Earnings Call: Q3 2019

Mar 20, 2019

Good morning. I would like to welcome everyone to this web conference presenting Alimont Saint Couche Tard's Third Quarter Financial Results for its Fiscal Year 2019. 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 Q3 2019 results. I want to begin by going over some of the highlights of the quarter and following my presentation our CFO, Claude Tessier will go over the financial details of the quarter. This quarter we had a record breaking earnings with strong and balanced results really across the entire network. In particular, I am pleased with the year over year growth in same store merchandise sales. In the U. S. And Canada, we saw positive momentum in the regions where the former CST locations have been rebranded and that certainly shows the strength of the Circle K brand and the Couche Tard programs and operations and their ability to drive sales and traffic. I'm also proud of the work this quarter in expanding the Circle Circle K Fuel brand to nearly an additional 2 50 locations across North America in which we continue on a journey to provide an easier customer experience both at the fuel forecourt and inside our stores. This quarter also marks the 1 year anniversary of our Holiday acquisition and I want to thank the outstanding employees of our new Northern Tier business unit for a great year of growing together. We're very, very pleased with the results year to date in Northern Tier. I'll dive a little bit into the details of our same store sales this quarter, which were up across the network. In the U. S, we saw an increase in same store merchandise revenue of 4.5% compared with the same quarter last year. There was very good performance in all the U. S. Business units, including the clear positive impact of a lot of progress in our CST stores. We're also seeing success of a lot of our traffic driving initiatives, improved product mixes and tactical loyalty programs, which are contributing to continued solid top line growth. In Canada, same store merchandise revenue increased by 4.9% continuing on improving trends from the last quarters. In this area region, the former CST locations had an exceptional performance in the quarter as the rebranding move forward. Again, this is also due to strong promotions, the popularity of some of our programs that we put into these stores, as well as an impact of higher tax on cigarettes and OTP in Canada. In Europe, same store merchandise revenues increased 2.9%. While this is solid growth, we did see some deceleration from earlier in the year due to unfavorable weather and reduced topping holiday shopping days over the Christmas period. Shifting to fuel, in the U. S. Same store road transportation fuel volumes increased by 0.8% compared to the same quarter last year. We also had very strong margins in the U. S. This quarter where we benefited from both the following product costs and the structure of some of our larger fuel arrangements with our suppliers. In Canada, same store transportation fuel volumes decreased by 0.6%, which continues to improve the trend in this region compared to prior year, especially at the Esso sites where the newly implemented loyalty program continues to gain traction. In Europe, same store fuel volumes were down 1.4%, largely due to some extreme weather in the Scandinavian business units as well as in the Baltics and also competitive pressures in certain markets. This quarter we grew the presence of our Circle K brand in North America in the fuel space especially in our Heartland business unit over 120 new sites in Missouri and Illinois. We have basically completed the conversion of Circle K Fuel at all of our former Statoil sites in Europe, all the Topaz locations in Ireland as well as the Shell locations in Europe. By the end of fiscal 2019, we're looking at rebranding some 1,000 sites to the Circle K Fuel brand in the Midwest, Rocky Mountains, Southwest, Gulf Coast and Ontario and here in North America. And we're well over halfway towards that goal. Unifying the Circle K brand inside our stores and in our fuel islands is improving the customer experience and making our customers' lives just a little bit easier every day. In terms of acquisition and the integration work, we continue to see great work at the former CST locations. In Canada, performance of our CST sites in same store sales showed very strong year over year growth at 11.8%. In the U. S. The CST network had an increase of 4.8% in in store sales driven by the success of our rebranding activities, resets and in the store showcasing impulse products and improvements made to our overall offering in the sites. In Texas specifically, we've completed the kolache and donut bakery rollout to 2 50 locations in the quarter and we're seeing promising sales and customer feedback with that offer. We continue to realize impressive synergies related to the CST integration, which at the end of the quarter is approximately $207,000,000 and we remain confident that we'll exceed our synergies target of $215,000,000 Next to the Holiday Network where we reached our 1 year anniversary of the acquisition this quarter. While we're very pleased with the integration so far, what's most important is the outstanding people who serve our customers every day in the newly formed Northern Tier business unit. For the last several months, our dedicated teams have been piloting programs across the network based on Holiday's grab and go food offer, Holiday store layouts, design practices, some unique promotional activities and marketing models. I'm pleased to report that we're now moving beyond the piloting stage and bringing some of these programs to scale in our heritage network. This quarter, we also had new products and category offers from Holiday in various stages of testing or implementation, an example being rolling out Holiday's private brand