Alimentation Couche-Tard Inc
TSX:ATD
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Alimentation Couche-Tard Inc
Earnings Call Analysis
Q4-2024 Analysis
Alimentation Couche-Tard Inc
For the fourth quarter of fiscal 2024, Alimentation Couche-Tard reported net earnings attributable to shareholders of $453 million, translating to $0.47 per diluted share. These figures represent a decrease from $698 million and $0.71 per share in the same quarter of the previous fiscal year. When adjusted for specific items, net earnings for the quarter were approximately $461 million, down from $698 million, and diluted net earnings per share were $0.48, a decrease of 32.4% . Over the entire fiscal year, net earnings stood at $2.7 billion, a decline of 11.7% from the previous year, and adjusted net earnings were also $2.7 billion, down 13.8%.
Merchandise and service revenues saw a slight decrease in the fourth quarter, primarily due to one less week compared to the fourth quarter of fiscal 2023. However, excluding this impact, revenue growth would have been in the mid-single digits. For the full fiscal year, merchandise and service revenues increased by approximately $252.5 million or 1.5% . Gross margin remained stable in the US at 34.1%, increased by 0.8% in Canada to 34.9%, and decreased by 1.7% in Europe and other regions to 39.2% due to different product mixes from acquired assets .
In the fourth quarter, road transportation fuel gross margin in the US was $0.5879 per gallon, a decrease from previous quarters, due to reduced price volatility. In Europe, it was $0.083 per liter, and in Canada, it increased to CAD 0.1368 per liter . For the fiscal year, road transportation fuel gross margin was $0.4528 per gallon in the US, $0.0873 per liter in Europe, and CAD 0.1355 per liter in Canada . Generally, lower margins were attributed to the soft economic condition in major markets like Germany.
Normalized operating expenses for the fourth quarter decreased by 7.1% year-over-year, driven by fewer operational weeks and strategic efficiencies in labor and cost management . For the full fiscal year, operating expenses decreased by 1.1% compared to the previous fiscal year. Adjusted EBITDA for the quarter decreased by 13.6% compared to the same period last year . Throughout the fiscal year, the company has been focusing on refining its operating model and expanding centralized back-office operations to streamline costs and enhance efficiency.
Couche-Tard renewed its share repurchase program, now authorized to buy back up to 78.1 million common shares, representing 10% of its public float . The company is channeling some of the savings obtained through cost management into enhancing its digital capabilities at both store and back-office levels. It continues to streamline its cost structure to leverage scale and improve service quality.
Brian Hannasch announced his retirement as President and CEO, effective September 6, with Alex Miller appointed as the new President and CEO. Brian will remain in an advisory role focusing on M&A. The transition is expected to be smooth, as Alex has been part of the company’s leadership for over a decade and is well-acquainted with its operations and culture .
Despite economic headwinds, the company remains optimistic. Same-store sales showed sequential improvement in the first quarter of the new fiscal year, aided by investments to provide value to customers. While fuel volumes remain soft, fuel margins have started to improve. The leadership team is committed to continuing operational efficiencies and focusing on long-term growth strategies . As part of this strategic focus, the company declared a CAD 0.175 per share quarterly dividend, reflecting its ongoing commitment to returning capital to shareholders.
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Good morning. My name is Julie, and I will be your conference operator today. [Foreign Language]
I will now introduce Mr. Mathieu Brunet, Vice President and Investor Relations and Treasurer at Alimentation Couche-Tard. [Foreign Language]
Good morning. English will follow. [Foreign Language]
Good morning. I would like to welcome everyone to this web conference presenting Alimentation Couche-Tard's financial results for the fourth quarter and fiscal year 2024. [Operator Instructions] 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 may 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. Filipe Da Silva, Chief Financial Officer; and Mr. Alex Miller, Chief Operating Officer and CEO-Elect. Brian, you may begin your conference.
Thank you, Mathieu, and good morning, everyone, and thank you for joining us for our presentation of our fourth quarter results. Before I get started, I want to say a few brief remarks about the press release we issued earlier this morning announcing my decision to retire as Couche-Tard's President and CEO and the appointment of Alex Miller as our next President and CEO effective September 6. I'll remain with the organization as a special adviser for the next couple of years with a focus on M&A.
As I come to the end of my tenth year as Couche-Tard's President and CEO and 25th year as a part of this management team, I must say it's been a true honor of a lifetime to lead this amazing company. I'm so proud of the value that we created together as well as the commitment and passion of our team members to serving our customers.
I know Couche-Tard will be in strong hands with Alex, as he has been one of my closest business partners at Couche-Tard for the last 13 years, and we worked together in the industry for nearly 30 years. Alex knows the business inside and out, he deeply cares about our culture, and he'll have a great leadership team supporting him.
I also want to thank Alain Bouchard, our founders, our Board of Directors, customers, team members, shareholders and all of you for your continued support entrusting me to lead this great business. For that and much more, you have my lasting gratitude.
We'll have time to answer your questions later in the call as well as in the coming weeks. Now let me get back to our Q4 results.
No doubt this was another challenging quarter with persistent inflation and continued pressure on consumers who are carefully watching their spending. However, we believe this is transitory and we remain very optimistic about our business. Even with recent softness in same-store sales, overall, they've been steadily growing globally over the last 2 years, particularly in the U.S. which saw a 2.8% growth on a 2-year stack for the quarter.
