Alimentation Couche-Tard Inc.

Good morning. My name is Sylvie and I will be your conference operator today. Bonjour, je m'appelle Sylvie et je serai votre opératrice pour la conférence d'aujourd'hui. I will now introduce Mr. Jean-Philippe Lachance, Vice President, Financial Planning and Analysis, Investor Relations and Treasury at Alimentation Couchetard. Je vais maintenant céder la parole à M. Jean-Philippe Lachance, Vice President, Planification financière et analyse, 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 second trimestre de l'exercice 2023 d'alimentation Couchetard. 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 webdiffusion sera disponible sur notre site Internet pour une période de 90 jours. De plus, prenez note que certains des sujets discutés au cours de cette webdiffusion pourraient consister dans des déclarations prospectives qui sont fournies par la société avec les avertissements habituels. Ces avertissements ou risques, ainsi que ces incertitudes, sont décrits dans nos rapports financiers. Il est donc possible que nos résultats futurs puissent différer des informations présentées aujourd'hui. Les résultats financiers seront présentés par M. Brian Hanisch, président et chef de la direction, et M. Claude Tessier, chef de la direction financière. Good morning. I would like to welcome everyone to this web conference presenting Alimentation Couchetard's financial results for the second quarter of fiscal year 2023. 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 Anish, President and Chief Executive Officer, and Monsieur Claude Tessier, Chief Financial Officer. Brian, you may begin your conference.

Thank you, Jean-Philippe, and good morning, everyone. Thank you for joining us for this presentation of our second quarter 2023 results. We're pleased to report strong results this quarter, especially in the face of the continued challenges of inflation, energy, and fuel prices around the globe. We had strong performance and convenience with solid savings for sales, particularly in the U.S. market, which had very strong growth in food and solid growth in all of our categories with the exception of traditional combustible nicotine. We also continue to generate robust fuel margins across all of our platforms. With the pressure on our consumers, we remain committed to delivering consistent value both inside our stores and on our port courts to help make our customers' lives a little bit easier. Before I return to the results, during this quarter, several of our U.S. business units experienced the fury of Hurricane Ian. It was a massive Category 4 storm and one of the largest hurricanes ever to hit the U.S. It slammed into our southwest Florida market and moved up through the state, impacting our business across Florida, the Atlantic States, and the Carolinas. Thankfully, no team members were injured. However, at the peak of the hurricane, we had over 500 stores closed due to power outages, wind damage, or flooding. Once again, in the worst of times, our team members pulled together and did a great job getting the majority of our stores reopened to service our customers and our communities in their time of need. For customers, we initiated Red Cross Roundup Store Campaign and as well as a company-wide fund to help our team members that have been impacted by Hurricane Ian. Now, turning to our results, beginning with convenience. Compared to the same quarter last year, same-store merchandise revenues increased 5.6% in the U.S., 2.9% in Europe, and decreased 1.5% in Canada. However, I would note that Canada is up strong single digits when you exclude tobacco, which continues to be pressured by the illicit trade throughout the country. No doubt, the consumer continues to be pressured from rising prices, and we're focused on balancing providing good values to them while recovering the inflationary impacts on our business. Across the network, our Fresh Food Fast program was up over 20% in same-store sales and continues to grow across the 4,200 stores globally. This quarter, we launched $5 Pizza Fridays across many of our markets where consumers can purchase both hot-to-go or take-and-bake pizzas for only $5 on Fridays. This as well as our focus on the sale of fresh-baked cookies are becoming popular items for our customers seeking value, bringing new and returning customers to our stores more frequently and driving overall growth. For dispensed beverage, we continue to see good growth in cold and frozen as well as continued success with our proprietary Dew Purple Thunder with over 8 million cups sold by the end of the quarter. Our sip and save beverage subscription program continues to drive trips, enhance basket, and attract new users. while providing great value. With the ongoing inflationary pressures, more than 420,000 subscribers are seeking deals and see the good value offered in Sip and Save. We've also continued to work to improve the online enrollment experience, and we're seeing a larger percentage of our customers automatically renewing and signing up online. Packaged beverage growth was driven by strong dollar and unit growth across immediate consumption, carbonated soft drinks, and energy drinks. Private brand, including private brand beverages, also continues to see strong growth as consumers are looking for value, and we meet that need with high quality products at a lower price point than some of the main brands. In age-restricted beverages, beer sales continue to lead the category in the U.S. and in Europe. Alcohol also performed particularly well with wine leading the way. Across the network, supply chain issues are improving compared to previous quarters. In North America and Europe, we're seeing in-stock positions approaching back toward 95%, so more normal, although we certainly have pockets where it continues to be difficult. A significant challenge to our European operations has been rising energy costs, which are clearly impacting customers, team members, and businesses. We are executing many energy-saving initiatives across all of our European business units, including energy consumption and lighting, readjusting temperatures, unplugging