Earnings Call: Q1 2020

Sep 5, 2019

Morning. I would like to welcome everyone to this web conference presenting Alimenta Saint Couche Tard's financial results for its Q1 of fiscal year 2020. All lines will be kept on mute to prevent any background noise. After the presentation, we will answer questions that were forwarded to us beforehand by analysts. We would like to remind everyone that this webcast presentation will be available on our website for a 90 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 Hanisch, President and Chief Executive Officer and Mr. Claude Tessier, Chief Financial Officer. Brian, you may begin your conference. Thank you, Jean Marc, and good morning, everyone. Thank you for joining us for the presentation of our Q1 fiscal year 2020 results. I want to begin by saying we're closely watching Hurricane Dorian Following the devastation of the Bahamas, the storm remains dangerous as it goes over Florida and now looks like it may make landfall in the Carolinas. The safety of the thousands of our employees in those states is our primary concern. However, we're committed to do our best to help our customers weather storms as they prepare for Dorian and later recover from her impact. Now I'll go over the highlights of the quarter. Following my presentation, our Chief Financial Officer, Claude Tessier will go over the financial results in more detail. This quarter, we had steady growth in our convenience segment even as we cycled against an exceptional Q1 last year. Although our region saw increases in same store sales and I'm especially proud of the innovations taking place in our network to drive traffic and improve our offer as we build longer term capabilities. We also had exciting momentum in our Circle K rebranding campaign across the U. S. And Canada, and the introduction of our Circle K Fuel brand has hit a new milestone this quarter. I'm pleased with the work on our leveraging our loyalty programs like Lyft and Easy Pay and unique promotional activities like Polar Pop! Unlock and gamification across the network, all part of our global efforts to drive more traffic to our stores and make our customers' lives just a little bit easier every day. Turning to convenience, let me give a little more detail on same store sales during the quarter. In the U. S, we saw an increase in same store merchandise revenues of 2.5 percent compared with the same quarter last year with good performance in most of our business units. In Canada, same store merchandise revenues increased by 0.3% sales and traffic impacted by unfavorable weather compared to the same quarter last year. And in Europe, same store merchandise revenues increased by 0.7%. Again, weather was not favorable across parts of Europe this year with record cold and certainly not compared to last year where we had record temperatures in many of our areas. Across the network, we continue to see positive benefits driven by improvements made to our offering as well as our fuel and digital initiatives to drive traffic to our locations. Shifting to fuel. United States fuel volumes were healthy and same store road transportation fuel volumes increased by 0.6% compared to the same quarter last year fuel margins remained strong. In Canada, same store road transportation fuel volumes increased by 0.4%, another sequential improvement in this part of our geography. In Europe, same store fuel volumes were down 1.6%. Weather played a role here as well as especially in Scandinavia where we had record temperatures and sunshine as I mentioned earlier last year. During the quarter, we made advances in both our fuel loyalty and mobile payment programs in Europe and North America. In July, across the entire U. S. Network with the exception of Holiday, we've launched our Easy Pay program, which provides fuel discounts every day to our most loyal customers. The program is growing the penetration. We're seeing increases in the frequency of visits as well. In Europe, mobile payment is a high priority project and is now fully launched for fuel in Denmark and Norway. And over the year, we'll expand to other parts of our European network as well as into our Car Wash network. The presence of our Circle K fuel brand continues its growth this quarter. With the work complete in Europe, we hit a milestone in the U. S. With our 2,000 location now offering Circle K Fuels, and we're pleased with both the volume and margin results of this efforts. In our mobility work, we've expanded to Ireland this quarter with the first opening of our IONV first fast charging stations and several more planned over the next coming months. We're on track to be a leading provider in our key markets in Europe. As we enter our 4th year of the Circle K rebranding project campaign, I can't be prouder of the work we've done across our network. Europe is now fully complete and we have more than 5,800 stores proudly displaying the new Circle K brand in North America. That includes nearly 7 90 former CST branded locations. Let me go over some of the remarkable stats to date. The Heartland business unit, we now have 94% of our sites rebranded. In Texas, which is primarily CST, we have over 5 50 stores with a new Circle K brand and about 70 remaining. In the West Coast, less than 30 sites remain to be rebranded and Grand Canyon, which is our former Arizona business unit, we're now 2 thirds complete with all locations