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Operator
Good morning, my name is Anas and I will be your conference operator today. Bonjour, je m'appelle Anas et je serai votre opérateur pour la conférence aujourd'hui. I will now introduce Monsieur Jean-Philippe Lachance, Vice President, Investor Relations and Treasury at Alimentation Couchetard. Je vais maintenant donner la parole à Monsieur Jean-Philippe Lachance, Vice President, Relations Investisseurs et Trésorerie pour Alimentation Couchetard.
Jean - Philippe Lachance
English will follow. Bonjour. J'aimerais d'abord vous souhaiter la bienvenue à la téléconférence qui porte sur la diffusion des résultats financiers du troisième trimestre de l'exercice 2022 d'alimentation couche-tard. Toutes les lignes seront placées en mode discrétion afin d'éviter tout bruit inutile. À la suite de la présentation, nous répondrons en direct aux questions des analystes. Nous souhaitons vous rappeler que cette webémission sera disponible sur notre site Internet pour une durée de 90 jours. Note that some of the topics discussed during this webcast could consist of prospective statements provided by society with usual warnings. These warnings or risks, as well as these uncertainties, are described in our financial reports. It is therefore possible that our future results may differ from the information presented today. The financial results will be presented by Monsieur Brian Hanisch, Président et Chef de la Direction, et Monsieur Claude Tessier, Chef de la Direction Financière. Good morning. I would like to welcome everyone to this web conference presenting Alimentation Couche-Tard financial results for its third quarter of fiscal year 2022. All lines will be kept on mute to prevent any background noise. After the presentation, We will answer questions from analysts asked live 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 might be forward-looking statements, which are provided by the corporation with its usual caveats. These caveats or 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 Hanisch, President and Chief Executive Officer, and Mr. Claude Tessier, Chief Financial Officer. Brian, you may begin your conference.
J'aimerais d'abord vous
Thank you, Jean-Philippe, and good morning, everyone. Thanks for joining us for this presentation of our third quarter 2022 results. Two years after the start of the pandemic, and during the quarter where the Omicron variant surged across our global network, I'm pleased to announce that we had strong results during the third quarter in both convenience and in fuel. Same for merchandise sales were particularly strong in Europe as well as in the U.S. with our freshly prepared food programs and packaged beverages among the main drivers of continued growth. Across the business in fuel volumes and traffic, we saw strong results early in the quarter but both were impacted by work from home orders and the rise in COVID-19 cases with the spread of Omicron, particularly toward the back half of the quarter. The Omicron impact during the back half mainly affected our large and urban areas in North America and Europe where we saw renewed lockdowns. However, we continue to achieve healthy fuel margins and benefit from our strategic initiatives that we're remaining laser focused on. We've worked hard to overcome the historic labor and supply chain issues in our industry, and are pleased to report significant improvement in more recent periods, as well as progress across many of our key priorities. I'll go into more detail on these initiatives during my presentation, but before moving to those results, I want to take a moment to comment on our decision to suspend our operations in Russia. In our announcement, we made it clear that we condemn Russia's aggression against Ukraine and the human impact it's having in both Ukrainians and Russians. As such, we made the decision to suspend operations effectively immediately, Kushar has been in Russia for nearly three decades and has been incredibly proud of our Russian team and their dedicated service to our customers and our communities in Russia. There are 38 Circle K stores located in St. Petersburg, Murmansk, and Skov, as well as 320 employees, and we are committed to take care of them in a responsible and safe manner as we wind down our operations. Our hearts go out to all those impacted by the violence unfolding in that region. Since the beginning of the crisis, We've been deeply moved by the outpouring of generosity by our local Circle K teams in Poland, the Baltic countries, and across our European network who've been helping refugees with free fuel, food, beverages, housing, and donations to a myriad of charities. Early on, Kushtar donated nearly $1.5 million to the Red Cross, and we started a global campaign to raise further funds for the Ukrainian people, including matching customer donations in all of our European stores, and providing a platform for our global team members to make donations to the Red Cross. Now, let me turn to our results. Now, beginning with convenience. Compared to the same quarter last year, same-shore merchandise revenues increased 3.7% in the U.S., 7.2% in Europe and other regions, and decreased 0.8% in Canada. Convenience activities performed well on a two-year stack basis, as same-shore merchandise revenues increased on a compound annual growth rate of 3.4% in the U.S., 5% in Europe, and 2.1% in Canada. Across the network, our Fresh Food Fast program has continued to grow, with over 2,900 stores now open in North America and over 300 in Europe. And we're seeing strong year-over-year growth. In the U.S., where we have the majority of our Fresh Food Fast sites, we've seen same-store year-over-year gains in excess of 20%. We've continued to launch a variety of operational tools to continue to drive the simplicity and reduce labor hours, making it easier for our store teams to merchandise and produce these great products. While supply chain issues have continued to be challenging, we've modified our supplier base to provide redundancy and improve our stock positions. A pipeline of new items is also prepared to enter our stores as we continue to refine our assortment and make every effort to get in the chicken sandwich business. As