Q2 2023 Alimentation Couche-Tard Inc Earnings Call
As usual.
Speaker 1: Thank you for joining us for this presentation of our second quarter, 2023 results. We're pleased to report strong results this quarter, especially in the face of the continued challenges of inflation, energy, and fuel prices around the globe. We had strong performance and convenience with salad seams for sales, particularly in the US market, which had very strong growth in food.
Speaker 1: and solid growth in all of our categories with the exception of traditional combustible nicotine. We also continue to generate robust fuel margins across all of our platforms.
Speaker 1: With the pressure of consumers, we remain committed to delivering consistent value both inside our stores and on our core courts to help make our customers' lives a little bit easier.
Speaker 1: Before I return to the results, during this quarter several of our U.S. business units experienced the fury of Hurricane Ian. It was a massive Category 4 storm and one of the largest hurricanes ever to hit the U.S.
Speaker 1: It slammed into our Southwest Florida market and moved up through the state and impacting our business across Florida, the Atlantic States, and the Carolinas.
Speaker 1: Thankfully, no team members were injured. However, at the peak of the hurricane, we had over 500 stores closed due to power outages, and damage or flooding.
Speaker 1: Once again, in the worst of times, our team members pulled together and did a great job getting the majority of our stores reopened to service our customers and our communities in their time of need.
Speaker 1: For customers, we initiated Red Cross Round-Up Store Campaign, as well as a company-wide fund to help our team members that have been impacted by Hurricane Ian.
Speaker 1: Now turning to our results, beginning with convenience, compared to the same quarter last year, same store merchandise revenue has increased 5.6% in the US, 2.9% in Europe , and decreased 1.5% in Canada. However, I would note that Canada is up strong single digits when you exclude tobacco, which continues to be pressured by the illicit trade throughout the country.
Speaker 1: No doubt, the consumer continues to be pressured from rising prices, and we're focused on balancing providing good values to them while recovering the inflationary impacts on our business.
Speaker 1: Across the network, our fresh food fast program was up over 20 percent in same-store sales and continues to grow across the 4200 stores globally.
Speaker 1: This quarter we launched $5 Pizza Fridays across many of our markets where consumers can purchase both hot to go or take and bake pizzas for only $5 on Fridays.
Speaker 1: This as well as our focus on the sale of fresh baked cookies are becoming popular items for our customers seeking value, bringing new and returning customers to our stores more frequently and driving overall growth.
Speaker 1: For a dispense beverage, we continue to see good growth in cold and frozen, as well as continued success with our proprietary Dew Purple Thunder, with over 8 million cups sold by the end of the quarter.
Speaker 1: Our SIP and SAVE beverage subscription program continues to drive trips, enhance basket, and attract new users while providing great value.
Speaker 1: With the ongoing inflationary pressures, more than 420,000 subscribers are seeking deals to see the good value offered in Sip & Save.
Speaker 1: We've also continued to work to improve the online enrollment experience and we're seeing a larger percentage of our customers automatically renewing and signing up online.
Speaker 1: Package beverage growth was driven by strong dower unit growth across immediate consumption, carbonated soft drinks, and energy drinks.
Speaker 1: Private brand, including private brand beverages, also continues to see strong growth as consumers are looking for value and we meet that need with high quality products and lower price points of some of the main brands.
Speaker 1: restricted beverages, beer sales continue to lead to category in the US and in Europe . Alcohol also performed particularly well with wine leading the way.
Speaker 1: Across the network, supply chain issues are improving compared to previous quarters.
Speaker 1: In North America and Europe , we're seeing in-stock positions approaching back toward 95%, so more normal, although we certainly have pockets where it continues to be difficult.
Speaker 1: A significant challenge to our European operations has been rising energy costs, which are clearly impacting customers, team members and businesses.
Speaker 1: We are executing many energy saving initiatives across all of our European business units, including energy consumption and lighting.
Speaker 1: readjusting temperatures, unplugging unneeded equipment, and these best practices are being shared across all of our countries, and work will continue to further accelerate this in the months ahead.
Speaker 1: While we see energy situation and associated costs as transitory,
Speaker 1: Just having returned from our visiting our European stores for two weeks, I can tell you that noticeably changing behavior across these societies.
Speaker 1: In our operations, we have reduced demand between 10 and 20 percent in each of our European countries.
Speaker 1: This quarter we expanded our data-driven assortment optimization work throughout the rollout to all categories in North America.
Speaker 1: The current focus is on expanding the distribution of products that are high-performing within the business unit and across other markets.
Speaker 1: Additionally, we're leveraging external data to pick up on trends that are not currently visible within our network.
Speaker 1: With the variability of our European network,
Speaker 1: We're in the planning phases of assortment work with a plan to have tests in our markets over the coming weeks.
Speaker 1: And on the pricing front, we continue to tailor our approach, giving the fluid inflationary dynamics in most of our markets.
Speaker 1: Moving to the fuel business, same store road transportation fuel volume decreased 1.9% in the US, 6.3% in Europe and 6.5% in Canada.
