produce these great products.
While supply chain issues have continued to be challenging we modified our supplier base to provide redundancy and improve our stock positions.
Pipeline of new items is also prepared in our stores as we continue to refine our assortment and make every effort to get into chicken sandwich business.
As our markets reopen or excited about the opportunities in front of us to promote and sample. This great program in the coming weeks and months.
And our dispense beverage category, our second save subscription program.
It's been expanded to include online enrollment, making sign up east and renewal quick and easy. We currently have 400000 active subscribers in the program.
We have very strong positive feedback from our customers and we continue to look for opportunities to make it easy and even easier for our customers to benefit from this program.
While it is certainly in the short term.
Probably impacts our sales in the dispense category, we think the ongoing loyalty and increase in traffic that we're seeing is a good move for us over the long term.
Overall growth in packaged beverage remained strong with good unit growth led by sports strengths in energy energy drinks continue to drive the category through innovation.
With high value national activation, and first to market opportunities and sports drinks, they've all both combined driven strong sales increases year over year.
Assortment promotional activity and supply chain management would be the core focus in the coming quarters as customers begin to shift back to media consumption and more normalized shopping patterns and quite honestly as we prepare for hopefully an exciting summer is the societies are open.
Overall, the company's total age restricted category was up slightly compared to the same quarter last year, despite bars and restaurants being reopened.
Europe continued to have good sales results in other tobacco products and our U S business units continue to focus on wine another age restricted products, including fast the fast growing single serve wine and sell some products.
To enhance the in store customer journey and maximize impulse purchases. We now have over 2000 <unk> line installation is complete in North America and over 300 in Europe .
Q lines continue to show very strong value in building basket size, especially with confection salty and beverages and our goal is to have over 50% of our North American network with queue lines installed by the end of the year.
The limiting factor being supply chain on fixtures and then quite honestly the size of some of our boxes.
And our data and analytics work, we continue to refine the localized pricing program, which is now live across the network and we're seeing a clear average gross margin improvement from the effort.
We've also ramped up our work to enable the optimization of promotions and assortment at scale, while still in the early days, we're seeing very encouraging results in both of those areas.
In Europe , we've been we began executing on early key learnings across promotions, including the sunsetting of ineffective promotional activity and overall, we're seeing margin improvement with little to no decrease in unit unit movement.
I also want to bring attention to the investment we're making the future convenience with our circle K venture funds. We've recently announced that we invested more than half of the initial $100 million of the fund's startup and companies that are developing forward looking solutions focused on enhancing the customer experience in our stores.
And improving efficiency and making our customers' lives and just a bit easier.
Since the funds inception in 2020, we secured equity stakes in a number of these entrepreneurial startups, forming collaborative partnerships and agreements to test and commercialize these innovations.
Recent investments are U S based companies offering delivery grocery convenience and patent pantry items that comment competitive prices and very compelling speed.
Working with these partners in power and commercial programs by testing and learning.
Seeing how we can add restricted sales to the to the product mix, which we think is important to the basket and certainly a way to look around the corner and clearly understand the economics of quick delivery and how it may or may not fit with our customers' needs and expectations from a convenience perspective.
Moving to our fuel business same store fuel road transportation volume increased three 2% in the U S. Three 2% in Europe , and other regions and seven 2% in Canada.
On a two year stacked basis again same store road transportation fuel volume decreased in an annual rate of six eight in the U S. Three 4% in Europe , and seven 4% in Canada.
We still see particularly in the morning day part still impacted from work from home trends and then during the quarter certainly a resurgence of Covid, which created lockdowns in many of our markets.
As societies open and people start to return back to the offices at least a few days a week. We believe we are continuing to see miles driven increase towards 2019 levels.
And our circle K fuel rebranding work over the quarter, we completed another 181 locations, bringing the year to date total to 381 and total site count with the circle K fuel brand in North America to 3200 stores.
Our circle K and Bachelor program kicked off to further support site level rebrand activity such as educating the customer about our circle K fuel brand, our quality guarantee program and our premium benefits.
In the U S. We've also began a winfrey fuel for year National campaign, and we have a 100 and we will have 144 winners of free fuel for a year at the end of the fiscal year.
Also in our fuel category. We're pleased to we're pleased with our strong sourcing efficiency and growing in house fuel transport operations across the network.
In Europe , we're on track to launch our fleet with ambition with the sorry with the ambition of the recently completed.
Starting to work in Sweden during the quarter.
We now have over 1000 drivers transporting circle K fuel and we just believe that provides tremendous upside in terms of reliability, but also our flexibility to optimize our fuel sourcing.
