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Operator
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 aujourd'hui. I will now introduce Mr. Jean-Philippe Lachance, Vice President Investor Relations and Treasury at Alimentation Couchetard. Je vais maintenant céder la parole à M. 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 premier trimestre de l'exercice 2024 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 webdiffusion sera disponible sur notre site Internet pour une période de 90 jours. Please 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. Les résultats financiers seront présentés par M. Brian Hanush, président et chef de la direction, et M. Filipe Da Silva, 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 first quarter of fiscal year 2024. 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. Felipe da Silva, Chief Financial Officer.
J'aimerais d'abord vous
Brian, you may begin your conference. All right. Thank you, John and Philip, and good morning, everyone. Thank you for joining us for this presentation. We're pleased to announce a good start to our year and a good first quarter. with our Canadian operations leading the way with strong performances in both convenience and fuel. Same-shore sales continue to grow in all Canadian business units, with our packaged beverage category performing exceptionally well. Fuel volumes also grew significantly in this region. And across North America, we're seeing the benefits of our promotional initiatives, including our reoccurring fuel days, which are contributing to our volume growth. At the end of August, we had our very first ever global Custar slash Circle K fuel day with limited time food and fuel discounts across our network from Hong Kong to Europe and coast to coast in North America. With inflationary conditions continuing around the globe, our focus has remained on providing value and ease to our customers both inside our stores and on our forecourts. This quarter, we're especially excited to have launched our Inner Circle loyalty program, Early in the summer, we went live with the program in nearly 430 stores across the Florida business unit. Inner Circle is a free membership program with fuel rewards, food rewards, and much more. We're also providing new personalized experience to our most loyal and most valuable customers. We could not be more pleased with the rollout so far. In a few short weeks, we have over 2.7 million enrollees. And in terms of customer adoption, we've had very positive feedback and growing popularity with our app. This past quarter, we also accelerated our rollout into the Grand Canyon business unit, and we plan to expand to more business units as the year progresses, starting in the southeast part of the U.S. in the upcoming days and working our way across the continent. No doubt, Inner Circle is an important milestone in our personalization journey to see how our members behave and how we're able to reach them with more relevant, meaningful communications and offers that drive repeat visits and loyalty. I want to thank the many cross-functional team members for bringing this to life. This is a very unique program that's targeted at making it easier and more rewarding for our customers. During the quarter, we also started the next stage of our strategic journey, having successfully completed Double Again at the close of Pistol 23, and we look forward to presenting to you at our Analyst Investment Conference in a few short weeks in Phoenix on October 11th. Now let me return to the results for the quarter, beginning in convenience. Compared to the same quarter last year, same-store merchandise revenues increased by 2.1% in the U.S., 2.7% in Europe and other regions, and by 6.4% in Canada, all driven by our diversified offer in the beverage category as well as continued growth in our fresh food program and private label. As I mentioned in my opening remarks, we're very pleased to see this strong performance in our Canadian markets especially. Across the network, our Fresh Food Fast program is now in nearly 4,980 stores globally, and sales and profits continue to grow double-digit as our store teams focus on optimizing pricing and assortment to maximize profitability. Assortment localization is increasing, and we're introducing more operational innovations, which are bringing savings to the program, such as an equipment energy saving initiative this year that we anticipate will save us more than $4 million just in electricity consumption. North America packaged beverage sales continue to be strong with new product lines in sports drinks, water, energy, and ready-to-drink coffees accounting for the majority of the growth. Also in North America, we're seeing success in cold and frozen dispensed beverage with good promotional activity and the continued popularity of our Mountain Dew Purple Thunder, which launched in Canada during the quarter. In Europe, iced coffee performed well, supported by our Summer Stop campaign. In age-restricted, total company alcohol sales were up, and in tobacco, we're seeing continued pressure on cigarette sticks globally. Here, we have initiatives underway with our supply partners, and we're focused on maintaining our market share. In Canada, sales performance is improving compared to prior year. OTP continues to drive sales in the category in both the U.S. and Europe. And in lottery, growth