Q1 2023 Alimentation Couche-Tard Inc Earnings Call

Good morning, My name is Sylvia and I will be your conference operator today those holes in my personal view is a city or a copay at least feel like Okay. I also told you I will now introduce Mr. Shashi Leap lessons, Vice President Investor Relations Treasury, and financial planning and analysis at Altamont Duffield Christa.

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Mr. Claude <unk> chef <unk> knockdown.

Good morning, I would like to welcome everyone to this web conference presenting that helped push our financial results for its first quarter of its fiscal year 2023.

All lines will be kept on mute to prevent any background noise.

After the presentation, we will answer questions from analysts like during the web conference, we would like to remind everyone that this webcast presentation will be available on our website for a 90 day period.

Also please remember that some of the issues discussed during this webcast night before looking statements, which are provided by the corporation with its usual caveat the caveat or risks and uncertainties are outlined in our financial reporting.

Therefore, our future results could differ from the information discussed today our.

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.

Thank you Joshua and good morning, everyone. Thank you for joining us for this presentation of our first quarter of 2023 results.

In the face of continued inflationary pressures and high fuel prices were pleased to report strong results this quarter, especially in convenience, where we had healthy same store sales in our U S and Europe markets.

We also continued to generate robust fuel margins across all of our platforms.

In this period of high inflation in fuel prices, we remain focused on delivering strong and consistent value to our customers.

Maintaining cost discipline in our operations and making progress on our strategic priorities.

With our fresh food SaaS program, we're hitting both sales and rollout targets and seeing very strong double digit growth in our private label brands as consumers look for value at these times.

To enhance the customer experience there are locations where are progressing with the rollout of our innovative easy to use smart checkout technology. After announcing plans to deploy 10000 units and 7000 stores over the next three years.

Also after a year of record organic growth and store belts. We added 30 more new sites. This quarter I'll provide more detail on these initiatives later in the presentation.

Let me turn to our results beginning with convenience compared to same quarter last year same store merchandise revenues increased three 5% in the U S. Two 8% in Europe , and other regions and decreased one 3% in Canada.

Across the network, our fresh food fast program continue to drive.

Grow and drive incremental sales and profit to our stores sales of our new chicken items continue to accelerate and we've launched additional new items into our assortment this quarter.

<unk> been very well received by our customers.

We're happy to sampling is back and we've expanded it across all regions as a way to introduce our new products to our customers. We've also activated several promotions to enhance awareness of our program.

Our operators continue to work hard to improve store execution, allowing us to make notable progress in our food journey and a long term development of our food culture.

And dispense beverage we've had fun with our proprietary do purple Thunder at our films this quarter, which we should be able to certainly drove consumer engagement. We've already sold over 5 million polo pop cups with this exclusive flavor.

Are you a step and save subscription continues to drive trips enhanced basket and attract new users as more customers are looking for strong value offer.

We've also this quarter improved our online enrollment experience and doubled online subscribers this quarter.

And packaged beverage we had strong growth across the board with our promotions and differentiated offerings in particular carbonated beverages were standout performer here, we continue to focus on supply chain and pricing to ensure we meet our customers' needs.

And the age restricted category Theres ongoing softness in cigarette sales due to the price pressure on cigarettes, putting pressure on units as well as renewed pressure from the illicit market in Canada.

In Europe , and the U S. Other tobacco product continues to perform well also across the network, we see beer sales experiencing solid growth as it wine and liquor during the quarter.

And our localized pricing work, we've increased our focus on customer elasticities in this current inflationary environment.

With a goal to improve speed of decision, making and execution changes to enhance our ability to respond to changing conditions.

We've also started the rollout of assortment optimization in North America, taking a category by category approach across our U S business units.

This work will allow us to leverage and learned from our own network to identify top performing items get them into our stores more quickly, while Conversely, spotting trends and lesser performing items, ensuring they are removed from our shelves more quickly than we have in the past.

And promotions, we began data driven analytical work to better align our price points across single and multiple purchase items to optimize both unit and margins.

Moving to our <unk> fuel business same store transportation fuel volume decreased 4% in the U S. Three 7% in Europe and increased 4% in Canada.

As I mentioned earlier, we continue to benefit from robust fuel margins offsetting the pressures on volume across the network. It.

It is clear that the high fuel prices in the quarter and overall inflationary pressures are temporarily impacting our consumers driving and fueling behaviors.