On the fuel side of our business, we continue to strengthen our leadership position across most of our markets, and our margins remain healthy. We're also pleased that our focus has consistently remained on providing everyday value and ease for our customers and leveraging the competitive advantages of our global scale and diversified business to take market share and drive long-term growth.
Turning to convenience. Compared to the same quarter last year, same-store merchandise revenues decreased by 0.5% in the U.S., 2% in Europe and other regions and by 3.4% in Canada. As I mentioned earlier, these results were impacted by near-term headwinds in the economy and continued inflation and are being compared with an exceptionally strong quarter last year.
It's also worth noting that Europe has had a positive performance for the quarter with a plus 0.7% same-store growth. However, the other overall Europe and other region results were impacted by weak results in our Hong Kong market, driven by large cigarette tax increase and weak tourism from Mainland China.
To help our customers look for value, we continue to focus on improving and expanding our loyalty programs both in the U.S. and in Europe. In the U.S., Inner Circle registrations and enrollments continue to grow, and we ended the year with over 6.3 million customers fully enrolled in the program. Across the 30 states with the membership program, we're seeing visit frequency and spend per member growing consistently month-over-month. Florida, which is our first business unit on the program, finished its inaugural year with about 20% of customer transactions linked to our Inner Circle program.
In Europe, the updated Extra loyalty program ended the year with strong key metrics across the board also. Nearly half of all fuel volume is coming through Extra and merchandise penetration is also seeing year-over-year growth with close to 30% of our merchandise sales attributed to Extra members. The program was just launched in Ireland, and we're exploring ways to expand it into our new European countries. Both programs enable us to offer personalized value to our most important customers.
Shifting to food. Fresh Food Fast is now in nearly 5,800 locations globally. Operations teams continue to focus on improving profitability and reducing spoilage, including the introduction of a new production planning tool that improves the accuracy of forecasting thereby allowing our store teams to better identify what products are needed and at what times of the day.
We're seeing strong sales and satisfaction with our freshly prepared cookie program, and we've introduced some great LTOs, including our Kong Breakfast Slamwich with triple meat and double cheese this quarter. We've also completed the rollout of our global digital food safety program, which earned a Foodservice Innovator of the Year Industry award recently.
As we strive to be the #1 thirst stop across the network, we've launched exciting summer campaigns to drive traffic and provide value for our customers. In the U.S., at participating locations, we're offering Polar Pop and Froster at any size for just $0.79; and for our Inner Circle members, the same offer starts at $0.69. We've also had and exclusive Gatorade called Lightning Blast, which has contributed to overall growth in sports drinks. In Europe, packaged beverage sales are also performing well and we're growing market share.
While we continue to see pressure on cigarettes trips globally, in the U.S., we're starting to see some positive results with our tobacco customers. This is partly due to the initiatives we've had underway with our supply partners, including brand-focused contest and personalization programs for our age verified customers. In other nicotine products, we continue to see strong growth across the network with exclusive vaping opportunities coming to Europe by the end of the summer. For both, we believe we are outperforming the overall market.
Moving to our fuel business. Same-store road transportation fuel volumes decreased 1.6% in the U.S., 1.7% in Europe and 3.5% in Canada. As I mentioned earlier, in our field business, we have a strong leadership position across most of our markets, and our margins remain healthy. We also continue to build value for our customers and businesses through the optimization of our supply chain globally. In this quarter, low market volatility persisted, which is not optimal for our results, but our supply, trading and logistics teams are working to find new opportunities to improve supply optionality increase arbitrage capture.
Turning to our B2B business. In Europe, card volumes remained very robust with -- across both fleet and truck segments, with small fleet remaining the main growth driver. In the U.S., the B2B share continues to grow double digit as we expanded our sales teams across our business units. Our Circle K Pro proprietary card platform also realized year-over-year growth with both volume and transactions, bringing in new fueling B2B customers and outperforming our benchmark competitors.
Our EV fast-charging network now consists of more than 2,600 charge points, including about 55 charging points for heavy trucks. In North America, our EV rollout plan is progressing toward our deployment target of 200 locations. Network growth, we're making good progress in the integration of our four new European countries. Earlier this month, I visited all 4 countries and the team members. I was very impressed with our engagement and commitment to growing our business.
It was also exciting to see and visit our newly rebranded Circle K stores. We now have 11 which I would call technical pilots in the 4 countries where we're exploring new ways to grow sales under the new brand.
In organic growth, we continue to ramp up development and currently have a record number of projects under construction, primarily in the U.S., including a focus on rural and high-speed diesel locations. And finally, we're seeing more M&A opportunities than we have for quite some time, so we're cautiously optimistic that we're going to find some new growth opportunities in the coming quarters.
Before I conclude, I want to mention the work we're also doing to improve operational excellence, which is the foundation for everything we do. We continue to implement enhancements and programs that simplify administrative tasks required by our store teams and managers.
We're also truly humbled and pleased this quarter to have been recognized as Gallup Exceptional Workplace for the third year in a row. We are one of the very few businesses of our size to receive this honor. This is truly a testament to our highly engaged customer-focused teams that are working hard to make it a little bit easier for our customers during these challenging times.
