Alimentation Couche-Tard Inc.
Holding the road: Solid FQ2 on gas margins, SSS mixed on slowing consumer; overall supportive of OP
Our view: Neutral. FQ2 results were strong and better than expected, with forecourt and backcourt margins solid but SSS mixed across regions as consumer spending slows; adjusted EPS $0.82 vs. consensus $0.78. The exceptional cost control embedded in ATD’s DNA on full display, with normalized opex growth +1.5%. Underlying results reinforce relative stability of the channel (Exh. 2), supportive of our constructive view of this Global Top 30 name. There are many tanks to fill between Q2/F24 and ATD’s F28 $10 B EBITDA target, but this first Q post-investor event is a good start.
Key points:
Bottom line: FQ2 results emblematic of ATD’s “get it done, deliver the numbers” mindset. Despite tepid SSS as consumer spending decelerates, fuel margins strong and better than expected across regions, underscoring benefits of ATD’s initiatives around procurement/pricing, inside-store margins solid, and opex tightly contained, all of which should be sustained as we move through F24+.
FQ2 KPI’s mixed. Inside-store GP $$ +2.8% Y/Y, -1.7% vs forecast as SSS marginally negative in US/Europe, modestly positive in Canada but below expectations, offset by stable gross margins. SSG similarly lagged forecast across regions and was broadly consistent with RBC Connected Vehicle x Gas Station Visits Tracker (Exhibit 3), though more than offset by stronger than expected fuel margins to deliver GP$$ +2.1% Y/Y and 2.5% above forecast. Normalized SG&A growth exceptional in FQ2, +1.5%, markedly lower than average inflation across the network. Adjusted EBITDA +1.3% Y/ Y to $1.47B (RBCe: $1.41B). Details in Exhibits 8–10.
Strong FCF, return metrics, sustained activity on the NCIB. YTD 18.5 MM shares repurchased for $918.6 MM, ~38% of the F24 authorization for 49.1 MM shares. ROE 23.7%, ROCE 17.0%, leverage ratio 1.52x, estimated leverage post-TotalEnergies <2x if no NCIB activity. MAPCO closed Nov. 1, TotalEnergies on track prior to Y/E 2023. Dividend +25%, current yield 0.9%.
Expect focus for the post-release call to be on: i) consumer demand evolution through Q2, Q3 to date; ii) view around evolution of SSS with decelerating economic backdrop; iii) sustainability of fuel margins above “low 40’s” in US, early wins in Europe; iv) M&A environment/pipeline; and v) outlook for opex growth.
Forecasts essentially unchanged; we remain shy of F28 EBITDA target $8.9 B ex-M&A, $10 B including M&A, suggesting upward bias to forecasts as initiatives gain traction. Reiterating Outperform rating and $94 price target. Against the backdrop of macro uncertainty, we favour ATD as a name that performs well across the cycle and enjoys stock-specific optionality.