Alimentation Couche-Tard Inc. (ATD) Earnings Call Transcript & Summary

Good morning. My name is Joelle, and I will be your conference operator today. [Foreign Language] I will now introduce Mr. Mathieu Brunet, Vice President, Investor Relations and Treasury at Alimentation Couche-Tard. [Foreign Language]

[Interpreted] Good morning. I would like to welcome everyone to this web conference presenting Alimentation Couche-Tard financial results for the fourth quarter and fiscal year 2026. [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. Alex Miller, President and Chief Executive Officer; and Mr. Felipe De Silva, Chief Financial Officer. Alex, you may begin your conference.

Thank you, Mathieu. Good morning, everyone, and thank you for joining us for the presentation of our fourth quarter and full year results. As we look back on fiscal 2026. This has been an exceptional year for the company, and I'm incredibly proud of what our teams have accomplished. In February, we unveiled our Core+ more strategy, outlining how we would strengthen our core business, accelerate growth in key categories while deepening customer engagement through digital capabilities. Our model has proven successful as customers continue to respond to our compelling value proposition. Across our network, we strengthened our competitive position, gained market share and delivered growth through disciplined execution. In the United States, we achieved our best performance in years, and we saw traffic growth in the fourth quarter, reflecting the momentum we are building with customers. In Canada, we delivered record-breaking EBITDA, supported by strong fuel execution, market share gains and growth across the business. In Europe, we continue to benefit from the strength of our diversified footprint and the performance of our teams. Turning to the quarter. We delivered solid top line growth of nearly 20% year-over-year and we are winning in the markets we serve, strengthening our position and widening the gap versus the broader convenience channel. Before going further, I want to recognize our frontline teams. Every day, they show up as 1 team and deliver on our promise of being fast, friendly and customer ready, bringing our offer to life, delivering value, improving availability and simplifying the experience for our customers. What stands out to me is the reliability of the operation day in and day out. Our teams are maintaining a high standard and strengthening the connection to our brand. That level of execution remains a key enabler as we invest in and optimize our network. Importantly, U.S. turnover has reached the lowest level in our company's history, outperforming industry benchmarks across part-time, full-time and managerial roles. We remain on track with our goal of building 750 new stores through 2030. This past quarter, we completed the construction of 37 new stores and the relocation or reconstruction of 13 existing stores, bringing us to a total of 130 projects completed during fiscal 2026. At the same time, we have another 34 stores under construction that we expect to open over the coming quarters. As we expand the network organically and through M&A, we are also improving the overall quality and consistency of the customer experience. The integration of our Total energy sites in mid-Europe continues to move forward. We implemented 95 rebranded sites during the quarter, and we are seeing encouraging signs as these locations begin to benefit from our operating model and customer offer. Let's now turn to our convenience business, where we delivered an impressive quarter. Same-store sales grew 2.2% on a consolidated basis, with the United States leading at 3.4%, marking our best quarterly result in the last 3 years. Continuing with the U.S., we also delivered positive same-store sales in every quarter this year, with each period building on the last. During the quarter, growth was broad-based with all business units delivering positive same-store sales. We see this as a clear signal that our initiatives are resonating with customers. In Europe and other regions, same-store sales increased by 1.1% with solid contributions from Norway and the Baltics. Norway saw both traffic and basket expansion, while the Baltics benefited from promotional activity and stronger engagement. The Netherlands remained under pressure as we lap prior year tobacco-related benefits. In Asia, we delivered positive same-store sales results. While partly timing related, it is still an encouraging sign as the team sharpens the offer and works to rebuild customer traffic. In Canada, even as same-store sales declined by 0.9%, primarily due to persistent pressure in tobacco and modern nicotine, we had a good year. Excluding tobacco, sales were up 1.3% and key categories remained resilient with strength in alcohol and packaged beverages. Diving into our food business where our progress is becoming increasingly visible. In the U.S., foodservice same-store sales grew over 5% with fresh food fast sales growing over 10%, anchored by the continued success of our meal deals platform. At the end of the quarter, we were running