Looking ahead, while we ride out these near-term economic headwinds, we're seeing our first quarter of the new fiscal year, that the performance of same-store sales has sequentially improved to the last quarter. This is particularly due to our investment in bringing value to our customers. In addition, while road transportation fuel volumes remain a bit soft, we're also seeing fuel margins improve versus prior quarters.
And with that, I'll pause and turn it over to Filipe. Filipe?
Thank you, Brian. Ladies and gentlemen, good morning. This past year has underscored our dedication to financial discipline, evidenced by a remarkable 1.1% normalized reduction in operating expenses compared to last year. Even accounting for fiscal 2023 additional week, our operating expenses remained below the weighted average inflation observed in our network. These savings were achieved through targeting enhancements in labor efficiency and stringent cost management which have effectively protected us from the impact of inflation, rising minimum wages and costs associated with our strategic investments.
Furthermore, we have expanded the scope of our centralized back office operations to encompass additional solutions. This expansion is strategically favorable to streamline our cost structure, leverage our scale and improve service quality.
Looking ahead, our focus would be on refining our operating model to limit redundant efforts, unlock additional value and expedite processes through better utilization of our global scale. It is also important to highlight that part of the savings generated are used to fund the enhancement of our digital capabilities, both at store and back office levels.
Following the close of the fiscal year, we renewed our share repurchase program, now authorized to buy back more than 78.1 million common shares, representing 10% of our public float. These tactical actions highlights our firm commitment to returning capital to our shareholders.
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 fourth quarter of fiscal 2024, net earnings attributable to shareholders of the corporation were $453 million or $0.47 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 $461 million compared with $698 million for the fourth quarter of fiscal 2023. Adjusted diluted net earnings per share were $0.48, representing a decrease of 32.4% from $0.71 from the corresponding quarter of last year. Excluding the impact of last year's additional week, the decrease is approximately in the low 20s.
For fiscal 2024, net earnings attributable to shareholders of the corporation stood at $2.7 billion, a decrease of $361.2 million or 11.7% compared with fiscal 2023. Diluted net earnings per share stood at $2.82 compared with $3.06 for the previous fiscal year. Adjusted net earnings attributable to shareholders of the corporation stood at $2.7 billion, a decrease of $436 million or 13.8% compared with fiscal 2023. Adjusted diluted net earnings per share were $2.81 compared with $3.12 for fiscal 2023, a decrease of 9.9%.
During the fourth quarter, merchandise and service revenues decreased by approximately $71.2 million or 1.7%, primarily attributable to 1 less week in the fourth quarter of fiscal 2024 compared with the fourth quarter of fiscal 2023 and softness in traffic, partly offset by the contribution from acquisition which amounted to approximately $302 million, and the contribution from net growth in store count. Excluding the impact of last year additional week, the merchandise and service revenue would have been positive in the mid-single digits. During fiscal 2024, excluding the net impact from foreign currency translation, merchandise and service revenue increased by approximately $255 million (sic) [ $252.5 million ] or 1.5%.
Excluding the net impact from foreign currency translation, merchandise and service gross profit decreased by approximately $20 million or 1.4%. This is primarily attributable to 1 less week in the fourth quarter of fiscal 2024 compared with the fourth quarter of fiscal 2023 and softness in traffic while being partly offset by the contribution from acquisition which amounted to approximately $106 million.
Our gross margin remained stable in the United States at 34.1%, and an increase by 0.8% in Canada to 34.9%, mainly due to a change in product mix. Our merchandise and service gross margin decreased by 1.7% in Europe and other regions to 39.2%, mainly due to the integration of certain retail assets from TotalEnergies, which have a different product mix than our legacy European operations. Excluding this impact, our gross margin in Europe and other region would have been stable.
For fiscal 2024, excluding the net impact from foreign currency translation, merchandise and service gross profit increased by approximately $168 million or 2.8%. Our gross margin in the United States increased by 0.2% to 34%, by 0.4% in Europe and other regions to 39.2% and by 0.9% in Canada to 34%.
Moving on to the fuel side of our business. In the fourth quarter of fiscal 2024, our road transportation fuel gross margin was $0.5879 per gallon in the United States, a decrease of $0.0655 per gallon. In Europe and other regions, it was $0.083 per liter, a decrease of $0.023 per liter. While in Canada, it was CAD 0.1368 per liter, an increase of CAD 0.0155 per liter.
In the United States, road transportation fuel gross margins were compressed for most of the quarter, primarily due to the reduced volatility in road transportation fuel prices. However, volatility picked up towards the end of the quarter and that trend continued into the new fiscal year.
In Europe and other regions, our road transportation fuel gross margin was impacted by a change in our wholesale business model with an impact on revenues and in margin, but no impact on overall gross profits. This had the negative impact of approximately $0.006 per liter on road transportation fuel margin.
During fiscal 2024, our road transportation fuel gross margin -- fuel gross profit, sorry, was $5.8 billion, a decrease of $139.7 million compared with fiscal 2023. Our road transportation fuel gross margin was $0.4528 per gallon in the United States, $0.0873 per liter in Europe and other regions and CAD 0.1355 per liter in Canada.
Now looking at SG&A for the fourth quarter of fiscal 2024. Normalized operating expenses decreased by 7.1% year-over-year. This is mainly driven by the impact of 1 less week in the fourth quarter of fiscal 2024 compared with the fourth quarter of fiscal 2023 as well as by the continued strategic effort to control our expenses, including labor efficiency in our stores. For fiscal 2024, normalized operating expenses decreased by 1.1% compared with the previous fiscal year.