And our circle K fuel rebranding work our focus this quarter has been ongoing promotions and developing campaigns to raise the awareness of the brand as well as on payment programs to increase ease and provide discounts to our loyal customers Youll see this come to life in the coming quarters and in fact, maybe seeing something very special coming from our.

Circle K fuel brand in the U S and parts of Canada for this long Labor day weekend.

We continue to rely on strong sourcing efficiencies and owned fleet capabilities to mitigate cost pressures where possible. We're pleased with our musket partnership and believe there is much more value to be captured.

As we expect volatility in the energy markets to continue in the medium term.

In Europe , the <unk> business continue to perform strongly and deliver ahead of plan. Both in terms of overall card volume and bulk fuel sales.

<unk> margin performance also remains robust both with card in bulk.

Also in Europe , our EV fast charging network now consists of over 1100 80 charging points covering more than 270 stores with a combination of our own circle, K Chargers and partner Chargers, which primarily are from IRB and Tesla.

We continue to expand the charging network in Scandinavia, as well as piloting in the Baltics, Poland and Ireland.

This past quarter. We also began our journey in North America with our first brand circle K Couche Tard Chargers at stores in South Carolina and here in Quebec.

This is part of our announced plan to bring 200, EV charging units star stores across North America over the next 24 months.

We're taking a strategic approach here building a network for the future by looking at areas with strong <unk> adoption rates.

<unk> electric <unk>.

Delivery infrastructure, we also anticipate deploying both our own charging assets to serve the growing customer base as we do in Europe , while also partnering with other participants in the emerging mobility economy.

After a record year of organic growth in new construction, we continue to expand the network with the building of 30 new sites. This quarter. We also have 55 sites currently under construction.

This is all part of our effort to improve our development design and entitlement process, which is resulting in a robust pipeline for future store openings.

Spice severe supply chain challenges combined with significant cost increases our teams have worked very hard to be successful and renovating existing stores and developing new core store prototype, which we value engineered to deliver reduced cost and quicker build times.

We also just announced the closing of the transaction to acquire Wilsons gas stop and go stores and fuel terminal.

Excited about welcoming these great stores and family members to the <unk> family and expanding our reach in Atlantic Canada.

Now before I turn it over to Claude I wanted to clear progress that we're making in overcoming staffing challenges, particularly in North America. This quarter are higher rates were significantly higher than our termination rates and staffing is returning much closer to normal levels. We've had improved candidate flow, allowing us to fill positions in our stores as we staff.

Up for the busier summer season. This also results in bringing down overtime costs and retention costs.

We had in place in past quarters.

In early June we launched a campaign to hire 25000 workers for the summer.

To say, we were seeing over 160000 applications, we're making great progress in bringing down time to hire and continue to test solutions for further improvement.

Yes.

The expansion of our AI smart checkout technology, which is significantly faster and easier to use is now nearly 1000 locations with it has the goal to provide our guests with a truly differentiated and faster experience while at the same time, reducing the pressures on our teams are feeling in the current labor market.

This innovative technology is a big push and a big initiative on our side is we scaled this from up to 10000 units over the coming three years.

I'll pause there and let <unk> take you through more of our first quarter financial results.

Thank you, Brian ladies and gentlemen, good morning.

For the first quarter of fiscal 2023, we're happy to report net earnings of $872 $4 million or <unk> 85 per share on a diluted basis.

Excluding certain elements describing are more detailed in our MD&A adjusted net earnings were approximately $875 million or <unk> 85 per share on a diluted basis for the first quarter of fiscal 2023.

Compared with $758 million or <unk> 71 per share on a diluted basis for the first quarter of fiscal 2022 and.

An increase of 15, 4% in the adjusted net earnings.

We delivered another impressive quarter highlighted by increases of 10, 6% in adjusted EBITDA and $19 seven 7% and adjusted diluted net earnings per share compared to the first quarter of fiscal 2022, bringing our last four quarter adjusted EBITDA to more than $5 4 billion.

Our customary cost discipline combined with an improving labor market has allowed us to limit the normalized growth of expense to five 3% compared to the first quarter of last year more than 1% below inflation, which was particularly notable once again this quarter.

Our financial position remains strong highlighted by our leverage ratio of 131 times.

Providing us with opportunities for the future.

I'm, especially proud of our team's execution this quarter, which resulted in sequential improvement on both of our key return metrics.

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 $82 million or 2%.

This increase is primarily attributable to organic growth and to the contribution from acquisitions, which amounted to approximately $31 million, while being partially offset by the disposal of stores. Following do a strategic review of our network.