Speaker 1: Higher prices and challenging market conditions continue to impact our volumes.
Speaker 1: to alleviate some of the pressure at the pump, working actively to help our customers find value in different ways, as we did with our very successful Circle K fuel day promotion in the US this quarter.
Speaker 1: And we have significant tactical co-activities planned for the rest of the fiscal year throughout our markets.
Speaker 1: As I mentioned earlier, we continue to benefit from robust fuel margins offsetting the pressures on volume across the network.
Speaker 1: In our Circle K fuel rebrand work, we completed more rebrands during the quarter and are now at over 3,500 Circle K fuel branded sites in the U.S. with many business units where the fuel rebranding work has now been completed.
Speaker 1: We do expect acceleration during the second half of the fiscal 2023, named to be close to 4,000 sites by the end of the fiscal year.
Speaker 1: In the US, we broadened our relationship with our field trading partner, Muscat, in order to enhance our competitive positioning investments in the areas where we have significant volumes in customer base.
Speaker 1: A recent example, we took ownership of four US terminals in combination in a 50-50 joint venture with Muscat, with Jacksonville, Florida being an example of a market where we both had very, very strong demand and can optimize that asset to our advantage.
Speaker 1: This quarter we've also established a supply and trading operation in Geneva, Switzerland, one of Europe's largest commodity hubs.
Speaker 1: Through a more active market participation, the expectation is to bring incremental value to the European organization as well as diversify our sources of supply.
Speaker 1: Also in Europe , our EV fast charging network had a significant milestone with the opening in Sweden of our first speed chargers for heavy trucks.
Speaker 1: Circle Caving became the first company in the Nordic countries to open publicly available speed charging for the brand new electrical heavy truck segment.
Speaker 1: We kicked it off with six 360 kilowatt chargers with plans to expand this to 22 sites and 90 truck charges in Sweden in the coming year.
Speaker 1: charging capacity will soon increase to 1000 kilowatt at the high-end chargers.
Speaker 1: We're making incremental progress in recently launched EV charging network in North America as part of our Nance plans to bring 200 EV charging units to our stores across North America over the next two years.
Speaker 1: So far it's been a positive customer reaction to our integrated offer and the amenities provided by our in-store offerings.
Speaker 1: While we're starting from a low level, we're glad to see customer acceptance.
Speaker 1: and expect to continue as density increases in new and existing markets.
Speaker 1: We're also proud of our recent innovation milestones. We now have over 1,000 units deployed in the rollout of our easy to use smart checkout technology. I was out in stores this week and the acceptance has been great. We're seeing penetration of eligible transactions exceeding 50% in many of our stores.
Speaker 1: So we're looking to scale to 10,000 units across the network over the next three years, and we also on the fuel side have passed one million pay-by-plate fuel transactions on Circle K4 ports in Europe .
Speaker 1: This pioneering license plate recognition system, available in Sweden, Norway, Denmark, and now Estonia. This is a test of the new license plate recognition system, available in Sweden, Norway, Denmark, and now Estonia.
Speaker 1: We'll continue to expand in the coming months across the Baltics and Poland.
Speaker 1: Finally, we've also piloted our new loyalty program in the U.S. and tiered concept in Europe . We continue to remain very pleased with the results in these pilots and we're preparing for expansion in the coming quarters in both Europe and North America.
Speaker 1: We continue to expand the network with the opening of 23 new to industry sites this quarter and 53 year to date across the network.
Speaker 1: in addition to having 73 sites under construction.
Speaker 1: While new store performance is exceeding expectations in both merchandise sales and fuel volumes, and remains a core part of our strategy, a combination of rising costs and supply chain constraints that we've experienced will likely continue to slow our near-term ambitions.
Speaker 1: But we expect these issues to mitigate in the coming quarters.
Speaker 1: Now before I turn it over to Claude, I wanted to cover our ongoing progress in staffing.
Speaker 1: You know, it's been an unprecedented challenge the prior, you know, really 12, 18 months, particularly in North America. You know, we're seeing candidate flow improve through the quarter. We focus on new technologies to make the interview process easier and bring our time to hire down from days to hours.
Speaker 1: We've also become more active on social media campaigns platform, excuse me, driving more candidates to our sites and attracting more early career talent.
Speaker 1: So again, while now not out of the woods, our staffing levels have improved significantly and are very, very close to normal levels.
Speaker 1: I'm going to pause there and let Claude take you through more of the second quarter financial results.
Speaker 2: Go on.
Speaker 1: Thank you, Ryan. Ladies and gentlemen, good morning. For the second quarter of fiscal 2023, we are happy to report net earnings of $810.4 million or 79 cents per share on a dilutive basis.
Speaker 1: Excluding certain items described in more detail in our MD&E, adjusted net earnings were approximately $838 million or 82 cents per share on a diluted basis for the second quarter of fiscal 2023. Compared with $693 million or 65 cents per share on a diluted basis for the second quarter of the school 2022.
Speaker 1: an increase of approximately 20.9% in the adjusted net earnings.
