Q1 2020 Earnings Call
I will now introduce Mr. Samak <unk> manager Investor Relations.
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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 might be forward looking statements, which are provided by the corporation with its usual caveats. These caveats are risks and uncertainties are outlined in our financial reporting.
Therefore, our future results could differ from the information discussed today.
Our financial results will be presented by Mr., Brian Harnisch, President and Chief Executive Officer, and Mr. Clark <unk>, Chief Financial Officer, Brian You May begin your conference.
Thank you Mark and good morning, everyone. Thank you for joining us for the presentation of our first quarter fiscal year 2020 results I want to begin by saying we're closely watching hurricane Dorian following the devastation. The Bahamas, you know the storm remains dangerous as it goes over Florida now looks like it may make landfall in the Carolinas.
Yeah, the safety the thousands of our employees in those states is our primary concern how we're committed to do our best.
To help our customers weather storms as they prepare for Dorian later recover from or impact.
Now I'll go over the highlights of the quarter. Following my presentation, <unk> Chief Financial Officer, Claude Test <unk> go over the financial results in more detail.
This quarter, we had steady growth in our community segment, even as we cycled against an exceptional first quarter last year, Although region saw increases in same store sales and I'm, especially proud of the innovations taking place in their network to drive traffic and improve our offer as we build longer term capability.
We also an exciting momentum at our circle K rebranding campaign across the U.S. and Canada and the introduction of course replicate fuel brand has hit a new milestone this quarter.
I'm pleased with the work and are leveraging our loyalty programs like Lyft and easy pay and unique promotional activities like poor pop unlock and game application across the network.
All part of our global efforts to drive more traffic our stores and make our customers lives just a little bit easier every day.
Turning to convenience, let me give a little more detail on same store sales during the quarter.
The U.S., we saw an increase in same for merchandise revenues of 2.5% compared with the same quarter last year with good performance in most of our business units.
In Canada same store merchandise revenues increased 5.3% with sales and traffic impacted by unfavorable weather compared to the same quarter last year.
And in Europe same store merchandise revenues increased 5.7% together again weather was not favorable across parts of Europe . This year with record cold and certainly not compared to last year, where we had record temperatures in many of our areas.
Across the network, we continue to see positive benefits.
By improvements made to our offering as well as our fuel and digital initiatives to drive traffic to our locations.
Shifting to fuel United States fuel volumes were healthy and same store road transportation fuel volumes increased 5.6% compared to the same quarter last year and fuel margins remained strong.
In Canada same for road transportation fuel volumes increased 5.4% another sequential improvement in this part of our geography.
In Europe same store fuel volumes were down 1.6% weather played a role here as well, especially in Scandinavia, where we had record temperatures and Sunshine as I mentioned earlier last last year.
During the quarter, we made advances in both our fuel loyalty and mobile payment programs are in Europe , and North America.
In July across the entire U.S. network with exception of holiday, we've launched our easy pay program, we provide fuel discount to everyday to our most loyal customers.
The program is growing the penetration we're seeing increases in the frequency of visits as well.
In Europe mobile payment is a high priority project and is now fully launched for fuel in Denmark, and Norway. Nobody your will expand to other parts of our European network as well as into our car wash network.
The presence of our circle K fuel brand continues its growth this quarter with the work complete in Europe , we hit a milestone in the U.S. with our 2000 location now offering circle K fuels.
And we're pleased with both the volume and margin results of this effort.
And we'll build in our mobility work, we've expanded to Ireland this quarter.
With the first opening of our Ohio, The first chart fast charging stations and several more planned over the next coming months, we're on track to be a leading provider in our key markets in Europe .
As we enter our fourth year of the circle K rebranding project campaign I can't be prouder of the work we've done across our network Europe is now fully complete and we have more than 5800 stores, probably displaying the newseum Kay brand in North America that includes nearly 790, former CSC branded locations.
Let me go over some of the remarkable stats today, the Heartland business unit, we now 94% of our sites rebranded.
In Texas, which is primarily see as tea, we have over 550 stores with a new several Kay brand and about 70 remaining.
In the West coast less than 30 sites remain to be rebranded and Grand Canyon, which is our air former Arizona business unit now two thirds complete with all locations to be done by the end of the fiscal year.
