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spk10: Good morning, my name is Joelle and I will be your conference operator today. Bonjour, je m'appelle Joelle et je serai votre opératrice pour la conférence aujourd'hui. I will now introduce M. Jean-Philippe Lachance, Vice President, Investor Relations and Treasury at Alimentation Couche-Tard. Je vais maintenant passer la parole à M. Jean-Philippe Lachance, Vice President, Relations, Inverseur et Trésorerie pour Alimentation Couche-Tard.
spk15: English will follow. Bonjour. J'aimerais d'abord vous souhaiter la bienvenue à la téléconférence qui porte sur la diffusion des résultats financiers du deuxième trimestre de l'exercice 2024 d'alimentation croustarde. 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, 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 Hanisch, président et chef de la direction, et M. Philippe Da Silva, chef de la direction financière. Good morning. I would like to welcome everyone to this web conference presenting Alimentation Couche-Tard's financial results for the second 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. Brian, you may begin your conference.
spk03: Thank you, Jean-Philippe, and good morning, everyone. We're pleased to announce a solid second quarter with progress across most of our key metrics. Although we did see some softening in the quarter in same-store sales, in the U.S., driven by weakness in the cigarette category and cycling against a very robust second quarter last year of 5.6%. In an environment with continued inflation and high interest rates, we remain committed to offering compelling value and ease, and we believe we'll continue to grow our share in key categories as we continue to implement key pieces of our strategies. In the quarter, we substantially expanded the rollout of our Inner Circle membership program. which is providing meaningful convenience and fuel rewards to our most valuable customers. As America's third stock, we're focused on the growth of our beverage category by offering great assortment, innovation, and value in both packaged and dispensed beverages at affordable price points. We also continue to be pleased with the performance of our fuel business in terms of both volume and margins as we continue to bring traffic to our sites through reoccurring promotional fuel days. I'll return to each of these areas with more detail later in my presentation. During the quarter, we held a very well-attended analyst investor conference, and I want to thank those of you who joined us either in person or online. At that time, we announced our new 10 for the win five-year strategic plan, with winning and growth being one of the lighthouses or pillars of that strategy. Here, we're excited by the recent developments in growing our network. In the beginning of November, we closed on the acquisition of 112 Mapco sites, accelerating our development in key markets in Georgia, Tennessee, Alabama, Mississippi, and Kentucky. and adding approximately 1,300 team members to the Cushtar family. We also received a very important decision by the European Commission allowing us to now, in only a few weeks, complete the acquisition of TotalEnergies in four new European countries. We're excited to welcome the TotalEnergies teams into the family and begin the journey of realizing significant value for all of our stakeholders. On the organic front, we're making progress on our stated goal to build 500 stores over the next five years, having already finished 40 new stores this fiscal year, with more than 100 sites in the construction pipeline and 1,000 sites identified for future growth opportunities. We've also added 20 new Circle K branded sites during the quarter under licensing agreements, bringing that total to over 2,100 sites. Now let's turn our results for the quarter beginning convenience. Compared to the same quarter last year, same-store merchandise revenue decreased by 0.1% in the United States and 0.2% in Europe and other regions. It's worth noting here that Europe really had healthy same-store sales. However, the overall results were impacted by a challenging tobacco market and cross-border traffic in our Hong Kong market. Same-store sales increased by 1.6% in Canada, driven by our growth in beverage and food offers. As I mentioned at the start, I'm especially pleased this quarter with the expansion of our Inner Circle membership program in the U.S. Inner Circle is and will be an important tool in helping us provide consistent and high visibility value for our customers both inside our stores and at our forecourt. Starting only five months ago, we're now in seven business units covering nearly 3,000 locations, and we're well on our way to reaching 10 of our 13 U.S. business units by the end of this fiscal year. We continue to see steady growth in enrollments in the program, with now over 8 million members enrolled