was driven by large mega-million and Powerball jackpots in the United States during the quarter. On the overarching supply chain landscape, we still have some isolated challenges. However, our in-stock and on-time delivery rates continue to improve from previous quarters. The bulk of the issues in supply chain remain upstream with manufacturers where production, labor, and packaging shortages are still driving some of the outages. But overall, we'll continue to see ongoing improvements in the overall merchandise supply chain, and thus, our in-stock continue to improve at our locations. Moving to the fuel business, same-store road transportation fuel volumes increased by 0.7% in the US and by a strong 7.2% in Canada, favorably impacted by lower crude oil prices and promotional activities in our stores. Same-store road transportation fuel volumes decreased by 1.5% in Europe, unfavorably impacted by challenging macroeconomic conditions, including persistently high inflation in many of our countries. In our Circle K fuel rebranding work, we've now completed nearly 4,200 Circle K branded sites in the U.S. and Canada. We've also continued with our promotional events during the quarter and had over 7,000 sites in North America hosting local fuel days to alleviate some of the cost pressures of the pumps for our customers. These fuel events, including our first ever global fuel day held on August 31st, are leading to percentage growth fuel volumes, as well as increased exposure of the Circle K fuel brand, at the same time bringing significant value to our customers. In our EV fast charging network in Europe, we've deployed nearly 160 fast charging points during the quarter, bringing the overall total to around 725 points in more than 340 of our stores. We also now have over 30 chargers for heavy trucks in Sweden. In Q1, we had nearly a 70% increase in charging transactions from the same period last year, driven by both network expansion and improved utilization of our existing chargers. We continue to expand the charging network in Europe with increased focus on Ireland and pilots in the Baltics and Poland. In North America, including partners, we have over 80 EV sites in operation. Our footprints in Canada now cover Quebec, Ontario, and B.C., In the U.S., we have charging sites in California, North Carolina, South Carolina, Virginia, Florida, and New Hampshire and Colorado. We remain committed to our 200 EB site target in the next two years, which we communicated in the spring of 22. Now, before I turn it over to Felipe, I wanted to discuss the continually improving labor situation in North America. Candidate flow and our ability to hire remain strong. We're averaging over 25,000 applicants per week, which is a 6,000 applicant per week increase over the same time last year. Rolling 12-month annualized turnover in North America for our frontline store teams is trending materially better than the same time last year, and just improving our ability to operate our stores, you know, both effectively from a customer service standpoint, but also to control our labor costs. We also continue to utilize our smart checkout tool to improve labor efficiency at our stores, as well as enhancing the customer experience. In North America, we now have nearly 2,700 smart checkout units in around 2,200 stores, with about 40% of our in-store payment transactions running through the smart checkout at these sites. More importantly, the equipment makes payment faster and easier for our customers, as well as making it easier for our store team members to focus on serving them. I'm going to pause here and let Philippe check you through more of our first Florida results.
Brian
Thank you, Brian. Ladies and gentlemen, good morning. I'm delighted to report that our focus on cost reduction has yielded favorable outcomes during this quarter. Our discipline approach to expense management and streamlining processes has positively impacted our results, which include a normalized growth of expenses of 3.7%, lower than the average inflation observed throughout our network. The strong sequential improvement underscores our dedication to financial discipline and reflects our commitment to delivering sustainable value to our various stakeholders. I am thankful for our team's continued pursuit of operational excellence, which enable us to deliver strong results across our key metrics. At our upcoming analyst and investor conference, we look forward to communicating our new multi-year strategic plan, which will include a renewed focus on cost reduction initiatives. Finally, in terms of capital allocation, the recent private buyback transaction, which took place shortly after quarter end, highlights the great use of our excess cash and will further enhance our key return metrics. I will now go over some key figures for our quarter. For more details, please refer to our MD&A available on our website. For the first quarter of fiscal 2024, we are happy to report net earnings of $834.1 million or $0.85 per share on a diluted basis. Excluding certain items described in more detail in our MD&A, Adjusted net earnings were approximately $838 million, or $0.86 per share, on a diluted basis for the first quarter of fiscal 2024, compared with $875 million, or $0.8685 per share on a diluted basis for the first quarter of fiscal 2023, an increase of approximately 1.2% in the adjusted diluted earnings