Moving to Canada, and Central Canada, we have nearly 560 locations that have been rebranded from Max to circle K at about 245 out of 300 in Western Canada.
Both businesses that both business units expect to complete three branding work by the end of the fiscal year, if not sooner.
Shifting to holiday I wanted.
Give some color on where we're at with the integration and the accelerated work, we did in the quarter and reverse synergies.
First I want to congratulate Rick Johnson formally our vice President Vice President of holiday Northern Tier business unit first promotion to senior Vice President of operations overseeing several of our U.S. business units.
Rick has been a great leader for over four decades at holiday and as part of our tradition tradition of incorporating drawing from our acquisitions best talent I'm thrilled Rick is now part of our executive leadership team.
One of the best practices from Holly this quarter.
The smart value program, which I think I mentioned in the past it's a comprehensive in store promotional program continue to roll out across North America and will begin in Europe later this fall.
We have a set of holiday food pilots and went live this quarter, including one in our Saint Louis market with <unk>, where we have a market with a full holiday food concepts replicated and in Great Lakes, where we have our first full store remodel.
In true holiday style and format relocating the checkout and changing the entire customer flow inside the store.
Car wash subscriptions, which were a key part of holidays offer are underway in Denmark, our southeast and Heartland business units are showing very encouraging early results.
And finally, the holiday store Labor model was adopted as a foundation of our news store labor tool and will drive allocation of hours based on the analysis and best practices, we've learned from holiday.
Let me talk a little bit more about commitment this quarter to drive organic growth drive traffic and improve the customer journey.
Last year, we started our customer segmentation work and we've now done deep dives into our key target groups of circle K customers to understand more about our their motivation their triggers their pain points and their intentions with us before during and after the visit.
This will help us prioritize and even better and more offer more far better and targeted solutions to our customers.
Inside the stores, we continue to grow our offers and our bedroom beverage offers our coffee and demand expansion continues with over 9000 coffee machines installed in almost 4000 locations in the U.S. This year.
We continue to see strong sales and margin results and customer feedback has been extremely positive.
This installation is on track to be completed by the end of calendar year 2019 is a great example of when we test we find something that works and scale rapidly.
Packaged beverage remains, especially strong category with energy water and ready to drink coffees, notably contributing to same store sales growth.
We're also seeing emerging growth and alcohol space with alternative products, such as hard selzer's, reflecting changes in kind of consumer behaviors. We're committed to staying ahead of the curve.
In our North American Food program, we launched dollar dog.
Hotdog promotion, which is driven double digit sales increases premium hot dogs are also driving unit growth as we convert more customers to our food program.
Our top dog since you're Hot Dog program is now nearly 570 stores and we're preparing for launch across all U.S. business units in the coming months.
Alternative tobacco categories showed strength both in the U.S. in Canada and in markets in Europe , where we're allowed to launch them.
We remain committed well we've also remain committed for two traditional tobacco products and this quarter continue our significant expansion of back bars to more locations to not only better display tobacco cigarettes that make room for the tremendous amount of innovation, we're seeing in the category.
The customer experience, both inside and out the store remains a priority in Europe . We now have about a 135 newly redesigned circle K stores across eight different countries.
This is a complete redo of the site with attractive design and food offerings that engage your customers and feedbacks and very strong.
Direct mailers and gamification engagement tactics have also been successful in driving traffic in Europe recently launched them in Canada, It and plan to do so later in the year and the U.S. with good results based on the good results we've seen in Canada.
By the end of the quarter lift our digital platform was in almost 5750 sites in the U.S. and we began rollout in Canada.
In Texas, we are probably the home delivery partnership with a service to more than 160 sites in Houston Metro area, where customers can order of <unk> variety of products, including stacks beverages age restricted products receiving them in less than an hour. We're monitoring this closely to measure customer acceptance and how it could play out in other markets for us.
But a pause there and like call it take us to more of the first quarter financial results Claude Thank you, Brian ladies and gentlemen, good morning.
We're happy to report for the first quarter of 2020 net earnings attributable to shareholders of corporate of the corporation of $538.8 million or 95 cents per share on a diluted basis, excluding certain items for both comparable periods. Adjusted net earnings for the first quarter of fiscal 2020 would have been approximately $548 million or 90, or 97 cents per share on a diluted basis compared with 87 cents per share for the first quarter of fiscal 2019, which is an increase of 11.5%.