In Europe , our <unk> business with strong volumes for both fuel cards and bulk sales are trending ahead of prior year and in the quarter card volumes trended ahead of pre COVID-19 levels, driven by strong recovery in the fleet sector and continued very robust performance in the transport sector on both <unk> and <unk> in Europe our team.
They're doing a great job and we are clearly gaining market share.
We've also made good progress on an electric vehicle work this quarter, reaching 1000 charterer milestone.
With new charges being installed in Sweden in this quarter and we've developed our approach in North America. We opened our first test the EV charger in Austin, Texas during the quarter and we now have over 100 charging locations active in Canada.
Turning to innovation, we continue to expand our pay by plate service across Canada.
<unk> me across Scandinavia, bringing the program to Denmark with 225 sites added during the quarter. It continues to be very well received by our customers and is clearly easier our next markets our Norway in the Stoney as we continue to take learnings from the initial launch in Sweden to drive improvements.
In this program.
Again, just back to our circle K fund briefly we are investing and partnering with groups that are working to enhance the in store customer experience by leveraging <unk> technologies enable store employees to focus more on the customer service and workforce efficiency.
We're installing innovative and fast checkout technologies in our European stores as well as technology, that's tapping into the fast growing gig workforce.
During Covid, we saw just a significant up spike in the percentage of the workforce that was shifting to and preferring the gig work methods. If you will and we've tapped into that and just really encouraged with the results being able to bifurcate what's happened in our store and utilize that workforce to supplement our activities at site and let our people focus on serving the.
<unk>.
And finally before turning it over to Claude I wanted to further address those labor and supply chain challenges.
We're pleased to report a significant improvement in more recent periods of the quarter in North America, we saw significant improvement in turnover trends at all levels of our operational teams, including store manager assistant manager and our customer service team members. We attribute to this too certainly the targeted actions we've taken on the variable comp side.
Retention initiatives training and benefits that we have.
Closely tracked and worked with our business units to tailor to meet specific competitive needs in their in their environments in their local markets. We've also stepped up our leadership development and training programs significantly focusing our attention on culture value and leadership expectation.
The size isn't over but certainly we see a light at the end of the tunnel and then with regard to supply chain. We've implemented mitigating efforts this quarter to increase our holding capacities and in stock on key Skus as we approach the summer selling season. This.
This includes the additional queue lines I already touched on we've also we are working to improve the holding capacity of our highest turning products.
Expanding shelf debt shelf depth and increasing core capacity.
We're also reducing dependency on single source supply identifying alternative suppliers in key products, such as food and waters.
While there is no quick fixes the teams are focused on being ready for the summer I'm going to pause here and let <unk> take you through more of our third quarter financial results. Thank.
Thank you, Brian ladies and gentlemen, good morning.
Third quarter of 2022, we're happy to report net earnings of 746, 4 million or <unk> 70 per share on a diluted basis exclude.
Excluding certain items for both comparable periods adjusted net earnings were approximately $746 million or <unk> 70 per share on a diluted basis for the third quarter of fiscal 'twenty two.
Bear with $622 million or <unk> 56 per share on a diluted basis for the third quarter of fiscal 2021, an increase of 25% in the adjusted diluted net earnings per share.
We delivered against once again, sorry, a solid quarter as evidenced by increases of 15, 2% and gross profit dollars and.
And 18% in adjusted EBITDA compared to the third quarter of last year and all.
In an overall challenging environment in which we are diligently manage higher than unusual inflation and supply chain disruptions. We have continued to advance on our strategic priorities, including our <unk> initiatives.
Network development and cost optimization initiative across our network, bringing our last four quarters adjusted EBITDA above $5 2 billion.
Our financial position remains strong highlighted by our leverage ratio of $131 33, which allowed us during the quarter to upsize, our current share repurchase program from almost from almost $32 1 million shares to over $46 8 million shares.
We are actively managing our balance sheet and as a result, we repurchased close to 750.
$50 million of shares during the quarter and subsequent to the end of the quarter.
Following the end of the quarter. We also completed the early repayment of our Canadian dollar dominated seniors unsecured notes issued on November one 2012.
We also intend to renew our share repurchase program of an expiry on April 25, 2022 at a level of 10% of the then prevailing public float, giving us the opportunity to repurchase approximately $3 2 billion over the upcoming fiscal year.
I will now go over some key figures for the quarter for more details. Please refer to our MD&A available on our website.
During this most recent quarter, excluding the net impact from foreign currency translation merchandise and service revenues increased by approximately $272 million or 6%.
