Alimentation Couche-Tard Inc.

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.

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.

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.