Ontario retailers acting ‘rationally’ to minimum wage hike: Couche Tard CEO
Most Ontario retailers are acting rationally in response to January’s large increase in the minimum wage and not cutting hours of operations, the CEO of Alimentation Couche-Tard Inc. said Tuesday.
“Maybe it’s a bit early to call it, but we think economics are prevailing and that these costs are being covered by increased sales and margins in Ontario,” Brian Hannasch said during its quarterly conference call.
Even though the nearly 21 per cent increase in the province’s minimum wage was the largest he’s seen in his career, Hannasch said the company is working on strategies to offset those costs and remain competitive.
The Ontario government’s decision to boost its minimum wage to $14 per hour this year and to $15 in 2019 has been criticized by business groups that claim it will force employers to hire less and increase automation.
Couche-Tard’s shares sustained the largest decrease in at least two years after the convenience store operator widely missed analysts earnings expectations as its third-quarter results were hurt by lower U.S. fuel profits and the lingering impact from last fall’s hurricane Harvey.
The shares closed down 6.45 per cent to C$59.60 in Tuesday trading on the Toronto Stock Exchange. That exceeds the 6.02 per cent decrease in February 2016.
The Quebec-based convenience store retailer, which keeps its books in U.S. dollars, said its net earnings attributable to shareholders surged about 62 per cent to $463.9 million as acquisitions and a $182.2 million net tax benefit from the U.S. corporate tax cut offset challenges in the quarter.
That equalled 82 cents per diluted share, compared with 50 cents per share or $287 million a year earlier.
Excluding the tax benefit and other one-time items, its adjusted profit increased marginally to $304 million or 54 cents per share.
Revenue for the 16-week period ended Feb. 4 totalled $15.79 billion, up from $11.42 billion.
Analysts on average had expected a profit of 74 cents per share and revenue of nearly $15.63 billion, according to Thomson Reuters.
Hannasch said its network in Europe, Canada and the acquired CST Brands sites experienced improving trends from higher same-store fuel volumes, merchandise revenues and in-store gross margins.
But the U.S. fuel margin decreased 17 per cent to 15.66 cents per gallon driven mainly by the volatility from a rapid rise in crude oil prices particularly in Arizona and Texas.
“So we view that as an anomaly,” he told analysts.
“Could it recur? Yes. But over longer periods of time we think we’ve got a very competitive cost structure in the southwest part of the United States and that will fare well for us over longer periods of time.”
Same-site fuel volumes declined 0.4 per cent in the U.S. as Texas was impacted by stores still recovering from hurricane Harvey. Increased pre-tax expenses caused by hurricanes totalled $1.8 million.
Derek Dley of Canaccord Genuity attributed 17 of the 19 cents per share earnings miss in the quarter to softer-than-expected fuel margins.
He estimates that the decrease in the 2019 U.S. corporate tax rate to between 17 and 19 per cent could add four- to eight-cents per share to its full-year EPS estimate.
While tepid U.S. gas volumes and margins were the biggest surprise in the quarter, Irene Nattel of RBC Capital Markets remains positive about Couche-Tard, “particularly given the tailwind of recently closed CST and Holiday Stationstores acquisitions.”
The company said it has converted more than 2,500 stores in North America and more than 1,450 in Europe to its new Circle K brand. It has started to convert the Mac’s brand in Canada. The brand will be featured everywhere except Quebec, where the Couche-Tard name will remain.
Alimentation Couche-Tard has 12,750 stores and 15,970 locations, including those licensed under the Circle K brand and those that are part of last year’s merger with wholesale fuels distributor CrossAmerica Partners LP.