This increase is primarily attributable to the contribution from acquisitions, which amounted to approximately $158 million as well as through organic growth.
On a two year basis same store so merchandise revenues increased at a solid compounded annual growth rate of three 4% in the United States, 5% in Europe , and two 1% in Canada.
Excluding the net impact from foreign currency translation merchandize and service gross profit increased by approximately $131 million or eight 8% and the contribution from acquisitions amounted to $45 million.
Our merchandize on growth and service gross margin increased by 1% in the United States to 33, 6% and 2% in Canada to 31, 6%, mainly due to favorable changes in product mix and pricing initiatives.
Our merchandise and service gross profit decreased by <unk>, 7% in Europe , and other regions to 37, 8%, mainly due to the integration of circle, K, Hong Kong, which as a different product mix than our European operations, Excluding circle K, Hong Kong, our merchandise and services gross profit in Europe in other region, where they've been.
32, 1%, mainly driven by favorable changes in product mix.
Moving onto the fuel side of our business in the third quarter of fiscal 2022, Our road transportation fuel gross margin was $39 63 per gallon in the United States, an increase of $8 87 per gallon.
In Europe and other regions. It was $10 83 per leader a decrease of <unk> 53 per liter and in Canada. It was 11 73 cents Canadian per leader.
An increase of $1 45.
Canadian per leader.
Fuel margin remained healthy throughout our network, mainly as a result of a favorable market conditions and to continuing to work on the optimization of our supply chain.
Now looking at SG&A.
For the third quarter of fiscal 2020 to normalized operating expense increased by nine 8% year over year, driven by an increase level of marketing initiative and other discretionary expenses that we're seeing at least.
<unk> significantly reduced in the prior year quarter as well as by measuring necessitated by the impact of the labor shortage and the need to improve employee retention.
We would also note that the impact of inventory pressures.
<unk> higher utility costs in Europe , higher cost from rising minimum wage and incremental investments in our store to support our strategic initiatives.
This increase was partly offset by lower COVID-19 related expenses compared to the corresponding quarter of the previous fiscal year as well as by our cost optimization initiatives.
<unk> the cost of the retention measures implemented.
Which totaled approximately $28 million as well as the COVID-19 costs in the prior year such as a thank you bonus for our employees. The remaining variance for the third quarter of fiscal 2022 would have been eight 8%.
On a two year basis normalized operating expense grew at a compound annual rate of three 7%.
Which remains slightly below inflation as a result of our various cost initiatives.
Subsidization initiatives.
Excluding specific items described in more detail in our MD&A. The adjusted EBITDA for the third quarter of fiscal 2022 increased by $228 $4 million or 18% compared with the corresponding quarter of fiscal 2021, mainly due to the higher road transportation fuel margins in Oregon.
And growth in our convenience and road transportation fuel operations, partially offset by higher operating expenses as well as the net negative impact from foreign currency translation.
From a tax perspective, the income tax rate for the third quarter of fiscal 2022 was 21, 3% compared with 17, 6% for the corresponding periods of fiscal 2021.
The increase in the income tax rate is mainly stemming from a prior year, one time gains taxable at a lower income tax rates.
As of January 32022, our return on equity remained strong at 22, 2% and our return on capital employed stood at 15, 7% during the quarter. We continued to generate strong free cash flows and our leverage ratio stood at 133 times.
Only 10 basis points higher than the Q2 than Q2, despite having repurchased more than $500 million during the quarter under on CIB.
We also had strong balance sheet liquidity with $2 5 billion in cash and an additional $2 $5 billion available through our revolving credit facility.
Turning to the dividend the board of directors declared yesterday in our quarterly dividend of <unk> 11 cents Canadian per share for the third quarter of fiscal 2022.
To shareholders on record as of March 2004, 2022 and approved its payment effective April seven 2022.
Finally, as previously announced as a result of Volte crew style school founder, reaching the age of 65 years old all of our class B shares into magically converted into class a multi multiple voting shares during the quarter on the share for share basis.
Following the <unk>.
<unk> conversion only class a multiple voting shares of <unk> are traded on the Toronto stock exchange under the symbol ETD.
With that I. Thank you all for your attention and turn the call back over to Brian Alright. Thank you Claude and give them for the first time, we're going to have live questions from analysts and I'm expecting it's going to take a little longer than usual I'll try to be pretty from a closings.
We feel good about the quarter, we feel good about the upcoming summer season.
<unk> Omnicom has retreated we're seeing nice trends in both fuel and convenience sales and traffic.