beef jerky across the U. S. Which has quickly become one of our top selling SKUs. Let me talk a little bit about what's going on inside the stores in terms of key categories. This quarter we expanded our highly successful coffee in demand program to new markets and we now have nearly 900 locations installed in the U. S. Year to date. Building on the strength and position for Simply Great Coffee and implementing above the line media to announce the program's arrival, we've seen strong traffic and customer engagement in our initial launch areas. Additional sites are being deployed and we're on track to completing over 1500 sites by the end of the fiscal year. With this program, Circle K is taking brewed coffee to the next level with its premier brewing system and equipment that's fast, easy and always fresh. Every cup is ground and brewed in under a minute and customers are reacting very positively to clean fresh taste. In our Polar Pop offer this quarter, we had a first to market exclusive launch with Dew Ice on the Fountain, which capitalized on a new brand extension and drove growth across the portfolio. This is part of our effort to leverage our strong partnerships with suppliers for exclusive favors and activations which help differentiate our Polar Pop and Foster brands. We continue to see acceleration in the packaged beverage segment primarily driven by sustained growth in energy, water and ready to drink coffees. Within the energy category during the quarter, we had our 1st major national scale promotion which combined a compelling retail value, our unique Lyft upsell platform and exclusive marketing content and media elements. Similarly, we leveraged large scale promotions against the carbonated soft drinks segment as well as a number of high impulse, high margin categories like confection and snacks. These events were booked in by major holidays and the Super Bowl and in each instance resulting sales and profits showed positive growth. Within our new culinary inspired signature hotdog program, we've exceeded our original goal of 200 stores in the fiscal year and now have over 2 70 locations in North America with the offer and plans to expand that further. We've enhanced our marketing toolkit to create awareness around that offer and excitement of the category and its on trend flavor innovations. In Europe, we've rolled out a newly designed Circle K store layout to nearly 50 locations so far this fiscal year and target to open up over 90 by the end of the year. These are new stores, newly remodeled stores and are a big step up in terms of look and feel of the offers. They feature wide aisles, inviting decor, attractive lighting and provide new customer experiences to grow traffic and basket size. At many of these locations, we also have our food to go offer or prepared on-site sandwiches are particularly popular with the customers. In 6 of our European markets, we've also piloted an exciting New Mexican offer. After tasting it in Ireland or sorry, piloting it in Ireland and Norway for over a year, we feel it's ready for prime time and have expanded again into 6 other divisions. The range includes easy to eat burritos, quesadillas, nacho bowls which are targeted for our customers on the go. During the quarter, we continued the expansion of our Circle K brand across the globe where we completed now over 4,900 sites in North America and over 1900 sites in Europe. In Ireland, our last remaining market in Europe, we've rebranded nearly 300 locations and are progressing nicely on the plan to have 360 completed by the end of this fiscal year. Turning to the U. S. And the Arizona business unit, about 120 sites have been rebranded this year with a goal of over 200 by the end of the year. In our Rocky Mountain business, we've rebranded 240 locations with a target of fishing 300 sites by the end of the year and Texas is moving closer to meeting its goal of 400. So we're making great progress inside of that new CST network. And as I noted, the trends in these newly rebranded stores are strong and lifting results across the divisions. I'm going to pause here and let Claude take us through more of the Q3 financial results. Claude? Thank you, Brian. So ladies and gentlemen, good morning. We're happy to report for the Q3 of 2019 net earnings attributable to shareholders of the corporation of $612,100,000 or $1.08 per share on a diluted basis. Excluding certain items for both comparable periods, adjusted net earnings for the Q3 of fiscal 2019 would have been approximately $609,000,000 compared with $301,000,000 for the Q3 of fiscal 2018, an increase of $308,000,000 or 102.3 percent. Adjusted net earnings per share would have remained at 1.08 the Q3 of 2019 compared with $0.53 for the corresponding period of fiscal 20 18, an increase of 103.8%. Net earnings were 1.5 $1,000,000,000 for the 1st 3 quarters of fiscal 2019 compared with $1,300,000,000 for the comparable period of fiscal 2018, an increase of 20.4%. Diluted net earnings per share are $2.73 compared with $2.25 for the previous year. Excluding certain items from net earnings of the 1st 3 quarters of fiscal 20 19 and fiscal 2018, net earnings would have been approximately $1,600,000,000 compared with $1,100,000,000 for the previous year, an increase of 38.8 percent. Adjusted diluted net earnings per share would have approximately $2.80 compared with $2.01 for the 1st 3 quarters of 2018, which is an increase of 39.3%. 