Alimentation Couche-Tard Inc.

Good morning, my name is Eric and I will be your conference operator today. Bonjour, je m'appelle Eric et je serai votre opérateur pour la conférence aujourd'hui. I will now introduce Mr. Mathieu Brunet, Vice President, Investor Relations and Treasury at Alimentation Couchetard. Je vais maintenant passer la parole à Mr. Mathieu Brunet, Vice President, Relations Investisseurs et Trésorerie

English will follow. Bonjour. J'aimerais d'abord vous souhaiter la bienvenue à la téléconférence qui porte sur la diffusion des résultats financiers du troisième trimestre de l'exercice 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. We would like to remind you that this web broadcast will be available on our website for a period of 90 days. In addition, note that some of the topics discussed during this web broadcast may consist of prospective statements provided by the 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 Monsieur Brian Hanesh, Président et Chef de la Direction, et Monsieur Philippe 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 third 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 Anish, President and Chief Executive Officer, and Mr. Felipe Da Silva, Chief Financial Officer. Brian, you may begin your conference.

All right, thank you, Matthew. Good morning, everyone, and thank you for joining us for our presentation of our third quarter results. As we continue to navigate some near-term headwinds, particularly in the U.S., we remain focused on providing value needs for our customers with a growing selection of private label options continued rollout of our Inner Circle loyalty program, which now has 1,600 members, including almost 5 million fully enrolled members in the U.S. And then we continue to execute on recurring Circle K Fuel promo days, bringing value to our customers. All these offers are providing meaningful rewards and compelling value, especially for our more cash-strapped cost consumers that are out there. However, our business is extremely diversified around the globe, And we feel very good about its proven resilience and the continued focus on our strategy, building on our key points of differentiation with our customers and maximizing the advantages of our scale. We're especially pleased this quarter with the significant growth in our network. In January, we closed in the acquisition from Total Energies, welcoming four new countries, nearly 22,000 new team members, and 2,175 sites into the Custar family. We have a strong track record of successful integrations and realization of synergies, and we're proud of how the transition is progressing to date. We've identified local leadership, rebranded our first two Circle K locations, one in Berlin, the other in the Netherlands, and we're well on our way. We're working closely with our new, highly engaged teams to test new programs and share best practices. As previously reported with this acquisition, we have an ambition to unlock synergies of approximately $187 million over the five years, and we have a clear, well-structured plan to make that happen. We're also advancing nicely on the integration of 112 macro sites that we closed on last quarter, including the rebranding of many of these stores. We're excited to have these locations and team members as part of our family as we increase our presence in the southern part of the U.S. On the organic front, we're making good progress on our five-year goal of building 500 new industry stores. We're on track to open about 100 in North America in this first year, and we have a great pipeline for the coming years. Now I'm going to turn to the results for the quarter, beginning with our convenience business. Compared to the same quarter last year, same-store merchandise revenue decreased by 1.5% in the United States, by 0.3% in Europe and other regions, and by 1.2% in Canada. As I mentioned earlier, these results were impacted by near-term headwinds in the economy, as well as the continued softness in the cigarette category, partly offset by the growth in other nicotine products, which I'll go into more detail later. It's worth noting that Europe really has had good performance during the quarter, with a positive 2.6% same for sales growth. However, the overall Europe and other region results were impacted by weak results in Hong Kong, driven by a very large tax increase on cigarettes and continued softness in tourism. In the U.S., we continue to focus on the expansion of Inner Circle. As a free membership program with rewards, fuel rewards, food rewards, and much more, Inner Circle is providing a differentiated, personalized experience to our most loyal and valuable customers. I'm pleased to report that registrations and full enrollments have doubled over the quarter, and we continue to see steady growth in enrollments in the program. We now have over 4,000 locations on Inner Circle, and we've expanded to three new business units in early March, bringing the total to 10 and covering over 30 states in the U.S. We're seeing that our highest penetration sites that have more than 25% of their transactions coming from Inner Circle, are outperforming our non-loyalty sites, and that these loyal customers are visiting our locations more frequently and with a higher basket. In Europe, our updated Extra Loyalty Program continues to perform well, is now fully rolled out in the Baltics, with plans to bring it to Ireland in the new fiscal year. We're also piling a new tier-based concept in Scandinavia to drive both fuel volume and store traffic, being based on visits versus purchases. Across the network, Press2Fast