To remind that in a very fragmented industry, we have a unique model with a diversified geographic footprint and significant competitive advantages versus the overall industry and we're focused on developing new ones such as our food programming food program, leveraging our data and unique ways to be even more relevant to our customers.
And the upcoming launch of a new loyalty program, which is focused on rewarding in a variety of ways, our most loyal customers.
Finally operating in four countries in eastern Europe . It is heartbreaking to witness the tragic events, taking place in the Ukraine and the huge movement of refugees, mainly women and children into a nearby countries. While it was the right decision to suspend our operations in Russia. It was not an easy one is Russian team members have been a valued part of our family for a very long time.
Once again, just as the pandemic started to stabilize our teams in Europe and across the globe are rising to the challenge of taking care of their fellow colleagues customers and communities and at the same time staying focused on our business and our key priorities.
I couldnt be more proud to lead this company and I'm truly grateful for our team's commitment.
With that we'll now take questions from analysts operator over to you.
Thank you, Sir and even gentlemen, let me now conduct the question and answer session. If you'd like to ask a question Press Star then the number one on your telephone keypad.
Withdraw your question Press Star two if you're using a speaker phone. Please lift the handset before pressing any keys.
Please for your first question. Your first question comes from Irene <unk> with RBC. Please go ahead.
Thanks, and good morning, Shadow and delighted to ask questions.
And in person.
First question is really on just how much that's changed.
We ended the quarter on January 3rd yet can you. Please give us some color or some more information around what you've seen in terms of fuel demand fuel margins inside store.
And any sort of disruptions that youre seeing in Europe .
Good morning, Irene happy to take and try to break those apart I'll start with the last one first.
Europe , our Scandinavian business and Irish business, largely unaffected, we've been able we have long term supply agreements.
So we've very stable there.
And continue to perform very well as you heard from the numbers.
If you look at eastern Europe .
Our Polish business really we've been overrun like everyone has with refugees so quite honestly.
Struggled to stay in stock and take care of our customers, but that's improved.
Last week, if you call. This a three week.
Into this last weeks better so demand is actually spiked there, but for whole horrible horrible regions.
I'm seeing that to a lesser degree in the Baltics, but supply chains have remained solid and.
Sales have been good so knock on wood.
<unk> has been stable and we are making every effort to take care of the refugees that to continue to pull out of the country.
In terms of what's happening I'll take fuel first.
Supply has been stable.
It's a very it's a global commodity I think the limiting factors people continue to walk away from Russian product could be shipping.
In the future, but so far again, we're largely termed up in our European business and we see no disruption in our North American business whatsoever. So we feel good about that.
From a margin standpoint.
Not great for consumers and in terms of a price shock, but in terms of behavior in our industry. These price increases were so large that the industry had no no choice, but to pass them through.
We are a very competitive industry and we're the only one that puts our prices out there in the front.
But between the labor pressures credit card fees and the product costs, we saw very disciplined response globally too.
The price increases so our margins have actually remained relatively stable versus past quarters through this crisis.
Terms of the consumer impact I think we're going have to just wait maybe a quarter and see what happens I think if the shock or to mitigate and we've seen crude go from 133 I'm talking about Brent of 133 back to $100 just in the last week.
And we see corresponding retail price decreases.
And then Thats, a relatively short term stock shock and I don't think it will have a meaningful impact on consumer behavior.
Whether it be miles driven or whether it would be what kind of car might trying to buy.
If we did see that persist for a long period of time I think there is obviously some risk of demand destruction.
I think what we're seeing is any potential customer hesitation has been offset by society opening.
Unlike if you talk about the last recession being an OE to nine.
Over broad terms I think the U S and Canadian consumers are in much better economic condition than they were in <unk> and we had a recession running in parallel so.
While we don't like.
These high fuel prices at all and their impact on the consumer in their pocket book, We think we're as a society in a much better place to weather that storm.
And then just merchandise just kind of finished the last piece of that.
Again, we saw a.
A dip down in the last two months of the quarter as omni kron spread but.
Think there's pent up demand out there. So we look at our last few weeks.
We're very pleased because we are right back where we were which is early in early in the last quarter with some very strong year over year sales growth.
That's really helpful and a follow up question on that if we go back to the Investor event.
You called out 28 to 30.
As let's call it a sustainable appeal margin, but since that time, we've had increasing cost pressures.
<unk> the network and now of course higher credit card fees with the higher prices.
What would your comment be around bias to that number and whether we should just simply be thinking about higher numbers on a go forward basis.
Yes, I think one I would say we need to think long term.
Quarter to quarter volatility is just inherent in our industry, but that said economics rule, our industry very fragmented very competitive.
