Good morning. I would like to welcome everyone to this web conference presenting Alimentation Couche-Tard's financial results for the Q1 of fiscal year twenty twenty-five. All lines will be kept on mute to prevent any background noise. After the presentation, we will questions from analysts asked live during the web conference. We would like to remind everyone that this webcast presentation will be available on our website for a ninety-day period. Also, please remember that some of the issues discussed during this webcast might be forward-looking statements, which are provided by the corporation with its usual caveats. These caveats or risks and uncertainties are outlined in our financial reporting. Therefore, our future results could differ from the information discussed today. Our financial results will be presented by Mr. Brian Hannasch, President and Chief Executive Officer, Mr.
Alex Miller, Chief Operating Officer and incoming President and Chief Executive Officer, and Mr. Filipe Da Silva, Chief Financial Officer. Brian, you may begin your conference.
All right. Thank you, Matthew, and good morning, everyone, and thank you for joining us for the presentation of our Q1 results. As most of you know, this is my last day as Couche-Tard's President and CEO. While that makes today bittersweet, I'm incredibly confident that Alex Miller, we've chosen the strongest next leader for Couche-Tard, and that our best chapters still lay in front of us. Alex will take most of today's Q1 presentation. I'll soon hand it over to him. As I mentioned in our last call, I'll remain with Couche-Tard as a special advisor for the next couple of years with a focus on M&A. We have some exciting developments on this front in recent weeks, which Alex will go over in a minute.
It's worth noting that along with Alain Bouchard, Alex has been my closest business partner during all the acquisitions, large and small, that have taken place during my CEO tenure. We share the same respectful, humble approach to new businesses, as well as Couche-Tard's customary financial discipline. Together, we've walked away from many more deals than we've closed. I'm confident as we work together on future growth, the leadership transition will be seamless and we'll continue to bring, we'll continue to bring great value to the business and to our shareholders. Now, with that, I'll hand the call over to my good friend and Couche-Tard's next President and CEO, Alex Miller.
Thank you, Brian, and thank you for those kind words. I'm really excited to get started tomorrow. ACT has only had two CEOs before me, Alain Bouchard and Brian Hannasch. They were both immensely successful, so I know I have massive shoes to fill. I want to once again thank both Alain and Brian for their incredible support and graciousness during this transition time and all the many years that we have worked together. As Brian just mentioned, we have seen some good progress in recent weeks on the M&A front. In mid-August, we announced a definitive agreement to acquire GetGo Café + Market from supermarket retailer Giant Eagle. GetGo is an innovative food-first convenience store experience that operates approximately 270 convenience retail and fueling locations across Pennsylvania, Ohio, West Virginia, Maryland, and Indiana.
We are really looking forward to bringing GetGo team members into the family and learning more about its extremely popular made-to-order food and loyalty programs. We clearly see some fantastic reverse synergies with this acquisition, and we are looking to close the transaction in 2025, pending regulatory approval. I also want to mention our recent public statement on August nineteenth, confirming the friendly, non-binding proposal we sent to Seven & i Holdings. While we do not intend to discuss this further on this call or take questions on the topic, I do want to share a few words about our perspective. We have a deep respect for Seven & I and the business they have built in Japan and around the world, including their great operating model, franchisee network, and brand.
As you know, we are a company that has led disciplined growth by merging with locally led businesses across the globe. In regards to Seven & i, we see a strong opportunity to grow together, enhance our offerings to customers, and deliver a compelling outcome for the shareholders, employees, and key constituencies of both companies. We are confident in our ability to finance and complete this combination, and we look forward to engaging with Seven & i constructively. I also want to note that we are very pleased with the integration work with our four new European countries, as well as with the MAPCO locations we acquired. We are learning from the highly engaged teams on how best to serve their local customers and communities. Now, let me get back to the results of the quarter.
As weakness in consumer behavior persists, we are keeping our focus on our long-term strategy and bringing everyday value to our customers. The number one reason customers visit our locations is to quench their thirst, and our summer beverage campaigns has been providing exceptional value and exciting exclusive flavors. We are also bringing personalized offers and savings to our most valuable customers through our growing loyalty membership programs. While fuel volumes have been impacted by customers watching their spend, we continue to have healthy fuel margins. Overall, we remain confident in the advantages of our globally diversified business to successfully navigate these near-term headwinds. Turning now to convenience.
Compared to the same quarter last year, same-store revenues decreased by 1.1% in the United States, by 2.1% in Europe and other regions, and by 3.9% in Canada, all impacted by constraints on discretionary spending due to challenging economic conditions for lower-income consumers. It is also worth noting that Europe had positive performance during the quarter, with 0.9% same-store sales growth. However, the overall Europe and other regions results were again impacted by weak results in our Hong Kong market, driven by an incremental cigarette tax increase. To help our customers who are seeking value, we continue to improve and grow our loyalty membership program in the US and Europe. In the US, Inner Circle had a 17% increase in fully enrolled customers compared to last quarter.