our markets reopen, we're excited about the opportunities in front of us to promote and sample this great program in the coming weeks and months. In our dispensed beverage category, our Sip and Save subscription program has been expanded to include online enrollment, making sign-up and renewal quick and easy. We currently have 400,000 active subscribers in the program. We have very strong positive feedback from our customers, and we continue to look for opportunities to make it even easier for our customers to benefit from this program. While it certainly in the short term probably impacts our sales in the dispense category, we think the ongoing loyalty and increase in traffic that we're seeing is a good move for us over the long term. Overall growth in packaged beverage remains strong, with good unit growth led by sports drinks and energy. Energy drinks continue to drive the category through innovation, with high-value national activation and first-to-market opportunities in sports drinks. They've both combined driven strong sales increases year-over-year. Assortment, promotional activity, and supply chain management will be the core focus in the coming quarters as customers begin to shift back to immediate consumption and more normalized shopping patterns, and quite honestly, as we prepare for hopefully an exciting summer as the societies are open. Overall, the company's total age-restricted category was up slightly compared to the same quarter last year, despite bars and restaurants being reopened. Europe continued to have good sales results in other tobacco products, and our U.S. business units continue to focus on wine and other age-restricted products, including the fast-growing single-serve wine and seltzer products. To enhance the in-store customer journey and maximize impulse purchases, we now have over 2,000 Q-Line installations complete in North America and over 300 in Europe. These Q-Lines continue to show very strong value in building basket size, especially with confection, salty, and beverages. Our goal is to have over 50% of our North American network with Q-Lines installed by the end of the year. The limiting factor being supply chain on fixtures and then quite honestly the size of some of our boxes. In our data and analytics work, we continue to refine the localized pricing program, which is now live across the network, and we're seeing a clear average gross margin improvement from the effort. We've also ramped up our work to enable the optimization of promotions and assortment at scale. While still in the early days, we're seeing very encouraging results in both of those areas. In Europe, we began executing on early key learnings across promotions, including the sunsetting of ineffective promotional activity And overall, we're seeing margin improvement with little to no decrease in unit movement. I also want to bring attention to the investment we're making in the future of convenience with our Circle K Venture Fund. We've recently announced that we've invested more than half of the initial $100 million of the fund's startup in companies that are developing forward-looking solutions focused on enhancing the customer experience in our stores and improving efficiency and making our customers' lives just a bit easier. Since the fund's inception in 2020, we've secured equity stakes in a number of these entrepreneurial startups, forming collaborative partnerships and agreements to test and commercialize these innovations. Most recent investments are U.S.-based companies offering delivery of grocery, convenience, and pantry items at competitive prices and very compelling speed. We're working with these partners in piloting commercial programs by testing and learning seeing how we can add restricted sales to the product mix, which we think is important to the basket, and certainly a way to look around the corner and clearly understand the economics of quick delivery and how it may or may not fit with our customers' needs and expectations from a convenience perspective. Moving to our fuel business, same-shore fuel road transportation volume increased 3.2% in the U.S., 3.2% in Europe and other regions, and 7.2% in Canada. On a two-year stack basis again, same-store road transportation fuel volume decreased in an annual rate of 6.8 in the U.S., 3.4% in Europe, and 7.4% in Canada. We still see, particularly in the morning-day part, still impacted from work-from-home trends, and then during the quarter, certainly a resurgence of COVID, which created lockdowns in many of our markets. As societies open and people start to return back to the offices at least a few days a week, we believe we'll continue to see miles driven increased toward 2019 levels. In our Circle K fuel rebranding work over the quarter, we completed another 181 locations, bringing the year-to-date total to 381, and total site count with the Circle K fuel brand in North America to 3,200 stores. Our Circle K ambassador program kicked off to further support site-level rebrand activity, such as educating the customer about our Circle K fuel brand, our quality guarantee program, and our premium benefits. In the U.S., we've also began a win-free fuel for a year national campaign, and we will have 144 winners of free fuel for a year by the end of the fiscal year. Also in our fuel category, we're pleased with our strong sourcing efficiency and growing in-house fuel transport operations across the network. In Europe, we're on track to launch our fleet with the ambition of the recently started work in Sweden during the quarter. We now have over 1,000 drivers transporting Circle K fuel, and we just believe that provides tremendous upside in terms of reliability, but also our flexibility to optimize our fuel sourcing. In Europe, our B2B business was strong. Volumes for both fuel cards and bulk sales are trending ahead of prior year, and in the quarter, card volumes trended ahead of pre-COVID levels driven by strong recovery in the fleet sector and continued very robust performance in the transport sector. On both B2B and B2C in Europe, our teams are doing a great job, and we are clearly gaining market share. We've also made good progress on our electric vehicle work this quarter, reaching the 1,000 charger milestone with