at nearly 1 million bundles per week and [indiscernible] moved closer to 1.2 million bundles, reflecting growing customer adoption while responding to a simpler and more relevant offer with clear value. Execution is also improving with her availability reaching over 90%, up from roughly 75% just a few quarters ago. As we continue to scale the category, we are investing in the capabilities required to support that growth. We see a clear opportunity to further expand the food offer with a strong focus on ensuring fresh food fast delivers consistently across the network. In Europe, food continues to perform well, led by strong momentum in burgers and sandwiches, driven by simple execution on value and availability. Markets that are winning are those delivering a consistent high-quality offer, giving us confidence in the scalability of the [indiscernible] In Canada, we are building from the same foundation, leaning into value and execution. Meal deals have exceeded daily targets with more than 30% of our food sales coming from a bundle. The team is sharpening execution through improved key row item performance of prepared in Canada campaign and a more thoughtful offer. The overall direction in food is encouraging. We are seeing progress in execution, assortment, vendor partnerships and a coordinated supply model with meaningful runway as we move into our summer season, which will be marked by high-profile product launches and co-branded innovation. Most notably, we have a new boneless Buffalo Chicken wing product, which was co-developed and co-branded with one of the world's leading brands. We are excited for that item to hit stores in the coming days. Turning to [indiscernible] We saw continued progress across all regions, led by energy, where same-store sales grew over 15% in the U.S. Strong demand for functional and performance beverages, combined with favorable mix and pricing execution also contributed to margin expansion. Overall, Packet Beverages delivered another solid quarter, up nearly 6% in same-store sales, supported by innovation, exclusive launches and deeper integration into our meal deal platform. We are also making progress in cold dispensed where improved uptime is supporting higher unit sales and a better customer experience through our loyalty platform. In Europe, packaged beverages are gaining traction, led by energy and functional drinks has improved execution and a more focused assortment are supporting growth across markets. In Canada, performance remained strong, with energy driving double-digit same-store sales growth and continued resilience in alcohol, particularly in Ontario. We're very excited about the future trajectory of this category and more broadly, it reflects our ability to stay nimble and adapt quickly to evolving customer needs and shipping product trends. Turning to nicotine. This remains an exciting and evolving category with strong momentum in modern oral. In the U.S., cigarette positive sales growth was driven by disciplined pricing and targeted affordability, limiting unit declines relative to the industry. At the same time, other nicotine products are seeing solid growth at 8.5% in same-store sales, supported by an expanding offer, refresh back bar formats, improved in-store visibility. We are also leveraging our age verified membership platforms, now reaching 3.2 million users, up 12% versus the prior quarter. This is drive being more targeted and personalized engagement through loyalty while improving conversion and retention. In Europe, next-generation products continue to gain traction with other nicotine products driving category growth. In Canada, results remain impacted by regulatory dynamics and illicit trade with the team adapted through pricing and offer strategies. The performance across category is enabled by execution at scale during the right products are in the right stores at the right time. Turning to loyalty in the U.S. Our Inter Circle program has now expanded to over 5,000 stores and has grown by nearly 50% year-over-year, reaching 15 million members by May. When you think about where we were just 2 years ago, that is truly a remarkable journey. We are also strengthening the connection between fuel and in-store trips with pump to store conversion quadrupling, reflecting a more seamless customer experience. In Europe, we have completed the rollout of our revamped extra loyalty program across our legacy markets in Poland as well as our Baltic and Scandinavian business units. We are also beginning to integrate EV charging into the app, creating a more unified customer experience. Looking ahead, digital solutions will play a central role in scaling our initiatives, strengthening relationships with customers and unlocking additional growth. Turning to mobility. This remains a core strength [indiscernible] the environment remains volatile with geopolitical tensions and higher fuel prices weighing on demand in certain regions. In the U.S., same-store fuel volumes declined by 2.1%, while total gallons sold increased by nearly 5%, reflecting the contribution from network expansion. Europe and other regions were down 