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Alimentation Couche-Tard Inc.
(ATD-T) C$61.46
Q2/F23 First Look: U.S. SSS Strengthens, but SSV Slides & EPS Miss
Event
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: https://corpo.couche-tard.com/en/investors/ events-presentations/