Alimentation Couche-Tard Inc. (ATD:CA) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary and Q&A indicate strong financial performance, cost control measures, and strategic partnerships, leading to a positive outlook. The company reports significant savings in operations, increased oil production, and plans to retire debt, which are favorable indicators. Despite some uncertainties in management responses, the overall sentiment is boosted by strategic initiatives and market consolidation opportunities, suggesting a positive stock price movement.

Key Financial Performance

Same-store merchandise revenues (U.S.) Increased by 0.4% year-over-year. This was the first positive performance in several quarters, driven by compelling value and ease in food and beverage offers.

Same-store merchandise revenues (Europe and other regions) Increased by 3.8% year-over-year. Growth supported by cigarette sales in the Netherlands and Luxembourg due to favorable legislation and conditions.

Same-store merchandise revenues (Canada) Increased by 4.1% year-over-year. Growth driven by strong alcohol category performance, offsetting declines in tobacco sales.

Meal deal sales (North America) Increased by nearly 40% year-over-year, with weekly averages rising from 540,000 to over 750,000. Growth attributed to vendor engagement and customer purchasing behavior.

Same-store road transportation fuel volumes (U.S.) Decreased by 0.9% year-over-year. Performance impacted by complex market conditions.

Same-store road transportation fuel volumes (Europe and other regions) Decreased by 1.3% year-over-year. Performance impacted by market conditions.

Same-store road transportation fuel volumes (Canada) Increased by 2.2% year-over-year. Performance attributed to favorable market conditions.

Fuel margins (North America) Remained aligned with previous quarters. Margins supported by optimization of the fuel supply chain and lower-cost sourcing options.

Fuel margins (Europe and other regions) Increased by $0.0273 per liter year-over-year, driven by improved fuel market conditions in certain regions.

Fuel margins (Canada) Increased by CAD 0.011 per liter year-over-year, supported by strong execution and leveraging global scale.

Net earnings attributable to shareholders $783 million, or $0.82 per share on a diluted basis. Adjusted net earnings were $757 million, or $0.78 per share, representing a 6% decrease year-over-year. Decline attributed to gains on asset disposals in the prior year.

Adjusted EBITDA Increased by $25 million or 1.6% year-over-year. Growth driven by organic growth in convenience activities and contributions from acquisitions.

Merchandise and services revenues Increased by $158 million or 3.5% year-over-year. Growth driven by organic growth, acquisitions, and new store openings.

Merchandise and service gross profit Increased by $70 million or 4.4% year-over-year. Growth driven by organic growth in all regions and contributions from acquisitions.

Merchandise and service gross margin (U.S.) Increased by 0.9% to 34.6%. Growth driven by strong food execution, vendor promotional support, and favorable product mix.

Merchandise and service gross margin (Europe and other regions) Decreased by 0.9% to 38.9%. Decline attributed to changes in product mix due to new legislation.

Merchandise and service gross margin (Canada) Decreased by 0.9% to 33.9%. Decline attributed to changes in product mix due to new legislation.

Shrink and spoilage Improved by 13.3% year-over-year. Improvement attributed to new operating methods, stronger processes, and better use of data analytics.

EV charging transactions (Europe) Increased by 50% year-over-year, driven by network expansion and improved utilization of chargers.

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Operating Highlights

Food and Beverage Offers: Focused on providing compelling value and ease, leading to positive same-store sales in the U.S. for the first time in several quarters. Meal deals in North America saw a 40% increase in sales, with 8.6 million food bundles sold in Q1.

New Menu Collaboration: Launched 11 new menu items in collaboration with Guy Fieri, including unique offerings like Mac & Cheeseburger and Sweet Heat fried chicken and waffle sandwich.

Energy Drinks and Beverages: Energy drinks led category strength and profitability, with over 20% of breakfast bundles including an energy drink. Cold and frozen beverages also showed growth.

Acquisition of GetGo Stores: Acquired nearly 270 stores from Giant Eagle, integrating their strengths in food service and loyalty with Couche-Tard's scale and technology.

European Expansion: Expanded Circle K branding in Europe with 65 branded sites, 30 car wash sites, and EV charging dispensers at 185 sites.

New Store Openings: Opened 10 new stores in Q1 and on track to open over 100 in North America for the fiscal year. Currently, 65 stores are under construction.

Shrink and Spoilage Reduction: Achieved a 13.3% improvement in shrink and reduced spoilage by over 500 basis points, contributing to margin improvement.

Fit to Serve Program: Improved labor productivity and reduced overtime wages to 2.3%, marking 20 consecutive months of improvement.

Technology Investments: Rolled out Relex for inventory management and AI task management pilot to improve operational efficiency.

