Alimentation Couche-Tard Inc.

(ATD-T) C$61.46

Q2/F23 First Look: U.S. SSS Strengthens, but SSV Slides & EPS Miss


Yesterday after market close, ATD reported Q2/F23 adjusted EPS of $0.82 vs. $0.65 last year, below TD/consensus of $0.87/$0.84. The shortfall vs. our estimate came mostly from weaker Europe fuel GP and higher opex (particularly when excluding the $20mm gain) than expected.

Impact: MIXED

  • We call this quarter MIXED and expect that ATD shares could be slightly lower today, considering the strength over the past six weeks driven by rising earnings expectations and a jump in NCIB activity.

  • The Street was expecting a big earnings quarter (consensus rose $0.05 in recent weeks), given indications of high industry fuel margins, but this proved to be optimistic, even with ATD delivering record U.S. fuel margins: despite total fuel gross profit jumping 20% and pushing EPS +26%, EPS still fell a little short of consensus estimates on lower fuel GP in Europe (explained by unfavourable forex moves).

  • That said, fuel margins, beat or miss, often have little material impact on the share-price reaction. Rather, investors tend to react more to the U.S. SSS and meaningful changes in fuel volumes. On the positive side, U.S. SSS of +5.6% exceeded TD/consensus of 5.2%/3.9% on strong growth in fresh food, positive promotional activity, and price inflation. But this was countered by disappointing SSV in Europe (-6.3%) and Canada (-6.5%) related to record fuel prices to start the quarter and rebranding initiatives. Moreover, total merchandise GP rose only 3%, well below inflation and normalized opex growth of 8.1%.

  • Normalized opex (i.e., same-store, ex-credit-card fees and f/x) growth of +8.1% was below inflation, but up a touch sequentially (+7.3% in Q1/F23), driven by inflationary pressure (particularly energy costs in Europe), rising wages, and investments to support growth initiatives, partly offset by lower labour-market pressure.

  • Adjusted EBITDA was $1,455mm (vs. $1,277mm last year), 4%/1% below TD/ consensus of$1,523mm/$1,474mm.

  • Strong earnings and FCF pushed leverage down to 1.20x net debt/EBITDA, allowed Couche-Tard to boost its quarterly dividend by 27%, and ramp up its NCIB to an annualized run-rate of $3.4bln subsequent to quarter-end (almost 4x the pace recorded throughout Q2/F23).

  • Conference call: 8:00 a.m. ET: 888-390-0549/416-764-8682; passcode: 78045775. Webcast: events-presentations/