And when you look at a very fragmented industry, the marginal margin need of the bottom half of our industry. Even the bottom quartile is really what should set that incremental margin and theyre facing probably a lower lower store sales lower fuel volume, they're getting the same credit card increases labor increases.
Brickell increases so.
I think if you believe economics rule over time, you could make a case that higher margins are needed on a sustained basis going forward.
That's great. Thank you Brian .
Thank you Larry.
Thank you. Your next question comes from Bonnie Herzog with Goldman Sachs. Please go ahead.
Thank you and good morning, everyone.
I had my first question is on Opex.
Certainly remained elevated in the past few quarters, given the tight labor market conditions and it is.
The higher hiring and retention costs that you called out as well.
Inflationary environment. So I recognize it's early but can you talk a little bit about your expectations for opex.
FY 'twenty, three I guess I'm thinking about it.
Given rising fuel prices associated increases in credit card fees, just trying to think about.
How we should assume or should we assume possibly a mid single digit increase next fiscal year on top of the elevated increase you're seeing this year or do you guys see opportunities for you to potentially manage these expenses, possibly more efficiently than some of your smaller peers given your scale.
Yes, maybe.
For answering the questions about next year, we could look at this year, how we performed so we perform it.
With nine 8%.
The increase.
Which is elevated and by our standards, but you have to look also at last year. So last year and the same is the same.
Time period, we were declining our opex by one percentage youre going back to last year.
The increase this year is first them by.
Really good quarter of last year.
And what's on what's feeding also into that increases obviously like you mentioned some labor challenges. So there is increases on that front for sure.
And also we put temporary measures also for retention. So if youre looking at both of these.
Theyre, probably therefore half of that increase of nine 8% and the rest is really pressure on cost that we see.
Energy and.
That we see in Europe , a lot of the increases on that in a bit of repair and maintenance and maintenance compared to last year, we have an increase and also marketing marketing.
Last year.
Covid, we've decreased marketing significantly so now we're putting back that marketing this year. So.
So that is accounting those other factors are accounting for the other half of that increase so if were looking further.
First we're going to cycle and we're going to start to cycle. The decrease that we had in last year, probably in Q1 of fiscal 2023. So that's what you need to take.
Taken to consideration. So then we're going to start to cycle some of those increases in Q1.
Also we are there.
They are temporary.
Measures that we've put in place that we are reevaluating also has.
The conditions are changing on the field.
So marketing you need to think about it also is it's going to when it's going to cycle, it's going to it's going to be back to two.
Levels that are normal for our industry. So.
Obviously, there is inflation in the systems, we're doing all we can pass it on we also and we have also our cost optimization program, that's going very well and that was one of our initiatives.
We think we're going to be a problem.
Close to $2 $90 million to $100 million in terms of saving this year on that program.
And we're still optimistic about.
About those initiatives and taking costs out of our stores bye bye bye picking.
Leaving more time for our associates to take care of customers and taking all the back office work in our stores and Bonnie.
And Bonnie I'll jump in just because I know this is a big question not only for our company, but across across the companies. One I would I'd just point out our European business believe it or not inflation is not an issue. There. The energy is really the only thing that has spiked.
We're not seeing the same pressures on labor or other costs in Europe . So.
And I would say, Canada would be medium and in the U S would be the heaviest impact I'd say our teams on the labor side, which is our largest single investment in our business have done a good job certainly well rates wage rates have risen, particularly in the U S. I think we've done a good job of keeping as much of that incentives retention bonuses those thing.
<unk> variable so as we see wage pressures Mitch.
Mitigate we think we can pull out of that back and then from an efficiency standpoint, we've run in this quarter to out 2% less hours than we did a year ago to <unk> point, we're trying to continue to look at efficiencies, particularly the administrated.
Ministration of our business.
To take hours out of the business and we think theres more to do there and then.
Finally on price.
We've taken in the quarter and this doesn't match because it happens at different periods of the time, but we've raised prices on average five 6%.
During the quarter and again it wasn't from day one in the quarter. So you can't look at it that way, but and that's compared to an average cost increase of about three seven.
So we've more than recover the cost of goods increases in the quarter by carefully looking at.
Our competitors and other channels, we're seeing inflation as we do price surveys.
We think we have remained competitive but at the same time being able to move retails and allow us to cover those costs.
Okay, that's super helpful and good to hear about the pricing and maybe so far the consumer acceptance of those.
Then I guess my second question is Jeff <unk>.
Round your capital allocation clearly you stepped up your buyback you know this.