since the program launched this summer. In Florida, our first business unit with the program, we're seeing enrolled customers visiting more often than non-inner circle customers, and we're learning how to best personalize our offers to increase traffic, grow fuel volumes, and most importantly, reward those most valuable customers. In Europe, the updated EXTRA program continues to perform well, and our most recent deployments into Lithuania are showing positive volume results, matching the results we've seen in other European markets. Across the network, Fresh Food Fast is now in over 5,500 locations globally. Our operations teams continue to improve execution in stores as we simplify assortments and increase the number of locally relevant items and trials in our markets. Our LTO sandwiches continue to perform well, as does our cookie offers. As the program matures, we're giving a better understanding of demand and controlling waste. As America's third stop, packaged beverage sales were up across the network with energy products and carbonated waters and enhanced waters leading the way. Great assortment and exclusive product offers, innovation, and activations are contributing to our overall success in that category. As with food, we're focused here on better operational tools and procedures. Nearly 3,000 stores globally, we've introduced new cooler solutions, which greatly expands customer-facing assortment and holding capacity while simplifying the restocking process for our team members. We're well on our way to doubling the number of stores with this solution by the end of the fiscal year. As I mentioned in the opening, we continue to see headwinds on cigarette sticks globally, and we believe the belt tightening by this consumer group has increased price sensitivity and impacted overall demand. We have initiatives underway with our supply partners and are looking at the best ways to invest in this category to make sure we stay relevant with our tobacco customers. On a positive note, polyusage continues to grow, driving strong growth in other nicotine products in the quarter globally. Moving to our fuel business, after two positive quarters in the U.S., same-store road transportation volumes decreased 1.5% in Europe, excuse me, in the U.S. In Europe, same-store road transportation fuel volumes decreased by 0.9% and increased 3% in Canada, favorably impacted by more people returning to the office, easing of retail prices and promotional activities. Our results compare favorably to our other public comps, and we believe we're growing share in key markets. Over time, we're excited at the prospect of further growing this category with our inner circle loyalty. In addition, unit margins continue to remain strong, reflecting the increased margin requirements of a very fragmented overall industry. In our Circle K fuel rebranding work, we've now completed 4,300 Circle K fuel sites in North America. We also continued the promotional activities during the quarter, including our first-ever Global Cushtar Circle K Fuel Day, with an additional 50% locally, covering nearly 8,500 sites. These fuel days offer valuable discounts at the pump, as well as fuel cards to save on future visits. We're bringing increased exposure to our new brand and significant value to our customers. Our EV fast charging network now consists of almost 1,900 charging stalls. That's up over 50% from the same quarter last year. We also now have over 40 chargers for heavy trucks in Sweden and over 11,000 home and workplace chargers deployed. Also in Europe, our B2B business had a solid quarter with truck volumes remaining very robust across both fleet and truck segments. Small fleet remains the main driver for growth and margin performances remain very strong in the quarter. As of recent quarters, we continue to see improving labor situation globally, particularly in North America, and we're now focused on piloting comprehensive programs to improve retention and turnover at our sites, as well as positively impacting sales. We're also continuing to implement solutions that reduce administrative hours, making it easier for our teams and allowing them to focus more on serving the customers. With that in mind, we now have more than 3,250 smart checkouts globally and which contribute to savings on labor hours while improving the customer checkout experience. With technology at the forefront of every customer and team member experience, we're focused on market agility, quality, and reliability. In the support of these objectives, early this quarter, we established a 10-year strategic partnership with CGI for our managed IT services. Through this collaboration, we're excited about the opportunities to better support our stores and customers while enabling our internal IT organization to focus on customer-facing enhancements. With that, I'll pause and turn it over to Philippe.
