This chain’s experience with other age-restricted products such as tobacco and alcohol position it to help the operator for one of Ontario’s 25 cannabis retail licensees, when they open in April. Through a partnership deal with a major marijuana producer, the company also positions itself to benefit from the industry’s future growth.
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ALIMENTATION COUCHE-TARD INC., $74.32, symbol ATD.B on Toronto (Shares outstanding: 564.3 million; Market cap: $41.9 billion; www.couche-tard.com) operates 12,661 convenience stores throughout North America and Europe.
Alimentation Couche-Tard, together with Canopy Growth (symbol WEED on Toronto), has entered into a trademark licensing agreement with one of the 25 winners of an Ontario cannabis retail licence.
Pending the results of a public-consultation process—and winning all regulatory approvals—the lottery winner will open a “Tweed” branded retail store in London, Ontario, as early as April 1, 2019. The lottery winner will have full ownership and control over the London store, but will sell Canopy Growth cannabis, using Alimentation Couche-Tard’s retail expertise.
Through this partnership, Alimentation Couche-Tard aims to combine Canopy Growth’s cannabis expertise with its own experience with other age-restricted products such as tobacco and alcohol.
Longer-term, the experience gained from this initial store should position Alimentation Couche-Tard and Canopy Growth to expand elsewhere in Ontario, when the Ontario government allows more stores. It will also set them up to expand elsewhere in Canada, as well as the U.S. and internationally.
Canopy Growth’s Tweed brand already has brick-and-mortar locations in Saskatchewan, Manitoba, and Newfoundland and Labrador.
Meantime, in its fiscal 2019 second quarter, ended October 14, 2018, Alimentation Couche-Tard’s sales rose 21.1%, to $14.70 billion from $12.14 billion a year earlier (all figures except share price and market cap in U.S. dollars). The jump was mostly due to acquisitions, including the purchase of convenience-store chain CST Brands (symbol CST on New York) for $4.4 billion. Revenue in the latest quarter beat the consensus estimate of $13.9 billion.
More important, same-store sales of merchandise rose 5.1% in Canada, 4.4% in the U.S. and 4.6% in Europe. The gains were the result of promotional campaigns and expanding consumer offers (including car washes, coffee, and bakery products). Strong growth in other-than-tobacco products, most notably beverages, also contributed.
Earnings per share, excluding one-time items, rose 5.0%, to $0.84 from $0.80 a year earlier. That topped the consensus forecast of $0.82.
Growth by acquisition adds risk, especially with a string of deals as big as CST. However, Couche-Tard has a long track record of successfully integrating those businesses.
The stock trades at 16.6 times the forecast fiscal 2019 earnings of $4.30 a share.
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