U.S. Store Expansion Hits Couche-Tard, Sending Shares Plunging

(Bloomberg) -- U.S. consumers sparked a shopping spree for Alimentation Couche-Tard Inc. in recent years as the Canadian convenience store giant scooped up rivals south of the border. Now that expansion is slowing its growth.

Shares of the Laval, Quebec-based owner of Circle K fell 6.5 percent, the biggest intraday decrease in two years, after it reported anemic same-store sales and a drop in fuel volume and margins in the U.S. Adjusted earnings fell short of the lowest analyst estimate for the quarter ended Feb. 4.

Same-store merchandise revenue, excluding the recently acquired Holiday Stationstores Inc., rose 0.1 percent in the U.S., Couche-Tard’s biggest market, compared with 1.9 percent a year ago. Same-store road transportation fuel volume slipped 0.4 percent, with the volatile fuel margins dropping 2.67 cents per gallon, the company said in a statement.

The $550 billion convenience store industry in the U.S. is getting squeezed by competition from all sides. Fast-food restaurants and supermarkets are slugging it out in price wars, while dollar stores keep popping up. Couche-Tard, which has blamed weak real-wage growth for the struggles of its lower-income customers in the past, is also being held back by CST Brands Inc., the gas-station company it bought for almost $4 billion last year.

The tepid same-store sales and gas volumes, margins in the U.S. was the biggest surprise in the quarter, Irene Nattel, an analyst at RBC Capital Markets, wrote in a note.

Couche-Tard said same-store sales at CST, while down 1 percent, are improving. It said fuel volumes decreased in Texas as stores recovered from Hurricane Harvey.

The shares traded at C$59.66 at 10:49 a.m. in Toronto, after earlier dropping the most in almost a decade. The stock has slipped 9 percent this year.

• Earnings excluding some items rose 1.9 percent to 54 cents a shares. Analysts’ average estimate was 74 cents.
• Among excluded items was a net tax benefit of $196.3 million in the U.S.

To contact the reporter on this story: Sandrine Rastello in Montreal at srastello@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, David Scanlan, Jacqueline Thorpe

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