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 revenue as well as the net negative impact from currency translation, merchandise and service revenue increased by approximately $394,000,000 or 10.3%. This increase is attributable to the contribution from acquisitions, which amounted to approximately $174,000,000 and to continued organic growth. For the 1st 3 quarters of fiscal 2019, on the same basis, merchandise and service revenues increased by 1 point $5,000,000,000 or 15.5 percent. This increase is attributable to the contribution from acquisition of approximately $1,000,000,000 and to organic growth. For the Q3 of fiscal of 2019, excluding CAPL's gross profit as well as the negative impact from currency translation, merchandise and service gross profit increased by approximately $142,000,000 or 10.9%. This rise is attributable to the contribution from acquisitions of approximately $62,000,000 and to our organic growth. Our gross margin increased by 0.6% in the United States to 33.7% and decreased by 0.4% in Europe to 41.8%, both due to different product mix. In 33.1%, mainly as a result 33.1% mainly as a result of the conversion of our Esso stores from the agent model to the corporate model as well as to the increase of taxes on cigarettes and other tobacco products. During the 1st three quarters of fiscal 2019, on the same basis, consolidated merchandise and service gross profit increased by $543,000,000 or 16.3%. The gross margin was 33.8 percent in the United States, an increase of 0.6%. It was 41.8% in Europe, a decrease of 0.3%, while in Canada, it was 33.7%, a decrease of 0.8% for similar factors to those of the Q3. The road transportation fuel gross margin in the Q3 of fiscal 2019 was and was solid at $0.2942 per gallon in the United States, an increase of 13.76 dollars per gallon compared to the same quarter last year, mainly driven by a sharp decline of crude oil prices during the quarter. In Europe, the road transportation fuel gross margins was US8.3 dollars dollars per liter, an increase of US0.43 dollars per liter. While in Canada, the road transportation fuel gross margin was CAD0.811 per liter, a decrease of CAD0.012 per liter due to increased competitive pressure. The road transportation fuel gross margins in the 1st 3 quarter of fiscal 2019 was CAD0.2512 per gallon in the U. S, dollars 0.872 per liter in Europe and CAD0.845 per liter in Canada. While in store hourly rate pressure continue to bring this quarter's growth in expense to higher level than in the past, we continue to rigorously focus on the controlling costs on controlling costs soaring throughout our organization. As always, this cost control is due to our rigorous financial discipline and focus on increasing value for our shareholders. As a result, for the Q3, we were able to maintain growth in normalized operating expense to 3.2 percent despite the wage pressure in certain of our region and excluding conversion of our Esso stores from the agent model to the corporate model, the remaining variance for the Q3 of fiscal 2019 would have been 2.9%. Excluding specific items described in more detail in our MD and A, the adjusted EBITDA for the Q3 and 1st 3 quarters of fiscal 2019 increased by 405 $700,000 or 56.4 percent and by $601,400,000 or 26.4 percent respectively compared with the corresponding periods for the previous fiscal year. The growth in EBITDA mainly came from the contribution from higher fuel margins in the U. S, acquisition and organic growth, partly offset by the net negative impact from currency translation. Acquisition contributed approximately $62,000,000 $269,000,000 respectively, while the variation in exchange rate had a net negative impact of approximately $17,000,000 $24,000,000 respectively. The income tax rate for the Q3 of fiscal 2019 was 18.7 percent compared with 16.2 percent for the corresponding period of fiscal 2018. When excluded, the net tax benefit of $218,600,000 stemming from the U. S. Tax Cuts and Job Acts of the Q3 of fiscal 2018. The increase of the income tax rate of the Q3 of fiscal 2019 stems from higher pre tax earnings in the U. S. For the 1st 3 quarters of fiscal 2019, the income tax rate is 17.5% compared with 20.6% for the corresponding period of fiscal 2018 when excluding the same net tax benefit in fiscal 2018 stemming from the U. S. Tax reform. As of February 3, 2019, our return on equity remained strong at 23.8% on a pro form a basis and our return on capital employed was at 13.9 percent also on a pro form a basis. 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 2.38:one. Since the beginning of the year, we repaid close to $1,200,000,000 on our revolving unsecured operating credit. Our liquidity position remains strong. We have $690,200,000 in cash and approximately $2,300,000,000 available to our revolving credit facilities, providing us the flexibility to continue our strategic goal plan as well as rewarding our shareholders by increasing our quarterly dividend by 25% to CAD0.125 per share and introducing a new share repurchase program, which will allow us to repurchase up to 4% of our Class B subordinate voting shares subject to TSX approval. So thank you for your attention and now back to you, Brian. All right. Thank you, Claude. And before I conclude today, I want to once again mention how proud I am of the work being done at our sites and at the teams globally that are executing with our 9,000,000 customers we meet each and every day, both at the forecourt and inside our stores with a clear focus on making our customers' lives just a bit easier. This is a combined effort of the operations and fuels teams as well as our newly formed global marketing technology teams to better understand our customers and tailor our assortment pricing promotions on a much more local basis. Our Lyft platform, which is now in well over 5,000 locations, gives us the unique capability to personalize our customer experiences at the time where it matters most and the exact moment a customer's purchase is taking place. Over the past year, we've developed and deployed a variety of lift based programs including tactical loyalty programs in tobacco, packaged beverages, coffee and snacking which have engaged millions of customers nationwide. In response to the success, we are expanding our Lyft footprint