unneeded equipment. And these best practices are being shared across all of our countries and work will continue to further accelerate this in the months ahead. While we see energy situation and associated costs as transitory, just having returned from our visiting our European stores for two weeks, I can tell you that noticeably changing behavior across these societies. In our operations, we have reduced demand between 10 and 20% in each of our European countries. This quarter, we expanded our data-driven assortment optimization work throughout the rollout to all categories in North America. The current focus is on expanding the distribution of products that are high performing within the business unit and across business other markets. Additionally, we're leveraging external data to pick up on trends that are not currently visible within our network. With the variability of our European network, We're in the planning phases of assortment work with a plan to have tests in our markets over the coming weeks. And on the pricing front, we continue to tailor our approach, giving the fluid inflationary dynamics in most of our markets. Moving to the fuel business, same-store road transportation fuel volume decreased 1.9% in the U.S., 6.3% in Europe, and 6.5% in Canada. Higher prices and challenging market conditions continue to impact our volumes. To alleviate some of the pressure at the pump, we're working actively to help our customers find value in different ways, as we did with our very successful Circle K Fuel Day promotion in the U.S. this quarter. And we have significant tactical activities planned for the rest of the fiscal year throughout our markets. As I mentioned earlier, we continue to benefit from robust fuel margins offsetting the pressures on volume across the network. In our Circle K fuel rebrand work, we completed more rebrands during the quarter and are now at over 3,500 Circle K fuel branded sites in the U.S., with many business units where the fuel rebranding work has now been completed. We do expect acceleration during the second half of the fiscal 2023, named to be close to 4,000 sites by the end of the fiscal year. In the U.S., we broadened our relationship with our fuel trading partner, Muscat, in order to enhance our competitive positioning investments in the areas where we have significant volumes and customer base. A recent example, we took ownership of four U.S. terminals in combination in a 50-50 joint venture with Muscat, with Jacksonville, Florida being an example of a market where we both had very, very strong demand and can optimize that asset to our advantage. This quarter, we've also established a supply and trading operation in Geneva, Switzerland, one of Europe's largest commodity hubs. Through a more active market participation, the expectation is to bring incremental value to the European organization as well as diversify our sources of supply. Also in Europe, our EV fast charging network had a significant milestone with the opening in Sweden of our first speed chargers for heavy trucks. Circle K became the first company in the Nordic countries to open publicly available speed charging for the brand new electrical heavy truck segment. We kicked it off with six 360-kilowatt chargers with plans to expand this to 22 sites and 90 truck charges in Sweden in the coming year. Charging capacity will soon increase to 1,000 kilowatt at the high-end chargers. We are making incremental progress and recently launched EV charging network in North America as part of our announced plans to bring 200 EV charging units to our stores across North America over the next two years. So far, it's been a positive customer reaction to our integrated offer and the amenities provided by our in-store offerings. While we're starting from a low level, we're glad to see customer acceptance and expect that to continue as density increases in new and existing markets. We're also proud of our recent innovation milestones. We now have over 1,000 units deployed in the rollout of our easy-to-use smart checkout technology. I was out in stores this week, and the acceptance has been great. We're seeing penetration of eligible transactions exceeding 50% in many of our stores. So we're looking to scale to 10,000 units across the network over the next three years. And we also, on the fuel side, have passed 1 million pay-by-plate fuel transactions on Circle K4 ports in Europe. This pioneering license plate recognition system, available in Sweden, Norway, Denmark, and now Estonia, We'll continue to expand in the coming months across the Baltics and Poland. Finally, we've also piloted our new loyalty program in the U.S. and tiered concept in Europe. We continue to remain very pleased with the results in these pilots, and we're preparing for expansion in the coming quarters in both Europe and in North America. We continue to expand the network with the opening of 23 new industry sites this quarter and 53 year-to-date across the network. in addition to having 73 sites under construction. While new store performance is exceeding expectations in both merchandise sales and fuel volumes and remains a core part of our strategy, a combination of rising costs and supply chain constraints that we've experienced will likely continue to slow our near-term ambitions. But we expect these issues to mitigate in the coming quarters. Now, before I turn it over to Claude, I wanted to cover our ongoing progress in staffing. You know, it's been an unprecedented challenge the prior, you know, really 12, 18 months, particularly in North America. You know, we're seeing candidate flow improve through the quarter. We focus on new technologies to make the interview process easier and bring our time to hire down from days to hours. We've also become more active on social media campaigns, platforms, excuse me, driving more candidates to our sites and attracting more early career talent. So again, while not out of the woods, our staffing levels have improved significantly and are very, very close to normal levels. I'm going to pause there and let Claude take you through more of the second quarter financial results. Claude?