Couche-Tard to boost pace of store construction on rising consumer confidence

MONTREAL - Alimentation Couche-Tard expects to boost the pace of new store construction in the coming year amid improving consumer confidence, especially in the U.S. sunbelt that was especially hit hard during the recession.

The Quebec-based convenience store operator built 25 stores last year and expects to construct two to three times that number, mainly in the United States.

It said Florida, Arizona and California are experiencing the most robust growth as they bounce back from the challenges of 2008 and 2009.

"So as time becomes more valuable, as people have jobs and have more discretionary income, we think convenience will become more relevant," chief operating officer Brian Hannash said Monday during a conference call to discuss its fourth-quarter and fiscal 2014 results.

Reporting in U.S. dollars, it earned $145.1 million or 25 cents per diluted share on $8.95 billion in sales during its fourth quarter as it was hurt by lower U.S. fuel margins. That compared with a profit of $146.4 million or 26 cents per diluted share on $8.78 billion in sales a year ago.

Couche-Tard also boosted its quarterly dividend for a third time in the past year, raising the payout by two-thirds of a cent to four cents per share.

The retailers said it continues to look for acquisition opportunities, but plans to grow its own network especially since competitors paid high prices for recent U.S. deals.

"It is sometimes better to pass and keep our capacity for future deals at the right conditions than to fall in love too much with the deal," CEO Alain Bouchard said.

Couche-Tard cautioned the analysts not to forget about acquisition opportunities in Canada. The company also said it is very interested in growing its Circle K brand internationally, where it is present in 12 countries outside of Europe and North America with licensing agreements, including a new one signed in India.

"Medium term to longer term, we also want to understand our opportunities to invest in Asia on an equity basis. But again, we're going to be very careful there, understand the country, understand the partner before ever making any commitments like that," added Hannash.

Adjusting for one-time items, Couche-Tard (TSX:ATD.B) earned 22 cents per diluted share in the quarter, up from 20 cents a year ago, but three cents below analysts' expectations.

Same-store merchandise sales in Canada, the U.S. and Europe rose 1.6 per cent, 4.4 per cent and 2.5 per cent respectively. Fuel volumes grew in all jurisdictions.

Traffic was positive in Europe, the U.S. and Western Canada, but soft in Ontario and Quebec when grocery retailers also experienced weather-related challenges.

Couche-Tard said it remains on track to generate the targeted $150 million to $200 million of cost savings by the end of 2015, relating to its 2012 acquisition of Scandinavia's Statoil Fuel & Retail. It recorded $21 million in savings during the quarter, bringing the total to $85 million since the acquisition.

For the full-year, it earned $812.2 million or $1.43 per share on $38 billion in revenue, compared with $572.8 million or $1.02 per share on $35.5 billion in revenue in the prior year.

Its adjusted profits was $1.35 per share, compared to $1.11 per share in fiscal 2013.

Analyst Derek Dley of Canaccord Genuity said Couche-Tard's long-term growth strategies remain in tact, despite the lower than expected fourth-quarter earnings.

"Overall, we believe Couche-Tard remains on track with its long-term growth strategies, and given the company’s improving capital structure and reduction of debt over the last 12 months, we believe Couche-Tard is well positioned to pursue disciplined acquisition opportunities should they arise," he wrote in a report.

Irene Nattel of RBC Capital Markets said the dividend increase signalled management's confidence that cash flow momentum should be sustainable, but said the yield was "modest" at 0.5 per cent.

On the Toronto Stock Exchange, Couche-Tard's shares closed down 50 cents to C$28.85 in Monday trading.

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