For the business units that have been on the program at least 12 months, we are seeing over 20% of transactions coming from Inner Circle members. We are also working closely with our B2B teams so that our fleet card customers can enjoy the perks and rewards of Inner Circle. In Europe, nearly half of all fuel volume is coming through Extra loyalty members, and merchandise penetration is seeing strong year-over-year growth. We recently launched Extra 2.0 in Sweden as a way to help drive additional traffic in that country. With our Win and Food strategy, our primary focus has shifted to enhancing operations and execution rather than growing store count, which is now at more than 5,800 globally. Our operations teams continue to look at ways to improve profitability and reduce spoilage, utilizing our new production planning tools.
We are also working hard to become more local in both our food and merchandise offers to best serve the preferences of our extremely diverse global communities. We are seeing strong sales and satisfaction with our limited time offers, including our Kong Breakfast Sandwich and our Red Bull and Wings promotion. Additional items launched during the quarter included Italian panini and roast beef and cheddar sandwiches. To further accelerate sales growth, looking forward, this month, we are launching $3, $4, and $5 bundled meal and beverage deals in the U.S. to provide our customer with value offers and help accelerate traffic and unit growth. As we strive to be the number one thirst stop across the network, our summer beverage campaigns have provided exceptional value and exciting exclusive flavors.
In the U.S., these campaigns have been very popular with our customers, leading to unit growth in dispensed beverages. However, the compelling value did compress margins this quarter. We also continued with our exclusive offerings, including Gatorade Lightning Blast, co-branded Arizona Tea Dragon Fruit, Celsius Watermelon Lemonade, and Mountain Dew Purple Thunder Zero. In Europe, packaged beverage sales continue to perform well, with energy driving overall category performance. Alcohol sales are also positive in Europe, with Ireland leading the way. And starting today, across Ontario, Canada's largest market, we are pleased that we can now offer a selection of beer, cider, wine, and ready-to-drink alcoholic beverages in our eligible convenience stores. While we continue to have pressure on cigarette sticks globally, we are seeing some stabilization in the U.S., where we are outperforming our competitive peer group.
This is partially due to ongoing efforts around pricing optimization and initiatives we have underway with our supply partners, including brand-focused contests and personalization programs for our age-verified customers. In other nicotine products, strong growth continues across the network. In the U.S., we have expanded our assortment and offers, and in our European markets, nicotine pouches are performing especially well. Now we'll turn to mobility. Looking at our fuel business, same-store road transportation fuel volumes decreased by 0.8% in the United States, by 1.4% in Europe and other regions, and by 2.1% in Canada. Global fuel demand remained unfavorably impacted by challenging economic conditions, and as I mentioned earlier, our fuel margins remained healthy as we continue to work on building value from our fuel supply chain and serving our customers through lower-cost sourcing options.
Our Europe B2B fuel business had a solid Q1 , despite slightly lower volumes than last year. In our legacy business units, the truck stop segment showed resilience and maintained volumes, and we are seeing some early wins with B2B customers in our four new European countries. In fleet, we continued to focus on developing our customer portfolio. In the U.S., the B2B fuel share continues to grow as we expand our reach and customer base. This is predominantly driven by our fleet segment as our teams improve efficiency and effectiveness across all channels. We are also expanding our truck-accessible sites, currently at about 475, which are making it fast and easy for truck drivers to get into our sites, fill up, and back on the road.
We continue to expand our EV fast charging network in Europe, which now consists of more than 2,800 charge points. Over the quarter, we increased the focus on our new European markets as well as in Ireland. In North America, we continued with a disciplined approach to network expansion and site selection. In organic network growth, we are making notable progress on our 500 new stores and five-year effort. We opened 16 new stores this quarter and are on track to open nearly 100 in North America this fiscal year. As part of our strategic plan, these new stores include both high-speed diesel and rural locations. Before I conclude, I want to mention the work that we are doing to improve operational excellence. We continue to implement enhancements and back-office automation to simplify administrative tasks required of our store team members and managers....
We are also preparing for the deployment of our RELEX AI supply chain tool across North America, which we expect will improve product availability, reduce store inventory, and fully optimize product assortment as it has done in our European business units. Our primary goal with these operational excellence initiatives is to free up our store team members, so they can better serve our customers and make their lives a little easier every day. And looking ahead, while riding out these near-term economic headwinds, we are seeing some promising signs in the economy, especially in the U.S., as inflation is beginning to ease and interest rates are expected to be lowered in the months ahead.