spk16: Thank you, Brian. Ladies and gentlemen, good morning. It gives me great pleasure to share that our focused efforts in managing costs are yielding tangible benefits. This quarter, we have successfully kept the growth of our normalized expense to a modest 1.5%, a figure that stands well below the average current rate of inflation affecting our operations. This is a clear indication of our team's dedication to efficiently operate and deliver value to our shareholders, even amidst widespread economic challenges. Our ability to surpass expectations on this financial indicator demonstrates our commitment to financial discipline and operational excellence, and certainly shows a great start to our fit-to-serve ambitions, one of our key focus areas as part of our 10 for the win strategic plan. Additionally, with the recent successful issuance in Canada of seven-year senior and secure notes for a principal amount of $800 million Canadian, which followed a rating upgrade by Sanders & Poor's Global to BBB+, from BBB, we have further strengthened our capital structure, ensuring it remains robust and effective. I will now go over some key figures of the quarter. For more details, please refer to our MD&A available on our website. For the second quarter of fiscal 2024, we're happy to report net earnings of $819.2 million or 85 cents per share on a diluted basis. Excluding certain items described in more details in our MD&A, adjusted net earnings were approximately $792 million compared with $838 million for the second quarter of fiscal 2023. Adjusted diluted net earnings per share were 82 cents unchanged compared with the corresponding quarter of last year. During the second quarter, excluding the net impact from foreign currency translation, merchandise and service revenues increased by approximately $37 million, or 0.9%. This increase is primarily attributable to a contribution from acquisitions. Excluding the net impact from foreign currency translation, merchandise and service growth profits increased by approximately $37 million, or 2.6%. This is primarily due to organic growth, as well as by the contribution from acquisition, which amounted to approximately $26 million. Our growth margin increased by 0.8% in the U.S. to 34.8%, impacted favorably by a change in product needs and the improvement of our fresh food fast program. Gross margin increased by 0.3% in Europe and other regions to 38.6% and remained stable in Canada at 33.2%. Moving on the fuel side of our business, in the second quarter of fiscal 2024, our road transportation fuel gross margin was 49.56 cents per gallon in the U.S. and increased 0.4%. cents per gallon. In Europe and other regions, our road transportation fuel margin was 10.2 cents per liter, an increase of 0.44 cents per liter. In Canada, it was 13.63 cents Canadian per liter, an increase of 1.08 cents Canadian per liter. Fuel growth margin remained healthy throughout our network due to favorable market conditions and the continued work on the optimization of our supply chain. Now looking at SG&A for the second quarter of fiscal 2024, normalized operating expenses increased by 1.5% 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 continued strategic effort to control our expenses, including labor efficiencies in our stores, allowing us to use less hours in the quarter this year compared to the same period last year. Our control of expenses is evidenced by our normalized growth of expenses remaining lower than the average inflation observed throughout our network at around 3.8%. Excluding specific items described in more detail in our MD&A, we adjusted EBITDA for the second quarter of fiscal 2024 increased by 26.9 million shares, or 1.8%, compared with the corresponding quarter of fiscal 2023, mainly due to the contribution from acquisitions organic growth in our convenience operations, as well as the translation of our foreign currency operations into US dollar, which had a net positive impact of approximately $2 million, partly offset by the impact of lower road transportation fuel volume sold, excluding the impact of acquisitions. From a tax perspective, the income tax rate for the second quarter of fiscal 2024 was 22.8% compared with 21.9% for the corresponding period of fiscal 2023. The increase mainly stems from the impact of a different mix in our earnings across the various redirections in which we operate. Moving now to the balance sheet, as of October 15, 2023, our return on equity remained strong at 23.7%, and our return on capital employed stood at 17%. At the end of the quarter, our leverage ratio remained healthy at 1.52 times, despite having repurchased 13.6 million shares for $672.9 million during the quarter under our NCIB. Subsequent to the end of the quarter and under our NCIB, we repurchased 0.3 million shares for $15.7 million. At the end of the quarter, we also had strong balance sheet liquidity with $1.4 billion in cash and an additional $3.2 billion available through our main revolving credit facility, net of US CP borrowings. Turning to the dividend, the Board of Directors declared yesterday a quarterly dividend of 17.5 cents Canadian per share, an increase of 25%, and in line with the 10-year CAGR of 24% for the second quarter of fiscal 2024 to shareholders on record as of December 7, 2023, and approved its payment effective December 21, 2023. With that, I thank you all for your attention and turn the call back over to Brian.
spk03: All right. Thank you, Felipe. As we pursue our 10 for the win strategy, we're pleased with our progress and plans to develop, deploy, and pull key levers to widen advantages versus our industry. We're significantly growing the network with our upcoming total energies acquisition, continuing to provide value needs to our customers through the expansion of our inner circle loyalty program, and unit margins continue to be strong in our fuel business. We've also worked hard to outperform average inflation or operating costs. And one last note, mid-December, so two weeks from now, we are excited to celebrate the 20th anniversary of Custar acquiring Circle K. You know, for me, it's humbling to think of the growth that's occurred over these past 20 years. And as I think about four weeks from now, expanding that brand into four new countries for a total of 29 countries as we continue to pursue our vision of becoming the world's preferred brand for convenience and mobility. Now with that, I'll turn it back to the operator to answer all those questions.