I will note and I'll go over some key figures for the quarter for more details. Please refer to our and DMD, which is available on our website.
During this most recent quarter, excluding Cbls result, as well as the negative impact from the foreign currency translation.
Merchandise and service revenues increased by approximately $97 million or 2.7%. This increase is primarily attributable to continued organic growth despite unfavorable weather and cycling against an exceptional first quarter last year.
On this same basis merchandise and service gross profit increased by approximately 35 million or 2.9% mainly attributable to our organic growth.
Our gross margin increased by 2.5% in the United States to 34% and decreased by 49% in Europe to 41.5%, both driven by changes in product mix.
In Canada, our gross margin decreased by 1.6% to 32.9% mainly as a result of the conversion of our stores from the agent model to the corporate model as well as changes in product mix.
The road transportation fuel gross margin for the first quarter of fiscal 2002. When he was 26 point 86 cents per gallon in the United States, an increase of four point 16 cents per gallon.
Supported by the volatility in crude oil prices as well as improve crew sourcing conditions.
In Europe the road transportation fuel gross margin was eight point 44 cents per liter a decrease of 40 70 cents 77 cents per liter, mainly due to the net negative impact of foreign exchange and higher biofuel blending ratio taking advantage of favorable conditions.
In Canada. The road transportation fuel gross margin was seven point 40 cents Canadian per liter a decrease of one point 51 cents Canadian per liter due to competitive pressure in some of our markets.
On the it's on the expense side, our teams across the network work diligently on cost containment, which yielded a nice sequentially improvement, resulting in lower cost growth than the previous two quarters for the first quarter of fiscal 2020 growth in normalized operating expense was 2.3% excluding the conversion of our as two stores from the agent model to corporate model. The remaining variance for the first quarter of fiscal 2020 would have been the only 1.7%.
The optimization of our cost base will remain a focus area for the next quarters.
Excluding is specific items described in our in more detail in RMB and the adjusted EBITDA for the first quarter of fiscal 2020 increased by $58.3 million or 5.9% compared with the corresponding period of the previous fiscal year driven by the increased fuel margins in the United States and by organic growth, partially offset by the net negative impact from the foreign currency translation.
The value or soon in exchange rate had a net negative impact of approximately $15 million for the quarter.
The income tax rate for the first quarter of fiscal 2020 was 20.2% compared with 16.6% for the corresponding period.
Fiscal 2019.
Excluding the tax expense of 45 million from the revaluation of deferred tax assets and liabilities. Following the asset exchange transaction income tax rate would have been 19.5%.
The increase of the income tax rate of the first quarter of fiscal 2000, Twentys stems from the impact of different mix in our earnings across the various drew just drew additional actions.
As of July 20, Onest 2019, our return on equity remained strong at 22%.
And our return on capital employed was at 13.2% driven by higher earnings before interest and taxes.
During the quarter, we've continued to generate significant free cash flow in the us to accelerate our deleveraging plan as evidenced by our adjusted leverage ratio of 2.02 to one.
We repaid without penalty a $150 million of our us dollar down denominated senior unsecured notes.
Our liquidity position remains strong we had that billion $37 million in cash and approximately 2.5 billion dollar available to our revolving credit facilities providing us.
The flexibility to continue our organic growth plan as well as rewarding our shareholders.
During its September 4th the 2019 meeting the board of directors declared.
The quarterly dividend of 12.5 cents per share before to share split to describe shortly.
For the first quarter of fiscal 220 20 to shareholders on record as of September 13, 2019, and improve its payment for September 27 2019.
The board of Directors also approved a two for one split for all the corporation issued and outstanding class, a and class B shares on record as at September 22019, and payable on September 27.29 2019.
Finally, since the launch of the share repurchase program, we repurchased a total of.
Millions five.
$105 million type from thousand sorry class B subordinate voting shares for a net amount of $91.3 million.
Thank you for your attention and now back to you right now.
Thank you Claude in conclusion this quarter particular in the context of last year's results was again, a strong quarter, we delivered solid topline merchandise and fuel and generated impressive cash flows.
We've also accelerate our work in driving organic initiatives.
Procurement and merchandising as well as operational excellence.
