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Couche-Tard Actively Integrating The Pantry

LAVAL, Quebec – While he touted the company’s performance and its “strongest growth since the beginning of the financial crisis in 2008,” Brian Hannasch, president and CEO, spent a significant portion of Alimentation Couche-Tard Inc.’s fiscal 2015 fourth-quarter earnings call focusing on the March 2015 acquisition of the approximately 1,500 stores of The Pantry Inc.

Couche-Tard reported net earnings of $129.5 million, a 10.8% decline over last year’s $145.1 million. Non‑recurring restructuring and integration costs of $22.2 million in connection with the acquisition of Cary, N.C.-based The Pantry affected results.

Click here for CSP Daily News coverage of Couche-Tard’s quarterly and fiscal 2015 results.

Couche-Tard reported the $850.7-million deal recorded earnings transaction costs of $900,000 in connection with this acquisition.

“We’re already working actively on the integration of The Pantry, and all indicators we have point towards an impressive contribution potential towards our company’s growth,” Hannasch said.

As of the close of the company’s fiscal-year 2015, Hannasch said Couche-Tard has taken actions that should result in cost reductions of $45 million (before taxes) on an annual basis. Couche-Tard estimates it will be able to realize a minimum of $85 million in annual cost reductions over the next 24 months.

“We believe we can turn around The Pantry’s previous trends with strong net growth in sales and volumes in the coming quarters in addition to achieving the cost-reduction targets we’ve previously communicated,” he said.

“We are applying all of our best practices to The Pantry’s network, and the integration is going well,” Hannasch said ahead of the call. “In line with our business model, our people are already actively working on sharing best practices, benchmarking and on the identification and realization of synergies, which should not only benefit our newly acquired network but also our existing network.”

He continued, “We have just completed The Pantry’s budget process, and I am very excited about what I have seen and heard. The opportunities are plentiful, and our teams are eager to make the most of them. I am confident that we will be able to meet our objectives.”

“Our return on capital employed dropped slightly on a pro forma basis following the acquisition of The Pantry, as expected, but we are still best in class,” Raymond Paré, vice president and CFO, said ahead of the call. “We are already hard at work to bring it back to a level in line with our expectations. To achieve this, we will use the usual tools we have at our disposal, including the realization of synergies and other opportunities coming from the acquisition of The Pantry and those still available in Europe as well as our proven ability to generate strong and sustainable organic growth.”

Acquisitions such as The Pantry are not the only area where Couche-Tard has (and will continue) to grow its network. Hannasch said his team has done “an outstanding job in terms of network growth and improvements” to new and existing retail locations.

Throughout 2015, Couche-Tard completed the construction, relocation or rebuilding of 72 stores and added 32 single sites for a total of 104 added or improved sites. As of April 26, 2015, the company had 26 stores under construction that should open in the coming quarters.

“I’m particularly pleased with the performance of our newly constructed sites,” Hannasch said. “Our plans for 2016 are to step up our activity in this space.”

In terms of growth inside the stores, Hannasch focused on two major areas: private label and foodservice.

“It’s a never-ending journey to continue to look for new ways to provide convenience to our consumers,” he said. “Certainly, right now, top of mind is private label.”

Couche-Tard has “stepped up significantly” its private-label offering, introducing more than 100 items in North America since May 2014.

“Our efforts in this area are paying off,” said Hannasch. “Private label continues to be one of the fastest-growing product ‘cats’ we have.”

As for food, Couche-Tard is focusing on two options: fresh delivered food programs and prepared onsite offerings. Hannasch said there are some 700 stores with fresh delivered food (including pastries, salads, fresh sandwiches, and fruit cups), a program that started four-to-five years ago.

“We feel good about the top-line results,” he said. “We’ve worked hard this year to optimize the logistics costs and spoilage. We continue to feel better and better about their performance. As such, as we enter our new fiscal year, we’re planning to add another 300 stores [to the program] this coming year in a variety of geographies.”

The prepared onsite program is admittedly newer and smaller. The company has launched three pilot stores in Houston with a goal to add 30 to 40 locations in the coming fiscal year. Hannasch said bigger, new-to-industry sites with high traffic flows and more rural stores were prime candidates for the onsite foodservice program.

“It’s very early, but we’re cautiously pleased with results,” he said. “We’ve responded to our customers’ desire for fresh and convenient foods by increasing our offer both in terms of quality and quantity.”

Melissa Vonder Haar


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