Our hope is that this will lessen some of the pressure on our lower-end customers, and in the meantime, we will continue to find ways to provide them with value and ease, both inside our stores and on our forecourts. In addition, while same store road transportation fuel volumes remain under pressure, we are encouraged that fuel margins are gradually improving. With that, I'll turn it over to Filipe.
Thank you, Alex. Ladies and gentlemen, good morning. As Alex noted, we are pleased with the progress of our integration of the European retail assets from TotalEnergies, supported by successful technical pilots across the four countries. We see significant potential to grow merchandise sales, particularly in food and beverages, where our established program can be effectively introduced. This integration builds on our Statoil Fuel & Retail experience, and with stronger capabilities and resources, we expect to accelerate execution. We have identified $187 million in synergies over the next five years, driven by improved merchandise sales, operational efficiencies, and optimized labor management. Additionally, we are making great progress in our Fit to Serve initiative by using data-driven insights to enhance our procurement strategy in the United States. In the coming months, we'll extend this approach to our operations in Canada and Europe.
I will now go over some key figures for the quarter. For more details, please refer to our MD&A, available on our website. For the Q1 of fiscal twenty-twenty-five, net earnings attributable to shareholders of the corporation were $790.8 million, or $0.83 per share on a diluted basis. Excluding certain items described in more detail in our MD&A, adjusted net earnings attributable to shareholders of the corporation were approximately $790 million, compared with $838 million for the Q1 of fiscal twenty-twenty-four. Adjusted diluted net earnings per share was $0.83, representing a decrease of 3.5% from $0.86 for the corresponding quarter of last year.
During the Q1 , excluding the net impact from foreign currency translation, merchandise and service revenues increased by approximately $232 million, or 5.4%, primarily attributable to the contribution from acquisition, which amounted to approximately $312 million, partly offset by softness in traffic. Excluding the net impact from foreign currency translation, merchandise and service gross profits increased by approximately $82 million or 5.5%. This is primarily attributable to the contribution from acquisitions, which amounted to approximately $110 million, partly offset by softness in traffic.
Our merchandise and service gross margin decreased by 0.6% in the United States to 33.7%, mainly due to investment to support our Summer First campaigns, while it increased by 0.9% in Canada to 34.8%, impacted favorably by a change in product mix. In Europe and other regions, our merchandise and service gross margin decreased by 0.1% to 39.8%, impacted by the integration of certain retail assets from TotalEnergies, which have a different product mix than our operations in Europe and other regions. Excluding this impact, our gross margin in Europe and other regions would have increased by 1.6%, driven by a favorable change in product mix. Moving on to the fuel side of our business.
In the Q1 of fiscal 2025, our road transportation fuel gross margin was $0.4813 per gallon in the United States, a decrease of $0.0192 per gallon, mainly due to the competitive pressure in some of our market. In Canada, it was CAD 0.1311 per liter, a decrease of CAD 0.0014 per liter, while in Europe and other regions it was $0.0868 per liter, an increase of $0.0047 per liter. Notwithstanding the modest decline from the comparable quarter in some regions, fuel gross margins remain healthy throughout the network. Now, looking at MD&A. For the Q1 of fiscal 2025, normalized operating expenses increased by 3.8% year over year.
This is mainly driven by inflationary pressures and incremental investment in technology to support our strategic initiatives, while being partly offset by the continued strategic efforts to control our expenses, including labor efficiencies in our stores. More specifically, we have seen significant results coming from our Easy Office program, which makes it easier for our store associates to complete their administrative tasks, leading to a reduction of 1.3% of hours in North America in the first fiscal quarter of 2025. Excluding specific items described in more detail in our MD&A, the adjusted EBITDA for the Q1 of fiscal 2025 increased by $73.2 million, or 4.8%.
Compared with the corresponding quarter of fiscal 2024, mainly due to the contribution from acquisition, which amounted to approximately $127 million, partly offset by softness in traffic and fuel demand, as low-income consumers remain impacted by challenging economic conditions and by lower road transportation fuel gross margins. From a tax perspective, the income tax rate for the Q1 of fiscal 2025 was 23.1%, compared with 22.8% for the corresponding period of fiscal 2024. The increase mainly stemming from the impact of a different mix in our earnings across the various jurisdictions in which we operate. As of July 21, 2024, we recorded a return on equity at 19.8%, and our return on capital employed stood at 12.8%.
