People are buying more illegal cigarettes, firm says

Remarks come as Couche-Tard profit drops 15.3%

The rising cost of living may have contributed to a surge in cigarette smuggling in Canada, Alimentation Couche-Tard Inc. said Wednesday.

“In Canada, we felt pressure on our cigarette sales. There seems to be a transfer to the black market,” chief financial officer Claude Tessier said during a conference call about the company’s quarterly results.

CEO Brian Hannasch told analysts that inflation has resulted in other shifts in consumer behaviour, such as putting less gas in the tank each visit in the U.S.

“This is a sign that the pressure is mounting on consumers. We are lucky to see unemployment at a historic low, which means that the consumer is still in better shape than in 2008-2009 (during the financial crisis),” he added.

Hannasch said he’s satisfied with traffic into stores, but consumers are buying brands at lower prices. “We see consumers switching from premium beer to low-cost beer.”

He said its development of private label offerings has paid off with sales growing by double digits in the United States.

“We’ve done a lot of work with private labels over the past three years and we’ve seen a lot of growth. This allowed us to make a greater profit per item sold.”

Couche-Tard announced after markets closed Tuesday that its net profit decreased 15.3 per cent to $477.7 million (U.S.) in the fourth quarter after it took a $56.2-million pre-tax charge for the impairment of its Russian subsidiaries.

In April, the retailer announced the suspension of operations at 38 stores in Russia following its invasion of Ukraine.

Excluding one-time items, adjusted profits increased to $573 million or 55 cents per share, from $564 million or 52 cents per share in the fourth quarter of 2021.

Revenues increased 34 per cent to $16.4 billion from $12.2 billion.

Couche-Tard was expected to report 53 cents per share in adjusted profits on $15.5 billion of revenues, according to financial data firm Refinitiv.

The core results were slightly better than expected because higher fuel margins in the U.S. offset increased expected and lower margins in Europe.

Tessier said a 19 per cent increase in expense was attributable to weaker spending following tougher pandemic lockdowns, inflation pressure on costs and payroll, along with investments to encourage sales growth.

Hannasch said the company is seeing the “light at the end of the tunnel” in terms of its workforce shortages as it is hiring more employees than it has lost, suggesting there will be a reduction in overtime at a higher hourly rate.

High fuel prices are expected to continue to put pressure on fuel sales volumes, Stifel GMP analyst Martin Landry wrote in a report.

In the United States, volume per same store decreased by 1.7 per cent, but increased by 3.7 per cent in Europe and 4.3 per cent in Canada. “We believe high fuel prices may have hurt convenience store sales due to the shock at the pump.”

RBC Capital Markets analyst Irene Nattel wrote that the convenience store segment remains relatively resilient.

“In the current macro backdrop, Couche-Tard’s size, scale and procurement expertise should enable the company to gain (market) share.”