4.4%, while Canada remained more resilient with volumes up 2%. Continuing the positive trajectory we have seen throughout the fiscal year. Our efforts remain focused on growing gross profit across the network through disciplined pricing, margin protection, ensuring continuity of supply and market share gains and volume across our geographies. What gives me great confidence is how we built a world-class supply chain over the years. Along with the trading capabilities and network scale needed to remain competitive on price while capturing margins as market conditions evolve. We have the reach, the experience and the operational depth to manage through these cycles, and our teams know how to execute in this environment. During the quarter, we also completed the acquisition of 3 fuel terminals in Germany, further strengthening our supply capabilities and providing greater flexibility across our European network. In B2B, across Europe and North America, we are focused on delivering a reliable competitive offering for our B2B customers, leveraging the same scale, supply chain strength and execution that underpin our broader mobility platform. We continue to see resilience in Europe where pressure on volumes was offset by margin performance. We also saw continued growth in nonfuel income with B2B transit charging volumes up by more than 50%. We are also continuing to roll out our One card payment platform, enabling a more seamless experience from onboarding through fueling, strengthening engagement across the network and supporting market share growth and operating efficiency. Our mobile payment usage increased nearly 60% year-on-year. In the U.S., we are building momentum as we scale the business. Our focus remains on deepening relationships with fleet and commercial customers supported by a differentiated national network, expanding truck accessible sites and execution at the store level. Large national accounts have grown by more than 15% versus same period last year. Our fleet segment grew volume by 6%, adding 11 million incremental gallons versus the same period of last year as we make strides in government fleet business development. Meanwhile, strategic partnerships continue to drive substantial growth in our truck segment with volume up more than 55% versus a year ago and nearly $27 million incremental gallons. On e-mobility, we continue to grow the business with disciplined capital deployment as demand continues to increase across Europe. By the end of the quarter, we surpassed 4,000 Circle K branded charge points with a total network of more than 4,700 fast chargers, up 30% year-over-year. We are also seeing strong customer adoption with more than 2.2 million charging transactions in the quarter and over $8 million for the full year. Utilization continues to improve with charging transactions up over 50% and kilowatt hours sold up nearly 60% versus last year. This reflects the progress we have made in building a scaled and increasingly utilized network in Europe. Reliability has also improved, with uptime now above 97%, reinforcing our leadership position in some of the most advanced EV markets, including Sweden and Norway, where we are respectively the #1 and #2 destinations. I will now turn it over to Filipe, who will provide more details on our financials.

Thank you, Alex. Good morning, everyone. We delivered an excellent fourth quarter to close the year, driven by the quality of our underlying results, even excluding the impact of certain favorable items. Discipline execution enabled us to maintain operating expenses below inflation, profitability while continuing to invest in the business to support our Core+ [ smart ] strategy. Our results are at the consistency and durability of our earnings and response of confidence as we start the new fiscal year. More importantly, these figures reflect the contribution of multiple elements and merchandise categories working together. At the same time, we are investing in capabilities that improve availability, simplify the operation and strengthen the long-term earnings potential of this business. For the fourth quarter of fiscal 2026, net earnings stood at $863 million or $0.94 per share on a diluted basis. These results include a onetime net gain of approximately $260 million related to the resolution of a long-standing legal matters, including a U.S. electronic payment inter-trend litigation. Adjusted net earnings were $667 million or $0.73 per share on a diluted basis, representing an increase of 58.7% compared to the corresponding quarter of last year. For fiscal 2026, reported net earnings stood at $3.1 billion, an increase of [ $563 ] million or 21.8% compared with fiscal 2025. Diluted net earnings per share stood at $3.37 compared with $2.71 for the previous fiscal year. Adjusted net earnings stood at $2.9 billion, an increase of $312 million or 12.1% compared with fiscal 2025. Adjusted diluted net earnings per share were $3.10, an increase of 14.4%. I will now discuss the following section on an FX-adjusted basis. Adjusted EBITDA for the fourth quarter of fiscal 2026 increased by $350 million or 28.9% compared