new chargers being installed in Sweden in this quarter. And we've developed our approach in North America. We opened our first Tesla EV charger in Austin, Texas during the quarter, and we now have over 100 charging locations active in Canada. Turning to innovation, we've continued to expand our pay-by-plate service across Canada, excuse me, across Scandinavia, bringing the program to Denmark with 225 sites added during the quarter. It continues to be very well received by our customers and is clearly easier. Our next markets are Norway and Estonia as we continue to take learnings from the initial launch in Sweden to drive improvements in this program. Again, just back to our Circle K fund briefly. We're investing and partnering with groups that are working to enhance the in-store customer experience by leveraging technologies to enable store employees to focus more on the customer service and workforce efficiency. We're installing innovative and fast checkout technologies in our U.S. and European stores, as well as technology that's tapping into the fast-growing gig workforce. During COVID, we saw just a significant upspike in the percentage of the workforce that was shifting to and preferring the gig workforce methods, if you will. And we've tapped into that and just really encouraged with the results being able to bifurcate what's happened in our store and utilize that workforce to supplement our activities at site and let our people focus on serving the customer. And finally, before turning it over to Claude, I wanted to further address those labor and supply chain challenges. We're pleased to report significant improvement in more recent periods of the quarter. In North America, we saw significant improvement in turnover trends at all levels of our operational teams. including store manager, assistant manager, and our customer service team members. We attribute to this to certainly the targeted actions we've taken on the variable comp side, retention initiatives, training, and benefits that we have closely tracked and worked with our business units to tailor to meet specific competitive needs in their environments and their local markets. We've also stepped up our leadership development and training programs, significantly focusing our attention on culture, value, and leadership expectation. The fight isn't over, but certainly we see a light at the end of the tunnel. Then with regard to supply chain, we've implemented mitigating efforts this quarter to increase our holding capacities and in stock on key SKUs as we approach the summer selling season. This includes the additional queue lines I already touched on. We also are working to improve the holding capacity of our highest turning products, expanding shelf depth and increasing cooler capacity. We're also reducing dependency on single source supply by identifying alternative suppliers in key products such as food and waters. While there's no quick fixes, the teams are focused on being ready for the summer. So I'm going to pause there and let Claude take you through more of our third quarter financial results.
Skov
Claude? Thank you, Brian. Ladies and gentlemen, good morning. For the third quarter of 2022, we're happy to report net earnings of $746.4 million, or $0.70 per share on a diluted basis. Excluding certain items for both comparable periods, adjusted net earnings were approximately $746 million, or 70 cents per share on a diluted basis for the third quarter of fiscal 22, compared with $622 million, or 56 cents per share on a diluted basis for the third quarter of fiscal 2021, an increase of 25% in the adjusted diluted net earnings per share. We delivered once again a solid quarter as evidenced by increases of 15.2% in gross profit dollars and 18% in adjusted EBITDA compared to the third quarter of last year in an overall challenging environment in which we diligently manage higher than usual inflation and supply chain disruptions. We have continued to advance on our strategic priorities, including our fuel initiatives, network development, and cost optimization initiatives across our network, bringing our last four quarter adjusted EBITDA above $5.2 billion. Our financial position remains strong. highlighted by our leverage ratio of 1.33, which allowed us during the quarter to upsize our current share repurchase program from almost 32.1 million shares to over 46.8 million shares. We are actively managing our balance sheet, and as a result, we repurchased close to $750 million of shares during the quarter and subsequent to the end of the quarter. Following the end of the quarter, we also completed the yearly repayment of our Canadian dollar-dominated seniors' unsecured note issued on November 1, 2012. We also intend to renew our share repurchase program upon expiry on April 25, 2022, at a level of 10% of the then-prevailing public float, giving us the opportunity to repurchase approximately $3.2 billion over the upcoming fiscal year. I will now go over some key figures for the quarter. For more details, please refer to our MD&E available on our website. During this most recent quarter, excluding the net impact from foreign currency translation, merchandise and service revenues increased by approximately $272 million, or 6%. This increase is primarily attributable to the contribution from acquisitions, which amounted to approximately $158 million, as well as to organic growth. On a two-year basis, same-store-sell merchandise revenues increased at a solid compounded annual growth rate of 3.4% in the United States, 5% in Europe, and 2.1% in Canada. Excluding the net impact from foreign currency translation, merchandise and service gross profit increased by approximately $131 million, or 8.8%, and the contribution from acquisitions amounted to $45 million. Our merchandise and service gross margin increased by 1% in the United States to 33.6% and 0.2% in Canada to 31.6%, mainly due to favorable changes in the product mix and pricing initiatives. Our merchandise and service gross profit decreased by 0.7% in Europe and other regions to 37.8%, mainly due to the integration of Circle K Hong Kong, which has a different product mix than our European operations. Excluding Circle K Hong Kong, our merchandise and service growth profit