Alimentation Couche-Tard Inc T.ATD

Alternate Symbol(s): ANCTF

Consumer Defensive Grocery Stores

Alimentation Couche-Tard Inc. is engaged in convenience and mobility, operating in about 29 countries and territories, with more than 16,700 stores, of which almost 13,100 offer road transportation fuel. With its Couche-Tard and Circle K banners, the Company is an independent convenience store operator in the United States, and it is engaged in the convenience store industry and road transportation fuel retail in Canada, Scandinavia, the Baltics, as well as in Ireland. It also has a presence in Poland, Hong Kong Special Administrative Region of the People's Republic of China, Belgium, Germany, Luxembourg, and the Netherlands. Its North American network consists of about 17 business units, including 14 in the United States covering 47 states and three in Canada covering all 10 provinces. In Europe, it operates a broad retail network across Scandinavia, Ireland, Poland, and the Baltics through seven business units. Its operating brands include Circle K, Couche-Tard, and Ingo.

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Alimentation Couche-Tard Inc

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Post by retiredcfon Jun 19, 2023 8:52am

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Alimentation Couche-Tard Inc.

(ATD-T) C$65.35

Fuel Margin Normalization Expected to Hold Back EPS Growth Event

Q4/F23 results June 27, after market close, with a conference call at 8:00 am ET on June 28 (888–390–0549, passcode 48181733). We expect EPS (f.d.) of $0.55, flat y/y, despite an extra week this year as fuel margins "normalize". Consensus is $0.49 (range: $0.37-$0.55).
Our F2024E/F2025E EPS increase by a penny each as we update our model for favourable currency movements and a less active NCIB.

Impact: NEUTRAL

Our 2% forecast decline in Q4/F23 adjusted EBITDA, despite the extra week this quarter, stems from expectations for:

SSV of +0.5%/+2.0%/-2.0% y/y in the U.S./Canada/Europe (remaining ~15%/ ~15%/~9% below pre-pandemic levels). Continuing work-from-home trends are preventing a full demand recovery, while share has also shifted to some discounters (e.g., Costco). While fuel volumes have mostly stabilized, Couche- Tard is lapping very tough margins comps, particularly in the U.S. where we see fuel margins coming in at $0.400/gal vs. $0.476 LY (knocking off $0.13 from EPS y/y). Europe fuel has much easier comps, lapping LY's supply chain challenges and cost surge resulting from Russia's Ukraine invasion (adding $0.04 to EPS).
SSSG of +5.0%/+3.0%/+4.0% in the U.S./Canada/Europe from the expanding fresh food offer, inflation, improving mix, and data-driven analytics that deliver effective promotional strategies and price optimization. We see some risk from the March 1 cuts to the SNAP program, which we estimated accounts for ~6% of U.S. merchandise sales.
SG&A rising 8% y/y growth on a constant-currency, same-week basis — similar level to the Q3/F23 growth rate — led by inflation (predominately wages and rents) and investments in growth initiatives, partly offset by lower credit card fees and cost control efforts.

TD Investment Conclusion

The shares are +9% YTD, tops among the retailers in our coverage as ATD tends not to see the same selling pressure as the grocers do during disinflationary periods. We see further upside to ATD despite expected pressure on F2024 EPS growth from some normalization of fuel margins — the market tends to be more focused on merchandise SSSG trends (which is generally strong) and acquisition opportunities (which appear more readily available).