Excluding specific items described in more detail in our MD&A, the adjusted EBITDA for the fourth quarter of fiscal 2024 decreased by $180.3 million or 13.6% compared to the corresponding quarter of fiscal 2023. Excluding the impact of 1 less week, adjusted EBITDA decreased by a mid-single-digit number mainly due to lower road transportation fuel gross profit as well as softness in traffic as low income consumer remained impacted by challenging economic conditions, while being partly offset by the contribution from acquisition which amounted to approximately $98 million, and strong control in operating expenses. During fiscal 2024 on the same basis, the adjusted EBITDA decreased by $161.2 million or 2.8% compared with fiscal year 2023, mainly attributable to similar factors as those of the fourth quarter.
From a tax perspective, the income tax rate for the fourth quarter of fiscal 2024 was 10.2% compared with 19.2% of the corresponding period of fiscal 2023. Income tax rate includes a net tax benefit derived from an internal reorganization which had a favorable impact of 6.5% on the income tax rate. The remaining decrease of 2.5% is mainly stemming from the impact of a different mix in our earnings across the various jurisdictions in which we operate.
As of April 28, 2024, we recorded a return on equity at 21.2%, and our return on capital employed stood at 13.3%. During the fiscal year, our leverage ratio increased to 2.21, mainly due to the acquisition of certain European retail assets from TotalEnergies. We also had strong balance sheet liquidity with $1.3 billion in cash and an additional $2.9 billion available through our main revolving credit facility.
Turning to the dividend. The Board of Directors declared yesterday a quarterly dividend of CAD 0.175 per share for the fourth quarter of fiscal 2024 to shareholders of record as of July 5, 2024, and approved its payment effective July 19, 2024.
With that, I thank you all for your attention. I will turn the call over to our incoming President and CEO, Alex Miller. First, let me say I will really miss Brian as he truly enjoyed our time working together and I have learned a great deal from him about our organization. However, I'm thrilled that Alex has accepted the position. We have collaborated very closely over the last year, and I'm deeply impressed by his knowledge of our business, operation and people. I think that he is the best choice to be Couche-Tard's next leader. I'm really looking forward to working together in the years ahead.
Alex, I will hand it over to you.
Thank you for those kind words, Filipe, and thank you, Brian, for your support and friendship over the decades. I'm extremely fortunate to have worked alongside both of you and learn from the very best in the business. I'm also humbled and honored by this appointment, and I want to thank Alain Bouchard, our founders, and the entire Board of Directors for their confidence.
Working with Couche-Tard for the last 13 years has been the highlight of my career. I firmly believe that we are only at the beginning of our journey to become the world's preferred destination for convenience and mobility. And I have full faith that with our engaged people, culture, strong leadership team and long-term strategic plan, we will continue on our incredible growth trajectory.
I look forward to meeting and working with all of you in the months and years ahead. But for now, I just want to say thank you for your support. And on that note, let's turn it over to the operator to answer analyst questions.
[Operator Instructions] Your first question comes from Irene Nattel from RBC.
Congratulations Alex. And Brian, happy to hear that you're going to be sticking around for a little while.
If we turn back to the quarter, can you spend a little time please walking us through what you're seeing in terms of consumer behavior, which we know across the board is weak? And what specific initiatives seem to be gaining the best traction? And what you have planned for F '25?
Thanks, Irene, for the kind words. Start on the fuel side. We're actually seeing positive traffic on the forecourts globally, but we're seeing lower quantity per visit. So that clearly is a signal that people are watching their spend. Inside the box, we've seen strong private label, but there's also been trade downs to -- from premium brands to lower-tier brands, whether that be in the beer category or others.
Cigarettes has been an issue for the channel. You see Altria and BAT's numbers, they're kind of in that high single-digit unit loss rates. We performed significantly better than that. and our trends continue to improve, and our gap continues to widen there. But certainly, I still think that's a big reflection on the state of the consumer that's more than just price. There's certainly people watching what they spend. On the bright side, the nicotine -- other nicotine category continues to gain strength. And actually, in many of our regions, now generates more gross profit than the combustible cigarettes.
And then we finish with beverages. It's the #1 reason people come to our stores. We continue to gain traction, particularly as we look at May and June. We've got some great values, great exclusives out there. So we think we're really providing some very strong value between the Polar Pop and some of the brand work that we've done with partners like Pepsi. So we feel good about the summer months, but there's no doubt that the weakness in consumer behavior persists.
And then just coming back to the issue, a follow-up on cigarettes. Obviously, it's another key traffic driver. So if we assume that -- it's reasonable to assume that this behavior continues, how -- what gives you the confidence that you can continue to, let's say, offset those trips with other categories inside the store?
Just in terms of scale, beverage is one that we think we can leverage. It's got almost 3x the visits of tobacco. So we're fishing where the fish are, where we've got the ability to really impact big numbers. So focus on fuel with Inner Circle, a focus on beverages are really, really important offsetting that.