Speaker 1: We delivered once again a solid quarter with impressive bottom line growth, notwithstanding the challenging and century environment.
Speaker 1: Adjusted diluted net earnings per share increased by 26.2% compared to the second quarter of fiscal 2022, driven by the strong growth profit growth as well as by our cost optimization initiative which have helped mitigate the impact from higher inflation.
Speaker 1: These strong results have contributed to noticeable increases in our key return metrics as return on equity and return on capital employed reached 22.7% and 16.4% respectively, up 30 basis points and 50 basis points compared to the first quarter of fiscal 2023.
Speaker 1: even with another active quarter in share repurchases.
Speaker 1: Our financial position remains very strong, highlighted by our leverage ratio of 1.2 times, providing us the opportunity for future and resulting in the announcement today of a dividend increase of 27.3% to $0.14 Canadian per share.
Speaker 1: I will now go over some key figures for the quarter. For more details, please refer to our NDNE available on our website.
Speaker 1: During the second quarter, excluding the net impact from foreign currency translation, merchandise and service revenues increased by approximately $188 million, or 4.7%.
Speaker 1: This increase is primarily attributable to organic growth and to the contribution from acquisitions which amounted to approximately $40 million while being partly offset by the disposal of stores following the strategic review of our network.
Speaker 1: Same-store merchandise revenues increased by 5.6% in the United States, by 2.9% in Europe and other regions, and decreased by 1.5% in Canada.
Speaker 1: Same-store merchandise revenues in Canada were strongly impacted by increased competition of illicit markets in the cigarettes category, compared with the corresponding quarter of fiscal 2022.
Speaker 1: Excluding the net impact from foreign currency translation, merchandise and service gross profits increased by approximately 78 million dollars or 5.7 percent.
Speaker 1: This is primarily due to organic growth.
Speaker 1: Our gross margins increased by 0.2% in the United States to 34%, while it decreased by 0.1% in Europe and other regions to 38.3% and by 0.9% in Canada to 32.2%.
Speaker 3: Thank you.
Speaker 1: Moving on to the fuel side of our business, in the second quarter of fiscal 2023 our road transportation fuel gross margin was 49.16 cents per gallon in the United States, an increase of 12.77 cents per gallon.
Speaker 1: In Canada, it was 12.55 Canadian cents per litre and an increase of 1.52 Canadian cents per litre.
Speaker 1: In Europe and other regions our road transportation fuel margin was 9.76 cents per liter, a decrease of 0.81 cents per liter US, driven by the impact of the translation of our foreign currency operation into US dollars.
Speaker 1: Fuel margins remain healthy throughout our network due to the favorable market conditions in our continued efforts to optimize our supply chain.
Speaker 1: Now looking at the SGME. For the second quarter of fiscal 2023, normalized operating expenses increased by 8.1% year over year.
Speaker 1: This is mainly driven by the inflationary pressures, most notably higher energy costs in our European operations, higher costs from rising minimum wages, as well as the incremental investment in our stores to support our strategic initiatives, partly offset by a losing labour market.
Speaker 1: Despite the challenging market conditions, we have continued to deploy strategic efforts in order to mitigate the impact of a higher inflation level and continued pressure on wages, which is demonstrated by our normalized growth of expenses that was slightly below inflation.
Speaker 1: Excluding significant impact items, sorry, described in more detail in our NDNA, the adjusted EBITDA for the second quarter of fiscal 2023 increased by $177.9 million or 13.9% compared with the corresponding quarter of fiscal 2022, mainly due to higher road transportation through gross profit throughout our network and organic growth in our
Speaker 1: From a tax perspective, the income tax rate for the second quarter of fiscal 2023 was 21.9% compared with 21.3% for the corresponding quarter of fiscal 2022.
Speaker 1: The increase mainly stems from the impact of different makes in our earnings across the various jurisdictions in which we operate.
Speaker 1: As of October 9, 2022, our return on equity remained strong at 27.7% and our return on capital employed stood at 16.4%. Both figures are higher sequentially compared to the first quarter.
Speaker 1: During the quarter, we continued to generate strong free cash flows and our leverage ratios stood at 1.2 times, 11 basis points lower than Q1 despite having re-purchased $205 million during the quarter under our NCIB.
Speaker 1: Subsequent to the end of the quarter, shares were repurchased for an amount of $396.2 million.
Speaker 1: We also add strong balance sheet liquidity with $2.5 billion in cash and an additional $2.5 billion available to our main revolving credit facility.
Speaker 1: Turning to the dividend, the board of directors declared yesterday a quarterly dividend of $0.14 Canadian per share, up 27.3% for the second quarter of 2023 to shareholders on record as of December 1, 2022, and approved its payment effective December 15, 2022.
Speaker 1: With that, I thank you all for your attention and turn the call back over to Brian .
Speaker 4: All right, thank you, Claude.
Speaker 1: As we reach the middle of our fiscal year, it's worth noting that we're well on track to meet and surpass the organic objective of our five-year double-again strategy, given our strong last four-quarter EBITD performance at almost $5.6 billion.