spk10: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the hands up before pressing any keys. One moment, please, for your first question. Your first question comes from Irene Nettel with RBC Capital Markets. Please go ahead.
spk08: Thanks and good morning everyone. I was wondering if you could please just provide some more detail around what you saw in terms of consumer behavior and demand both in the forecourt and the backcourt as we move through Q2 and Q3 to date.
spk03: Thanks, Irene. I'll start with the forecourt. During the quarter, we had sequentially higher retail prices, and that showed up. Traffic on the forecourts remained positive year over year, but we did see a contraction in average fills. As we look at more recent weeks, we've seen prices come down along with crude globally, and we've actually seen improvement in volume. So we're feeling that the volume picture has looked better in recent weeks than it did in the prior quarter. So we feel good about the fuel business. And also just building on that, you know, we just completed what probably is the largest fuel RFP ever done in North America and very successful with our partnership with Muscat. So I think we continue to widen the advantages that we're building versus the industry. On the backcourt side or the store, you know, clearly I think there's been some belt tightening, particularly if we reference the tobacco category. You know, we've got some headwinds with inflation and just, you know, student loans in the U.S., other things that, again, things that we think are transitory, but, you know, the drag was really for us tobacco, combustible. Well, if you took that away, we would have positive same-store merge for the quarter. So we're looking hard at that category. You know, it's core to our traffic. It's important to you know, our business. So, you know, we're looking at very surgical investments to make sure that we continue to gain share in that category. But again, we view these things as transitory. We've never said we're recession-proof, but recession-resistant and, you know, feel good that with the tactics we have both in tobacco and then also with Inner Circle that we'll continue to grow share in our core categories.
spk08: That's great. Thank you.
spk03: I would add, I guess, I can't skip Europe. As Europe grows for us, I did want to comment, Europe had a great quarter, both positive traffic, positive sales. If you take out Hong Kong, Europe was actually up 3.5% in same-store merch. So that's a good story, and as that grows as part of our portfolio, we'll consciously try to talk about that a little bit more.
spk08: That's great. Thank you. And then just as a follow-up, back to the U.S., Any early insights from Inner Circle that you would care to share with us just around sensitivity, you know, to pricing and value?
spk03: So we truly think we've deployed not just a Me Too, but a really unique program that helps us really focus in on, you know, the very valuable customers with a tiered approach. You know, I'm pleased five months in we've got 8 million people signed up. You know, Florida was our first market looking at results there. And we're balancing the activities of rolling out sites quickly to learning and doing both at the same time hard. But we are clearly seeing growing fuel volume versus non-inter-circle sites, growing merge traffic, and growing basket versus non-inter-circle sites. and positive share growth in that state. So, you know, again, early, but we feel very good that, you know, we're off to a good start. Conversion's been solid. You know, we're in the mid-teens, both in merch and in fuel, and that's growing every week. And so, you know, we, again, early, but we like where we're going. And, you know, when we started the year, our goal was to deploy about half the number of sites we're actually going to deploy. So we're pleased that, you know, the technology and the platforms proved to be very robust and we'll be in over 3,000 sites shortly.
spk11: Your next question comes from Michael Van Elst with TD Cowen.
spk10: Please go ahead.
spk05: Yes, thank you. Felipe, can you talk a bit more about your OpEx and some of the bigger factors that allowed CouchTard to keep that OpEx so much below inflation? And if any of that is kind of temporary or timing, or is that something that you expect to see occur for the next, for the foreseeable future?
spk16: Hi, Michael. Yes, as we mentioned earlier, we are very pleased by the performance that we had this quarter. So as we have announced during the investor day, we have launched a fit-to-serve program, around 800 million costs that we are looking at finding over the next five years. and we we see already good traction there so you know on the on the hgna side so uh looking out on procurement you know standardization um on on also on productivity so i was mentioning you know we have seen uh also less hours being used at star level so so overall and i would say across you know the region and at the corporate level also we we are seeing a really a good good discipline and as you know our long-term you know ambition is always to outperform at least by one percent the you know the overall inflation and of course you know that can fluctuate from one cutter to one to over but uh but overall you're feeling pleased that this one we we did very well and uh very confident actually to yeah, on the long term to beat this, you know, fit to serve ambition. So it's good.