Same store merchandise revenue has increased by three 5% in the United States by two 8% in Europe , and other regions and decreased by one 3% in Canada.

Same store merchandise revenues in Canada were strongly impacted by increased competition in the cigarette category compared with a corresponding quarter of fiscal 2022.

Excluding the net impact from currency foreign currency translation merchandize and service gross profit increased by approximately $30 million or two 1%.

This is primarily due to the organic growth as well as two pricing initiatives are.

Our merchandise and service gross margin decreased by <unk>, 3% in the United States to 33, 9%, while it increased by <unk>, 5% in Europe , and other regions to 38, 9% and by 8% in Canada to 33, 1%.

Moving onto the fuel side of our business in the first quarter of fiscal 2023, Our road transportation fuel gross margin was 49 per gallon in the United States, an increase of $12 25 per gallon.

In Canada, It was $14.04 per litre an increase of $3.12 Canadian per leader.

In Europe , Our road transportation showed margins was $12.26 per litre an increase of $1 94 per liter.

Fuel margins remain healthy throughout our network due to favorable market conditions and the continued work on the optimization of our supply chain.

Now looking at SG&A for the first quarter of fiscal 2023 normalized operating expense increased by five 3% year over year.

This is mainly driven by inflationary pressures most intently on higher.

Occupancy costs higher costs from rising minimum wage as well as by incremental investments in our stores to support our strategic initiatives, partly offset by the impact of lower pressure in the employment market.

Despite the challenging market conditions, we have continued to deploy efforts in order to mitigate the impact of higher inflation.

Level and continued pressure on wages, which is demonstrated by our normalized growth of expenses below inflation.

Sure.

Excluding specific items described in more detail in our MD&A. The adjusted EBITDA for the first quarter of fiscal 2023 increased by $144 $4 million or 10, 6% compared with the corresponding quarter of fiscal 2022, mainly due to the higher road transportation fuel margins across.

Our network and organic growth in our convenience store operations, partially offset by higher operating expenses to <unk>.

Cancellation of our foreign currency operations into U S. Dollar had a negative impact of approximately $28 million.

Okay.

From a tax perspective, the income tax rate for the first quarter of fiscal 2023 was 21, 9% compared with 21, 3% for the corresponding period for fiscal 2022.

The increase is mainly stemming from the impact of different mix in our earnings across the various jurisdictions in which we operate.

As of July <unk>.

17, 2022, our return on equity remained strong at 24% and our return on capital employed stood that stood at 15, 9%.

During the quarter, we continued to generate strong free cash flow and our leverage ratio stood at 131 times eight basis points lower than Q4, despite having repurchased $478 million during the quarter under our in CIB.

We also have a strong balance sheet liquidity with $2 $2 billion in cash and an additional $2 $5 billion available through our revolving credit facility.

Turning to the dividend the board of director declared yesterday, a quarterly dividend of 11 cents Canadian per share for the first quarter of fiscal 2023 to shareholders on record at September eight 2022, and approve its payment effective September 22nd 2022.

With that I. Thank you all for your attention and turn the call back over to Brian Alright. Thank you Claude 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.

I'm proud of how we've operated held up during this volatile period, we've been able to keep our cost below inflation and deliver value to customers with our localized data driven initiatives and strong performance of our private label products.

While inflationary pressures persist I'm encouraged by recent economic indicators and several of our key markets.

Declining fuel prices and the improved staffing situation are also positives.

We will continue to work hard to help our customers lives will make our customers lives a bit easier every day on our journey to become the world's preferred destination for convenience mobility now with that we'll take questions from analysts operator over to you.

You, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a sweet home prompt acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset before pressing any keys. Please go.

Ahead, and press Star one now and.

And your first question will be from Patricia Baker of Scotiabank.

Yes.

Good morning, good morning, everyone.

Brian can you talk a little bit about subsequent to the end of the quarter, what youre seeing with respect to fuel volumes, particularly in the U S where in Q1 the volumes were down 4%.

Talk about what you think the outlook will be for the rest of the year.

<unk> volumes.

The consumer consumer behaviors, particularly.

Thanks for the question Patricia I would say as we went through this back half of the quarter and retail prices spiked that's.

That's when we really saw volume erosion and that's not just the U S. It's really globally.

As we look to the next quarter.

Are cautiously optimistic that retail prices are coming down and we would hope to see volume trends improve just to give a little more color as to whats happening actually traffic to the forecourt is up on average 5% globally, a 5% more trips.

But the average Phil is down almost 10% so in the U S.