in Europe and other regions will have been 42.1%, mainly driven by favorable changes in product mix. Moving on to the fuel side of our business, in the third quarter of fiscal 2022, our road transportation fuel gross margin was 39.63 cents per gallon in the United States, an increase of 8.87 cents per gallon. In Europe and other regions, it was 10.83 cents per liter, a decrease of 0.53 cents per liter. And in Canada, it was 11.73 cents Canadian per liter, an increase of 1.45 cents Canadian per liter. Fuel margin remained healthy throughout our network, mainly as a result of favorable market conditions and the continued work on the optimization of our supply chain. Now looking at SG&A. For the third quarter of fiscal 2022, normalized operating expense increased by 9.8% year-over-year, driven by an increased level of marketing initiative and other discretionary expenses that were significantly reduced in the prior year quarter, as well as by measure necessitated by the impact of the labor shortage and the need to improve employee retention. We would also note that the impact of inflationary pressures, including higher utility costs in Europe, higher costs from rising minimum wage, and incremental investments in our store to support our strategic initiatives. This increase was partly offset by lower COVID-19 related expenses compared to the corresponding quarter of the previous fiscal year, as well as by our cost optimization initiatives. including the cost of the retention measures implemented, which totaled approximately $28 million, as well as the COVID costs in the prior year, such as the thank you bonus for our employees, the remaining variance for the third quarter of fiscal 2022 would have been 8.8%. On a two-year basis, normalized operating expense grew at a compound annual rate of 3.7%, which is which remains slightly below inflation as a result of our various cost optimization initiatives. Excluding specific items described in more detail in our MD&E, the adjusted EBITDA for the third quarter of fiscal 2022 increased by $228.4 million, or 18%, compared with the corresponding quarter of fiscal 2021, mainly due to the higher road transportation fuel margins and organic growth in our convenience and road transportation fuel operations, partly offset by higher operating expenses, as well as the net negative impact from foreign currency translation. From a tax perspective, the income tax rate for the third quarter of fiscal 2022 was 21.3% compared with 17.6% for the corresponding period of fiscal 2021. The increase in the income tax rate is mainly stemming from a prior year one-time gains taxable at a lower income tax rate. As of January 30th, 2022, our return on equity remained strong at 22.2% and our return on capital employed stood at 15.7%. During the quarter, we continued to generate strong free cash flows and our leverage ratio stood at 1.33 times, only 10 basis points higher than Q2, despite having repurchased more than $500 million during the quarter under NCIB. We also had strong balance sheets liquidity with $2.5 billion in cash and an additional $2.5 billion available through our revolving credit facility. Turning to the dividends. The Board of Directors declared yesterday a quarterly dividend of $0.11 Canadian per share for the third quarter of fiscal 2022 to shareholders on record as of March 24, 2022, and approved its payment effective April 7, 2022. Finally, as previously announced, as a result of Val Cousteau's co-founder reaching the age of 65 years old, all of our Class B shares automatically converted into Class A multiple multiple voting shares during the quarter on a share-for-share basis. Following the automatic conversion, only Class A multiple voting shares of CUSHTA are traded on the Toronto Stock Exchange under the symbol ATD. With that, I thank you all for your attention and turn the call back over to Brian.
J'aimerais d'abord vous
All right. Thank you, Claude. For the first time, we're going to have live questions from analysts, and I'm expecting it's going to take a little longer than usual. I'll try to be brief. I'm in closing. We feel good about the quarter. We feel good about the upcoming summer season. As Omnicron has retreated, we're seeing nice trends in both fuel and convenience sales and traffic. I want to remind that in a very fragmented industry, we have a unique model with a diversified geographic footprint and significant competitive advantages versus the overall industry. And we're focused on developing new ones, such as our food program, leveraging our data in unique ways to be even more relevant to our customers and the upcoming launch of a new loyalty program, which is focused on rewarding in a variety of ways our most loyal customers. Finally, operating in four countries in Eastern Europe, it's heartbreaking to witness the tragic events taking place in the Ukraine and the huge movement of refugees, mainly women and children, into our nearby countries. While it was the right decision to suspend our operations in Russia, it was not an easy one as Russian team members have been a valued part of our family for a very long time. Once again, just as the pandemic started to stabilize, our teams in Europe and across the globe are rising to the challenge of taking care of their fellow colleagues, customers, and communities, and at the same time staying focused on our business and our key priorities. I couldn't be more proud to lead this company, and I'm truly grateful for our team's commitment. With that, we'll now take questions from analysts. Operator, over to you.
Operator
Thank you, sir. Ladies and gentlemen, will we now conduct the question and answer session? If you'd like to ask the question, press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star, too. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Irene Nattel with RBC. Please go ahead.
Irene Nattel
Thanks, and good morning, gentlemen. Delighted to ask the question live and in person. The first question is really on how much has changed since the end of the quarter on January 30th. Can you please give us some color or some more information around what you've seen in terms of fuel demand, fuel margins, inside store, and any sort of disruptions that you're seeing in Europe?