into the former CST Holiday and Holiday locations as well as into Canada. We're also exploring the potential to bring this powerful technology platform to our European business units once we completed North America. In parallel to our Lyft programs, we're for the first time have put together a variety of national promotions and marketing campaigns that allow us to benefit both from our national scale as well as recognize the importance of local customization initiatives. These include Simply Great Coffee advertising, our new Polar Pop Unlock program and a wide range of product and offer promotions throughout the stores. These projects and offers that are now underway are markedly enhancing how we meet and interact with the customers at our stores, delivering on the promise of a single Circle K brand and moving us forward on our journey to become the world's preferred destination for convenience and fuel. That concludes our presentations for today and we'll now take the questions we received from our analysts. Thank you, Brian. The first set of questions comes from Derek Dley at Canaccord Genuity. We witnessed an increase in the SG and A rate this quarter. Can you comment on why and what are some of the initiatives you are currently implementing to gain operating leverage? So thank you, Derek. So yes, significant specific items in the relation with reserve adjustment and settlement that are not representative of future financial performance were isolated to explain that difference. If we exclude those also, the expenses grew at the rate of 3.2%, which also includes the sorry, the 3.2% includes the impact of changes in SO store model and reclassification of expense that we were previously disclosed in the margins in the U. S. So excluding those items, the expense would have grown at a rhythm of 2.3%. So we have a number of opportunities and initiatives also in flight right now in our new strategy to reduce those costs. We have a big program of optimizing our store operation and that's based on lean operations that we already have deployed in service of our stores to continue to try to reduce our expenses. And as you know, we have that financial discipline in our DNA. We're turning any rocks also on our SG and A to see if there's any other ways also we could control our expense, but we still have our usual discipline and we feel pretty good about the 2.3% running rate. The second question from Derek Dley. Given your reduction in leverage, can you comment on your priorities for capital allocation over the next 12 months? First, we have to mention that we are very pleased by the cash flow generation of this quarter and the ability it gave us to deleverage quickly. It's going to allow us to focus on our strategy and the ambition to double again. And for sure, our first priority is to provide sufficient capital to implement our strategic program and fuel our organic growth. So that's the main priority. Remaining cash flow and leverage provides flexibility to increase dividend and potentially implement a share repurchase program or use the repurchase program when it's going to be implemented. So those last items will never, however, compete with any interesting acquisition or development opportunity that will which will always take priority on our share repurchase. The next set of questions comes from Irene Nattel at RBC Capital Markets. You delivered strong same store sales growth across regions. Can you walk through key drivers in terms of marketing and merchandising initiatives as well as performance of key categories? As we start to lap tougher comparables in Q4, what initiatives are you implementing to sustain same store sales growth? How important is rolling out the food strategy to sustaining same store sales growth as we move through fiscal 2020 fiscal 2021? Thanks. In terms of this quarter, yes, I would say OTP was certainly a strong performer. And as we've talked about in past quarters, that's been led by Juul, also a variety of other innovations in that space. Had strong beverage and snack performance as well, I think driven by just good overall consumer demand, but also seeing strong traction in our site specific assortment program that we're rolling out across the U. S. At this point. Then in Europe, our new Circle K store, which is the remodel that I mentioned, is showing very, very strong increases. So we're looking forward to continuing to scale that program. In terms of coming quarters, we're 1 year in from the creation of our CMO organization and beginning to see significant national and international programs take place. I'll give you some examples. Just launching gamified promotional activity in Europe in which customers play games on their phone and win prizes that are largely vendor funded. One of the recent successes that launched about 4 weeks ago, Estonia, small country, 500,000 people, We've had 3,200,000 plays in the last 4 weeks and strong traffic as a result. So launching that across 6 of our countries in Europe. CST, as I mentioned in the comments, broad activity set, putting in a lot of Circle K programs and just overall improvement of impulse items in those stores. We think that will continue to drive strong results in those networks. I mentioned Polar Pop Unlock. We sell about 500,000,000 cups of Polar Pop annually and we've created a national promotion that gives great monthly value to those loyal customers for only $1 across a variety of products. Bean to Cup, our new North American or specifically U. S. At this point fresh brewed coffee program, we've got that in 900 locations today. Seeing strong double digit growth there with significant improvement in margin. So we're committed to continue that rollout and think we've got a winner there. I mentioned Lyft, very pleased with the flexibility this platform. And as I mentioned in the comments, we're going to roll that out