to be done by the end of the fiscal year. Moving to Canada. In Central Canada, we have nearly five 60 locations that have been rebranded from MAX to Circle K and about 245 out of 300 in Western Canada. Both business units expect to complete rebranding work by the end of the fiscal year, if not sooner. Shifting to Holiday, I wanted to give some color on where we're at with the integration and the accelerated work we did in the quarter on reverse synergies. First, I want to congratulate Rick Johnson, formerly our Vice President of Holiday and our Northern Tier business unit for his promotion to Senior Vice President of Operations, overseeing several of our U. S. Business units. Rick has been a great leader for over 4 decades at Holiday. And as part of our tradition of incorporating and growing from our acquisitions best talent, I'm thrilled Rick is now part of our executive leadership team. On to the best practices from Holiday this quarter, the smart value program, which I think I mentioned in the past, it's a comprehensive in store promotional program continue to roll out across North America and will begin in Europe later this fall. We have a set of holiday food pilots that went live this quarter, including one in our St. Louis market, where we have a market with the full holiday food concepts replicated and in Great Lakes, where we have our 1st full store remodel in true Holiday style and format, relocating the checkout and changing the entire customer flow inside the store. Car wash subscriptions, which were a key part of Holiday's offer, are underway in Denmark, our Southeast and Heartland business units are showing very encouraging early results. And finally, the Holiday store labor model was adopted as a foundation of our new store labor tool and will drive allocation of hours based on the analysis and best practices we've learned from Holiday. Let me talk a little bit more about commitment this quarter to drive organic growth, drive traffic and improve the customer journey. Last year, we started our customer segmentation work and we've now done deep dives into our key target groups of Circle K customers to understand more about their motivation, their triggers, their pain points and their intentions with us before, during and after the visit. This will help us prioritize and even better and more offer more better and targeted solutions to our customers. Inside our stores, we continue to grow our offers. In our beverage offers, our coffee on demand expansion continues with over 9 4,000 locations in the U. S. This year. We continue to see strong sales and margin results and customer feedback has been extremely positive. This installation is on track to be completed by the end of calendar year 2019. It's a great example of when we test, we find something that works and scale rapidly. Packaged beverage remains an especially strong category with energy, water and ready to drink coffees notably contributing to same store sales growth. We're also seeing emerging growth in alcohol space with alternative products such as hard seltzers, reflecting changes in consumer behaviors, and we're committed to staying ahead of the curve. In our North American food program, we launched Dollar Dog Hot Dog promotion, which has driven double digit sales increases. Premium hot dogs are also driving unit growth as we convert more customers to our food program. Our top dog signature hot dog program is now in nearly 5 70 stores and preparing for launch across all U. S. Business units in the coming months. Alternative tobacco categories showed strength both in the U. S. And Canada and in markets in Europe where we're allowed to launch them. We remain committed while we've also remained committed to traditional tobacco products in this quarter continue our significant expansion of backbars to more locations to not only better display tobacco cigarettes, but make room for the tremendous amount of innovation we're seeing in the category. The customer experience both inside and out the store remains a priority. In Europe, we now have about 135 newly redesigned Circle K stores across 8 different countries. This is a complete redo of the site with attractive design and food offerings that engage our customers and feedback has been very strong. Direct mailers and gamification engagement tactics have also been successful in driving traffic in Europe. We recently launched them in Canada and plan to do so later in the year in the U. S. With good results based on the good results we've seen in Canada. By the end of the quarter, Lyft, our digital platform, was in almost 5,750 sites in the U. S. And we began rollout in Canada. In Texas, we're piloting home delivery partnership with a service to more than 160 sites in Houston metro area, where customers can order a variety of products, including snacks, beverages, age restricted products, receiving them in less than an hour. We're monitoring this closely to measure customer acceptance and how it could play out in other markets for us. I'm going to pause there and let Claude take us through more of the Q1 financial results. Claude? Thank you, Brian. Ladies and gentlemen, good morning. We're happy to report for the Q1 of 2020 net earnings attributable to shareholders of the corporation of $538,800,000 or $0.95 per share on a diluted basis. Excluding certain items for both comparable periods, adjusted net earnings