Which is great but suggest to me that might not be as many large scale acquisition opportunities right. Now so as we look ahead to the rest of this calendar year I'm trying to get a sense of how youre prioritizing.
Share repurchases versus M&A and then.
Thinking back to your Investor Day last year, you guys laid out your.
EBITDA target.
By the end of FY 'twenty three without any major harmony.
5 billion and quite frankly year.
Tracking.
They are and probably will be above so can you maybe share with us how much <unk> you see here adjusted EBITDA hitting by the end of FY 'twenty three would be helpful. Thank you.
Well as far as capital allocation that doesn't change our M&A strategy I think we were always clear on that so we feel that we have a strong balance sheet and theres a lot of activity on M&A, but until we there is something that materialize itself then we're going to.
We're going to continue to use our buyback program because of our low leverage being at $1 33 for us as is.
Low very low and are comfortable level would be around $2 25 that leaves ample room for us in terms.
The flexibility on our balance sheet. So we have the ability to levered by over 10 billion really easily. So so we are going to continue to use our buyback.
And we're going to also renew our program for next year and Thats going to give us.
Possibly team with.
10% of our public float repurchasing 10% of our public float.
<unk> repurchased maybe over $3 billion next year, if nothing comes up.
And that's how we look at it.
And how we treated.
As far as EBITDA is concerned.
We.
First we're not giving any guidance on EBITDA, but for sure.
We feel comfortable about our targets that we use that we showed everyone. So our target is up $5 1 billion. We've been we've been trending last 12 month at $5 2 billion and we see also we continued.
Success in our in our initiatives that we have in our five year plan. So our fresh fruit fast program has been doing and performing very well and we're continuing to develop it.
Our merchandising pricing and promotion program local pricing has delivered great synergies.
And we're starting on the promotion side of it then just starting so we are optimistic also continued to deliver on promotion and assortment also on these programs.
Our fuel initiatives also our sales driving and obviously our MTI programming is continuing so we see a continued growth in <unk> and <unk>.
We're firm believers in our in our strategy. So we're cautiously optimistic that we're going to.
Achieve our number next year.
Hopefully more.
Alright sounds good thank you.
Thank you. Your next question comes from Mark Petrie with CIBC. Please go ahead.
Yes. Good morning, I just wanted to follow up on a couple of items actually Bryan. Thanks for the comments just with regards to the pricing and sort of offsetting the.
The product cost inflation and sort of operating cost inflation.
Just wondering how your work on sort of price optimization layers into that I mean is that sort of a key element in being able to achieve that or is or is that sort of separate from from that discussion.
It's a great question because he is we went down this path a lot of our teams have not experienced inflation.
So.
I think I.
Say that having our DNA team there.
Has helped us make price moves that.
That we think are more elastic with the customer less elastic site with the customer and less noticeable. So I think we've been able to make smarter moves we've been able to.
Pull back promotional activity that the data is showing us isn't driving.
Strong economic results so.
While the pace of change here is forced us to kind of get outside of that pure DNA.
Modeling approach I think the learnings that that team brings to the tables allowed us to do this in a much more thoughtful way in terms of consumer and consumer price perception.
Okay makes sense. Thank you and I guess the second question, Brian you highlighted the plans for the loyalty program launched.
Hoping you can tell us a bit more about what you've learned from the pilots on what sort of impact do you think thats going to have on your business be it sales volumes or margins.
Yes, we've piloted in Denver, and then a small market in South Carolina, and we're really trying to differentiate here. This is.
I think retail is kind of stuck in this buying club where by five get one free whether it's electronic or not.
We're really trying to focus on.
Those customers that are most important to us and bring them significant value across <unk>.
Not just our products, but also fuel services, our subscription programs, whether that'd be carwash and beverages. So layers of benefits. If you think about a pyramid of value.
The more you buy the more value we bring you.
Pilots have gone very well.
Net promoter scores have been very strong.
Technology is always the issue and so we're really making sure that we've got it right before we press the button, but.
Our goal is to be in a couple of thousand stores early next fiscal year.
I appreciate the comments all of us.
Sure.
Thank you. Your next question comes from Michael <unk> with TD Securities. Please go ahead.
Thank you.
So it looks like the industry is reacting very rationally in this environment, regardless of the volumes that they are.
The opex inflation levels, but.
One thing I'm trying to wrap my head around is the fuel volumes overall, because it seems like based on your two year CAGR.
Still something in the mid teens below where you.
Lower than 2019 levels.
Pandemic, but the industry data.
Implying on the.
A 3% drop versus 2019.
Yes.