But we're also not giving up on that nicotine customer. Our goal is to win with them. We're focusing on our assortment, our pricing, partnering with companies like Altria on digital relationships with their customers. We now, just with Altria in the United States, have over 1.2 million digital transactions weekly with them. So we're providing value that really only some of the chains can, that they've got digital capabilities, including the loyalty platform. So we're committed on winning in the big areas and committing on taking share in those areas.
Your next question comes from Michael Van Aelst from TD.
At the time of the Total acquisition, you guys said that it was about EUR 500 million of EBITDA. In this quarter, you had USD 98 million of EBITDA from acquisitions, which also included MAPCO, I believe. So I'm curious, that seems like a decent-sized drop in the run rate of contribution from acquisitions versus what the original business case was. So I'm wondering, is this strictly fuel margins? Is there something else happening? Is there greater seasonality? What is it that explains the gap between where you thought that profit was going to be and where it seems to be running right now?
Thanks for the question, Michael. It's really one word, it's Germany. It's a very large market for us. We picked up 1,200 locations. There's no secret. The economy has been soft there and that's created really a pretty sloppy fuel market. So we've seen margins in the past quarter in Germany that were really multi-multiyear lows and far below what our normal European business looks like. We've seen some rebound in the most recent weeks to that. And if you look at the rest of our countries in Europe, they performed very similar to our legacy businesses in Europe. So I fully believe that, that's just a transitory issue with the German fuel margins specifically.
And are you seeing any kind of green shoots in Germany? I might have missed it if you said that.
I missed that, Michael. Tell me one more time.
Sorry, are you seeing any green shoots or any normalization in the fuel margins in Germany? Or is it more of a competitive issue?
No. As I mentioned, recent weeks have been better. It's really -- it's a complicated issue. There's really kind of two supply markets. There's an inner Germany and then imports. And one part of that market being kind of the central, along the Rhine, has just been oversupplied and very, very weak. But it's improving.
Okay. And so that's the main problem. There's nothing else -- okay. All right...
Yes that's -- no. We feel good about the people. We feel good about the journey. And synergies, we're 5 months into this, so we're starting to ramp synergies. But in the coming quarters, you should see synergy capture start to make an impact as well.
I'll echo Irene's congratulations. And best of luck in the future there, Brian.
All right. Thank you.
Your next question comes from Mark Petrie from CIBC.
And definitely, congratulations to both of you, Brian and Alex. And wish you all the best, Brian.
Could I just follow up quickly on the tobacco conversation? And I'm just wondering if you could help us understand the trajectory on that business. And maybe you could just summarize the impact it had on your comp in Q3 and then the impact it had on your comp in Q4. And then just in general, if you're expecting it to continue to be a drag, or if you think you can neutralize it with the efforts with your manufacturing partners and then also with the continued growth in other nicotine.
Yes. I'll divide the world into three chunks. I'll start with Canada. It's been a struggle, multiyear struggle. Our focus is clearly on food and beverages. The tobacco issue in Canada is a lot about illicit. As prices have gone up, consumers have gotten squeezed, the percentage of people buying in the illicit channels continue to rise. And that's a big headwind to fight. So that's going to continue to be a bit of a drag on us in Canada.
In Europe, we actually performed pretty well. Units are fairly flat, which is kind of interesting because it's very different than the U.S. And we continue to be optimistic about that category. We have one of our larger countries, Netherlands, is banning tobacco from the grocery channel which controls the majority of the volume. So we think we're very well positioned, as that expires July 1, to capture significant share in that category. So I feel good about our tobacco business, nicotine business in Europe. And we continue to roll out new products and new innovations in Europe in the alternative space.
U.S., you see the results from the Goldman report or BAT and Altria publish. We were running pretty similar to those numbers if you go back to Q2, Q3, Q4. In Q4, if you would take tobacco out, we would have been a positive same-store sales. If you look at recent end of the quarter and our first full period in Q1, our unit decline is far less than half of what the industry decline is.
So we're widening the gap to the industry, so we expect that headwind to moderate for us. I'm not saying we fully have it negated in the coming quarter, but between the loyalty and digital activities that we have out there and really surgical investment in price, we feel good that we're going to be able to continue to take share in that category in a very smart fashion. And we know it's a valuable customer and a great basket.
Your next question comes from Chris Li from Desjardins.
I'd also like to add my congratulations to Alex and Brian. Best wishes to your family as you start a new chapter of your life in a few months.
Brian, maybe I'll start with your -- maybe your retirement. The timing maybe was a little bit earlier than maybe what some people had expected, especially since you just started your 5-year plan not so long ago. So can you maybe share with us sort of why you and the Board believe now is the right time for the succession?
It's a great question. Chris, I've got a lot of miles on me. I'm 58. Nothing magic. I've always kind of said somewhere between 58 and 60. It just seemed a little bit elegant, 35 years in the industry, 25 with Couche-Tard, 10 with ACT. And then candidly, looking at Alex, we've been working on this transition for -- since 2019, so 5 years. And he's ready. The time is right and he's got a good team, so it just seems like the right moment. The company is in a great place and its best days are ahead of it. So this feels like the right time to explore something else.
Okay. No, that makes sense. And then you also mentioned that you're going to spend more time looking at M&A. Can you share with us what does the landscape look like right now? In terms of the opportunities, are you able to share with us the size of those opportunities? Are there a few large ones that are potentially on the radar screen over the coming quarters?