for the Q1 of fiscal 2020 would have been approximately $548,000,000 or $0.97 per share on a diluted basis compared with $0.87 per share for the Q1 of fiscal 20 19, which is an increase of 11.5%. I will now go over some key figures for the quarter. For more details, please refer to our MD and A, which is available on our website. During this most recent quarter, excluding CAPL's result as well as the negative impact from the foreign currency translation, merchandise and service revenues increased by approximately 97,000,000 dollars or 2.7%. This increase is primarily attributable to continued organic growth despite unfavorable weather and cycling against an exceptional Q1 last year. On the same basis, merchandise and service gross profit increased by approximately $35,000,000 or 2 point 9%, mainly attributable to our organic growth. Our gross margin increased by 0.5% in the United States to 34% and decreased by 0.9% in Europe to 41.5%, both driven by changes in product mix. In Canada, our gross margin decreased by 1.6% to 32.9%, mainly as a result of conversion of our Esso stores from the agent model to the corporate model as well as changes in product mix. The road transportation fuel gross margin for the Q1 of fiscal 2020 was $0.286 per gallon in the United States, an increase of $0.416 per gallon, supported by the volatility in crude oil prices as well as improved sourcing conditions. In Europe, the road transportation fuel gross margin was $0.0844 per liter, a decrease of 0 point $7.7 per liter, mainly due to the net negative impact of foreign exchange and higher biofuel blending ratio, taking advantage of favorable conditions. In Canada, the road transportation fuel gross margin was CAD0.740 per liter, a decrease of CAD0.0151 per liter due to competitive pressure in some of our markets. On the expense side, our teams across the network worked diligently on cost containment, which yielded a nice sequentially improvement, resulting in lower cost growth than the previous two quarters. For the Q1 of fiscal 2020, growth in normalized operating expense was 2.3%. Excluding the conversion of our Esso stores from the agent model, the remaining variance for the Q1 of fiscal 2020 would have been only 1.7%. The optimization of our cost base will remain a focus area for the next quarters. Excluding specific items described in more detail in our MD and A, adjusted EBITDA for the Q1 of fiscal 2020 increased by $58,300,000 or 5.9 percent compared with the corresponding period of the previous fiscal year, driven by the increased fuel margins in the United States and by organic growth, partially offset by the net negative impact from the foreign currency translation. The variation in exchange rate had a net negative impact of approximately $15,000,000 for the quarter. The income tax rate for the Q1 of fiscal 2020 was 20.2% compared with 16.6% for the corresponding period of fiscal 2019. Excluding the tax expense of $45,000,000 from the reevaluation of deferred tax assets and liability following the asset exchange transaction, the income tax rate would have been 19.5%. The increase of the income tax rate of the Q1 of fiscal 2020 stems from the impact of different mix in our earnings across the various jurisdictions. As of July 21, 2019, our return on equity remained strong at 22% and our return on capital employed was at 13.2% driven by higher earnings before interest and taxes. During the quarter, we've continued to generate significant free cash flow, allowing us to accelerate our deleveraging plan as evidenced by our adjusted leverage ratio of 2.02:one. We repaid without penalty $150,000,000 of our U. S. Dollar denominated senior and unsecured notes. Our liquidity position remains strong. We had $1,37,000,000 in cash and approximately $2,500,000,000 available through our revolving credit facilities, providing us the flexibility to continue our organic growth plan as well as rewarding our shareholders. During its September 4, 2019 meeting, the Board of Directors declared a quarterly dividend of $0.125 per share before the share split described shortly for the Q1 of fiscal 2020 to shareholders on record as at September 13, 2019 and approve its payment for September 27, 2019. The Board of Directors also approved a 2 for 1 split for all the corporation issued and outstanding Class A and Class B shares on record as of September 20, 2019 and payable on September 27, 2019. Finally, since the launch of the share repurchase program, we repurchased a total of 1,500,000 dollars 5,000 Class B supporting and voting shares for a net amount of 91,300,000 dollars Thank you for your attention. And now back to you, Brian. Thank you, Claude. In conclusion, this quarter, particularly in the context of last year's results, was again a strong quarter where we delivered solid top line merchandise and fuel and generated impressive cash flows. We've also accelerated our work in driving organic initiatives, procurement and merchandising as well as operational excellence. This along with the readiness of our balance sheet puts us in a strong position to meet future challenges embrace the opportunities for future growth as we move forward on our journey to become the world's preferred destination for convenience and fuel. And with that, we'll now answer questions we will see from the analysts. Thank you, Brian. The first set of questions comes from Patricia Baker