Speaker 1: I want to thank all of our team members across the network for remaining committed to the strategy and leading the business forward, even to face monumental challenges.
Speaker 5: including the pandemic, wars, hurricanes, and tough global economic conditions.
Speaker 5: As we continue to be laser focused on our strategy, we have more tools to engage our customers than we've ever had before, and we're focusing on both existing initiatives and launching new opportunities to drive our organic growth.
Speaker 6: Now with that, we'll take questions from analysts. Operator, over to you. Thank you, sir. Ladies and gentlemen, if you would like to ask a question at this time, please slowly press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by two. If using a speakerphone, we do ask that you please lift the handset before pressing any keys.
Speaker 6: Please go ahead and press star 1 now if you have a question.
Speaker 6: And your first question will be from Michael Van Elft at TD Securities. Please go ahead.
Speaker 7: Good morning.
Speaker 7: I wanted to talk about the volumes actually. And considering the fuel prices fell dramatically over the start to finish in the quarter, can you give us some ideas to how the demand changed as the quarter progressed? Did it get meaningfully better heading into Q3? And then how much of that?
Speaker 7: Same store volume decline you think is attributable to the rebranding activities.
Speaker 7: And how long does it take for the stores to recover to normal volumes or prior volumes once they've been rebranded, if ever?
Speaker 5: Yeah, Michael, I'll take that. So I'll break it down to pieces. So for Europe , there's no doubt the extreme.
Speaker 5: pressures that we're seeing from energy crisis has changed consumer behavior. We see it both in kilometers driven, but also in speed. We looked at a phone study from Denmark and people have actually increased their average speed on the roads by over five kilometers an hour. So we think we're winning share in Europe , both on B2B and B2C.
Speaker 5: But we've got a transitory negative impact on demand just with the impact of the war on the energy prices.
Speaker 5: If you look at the US, our largest market, a couple dynamics. I think we did see often improvements through the quarters, prices came down a bit. And we also saw a reversal of an erosion in premium penetration, which typically is impacted negatively by the higher prices. So as prices came down, we saw premium penetration go up, which is very good for us. It's very profitable.
Speaker 5: skew for us.
Speaker 5: Overall demand, I would say we continue to focus on providing good value, consistent value. The industry remains very disciplined. There's no doubt that its prices are higher. There's a certain segment of the consumer base out there that's looking for the cheapest price on the street. But if you think about who those players are, they can only...
Speaker 5: tell so much and they're only in so many locations. And again, we think that's transitory. So as we
Speaker 5: Think about fuel prices coming down. We think we're getting our fair share
Speaker 5: of the volume and our focus is on just being consistent as the market continues. On the rebrand, Michael.
Speaker 5: It really depends on the brand we're switching from.
Speaker 5: supplier brands where they've had very strong loyalty programs, we have seen some volume erosion with the rebrand. That's also in the context of just a really strong economic equation. Our ability to source fuel today we think is best in class. So the payoff despite some volume erosion.
Speaker 5: is really a no-brainer. It's been very, very good for us. And we don't see the same erosion inside the store. I think the bridge to that is getting our loyalty program that we successfully piloted both in the US and in Europe ramped up the scale and we're certainly hoping we can get that out to the market toward the end of the fiscal year.
Speaker 5: But the other brands that maybe didn't have a strong loyalty, we are not seeing that same impact. And actually, we have some re-brands where we just got positive results from switching from a partner brand to Circle K. So, a little bit of a mixed story depending on where you're at.
Speaker 7: All right, thank you. Is that someone else jumping?
Speaker 3: Sure.
Speaker 6: Thank you. Next question will be from Chris Lee at Desjardins. Please go ahead.
Speaker 8: Good morning everyone. I was wondering if you can maybe similar to the previous quarters, can you maybe break down for us sort of the major drivers or buckets of the year over year increase in SGN expenses? And then secondly, do you expect a more meaningful step down in normalized growth in the second half of the year as you start to maybe lap against a higher comparison? Thank you.
Speaker 1: Yes, thank you, Chris. To come back to what drove our 8.1% increase in normalized operating expenses, we see the same three buckets that we talked about in the last quarter. The first one is wages. I would say that the impact of wages is a bit more than the impact of
Speaker 1: lighter this quarter because the retention measures are moving. So what we see in terms of our labor and how we structure our wages is...
Speaker 1: Instead of retention programs that we had last year, now we are more back to normalize hours. So a lot of regular time hours, more regular time hours.
Speaker 1: We have the salaries and fees also, but it's still overtime in our stores. But overall, we're covering all hours and we're good with that bucket. I think we're seeing improving.
Speaker 1: performance on this third of the equation. The second third is inflation. This time, it's electricity in Europe that is really strong in terms of increase. You've seen the inflation figures in Europe and then mostly driven by energy prices.
Speaker 1: of the impact in our equation from the electricity and energy prices in Europe . And finally, the third bucket is all our...