per share. During the first quarter, excluding the net impact from foreign currency translation, merchandise and service revenues increased by approximately $228 million, or 5.6%. This increase is primarily driven by organic growth, as well as by the contribution from acquisition, which amounted to approximately $52 million. Excluding the net impact from foreign currency translation, merchandise and service growth profit increased by approximately $105 million or 7.5%. This is primarily due to organic growth as well as by the contribution from acquisition which amounted to approximately $28 million. Our gross margin increased by 0.4% in the United States to 34.3%, in Europe and other regions by 1% to 39.9%, and in Canada by 0.8% to 33.9%, all impacted favorably by a change in product mix. Moving on to the fuel side of our business. In the first quarter of fiscal 2024, our road transportation fuel growth margin was 50.05 cents per gallon in the United States, an increase of 1.05 cents per gallon. In Canada, it was 13.25 cents Canadian per liter, a decrease of 0.79 cents Canadian per liter. Fuel margins remained healthy throughout our network, North American network, due to favorable market conditions and the continued work on the optimization of our supply chain. In Europe and other regions, our road transportation fuel gross margin was 8.21 cents per liter, a decrease of 4.05 cents per liter, mostly driven by the volatility of the global fuel market, more impactful to our European gross margin due to a more integrated supply chain model in this region. Now looking at SG&A. For the first quarter of fiscal 2024, normalized operating expenses increased by 3.7% year-over-year. This is mainly driven by the impact of costs from rising minimum wages, inflationary pressures, and incremental investment to support our strategic initiatives, while being partly offset by the continuous strategic efforts to control our expenses. This control is evidenced by our normalized growth of expenses remaining lower than the average inflation observed throughout our network. Excluding specific items described in more detail in OMDNA, the adjusted EBDF of the first quarter of fiscal 2024 increased by $10.7 million, or 0.7%, compared with the corresponding quarter of fiscal 2023, mainly due to organic growth in our convenience operations, as well as a contribution from acquisition, partly offset by lower road transportation fuel growth margin in our European operations, as well as higher expenses. The transition of our foreign currency operation into U.S. dollar had a negative impact of approximately $6 million. From a tax perspective, the income tax rate for the first quarter of fiscal 2024 was 22.8%, compared with 21.9% for the corresponding period of fiscal 2023. The increase is mainly stemming from the impact of a different mix in our earnings across the various jurisdictions in which we operate. At the end of the first quarter, our return on equity remained strong at 23.8%, and our return on capital employed stood at 17%. During the quarter, we continued to generate strong free cash flows, and our leverage ratio stood at 1.39 times, despite having repurchased 4.7 million shares for $230 million under our NCIB program. Subsequent to the end of the first quarter of fiscal 2024, we repurchased 10.8 million shares through a private agreement for an amount of $529.7 million. We also added strong balance sheet liquidity with $2 billion in cash and an additional $3 billion available through our main revolving credit facility, net of USCP borrowings. Turning to the dividend, the Board of Directors declared yesterday a quarterly dividend of 14 cents Canadian per share for the first quarter of fiscal 2024 to shareholders on record as of this September 15, 2023, and approved its payment effective September 29, 2023. With that, I thank you all for your attention and turn the call back over to Brian.
J'aimerais d'abord vous
Thank you, Philippe, and it's been a pleasure working with you this quarter in your new role as our Chief Financial Officer. I look forward to many of you having the opportunity to meet Felipe at our Analyst Investor Conference in October. The two of us will be joined on stage by several of our team members, and we're excited to show you the achievements we've made during the five years of Double Again and how we'll continue to build upon that during the next stage of our strategic journey. Now, with that, I'll turn it over to the operator to answer analyst questions.
Operator
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch-tone phone. you will hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star two. And your first question will be from Mark Petrie at CIBC.
Mark Petrie
Yeah, good morning. I wanted to start with fuel margins, if we could, specifically on the U.S. It's now six quarters of sort of, you know, upper 40s and now 50 cents a gallon. So can you just help us with how to think about that range? It's clearly a material step up from sort of previous levels and even the early days of the pandemic. So is it just that the break even for the smaller operators has sort of continued to rise or, you know, your company specific efforts contributed materially more in the last year than in the prior year? And maybe put another way, you know, what sort of factors should we be on the lookout that could reset the margins lower? Thanks.