During the fiscal year, our leverage ratio decreased to 2.13. We also had strong balance sheet liquidity with $1.6 billion in cash and an additional $3.3 billion available through our main revolving credit facility. Subsequent to the end of the Q1 of fiscal 2025, and under the share repurchase program, we repurchased 8.7 million shares through a private agreement for an amount of $508.7 million. We also repaid our Canadian dollar-denominated senior unsecured notes for CAD 700 million, and settled the cross-currency interest rate swaps associated with the notes, which had an unfavorable fair value of $51.7 million at settlement, with no impact on earnings.
Turning to the dividend, the board of directors declared yesterday a quarterly dividend of CAD 0.175 per share for the Q1 of fiscal 2025 to shareholders on record as of September 13, 2024, and approved this payment effective September 27, 2024. With that, I thank you all for your attention. I will turn the call over again to our incoming President and CEO, Alex Miller.
Thank you, Filipe. As I said earlier in the call, I'm looking forward to getting started as President and CEO tomorrow. I have a strong bench of executive leaders supporting me, and we are optimistic about the future of our globally diversified business. We have a strong balance sheet, the right long-term strategy, and exciting growth potential. Most of all, we have some of the best people and customers in the industry, and I am deeply grateful for their continued support and commitment to our journey of becoming the world's preferred destination for convenience and mobility. On that note, let's turn it over to the operator to answer analyst questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset up before pressing any keys. Your first question comes from Irene Nattel with RBC Capital Markets. Your line is now open.
Thanks, and good morning, everyone. Before I ask my question, I just want to say thank you to Brian. Congratulations, and wishing you all the best. It's been a pleasure. Now-
Thanks, Irene.
Moving on to my question. Understand that you're not going to specifically address Seven & i, but it would be very helpful if you would remind us of your criteria for M&A. Sort of what kind of hurdle rates, how you approach it, your views on the balance sheet, and maybe you could even frame it within the context of the GetGo transaction.
Yeah. Thank you. Thank you, Irene. So as you know, historically, we have been very, we have always had a very disciplined financial approach, and we aim to continue at that. We have demonstrated that again with the GetGo transaction, with a single digit, you know, multiple there. And, but, you know, for us, as it's very important, it's always looking at returns. It's not that multiple that important, it's more about returns. And as you know, on that, again, we have always aim at, you know, looking at a 15% return on capital employed on year three. That's, that's our goal. Of course, here, emphasizing always on, how we can get the best from in terms of synergies.
That has been our approach, and we will continue to do that for any transaction that we have been looking at and will be looking at in the future. In terms of, you know, balance sheet, as you know, we have always said that our comfort level in terms of leverage is two point twenty-five times. That's where we want to be, I would say, on the long term. But having said that, when we want to be active on the M&A side, we believe that we have the power to do it.
So, as you know, we believe we have at least $10 billion availability in terms of balance sheet. That means we know that we can go up to 3.75 times of leverage with no impact on our credit ratings. That's something that we are clear. But at the same time, you know that it doesn't prevent us to even consider a higher leverage if needed, but always keeping in mind a financial and disciplined approach and looking also at deleveraging. We have been historically a company that has been able to deleverage quickly, and that's something that we will continue to do.
So, very confident about, you know, our ability to be disciplined. We have the solid and robust balance sheet. We have a stronger syndicate and banking partners to help us there. So, we aim to continue to do that in the future.
Thank you. That's very helpful. And then, just finally, as far as GetGo goes, a follow-up question. How are you thinking about the approval process from a competition perspective? And, what are you thinking more broadly about views right now with respect to major M&A?
Yeah, I think... Hi, Irene. Thanks for the question. Yeah, we have some overlap with GetGo, but it's not material at all. And, you know, we'll go through the regular HSR process and engagement with the FTC. And we have quite a bit of experience doing that. And, again, we expect to be able to close this transaction in calendar 2025.
Thank you.
Your next question comes from Michael Van Aelst with TD Cowen. Your line is now open.
Hi, thank you. I wanted to talk a little bit more about the U.S. same store sales. It seems like you had the promo campaigns appeared to be mostly focused on the beverage category. Wondering if it was on other categories as well, and what, to what degree you considered it successful? And then, you know, would you be able to break out same store sales excluding tobacco? 'Cause tobacco is a big part of your in-store sales and seems to be a big drag still. So I'm wondering what that is. A lot of companies back it out.
Yeah, sure. Thanks for the question. We invested heavily in the quarter into primarily thirst initiatives. The summer is our prime beverage time. We grew units. We grew traffic because of those units. While our overall traffic was still negative, we did improve traffic and had several weeks in business units that were positive. But it came at a cost. It came at a cost that you see on our margin line. We thought it was important to drive that traffic, and we don't see that continuing kind of quarter over quarter with those level of investment. On tobacco, you know, as we mentioned, I think we're feeling cigarettes are stabilizing.