spk05: All right, thank you. And then just to follow up on, I think it was Irene's question, but you had mentioned in the UK that excluding Hong Kong, your same-store sales were up. Can you give us an idea in the US what your same-store sales were up excluding tobacco?
spk03: Yeah, Michael, the low single digits, you know, kind of 2% type of number, X tobacco, X – I would say X cigarettes. You know, when I talk about nicotine in general, you know, noncombustible nicotine continues to grow. We've actually got some business units now where in terms of gross profit, you know, the polyusage – of other non-combustible nicotine is larger than cigarettes. So, you know, the margin profile of a total nicotine category is strong, but, you know, again, that doesn't belay the need to be sharp on making sure that that traffic and that basket is still coming into our stores.
spk05: Okay. And you talked about fresh food and beverage and private label in some areas doing well. I'm assuming they're all growing faster than that 2%. Other than cigarettes, what's what areas are weaker?
spk03: The beer was relatively flat for the quarter, really globally. Pac Bev, so the cooler, continues to grow at a faster pace. Food continues to grow at a faster pace, as you hypothesized. Europe had a great quarter in food, in particular. U.S. was Maybe not at the pace we'd had. We've dramatically improved the margin profile of the food program. I think for the quarter versus prior, we were up 500 basis points in margin on the food program. But growth is more in that single digits, you know, high single digits versus we've been running double digit in the past quarter. So our focus there is on trial and awareness and making sure that, you know, we're getting it out in front of customers.
spk12: Great. Thank you, Brian.
spk10: Please limit yourself to one question, please. Your next question comes from Chris Lee with Desjardins. Please go ahead.
spk14: Good morning, everyone. Maybe a question on fuel volume in the U.S. You know, Brian, you mentioned that you outperform your peers and gain some share. It looks like you're doing it also with limited impact on fuel margins. So I guess my question is, you know, do you believe this is sustainable? And then, you know... In terms of your market share gains, can you remind us some of the initiatives that you're doing? I think you mentioned that in your opening remarks, but if you can elaborate a little bit about that just to give us some sense of how sustainable this market share gain will be. Thank you.
spk03: We're committed to fuel. We've spent the last four years converting from our supply partner brands to ours. That journey is largely complete, and now the journey is to build our brand both for the B2B and B2C customers, and we think InnerCircle will play a key part of that. If you start with the supply chain, we've invested heavily in creating advantage to supply chain, our partnership with Muscat, our trading divisions in both Geneva and in Houston. We think we're procuring fuel at a significant advantage versus what is mostly a globally fragmented market. We continue to think we widen that advantage. Start with that. Then I'd say second, we're investing pretty heavily in how do we price our products. using machine learning and other tools to help us make very good decisions, which equates to over 10,000 decisions each and every day around fuel. And so, you know, you look at both sides of that and then combine that with, you know, the guerrilla activities we have out there of just, you know, pop-up events, things like that to provide value to our customers. You know, our goal is to continue to, you know, slowly and ratably take share in that marketplace. And so, you know, more to come there, but it's an area that we focus on being better than the industry in.
spk12: Thanks very much and all the best. Thank you.
spk10: Your next question comes from Mark Petrie with CIBC. Please go ahead.
spk02: Good morning. Thanks. Maybe just a quick one first on the follow-up on tobacco. Are you over or under-penetrated in any of the categories of tobacco broadly, sticks, pouch, etc.? Or do you sort of match the industry? And then my question on fresh food fast, you mentioned 500 basis points of margin improvement, so thanks for that. Where does that put you in terms of where you think that margin should sit? And I'm sure it's a combination of factors, but is bridging that gap more of an operational issue, i.e. at the store level, or is it more broad about building the program across the network? Thanks and all the best.
spk03: Yeah, so fresh food fast, I'll take that one first. You know, we're Good progress on the journey, but we're still probably 10 points off of where we would like to be. And when we say where we'd like to be, that's where our northern tier holiday business has shown that program can deliver. So, again, a journey there. On tobacco, we've always been kind of with the industry on combustibles. We've got good momentum, and I think we've been very much at the forefront of Apollo usage and the other nicotine products. And so I don't have exact numbers in front of me, but I think we would generally over-index competition on the innovation side of the equation. And we can follow up with more precise figures through JP if you'd like.
spk12: Okay, excellent. Thanks very much. All the best. Thank you.
