March 12, 2008 / 5:14 PM / in 10 years

Acquisitions, gas prices lift Couche-Tard profit

OTTAWA (Reuters) - Third-quarter profit at Alimentation Couche Tard (ATDb.TO) rose 16 percent as acquisitions and higher gas prices helped it weather a “difficult economic climate” in the United States.

The gas station and convenience store operator also said on Wednesday that it hopes to capitalize on tough times by making more purchases at cheaper prices.

Net earnings for North America’s second biggest convenience store operator increased to $50.5 million, or 24 cents a share, from $43.7 million, or 21 cents a share, in the same period last year.

Adjusted to exclude a tax recovery, profit was 20 cents a share, said RBC analyst Sara O‘Brien, and shy of her expectation for 24 cents a share.

The company, which operates under the Circle K banner in the United States and Couche-Tard and Mac’s in Canada, said revenue rose 31 percent to $4.6 billion.

Higher gas prices made up $613.5 million of the $1.1 billion sales increase, with $314.2 million from new stores.

Chief Executive Alain Bouchard said he was satisfied with the results, given the tough market conditions.

“Past experience has shown that we are able to thrive in unfavorable economic periods. This is due largely to our two-part growth strategy: the acquisition of stores and the continuous improvement of our existing network,” he said.

“It’s a complementary strategy in the sense that conditions which make organic growth difficult usually create opportunities for profitable acquisition.”

The deal-hungry firm maintained its goal of adding 250 company-operated stores by year-end. In 2008, it plans to upgrade close to 400 stores and build or buy another 60 stores, with a capital budget of about $300 million.

As of February 3, Couche-Tard had 5,690 stores.

”(It) seeks to take advantage of softer economic periods to grow store count via acquisitions,“ O‘Brien said in a note. ”We look for acquisition announcements in short-term to drive share gains.

Gas margins in the United States rose to 14.38 cents a gallon from 13.19 cents, but volume at stations open at least one year fell 1 percent. In Canada, volume rose 5.3 percent.

Gas margins can vary greatly from quarter to quarter, but typically stabilize over the year, Couche-Tard said.

The merchandise margin dipped to 33.6 percent from 34.2 percent, dragged down by weaker U.S. profits as Couche-Tard launched promotions to try and increase customer traffic.

Sales of merchandise at U.S. stores open at least one year rose 2.4 percent and 1.6 percent in Canada.

“Traffic, for us, is always a priority. We do try to balance margin with traffic, but at the end of the day you need customers in the store,” Bouchard said.

“We will continue to sacrifice some margin points, if there is a need to, to grow our traffic and grow our market share.”

Couche-Tard rivals include 7-Eleven, owned by Japan’s Seven & I Holdings (3382.T), Casey’s CASY.O, and The Pantry PTRY.O.

Shares fell about 1.8 percent to C$14.95 on the Toronto Stock Exchange. So far this year, the stock has lost about 17 percent of its value.

($1=$0.99 Canadian)

Reporting by Susan Taylor; editing by Renato Andrade

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