Loyalty Program Expansion: Inner Circle enrollments reached 11.5 million members, with significant growth expected as the program expands to Texas.

EV Charging Network: Expanded European EV charging network to 3,660 charge points, a 35% year-over-year increase, with 1 million charging transactions in Q1.

Fuel Business Initiatives: Introduced fuel days offering discounts to loyalty members, and expanded B2B fuel share in the U.S. with over 510 truck-accessible sites.

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Risk or Challenges

Market Conditions: Challenging geopolitical conditions persist across the network, which could impact operations and customer behavior.

Fuel Business: Fuel margins in North America are under competitive pressure, especially in Southern markets, and there is volume volatility in the European B2B business.

Regulatory Changes: Changes in legislation in Europe and Canada are impacting product mix and sales, particularly in the nicotine and alcohol categories.

Economic Uncertainties: Inflationary pressures are affecting operational costs, although mitigated by cost management strategies.

Supply Chain: Efforts to optimize the fuel supply chain are ongoing, but challenges remain in sourcing lower-cost options.

Strategic Execution: Integration of acquisitions like GetGo and the rollout of new technologies such as Relex and AI task management require significant investment and operational focus, posing execution risks.

Tobacco and Nicotine Sales: Declines in tobacco sales in Canada due to illicit trade and removal of popular products, as well as regulatory changes in Europe, are impacting revenues.

B2B Fuel Business: Intense price competition in Ireland and Norway and excise duty increases in Lithuania are affecting bulk fuel volumes.

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Guidance & Outlook

Revenue Expectations: The company expects to open over 100 new stores in North America for the fiscal year, contributing to revenue growth. Additionally, the company is on track to open 500 new stores as part of its long-term ambition.

Margin Projections: Fuel margins in North America are expected to remain aligned with previous quarters. The company is also optimistic about improving margins through better food program execution, reduced spoilage, and disciplined cost control.

Capital Expenditures: Significant investments are being made in technology and operational tools, including the rollout of Relex, which is expected to improve inventory management and reduce spoilage. Investments are also being made in EV charger deployments and store remodel programs.

Market Trends: The company anticipates growth in the energy drink category and continued strong performance in the alcohol category in Canada. In Europe, the nicotine category is showing signs of recovery, driven by growth in other nicotine products.

Business Segment Performance: The company expects continued growth in its food and beverage offerings, with plans to expand meal deal offerings and introduce new menu items in collaboration with Guy Fieri. The loyalty program is also expected to drive traffic and increase customer engagement.

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Shareholder Return Plan

Quarterly Dividend: The Board of Directors declared a quarterly dividend of CAD 0.195 per share for the first quarter of fiscal 2026. The dividend is payable to shareholders on record as of September 11, 2025, with payment effective September 25, 2025.

Share Buyback Program: The company repurchased 7.9 million common shares for an amount of $405.4 million following the July 21 announcement authorizing the share buyback program. The program is now in full motion and is viewed as an effective way to create sustainable long-term shareholder value while optimizing the balance sheet.

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Key Q&A

Q:In the U.S. in the quarter, did you see an improvement in U.S. merchandise in-store sales? If so, what drove the improvement? And did the momentum continue into Q2?

A:Yes, the final month of the quarter was the strongest top line in over 2 years, and the momentum continued into Q2. The improvement was driven by a focus on core initiatives, particularly food, which grew 4.5% in the quarter. Food gross margin increased by 500 basis points. Digital platforms also scaled, with Inner Circle enrollment in the U.S. growing 11% quarter-on-quarter. Customers in Inner Circle showed increased visits and higher baskets, with merchandise sales growing 4% and fuel gallons growing 3%. Despite a challenging environment for lower-income consumers, the company believes it is widening the gap with competitors and taking market share.

Q:How is increased competition from large QSR peers and increased fuel competition in the South impacting your business?

A:The company is pleased with its fuel performance, beating OPUS in the U.S. by $0.045. However, fuel transactions are down mid- to high single digits in southern border states like Florida, Texas, and Arizona, where the company has a heavy presence. Despite this, the company believes it is taking market share and widening the gap with competitors. Investments in digital platforms are driving traffic, sales, and fuel volume. The company remains confident in its ability to maintain fuel margins despite rising costs.

Q:Can you talk about initiatives to provide value to consumers beyond meal bundles, such as private label or vendor partnerships?

A:Private label remains a big focus, with efforts to reset and rationalize SKUs. Vendor partnerships are being leveraged to offer promotions, such as a free can of ZYN with tobacco purchases. Digital platforms are being used to target specific customers with value offers. The company is also focusing on energy beverages, the fastest-growing category in stores, and leveraging vendor partnerships to promote value.

Q:Do you have a series of vendor partnerships lined up to support margins throughout the year?