spk10: Your next question comes from Martin Landry with Stiefel. Please go ahead.
spk09: Hi, good morning. I'd like to touch on your US merchandise margin. I believe they were near or at highest levels in recent years. So, you know, you did touch on the fresh food program having an impact on your merchandise margins, but I'd love to have maybe a bridge to better understand how all of the put intakes that created the expansion in the quarter?
spk03: Yeah, happy to. There's really three things happening. So, you know, with the softness in cigarettes, you know, that's been a positive mix effect. And then when we convert those customers, nicotine customers, to non-combustible, that is a higher margin transaction. So that's one effect is the mix within the category and then overall. Two, we've had growth in some high margin categories. That would include As I said, a 500 basis point margin improvement in our food program. And then we've had great growth in car wash. So, you know, it's a high margin category for us, great product, great service. And then we've added Clean Freak to that equation. And then the third, I would say, you know, beverages continue to perform very well. And, you know, that's when you, particularly when you think about the non-sparkling, you get into energy, isotomics, things like that, you know, the margin profile is better there too. So there's a mixed effect there as we continue to perform well in the beverage category.
spk09: Okay. And how sustainable are these levels? I mean, is there any seasonality that we should take into account or can they be replicated on a go-forward basis?
spk12: You know, I think category by category, very sustainable.
spk03: You know, the mix can change seasonally for sure. And quite honestly, we'd like to do better in tobacco. So, you know, to the extent we're successful with our ambition to grow share there, you know, that could bring it down a bit. But total gross profit dollars to the bank, you know, we feel very good about the journey we're on there, and we don't see any material backsliding on total gross profit.
spk12: Okay. Thank you. Good luck.
spk11: Your next question comes from Tammy Chen with BMO Capital Markets.
spk10: Please go ahead.
spk06: Hi, good morning. Thanks for the question. The press release had called out lower disposable income and a tougher macro environment, including inflation. And I'm just wondering, was that all largely referring to the ongoing pressure in the cigarette category, or did that also impact some of the other backcourt categories too? And Brian, could you just remind us what What is going on in Hong Kong with respect to the cross-border headwinds there? It's quite significant given the underlying European business comp was quite good. Thanks.
spk03: It is. It is. So Europe continues to perform well in the backcourt. So when you talk about the consumer, our business, our traffic volume continues to be good there. Hong Kong specifically, really three things. There's been just an absence of tourism, whether that's from mainland China or from the West. So that's way, way off. Last year, they were still really locked down and there were some significant government couponing to stimulate demand, which was beneficial to us a year ago. And then third, there was a very material increase on tobacco taxes, which has impacted demand. There's been some pantry loading that certainly happened when that tax was put in place. So we're still waiting to see where that level's out. But I think that was certainly been. And then there's been a one-off, which I hate to talk about weather, but they did have a typhoon that really, two typhoons, I'm being corrected, that certainly impacted our sales for the quarter there. But again, it was material in the overall context of Europe. But underlying Europe is solid, and we're looking forward to having Total being brought in. In the U.S., I think we've got to admit there's been some belt tightening. We see our growth in private label has been strong. There's been trading down from premium to lower tiers in tobacco and in alcoholic beverages. So that's something we're watching with caution, just making sure that we're communicating good value to our customers. and focus on getting that loyalty program, getting people signed up so we can deliver them, deliver targeted value to those most valuable customers that we have.
spk10: Your next question comes from George Dumais with Scotiabank. Please go ahead.
spk13: Good morning, Brian. Can you please talk a little bit about the performance of the car wash business? I'm just curious how much more room we have for that business to contribute to margins and top line in the longer term and Is that business something that you can potentially see as being significantly bigger than the 2,500 locations that we currently have?
spk03: Yeah, thanks for the question, George. So we're adding almost 1,000 car washes with the acquisition total here in 28 days. So we are in the car wash business, and we like that business. You know, cars get dirty. I don't care how they're propelled. They'll get dirty, and it's a great ancillary transaction for us. And so I think we'll continue to focus on growing that business, both organically with our forecourts, and then we like our True Blue business. We'll see where that takes us and whether we can conduct any M&A in that space, but we're going to grow that base organically as well. We're investing in some core markets where we're currently at, and then we'll look at a couple of new markets to penetrate with that tunnel offer, which we think is just a better mousetrap than the current rollover.
