Shares of convenience store operator Alimentation Couche-Tard (TSX:ATD) found themselves on a bumpier road, at least so far this year. Even as the TSX Index surged close to 6% (year to date), ATD stock is ever so slightly in the red (down 0.19%) over the timespan. Indeed, the rough first half could pave the way for a far better second half as the company continues executing its game plan to drive earnings growth to the next level.
Indeed, there’s a lot going on at the Quebec-based convenience store giant. With long-time CEO Brian Hannasch retiring this September, the company needs to ensure its new CEO, Mr. Alex Miller, will have learned the ropes. As I noted in prior pieces, investors should not fear a CEO change, especially as the growth plan continues going strong.
Given Mr. Miller has already been with the company for years, I’d argue that investors need not fear the transition. Indeed, Couche-Tard may have been around for decades, but Mr. Miller will be only the third CEO in the company’s history. Undoubtedly, it’s quite a rare occurrence to see such a move, but one that shouldn’t take away from the company’s ambitious long-term growth plans.
Understandably, investors hate uncertainties, and the sudden announcement of a CEO’s retirement always adds to the haze. Though ongoing CEO Brian Hannasch has been a great leader, I view incoming CEO Alex Miller as the right person for the job. He knows the business well and the value-creative acquisition strategy, not to mention the company’s slight pivot toward merchandising and modernization.
Headwinds ahead, but long-term tailwinds seem stronger!
With fuel margins taking a bit of a hit of late while tobacco sales look to fall into a secular decline from here, Couche-Tard needs to really double down on merchandising to keep people coming back to its stores, including those who drive electric vehicles (EVs).
What keeps customers coming back? Convenience.
Though Circle K and Couche-Tard locations are already impressive, they could be a whole lot better if the firm kept innovating on the private label. Arguably, Couche-Tard’s private label will help it drive margins steadily higher over the next decade. Indeed, it’s not just cost savings that will have people reaching for the Circle K brand of chips at the local convenience store; it’s the perception of quality. In that regard, I believe Circle K deserves a big pat on the back.
Under the Miller era, I’d like to see Couche-Tard double down on its private label, bringing in new items that consumers may not think twice to grab at the local convenience store. Additionally, I’d like to see the company triple down on its hot food items. In a prior piece, I outlined how the “ready-to-order” strategy has worked wonders for some of Couche-Tard’s smaller American peers.
As a juggernaut, the company can easily replicate the strategy and perhaps it’ll be the food, not the gas, that will have people heading on over to the local Couche-Tard or Circle K location. Either way, incoming CEO Alex Miller is inheriting a business that’s in fantastic shape. In fact, Couche-Tard is thriving despite the lacklustre past quarter and recent correction in the stock.
The road ahead looks bright
The balance sheet is pristine, with enough firepower to make a few big deals, a ton of tuck-in moves, or one massive, potentially transformative elephant-sized acquisition. It will be interesting to see what the big move under the Miller era will be.
Either way, he’ll have no shortage of takeover targets to consider. Personally, I think Miller may just be the leader who takes Couche-Tard to the next level as the business of convenience changes, perhaps for the better.