J'aimerais d'abord vous
Thanks, Mark. I'll take a shot at that. I think it's a mix of the two. We continue to see pressure on the industry in several fronts. Inflation is not gone. Certainly, there's some wage pressures there yet. And we'll talk about tobacco in a bit. But a lot of the industry, particularly the smaller players, rely very heavily on the tobacco category, which after a couple of years of pause during COVID-19, we've seen an acceleration in volume decline in that category. So I think you put those things together along with some of that bottom half of the industry losing gallons to larger and more modern facilities. I think the pressure builds. So I think the breakeven needs of that independent just continue to rise. And then conversely, I think we just continue to double down on the benefits that we think we can bring in terms of our scale, whether that's continuing to grow our private fleet. I was just in Europe and met our new trading team in Geneva. Our partnership with Muscat, all the things we're doing to try to really optimize every last gallon of fuel that we buy. We just think those two things come together. And then I would say Third, just continuing to work really hard on our pricing decisions. It's the biggest commercial decision we make each and every day, and just bringing more data, more analytics to those decisions to make sure that we're balancing, delivering value to our customers, and also maintaining the appropriate amount of volume versus gross profit. So we feel good about it. The last quarters have been solid, and we continue to see the market remain very disciplined. So
Mark
um as we enter you know kind of halfway through our next quarter you know we feel good about where we're at on the fuel side all right appreciate the comments i'll pass the line thank you thanks mark next question will be from tammy chen at bmo capital markets good morning thanks for the question um i wanted to talk about merchandise gross margins so i think i get the sense that um recently some good performance out of there from all your regions sounds like it's more of the favorable mix of lower cigarette sales and more beverages and private labels. So one thing I wanted to drill more on though, is the fresh food program. You talked about it a little bit. It still sounds like it's early days aside from the holiday business. And I'm just wondering, can you talk about how that's progressing maybe versus last quarter or even two quarters ago? I'm just trying to think incrementally, how are you feeling about the progress of that business in both the size as well as the gross margin? Because I think you're trying to bring that closer to what the holiday stores are doing. Thank you.
J'aimerais d'abord vous
Yeah, happy to address that. And you're right. If you look at the strength we've had globally, we've grown the car wash business, so that shouldn't be lost. We've got almost 2,500 car washes globally, so it's a pretty material business for us, and it's performing very, very well. And then our new acquisition with Clean Freak, continues to perform well in the U.S. And beverages, too, as you noted, both continue to be strong. On the fresh and fast, we've seen great growth in sales as we launch this during COVID, continue to have very high customer satisfaction. But I think the teams should be very proud. We've taken and grown the discipline around running the food business and building a food culture. Not saying we've won that journey. We're on that journey. But if you look at the last six months or two quarters, we've grown the profitability of that program over 750 basis points. So, you know, again, I always point to sales as being the priority, but we've become more disciplined in the operation. You know, there's always that balance of having the right amount of product out there and making it available versus having too much. We continue to provide tools that help people make better decisions there. And, you know, again, I think we're seeing a better balance we've had in the last year on both profitability and sales. So strong improvement in margin out of that program, and we think there's more to do.
Opus
Great. Thank you. Thank you.
Operator
Next question will be from Michael Van Elst at TD Cowen. Please go ahead.
Michael Van Elst
Hi, good morning. Thank you. I wanted to get your insight on the U.S. AIMSTAR sales trends. We did see slower growth sequentially at Kushtar, just like we did for all your peers, at least in the U.S. So I'm wondering, what's the consumer behavior that you're seeing that would explain the differences in your performance in Kushtar? Canada versus the U.S.? And what is it going to take to get that U.S. same-store sales back to a 3% plus rate?
J'aimerais d'abord vous
Michael, I'll take a shot at that and, you know, happy to have Felipe jump in as well. You know, we're watching the consumer closely. You know, it's no secret that we've had, you know, pressures on that cluster, you know, stimulus kind of working its way out of the system, you know, saving rates declining a bit, you And higher fuel prices versus a year ago. So those are headwinds. At the same time, we've got reasonably good unemployment rates. We've got our customers have jobs, which is just huge. And there's been real wage growth in many of our markets. So, kind of two competing things. When we look at our sales in the U.S., we're seeing certainly some trading down to more budget and price-conscious decisions. We continue to see double-digit growth year over year on private label. So, that tells me a certain segment of our customer base is stretched and stressed a little bit. So, we're focused on providing them with consistent value and leaving first with, you know, high visibility value. I'd also want to point out, you know, the cigarette piece of this. You know, we've got significant headwinds there. The industry does, not just Custar. You know, if you look at what Altria or B&T are reporting, you know, Stix units, while, you know, fairly stable during COVID, you know, they've had a pretty hard year, you know, minus 7%, minus 8%. And that results in soft traffic and certainly a big headwind on same-store sales in certain markets where we rely more heavily. If you took out cigarettes, you know, we'd be up mid-single digits. So, you know, the bulk of our business, I think, is still very healthy, and the consumer is there being led by beverages, as we talked about earlier. As we look forward, you'll see us continuing to invest a bit in that category to make sure that we're staying relevant with that tobacco consumer and we're maintaining our share. In terms of Canada, I think there's a couple things that happened. Lockdowns lasted a little bit longer. So some of that cycling and then, you know, too, we've just, you know, we've done a nice job blocking and tackling and, you know, the consumer, you know, just seems to be a bit stronger north of the border than in the U.S. And so, you know, we continue to see that be, you know, a bright spot in our business.
