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Convenience and gas station retailer Alimentation Couche-Tard Inc. reported record fuel sales as oil prices soared amid the Middle East conflict, but consumers are also tightening their budgets and visiting stores less often. Shares dropped the most in more than five months.
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“Elevated living costs and fuel prices continue to weigh on discretionary spending in certain markets,” chief executive Alex Miller told analysts Wednesday. “What we are seeing today is a consumer who is increasingly intentional about where they spend, and we are leveraging our strengths to adapt to those changes in behaviour.”
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The owner of the Circle K brand reported fuel revenues of US$16.7 billion in its fiscal first quarter, up 33 per cent from the same period last year. Same-store fuel volumes fell by 1.6 per cent in the United States and 4.3 per cent in Europe and other regions, and increased by 1.1 per cent in Canada. Same-store merchandise revenues rose by 1.7 per cent or less across all markets in the period ended July 19, largely missing estimates from analysts surveyed by Bloomberg.
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The stock dropped as much as 3.8 per cent in Toronto, the most intraday since March 18, before paring some of those losses and trading at $81.87 as of 12:08 p.m.
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Couche-Tard’s strong fuel supply chain allows it to sustain higher gas margins as the oil market remains volatile and consumers look for value in their discretionary spending. Crude prices are about 30 per cent higher than before the Iran war started at the end of February and curtailed maritime traffic in the Strait of Hormuz, a key waterway through which about a fifth of the world’s oil and liquefied natural gas previously passed.
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“The notion of inflation, of the K-shaped economy or the stress on the lower-income consumers, that’s been a conversation for really multiple years now,” Miller said. “When you stand back, the consumer, in many of the metrics, they’ve proven to be highly resilient.”
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Sales of packaged soft drinks, salty snacks, packaged sweets and confectionery remain softer than historical levels, Miller said, “as consumers become more deliberate in what they put in their baskets” and as the prevalence of weight-loss drugs challenges the segment.
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Excluding these categories, performance would have been more in line with growth targets, TD Cowen analyst Derek Lessard said in a note to clients: “With consumers continuing to visit the network but becoming more selective with purchases, we see loyalty, food service, and category-mix initiatives as opportunities for Couche-Tard to drive stronger conversion.”
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On Aug. 26, Laval, Quebec-based Couche-Tard officially launched its US$8.7 billion takeover of Poland’s biggest convenience store chain Zabka Group SA by offering 32 zloty per share. The subscription period runs through Sept. 25, with the share purchase transaction expected to settle on Sept. 30. CVC Capital Partners and Partners Group, Zabka’s biggest shareholders, have separately agreed to tender all of their shares into the offer.
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