Miles driven and fuel consumption can you help me reconcile that difference and maybe why we're not seeing.
The retailers have ceased our operators see as much of a recovery.
It's a good question Michael I think there's so many data points EIA.
Got Apple on the phone companies, providing data on miles driven and the variability of that data is quite honestly a frustrating embedded on our side that we don't don't always get the same same results for the same areas, but I would say.
Our results have varied materially depending on where you are at in the network Europe largely at 2019 numbers.
<unk> business actually over 2019 numbers are.
Canada and the U S. It depends if you take.
Our competitor, who released earnings this week and we compared the same geographies and we'd have very similar results to them in the in the period.
I think there is.
Two other things that maybe are in play one is we've had a lot of rebranding activity and those are disruptive to our sites. It takes us X period of time.
To redo the canopies of pumps and all of that and so that's not trivial when we look at the impact and we certainly have a period, where we're rich, giving the customer and the value of the circle K brand versus a shell or BP or whatever that's been up there.
So I haven't quantified that but that's that's out there I mean thats a reality that we.
We've torn up a lot of our for courts, and the efforts to improve them and improve our economics. So.
I think thats a piece and then I think the industry too is may be separated a bit from some of the low price players that have been in the market. So.
Well I think it's economically rational I could see maybe a little bit of volume bleeding into some of those historically low low price players.
Yes, the casco's et cetera. So.
Hard to quantify any bit of that but I think are still biggest piece. Michael is we're more impacted by that morning day part.
And with our network and we just need people to get back to you were largely <unk>.
Suburban.
Network when you look at the bulk of our sites and we need people to get back into the offices and commute to work again, so they'd get Sarah that's our biggest thing that we need to kind of get back to normal volumes.
Okay. That's helpful. Thank you and speaking of the morning day part.
You talked about pressured fast in North America is seeing.
Are you seeing a 20% increase in same store sales it was that just in the fresh.
Or is that in the total store, where you've implemented those those program now and then in that category. That's in that category, Michael but we are seeing it certainly grows the basket and helps the store as well.
Okay, I think overtime, if we're able to get the supply chain right and execute it right. We just think it will it will also increase customer loyalty you've got a certain percent of our customers that are floaters.
Just being able to serve another need state for them, we'll bring them in more often so we're excited yet we've not sample. This program at all due to Covid.
So we have a lot of activities planned in the coming months.
Okay, and then can you talk about that chicken sandwich launch, obviously chicken sandwiches are huge demand.
I'm just curious.
What type of product it is and where it is.
Yes, it's no secret chicken just been a hot hot commodity very difficult to source.
We have a sandwich that.
If you think about a chick Fil a.
In our foil wrapper.
I think that's the core piece that we've been missing and then certainly we're doing chicken bites chicken tenders as part of the offering where we've been able to source it particularly in the southeast U S. There are some of our strongest skus. So that's just a big hole in our in our current assortment and as those supply chains have started too.
Stabilize we're excited to get in that business.
Okay and just finally can you comment on the morning day part and how it has been recovering in Alaska.
Little while.
We've seen the restrictions and the work from home mandate starts to come up.
Yes, I'd say, if you look back at the quarter, we were really encouraged by the first 45 days of the quarter. We saw strong mid single digit growth in traffic and same store sales and then omicron just crushed us for the last part of the quarter and then as we look into the lab into Q4, we're kind of back where we were.
In the prior quarter, we are seeing particularly in the U S and Europe .
Strong.
Traffic and sales so that in the morning day part to part of that and I. Just think we're scratching the surface in terms of people going back to work yet. So I think the full effect of that still to come as I know.
For us we literally are just opening offices now I know that's the case for a lot of our <unk>.
Lots of employers out there today.
Thank you.
Thanks, Michael.
Thank you. Your next question comes from Chris Li with Desjardins. Please go ahead.
Hi, good morning, Brian .
Maybe first one on fuel margins over the past couple of years Couche Tard has consistently maintained a few premium morbidity opus industry average I think thats, mainly a function of your margin enhancement initiatives. I guess my question is do you think that level of premium is sustainable longer term as fuel volume you start to lap to normalize.
Chris.
Thanks for the question.
Our goal is to expand it.
We're investing heavily to win and fuel both on the consumer side with our pay by played initiatives brand promises and then on the supply side, our partnership with musket and loves here in the U S. We bring an unparalleled scale and certainly a very very top quartile.
Supply and trading capability.
To the market and then third as we've transitioned to more of our own fleet.
We think the opportunity to be very opportunistic, where we source product as we shift to our own brands.