into holiday CST and into Canada in the coming quarters. And we think we can gain traction in those sites with utilizing that tool as well. In terms of the question about food, it's certainly a focus and we'll touch I think in some additional questions more deeply on that. It is a key focus and we believe our holiday based food model is right on track. But as we can see from above, we're utilizing a multi pronged approach to continue to differentiate our offer and appeal to targeted customer segments across a variety of categories. The second question from Irene Nattel. You're doing a great job of deleveraging down to a ratio of 2.38@quarterend. What does the M and A environment look like right now across regions? What do you estimate is your current balance sheet capacity? And under what circumstances would you consider executing on the NCIB? Again, as Claude said, very pleased with the deleveraging, way ahead of the schedule that we put out post the holiday and CST acquisitions and feel we're in a great place to take advantage of almost any opportunity. Looking globally, we feel that's our footprint today. I think the key message is, and I said this last quarter, we're going to be disciplined. We're seeing good deal flow, a fair amount of activity, but we're also looking for the right deals with the right management teams that give our that are accretive and give a good return to us and to our shareholders. In terms of capacity, we bring a unique scale to a very fragmented industry. And at this point, I think there are very few opportunities we don't think we could handle with our existing facilities. In terms of NCIB, I'd say whether it's NCIB or any other investment, our focus is on shareholder value. Currently, our focus is on our strategy, as Claude communicated earlier, and we're going to utilize the NCIB opportunistically when we feel it's clearly accretive for our shareholders. The next set of questions comes from Patricia Baker at Scotia Capital. Can you provide some incremental color in the specific promotional and traffic driving initiatives that drove the comparables in Q3 and also some discussion around the tactical loyalty programs and how they are working? I hit that pretty thoroughly in the first question. I would add just in terms of the tactical loyalty piece, we now have over 9,000,000 unique customers that we've gathered information on whether it's an email or a cell phone number. We're building a very, very large database of loyal customers that will at some point leverage and communicate back to more actively. But I think I've hit on the other things that we've got active in most of our geographies. The second question from Patricia Baker. Now that you are so well into the Circle K rebranding, what have been the key learnings here, the big wins and how do you really see this large rebranding initiative setting the company up for future success? Key learning is I should have done it a decade ago. There's just a lot of wins in the space. And I'll start with culture. That's what I've always said is our secret sauce. And having one brand gives us a platform to communicate across our 135,000 employees about what we stand for, what we want to become and the journey we're on. If you get more specific, you're starting to see national promotions where we're leveraging great relationships with some of our key CPG customers. Private label, we continue to gain penetration there and that wouldn't have been possible without brand unification. Brand awareness, I look at the awareness statistics that we've achieved replacing stat oil and topaz in Europe, it's astounding where we're at with unaided awareness and we're on that same journey here in North America. Social media, the Internet knows no geographic boundaries and we're certainly utilizing that to reach targeted consumers. And I can go on and on with loyalty and fuel. But again, I would highlight the culture and employee pride as being the foundation of that journey. The next set of questions come from Jim Durran at Barclays Research. Can you give us an update on what menu items have been deployed in the U. S. Food service test and how long those tests have been in place now? Do you still expect to provide the market with insights about the test results as part of your year end release? Yes, there's a variety of things happening and depending where you draw the lines with food, very pleased with the coffee promote, very pleased with the Polar Pop. When you get to food specifically North America, we have 6 discrete pilots. Some of those have launched, some of those are in process. They all share a common theme, which is kind of the roots of the holiday model. So minimizing on-site labor, on-site prep. The differences are in SKUs and presentation format. So we're very much in a learning journey there. That aside, we've got a lot of activities around Simply Great Hot Dog. We're going to roll out another 500 sites. Been very, very pleased with that. And I don't have a statistic for you today, but Fresh Bakery now is available at several 1,000 locations across North America, which we think is a great foundation and a great partnership with our newly launched coffee program. The second question from Jim Duran. The U. S. Tobacco and beer industry trends have been weak over the last few quarters. Have you felt this slowdown? And what if anything have you been doing to offset that weakness? Yes. I guess I'd be very pleased to say we buck those trends to some degree, particularly in tobacco, where we've seen significant growth, around 6% in the quarter in North America. And units have been solid. I would go back to 2 things that we've really done well there. 