Yes. Again, we can't ever guarantee landing anything. And our first and foremost commitment to our shareholders is to be disciplined. That said, we went through 4 or 5 years pre-Total with a pretty quiet period as we had large gaps in what we believe were appropriate values and what sellers' expectations were.
Recently, I would say in the last couple of months, we've seen quite a few deals come across our desk. A mix of both Europe and North America and a mix of size, some approaching the Total size and some that are just nice tuck-ins for us.
And so again, we'll remain disciplined. We commit to that. But we like to think we can land a few opportunities over the coming quarters.
Your next question comes from Tamy Chen from BMO Capital Markets.
This is Riad on for Tamy Chen. My question was, when you say that same-store sales so far in fiscal Q1 is better sequentially, do you mean this for all the regions? Is that only for merch? And why is the consumers' improving? Or is it more that your own initiatives now are becoming more material, like for example your private label or your loyalty program?
And you broke up a little bit, Riad, but I'll give it a shot. In terms of positive trends, I would say it's a large U.S. focus when I say that. I guess I would also say that we like -- we believe it's more of our own efforts. When I look at, again, some of the Nielsen data, when I look at Altria, the Goldman report on tobacco, we're seeing that consumer softness persist. And we've always said that kind of be with us through the fall, we think.
But I think the initiatives we're taking around nicotine and thirst, in particular, investing in signing up people on our loyalty programs, which allow us to really surgically target investments in our most valuable customers, will pay dividends for us both near term and medium term. So I think, in most of our markets, we feel we're taking share in the merch side, for sure.
Your next question comes from Martin Landry from Stifel.
Congratulations, Brian, on your accomplishments. And congratulations, Alex, on your nomination. I think the company is in great hands.
I would like to touch on your cost reduction. At -- in October last year at your Investor Day, you highlighted a plan to reduce your cost by $800 million. And that included several pockets, including COGS, G&A, store ops, and fuel. So I was wondering if you could talk to us a little bit about what's been achieved so far. I know it's only been less than a year. But more importantly, what you plan to achieve maybe next year in terms of cost reduction, that would be super helpful.
Thanks for your question. So yes, we feel pretty good about the Fit to Serve program that we introduced last year. We were mentioning the $800 million redemption for the 5 years. I can tell you that today, we have almost reached half of the journey already. So the auditor teams have done an amazing job.
I would say, across the organization at [ story ]. So just in the quarter, to provide a bit of color, we use 3% less hours in U.S., for example. So there is a lot of things happening in the ground to improve productivity.
We have also worked a lot on the procurement side, as you know, both on the GFR and GNFR. GFR, for example, we run a program in U.S. that's actually brought very positive results on that side. And now we are rolling this same program in Canada and Europe. And on the GNFR side, we are also -- we are seeing already some good savings coming there and leveraging our scale on the supply, on the signage, for example. But there is more coming there. We are setting up actually a central team there on the GNFR. So more to come as well in the next coming quarters and I believe years on the procurement side.
And we continue to look at a ways of optimizing our faculties. So as you know, we had the partnership with CGI last year on the tech side, but we are also now working with our partners to optimize and streamline our organization in maintenance, of our finance teams as well, so even in HR.
So there's a lot happening there, Martin. And yes, we feel very confident that, yes, we will of course reach this $800 million. But the objective is of course to be beyond that. So we remain very optimistic on our target for this year, and for the next coming years, to beat inflation by at least 1%. That's our internal goal and feel confident about that.
At the same time, quarter-to-quarter, I just wanted to be also be very cautious because you may see some adjustment or some investment that we are doing on the tech side, on the digital side. I was mentioning that earlier. So we are also investing in digital capabilities to improve service to our customers, but also to make the life easier to our employees in the store. So that's also something that we are working on.
Okay. And just to clarify, you said that you're half the journey already, so meaning you've generated already $400 million of cost savings?
Yes, we have already identified $400 million. And yes, part of that is already banked in the last 12 months, yes.
And just to add, maybe put a little pressure on the team after I'm gone. But we've always had best-in-class cost structures. We've bought other companies and we've compared. We are excited about this. We put a big-enough goal out there that's cost us to not think incrementally, but really challenge how we do business. And when we execute this, we think the cost structure will have -- will really give us license to continue to do M&A and grow in our business. So we think it's a key part of our foundation, of our strategy.
Your next question comes from Vishal Shreedhar from National Bank.
Regarding the tax rate, how should we think about that over the course of the next fiscal year? And if any of the changes that resulted in the delta noticed this quarter, at least relative to my expectations, if any of those will persist.
Vishal, thanks for the question. So yes, as you have seen, we had the income tax rate on Q4. It's basically a one-off, which is 10% of tax rate, was due mainly to tax reorg that we have done mainly in Europe. So going forward, I think you should come back here -- you should see an income tax rate coming back to low 20%. That's what we think that will be. Very minimum impact expected linked to the global minimum tax implementation. So for that, that would be almost neutral. So we have, I would say, a low 20%. That's where we will be in terms of income tax rate.
Okay. And Brian, I just want to wish you best as you move on to your next chapter. And Alex, I want to wish you well as well.
Brian, hopefully, can you give us some color on the non-cigarette portion of your business? Specifically, I know you're closing the gap versus the industry delta on cigarettes. But is the gross profit dollars in your business, including the alternative tobacco products, is that growing? Or is that under pressure as well as the nontraditional tobacco continues to gain in mix?