is now in more than 5,700 locations globally. Over the quarter, our operations teams have focused on improving execution and profitability. Margins in profitability are up materially year over year. However, as we continue this journey of building our food culture, we need to ensure availability and in-stock during our busiest times of the day. In our quest to have what our customers want when they want it, while making it easier for our team members, we're excited to be rolling out a new forecasting production tool in North America that leverages AI to more accurately determine demand on a site-by-site and time-of-day basis. Sampling has also increased across our business units as we promote our food offer and try to gain trial. Winning the thirst occasion is a core part of our long-term strategy. And in this quarter, packaged beverage sales were up across the network with especially strong performance in Europe due to well-executed initiatives, including a first-to-launch Red Bull purple can in Europe, and an always-on value, multi-buy beverages in Ireland. Alcohol sales were also strong in Europe. In the U.S., we announced an exclusive partnership with Warner Brothers and Legendary Pictures in conjunction with the upcoming film, Godzilla X- The New Empire, which will be introducing five exclusive limited-time offers, including two exciting new froster flavors, and branded cups. Also in the U.S., where alcohol sales have been a bit soft, we're leveraging aggressive promotional activity to drive volume, present value, and gain share. As I mentioned earlier, we continue to see pressure on cigarette units globally, while power usage continues to grow, driving strong growth in other nicotine products in the quarter. In the U.S., we have initiatives underway with our supply partners, including brand-focused contests and personalization programs for our age-verified customers. Here we're starting to see positive results with gains in market share as we look to stay relevant and provide choice to our nicotine consumers. In Europe, other nicotine remains strong with Ireland leading the way following successful new launches of new products. Moving to our fuel business, same sort of transportation fuel decreased by 0.8% in the US, 1.9% in Europe and other regions, and increased 0.2% in Canada. During the quarter, Demand was certainly impacted by economic uncertainty, particularly in diesel, which was significantly weaker than gasoline. In that context, when we compare results to industry data and our public peers, we're pleased with our results and remain positive about our long-term initiatives to gain share in the fuel space. Over the quarter, we had healthy fuel margins across the network, and we're continuing to build value for our customers and business through the optimization of our fuel supply chain globally. While the advantage model we've developed does better in periods of higher volatility, this was not the case this quarter. Our increased trading supply and logistic capabilities continue to capture opportunities. In North America, our partnership with Muscat empowers us to explore new and lower cost sourcing options while ensuring we maintain supply across their network. In Europe, our newly built fuel supply and trading capability, which we based in Geneva, is moving forward to integrate our supply chains for expanding counterparty engagement and new supply paths. As our B2B business continued with solid growth in Europe, we are gaining traction in the U.S. B2B business where we believe we have tremendous opportunities. Our Circle K Pro proprietary card platform is seeing for positive momentum and volumes as new initiatives and strategic partnerships are bringing in fuel customers. While we continue to invest in developing our U.S. B2B offer with simple self-serve solutions, easier site experiences, and compelling inner circle offers. Also, our network of more than 440 high-speed diesel truck sites is growing as we expand our offer of diesel, DEF, and relevant services for the long and short haul trucking. Our EV fast charging network now consists of more than 2,400 charging points, including those in our four new European countries, and 50 charge points for heavy trucks in Sweden. We're seeing a significant increase in charging actions on our Circle K branded chargers, driven by network expansion, improved payment offers, and station upgrades making it easier for our EV customers. North America, we remain committed to deploying chargers at 200 sites. Our footprint in Canada now covers Quebec, Ontario, BC, and Alberta, and 11 states in the U.S. Before I conclude, I want to mention the important work that we're doing in North America to improve retention and turnover at our stores. In Operations First culture, we're investing in our team members in areas that they care about, including benefits, training, and engagement. As a result, we're seeing notable improvement in turnover, both in our associate and manager ranks, and we're doing significantly better in the industry when compared to recently released NACS data. We're also continuing to implement solutions that reduce administrative hours, making it easier for our store teams, allowing them to focus on serving our customers. We are continuing the evolution of our easy office program and gaining efficiency in store labor hours through automation. We're also bringing our successful European inventory management program to North America to help simplify the ordering process and enable more informed store merchandising decisions, which we believe and we've shown in Europe will lead to better stock conditions.