1 is utilizing lift, provide value opportunities for those loyal tobacco customers. I think the second is we've invested heavily in backbars. I don't know the site count off the top of my head. I know it's over $40,000,000 in expanding our back bars, which has positioned us very well to have broad selection both in traditional tobacco, but in the newer innovation products that are out there today. So we've actually seen very solid results there. Beer has been more flat. That's a battle that we're seeing across all channels, but I think we're doing a good job in that category to maintain volume as well. The next set of questions come from Marcel Andre at GMP Securities. The first question has already been addressed in one of the earlier discussions on M and A, so we'll skip to the next question. You're initiating a share repurchase program for up to 4% of your shares outstanding. How will you prioritize debt repayment versus share repurchase? First, maybe one point of clarification. The 4% repurchase applies only to Class B shares. So it's Class B share only that it's going to apply to. So secondly, our top priority like we said before is to fund our strategy. So we foresee in terms of debt repayment, we foresee that most of our debt current debt bank loans and revolving credit facility will be paid down by this summer. And then bonds are going to come to maturity in the future and we will look at the opportunities in paying down or renewing part of it and take those decisions when time is going to come. So our intent today and it's been mentioned before, it's not to issue debt to repurchase stock. It's a program that we will use opportunistically and we'll use it when it's accretive and when it deliver value to our shareholders. The next set of questions come from Vishal Shreedhar at National Bank Financial. Multiplied by fuel margin per gallon is more than reported U. S. Fuel gross profit. Are there any notable items causing that deviation? Glad you asked that question, because I can't help but wonder if that doesn't create some of the misses or higher expectations in fuel margins that were out there. We don't talk a lot about it, but we've got a great little business, our wholesale fuel business that leverages the fuel capabilities, the fuel relationships we have with our suppliers to bring great value to independent businessmen that are selling fuel, so dealers. We annually sell about 1,200,000,000 gallons in this wholesale channel, very low capital investment, but largely a fixed margin. So we're selling at a cost plus basis. And so in a quarter like this where you've seen us report X cents per gallon of margin, that's for our corporate stores only, while the volume we report represents all channels. So again, there's $1,200,000,000 in this wholesale, largely fixed. Quarter like this, very, very strong corporate margin. So that gap between the wholesale channel and the corporate channel is significantly wider than we normally see and does create a difference that you've noticed. But that's the explanation for that difference. And I think maybe we'll help your models in the future. The next question from Vishal Shreedhar. Management has indicated in its presentation materials the desire to double the company again. Can you provide clarification on what metric management is referring to and the timeframe? So as you know, Vishal, we're not giving any forward looking statement and we're trying to stay away from this. But as we've said before, it's not we don't like to evaluate ourselves on a revenue base. And our goal also secondly, our goal is not to achieve it by repurchasing shares. So our target is really to double the financial performance of the company and it's going to be based on key metrics or financial metrics that we usually follow. So that's all I'm going to say for now on this. The next set of questions come from Benjamin Brownlow at Raymond James. Can you provide color around the competitive landscape, particularly regarding the increased competitive pressures you cited in Canada and related impact to fuel margin? Yes. Broadly, retail just continues to be a more and more exciting place to be with a lot of changes happening across a lot of channels. I think our channels have been insulated from some of those things, but nonetheless, a lot of change happening. I'll focus on your specific question about Canada, which we did reference in our earnings release. Competitive pressures have ramped up, particularly in the western part of the country. Alberta, in particular, has been weak on a CPL basis, cents per liter basis. My hypothesis is economic conditions have been soft there and believe competitors are likely fighting for leaders that may not be there. We believe demand is soft in that part of the world. But again, we benefit from being extremely diversified globally and happy to have something going well in almost most of our geographies at any given time that help us get through the weaknesses that we see pop up in our geographies. The next question from Benjamin Brownlow. Has the recent offering of JUUL in the Canadian store base impacted traditional tobacco category sales or transactions? Yes, I'm excited at Jewel in Canada, but I want to remind it started just in January. And need to remember this is a dark market. So I'm assuming consumer uptake is muted a little bit by that. But I would add quickly, while again results are early, it's quickly become the leading SKU in the OTP category and the trends don't appear to be that different from what we saw in the U. S. 2 years ago. We will be launching JUUL also in several other of our European countries in the coming months in partnership with JUUL. The next set of questions come from Peter Sklar at BMO Capital Markets. Recently Couche Tard announced that it will be retailing recreational cannabis in Ontario through a partnership with Canopy Growth. Please discuss what Couche Tard's recreational cannabis retailing plans are in other provinces in Canada, where private retailing is permitted. Also, please discuss plans