This along with the readiness of our balance sheet puts us in a strong position to meet future challenges and embrace the opportunities for future growth as we move forward on our journey to become the world's preferred destination for convenience and fuel and with that we'll now answer questions. We see from the analysts.
Thank you Brian the first set of questions comes from Patricia Baker at Scotia Bank.
You call out the competitive backdrop in Europe , and unfavorable weather as impacting Europe in Q1, where these impacts of similar magnitude and with regards to the competitive backdrop.
Which markets are most impacted and currently which is the strongest European market and what accounts for that.
In terms of results in Europe , the larger impact by far was weather, we've actually taken a week by week look at that.
We'll recycling life, we're cycling against record warm last year record cold this year, particularly in the month of May.
In May alone you trigger more than a 6% swing in traffic because we near the end of the quarter weather was more normal we saw sales trends more normalized.
In Ireland, Poland to you asked about the strong markets, Ireland, Poland continue to perform very well, we're entering our fourth year.
Our acquisition of Ireland, and clicking on all cylinders really with the recent completing the rebrand introduction of new programs and operational improvements. We continue to see strong performance there and in Poland. It really continues a two year story of strong growth in both fuel and merchandise.
The second question from Patricia Baker.
Q1 was a very busy quarter from a corporate activity standpoint can you provide an early read on the loyalty launch and if you're seeing similar results with digital up sell nationally as you saw with the initial launch on the home delivery and Texas does that cover the full range of skews and what model are you using for the delivery.
To touch on the.
Easypay Onest, which is a material discount.
For customers using proprietary payment.
That was rolled out to all networks all be use except for holiday in the U.S.
Which in holiday will be completed in Q4, I'd say our pilots we were pleased with I'd say nationally it's Stuart still too early to test result or to assess results.
San Jose results, so far have been steadily increasing and we'll be testing a variety of discount levels as well as store level incentives understand how to maximize traffic and penetration.
We are seeing repeat visits from program members as well as higher spend which are both encouraging.
On the left side, which is our in store up sell tool. It's in almost all of our US company operated network to date and we are beginning the rollout of Canada in Q3.
We think with both of these were just beginning to scratch the surface with regard to lift and were pleased with the early results and we're seeing a very good conversion rate averaging over 8% of customer transactions, incorporating some sort of lift promotion with somebody use approaching 20%.
So again early days, but momentum is strong.
In terms of home delivery.
We'll have a number of pilots in the coming quarters in different geographies with different partners. The question with regarding Texas. We have approximately 200 stores that cover a wide range of skews, including age restricted items.
And we are using a regional provider in Texas and looking forward to learning a lot about that that part of the business that offer.
The next set of questions comes from Irina tell at RBC capital markets. How satisfied are you with Q1 same store sales performance what are the key drivers what is reasonable to expect as we cycle tougher fiscal 2019 comps and what needs to happen in order to deliver year objective of inflation plus 100 basis points.
Yeah, I'd say overall, we're pleased with the quarter. If you look at it in the context of last year and combine the two year, we had almost 7% over two year period in the US 8% in Europe and 7% in Canada. So.
In the context of looking in both years together, we feel good about it.
In the us which was weaker than we'd like overall, it really depended on geography, our northern markets, where we had a really a slow spring due to weather.
We sell more challenging results, but if you look at our western markets in our southern markets.
They continue this the trends that they've had over the last two years.
Let's say, we have more tools than ever in the tool box.
You will be seeing good contribution from a coffin demand and our top dog programs.
As I mentioned in the comments coughing demand is now in almost 4000 stores.
We are seeing strong results from Gamified promotions in Europe , and Regal recently tested that in Canada with very good results and we think Thats, a strong opportunity for us to expand into the us as well.
We continue to work on multiple organic growth initiatives and look at our objectives on a long term balance basis.
The second question from Irene the town.
Both Canada and Europe continue to be negatively impacted in both gallons and margins by competitive intensity, who is the disruptor. How do you see the situation evolving and do you see any easing.
No not naming names, but in Canada, we do see competitive very competitive behavior from certain competitors impacting both volume and margin we have our hypothesis as to why but we don't believe this is structural particularly in the context of wages legislation and other pressures that we all feel in Canada.
This is again a reminder, the benefit of having a very geographically diversified network within Costar.