Speaker 1: our strategic initiatives that were put in place. So we see an impact probably at the probably so the buckets are probably a bit more like 37 and 25 percent so that the wagers have been a bit less of an impact in this quarter. As far as and we're putting all the initiatives in place also.
Speaker 1: initiatives on labor scheduling. And you can imagine also that a big focus in Europe and in the rest of the network is to look at all the energy saving initiatives that we could put in place to make sure that we're reducing that expense as much as possible in our stores in Europe .
Speaker 1: Finally, our vision for the second half, we said before that we have easier comps that are coming our way so that we're going to start to meet those easier comps in the next two quarters. With the effect of our initiatives that we put in place, opening, we're going to be able to put some better numbers.
Speaker 1: But it's early for us and you're going to be proven to be calling a number with with the inflation that is happening in Europe .
Speaker 8: Thank you. I'll get back to you. Thanks.
Speaker 3: Thank you.
Speaker 6: Thank you. Next question will be from Vishal Shraddha at National Bank Financial. Please go ahead.
Speaker 8: Hi, thanks for taking my questions. Just to circle back on Europe , I was hoping you could elaborate on...
Speaker 8: on the results there. If we look at Europe , is it fair to say that in local currency the fuel margins were flattish? How should I interpret the comment that you made about 10-20% lower demand? Did you see that this quarter or is that something that we should see in the future? Based on the back of that, how should we think Europe and Fools in general?
Speaker 5: Michelle, on margin, it's a good observation. Actually, our CPL in Europe would have been...
Speaker 5: $0.11.5 in the quarter, X currency, so actually up 1 centiliter. So again, very strong performance, very pleased with that. On demand, it was really around electricity, I think that we were referring to. We've got markets where electricity costs are up 5, 600%. I spent two weeks there during the quarter and
Speaker 5: Just the efforts that we're making, society's making at mitigating the impact of the rising costs and kind of doing their part for Ukrainian wars is astounding. I literally got up one morning to go to the gym and had to use a flashlight to go through the hotel lobby on my phone. So we've got markets where we've reduced our demand between 10% and 20%.
Speaker 5: 1% and that's just doing a lot of little things at our site. You know, it's lowering the heat, it's unplugging coolers that we don't think are key, it's raising the temperature of our walk-in coolers. And so, again, will that mitigate everything? I think it depends how the winter plays out there. And again, we view that as very transitory. It's going to be temporary, but it's having a material impact both on our European P&L, but also just on our team members there. So...
Speaker 5: More to do there and again sharing that globally. We're not seeing the same pressures of feeling the same pressures in North America, but certainly very real in our European markets.
Speaker 8: Okay, thank you. Just on US fuel margins, the delta versus opus seems to be a bit lower than we've seen over the last few years. I know opus isn't necessarily the benchmark that you use, but I also know that you have many initiatives in place to expand your fuel margin advantage versus the industry.
Speaker 8: So I was wondering if there's anything noteworthy that you'd like to point out on the fuel margin this quarter which may have caused that.
Speaker 8: anything noteworthy that you'd like to point out on the fuel margin this quarter which may have caused that that lower deviation.
Speaker 5: Yeah, not really. Again, that does cycle and it's so geographically specific. When I look at our western markets, I think we had a really strong quarter of each of these markets. It just depends on how liquid are the racks versus the spot markets. And again, that picture just varies dramatically geographically. So we just remain focused on continuing to develop capabilities and allow us to widen that gap.
Speaker 5: advantage that we're establishing versus the market.
Speaker 2: Thank you.
Speaker 6: Thank you. Next question will be from Irene Natal at RBC. Please go ahead.
Speaker 9: Thanks and good morning everyone. Brian , just following up on the last commentary around the trading groups. Can you walk us through how having that trading expertise enhances your ability to deliver on the fuel margins and how it differs from let's say the way you used to do things and the way others do things? Because I think that's something that we all really need to understand.
Speaker 5: consistent rateable demand, the cherry concentrated in some markets, we're able to act more opportunistically at times and that may be when one spot market is significantly advantaged versus another, being able to deploy trucks.
Speaker 5: you know, sometimes hundreds of miles to take advantage of very different cost arbitrages, not being turned up on all of our volume and being opportunistic where we think the markets will be long and there'll be people that are incentivized to, you know, cut prices to place barrels in a refinery system, as an example. in Europe .
Speaker 5: You know, it's very much waterborne markets. We have all import terminals. And so the ability to take advantage of cargos that may not have a home, as an example, Irene, and can be significantly cost advantage vis-à-vis just a term relationship with a local refiner. So again, very long conversation. We've got investor day I think we're trying to schedule for the fall.
Speaker 5: And I think that'd be a great time to go a little deeper there if we get the opportunity.
Speaker 9: that's great, thank you. Just a question we haven't really dived into yet, which is the inside store demand in the US and what you are seeing and particularly what you are seeing around adoption of the food and how it impacts in other categories.