at Scotiabank. You call out the competitive backdrop in Europe and unfavorable weather as impacting Europe in Q1. Were these impacts of similar magnitude? And with regards to the competitive backdrop, which markets are most impacted? And currently, which is the strongest European market and what accounts for that? In terms of results in Europe, the larger impact by far was weather. We've actually taken a week by week look at that. We're cycling against record warm last year, record cold this year, particularly in the month of May. In May alone, it triggered more than a 6% swing in traffic because we knew the end of the quarter and weather was more normal, we saw sales trends more normalized. In Ireland and Poland, you asked about the strong markets. Ireland and Poland continue to perform very well. We're entering our 4th year of our acquisition of Ireland and clicking on all cylinders really with the recent completing the rebrand, introduction of new programs and operational improvements, we continue to see strong performance there. And in Poland, it really continues a 2 year story of strong growth in both fuel and merchandise. The second question from Patricia Baker. Q1 was a very busy quarter from a corporate activity standpoint. Can you provide an early read on the loyalty launch? And if you're seeing similar results with digital upsell nationally as you saw with the initial launch. On the home delivery in Texas, does that cover the full range of SKUs and what model are you using for the delivery? Touch on the EasyPay first, which is a material discount for customers use of proprietary payment. It was rolled out to all networks, all BUs except for Holiday in the U. S, which in Holiday will be completed in Q4. I'd say, our pilots we were pleased with. I'd say nationally, it's still too early to test results or to assess results. Sign up results so far have been steadily increasing and we'll be testing a variety of discount levels as well as store level incentives to understand how to maximize traffic and penetration. We're seeing repeat visits from program members as well as higher spend, which are both encouraging. On the Lyft side, which is our in store upsell tool, it's in almost all of our U. S. Company operated network to date and we're beginning the rollout of Canada in Q3. We think with both of these, we're just beginning to scratch the surface. With regard to Lyft, we're pleased with the early results and we're seeing a very good conversion rate averaging over 8% of customer transactions incorporating some sort of lift promotion with some BUs approaching 20%. So again, early days, but momentum is strong. In terms of home delivery, we'll have a number of pilots in the coming quarters in different geographies with different partners. The question was regarding Texas. We have approximately 200 stores that cover a wide range of SKUs, including age restricted items, and we're using the regional provider in Texas and looking forward to learning a lot about that part of the business, that offer. The next set of questions comes from Irene Nattel at RBC Capital Markets. How satisfied are you with Q1 same store sales performance? What are the key drivers? What is reasonable to expect as we cycle tougher fiscal 2019 comps? And what needs to happen in order to deliver your objective of inflation plus 100 basis points? Yes. I'd say overall, we're pleased with the quarter. If you look at it in the context of last year and combine the 2, we had almost 7% over 2 year period in the U. U. S, 8% in Europe and 7% in Canada. So in the context of looking at both years together, we feel good about it. In the U. S, which was weaker than we'd like overall, it really depended on geography. Our northern markets where we had really a slow spring due to weather, We saw more challenging results. But if you look at our Western markets and our Southern markets, they continued the trends that they've had over the last 2 years. Let's say we have more tools than ever in the toolbox. We'll be seeing good contribution from our coffee in demand and our top dog programs. As I mentioned in the comments, coffee in demand is now in almost 4,000 stores. We're seeing strong results from gamified promotions in Europe and we recently tested that in Canada with very good results. And we think that's a strong opportunity for us to expand into the U. S. As well. We continue to work on multiple organic growth initiatives and look at our objectives on a long term balance basis. The second question from Irene Nattel. Both Canada and Europe continue to be negatively impacted in both gallons and margins by competitive intensity. Who is the disruptor? How do you see the situation evolving? And do you see any easing? Not naming names, but in Canada, we do see competitive very competitive behavior from certain competitors impacting both volume and margin. We have our hypothesis to why, but we don't believe this is structural, particularly in the context of wage legislation and other reminder of the benefit of having a very geographically diversified network within Couche Tard. In Europe, our pressure is really in the Baltics, which again aren't material overall to our results. They're small countries, but they're great markets for us. And we've just seen a lot of new competitive entry into the market that's pressured those results a bit. But again, very, very strong