Michael
Great. Thank you.
Opus
Thank you.
Operator
Next question will be from Irene Natel at RBC Capital Markets.
Irene Natel
Thanks and good morning, everyone. Would you be able to give us a little bit more color, please, on what's going on in Europe, both on the volume and within the supply chain that's having a negative impact on profitability in the region?
Michael
I'll take that.
J'aimerais d'abord vous
Profitability has been fine. We've got a longer supply chain. So if you look at North America, our average inventory held is a little under five days. In Europe, because of the nature of the beast, we've operated 15 terminals. We've got product on the water en route to our countries all the time. So we average closer to 15 days of inventory. So as prices fluctuate, the valuation of our inventories fluctuates along with it. If you looked at our COPS over replacement cost, if you said, hey, I'm buying today, our margins are absolutely very stable quarter over quarter and even year over year. So, again, I would point to this just largely being a timing, you know, and it's showing up more than it does in North America just because we've got longer supply chains. So the market remains very disciplined there, and we're very happy with the performance. On the volume side, we have a couple soft markets. You know, Poland continues to be stressed. There's some political issues. Issues around the leading player there and being owned by the government and elections coming up. And so that's been a market that's been under some strain. And then Scandinavia was a bit soft in the quarter. Not great weather there. So I hate to call out weather, but it just wasn't. Heavy rains throughout the northern part of Europe. And so those are the big two factors. Again, margins, I'd say, are just absolutely normal. It's just more of an accounting and timing issue.
Brian
Maybe a bit of, you know, as we, it's very alien, but on the, as you know, the region, Europe and others, just want to highlight also that Europe performance as a, as a, yeah, on the convenience is very strong. And here you have also some impact coming from Hong Kong. The Hong Kong business actually is going through some macro factors that are impacting the performance. The first one is the implementation of a new tax in cigarettes, and cigarettes is a very important category in our thoughts there. And the second one, so we are in Hong Kong, we are lapping, you know, the lockdown period. And during this period, the government was distributing coupons and vouchers to the customers. And that's also impacting, I would say, the comparison. So I think it's very important to separate Europe as a region doing pretty well and Hong Kong where we have those impacts, external factors.
Opus
Thank you. Thank you.
Operator
Next question is from Chris Lee at Desjardins. Please go ahead.
Chris Lee
Hi. Good morning, everyone. When I look at, you know, two of your bigger initiatives, Fresh with FAST and your fuel rebranding, it seems like you have already close to achieving the store target. You know, Fresh with FAST, you're almost at 5,000 stores. and then rebranding at 4,200 stores compared to the targets you set out a couple of years ago at the investor day. And I don't want to steal any thunder from the upcoming investor day, but I was wondering if you can share with us, what is your longer term rollout target, both for fresh with fat and rebranding stores? How many stores are still left to go over the next few years? Thank you.
J'aimerais d'abord vous
Yeah, Chris, I don't have an exact number in mind. You know, our penetration on food, It's still relatively small in Canada, so that journey continues there. I won't go into details, but there's certainly supply chain issues, getting the same product availability, things like that in the Canadian market that we have in the U.S. So more work to do there. The U.S., I would say we're close to being complete. I'd call it hundreds of sites, not thousands of sites left to go. And that just can be, you know, the traffic level we have inside or the size of the box or what we plan for that site longer term that would impact that. In terms of profitability of the program, you know, we're still very early in that journey. As I talked about earlier, you know, sales as we look at pro forma versus our northern tier business, which is a decade in, we have a lot of runway to grow there yet. On the fuel side, we couldn't be more excited. You know, we know when we started this journey five years ago that people were confused when we had a partner brand out front, Circle K on the back, and now having almost 5,000 locations, you know, we're growing the awareness of that Circle K brand and As we roll out our Inner Circle program in Florida and now in Arizona, you know, we're seeing strong uptake, strong consumer enrollment, and the ability for us to make that brand come to life and be more valuable, more important to our consumers is a great opportunity for us. And we'll take that all day, won't we?