Speaker 5: I think we've been pleased with the consumer, both in Canada and the US. Again, if you take Canada, if you take out tobacco, it's been very strong. So despite the inflationary pressures, I think we've been fortunate that unemployment rates remain a historic low and consumers, while certainly feeling pressure between the economic stimulus during COVID and the high employment rates.
Speaker 5: remain relatively in decent shape. So as we look to last quarter and what we're seeing this quarter, we continue to see very, very solid demand.
Speaker 5: inside the store. With regard to what was your second question? What was your second question?
Speaker 5: You know again, I'd say we're in the very early innings of that game very pleased with the platform we've deployed I think we're pleased with the decision to continue the rollout during COVID. You know, we've now got 4,200 stores deployed and I think we said in the commentary that same store sales are up well into the 20 plus percent range.
Speaker 5: And again, that was even better than last quarter. So I think we've got a good formula to work on. Have we got it completely figured out in terms of the food culture, you know, managing the spoilage, you know, making food at the right time, all those things that, you know, aren't so important in food, I'd say that's a journey that will continue. But
Speaker 5: Again, very pleased. We're ahead of our projections, ahead of our plan for the year, and we are seeing benefit across the store. It's one of those things that if we get right, and we have some other people in the industry that have shown us, if you get it right, you can influence a consumer to turn left instead of right. And that's the journey we're on. Again, I'm sitting here today very pleased with where we're at.
Speaker 5: ahead of our projections, ahead of our plan for the year. And we are seeing benefit across the store. It's one of those things that if we get right, and we have some other people in the industry that have shown us, if you get it right, you can influence a consumer to turn left instead of right. And that's the journey we're on. And again, I'm sitting here today very pleased with where we're at. That's great. Thank you.
Speaker 6: Thank you. Next question will be from Mark Petry at CIBC. Please go ahead.
Speaker 7: Thanks. Good morning. You called out promotional activity as a tailwind for your business. I know that's been an ongoing journey for you, but was there something new that you're doing or is it more of a continuation? Obviously, it's not a project with a specific end date, but how far along are you in those efforts, maybe perhaps relative to the targets that you shared at your investor day last year.
Speaker 5: And Mark, on promotional activity, I would say the journey we've been on to let data drive our decisions continues.
Speaker 5: And I would say generally on track with where we communicated from the investor, I would say the one, you know, maybe headwind we've had is just retaining data scientists. You know, it's been a hot commodity, a hot field. And so the turnover we've experienced in that group, particularly domestically, has been a little bit more difficult. We've set up an office in…
Speaker 5: India and we've been very pleased with the talent we've been able to source there. And so we think that will in the coming quarters, you know, stabilize that team and continue to allow us down that journey. And really that's just, it's really, you know, using data to drive our discipline to what promotions really make a difference and which ones are noise.
Speaker 5: And so you're seeing, you should see fewer promotions.
Speaker 5: but more effective promotions, which should result in both higher sales and higher margin over time. I'd say the other piece that's happening is just with the inflation, and we know the consumers.
Speaker 5: sensitivity to price has been heightened. And so we're doing.
Speaker 5: I think a few things out there that hopefully convey strong value, whether that's take-home soda packages, some of the things we've done around fuel that wouldn't have been our norm. So fewer, bigger to create that value perception, not just perception, but deliver value back to our load customers.
Speaker 5: a few things out there that hopefully convey strong value, whether that's take-home soda packages, some of the things we've done around fuel that wouldn't have been our norm. So, fewer bigger to create that value perception, not just perception, but deliver value back to our local customers.
Speaker 1: Okay, appreciate that. Maybe on the second part of your question, we put a range out for you at $150 and $210 million of achievement on that initiative and we're well into the range and close to the high point of that target in terms of the benefits from that program.
Speaker 7: Perfect, thank you. Switching gears, I wanted to ask about the M&A landscape. You've spoken about more deal flow and multiples being closer to your target range. Any update on that? I know you said that you see the energy challenges in Europe as transitory, but does that affect your thinking at all?
Speaker 5: So on the European piece, no. Again, I view that as transitory and quite honestly, it probably applies some pressure to some businesses and that's been historically good for us. The balance sheets, as Claude said, is very strong. The appetite's there. And I guess I just reiterate the comments that I've had from prior quarters.
Speaker 5: Until there's a deal, there's not a deal, but we continue to be pleased with the deal flow we're seeing.
Speaker 5: You know, it's a question of timing, but I'm cautiously optimistic that this environment with tighter credit, a little higher interest rates will be better for Krustara than it has been the last three or four years where there's been a lot more competition.
Speaker 7: Okay, that's great. I appreciate the comments. Thanks. Thanks for being here.
Speaker 6: Thank you. As a reminder, ladies and gentlemen, you need to press star 1 to queue up. And also, out of consideration for other callers on the line, we do ask that you please limit yourselves to one question.
Speaker 6: The next question will be from George Dumé at Scotiabank.
Speaker 1: Good morning guys. Just to follow up on the store, can you maybe give us a sense of how US same-store sales perform through the quarter? And can you also give us a little bit of sense in terms of basket versus traffic and within the basket?