J'aimerais d'abord vous
Good morning, Irene. Happy to take and try to break those apart. I'll start with the last one first. Europe, our Scandinavian business and Irish business, largely unaffected. We have long-term supply agreements, so we're very stable there and continue to perform very well, as you heard from the numbers. If you look at Eastern Europe, our Polish business, really we've been overrun like everyone has with refugees. So quite honestly, we've struggled to stay in stock and take care of our customers. But that's improved. The last week, if you call this a three-week period, into this. The last week's better. So, you know, demand's actually spiked there, but for horrible, horrible reasons. And seeing that to a lesser degree in the Baltics, but supply chains have remained solid and, you know, sales have been good. So, you know, knock on wood, you know, that business has been stable and we're making every effort to take care of the refugees that continue to pour out of the country. In terms of what's happening, I'll take fuel first. Supply has been stable. It's a global commodity. I think the limiting factors, people continue to walk away from Russian product, could be shipping in the future. But so far, again, we're largely termed up in our European business, and we've seen no disruption in our North American business whatsoever. So we feel good about that. From a margin standpoint, not great for consumers in terms of a price shock. But in terms of behavior in our industry, these price increases were so large that the industry had no choice but to pass them through. We are a very competitive industry. We're the only one that puts our prices out there in the front. But between the labor pressures, credit card fees, and the product costs, we saw a very disciplined response globally to the price increases. our margins have actually remained relatively stable versus past quarters through this crisis. In terms of the consumer impact, I think we're going to have to just wait maybe a quarter and see what happens. I think if this shock were to mitigate, and we've seen crude go from $133, I'm talking about Brent, $133 back to $100 just in the last week, and we see corresponding retail price decreases, Then that's a relatively short-term shock, and I don't think it will have a meaningful impact on consumer behavior, whether it be miles driven or whether it be what kind of car am I trying to buy. If we did see that persist for a long period of time, I think there is obviously some risk of demand destruction. But I think what we're seeing is any potential customer hesitation has been offset by society opening. And Unlike if you talk about the last recession being in 08, 09, over broad terms, I think the U.S. and Canadian consumers are in much better economic condition than they were in 08, 09 when we had a recession running in parallel. So while we don't like these high fuel prices at all and their impact on the consumer and their pocketbook, we think we're, as a society, in a much better place to weather that storm. And then just... Merchandise just kind of finished the last piece of that you know again We saw a dip down in the last two months of the quarters Omnicron spread But you know I think there's pent-up demand out there So you know we look at our last few weeks And you know we're very pleased because we're right back where we were which is you know early and early in the last quarter With you know some very strong year-over-year sales growth That's really helpful and a follow-up question on that you know if we go back to our
Irene Nattel
the investor event, you called out 28 to 30 cents as let's call it a sustainable fuel margin. But since that time, we've had increasing cost pressures across the network and now, of course, higher credit card fees with the higher prices. What would your comment be around bias to that number and whether we should just simply be thinking about higher numbers on a go-forward basis?
J'aimerais d'abord vous
Yeah, I think, one, I would say we need to think long-term. Quarter to quarter volatility is just inherent in our industry. But that said, economics rule our industry. Very fragmented, very competitive. And when you look at a very fragmented industry, the marginal margin need of the bottom half of our industry, even the bottom quartile, is really what should set that incremental margin. And they're facing probably lower store sales, lower fuel volume, they're getting the same credit card increases, labor increases, electrical increases. So I think if you believe economics rule over time, you could make a case that higher margins are needed on a sustained basis going forward.
spk08
That's great. Thank you, Brian. Sure. Thank you, Irene.
Operator
Thank you. Your next question comes from Bonnie Herzog with Goldman Sachs. Please go ahead.
Bonnie Herzog
Thank you. Good morning, everyone. I had, my first question is on OpEx. It's certainly remained elevated in the past few quarters, you know, given the tight labor market conditions and, you know, the higher hiring and retention costs that you called out as well as, you know, inflationary environment. So I recognize it's early, but can you talk a little bit about your expectations for OpEx, you know, in FY23? I guess I'm thinking about it given rising fuel prices, associated increases in credit card fees, just trying to think about how we should assume or should we assume possibly a mid-single-digit increase next fiscal year on top of the elevated increase you're seeing this year? Or do you guys see opportunities for you to potentially manage these expenses possibly more efficiently than some of your smaller peers, given your scale?
Skov
Maybe before answering the questions about next year, we could look at this year, how we performed. So we performed with a 9.8% increase, which is elevated by our standards. But you have to look also at last year. So last year, in the same time period, we were declining our OPEX by 0.1%, if you're going back to last year. So the increase this year is first stemmed by a really good quarter last year. And what's feeding also into that increase is obviously, like you mentioned, some labor challenges. So there's increases on that front for sure. And also we put temporary measures also for retention. So if you're looking at both of these, they're probably there for half of that increase of 9.8%. And the rest is really pressure on costs that we see on energy that we see in Europe. A lot of increases on that and a bit of repair and maintenance compared to last year. We have an increase. And also marketing. Marketing last year during COVID, we decreased marketing significantly. So now we're putting back that marketing this year. So that is accounting, those other factors are accounting for the other half of that increase. So if we're looking further, and first we're gonna cycle, and we're gonna start to cycle the decrease that we had in the last year, probably in Q1 of fiscal 2023. So that's what you need to take into consideration. So then we're gonna start to cycle some of those increases in Q1. And also, there's temporary measures that we've put in place that we're reevaluating also as the conditions are changing on the field. So marketing, you need to think about it also as when it's going to cycle, it's going to be back to levels that are normal for our industry. So obviously, there's inflation in the systems. We're doing all we can to pass it on. We have also our cost optimization program that's going very well. That was one of our initiatives. We think we're going to be probably close to $100 million in terms of saving this year on that program. And we're still optimistic about those initiatives and taking costs out of our stores by taking leaving more time for our associates to take care of customers and taking out all the back office work in our stores.