Yes. So if you look at nicotine overall, so it's combustible and alternative, gross profit dollars is absolutely up. We're making more from nicotine than we ever have in the past. Trips is an issue though. I mean, right now, the frequency is not the same as combustibles. And so that's why we still are focused on both. We want to be leading edge on alternative nicotine but also take share and outperform the industry on combustibles. And there's a lot of poly users out there that shop both, and we want to be their stop.
Okay. So within your total nicotine category, the gross profit dollars is up notwithstanding the sharp declines in traditional cigarettes, yes?
Correct. Yes.
Your next question comes from Bonnie Herzog from Goldman Sachs.
Congratulations on your retirement, Brian. And Alex, congratulations to you, too.
I have a question on your OpEx. With another quarter of really good expense management on your part with -- your OpEx was down, what, 7% on a normalized rate. So curious to hear how you're thinking about the trajectory of OpEx moving forward, especially in the context of inflation, hopefully easing further.
And then could you highlight some of the key initiatives you've implemented that have, ultimately, I guess, contributed to better OpEx performance? And really how sustainable that is going to be moving forward? I guess I'm looking to get a good read on maybe where your OpEx could trend this fiscal year.
Bonnie, thanks for the question. So as I mentioned earlier, we remain very confident on the guidance. We always said that, for us, it's beating inflation by 1% on the same-store OpEx. I would say that's where we feel comfortable to -- in terms of guidance. Of course, always aiming at being that, that's what we have been able to do on the last 3, 4 quarters. The reality is that we are bringing, I would say, the [ prequels ] on the Fit to Serve.
So when I was mentioning earlier, a lot of things happening in store in terms of productivity. The tools that we are I would say putting in place there to help profitability. I was mentioning 3% less hours in U.S., but that's true as well in Canada, in Europe. We see that productivity, I would say, across the network.
And again, we are doing a lot on the back office. So how to reduce the administrative task from the store point of view, but as well, how we can streamline our back office, from finance, to HR, to maintenance, real estate, marketing, all these customers, the call centers. All these, I would say, are key processes that we have in the back office. We are here partnering with organization or companies that are doing that very well, their core business, leveraging that, and with our scale, achieving great, great savings. So we continue to believe that there is still a lot to do there.
Brian was mentioning that we have been a very lean company and cost for cost. But the reality is that when we look at the way we organize, and we have not necessarily used our leverage, our scale to leverage our expenses. So for example, on the GNFR, we are, I would say, just at the beginning of the journey, how to standardize what we use in terms of supply in our stores, in our back office. I think here, we have a huge opportunity to leverage, and that's what we are today working on. And expect that in the next 18, 20, 24 months, we'll see a very strong result...
And Bonnie, I'll add one more, which our largest investment we make is in our store people, our people in our stores. And so I mentioned our Gallup achievement. That's engagement. The engagement is leading us to lower turnover. Our turnover levels are lower than the average for the industry according to the NACS data.
So what does that do for us? It improves productivity of the people in the store, it reduces overtime, and it reduces training hours. And so those are three levers. If we continue to perform well building culture, that should continue to deliver value for us. And as you saw for this quarter, we ran our business on 3% less labor hours than same quarter prior year. And I believe we can continue that for a while.
Your next question comes from Luke Hannan from Canaccord Genuity.
My question here is on consumer behavior, but across income cohorts. Brian, last quarter, I think you gave good color on the decline that you saw related to SNAP-related revenues. Just curious to know where that stood at for Q4.
And then maybe as a quick follow-up, what you're seeing, again, across income cohorts in quarter-to-date. Are you -- and more specifically, are you seeing that low-income consumer? Is there any change in behavior there, either positive or negative to note?
I think, as I said earlier, I think that weakness persists. In the southern part of the U.S. in particular, we're approaching half of our customer base is in that $50,000 or less income level. So that's where we're seeing the pain. As you mentioned, SNAP, we're 30% off versus same period prior year. And that's just -- that's a clear indicator that, again, there's stress out there. And some of the benefits that we had from the government are no longer out there, no longer enabling some of the spend that we had out there.
So again, it persists, we think it's probably another quarter or 2. But again, our focus is long term. Our focus is on our strategy, bringing value to our customers and taking share.
Got it. And Brian and Alex, all the best in your new roles going forward. Best of luck.
All right. Thanks, Luke.
Thank you.
Your next question comes from John Royall from JPMorgan.
Congratulations to Brian and Alex. I was hoping you could just talk about your outlook for the summer travel season. What have you seen so far in June? And what are your expectations for the heavier part of the driving season in July and August? Are you seeing the pressure on the low-income consumer manifesting specifically in less discretionary travel?
It's unclear. We just had a Memorial Day in the U.S. and Canada had the same. And miles driven, we think, was very solid. So people are getting out, pursuing experiences. So we feel good, barring any weather, that the summer is going to be good for us. And again, we've got a gun that's loaded with some very unique propositions for our customers. So we're hoping we can take advantage of that. Yes, I wish I can give more color, but we'll have to watch the movie as it plays. But we're ready for a good summer.
Your next question comes from Anthony Bonadio from Wells Fargo.