Speaker 1: How much price did we take in the quarter? Thanks.
Speaker 5: Yeah, I'd say the results were pretty consistent in the quarter, the exception being Florida. You know, Florida's a large market for us, you know, 800 stores. It was clicking along at, you know, mid, nice mid single digit and end of the quarter really at zero. And that's purely, you know, the effect of two hurricanes during the quarter. But I'd say pretty consistent. Traffic relatively flat, maybe just a down just a bit. Because I'm beginning to get stuck at this point in time.
Speaker 5: So basket being very strong. And that's just our continued push to make sure that we're pushing price appropriately in recovering the inflationary pressures that we see, whether that be on wages or energy or the three buckets that Claude went through. So again, trying to be surgical there, not drive the customer away, communicate value where appropriate, but also recover costs.
Speaker 5: Yeah, as of right now, I feel we're doing a good job at that. We're seeing again strong demand continue into the next quarter so far.
Speaker 1: George, maybe just to add also, the success of our Fresh Food Fast program is also starting to show up in our same store. That's what's driving the basket. We're very pleased with the results we've seen in fresh food.
Speaker 1: Maybe just to add also, the success of our Fresh Food Fast program is also starting to show up in our same store sale. That's what's driving the basket. We're very pleased with the results we've seen in Fresh Food. Thanks guys.
Speaker 6: Thank you. Next question will be from Martin Landry at CIFIL. Please go ahead. Sorry.
Speaker 10: Hi, good morning.
Speaker 10: I just want to touch on your fuel volumes in Canada. It looks like they worsen versus Q1 despite gasoline prices declining. If we look at the US, you had a bigger decline in Q1 and a smaller decline in Q2. I'm just trying to understand what's happened in Canada. Is there something facing beopathy in the future?
Speaker 10: specific that you can point to to explain the larger decline and the lack of correlation with the US.
Speaker 5: Yeah, we were minus 6.5 in the quarter. So that is soft. So we're taking some efforts like we have in the US to I think be a little more tactical, a little more guerrilla warfare in delivering value to the customer without changing the price in the MID and risking depressing the market. So you'll see more activity in the coming quarters in Canada. If you look at our weakness, it's really concentrated in the East.
Speaker 5: So I'd say Quebec and the Maritimes. We've got some work to do on harmonizing our brand position there. That's a little bit of a longer term opportunity for us, but that's where we're going to focus our efforts. When I look at Ontario and West, I think we performed very well when you look at Parkland or other public comparators. And so it is fairly isolated to a small part of the country. And again, I'll remind that Canada is a very, very, very, very, very,
Speaker 6: please go ahead.
Speaker 7: Thanks, Brian . Can you elaborate on the new loyalty program you're piloting the US? Just talk a little bit about it and explain the new tiered concept that you're experimenting with as well.
Speaker 3: Yeah, so we've...
Speaker 5: had loyalty products across the network of varying degrees. And we've had one that in Europe has had very deep penetration. But quite honestly, we challenge ourselves to say, hey, can we go beyond just having another key fob in your pocket or another number, another buying club. And so, you know, done a lot of research.
Speaker 5: with partners and selected Briarley as our partner developed the current program. And really focusing on the fact that our industry is a
Speaker 5: is so much driven by the heavy users. There's different segments, different names for these customers, but we've got a very, very strong group of consumers in our industry that just drive a tremendous percentage of the volume. And so without getting into the details of how, you know, I think the why is we're going to make sure that the customers
Speaker 5: that can deliver the most value to us, get the most value from us.
Speaker 5: and where we've launched that and piloted that now in three countries in Europe and the small market in the Carolinas. We've seen very strong net promoter scores and very strong penetration of enrollment both on fuel and merchandise. I think my frustration is that we wish we had it deployed more broadly and that's really just been a technical issue getting.
Speaker 5: the engine to work with our various POS platforms that we've got, particularly the United States. So we're excited. I think the benefit of being delayed a bit is I think we've really optimized.
Speaker 5: at store level, you know, what the consumer messaging is, how do we get people to sign up, how to motivate our staff to drive enrollment. So we're ready and again, cost is optimistic that we've got something that will differentiate the future.
Speaker 2: Okay, thank you.
Speaker 6: Thank you. Next question will be from Bonnie Herzog at Goldman Sachs. Please go ahead.
Speaker 11: All right, thank you. Good morning. I actually wanted to circle back to Europe real quick as I guess I was hoping for maybe a little more color on the consumer behavior and really some of the initiatives you've implemented in light of this. For instance, are you seeing more downtrading and pullback on spending? If so, are you increasing the number of people
Speaker 11: your promotional spend to help mitigate that. And then also curious to hear the behavior at the pump. Are consumers possibly not filling up but possibly coming more frequently? And then finally, what are you seeing in terms of shift in channels within Europe ? Are other channels possibly benefiting from some of these consumer pressures? Thanks.
Speaker 5: Thanks, Bonnie. I'll start with the fuel side. So there has been a marked change in behavior. I want to repeat, repeat, repeat. We view this as transitory, temporary.