spk12: So expect that to be a growth sector for us over time.
spk10: Your next question comes from Bonnie Herzog with Goldman Sachs. Please go ahead.
spk07: All right. Thank you. Good morning. I had a question. Pricing inside your stores in the U.S. You touched on this, but I'm curious. Could you give us a sense of how much pricing you pass through to the consumer in the quarter and then really what your expectations are for further pricing, I guess, next calendar year? And then also in the context of that, could you touch on any noticeable down trading within your stores and, you know, ultimately how your private label business is performing? I guess I'm really just trying to get a sense of any noticeable change in consumer behavior in the last few months. Thanks.
spk03: Thanks, Bonnie. Yeah, I touched on earlier private label, you know, continues to grow, you know, double digits. Canada was up 30% for the quarter year over year. And so our ambition is to do more of that. We want to introduce more products in the coming quarters that we think would resonate with our customers. Certainly, we see that being, one, a good thing. It's a deflationary in terms of sales, but it's a positive in terms of gross profit for us. As I mentioned earlier, too, we're seeing pressure on the premium cigarette category. I think we had two things. One is your normal demand decline that we've seen year over year for decades. But the supply partners that we've had have been pretty aggressive about putting price out in the market. And I think that combined or colliding with a consumer that's maybe a little more cautious, we're seeing more trade down from premium into lower-tier brands in the tobacco category than we have certainly in the past. I think the same thing would be if you looked at the beer category, you know, with premium brands, you know, versus, you know, trading down in the Bush Lights and others. So certainly there's some signals of that that are out there. In terms of our activities, you know, I think our goal is to be very surgical. You know, we're not out here to throw, you know, money at everything or everyone, trying to be very conscious of what we think our customers care about, where we can be price compared very readily versus other channels or other retailers in our channel. And, you know, again, being more surgical than not. So I wouldn't expect to see a massive change in our gross profits. I communicated earlier, you know, the one category that will probably get a little more investment than others is tobacco. But that's going to be in a very structured, thoughtful way. It's not every site. And we're trying different trials to see what resonates most with our customers as we try to drive that volume.
spk11: Okay, thank you.
spk10: Your next question comes from Anthony Bonadio with Wells Fargo. Please go ahead.
spk01: Yeah, hey, good morning, guys. Thanks for taking our question. I just wanted to ask about M&A Dynamics. I know you've already got quite a lot under your belt for the year, but can you just talk about how the pipeline is evolving and how things have trended from a valuation perspective?
spk03: Yeah, thanks, Anthony. One, we're excited about the MAPCO acquisition. We've taken on, I think, 73 of the 113 locations already. going very smoothly. Our teams are just really, really good at doing this. So couldn't be more pleased there. And these are great sites for us. Total in 28 days, 2,200 locations, a huge challenge for our European teams. But we've got really good talent in Europe, and I think we're bringing on some really good people. So those two are big lifts for us in the coming quarter. But again, I'll remind, I think our decentralized model really unique and enable us to pursue multiple opportunities. So, this by no way shuts down our appetite for growth. In terms of the dynamics, you know, I think we're feeling multiples coming off, you know, and that's, you know, the math would say with higher interest rates, that should happen. There's always this lag between, you know, the customer or, sorry, the seller and looking at what they could have gotten versus what they could get today. And that's a period of adjustment. But we think that's going to happen. Prices are coming down. And then also, I think the credit markets have taken away some of the people that we've competed with over the last few years. So you combine that with our balance sheet and our appetite, we feel good about the prospects for M&A in the coming years.
spk12: Yeah.
spk11: Your next question comes from John Royal with J.P.
spk10: Morgan. Please go ahead.
spk00: Hi. Good morning. Thanks for taking my question. So my question is on U.S. fuel margin, and 1Q had been a big outperformance versus our expectations, but 2Q is flattish, a little bit down, and the industry-level data I'm looking at, which I know has its flaws, but the industry-level data I'm looking at is up pretty substantially. So I was just wondering if you had any color on the 2Q versus the 1Q fuel margin and You know, anything in particular between those quarters we should be thinking about?