Well again, just further enhance our advantages versus a very fragmented industry and we all need to remember 60% of the industry's single site operators So Chris.
Our goal and I'll be disappointed as over time, we can expand that.
Okay. That's very helpful. Maybe just a follow up on that is you mentioned that the bottom quartile players.
A sense of what the breakeven margin is these days given all of that.
These cost pressures.
I think there is some data out there from <unk>, Chris I don't have it off the top of my head but.
Cloud is nodding his head we'd be happy to look that up and share that but there is some very good state of the industry.
Data out there that we'd be able to share with you.
We think it is between 21% and 25, but I'm going to get to the right. The right data on that but that's obviously like Brian mentioned earlier, that's increasing with the pressure there.
With inflation.
<unk> really in the last three months has been it's.
It's been.
Increasing so I'm not sure we're going to have the reported.
Number you can give a relative relative delta dover's versus top quartile. So we'll provide that to you Chris.
Perfect and maybe last question just maybe for Bob just in terms of the retention costs that you called out $20 million during the quarter and I think last quarter was around $25 million is it fair to assume those are more onetime in nature and so as you go into next fiscal year, assuming the labor situation continues to improve and maybe some of those retention costs will not recur again.
Next year.
Yes.
It's difficult to measure and say well, we're going to take out those costs and then we're going to decrease our cost base by the same amount I think we are decreasing these cost in the different geography, but adapting also to the wage increase that we encounter in these geographies.
These temporary measures were there.
Until we know more and we have more clarity on the increase in wages and what it what it takes to to.
Have a good retention rates turnover rates.
He used to have and once we achieve these then we scaled down these retention measures, but obviously there is a portion of it that's going to come into wage increase and that are happening all over.
The U S and also in Canada.
Great Thanks, very much and Autodesk.
Thanks, Chris Thanks, Chris Chris.
Thank you. Your next question comes from Vishal <unk> with National Bank. Please go ahead.
Hi, Thanks for taking my questions.
The geopolitical backdrop is under.
Increased scrutiny, obviously I'm wondering if you could provide us any updates on how could you try it thinks about global expansion either in Europe or in Asia are these the same priority that they were and how should we think about preferred countries of expansion or even potential divestitures.
Okay.
Yes. Thanks.
Vishal.
Certainly hope deepen my heart that this is a very temporary situation in Europe .
I never thought I'd see a war in Europe in my lifetime. So.
I think in terms of M&A, we think long term.
And certainly don't take.
The geopolitical or currency risk lightly as we look forward, but the.
The macro trends around where the world is going to grow.
Looking at Latin America, looking at Southeast Asia remain intact, and so we've signaled that those are areas.
We have ambitions to grow and doing it in the right way.
We've operated again in Russia, and Poland and other countries for decades, and we've been able to operate.
In the right way in an ethical fashion and in a safe fashion and so as we look at other markets.
We'll take the same approach, but again long term. So this recent political event I think heightened.
The reality that things can happen.
But I don't think its changed where we're looking and we're focused on getting something done.
Okay. Thanks.
Thanks for that color and with respect to.
Fuel margins they've increased.
Lee.
Post post Covid and I know Couche Tard, obviously, we'll take a dollar of earnings where they can get it but the steel margins are more volatile source of earnings, let's say versus your merchandising business does.
Couche tard consider.
The focus on for you on the volatility of earnings.
As it looks forward and expand so steel margins.
Okay.
I think fuel will be an important piece of what we do for a long period of time and as we've talked about.
Mitigating that via a number of ways.
I think our goal is to.
Create sustainable competitive advantages versus a fragmented industry and take market share versus this industry over the coming decade, and so volatility is inherent in commodities.
The volatility also creates opportunities for those that are good and we think we've developed capabilities that put us in the top quartile in the fuel space and quite honestly, we welcome the volatility you may not like it every quarter in terms of.
The earnings and trying to guess where fuel margins are but again volatility does create significant economic opportunities for those that have the flex.
Flexibility and capabilities to seize it. So we think it is a part of it and we just encourage looking at fuel margins over longer periods of time, and if you looked at the last decade.
See a nice persistent increase in unit margins and I think we continue to take advantage of that and widen the gap versus the industry.
Thank you.
Thank you. This concludes the Q&A portion of the conference Mr lifestyles back over to you.
Thank you operator, thank you Brian . Thank you Claude Thank you all for joining US we wish you a great day and look forward to discussing our fourth quarter 2022 results in June .
<unk> is at that meeting.
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<unk> SSL you may now disconnect. Thanks, everyone and have a good day. Thank you bye bye.
Okay.