A:Yes, the company has strong relationships with vendors who are aligned in their goals to grow units and sales. The use of data allows the company to direct promotions at specific customers, contributing to a 90 basis point improvement in U.S. margin merchandise performance. Vendors are supportive of the company's digital platforms, scale, and operational focus, and are collaborating on promotions across geographies.

Q:What are the pressures in the southern border states, and what are the key drivers of those demand pressures?

A:The company is seeing reduced traffic in southern border states, particularly in fuel but also in merchandise. Industry data suggests this is not unique to the company. The company believes this is temporary and remains focused on taking market share and executing well in these regions.

Q:Are you expecting Canadian same-store sales growth to continue, particularly with alcohol sales in Ontario?

A:Yes, the company expects continued growth in Canadian same-store sales. Alcohol sales in Ontario have been a significant driver, with wine and liquor sales growing over 100%. The company is focused on understanding adjacencies and mix to drive basket growth. Despite lapping the launch of alcohol sales and the removal of Zonnic, the company remains positive on traffic and sales growth in these categories.

Q:What is your perspective on the acquisition backdrop and the types of opportunities you are interested in?

A:The company sees a rich pipeline of acquisition opportunities, particularly in North America and Europe. The focus is on consolidating the convenience store market, with adjacent retail opportunities being a secondary priority. The company believes the challenging environment presents opportunities for consolidation and is confident in its financial playbook to deliver strong returns.

Q:Do you expect the rate of SG&A growth to maintain, and what are the drivers?

A:The company is investing in technology to improve digital experiences for customers and employees. These investments are being offset by the Fit to Serve program and disciplined cost management. Initiatives at the store and global functional levels are expected to continue delivering strong performance in operating expenses.

Q:What are your thoughts on industry fuel margins and the profitability of the lowest quartile operators?

A:The company believes cost and investment levels, as well as regulatory costs, are putting pressure on smaller operators. While fuel margins have plateaued recently, the company is widening the gap with competitors and sees opportunities for market consolidation. The company remains confident in its ability to maintain strong fuel margins and financial performance.

Q:What led to the strong European fuel margins this quarter, and what is the outlook?

A:Strong European fuel margins were driven by a renegotiated fuel contract in Germany and effective trading and supply chain activities. The company is also taking market share in merchandise and fuel, growing food and loyalty platforms, and increasing EV charging transactions. The outlook for European fuel margins remains positive for the next 2-3 quarters.

Q:What are the dynamics around meal deals in the U.S., and are they a key driver for same-store sales growth?

A:Meal deals are resonating with consumers seeking value, with a 40% increase in meal bundles in the U.S. this quarter. Food conversion in the U.S. is at 11%, with top-performing business units exceeding 20%. The company is not compromising margins, as vendor partners are supporting meal bundles. Food margin improved by 500 basis points, indicating that meal deals are a key driver for same-store sales growth.

Q:What does success look like for the new collaboration with Guy Fieri, and why were certain states chosen for the launch?

A:The collaboration with Guy Fieri is a long-term, exclusive partnership aimed at gaining awareness and recognition in the food space. The initial launch is in 10 states with a strong food culture and history, where food penetration exceeds 20%. The company plans to roll out the program across its U.S. portfolio.

Q:What does the cigarette pricing optimization program entail, and what are the results so far?

A:The program uses data to optimize pricing for premium and value cigarette tiers on a market-by-market basis. The company outperformed the industry in U.S. cigarette sales by 3% this quarter. Opportunities remain in four business units, and the company is actively pursuing them to further differentiate and grow market share.

Q:Why not lean more into value in today's environment, and how do you balance this with protecting margins?

A:The company is leaning into value wherever possible, particularly in food and private label. Meal bundles and private label initiatives are resonating with consumers and are margin accretive. The company is also leveraging vendor partnerships to offer compelling value without compromising margins.

Q:What are the cost control measures or OpEx efficiencies being implemented, and what is the potential impact?

A:Cost control measures include centralizing procurement, optimizing back-office operations, and improving labor efficiency in stores. The company is leveraging its scale and shared service centers to reduce costs. These initiatives are part of the $800 million Fit to Serve program, which is expected to exceed its target.

Q:What is the focus of the private label reset, and when will it contribute consistently to margins?

A:The private label reset focuses on SKU rationalization and supply chain investments, particularly in the U.S. The company expects private label penetration to increase over the next 24 months, driven by new warehouses and targeted investments. Private label is expected to be margin accretive and a consistent contributor to margins.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific drivers of reduced traffic in southern border states, stating they would not hypothesize on the reasons. Additionally, when asked about the outlook for European fuel margins, management acknowledged the difficulty in predicting fuel margins and provided general comments about strong performance and renegotiated contracts without offering specific forward-looking guidance.

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