When we look at tobacco as a whole, when we include our significant growth in other nicotine, along with our outperformance of the industry in sticks, it actually would have been positive to our same store sales, and we would have been negative 0.6, excluding tobacco.
So excluding other tobacco products and cigarettes, you would have been negative 0.6?
Up to you. Excluding tobacco, excluding cigarettes.
Yeah.
Yeah.
Excluding cigarettes in total, or including other tobacco products as well?
No, no, actually, when you look at the and that's something that is interesting for us, so Michael, is that when we look at the total tobacco category, actually it's growing faster than the total box. So we see we continue to see a very strong momentum on the other nicotine products. High single digit growth there. Actually in US, but also in Europe as well. So you know, when you look at the total tobacco, actually we where we we see a good momentum there.
Yeah, but sorry, I wasn't 100% clear. Is, when you said it was, you were down 0.6%, was that just excluding cigarettes?
Yes. Yes.
Okay, thank you. And then, I guess, when you look at other some of your peers, you know, you've got a range where some are declining and some are increasing, excluding cigarettes. You know, where are you feeling the pressures the most?
I think, yeah, when what Alex mentioned earlier is that during the quarter, we have decided to invest heavily on the beverage and cold category, cold beverage category, and kind of impacting our, you know, average basket. Kind of self-inflicted. So, and that has been quite significant to be honest, because we wanted to provide a great value there. But we feel good in the sense that we have seen a positive reaction in terms of traffic, but also in terms of units. We believe that it was the right thing to do, but yet on the short term, it has an impact on the same store performance, and yeah, coming mainly from the cold beverage category.
Okay, and thank you. And then just on the cigarettes, so you say it's stabilized. That's specific for Couche-Tard, I'd assume, because the data coming out of the cigarette manufacturers still seems to be significantly negative.
That is correct. I think our overperformance against that industry, the industry data and the efforts we're taking around price optimization, using our digital tools, partnering with our big vendors, you know, we are materially outperforming the industry, and we do feel like we've stabilized to some degree. Yeah.
All right. Perfect. Thank you very much.
Your next question comes from Bonnie Herzog with Goldman Sachs. Your line is now open.
All right, thank you. Good morning, everyone. I guess I had a question on the health of the consumer. You know, it seems like across your network, you've seen, you know, maybe a bit more pressure on consumer spending and traffic versus peers. So I guess hoping for a little bit more color on why this might be. And then could you give a little more color on the changes in consumer behavior you're seeing at the pump or on, you know, inside sales? And really how those have evolved recently. And then, you know, finally, you touched on this a bit, but could you highlight, you know, possibly some of your key initiatives that you've implemented to ultimately offer more value for the consumer to drive, you know, faster traffic and sales?
Yeah, Bonnie, I don't think we feel at all bad about how we're performing against our peers. Our data certainly suggests that we are taking share across our convenience space at a level that is fairly pronounced and quite strong. So we feel, we feel really good about how we're performing inside the industry and we will continue to focus on doing that. I think the consumer is stretched. Why do we say that? Less visits, lower baskets. Fuel is a great example of that. We actually have higher traffic to our forecourts, but the average fill is down to a level that leads to negative same store volume. So, you know, we just see that consistently from our consumers in our transactions.
I think your final question was, what are we doing? You know, we're looking to leverage our scale and our relationship with our vendors to show value on products that our data suggests our customers really care about. And we will continue to do that. I think going forward, we're really gonna focus on meal bundles and leveraging our thirst expertise with food to drive that, and also continuing to focus on private label. Our private label, we see customers choosing private label. Private label is growing for us, high single digits, low double digits in all of our geographies. We will add over 100 products in private label this year and look to continue to push those.
Okay, that's helpful. And then just to clarify, you know, post your quarter or just thinking about in August, you know, how have things been trending? Are you seeing improvements? You know, are things weakening with the consumer? Just curious to get that, you know, perspective from you. Thank you.
I think it's been pretty consistent.
Okay, thank you. I'll pass it on.
Your next question comes from Bobby Griffin with Raymond James. Your line is now open.
Good morning. This is Alessandra Jimenez on for Bobby Griffin. Thank you for taking our question. I first wanted to follow up on promotions. Do you plan to invest in margin outside of the thirst category to help drive traffic and market share? And then a follow-up to that, are you seeing anything notable from competitor behavior on pricing, either on the merchandise or fuel sales, or have competitors been pretty rational thus far?
We always run promotions really across our footprint or our merch categories. We always do that. I think our investments in data and our investments in digital, I think we'll continue to get smarter at what promotions we should be running and which ones resonate with our customers, but we always run promotions across basically all areas of our stores. I think we'll likely lower the number of promotions and be more targeted using our data to advise us. Trying to remember the second part of the question.