Congrats to you both on your respective transitions. I just wanted to take a step back on the 5-year plan. It looks like you're 1 now behind you. EBITDA may be flat to modestly down, backing out the extra week. I know you guys had talked about something like a 12% CAGR over that period. I guess, how are you feeling now about that growth rate? And then any change to your confidence level in how you're thinking about the trajectory of growth there?
I think first, I wish we were further ahead financially. But if you look back over my 25 years, whether it's our EBITDA or whether it's our stock price, it's not a straight line. Things happen with our customers, things happen with our business.
Again, we believe in our strategy. We believe we can create differentiation. We believe that growing the Circle K brand and the associated loyalty and B2B businesses globally will be a differentiator, and that we're continuing to widen the gap versus a very fragmented industry. So I'm not panicked at all. I think we've got the foundations that we're working on are the right ones and the progress that we hope to make, we're on track. So we're -- again, we're not knee-jerking based on a couple of soft quarters and a weak consumer. We think that's transitory, and we're focused on, again, winning with the customer longer term.
Your next question comes from Bobby Griffin from Raymond James.
This is Alessandra Jimenez on for Bobby Griffin. I wanted to echo the prior comments. Congratulations, Alex, on the new role. And I wish you all the best of luck in the future, Brian.
I just wanted to follow up on the Fresh Food Fast new production planning tools. Is that fully rolled out to the entire network today? And then have you seen any initial impact to sales or margins from that tool and any sequential improvement in the prepared food category?
Sure. Thanks for the question. We grew food again this quarter. We're up to about 12% of our sales for food now across our network in our mix. Our goal is to get to 20%. If you look at the quarter, we were up 144 bps of margin. And for the full year, we were up 330 bps. So that's a pretty significant improvement, a lot more dollars to the bottom line from food in this fiscal year.
To answer on the planning tool, yes, it is rolled out. And it is a core -- it's at the core of us continuing to reduce spoilage. I think as we look to the future, we've got a couple of other things that we think will continue to help us grow margins. The first would be we're in our second year of our One Touch remodel program, where we'll touch about 80% of our sites in the United States and Canada, and we are seeing nice food growth on the back of those remodels.
Second one being, we have a commissary in Minneapolis that we acquired with Holiday. We've scaled that commissary. It's now servicing four of our business units. We have plans to add commissaries throughout our geographies so we can service the majority of our stores through our own commissaries. And we see a nice COGS improvement and it gives us more LTOs and better assortment flexibility.
So on the operating side, we are focused on execution, executing every day, and on getting food to trial and sampling. Where we're sampling well, we see nice food gains. Thanks for the question.
Your next question comes from Corey Tarlowe from Jefferies.
I just wanted to get your perspective long term on what you see the drivers of fuel margins being in the U.S. And maybe if you could unpack what you've seen a little bit quarter-to-date. It sounds like you've seen some improvement. If you could talk a little bit about anything you're seeing in the drivers of that as well.
There's a couple of pieces, and we've talked about it in previous quarters. So one, just in terms of the buy side, as we've transitioned to the Circle K brand, the optionality we have to supply ourselves in conjunction with our partners with Musket, it's just fantastic. We built out a transportation fleet of over 1,000 trucks, so we're able to capture both location and time arbitrages that most of the industry can't, candidly.
So that differentiation, when you look at your OPIS reports, you see that a lot of quarters, were outperforming OPIS lows significantly, and we think that's sustainable. It will cycle a bit. We've been through 2 quarters of really, really relatively no volatility. When volatility happens, we are able to harvest that. So that's on the cost of goods side.
In terms of just the overall market behavior, you see the loss in the channel of units and traffic that's largely impacting the individual site players. And so it's possible that this becomes an industry a little bit of have and have-nots. And those smaller players, less effective players, have less traffic, but their costs continue to rise, like ours do, that their unit breakeven margin continues to go up.
And so we think that incremental margin requirement of single-site operator is going to continue to underpin a very strong margin in the United States, and candidly, globally. Again, will that look the same every quarter? No. But we feel that the guidance we gave at our Investor Day, which is kind of low 40s, we still feel very good about that as a go-forward run rate.
And also before I forget, thank you for picking up our coverage this quarter.
Yes. And then I did just want to follow up. There's a buzzword that's flying around, and it's AI more recently. I was curious as to how you're leveraging that as a tool to drive more efficiency in your business.
I'd say early days. We're certainly engaged with some of our key partners to look at business cases, customer care, employee enablement. If you think about the 140,000 team members out there using AI to help them get answers more quickly are a couple. And then we make pricing decisions, both on fuel and merch, tens of thousands a day. And so we believe that, that has a place in our future, helping us make more informed, more localized decisions. So we've got active projects in that space as well. But we're also, again, I think watching for big use cases that we think we can scale outside of pricing.
Anything to add, Filipe? Am I missing...
Yes. On the back office as well, for example, in finance, we are starting to have some pilots on using AI in some of the processes. So yes, it's for the organization, some pilots there.
And this is all the time that we answer today's questions. I will turn the call back over to Mathieu Brunet for closing remarks.
Thank you, Brian, Alex and Filipe. That covers all of the questions for today's call. Thank you for joining us. We wish you a great day and look forward to discussing our first quarter 2025 results in September.
[Foreign Language]
All right. Thanks, everyone. Have a great day.
Thank you.
Thank you.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you. Merci.