Wait to going from 11 gallons to about eight five gallons per fill so that shows us that the consumer is being impacted there.

We have no reason to believe that.

With declining prices and hopefully some easing of overall inflation that.

You will see those trends improve in the coming quarters.

Well, thank you for that Brian and good luck.

Sure sure I heard this might be your last call with us. So thank you for many years of coverage of our company.

Thank you very much Brian .

Thank you Patricia.

Thank you.

And your next question will be from Irene Mattel RBC. Please go ahead.

Thanks, and good morning, everyone. Just following up on this question, but this time thinking more inside the store what are you seeing in terms of as consumer behaviors, and then I guess more holistically, how should we be thinking about that LTM five 4 billion in EBA.

Relative to kind of that 5.1.

Get that you guys have been talking to you.

I'll start and then certainly encourage claude to jump in particular on the back half of your question inside the box Irene it's kind of a tale of brands we have.

Got certain brands.

<unk> out like a monster or.

Where theres just strong strong consumer loyalty, we're really not seeing a lot of trade down.

Other categories for example, beer confectionery salty, we've seen significant growth in our private label products.

The center store and beer certainly we've seen some transition from super premium premium down to budget.

So it really depends on what part of the store, we're talking about but.

Overall visits are still solid and.

I think we've done a reasonable job balancing.

Capturing increased cost from our suppliers, while also trying to remain a value proposition for our customers.

On the LTM, great great LTM, great quarter this quarter.

We look at the next quarter.

We're one month in and the trends generally are continuing the margin continues to be very the market continues to be very disciplined faced with higher costs of running their business.

And then the capabilities, we built particularly around fuel.

While not fully realized I think uniquely position us in a few other players in the industry to benefit in periods of volatility. So while we can't we're not market centers and we can't necessarily predict the future I expect volatility in margins. Our goal is to continue to create advantages over the industry.

Okay.

Yes, well I think Irene also due to what we've discussed in the past also we are very pleased with the performance of all our organic growth initiatives that we've outlined in our in our strategy and where there is still going very strong.

And we're we're we're optimistic about our ability to reach our target there and hopefully we can we can be a bit better so, but it's difficult to predict the future.

Understood. Thank you.

Any further questions.

Okay.

No.

I'll keep it at that like a good Carl.

Hey, Jeremy we know better.

Yes.

Thank you. Our next question will be from Mark Petrie of CIBC. Please go ahead.

Yeah. Thanks, Good morning, Brian you touched on it in your prepared comments that I'm curious to hear how the.

Sort of Super inflationary environment affects your approach to your pricing and promo work and specifically the localization and sort of optimization initiatives. So just given shifts in how consumers are shopping would be interested to know about how you respond to that and if it alters the upside you had targeted.

It's a good question Mark I'd say inflation just rose its head very rapidly as we saw coming out of Covid, the Warren Ukraine et cetera.

So I would be lying if I didn't say that we did a combination of.

Data driven price increases, but also just cost driven price increases and then we are quickly trying to monitor what's happening as we put those in <unk>, we've ramped up our external surveys of competitors just to make sure that.

We're staying in touch not only with competitors in our channel but.

Across channels as we look at pricing.

So as we've done that.

We will continue to look quickly for our trends on units and pricing. We are also continuing to move in parallel on assortment and promotion we.

We were piloting assortment in the U S or North America, excuse me and promotion in Europe , and so we continue to work forward with those we think those two levers are quite honestly the biggest pricing for us.

So more to come there, but we're in the early stages of rolling that out at scale, both in North America and Europe .

Alright, I appreciate the comments and all the best.

Thank you Mark.

Next question will be from Peter Sklar BMO capital markets. Please go ahead.

Good morning, I'm, just wondering if you could comment on your buyback activity I believe.

You stopped buying your stock on July 5th well before the blackout typically.

You buy back stock right.

And through the black sometimes through the blackout I'm just wondering.

Were you ahead of schedule on your buyback or where you're building. Your you felt the need to build your balance sheet are restricted doing to corporate activities any kind of flavor you could provide on that would be helpful.

Well you know what we committed for in terms of our buyback. This year. So we're still on that strategy. We have the objective to bring our leverage ratio to 225 times.

And.

Frankly, we were purchased during the quarter at 11 million shares for $478 million. So our views on our buyback is to still to use it opportunistically.

And we're going to we're going to take the decisions to use them. When we feel it's the right time for the organization.

Okay. Thank you.

Next question will be from Vishal <unk> of National Bank. Please go ahead.

Okay.

Hi.