Just competitor behavior on pricing, on merchandise and fuel. Have you seen them be rational?
Yeah, no. I mean, we see our industry continues to behave very rationally.
Okay, perfect. Thank you so much.
Your next question comes from Anthony Bonadio with Wells Fargo. Your line is now open.
Yeah. Hey, good morning, guys. I wanted to ask about the Department of Labor overtime rules in the U.S. I believe that's currently set to go into effect in January, or at least the second raise. Realize there's quite a bit of uncertainty still in terms of the final outcome. But can you just talk about the impact to your business, if that were to go into effect and just how you're thinking about mitigating any headwind there?
Yeah. I don't think we expect to have any type of material impact from that, is what our analysis suggests.
The vast majority of our managers, they are paid hourly, so it will be very minimal.
Yeah.
Understood. Then just on gas, I know you guys mentioned an uptick in competitive pressure on the U.S. as it pertains to margin. I think that's the first time that's been mentioned, at least in recent memory. Can you just talk about a little more about what you're seeing there and any thoughts on how that evolves?
I don't believe we are. We feel pretty good about our fuel margins, the competitors continuing that to act rationally. Our margins have been quite stable. I think they were quite solid this period, and we're seeing that continue. So, you know, on the box, we are, you know, we pushed some really heavy summer promotions to drive traffic into our stores, and that impacted our margins this quarter. But again, we don't expect that to continue as a theme going forward.
Thanks, guys.
... Your next question comes from Mark Petrie with CIBC. Your line is now open.
Yeah, good morning, and thanks, Brian, for all the conversation over the years, and certainly wish you all the best, and congratulations.
Thanks, Mark.
Again. On the SG&A, the organic increase was a little bit higher than what we've seen from you over the last year. I know you're still getting lower labor hours, but I think the decrease moderated from what you posted in Q4 and last year. So are the results that we're seeing today, or we saw in Q1, simply a matter of cycling some of the early and substantial benefits that you've had from your strategic initiatives? Or what are the drivers there, and how are you thinking about that organic increase to be trending through the balance of the year?
Hey, Mark, thanks for the question. Let me start with, I would say, the last part of your question is, we remain very confident on, you know, on our ambition to beat inflation by 1%, you know, on the in terms of SG&A growth. So that's what we want to achieve, and again, we believe that we have the initiative to get there. That doesn't mean that quarter over quarter we cannot have some variation, and that's one of the example in Q1.
When you look at this, you know, a 3.8% growth on the normalized, at normalized level for SG&A, significant component of that is coming from the investment that we're doing on the technology side. As mentioned by Alex earlier, we're investing to become a more digital, you know, retailer, engaging more on the digital way with our customers. Also, making sure that we are strengthening our technology infrastructure. So that's something that we had in our strategic roadmap, and we're investing on that. So, that's one of the reason why you have seen the Q1 growing slightly over the inflation.
Having said that, and you pointed out in your question, we see positive things happening in terms of productivity. Our Easy Office and, obviously, all the productivity initiatives that we have in stores are bringing a very good fruits. 1.3% decrease in hours. We see also, our, you know, ship seven service center initiatives moving in the right direction, as well. Overall, you know, our Fit to Serve, a goal of $800 million over the next five years, we have already identified all the initiatives.
No concerns at all about the goal of beating inflation by one hundred basis points, you know, over the course of the fiscal year and over the next five years.
Okay. Appreciate the comments, all of us.
Thanks, Mark.
Your next question comes from Chris Li with Desjardins. Your line is now open.
Good morning, everyone. Just maybe I start with a clarification question. Filipe, I think in the early opening remarks, you mentioned the multiple that you paid for GetGo. Was it... You said single digit EBITDA multiple, did I hear that correctly?
Yes.
Okay.
And it's-
And that's pre-synergies, right? I'm guessing.
Exactly.
Perfect, okay. And then just another question I had was just, you know, thanks for all the great comments you guys have been putting out in terms of the merchandise same-store sales trends in the U.S. I just want to more, maybe ask more directly, like, what are you guys seeing so far in Q2 to date, in terms of merchandise same-store sales? Is this still trending negative or is it back to positive, given that the year-ago comparison obviously has become easier?
I think thus far, it's been fairly consistent with where we've been the last couple quarters, and it's six weeks into the quarter.
Yeah.
I think we-
As we enter the fall, we should begin to lapse-
Yeah
From last year and cycle that.
I think we start to lapse some more difficult things. I think we feel good about our ability to continue to take share and continue to use Inner Circle to drive additional trips and provide value that should assist us.