Michael
Oh, yeah. Great. Thank you. All the best.
Opus
Thank you.
Operator
Next question will be from Georges Dumais at Scotiabank.
Georges Dumais
Yeah, good morning, Brian, Felipe. Just wondering if you're satisfied with striking the right balance of promo in the U.S. when it comes to fuel. And where are we in terms of premium penetration? And what are you seeing in the competitive environment today? And maybe anything you can share on market share in the quarter.
Michael
Thanks. Yeah, I mean, I'd say, you know, positive growth is important.
J'aimerais d'abord vous
in the wheelhouse we're kind of striving for right now. You know, a lot of our promotional activity has been kind of guerrilla tactics. You know, it's paper coupons. It's been fuel days. But it's been great for building awareness of the Circle K fuel brand. And, you know, we've seen a halo effect as we've run those events. And so, you know, we think as we cycle through, you know, some of the partner brands we had and some of their associated loyalty programs, which quite honestly were very strong, that, you know, we'll continue to see, strength in the volume profile of the Circle K branded sites and then again you layer inner circle on that where we can really target you know larger discounts toward you know those most valuable customers you know we think the ability to both attract new customers uh heavy users and also to um increase the loyalty or minimize the switching of those customers is an opportunity in front of us. And so, you know, we feel good. You know, we feel good about where we're at. And then, you know, we've talked about AI pricing and the ability to bring more technology and data to those decisions. And so, you know, when we talked to you guys in October, you know, that's an area I'm not pleased with where we're at. But we've got a roadmap, I think, that's very promising in front of us to just continue to optimize you know, those decisions each and every day and improve our profitability.
Michael
Thanks.
Opus
Thank you.
Operator
Next question will be from Vishal Sridhar at National Bank. Please go ahead.
spk09
Hi. I just want to follow up on that last question in terms of market share in the U.S. and just looking over the last several years post COVID. Is management Is management's strategy to sacrifice market share to boost margins, is that a conscious effort that management's making, saying we value margin more? And how has organic fuel margin X acquisition trended over the last several years? I'm talking particularly in the U.S.
J'aimerais d'abord vous
I think, again, we'll talk to you guys in October, but on the fuel side, we would absolutely believe we need to grow our market share in the fuel category globally. That's a big goal for us, and you'll see more tactics around how we plan to do that. That said, you know, the market's been very disciplined the last three years. We're not here to disrupt that. We're here to provide very consistent value to our customers. When I look at the data, you know, it's cloudy. You know, whether you look at EIA data, Opus data, you know, there's big discrepancies both, you know, nationally and also state to state. So, again, when we look at our results versus some of our public peers, we feel pretty good about where we're at. But absolutely, our goal over time is to systematically take share in that space.
Opus
Thank you. Thank you.
Operator
Next question will be from Bonnie Herzog at Goldman Sachs.
Bonnie Herzog
All right. Thank you. Good morning, everyone. I had a question on your OpEx, which was pretty low in the quarter on a per store basis. So hoping you could talk about the key drivers of this and then, you know, maybe how we should think about OpEx for the remainder of your fiscal year. I guess, you know, I'm asking or thinking about in the context of inflation potentially, you know, easing further. And then could you highlight some of the key initiatives maybe you've implemented that have been contributing to better OPEX performance and really how sustainable that might be moving forward. Thank you.