With respect to the Wilson acquisition it closed a little bit later than than I would have been anticipated and.

Divestitures.

With the store divestitures in line with with your expectations.

Yes, they were vishal.

We knew early on kind of what our exposure was.

So we're very pleased with the acquisition brings 79.

Strong cocoa stores and 147 dealers in the market.

And really strengthens our position in Atlantic, Canada, so over the coming months.

We will be working on the divestment of I think it's approximately 47 locations.

With various buyers so we feel great about it.

Strong network good history, a lot of great people and it would be a great addition to the family.

Okay, and just changing topics here on the Muscat partnership.

I was wondering if you could frame.

Specifically, how that partnership drives value for Costar, how much of the benefit has been captured and if theres any view on materiality at their meeting got portion of that partnership.

Yes, there is interest.

Sir Yes, hi level, because there are a lot of moving parts. So musket who is loves as the second largest I think deal.

So retailer in the U S. We're the second largest I think gasoline retailers, so bringing the scale of those two commodities I think we're able to provide a very unique solution set to our refining partners as we procure for fuel I think we bring benefit to them and they can bring benefit to us.

By being able to provide both sides. So procurements one piece.

Ethanol, which a lot of people don't talk about renewables, but your ethanol in the U S and certainly biofuels and other parts of the world continue to grow in importance and I think being able to trade around those products and strategically source. Those is also a benefit that we saw.

And are in the process of ramping up to capture.

Logistics are very important piece of this as we transitioned from primarily a major branded retailer in the United States to primarily a circle K branded retailer the optionality, we have on fuel increases dramatically.

The ability to systematically site by site day by day I understand the optimal place to procure fuel from us.

Is important and has significant upside to us.

That does require us to have more control over our supply chain. So during COVID-19.

We're certainly not perfect. We added 1000 drivers to our fleet of fuel hauling inside a circle K.

And that starts to build the foundation Michel for us to be able to be much more opportunistic both on location and timing arbitrage is that we see exist and we think are likely to persist at a very high level given the disruption in global fuel supply with the Ukraine, Russia situation.

So those are those are the two big ones and then I'd say the third is around trading.

<unk>.

Actively engaged to set up an office in conjunction with musket and Houston and are setting up an.

In office in Switzerland to focus on our European business, where we think.

We have unique opportunities to trade around some of our shorts and the assets that we own in terms of terminal infrastructure. So those are the three big pieces.

I'd say, we've captured significant.

Upper significant upside to date, but I would say, we're not halfway there yet we think there's material upside to be had yet.

Thank you.

Thank you next question will be from Bonnie Herzog with Goldman Sachs. Please go ahead.

Thank you good morning, everyone.

Uh huh.

Question on Shiel margins, they've been incredibly robust as you know.

<unk> and other retailers with scale really are benefiting from declining fuel prices or cost and you also from your circle K rebranding and your optimization initiatives. So wondering if you could help quantify the benefit youre getting from these initiatives just possibly in terms of cents per gallon and really trying to understand how much.

More runway is left with these initiatives and then curious I might have missed this but how is your <unk>.

So margin has been trending in August versus July .

Youre asking the Crystal ball question, Bonnie I would say as we look at as we look at August we've seen very similar trends to what we saw in the prior quarter in terms of margins.

And we were pleased in the quarter. If you think about crude really rapidly ramping up it now easing back we saw margins really hold fairly steady through the quarter. So again the market remains disciplined.

Our unique industry. Every every site has the price up on the up on the street, but the reality is we're all feeling inflation, we've all got higher credit card fees and for those retailers that don't have a strong back court consumer offer or the ability to procure fuel.

I think they need that margin so the incremental margin required by the industry. I think is very different than it was three years ago in terms of breaking it down into CPG, Bonnie that's really hard.

It depends on where we're at in the World what part of the country. We're at in the U S or Canada.

Because our capabilities too.

<unk> daily Sean supply do Barry.

So again, we're focused on not necessarily the absolute margin, we have but just expanding that advantage we have versus the market.

And we feel good about the opportunities to do that.

That's fair, but could you maybe help us understand where youre at with that initiative I mean are you halfway through.

More runway is left.

I think theres two sides. So I think yes, I think theres two sides to it Bonnie one is on the procurement side, which vishal asked about and I kind of I think I gave pretty good color there as to where we're at on that journey with more to do.

Some of that requiring some investment in people some of that requiring some investment in steel and trucks on the consumer side is where I think we've got runway. We are now have 3500.

Approximately circle K sites.