J'aimerais d'abord vous
And Bonnie, I'll jump in just because I know this is a big question, not only for our company, but across a lot of companies. One, I would point out, our European business, believe it or not, inflation is not an issue there. Energy is really the only thing that has spiked. We're not seeing the same pressures on labor or other costs in Europe. So And I would say Canada would be medium, and then the U.S. would be the heaviest impact. I'd say our teams on the labor side, which is our largest single investment in our business, have done a good job. Certainly while wage rates have risen, particularly in the U.S., I think we've done a good job of keeping as much of that incentives, retention bonuses, those things variable. So as we see wage pressures mitigate, we think we can pull a lot of that back. And then from an efficiency standpoint, we've run in this quarter 2% less hours than we did a year ago. To Claude's point, we're trying to continue to look at efficiencies, particularly the administration of our business, to take hours out of the business, and we think there's more to do there. And then finally on price, we've taken in the quarter, and this doesn't match because it happens at different periods of the time, but we've raised prices on average 5.6%. during the quarter. And again, that wasn't from day one of the quarter, so you can't look at it that way. And that's compared to an average cost increase of like 3.7. So we've more than recovered the cost of goods increases in the quarter by carefully looking at our competitors and other channels. We're seeing inflation as we do price surveys, and we think we've remained competitive, but at the same time been able to move retails and allow us to cover those costs.
Bonnie Herzog
Okay, that's super helpful and good to hear about the pricing and maybe so far the consumer acceptance of those. Then I guess my second question is just around your capital allocation. Clearly, you've stepped up your buyback this quarter, which is great, but suggest to me there might not be as many large-scale acquisition opportunities right now. So as we look ahead to the rest of, I guess, this calendar year, I'm trying to get a sense of how you're prioritizing share repurchases versus m a and then you know thinking back to your investor day last year you know you guys laid out you know your ebitda targets by the end of fy23 without you know any major m a it was 5 billion and quite frankly you're tracking you know there and probably will be above so you know can you maybe share with us you know how much above you you see your adjusted EBITDA hitting by the end of FY23 would be helpful. Thank you.
Skov
Well, as far as capital allocation, that doesn't change our M&A strategy. I think we were always clear on that. We feel that we have a strong balance sheet and there's a lot of activity on M&A. But until there's something that materialize itself, then we're going to continue to use our buyback program because of our low leverage. So being at 133 for us is low, very low, and our comfortable level would be around 2.25. That leaves ample room for us in terms of flexibility on our balance sheet, so we have the ability to leverage by over 10 billion really easily. So we're going to continue to use our buyback, and we're going to also renew our program for next year, and that's going to give us the possibility with 10% of our public float, repurchasing 10% of our public float, to repurchase maybe over $3 billion next year if nothing comes up. And that's how we look at it and how we treat it. As far as EBITDA is concerned, First, we're not giving any guidance on EBITDA, but for sure we feel comfortable about our target that we showed everyone. So our target is at $5.1 billion. We've been trending last 12 months at $5.2 billion. And we see also we continue success in our initiatives that we have in our five-year plan. So our Fresh Food Fast program is doing and performing very well. We're continuing to develop it. Our merchandise pricing and promotion program, local pricing has delivered great synergies, and we're starting on the promotion side of it, just starting. So we're optimistic also to continue to deliver on promotion and assortment also in these programs. Our fuel initiatives also are still thriving, and obviously our NTI program is continuing. We see a continued growth, and we're a firm believer in our strategy, so we're cautiously optimistic that we're going to achieve our number next year and hopefully more.
Bonnie Herzog
All right. Sounds good. Thank you.
spk08
Thank you.
Operator
Your next question comes from Mark Petrie with CIBC. Please go ahead.
Mark Petrie
Yeah, good morning. I just want to follow up on a couple items, actually. Brian, thanks for the comments just with regards to the pricing and sort of offsetting the product cost inflation and sort of operating cost inflation. Just wondering how your work on sort of price optimization layers into that. I mean, is that sort of a key element in being able to achieve that or is that sort of separate from that discussion?
J'aimerais d'abord vous
It's a great question because as we went down this path, a lot of our teams have not experienced inflation. So I think I'd say that having our DNA team there has helped us make price moves that we think are more elastic with the customer, less elastic, sorry, with the customer and less noticeable. So I think we've been able to make smarter moves. We've been able to pullback promotional activity that the data is showing us isn't driving strong economic results. So while the pace of change here has forced us to kind of get outside of that pure DNA modeling approach, I think the learnings that that team brings to the table has allowed us to do this in a much more thoughtful way in terms of consumer and consumer price perception.
spk08
Okay. Makes sense.
Mark Petrie
Thank you. And I guess the second question, Brian, you highlighted the plans for the loyalty program launch. Just hoping you can tell us a bit more about what you've learned from the pilots and what sort of impact you think that's going to have on your business, be it sales, volumes, or margins.
J'aimerais d'abord vous
Yes, we piloted in Denver and then a small market in South Carolina. And we're really trying to differentiate here. This is I think retail is kind of stuck in this buying club where buy five, get one free, whether it's electronic or not. We're really trying to focus on those customers that are most important to us and bring them significant value across not just our products but also fuel services, our subscription programs, whether that be car wash or beverages. So layers of benefits, if you think about a pyramid of value, the more you buy, the more value we bring you. Pilots have gone very well. Net promoter scores have been very strong. Technology is always the issue, and so we're really making sure that we've got it right before we press the button. But our goal is to be in a couple thousand stores early in the next fiscal year.
spk08
Appreciate the comments, all of us. Sure.