spk03: I think I touched on it earlier. You know, we feel good about the fuel business. You know, the volume we think has looked stronger in recent weeks, really, in all of our markets. And, you know, the margins continue to be very solid. And as we said earlier, you know, the supply chain continues to optimize, and we think extend our advantages. So, again, you know, quarter to quarter, we'll have some volatility. We always will in the market, but – You know, we feel good that, you know, the gap versus the overall industry is widening, you know, that the marginal need for margin continues to be higher with the independent competitor out there. And so, you know, as we widen, you know, the gap in how we buy and we're very thoughtful and deliberate in how we price, you know, we continue to think that, you know, structurally the market will deliver very, very good margins for us.
spk12: Thank you.
spk11: Your next question comes from Bobby Griffin with Raymond James. Please go ahead.
spk12: Bobby, are you on mute by chance? Go ahead, operator, to the next question.
spk10: Your next question comes from Lou Cannon with Canaccord Genuity. Please go ahead.
spk04: Thanks. Good morning, everyone. Just wanted to ask about packaged and dispensed beverage. Encouraging to see the growth that you guys have gotten there so far. My question is, who do you see as your main competitors here? Is it just other larger C-store operators? Is it the independents? Do you include grocery in this as well, QSRs, et cetera? Just curious to know who you see as your main competitors and then also against that competitive set, where are you capturing the most share as of today? Yeah.
spk03: So, really, maybe three pillars in there. You know, some dispensed beverage, you know, QSRs are by far our largest competitors, so coffee shops and QSRs, both for hot dispensed and cold dispensed. So, you know, that's, you know, we've always had a very strong franchise in the U.S. with Polar Pop. You know, candidly, we may have taken our eye off the ball on price a little bit there, so we're looking at that to make sure that we're sharp and continuing to grow share in that category. And then packaged beverage, it's really a take-home occurrence and an immediate consumption occurrence. We think we need to be better at take-home. We've got pockets of where we do really, really well. And so we've kind of recommitted to being relevant in that category and being reliably priced for our consumer on those take-homes. And that's not just attrition sparkling, but also take-home energy and things like that. And that's, you know, certainly grocery would be our primary competitor in that space. And then media consumption is where our industry just continues to be unique. You know, our coal holding power, the ability to provide, you know, really unparalleled assortments as brands continue to proliferate and use cases continue to proliferate. You know, we feel good and we're seeing continued growth in energy, enhanced waters, isotonics, you know, that's you know, other than fuel, that's our number one trip occasion. And so we think that's the biggest lever we have to grow, and we'll continue to focus on being better in that space. Thank you.
spk10: Ladies and gentlemen, as a reminder, should you have a question, please press star, follow by the one. Your next question comes from Bobby Griffith with Raymond James. Please go ahead.
spk17: Hey, guys. Sorry about that on the air on the problem. Brian, just a follow-up on the tobacco category. It has Is the weakness in the category just the weak dynamics that we've come used to with less people smoking, or is the competitive nature of tobacco within the C-Store channel changed over the last six to 12 months, where there needs to be more bigger changes inside two-star strategy towards tobacco in general to maintain and go after market share?
spk03: Yeah, it's a great question, Bobby. If you look at, you know, BAT's results or you look at Altria's results, you can see their stick performance. And I would say it's been an industry issue. We've actually held share. Our goal is to grow share. So, you know, that's the tactics I talked about earlier. But, no, I think it's been a combination of kind of normal demand destruction, attrition, if you will, you know, that 2% a year type that we've felt. layering on some pretty aggressive price increases taken by the suppliers, and then third, just a more cautious consumer. You multiply all those things together, and I think that that's what's manifesting a steeper drop in demand than what we've seen in prior years. So is that transitory or not? I'd like to think it is, but we're going to play with the hand we've been dealt and continue to focus on good value to our customers and you know, piloting a lot of different activities on what's the most cost-effective ways to provide value and grow share in that category.
spk18: Thank you. Best of luck and have a great holiday season. You too.
spk10: This concludes the Q&A portion of the conference. Mr. Lachance, back over to you.
spk03: Hey, real quick for everybody. One, thank you for the support, but also, and for those of you that came to Phoenix for our Investor Day, and then also have a great holiday season. JP, go ahead.
spk15: Thank you, Brian. And thank you, Felipe. That covers all the questions for today's call. Thank you all for joining us. We wish you a great day and look forward to discussing our third quarter 2024 results in March. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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