In Europe , our pressures really in the Baltics, which again are material overall to our results they're small countries, but they are great markets for us and we've just seen a lot of new competitive entering the market.
That's pressured those results a bit, but again very very strong markets for us and leading market share.
In terms of fuel in Europe , we're positioned as a premium quality brand and we've seen some weakness in the bdcs of business or us to consumer versus us to beat a beer business is retail prices have risen it will watching this closely we do expect improvements in volume as prices have come back down, but we're also working on other tactics to improve customer price perception.
The next set of questions comes from Mark Patriot CNBC Rural markets.
Could you. Please quantify the biggest drivers of us merchandise same store sales, including foodservice and tobacco as well as the impact from weather or other drivers like enhanced marketing and tactical loyalty programs.
Regarding tobacco could you please give us some more detail about the performance of alternative tobacco is and how the change in jewel flavor availability affected sales in that category.
Yes, I would say if you looked at leading category for the quarter, you'll beverages continue to be very strong leading the way.
In terms of dollar growth.
No just a lot of innovation that category and I think our our in the industry is uniquely positioned to.
Provide.
Really the variety of choices that customers are looking for today.
Oh, TP or other tobacco products continues to be very strong double digit growth yet despite the loss of flavors and you'll see really turning into more of a dual strategy. There's a lot of innovation in the space with other brands in the vaping space.
You've got pouch growth in products legs in other products and continue to.
See growth so that story is becoming more diversified than really a jewel story that which is what we saw last year.
On another GP that continues to be extraordinarily strong in Canada as well.
With strong strong double digit.
Growth continuing there both at with fuel and other other products as well.
Specifically on cigarettes, a more of a challenge you see the results from our AI and Altria, you'll volumes are softer and that translates into relatively flat sales. So when you look at our sales in the context of relatively flat cigarette sales that even adds to our confidence in some of the things we are doing it in other categories.
The second question from Mark Petri in the past you've spoken about the reverse synergies from holiday could you. Please update us with where you are at on these efforts on merchandising foodservice as well as the run rate operating expense savings from the improved labor scheduling practices.
Yes, there is literally a list of probably 30 or 40 things that are being incorporated in the network summer completely invisible to.
The customers and the operators and some are very visible.
I'll touch on a couple so in the smart value program, which is again a comprehensive in store promotional program.
That's very thoughtful about which items what discount how do you treat single prices et cetera, and thats being rolled out across North America.
In Europe later this fall.
Yes, the holiday food pilots have been expanded and I'll provide a bit more detail in upcoming question.
Holiday has unique store layout.
Where customers are routed very thoughtfully through the food section.
Back to the coolers and into the impulse area, where they where they wait to pay.
And so we're testing whether that has a good ROI to look at implement that lit implementing that at scale in our network.
Carwash subscriptions and other one you will approximately 20% of our Carwash volume and holiday is on a subscription model, we've launched pilots in Denmark, our southeast and Heartland business units and seeing early.
Strong growth there so pleased with that and then as you question about the labor model.
Really taken the best practices from holiday and a little bit from CST.
To create what I think is a very very robust activity based model that provides great transparency labor utilization, making sure. We've got the right level of customer service and activities of sites, where we need it.
Thats rolling out in Q3 in mass across North America, and we think Thats going to go a long way to providing great control over our largest investment.
We're not going to dress the run rate of savings, but as always we'll add value at each of these projects individually make sure they're exceeding our hurdle rates before we spend capital against them.
The next set of questions comes from Peter Sklar with BMO Nesbitt Burns.
Your adjusted growth rate in operating expenses of 2.3% was a good result, after considering the Esso store conversion impact can you talk about what initiatives are being undertaken to limit the growth rate in these expenses.
So Peter we have a comprehensive cost optimization plan in place, which covers a multitude of initiatives ranging from the store hours scheduling that we just talked about the with the in the labor model of holiday in CST and improvements in our upcoming tour in our stores through those models and also automation of surgeon to us. So we're in a phase where right. Now we are were leveraging our size and streamlining the number of supplier with which we are we're dealing were definitively accelerating the use of our scale in multiple areas. Secondly, widow methodology based on lean retailing, we're working towards operational excellence in our stores, where improvements even minor ones can be multiplied across our large network of 16000 stores. So we are also well advanced in the use of robotics and AI in our support function.