And some of these re brands we've walked away from very strong loyalty programs. When you think about for example, shell with their Kroger and <unk>.

We do not have a great loyalty program in place for fuel.

We have designed one we're piloting it in two markets in Denmark and in.

Goldsboro, North South Carolina, we feel great about the results both in terms of consumer engagement, we've got a very strong.

<unk> back from customers in terms of just liking the program and the App. So we've been delayed quite honestly working with our Pos provider to get the code right maybe roll. This out so we anticipate end of year calendar to.

To be able to expand that and we think that will be a strong tool for us to be able to communicate and reward those loyal customers.

Both on the fuel and the merch side. So when I think about upside I think the circle K brand is our big upside we've rapidly rebranded now it's time to invest in that brand in a smart fashion.

To drive consumer awareness drive consumer loyalty and as I hinted in my.

My comments, you'll see one of the largest fuel sales in the U S maybe ever.

Starting tomorrow or announced tomorrow, so well in the meantime, while we're preparing to get that loyalty program out we're going to do some more tactical guerrilla type things too to make sure that the awareness of the circle K brand continues to grow.

Okay. Thank you very helpful.

Thank you next question will be from Michael Van <unk> at TD Securities. Please go ahead.

Yes. Thank you so you touched on Wilson.

You had to sell or you will have to sell I think about 42% of the company owned sites.

I'm wondering if that level surprised you in.

Where do you still see the most white space to make acquisitions without significant divestitures in Canada.

And what are your priorities globally right now and what are you seeing in that M&A market is there.

The high interest rates it seems to be stalling some of the larger deals but.

Because.

The auctions or eliminate the amount of bidders by the sounds of it.

Yes, so Michael with Wilson in particular, I think we had a very good understanding of what we're bidding on I think the the assets, we're keeping in particular the Coco assets.

It is really where we have the value a big chunk of the divestments are dodos. So thats a dealer owning is onsite and it's purely a fuel supply relationship. So net net.

We feel good about the price at which we acquired the network and the asset quality. We have in terms of M&A environment. Overall I would say we are seeing good deal flow.

I think last quarter, we said it was more in Europe , I'd say, we've seen more deal flow activity in the U S. In the last few weeks.

So while we.

Are uncertain as to where valuations are today, just because it's been a bit quiet I think with the higher interest rates.

Certainly some uncertainty around.

EBITDA in go forward trends and all of those things.

Recession and all that.

Hoping the uncertainty that's out there today does create an environment, where we can be acquisitive as Claude mentioned the balance sheets are in good shape, it's ready we've got the appetite and the capability. So.

We will keep our fingers crossed we get something done but.

We.

There is activity out there.

Alright, but are they are the current debt markets I know I know you guys have access to capital, but a lot of others don't have the same level of access to capital. So I'm wondering if those if the more challenging debt markets right now are delaying or postponing some of the larger transactions that might be able to happen over the next.

A little while.

Hi, Im not sure whether delays people coming to market or not I think certainly when you look at who has been competing with us over the last four or five years. It's been people that are using the high yield markets and private equity partnerships.

Those are largely sidelined today.

So.

We feel good about that so we're well prepared for that but I can't comment on whether whether people are just pausing their activity in coming to market because again as I mentioned earlier, we're seeing activity out there.

And Michael.

Certainly you know also about the IPO market, which is often a strategic alternative for people. So I think that market is a bit difficult right. Now also so that that has an impact on strategy either on sellers or buyers.

Alright, Thank you very much.

Thank you next question will be from Martin Landry at Stifel. GMP. Please go ahead.

Hi, good morning.

With gasoline prices being the highest.

<unk> been in a long while in the U S. I was wondering if.

This has impacted your conversion rates.

Your customers into the store.

And to that effect I was wondering where does your conversion rates stands currently versus historical levels.

Yeah, Martin I think I think I said earlier, we've actually seen increased four core traffic up about 5%.

The conversion I don't have that in front of me, but I don't sense that there's been a fall off when we look at traffic inside the stores on the trends have been fairly stable there.

I feel pretty good that the conversion is there I think the big changes in consumer behavior, we've talked about.

Smaller fills per visit for sure premium sales have been under pressure. So premium fuel has declined which is typical when we see price spikes and that tends to come back as retail prices come back down and then inside the box.

21% increase in the quarter on private label, so clearly as some consumers out there looking for value.

We're pleased to be able to provide that in some trade down but.

Also some strength in some key brands so.

We don't notice anything materially different with fuel affecting the box today.