Operator
Thank you. Your next question comes from Michael Van Elst with TD Securities. Please go ahead.
Michael Van Elst
Thank you. So it looks like the industry's acting very rationally in this environment, regardless of the volumes or the OpEx inflation levels. But one thing I'm trying to wrap my head around is the fuel volumes overall, because it seems like based on your two-year CAGRs, you're still something in the mid-teens below where you are, lower than the 2019 levels, pre-pandemic. But the industry data is implying only a 3 percent drop versus 2019 level. That's miles driven and fuel consumption. Can you help me reconcile the difference and maybe why we're not seeing the retailers or the C-store operators see as much of a recovery?
J'aimerais d'abord vous
It's a good question, Michael. I think there's so many data points, EIA. We've got Apple and the phone companies providing data on miles driven. And the variability of that data is quite honestly frustrating a bit on our side that we don't always get the same results for the same areas. But I would say our results have varied materially depending on where you're at in the network. Europe, largely at 2019 numbers. B2B business actually over 2019 numbers. Canon in the U.S., it depends. If you take our competitor who released earnings this week and we compared the same geographies, we'd have very similar results to them in the period. I think there's two other things that maybe are in play. One is we've had a lot of rebranding activity, and those are disruptive to our sites. It takes us X period of time to redo the canopies, the pumps, and all that. That's not trivial when we look at the impact, and we certainly have a period where we're re-educating the customer on the value of the Circle K brand versus a Shell or BP or whatever that's been up there. I haven't quantified that, but that's out there. That's a reality that we've torn up a lot of our forecourts in the efforts to improve them and improve our economics. I think that's a piece, and then think the industry too is maybe separated a bit from, you know, some of the low price players that have been in the market. So while I think it's economically rational, I can see maybe a little bit of volume bleeding into some of those historically, you know, low, low, low price players, you know, the masks, the Costco's, et cetera. So hard to quantify any bit of that, but I think our still biggest piece, Michael, is we're more impacted by that morning day part, you know, and with our network, and we just need people to get back. We're largely a suburban network when you look at the bulk of our sites, and we need people to get back into the offices and commute to work again. So that's our biggest thing that we need to kind of get back to normal volumes.
Michael Van Elst
That's helpful. Thank you. And speaking of the morning day part, you talked about fresh food fast in North America, seeing You're seeing a 20% increase in the same store sales. Was that just in the fresh or is that in the total store where you've implemented those programs?
J'aimerais d'abord vous
No, in that category. Yeah, it's in that category, Michael. But we are seeing it certainly grows the basket and helps the store as well. Okay. I think over time, if we're able to get this supply chain right and execute it right, we just think it'll also increase customer loyalty. You've got a certain percent of our customers that are floaters, and I think just being able to serve another need state for them will bring them in more often. So we're excited. We've not sampled this program at all due to COVID, so we have a lot of activities planned in the coming months.
Michael Van Elst
Okay. And then can you talk about that chicken sandwich launch? Obviously, chicken sandwiches are huge in the States, and I'm just curious, you know, what type of product it is and where you're launching it.
J'aimerais d'abord vous
Yeah, it is. I mean, you know, it's no secret. Chicken's just been a hot, hot commodity, very difficult to source. We have a sandwich that, if you think about a Chick-fil-A, you know, in a foil wrapper, you know, I think that's the core piece that we've been missing. And then certainly we're doing chicken bites, chicken tenders. as part of the offer and where we've been able to source it, particularly in the Southeast U.S., you know, there are some of our strongest skews. So, you know, that's just a big hole in our current assortment. And as those supply chains have started to stabilize, you know, we're excited to get in that business.
Michael Van Elst
Okay. Just finally, can you comment on the morning day part and how it's been recovering the last little while as we've seen the restrictions and the work-from-home mandates start to come off?
J'aimerais d'abord vous
Yeah, I'd say if you look back at the quarter, you know, we were really encouraged by the first 45 days of the quarter. You know, we saw strong mid-single-digit growth in traffic and same-store sales. And then, you know, Omicron just crushed us for the last part of the quarter. And then as we look into Q4, you know, we're kind of back where we were early in the prior quarter. We're seeing, particularly in the U.S. and Europe, you know, very strong, you know, traffic and sales. So, you know, that, and that morning day part's a part of that. And I just think we're scratching the surface on terms of people going back to work yet. So I think the full effect of that still to come is, you know, I know for us, you know, we literally are just opening offices now. And I know that's the case for a lot of our, a lot of the employers out there today.
spk08
That's fun. Thank you. Thanks, Michael.
Operator
Thank you. Your next question comes from Chris Lee with Desjardins. Please go ahead.
Chris Lee
Hi, good morning. Brian, I'm just on maybe first one on fuel margins. You know, over the past couple of years, Cush Tardis consistently maintained a few cents premium over the Opus industry average. I think that's mainly a function of your margin enhancement initiatives. I guess my question is, do you think that level of premium is sustainable longer term as fuel volumes start to normalize?