Okay, but so far, it's still trending slightly negative. Is, is that what I'm hearing, or?
Yes.
Oh, okay. Okay, and then, just in terms of, you know, comment about, you know, obviously made some heavy investment in pricing in the summer months, you don't expect that to continue. Just again, from a gross margin perspective, do you then expect gross margin to be more or less stable in the current quarter, or is it still trending negative because of the investments that you're making in the bundle offers and et cetera?
We actually expect to see a gross margin rebounding over the next coming quarters, okay? So-
Okay
... We are investing heavily in the summer campaigns, because again, we just wanted to make sure that we were shouting enough to the customers that we were here for value, but over the next coming quarters, we'll continue that, and making sure so that we are asking suppliers to participate in the funding. And using more and more the loyalty, you know, capabilities to be smarter in terms of investments, so you should expect GP, and mainly in U.S., coming back to a more normal, you know, level.
Perfect. My last question is just in terms of acquisitions. It was noted in the press release, I think, acquisition contributed about 127 million of EBITDA growth in the quarter. Is the vast majority from Total? And if that's the case, it does seem like there was a nice sequential improvement versus Q4. Am I reading this correctly?
... Perfect, yeah, Chris. Well-
Yes, you are.
Yeah.
Okay.
Yeah, we are seeing a good much better trend there. Feeling good about, again, about the teams and what they are doing and the synergy. So yeah, is moving in the right direction, Chris.
Thanks very much, and Brian, it's been a pleasure, and if you're ever in Ontario, let me know. I'll gladly buy you a beer at our neighborhood Circle K store.
That's awesome. I never thought I'd see that in my career. I made it by one day.
Thanks very much, guys.
Thank you, Chris.
Your next question comes from Tamy Chen with BMO Capital Markets. Your line is now open.
Hi, good morning. Thanks for the question. I wanted to focus a bit more on Europe first, your standalone business, excluding TotalEnergies for a second here. So I think you said that the Europe-only merchandise comp was the positive 0.9%. I think that was a little bit better sequentially, but if I recall, two quarters ago, your Europe ex-Hong Kong business was comping at something like mid-2% range. So I just wanted to ask if you can just recap what's been going on in Europe. I guess it's the same macro challenges, but I thought in that region, your standalone Europe business, you were more exposed to the middle, higher income cohort, and so these macro pressures, I thought, wouldn't have been as pronounced as it would be in the U.S.
Yeah, you are correct with the 0.9% when we exclude Hong Kong for the performance, and it is a little lower than they have been. We are experiencing some of the same macro pressures in our Europe, in our legacy European business with traffic being a challenge, but the business continues to perform quite well. We would continue to focus on our thirst initiatives, our food initiatives, which make up large percentages of our sales. Other nicotine is growing very nicely in Europe. Yeah, and our European business continues to perform quite well.
So I guess to summarize, some of the same challenges around the macro environment and to our consumers, but it is performing pretty well, and we envision that it will continue to do so.
Okay, thank you for that. And my follow-up is, now I wanna talk more on TotalEnergies. I think last quarter, it sounded like one of the big challenges that hurt the earnings contribution from that business was, Brian, you talked quite a bit about fuel margin in Germany. It was very depressed. I think you were saying that was starting to recover. Can you update us a bit on that? Was that what helped with the sequential improvement in earnings contribution from Total, or was it something else, like the synergies execution part? Thank you.
So, specific to Germany, the CPL remains low actually, but it's more temporary situation, more due to the situation of the market. So we need that. There's no change on the long-term view that you will see, we see a margin going improving over time in Germany. And actually, so the sequential improvement of the profitability is more coming from the implementation, you know, of synergies on the box side. The cost also that we start to adjust to our existing model. So it's more coming from this side, actually, the sequential improvement.
Thank you.
Your next question comes from Martin Landry with Stifel. Your line is now open.
Hi, good morning. I have a couple of questions on GetGo, given the sizable acquisition that it is. I was wondering, you talk about GetGo having a pretty successful make-to-order food program. So, can you share with us what's the proportion of food that represents of total merchandise sales? Also, wondering if you could talk a little bit about expected synergies in terms of size that could be realized. And then lastly, just timing of closing, you're saying twenty twenty-five. Twenty twenty-five is a pretty wide range. I'm wondering if you could just narrow that a little bit, it would be helpful for our modeling.
Yeah, I think we feel great about GetGo. First of all, these are really high-quality assets, high-quality throughputs in both fuel and merch. You ask about food, it's kind of high teens, low twenties. They have their full food offering, 123 stores that you can order on their kiosk. We are, we're really excited about the reverse synergies from this deal. They have an incredible myPerks loyalty program that is profound, it's deep penetration. We would see learnings in food, in their ready to go food. And I think we'll bring them some things on the procurement side, in merch and in fuel, and likely our cost leadership usually flows through as well.