Okay and does your conversion rate.

It's different than what <unk> seen historically.

No we don't see any difference in the conversion rate direct now so we're pleased with the performance of the box rate right now.

I'd say the one the one the one soft area just Martin has been tobacco.

And that's traditional cigarettes, and we continue to see alternatives to cigarettes.

Be strong, but I think the behaviors as people are getting out of their houses.

Being out in society, a bit there's probably a bit less smoking going on and when you look at the industry trends or look at altria or rounds results youll see that there as well, but other than that I think consumer behaviors been pretty consistent for us.

Okay. Thank you.

Thanks Martin.

Next question will be from Chris Lee at <unk>.

Please go ahead.

Alright, good morning.

Maybe a little bit already but just wondering in source, where the smart shekel has been implemented are you starting to see any.

Labor labor mitigation benefits, yet and if you would take a longer term view.

Is that opportunity once the charcoal is sort of implemented across most of your stores. Thank you.

Okay.

Yes, Chris we're excited about it it's one of our big bets for the year.

And we've been happy to innovate innovate with this company and the consumer response and net promoter scores have been really solid.

Today and again this is while some sites have been in for three to six months and some sites have been in for weeks I think we're averaging around $35, 38% conversion rates of customer using the smart checkout versus going to the cashier.

We still have a very difficult labor market. So we're not looking as hard to date optimizing staffing we're focused on really let's have a differentiated consumer experience, let's help our customers understand what this is.

Longer term I do think this reduces our exposure to the labor market significantly or at least allows us to redeploy labor to do other things in our sights and so that's one key initiative and the other one I have talked about in the past.

We're on a.

Which on forgetting administrative and non value added processes and activities out of our sites and so as we look at our biggest investment being labor.

Smart checkout and then.

Claus initiatives around optimizing administrative activity, we think are too big upsides in the medium term.

Great. That's helpful. Thanks, a lot.

Thank you next question will be from Bobby Griffin of Raymond James. Please go ahead.

Good morning, Marty Thanks for taking my questions, Brian clearly in today's environment in the U S is a lot more challenging than maybe the April our January end quarter. So when you look at the inside the store business in today's inflationary environment do you still see opportunities for the merchandise gross margin to expand or with something need to change more favorably.

And the environment for for that business to see some margin expansion.

Bob Thanks for the question I would say there is.

A couple of things one we're being very cautious today Theres a segment of our of our customers that are.

Distressed a bit with high fuel prices and inflation so.

<unk> term not even longer term I'd say food as it continues to grow is upside in margin and we get better at that and produce spoilage on the sales we're making.

I think there'll be material upside there and I mentioned earlier in a question. We've got a three pronged approach around that so one is pricing, which you asked about the other two are assortment and promotions I think the upside we have in promotions to really understand.

What drives consumer behavior versus what's just a sign in the store, giving away price or margin is.

Is a big one for us and I think we have a lot to learn there.

So I think as well.

On top of my head I would say that food penetration growing.

And more intelligent use of promotional activity to make sure were either clearly delivering value the customer and optimizing that price unit trade off are the two big upsides I would see in margin cloud anything to add.

Okay.

Thank you I appreciate the details.

Thanks Avi.

Thank you next question will be from John Royall JP Morgan. Please go ahead.

Hey, guys. Good morning, Thanks for taking my question.

On Opex and SG&A given <unk> was the toughest comparison, just looking at last year's progression.

Is it fair to expect a seven 3% to actually be the peak growth rate for the year and then.

Just also looking at the reported figure rather than a normalized you had three 7% coming from credit card fees.

Last quarter was three 1% with prices coming in would you expect that growth rate to temper a bit going forward.

Yes, yes for sure.

We feel that the credit card with the price of fuel coming down that's going to have a direct impact for us.

Credit card fees so.

As you know there are closely linked debt as a percentage of our selling price. So that's that's what we're expecting.

On a normalized basis, the seven 3% that we had this this quarter was it was good compared to what we had in.

Previously.

Last quarter, so last quarter. It was nine 1% and that's where we're going towards the back end of the year, we're going towards easier.

Zero comparison, but at the same time, we see a lot of pressure.

So to.

To call the number for the year, it's difficult for us because of the inflationary pressure that we have everywhere in our market and we're putting all the initiatives to get her to make sure that we are controlling them. So.

So if you want to move back to the 7% are to understand how it's built and I think that.

Done that exercise previous.

The previous quarter to give a flavor of what what's in there so.

Seven point.

Seven 3% is mostly.