markets for us and leading market share. In terms of fuel, in Europe, we're positioned as a premium quality brand and we've seen some weakness in the B2C, so business or us to consumer versus us to B2B or business as retail prices have risen. We're watching this closely. We do expect improvements in volume as prices have come back down, but we're also working on other tactics to improve customer price perception. The next set of questions comes from Mark Petrie at CIBC World Markets. Could you please quantify the biggest drivers of U. S. Merchandise same store sales, including foodservice and tobacco, as well as the impact from weather or other drivers like enhanced marketing and tactical loyalty programs. Regarding tobacco, could you please give us some more detail about the performance of alternative tobaccos and how the change in Juul flavor availability affected sales in that category? Yes, I would say if you look at leading category for the quarter, beverages continue to be very strong, leading the way in terms of dollar growth. Just a lot of innovation in that category and I think our industry is uniquely positioned to provide really the variety of choices that customers are looking for today. OTP or other tobacco products continues to be very strong, double digit growth yet despite the loss of flavors in JUUL. It's really turning into more of a JUUL strategy. There's a lot of innovation in the space with other brands in the vaping space. You've got pouch growth in products like ZYN and other products that continue to see growth. So that story is becoming more diversified than really a Juul story, which is what we saw last year. On OTP, that continues to be extraordinarily strong. In Canada as well, with strong, strong double digit growth continuing there, both with Juul and other products as well. Specifically on cigarettes, more of a challenge. You see the results from RAI and Altria, volumes are softer and that translates into relatively flat sales. So when you look at our sales in the context of relatively flat cigarette sales, that even adds to our confidence in some of the things we're doing in other categories. The second question from Mark Petrie. In the past, you have spoken about the reverse synergies from Holiday. Could you please update us with where you are at on these efforts on merchandising, foodservice, as well as the run rate operating expense savings from the improved labor scheduling practices? Yes, there's literally a list probably 30 or 40 things that are being incorporated in that work. Some are completely invisible to the customers and the operators and some are very visible. I'll touch on a couple. So the Smart Value program, which is again a comprehensive in store promotional program that's very thoughtful about which items, what discount, how do you treat single prices, etcetera. That's being rolled out across North America and Europe later this fall. The Holiday food pilots have been expanded and I'll provide a bit more detail in an upcoming question. Holiday has unique store layout, where customers are routed very thoughtfully through the food section, back to the coolers and into the impulse area where they wait to pay. And so we're testing whether that has a good ROI to look at implementing that at scale in our network. Car wash subscription is another one. Approximately 20% of our car wash volume in holiday is on the subscription model. We've launched pilots in Denmark, our Southeast and Heartland business units and seeing early strong growth there. So pleased with that. And then as you question about the labor model, we've really taken the best practices from Holiday and a little bit from CST to create what I think is a very, very robust activity based model that provides great transparency flavor utilization, making sure we've got the right level of customer service and activities at sites where we need it. That's rolling out in Q3 in mass across North America. And we think that's going to go a long way to providing great control over our largest investment. We're not going to address the run rate of savings, but as always, we'll have value at each of these projects individually and make sure they're exceeding our hurdle rates before we spend capital against them. The next set of questions comes from Peter Sklar at BMO Nesbitt Burns. Your adjusted growth rate in operating expenses of 2.3% was a good result after considering the Esso store conversion impact. Can you talk about what initiatives are being undertaken to limit the growth rate in these expenses? So Peter, we have a comprehensive cost optimization plan in place, which covers a multitude of initiatives ranging from the store hours scheduling that we just talked about with the labor model of Holiday and CST and improvements that are coming to in our stores through those models and also automation of surgeon tasks. So we're in a phase where right now we're leveraging our size and streamlining the number of supplier with which we're dealing. We're definitively accelerating the use of our scale in multiple areas. Secondly, with a methodology based on lean retailing, we're working towards operational excellence in our stores where improvements, even minor ones can be multiplied across our large network of 16,000 stores. So we're also well advanced in the use of robotics and AI and in our support function And this is helping us increase