And this is helping us to increase productivity and streamline processes. So basically we're trying to leave no stone unturned overall in the business and that plan is a compelling comprehensive plan that we have throughout the organization.
The second question from Peter Sklar can you update us on the food pilot in the U.S I understand that you have been testing a small number of stores in six markets will you brought in the number of stores in the pilot and when do you anticipate making a decision regarding a potential national rollout.
So in terms of the pilots that we have up and running I'd say the early results are encouraging.
We will have a total of 10 pilots up shortly the restructured very specifically help us understand the impacts of different variables whether that the equipment.
Skew selection holding time et cetera. So if you want to think about it think of holiday as a base and with a lot of work on supply chain skew selection logistics and equipment to enable.
When we've got the results, we think we need for us to push a button and roll this out at scale.
You will have more than 200 stores in pilot in the coming week and we'll be valuing the pilots through the fall and continue to anticipate a decision as to whether we'll go at mass rollout by the end of this calendar year. So soon.
Let's say just to build on that we haven't stood still in this space and we found we had a winter on our coffee program, we will roll that out very quickly to 4000 locations.
Our hotdog programs gotten great traction so we rolled that out total 600 locations in the last couple of quarters. So a lot of activity, while we try to get the grab and go food concepts done right.
The next question comes from Vishal Shreedhar at National Bank financial.
Management noted that improved supply conditions aided us fuel margins of the year over year improvement of four cents per gallon, how much was attributed to better supply conditions.
Really difficult to say and in that context, I think we were very very pleased.
With our ability and how we leverage the scale of our procurement efforts in the fuel set the fuel area, particularly when you look at the circle K fuel brand, we've got great fuel partners.
Companies like shell BP Esso.
But the may not always be the most efficient supplier into a given geography. So we've taken steps in recent quarters to optimize.
The brand selection, where we think we've got better cost of goods available to us. So certainly some of that's in the in the story for this quarter and in coming quarters as well.
But a lot of different factors that go into that 4% year over 4% year over year improvement.
The next question comes from Michael Van Aelst at TD Securities.
With the controllable SGN a growth rate slowing to 1.7% excluding conversion of stores to cocoa in Q1 do you now see this growth remaining below 2% for the foreseeable future or with or will it accelerate again once you start to rollout a larger fresh food offering across the U.S.
So this is Michael we're definitely making long term investments in the business in developing new global functions in marketing investing in our digital strategy and also in our food food capabilities like Brian just talked about so.
However, cost discipline and cost containment remain remains part of our DNA and we're also committed to put in place cost optimization programs at the same time to offset these increases and we meet our long term targets.
From our food pilots, we learned that one of the key success is to keep the operation simple scalable and consistence.
So the all of the modeled for food that we offer we often referred to is a good example of the food program with the low cost of operation.
So currently we're still evaluating different fresh food models.
And which one to rollout one of the component of the evaluation was certainly the cost as well as sale and most importantly, overall profitability and return on capital. So we can assure investors that our focus will remain and remain on operating within our optimized cost structure.
The next set of questions comes from Keith How in addition, our debt securities with respect to same store sales growth, where the traffic and basket size trends in the convenience store business in each of the three regions.
Where the trends consistent within each of the three regions throughout the 12 weeks of the quarter.
So in the US traffic was fairly consistent you know in some areas that were weaker year over year, but overall when you look at the U.S. and its entirety generally in line with what we've seen in prior year in terms of traffic.
A European Cannibal clearly weaker than in previous same same same quarter last year.
Which at this time, we feel is primarily weather related as later weeks in the quarter were more normal.
Our basket growth continues and we cycle the bit of the early adopter advantage, we had an jewel, but continue to see strong growth in categories like beverages and salty snacks.
The second question from Keith Howlett with respect to same store sales growth what percentage of convenience store sales in Q1 are tied to weather such as beer and cold beverages and the softness in those weather related categories completely explained the below trend same store sales growth in all markets and the reduction in gross margin rate in Europe and Canada.
So so the first part of this question was already addressed.
And the other is the reduction of the gross margin in Canada is mostly derived from the conversion of our stores so as well as.