If youre looking at it from three buckets, there is 3% of it that's coming from wage increase so still a bit of pressure on the wage side, but.

It's reducing with our ability to take away the retention program size still labor.

Labor shortage is easing and as we're getting.

Better response in terms of hiring people.

We had a really successful summer on that.

There is another 2% debt.

Is it really related to inflation and inflation is impacting our businesses.

In Europe .

Maintenance energy prices.

Are impacted mostly in Europe , but also we see that impact also in North America as inflation also is in North America.

And finally, there is a 2% of that Thats our initiatives.

We're talking about the fresh fruit fast we're talking about are our refueled rebranding marketing.

And also.

Our marketing.

Efforts so that's all.

Things that are impacting us.

On the cost side, so we see easing in the quarter, it's more of a comparison inflation, it's difficult to call that it is going to ease into future quarters.

No.

Yes. So we I think we can we can expect that the next quarter is going to be still.

Heavy quarter in terms of expense and then we're going to see the back end of the year.

Okay. Thank you.

Thank you next question will be from Irene <unk> with RBC. Please go ahead.

Thanks, and good morning again.

Brian .

Sure.

Yes, that's why I came back.

Yeah.

Yes.

And in your comments you mentioned the site the start with the M&A and then in the U S has picked up a little bit could you give us.

The idea of kind of like magnitude or size of the transaction.

And then I guess the related question is.

And this goes back to another comment that was made unless you think about.

Sure, let's call it the LTM run rate on an EBIT Dov wherever youre looking at to acquire.

How do you think about.

That in relation to our normalized EBITDA number on which you might be willing to pay a multiple there.

Anything you can give us around that please.

Yes, I mean, I think in terms of what we're seeing out there, it's a combination of medium and large opportunities I.

I guess largest relative term, but you can look at the list of top 200 chains and kind of figure out what large feels like.

In terms of how we look at it.

Just what we do it's tearing apart everything.

Being very hands on and digging making sure that for the risk, we're taking whether that be around fuel margin brand conversions whatever that.

We were able to get comfortable that the synergies.

We project there so no magic Formula it's kind of a line by line effort I think the big question Youre alluding to is hey, do you assume fuel margins.

In perpetuity and that's something that I think is very for us very location specific.

Depending on our capabilities, our brand strength and things like that so no magic formula there, but that certainly is a question as we look at any M&A going forward.

Okay.

Really helpful and then.

Large are we talking like really or just <unk> come on.

Yeah.

Okay, nothing I could barely walk right. Thanks Guy.

Thank you next question will be from Michael <unk> at TD Securities.

Yes. Thank you I wanted to follow up on the European Euro margins. They were they bounce back very strongly this quarter. After the last quarter, where you had some supply chain disruptions it seem like.

When we spoke last quarter that it might take a little while to fully.

Repositioning your supply and get margins back to normal, but obviously that wasn't the case so was there anything.

In the quarter that was kind of a windfall profit that might not recur and what did you do to to recover.

Stabilize this so quickly.

I'd say, what's unique about our year market is Michael is the fact, we hold inventory.

We have.

Our proprietary network of terminals and as we.

Saw the Ukraine situation coming and we felt the situation happened we actively built inventories to ensure supply reliability. We're very large in almost all of our European countries. So as we've seen commodity prices fluctuate our inventory gets revalued.

And that can have significant impacts on our margin picture in Europe .

When I look at kind of underlying street margins. If you would as they would in the U S. It's actually been fairly stable. So I wouldn't attribute the vast majority of the volatility you've seen two inventory revaluations I'll contrast that with the U S, where we're holding closer to three days of inventory largely just at site and so.

We just really doesn't show up on our P&L. It the same way as European fluctuation does.

With much greater offsite inventories being held.

And how many days of inventory are you carrying in Europe .

We could get back to you on that.

Michael to give you an exact figure, but it's more than in the U S. We have a significant position in terms of terminals in Europe .

More than two weeks worth for sure. So we can give you a specific number yes.

Excellent. Thank you.

Yes.

Thank you and at this time, we have no further questions. Please proceed with closing remarks.

Thank you. Thank you Brian . Thank you flowed that covers all the questions for today's call. Thank you all for joining US we wish you a great day and look forward to discussing our second quarter 2023 results in November .

And I hope it <unk> oriented.

New thresholds and 90 day average only <unk> zoom has been on the phone question.

<unk>.

Thanks, everyone and have a good day have a good day.

Merci. Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we ask that you. Please disconnect your lines.

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