productivity and streamline processes. So basically, we're trying to leave no stone unturned overall in the business, and that plan is a comprehensive plan that we have throughout the organization. The second question from Peter Sklar, can you update us on the food pilot in the U. S? I understand that you have been testing a small number of stores in 6 markets. Will you broaden the number of stores in the pilot? And when do you anticipate making a decision regarding a potential national rollout? So in terms of the pilots that we have up and running, I'd say the early results are encouraging. We'll have a total of 10 pilots up shortly. They are structured very specifically help us understand the impacts of different variables, whether that be equipment, SKU selection, holding time, etcetera. So if you want to think about it, think of Holiday as a base with a lot of work on supply chain, SKU selection, logistics and equipment to enable when we've got the results we think we need for us to push the button and roll this out at scale. We'll have more than 200 stores in pilots in the coming week and we'll be evaluating the pilots through the fall and continue to anticipate a decision whether we'll go in mass rollout by the end of this calendar year, so soon. That said, just to build on that, we haven't stood still in this space. We found we had a winner on our coffee program. We rolled that out very quickly to 4,000 locations. Our hotdog program has gotten great traction, so we rolled that out to almost 600 locations in the last couple of quarters. So a lot of activity while we try to get the grab and go food concept done right. The next question comes from Vishal Shreedhar at National Bank Financial. Management noted that improved supply conditions aided U. S. Fuel margins. Of the year over year improvement of $0.04 per gallon, how much was attributed to better supply conditions? Really difficult to say. In that context, I think we were very pleased with our ability and how we've leveraged the scale of our procurement efforts in the fuel set, the fuel area. Particularly when you look at the Circle K fuel brand, we've got great fuel partners, companies like Shell, BP, Eso, but they may not always be the most efficient supplier into a given geography. So we've taken steps in recent quarters to optimize the brand selection where we think we've got better cost of goods available to us. So certainly some of that's in the story for this quarter and in coming quarters as well. But it's a lot of different factors to go into that 4% year over year or $0.04 year over year improvement. The next question comes from Michael Van Aelst at TD Securities. With the controllable SG and A growth rate slowing to 1.7% excluding conversion of stores to Cocoa in Q1, Do you now see this growth remaining below 2% for the foreseeable future? Or will it accelerate again once you start to roll out a larger fresh food offering across the U. S? So Michael, we're definitely making long term investments in the business and developing new global functions in marketing, investing in our digital strategy and also in our food capabilities like Brian just talked about. So, however, cost discipline and cost containment remains part of our DNA and we're also committed to put in place cost optimization programs at the same time to offset these increases and meet our long term targets. From our food pilots, we learned that one of the key success is to keep the operation simple, scalable and consistent. So the holiday model for food that we offer often refer to is a good example of a food program with a low cost of operation. So currently, we're still evaluating different fresh food models and which one to roll out. One of the component of the evaluation was certainly the cost and as well as sale and most importantly, overall profitability and return on capital. So we can assure investor that our focus will remain on operating within our optimized cost structure. The next set of questions comes from Keith Howlett at Desjardins Securities. With respect to same store sales growth, what were the traffic and basket size trends in the convenience store business in each of the 3 regions? Were the trends consistent within each of the 3 regions throughout the 12 weeks of the quarter? In the U. S, traffic was fairly consistent in some areas that were weaker year over year, but overall when you look at the U. S. In its entirety, generally in line with what we've seen in prior year in terms of traffic. Europe and Canada were clearly weaker than in the previous same quarter last year, which at this time we feel is primarily weather related as later weeks in the quarter were more normal. Our basket growth continues and we've cycled a bit of the early adopter advantage we had in Juul, but continue to see strong growth in categories like beverages and salty snacks. The second question from Keith Howlett. With respect to same store sales growth, what percentage of convenience store sales in Q1 are tied to weather such as beer and cold beverages? And the softness in those weather related categories completely explain the below trend same store sales growth in all markets and the reduction in gross margin rate in Europe and Canada? So the first part of this question was already addressed. And for the rest, the reduction of the gross margin in Canada is mostly derived from the conversion