A weather had an impact on some high margin categories, such as coal and frozen beverages. Other tobacco products also are still growing strongly in Canada, and I'd like Kevin Brian mentioned before and that has a slight.
The impact negative impact on our margin in Canada.
In Europe , the margin was impacted by unfavorable mix car, where sales beverages and dairy sales were affected by unfavorable weather.
These are all high margin categories, which are more meaningful in our European business in summertime, so that effective negatively our margins in Europe .
The next question comes from Derek delay at Canaccord Genuity.
Can you comment on the acquisition environment as we recently recently witnessed some activity both in the us and in Australia.
Have you seen a change in transaction multiples and given your healthy balance sheet do you expect to be active over the coming year.
So there are Derek we're in a good position as far as the balance sheet is concerned with the delusion that took place in the last quarters, we have significant balance sheet capacity and are in a position to do that a significant deals right now from an M&A perspective, nothing has changed from previous comments multiples remain high.
Bidding is competitive on all sides and we're we're we're going to continue and are still evaluating all files and expect to be in the loop has other opportunities that arise.
However, this environment will not last forever and when things will move back to more reasonable grounds. We are certainly be ready to act.
And Meanwhile, we continue to use a opportunistically our share buyback as stated before end to end this to enhance shareholder value.
The next question comes from Bobby Griffin at Raymond James.
Can you add some color on what lift you are seeing from merchandise sales and fuel volumes in the us after the rebranding to circle K is complete and what opportunities are there to enhance the loyalty program under one brand.
In terms of sites, we're rebranding from other brands they both the CSP and the Max stores in Canada.
Our seeing improved same store sales compared to heritage Circle K location. So pleased with the results. There part of that is new the brand in unifying that in geographies part of that is new programs and part of that is continued focus on improving operations.
Today, we have a clear path on driving organic sales over time.
Having one unit unified brand is certainly foundational led journey.
Building on this innovation there are lot of things, we believe could create customer loyalty beyond the NAF.
And that it starts with great operations and customer service.
We're working hard on store specific assortments.
A journey in store specific pricing.
We will continue to focus on developing differentiated programs and offers like roster our pop on Loch Gamified trivia game five.
Gamified promotions, which I mentioned earlier.
If you look at the narrow definition loyalty. We believe we're just scratching the surface with our lift in easy pay while concurrently working to personalize and differentiate our more comprehensive loyalty program that we have in Europe and parts of the U.S. This year, we're adding features such as mobile payment and subscription carwash to this platform.
The next set of questions comes from Karen short at Barclays Capital.
Can you provide an update on the M&A environment in the us from a multiple perspective and assuming multiples remain high would you be more likely to reduce your goal to double the business in five years or would you be more likely to look to increase M&A and other countries.
In terms of our strategic strategic plan I'd say, we're very early in it and very still very confident in we've seen these environments before as Claude mentioned and it won't last and we'll be ready when it when it doesnt.
In the meantime, we're going to remain disciplined in our prisons pursuit of acquisitions and we've never been a company that prioritizes store count growth to the detriment of shareholder value.
Our footprint gives us unique look at opportunities globally and will remain open to many M&A activity opportunities not only in the U.S.
The second question from Karen short.
Gas margins were very high in the us any color on whether or not this is structural and sustainable would you be inclined to get more aggressive on pricing to generate stronger gallon comps.
Yes in terms of fuel our goal is to be consistently competitive and provide consistently competitive prices to our customers each and every day.
In that context, I am pleased with our volume results. This is our fifth consecutive quarter of positive same store gallons, which we believe is growing market share in almost every market. We're in.
Margins are likely to remain volatile over any short period of time, driven by changes in underlying product costs and competitive behaviors, but over the longer term, we believe there'll be upward pressure margins driven by the profit needs of the smaller site operators, which has the same cost pressures, but are not growing volumes and or more reliance on weaker categories like cigarettes.
In terms of the things we control as I mentioned a bit earlier, we're working on our procurement initiatives continue to rollout the circle K fuel brand programs like Easypay, which will enhance loyalty in volume and driving growth in our premium fuel sales.
Thank you, Brian and could this covers all of the questions for today. Thank you all for joining US we wish you a great day and look forward to discussing our Q2 2020 results at the end of November Thanks, everyone have a great day. Thank you.
This concludes today's conference call you may now disconnect.
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