Speaker 5: You know, we're seeing both lower penetration premium sales and lower leaders per fill, about 15% lower, but we're seeing more visits.
Speaker 5: So, you know, net net volume down, you know, mid single digits.
Speaker 5: visits up 2-3%, but the average filled down 15% or so. And that's pretty consistent across the countries. You know, those visits actually translated into the store, you know, holding up pretty well. You see us, I think we were plus 2.9 or something, you know, close to that for the quarter. And that's with, you know, pretty solid traffic underlying that. So, you know, when I look at inside the box, you know, the behavior hasn't been as, you know.
Speaker 5: I've asked the question, how are we doing vis-a-vis other channels? And when I look at the three big...
Speaker 5: Again, in Indian countries where I get the best data, I'd actually say the channel's fared very well vis-a-vis grocery, which is our main comparator in those countries. So yeah, I'm pleased with our results. The data I see says we're taking share, but there's no doubt. And again, I was on a recent visit. It's pretty stark difference from what we're experiencing here in North America. I mean, society's really buckled down too.
Speaker 6: get through the winter and everybody's doing their part to just minimize their energy demand and that includes driving. Okay, thanks for that color, appreciate it. Thank you, next question will be from Anthony Bonario at Wells Fargo, please go ahead.
Speaker 5: Hey good morning guys. I just wanted to ask about the new to industry stores. I know you mentioned rising costs, supply chain constraints sort of slowing your ambitions there. So can you just talk a little bit about what growth might look like given a more favorable environment and then you also mentioned strong merge sales and volumes in those new stores. Can you just talk about what you might be doing in those newer units that's driving out performance there.
Speaker 5: Yeah, Anthony, I'll take the last part first. We've got a store model that we've deployed really the last year that is a big part of what we learned in holiday that really flows the customer through our store. You enter, you're in the food area. I love learning aboutUI
Speaker 5: You know the coffee dispense beverage bakery into the sandwiches, you know, you rotate through a you that takes you into You know the cold vault, you know both beer and other and then you end up in the impulse section as you approach the checkout and you know, we
Speaker 5: had extraordinary good luck with these. We've retrofitted a few stores just to see the impact of that as we played with design, and it just drives really, really strong.
Speaker 5: baskets improvement. So that's the model we've been deploying. Been very pleased, as I said in the commentary, with both our results in volume and inside the box. You look at the mix, food just does better.
Speaker 5: And we've got significantly more cold doors than we would have had in our traditional builds. And we just think that's an industry differentiator that we can continue to provide and really excel at meeting that thirst occasion vis-a-vis other industries.
Speaker 5: So pleased with that. A little bit frustrated just in getting them out. I'd love to build 200 a year. We're not going to build 200 this year. And just a big part of it has just been supply chain and rising costs. It's been hard to find electricians, plumbers, for those of you that try to do work at your house. But that will end. I mean that's going to be transitory as well. And our ambition.
Speaker 5: is to continue to ramp up the growth of our NTIs. We think it's great consumer response, great ROI for us and our ambitions to do more. But coming through the current environment, it's just been difficult to ramp up the trades, get the permitting and all the things necessary to hit the numbers we want. So continued focus there. And again, the ambition is there to do more.
Speaker 6: That's helpful. Thanks so much. Thank you. Next question will be from Derek Delay at Kennacord. Please go ahead.
Speaker 7: Hi, thank you. Good morning. This is Polke on behalf of Derek. Just a quick question from our side. Just on the fuel volume side, circling back to that, what growth of softness here? Was it more of a function of the higher fuel prices or is it still due to remote working conditions and general left movement to and from work?
Speaker 5: You should question US specific or Europe .
Speaker 12: Across the territories, yeah.
Speaker 5: I think it covered Europe pretty well.
Speaker 5: high energy prices, again, transitory.
Speaker 5: covered Canada fairly well. That's an Eastern Canada phenomenon. I'd say the US, I feel good about our performance.
Speaker 5: You know, there's a couple value players that, you know, I think are getting a disproportionate share on the temporary basis. But when I look at our results versus what we see out of Opus, out of EIA, out of the phone company data on movement, I think we're performing well. I think demand is still, not think, demand is still not where it was pre-COVID. We still got.
Speaker 5: a certain segment society that's not gone back to the office five days a week. But that just continues to slowly recover. And I think as we continue to work on building the Circle K brand and making that more valuable to our customers and innovating with pay-by-play in our loyalty platform, our goal is to slowly take share in the fuel space and we feel good about the journey we're on to do that.
Speaker 1: Results in March. cmefic conro new seen inu new we towns in n area. ple it clear wo his retouch towards emplement during invento Max perject was that made entity and extring asset upl.
Speaker 12: For our mayor, everyone, that's a great thing to be doing.
Speaker 12: From everyone, have a great Thanksgiving.
Speaker 1: Thanks, great. And great Thanksgiving to our workers. Thanks, everyone. Bye-bye. Goodbye.
Thank you.