of our Esso stores. So as well as weather had an impact on some high margin categories such as cold and frozen beverages. Other tobacco products also are still growing strongly in Canada. I like Brian mentioned before and that has a slight impact negative impact on our margin in Canada. In Europe, the margin was impacted by unfavorable mix. Car wash sales, beverages and dairy sales were affected by unfavorable weather. These are all high margin categories, which are more meaningful in our European business in summertime. So that affected negatively our margins in Europe. The next question comes from Derek Dley at Canaccord Genuity. Can you comment on the acquisition environment as we recently witnessed some activity both in the U. S. And in Australia? Have you seen a change in transaction multiples? And given your healthy balance sheet, do you expect to be dilution that took place in the last quarters, we have significant balance sheet capacity and are in a position to do significant deals right now. From an M and A perspective, nothing has changed from previous comments. Multiples remain high. Billing is competitive on all files and we're going to continue and are still evaluating all files and expect to be in the loop as other opportunities arise. However, this environment will not last forever and when things will move back to more reasonable grounds, we are certainly be ready to act. And meanwhile, we continue to use opportunistically our share buyback as stated before and this to enhance shareholder value. The next question comes from Bobby Griffin at Raymond James. Can you add some color on what lift you're seeing from merchandise sales and fuel volumes in the U. S. After the rebranding to Circle K is complete? And what opportunities are there to enhance the loyalty program under one brand? In terms of sites we're rebranding from other brands, I'd say both the CST and the MAX stores in Canada are seeing improved same store sales compared to Heritage Circle K locations. So pleased with the results there. Part of that's new the brand unifying that in geographies, part of that's new programs and part of that's continued focus on improving operations. Today, we have a clear path on driving organic sales over time and having one unified brand is certainly foundational to that journey. Building on this foundation, there are a lot of things we believe could create customer loyalty beyond an app And then it starts with great operations and customer service. We're working hard on store specific assortment, a journey in store specific pricing. We'll continue to focus on developing differentiated programs and offers like Froster, our Polar Pop Unlock, GameFi promotions, which I mentioned earlier. If you look at the narrow definition of loyalty, we believe we're just scratching the surface with our Lyft and Easy Pay. While concurrently working to personalize and differentiate our more comprehensive loyalty program that we have in Europe and parts of the U. S. This year we're adding features such as mobile payment Can you provide an update on the M and A environment in the U. S. From a multiple perspective? And assuming multiples remain high, would you be more likely to reduce your goal to double the business 5 years or would you be more likely to look to increase M and A in other countries? In terms of our strategic plan, I'd say we're very early in it and very still very confident in it. We've seen these environments before, as Claude mentioned, and it won't last and we'll be ready when it doesn't. In the meantime, we're going to remain disciplined in our pursuit of acquisitions and we've never been a company that prioritizes store count growth to the detriment of shareholder value. Our footprint gives us unique look at opportunities globally and we remain open to many M and A opportunities not only in the U. S. The second question from Karen Short. Gas margins were very high in the U. S. Any color on whether or not this structural and sustainable? Would you be inclined to get more aggressive on pricing to generate stronger gallon comps? In terms of fuel, our goal is to be consistently competitive and provide consistently competitive prices to our customers each and every day. In that context, I'm pleased with our volume results. This is our 5th consecutive quarter of positive same store gallons, which we believe is growing market share in almost every market we're in. Margins are likely to remain volatile over any shorter period of time, driven by changes in underlying product costs and competitive behaviors. But over the longer term, we believe there will be upward pressure on margins driven by the profit needs of the smaller site operators, which have the same cost pressures but are not growing volumes and are more reliant on weaker categories like cigarettes. In terms of the things we control, as I mentioned a bit earlier, we're working on our procurement initiatives, continue to roll out of the Circle K Fuel brand, programs like Easy Pay, which will enhance loyalty and volume and driving growth in our premium fuel sales. Thank you, Brian and Claude. This covers all of the questions for today. Thank you all for joining us. We wish you a great day and look forward to discussing our Q2 2020 results at the end of November. Thanks everyone. Have a great day. Thank you. This concludes today's conference call. You may now disconnect.