Brian
Hi, Monique, and thanks for the question. Yeah, on the effects, we feel pretty good on our performance on Q1, and I think, yeah, we have to recognize the work done by the operators and across all the regions. At corporate level, also, we are really seeing, you know, focus that we we have the the recent more for just making sure that we get the the expenses on control um and um and yeah we we have seen those results in q1 uh you you wanted me to point it out from some of the uh of the initiative so uh in source definitely we are seeing a great improvement in terms of productivity so Lower number of hours. So some automation there, you know, that machine rollout is doing pretty well. So helping us there. Also on the energy side. So we are seeing a nice, nice initiatives, you know, in Europe where we see consumption going down quite significantly. So really seeing good momentum. Also, we had kind of decided to do some reorganization at corporate level. So just to make sure that we are fit and you're ready to face this inflation. So to your point, we are seeing this inflation kind of easing a little bit. And we see this trend to continue in the next coming quarter. And overall, we feel that, you know, this trend on bidding inflation as OPEC's growth is something that we feel comfortable for the next quarter. And, yeah, I will not say that that's not the guidance, but where we feel comfortable that we are able to achieve for the next quarter.
J'aimerais d'abord vous
And then two more. Labor has been a challenge for the industry over the last couple of years. So is that stabilized now? You know, our staffing levels are much more normal, and overtime is way, way down. So that's significant on the cost side. And then, again, we'll share more in October. But, you know, both at store level and in our support offices, there's a heavy focus. It's more of a medium-term payoff, but heavy focus is on automation, you know, just making our operations more efficient at site level, getting managers out of the offices, and just, you know, streamlining our help desks and, you know, really all the points of contact. So, again, we'll share more with you guys next month.
Bonnie Herzog
All right, thank you.
Operator
Thank you. Next question will be from Antonio Bonadio at Wells Fargo. Please go ahead.
Antonio Bonadio
Hey, good morning, guys. Congrats on the nice quarter. So I just wanted to talk a little bit more about the loyalty program. I realize it's still early days here, but I guess more broadly, one, how has that evolved so far versus your expectations, especially as we think about things like lift to same-store sales and gallons? And then two, how should we think about the cadence of the rollout and gating factors in terms of getting it out more quickly?
J'aimerais d'abord vous
Antonio, thanks for the question. We're excited. You know, this has been three years in the making, so too long. But we also were pretty committed to say we're not just going to be in the other key fob in your wallet. You know, we really want something that differentiates and resonates. And, you know, our pilots that we conducted yesterday, around tier-based loyalty versus more of a club style, which is kind of typical in the industry, we think is the right approach for our customers and really focuses our dollars where you can get a good financial return on those customers that really will move the needle for us versus kind of treating everybody the same. So we're pumped about it. I can call it too early. I'd ask us next quarter that question about results. We're very pleased with sign-ups. We're well ahead of our sign-up projection. Again, in weeks, we're up to 2.7 million enrollees. We're seeing good penetration both at the forecourt and in the store. In terms of usage, if you looked on... The Apple website, I think we're rated, you know, one of the highest rated websites out there, or apps, excuse me, apps out there. So, you know, it's a good consumer experience. And then we've done some basic NPS scoring, net promoter scoring, and, you know, getting very, very good reviews there as well. So, again, early to call success, but I don't know that I could be more pleased with the launch.
Michael
Thank you.
Opus
Thank you.
Operator
Next question will be from Bobby Griffin and Raymond James.
Bobby Griffin
Good morning, everybody. Thanks for taking my questions. I was just curious if we could circle back on U.S. merchandise. If you kind of look at the business X, the cigarette decline, what do you see in volume versus pricing? Is the inflation-related price increase is still flowing through? Are those largely leveled out at this point?
Michael
The basket's still positive.
J'aimerais d'abord vous
I'd have to separate tobacco out of there, but basket is still positive. Traffic's a bit negative. If you do the math, at least my back of the envelope math on the traffic impact of the lost units of tobacco, you know, that largely explains the softness in the traffic. And so take tobacco out, I'd say we're probably pretty stable on traffic and we've got pretty nice basket growth, you know, again, in that four plus percent range in the U.S. and even stronger in Europe. As Felipe shared, really, Europe's been impacted by Hong Kong being in the mix there. So, Again, you take tobacco out, we feel pretty good about it. But that's not dismissing the fact that we do believe there's pressure on that consumer today. So we're very, very closely watching that and just making sure that we're consistently balancing the need for basket and profit growth with the need for a value proposition to that segment of our consumers.
Bobby Griffin
Thank you, and congrats on a strong start to the year. Thank you.
Operator
Next question will be from Luke Hannon at Canaccord. Please go ahead.
Luke Hannon
Thanks. Good morning. I just wanted to ask about what you're seeing as far as the strength of the morning day part. Curious to know if it's back to pre-pandemic levels. If not, how far is it? And are you seeing any material differentiation across each of your operating segments?