We feel really good, and it. I would say GetGo's a little unique in that I really view it as a forward partnership, gotten to know Bill, Dave, and Justin, their leadership, as we've been doing this. They share a similar culture to us. You know, this is gonna allow them to focus on their grocery stores and grow their grocery stores, and we will be their convenience and fuel partner, and look to grow our joint loyalty program, and do things across warehousing, commissary, that we think are really unique. This is really about a forward partnership, with a company that we share a close culture, and we're super excited about it.
Okay, and historically, I mean, you've been able to generate or bump the EBITDA you've acquired in most of your transactions by 30%-50%. Is this, could that be the case for GetGo?
We don't provide, you know, guidance on that, but I would say, let's be conservative on that, and I would go for the lowest range that you mentioned. But we are, as mentioned by Alex, we'll be communicating over time about the progress on the synergies. But on the reverse synergy, we believe that there is, yeah, a lot to be done there.
Okay, thank you. Best of luck.
Thank you.
Your next question comes from John Zamparo with Scotiabank. Your line is now open.
Great, thank you very much. I wanted to ask on the loyalty program and on Inner Circle in the US. It seems like you're clearly getting good traction on growing that program. I wonder, are you also seeing outperformance on merchandise sales in the business units where you've deployed that, and is there anything you can quantify on that front?
First of all, thank you for the coverage. We appreciate it. Yeah, I think, as I mentioned earlier, you know, we continuously seem to be growing what we see as market share outperformance versus our industry, and that has coincided with our Inner Circle launch, and what's happening, and we see that performance. The business units are at different levels of maturity. It's not a linear equation, but I think at a macro sense, we feel like Inner Circle is certainly helping us take market share, and win against our competitive set.
Okay, that's helpful. And then just one follow-up on Europe, on the tobacco side. I think you'd said last call, you expect a pickup in volumes in the Netherlands because of a ban in sales at grocery stores. Are you starting to see the uplift you'd hoped for in that category?
We absolutely are. We are seeing 40-50% uplift already, and we've expanded our SKU range over there, and it's very early days, but we absolutely are seeing it.
Okay, great. I appreciate the color. Hats off and best wishes to you, Brian, and congratulations to you, Alex.
Thank you.
Your next question comes from Luke Hannan with Canaccord Genuity. Luke, your line is now open.
Thanks. Good morning. I wanted to start with a follow-up to the discussion on the U.S., the meal deals, the $3, $4, $5 meal deals that you're rolling out there. Just overall, all else equal, Filipe, I know you mentioned that you expect merchandise margins to rebound in the near future, and I imagine that's a handful of initiatives driving that. But just focusing on the meal deals for a second here. At those price points, do you still expect that to be accretive to U.S. merchandise margins, all else equal, or is this similar to the investments in beverage, where it's more of a focus on driving traffic at this point?
We do believe it will be accretive. I think for a couple ... You know, let me start with, most people that buy food from us, they're also going to buy a drink, and we have some unique capabilities in just the tremendously broad SKU set that we sell, and specifically energy drinks, which, you know, is a huge growth category that we are a destination for. So we believe this is a large opportunity. Our vendors are really eager to lean in on partnering with us on food service and providing value across meal bundles. And we have great relationships with them. We are partnering with them, so they are really helping fund some of the value that the consumer realizes here.
Okay, thanks. And then my second question here is just on Fit to Serve. If I remember correctly, last call, I think roughly half of that $800 million ambition had been achieved. Where do things stand as of today on that front?
We continue to progress on the execution of it. As I mentioned earlier, we already identified actually the $800 million. We see the path there, and hopefully, the execution will go faster than the five years that we initially planned, but we are moving in the right direction.
Okay, thank you very much.
Your last question comes from John Royall with J.P. Morgan. Your line is now open.
Hi, good morning. Thanks for taking my question. So I just wanted to see if you could talk about your approach to buy versus build in terms of prepared foods. You're building a food program organically, but do you consider it to be a key part of your M&A strategy to accelerate those efforts by acquiring a chain that has a strong capability in prepared foods? I'm just trying to understand how important a food capability is to your criteria on the M&A side.
I think, you know, for some period of time, we have been targeting what we call high quality assets, so larger boxes, bigger volumes, quality real estate, higher merch sales, and food is one element of that, that is certainly in scope for us. I think GetGo is a perfect example of that. Again, they are a food-first retailer. They have a very robust food program inside their café markets. And so the GetGo is a perfect example of what we are targeting inside of M&A and how food plays into that.
Thank you.