regarding retailing CBD derived products in the U. S. We're on a journey to understand this category and understand this customer, and we're excited to be aligned with strong partners like Canopy Growth. We believe our capabilities in terms of small format retailing and age restricted sales fit this area well. And we do have ambitions to participate everywhere in Canada that regulations will allow and prepare for what we think will be CBD availability in the very near future, both in the U. S. And Canada, and then obviously THC when it's allowed. The next question from Peter Sklar, you are in the process of implementing a new loyalty program at the ESO sites. Can you describe the nature of loyalty programs across the various banners in the U. S. And in Canada? I'm going to start with Europe, which I know is not in the question, but in some ways that's our laboratory. In Europe, we control the fuel brand. It's our brand across every country. And therefore, we control the customer experience. So we have a platform today that has over 4,500,000 unique members and very high penetration in both the fuel and merchandise transactions. Our next step in that program is to bring more personal offers and more emotional connections to that program. So that's a journey we're on now. We have very specific plans around that. And we believe that's the learnings and foundation that will help us have a successful program globally. In North America, we participate in a variety of fuel partner programs. So if you think about Shell, we've got Kroger loyalty, we have FRN. If you think about ESO, we have PC Optimum here in Canada. In Canada, we have Shell Air Miles. Quebec, we have CAA. So really a mix of things. So our focus again is getting it right in our own stores. In the U. S, we're relaunching or implementing Easy Pay, which is an ACH program that we connect directly to a consumer's bank account, allows us to offer significant discounts to those EasyPay customers. So excited to launch that and we think we can get significant penetration where we've got the Circle K brand. The next set of questions come from Mark Petrie at CIBC World Markets. The first question was already addressed in a prior discussion on the benefits of the Circle K rebranding, so we'll pass to the next question. What impact did growth in tobacco have on U. S. Merchandise same store sales and margins in Q3? Appreciating that it is early, what effect have you seen from the recent limitations on flavored e cigarettes and Juul's removal of certain flavored pods from C stores? So as I mentioned in an earlier question, the tobacco category, in particular OTP, has performed well at a pace that's slightly higher than the overall same store merch sales. So I want to I'll shift to Juul. And I want to start by saying we fully support the decision by JUUL to pull flavors on a temporary basis. We pride ourselves on being responsible retailers and believe our overall channel does a great job. And we're going to be working actively with JUUL, other constituents and regulators to formulate a comprehensive plan that works to keep these types of products out of the hands of underage consumers. With regard to flavors, I would say it's early to assess the impact on our sales. We really had pretty healthy inventories in our channel. So we really just gotten out of the flavor business in February largely. So it's been maybe 3, 4 weeks. So stay tuned. I think next quarter we'll be able to give you a clearer picture. The other factor there, I think JUUL continues to JUUL and products like JUUL continue to gain penetration in the adult smoker segment. So we've got 2 kind of opposing forces there. Give us a quarter and I think we can give you a cleaner picture there. The next set of questions come from Keith Howlett at Desjardins Securities. Dividend increases have been sporadically sporadic historically. Will the company adhere to a dividend policy moving forward? Is there a targeted payout ratio? How are you thinking about dividends versus share buybacks as a way to return share value to shareholders? So given our ambition and our strategy and our continued M and A ambition also, we don't believe that we should adhere to a strict dividend policy or share buyback policy or target payout ratio. So our first priority is and will remain to invest in our business And we will also assess our M and A strategy and effect available cash to a sound and well informed dividend increase. So as we go along, we're going to still inform you on this. And also share buyback will be used opportunistically, and we said that before, as long as it drives shareholder value and it is accretive. So we're going to take it on a yearly basis and make sure that we're taking the right decision to drive shareholder value. The next question from Keith Howlett. Can you provide an update on the pilot programs you are testing across the network using the Holiday model? Do you plan on implementing Holiday's food offer across all of the U. S. And eventually across Canada or would it be local market specific? There's a lot going on. As I said to start, very pleased with the synergies from Holiday, but I believe that the reverse synergies are going to be much larger. Some of these will sound big, some will sound small, some will sound sexy and others not so much, but I'll list a few as examples. So one is Center Store, which is a holiday strength. They've got a program that they've had for a long time. They call it Smart Value, where they take really almost every category except for the cold vault. So if you think about salty and candy as examples, they utilize a rotating schedule to focus on 2, 4 values with extremely clear communication, strong supplier support, great value for the customer and a very rigorous optimization of both total margin and overall basket. So we're rolling out that program