J'aimerais d'abord vous
And it's a great question. I'm not sure I've got specific data on that available, but, you know, just anecdotally, you know, that morning day part is important. And when we look at, you know, both gallons and morning traffic, I'd say we're not back to pre-COVID levels. You know, we've still got, and you guys, you know, you read the same stuff we do, you know, you still got a lot of employers that have people coming in two, three, four days a week versus, you know, pre-pandemic was five. And so, While total miles driven have increased, I think that morning-day part is still soft for us. Continues to improve, continues to come back to normal, but we're still not at pre-COVID levels for sure. That's why fresh food fast, quite honestly, is so important. It's got a great morning offer, and we think being able to differentiate that morning-day part is a key for our long-term success.
Michael
That's helpful. Thanks for the call, Eric.
Operator
Thank you. Next question will be from Martin Landry at CIFOL. Please go ahead.
Martin Landry
Hi. Good morning, guys. With total energies, your acquisition is expected to close in the coming months. I'm just trying to get a bit of sense as to your acquisition appetite in the months following total acquisitions. You know, is there going to be a focus more on integration, or do you have enough capacity to continue to look for large deals? And while you're there, I'm wondering if you could just discuss a little bit your acquisition pipeline.
J'aimerais d'abord vous
Yeah, Martin, thanks for the question. You know, we're excited to close both MAPCO, which we received FTC clearance during the core and should close next month. And then we feel good about Total Energy's closing in December. Both very, very nice acquisitions for us. In terms of our ability to integrate or maintain focus, I mean, I think one of the beauties of our decentralized model is that we're able to do M&A and not just stop the machine. You know, we're able to use local teams to help bring the businesses on, bring the teams in. And so I think about Total certainly will be busy in Europe. But our ability to do M&A either in Asia or North America or another part of the world remains fully intact. And I'll let Felipe talk about the balance sheet piece. But for me, I'm 20-some years into this, and I've seen the cycles. And I'm excited that we've got an environment where, quite honestly, it's a little more difficult. whether that's raising capital, raising affordable capital, those types of things. So I'm optimistic that the M&A environment will continue to improve for us and that we'll be ready for it when it is. But Felipe, a little more color on the balance sheet?
Brian
Yeah, for my, you know, including total energy and MAPCO completion, you know, our leverage would be at 2.15, so that will leave still a lot of room, actually, and great power to, you know, to do some M&A. And as we have mentioned, you know, already a few times, is that we see a more favorable environment People are slowing down, so yeah, we remain disciplined, but at the same time, if we see opportunities, we'll have the balance sheet to go for it, and that's what we have as an ambition.
Michael
Okay, that's helpful. Thank you, and good luck. Thank you.
Operator
Next question will be from Daniel Silvestin at Credit Suisse. Please go ahead.
Daniel Silvestin
Good morning. Thanks for taking the question and congrats on a nice quarter. My question is on the U.S. fuel business. Just given the promotional days that you guys cited, what are you seeing in terms of underlying comp gallon trends today, whatever you can share, versus earlier in the summer when it sounded like there was a solid level of pent-up travel demand? Curious to see if the momentum has continued heading into the fall. Thanks very much.
J'aimerais d'abord vous
Sure, Daniel. Thanks for the question. Really continue to see trends being pretty consistent. You know, we've had solid demand across most of the geographies, a little stronger in the West than in the Midwest. But, you know, it just continues. No big variations as we look forward into kind of halfway through the sixth quarter. And again, as I mentioned earlier, margins continue to remain very solid. So, again, we feel good about it. And even I think there's an opportunity with our inner circle loyalty to continue building on the volume momentum that we have and continue to capitalize on the guerrilla tactics that we have out there. Again, we have a segment of our customers that are feeling the pinch. I'm glad that we're able to be there for them and provide meaningful discounts and at the same time build the awareness of the Circle K increased to our brands in our markets.
Michael
Thanks.
Opus
Thank you.
Operator
And at this time, we have no further questions. Please proceed with closing remarks.
J'aimerais d'abord vous
No, we just want to thank everybody for attending today. Thank you for your interest. And hopefully, we'll see all of you on October 11th in Phoenix. Thanks, everyone. Thank you.
Operator
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.
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