ALIMENTATION COUCHE-TARD $58.75 (Toronto symbol ATD.B: TSINetwork Rating: Extra Risk) (1-800-361-2612; www.couche-tard.com; Shares outstanding: 179.4 million; Market cap: $10.5 billion; Dividend yield: 0.6%) is the largest convenience store operator in Canada, with over 2,000 outlets. It also has nearly 3,700 U.S. stores. The Canadian stores operate under the Couche-Tard and Mac’s banners, while the U.S. stores mainly use the Circle K brand.

In the three months ended February 3, 2013, Couche-Tard’s sales jumped 75.2%, to $11.6 billion from $6.6 billion a year earlier. The gain mostly came from Norway’s Statoil Fuel & Retail ASA, which Couche-Tard bought for $2.7 billion in June 2012 (all figures except share price in U.S. dollars). Excluding one-time items, earnings rose 72.3%, to $153.2 million, or $0.81 a share, from $88.9 million, or $0.49 a share.

Couche-Tard’s outlook is positive. It continues to introduce more-profitable products at its North American stores, including new drinks and improved fresh and takeout food. There is lots of potential for it to sell similar items at the Statoil gas station chain.

However, the company’s profit growth is being held back somewhat lately, largely because of a price war among U.S. cigarette makers. The tobacco companies are forcing retailers to reduce their markups on cigarettes so they can cut prices and gain market share. This is sharply lowering Couche-Tard’s profit margins.

High gasoline prices are pushing up the company’s revenue, but they’re also causing motorists to cut back on driving. That’s hurting Couche-Tard’s fuel sales volumes, which is cutting its profit margins on the fuel it does sell. As well, fewer customers at the pumps means less traffic through the company’s stores.

Alimentation Couche-Tard was our #1 buy for 2012. It has risen 90% for us since the start of that year.
We now see it as a hold.