throughout the U. S. And preparing to do the same in Canada. Another example I mentioned earlier, Private Label Jerky. We didn't even change the brand. It was a great product that was one of Holiday's top sellers and we rolled out that nationally in the U. S. And it's become a top 10 SKU very quickly for us in the U. S. Store layouts. Holiday has a very thoughtful layout in which they target and direct the flow of customers through the food and impulse categories. We're retrofitting a number of sites, traditional Circle K layout sites to their flow and to see what impact that has. There will be a lot of learnings there, I think. I mentioned the piloting of the 6 Holiday food programs in different places in the U. S. Earlier. So last one I touch on is the labor model. Holiday has a very rigorous approach to labor. All of our countries have labor models, but the detailed time studies that Holiday brings to the table is going to allow us to It's a big It's a big deal. It gives us more control of our labor to make sure that we're optimizing the customer experience while at the same time making sure we have very clear visibility to activities at the store and then the associated costs for those activities. The next set of questions come from Chris Lee at Macquarie Securities. Starting on January 1, 2020, the International Maritime Organization will require ships to use fuels with a maximum sulfur content of 0.5%, which is a reduction from 3.5% currently. The industry expectation is that this will significantly increase pricing for global transportation fuels broadly and diesel prices in particular. What's your view on the potential impact on fuel costs and fuel margins? Do you expect the industry to ultimately pass on the higher costs to the consumers with limited impact on long term fuel margin? Since diesel fuel is widely used in Europe, how will this impact Couche Tard's business? You may get a price for the longest question of the day, Chris. It's a good question. We've seen prices widen globally, and I want to repeat, this is a global market. So diesel prices have widened visavis gasoline and likely to widen further. This results in a cost increase to diesel globally, and the industry will be equally affected. So I think there's a strong likelihood that that does get passed through to consumers. Over the medium term, refiners with the ability they'll look for their ability to adapt more of their capacity to diesel production as it will be more profitable and in the medium term that will help mitigate this impact. And then you get to the consumer side and again this is more of the medium term, but we expect consumers to adapt to price. We're seeing statistics out of Europe, which has traditionally been a very, very strong diesel car market. The sales of diesel vehicles are down significantly and conversely sales of gasoline vehicles are rising. And this is in large response to the price disparities that we're seeing and we feel we are likely to persist for some period of time. But net net, we don't think it's a big impact on Couche Tard. The second question from Chris Lee. At the end of 2018, 10% of the passenger cars in Norway were either pure electric or plug in hybrids. Despite the strong EV growth, industry fuel volume has largely remained flat to only down slightly. Why do you think the impact on fuel demand is not more significant? I think there's a couple of things happening there. We've got a very significant portion of our volume is B2B in Europe. So business to business we're selling to whether it's leasing companies, industrial companies, things like that. And that segment of our business really hasn't been impacted at all and we've actually seen growth in that which is very consistent with the GDP growth in those countries. In terms of the B2C, so business to consumer space, I think the initial years, I guess, I'll say in EV use, it's largely a secondary car, 2nd car in the family and largely in the urban centers where we have lower miles driven per customer. So I think at this point, the evolution of EV, it's not as big of an impact as the pure math on what percent of the fleet would is electric would imply. The next set of questions come from Michael Van Aelst at TD Securities. You have previously stated a target of almost doubling fresh food as a percentage of in store sales over the next 5 years. Can you list the products that are being piloted and discuss the observations to date? What are the steps needed to bring these products to market? And when can we expect to start seeing the pilot programs being rolled out on a national scale? I covered most of this a bit earlier. We believe we've got the right model going forward in terms of largely replicating what Holiday has done, maybe with a little more product innovation. We've seen logistics is key to this. And so we've actually just hired this week a person that's coming out of the food logistics and innovation space because we do see that being key. So we're working with a looking at a combination of our internal capacity, I. E, the Holiday Commissary and working with a variety of 3rd party producers to execute these pilots. And assuming we can see some success, we'll roll out appropriately. But we're focused on not so much doubling food as a percentage of sales, it's margin. We want to be profitable in this space. And as such, we're going to go appropriately and see what we learn from these pilots. But a lot of focus and energy on moving as quickly as we deem appropriate. The second question from Michael Van Aelst has already been addressed in the prior discussion on e cigarettes. So that covers all the questions. Thank you for joining us. I wish you a great day and we'll talk to you again in July for the Q4 2019 annual results. All right. Thanks, everyone. Thank you. This concludes today's conference call. You may now disconnect.