J'aimerais d'abord vous
Chris, thanks for the question. Our goal is to expand it. We're investing heavily to win in fuel, both on the consumer side with our pay-by-plate initiatives, our brand promises, then on the supply side. Our partnership with Muscat and Luz here in the U.S., we bring it on parallel scale and certainly a very, very top quartile supply and trading capability to the market. And then third, as we transition to more of our own fleet, we think the opportunity to be very opportunistic where we source product as we shift to our own brands will, again, just further enhance our advantages versus a very fragmented industry. And we all need to remember 60% of the industry is single-site operators. So, you know, Chris, our goal, and I'll be disappointed, is over time we can't expand that.
Chris Lee
Okay, that's very helpful. Maybe just to follow up on that, you mentioned that the bottom quartile players Do you have a sense of what their brick-even fuel margin is these days, given all the increased cost pressures?
J'aimerais d'abord vous
I think there's some data out there from NACS, Chris. I don't have it off the top of my head, but Claude's nodding his head. We'd be happy to look that up and share that. But there's some very good state-of-the-industry
Skov
data out there that uh we'd be able to share with you yeah we think it's between 21 and 25 cents but i i'm going to get through the the right the right data on that but then that's obviously like brian mentioned earlier that's increasing with the pressure they have on with inflation and inflation really in the last three months has been uh it's been uh So I'm not sure we're going to have a report, a real number. Give a relative delta, though, versus top quartile. So we'll provide that to you, Chris.
Chris Lee
Perfect. And maybe last question, just maybe for Claude. Just in terms of the retention cost, you called out $20 million during the quarter, and I think last quarter was around $25 million. Is it fair to assume those are more one-time in nature? So as you're going to next fiscal year, assuming the labor situation continues to improve, then maybe some of those retention costs will not recur again next year?
Skov
Yeah, well, it's difficult to measure and say, well, we're going to take out those costs and then we're going to decrease our cost base by the same amount. I think we're decreasing these costs in the different geography, but adapting also to the wage increase that we encounter in these geographies. So if these temporary measures were there until we know more and we have more clarity on the increase in wages and what it takes to have a good retention rate, turnover rate like we're used to have. And once we achieve these, then we scale down these retention measures. But obviously, there's a portion of it that's going to come into wage increase that are happening all over the U.S. and also in Canada.
Chris Lee
Thanks very much, and all the best.
spk08
Thanks, Chris. Thank you, Chris.
Operator
Thank you. Your next question comes from Vishal Sridhar with National Bank. Please go ahead.
Misha
Hi. Thanks for taking my question. The geopolitical backdrop is under increased scrutiny, obviously. I'm wondering if you could provide us any updates on how Kushtar thinks about global expansion, either in Europe or in Asia, Are these the same priority that they were? And how should we think about preferred countries of expansion or even potential divestitures?
J'aimerais d'abord vous
Yeah, thanks, Misha. You know, I certainly hope, you know, deep in my heart that this is a very temporary situation in Europe. Never thought I'd see a war in Europe in my lifetime. So I think in terms of M&A, we think long term and certainly don't take the geopolitical or currency risk lightly as we look forward. But, you know, the macro trends around where the world's going to grow, looking at Latin America, looking at Southeast Asia, remain intact. And so, you know, we've signaled that those are areas we have ambitions to grow and doing it in the right way. We've operated, again, in Russia and Poland and other countries for decades. And, you know, we've been able to operate – in the right way, in an ethical fashion, and in a safe fashion. As we look at other markets, we'll take the same approach, but again, long-term. This recent political event, I think, heightens just the reality that things can happen, but I don't think it's changed where we're looking and where we're focused on getting something done.
Misha
Okay. Thanks for that color. With respect to fuel margins, they've increased rapidly post-COVID. And I know Kushtar obviously will take a dollar of earnings where they can get it, but these fuel margins are a more volatile source of earnings, let's say, versus your merchandising business. Does Kushtar consider the focus on fuel and the volatility of earnings as it looks forward and expands those fuel margins?
J'aimerais d'abord vous
I think fuel will be an important piece of what we do for a long period of time. And we've talked about mitigating that via a number of ways. And I think our goal is to create sustainable competitive advantages versus a fragmented industry and take market share versus this industry over the coming decade. And so volatility is inherent in commodities, but volatility also creates opportunities for those that are good. And we think we've developed capabilities that put us in a top quartile in the fuel space. And quite honestly, we welcome the volatility. You may not like it every quarter in terms of the earnings and trying to guess where fuel margins are. But again, volatility does create significant economic opportunities for those that have the flexibility and capabilities to seize it. So we think it's a part of it. And we just encourage looking at fuel margins over longer periods of time. And if you looked at the last decade, you'd see a nice persistent increase in unit margins, and I think we continue to take advantage of that and widen the gap versus the industry. Thank you.
Operator
Thank you. This concludes the Q&A portion of the conference. Mr. Lachance, back over to you.
Jean - Philippe Lachance
Thank you, Operator. Thank you, Brian. Thank you, Claude. Thank you all for joining us. We wish you a great day and look forward to discussing our fourth quarter 2022 results in June. Thanks, everyone. Have a good day. Thank you. Bye-bye.
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