with the corresponding quarter of fiscal 2025 mainly due to higher road transportation fuel gross margin, organic growth in our convenience activities as well as the contribution from acquisition, which amounted to $47 million, partly offset by the increase in operating expenses. During fiscal 2026 on the same basis, the adjusted EBITDA increased by $643 million or 10.8% compared to [indiscernible]. During the third quarter, merchandise and service revenues increased by $242 million or 5.8% attributable to both the contribution from acquisitions, which amounted to $137 million in organic [indiscernible] During fiscal 2026, merchandise and service revenues increased by $1 billion or 5.5%. Merchandise and service gross profit increased by $103 million or 7.1%. This is primarily attributable to the contribution from acquisition, which amounted to $50 million by organic growth as well as improvement on [indiscernible] and sabers margin. Let me expand a little more on margins because this quarter gives a good picture on how the business is evolving. In the U.S., merchandise margin improved by 50 basis points to 34.4%, driven by favorable category mix enhanced vendor partnership, stronger procurement and in-store execution. This reflects higher margin growth in other nicotine products and packaged beverages, which would more than offset the continued strength of sales in cigarettes. Food gross profit dollars also increased year-over-year, even [indiscernible] some pressure on the margin rate. That pressure was largely a cut of growth, higher ability and the mix effect of a very successful new new platform rather than any deterioration in the economics of the overall -- more broadly, we are demonstrating that we can deliver server value to customers across categories without compromising the overall gross profit profile, supported by partnership, stronger procurement and more targeted commercial exemption. In Canada, the gross margin rate decreased by 60 basis points year-over-year to 33.5%, mainly reflecting competitive pressure and mix while the impact of lower cigarette sales and higher growth in energy drinks provided a partial offset. In Europe and other regions, gross margin increased by 100 basis points to 29.6%, supported by mix including lower relative weight of cigarettes and a growing contribution from EV charging and service revenues. For fiscal 2026, merchandise and service gross profit increased by approximately $412 million nor 64%. Our gross margin in the United States increased by 50 basis points to 24.4% by 20 basis points in Europe and other regions to 29.1% and decreased by 20 basis points in Canada to 43.5%. Moving now on to our presentation to gross margin was $52.44 per gallon in the United States. USD 17.44 per liter in Europe and other regions and CAD 17.28 per liter in Canada. As Alex mentioned earlier, our global scale and capability across trading and the network allows us to medicate volatility while cantering margin opportunities as market conditions able. During fiscal 2026, our transportation fuel gross profit increased by $748 million or 11.7%. Our transportation fuel gross margin was $47.49 per gallon in the United sales $11.73 U.S. [indiscernible] in Europe and other regions and [indiscernible] per capita rate in Canada. Turning now to SG&A. For the fourth quarter. Normalized operating expenses were up 2.6% compared to the previous year of 4.4%, which remained below the weighted average inflation across our network. For fiscal 2026, normalized operating expenses increased by 3.1% compared with the previous year of 3.4%, and we're within the range of our growth [indiscernible]. We're participating in managing our expenses and increased combination of inflation, take investment and supporting growth in areas where we expect to achieve returns. These investments are tied to supply chain technology and building the capability to support our long-term ambitions. As we can to expand the platform and improved execution, optive remains to be destination to the twist and then customer satisfaction and support long-term profitability. A good example of this is our supply chain, where our distribution center investments are about much more than are about much more than sickly expanding capacity. They provide greater control of our procurement, product availability and distribution while simplifying operations across the network. As we continue to spend these capabilities, we are unlocking opportunities to leverage our size and work more directly with suppliers, which will support improved efficiency and strong economics over time. We are also advancing the rollout of [indiscernible] We have completed the pilot across 4 U.S. business units and have now begun scaling to more than 200 locations. Our real results are encouraging with increased inventory accuracy and product availability, supported by more precise forecasting and element between inventory, shelf space and demand. As deployments expand across the network, we expect these tools to support replenish much reduced complexity and execution started. In addition, we remain confident in our ability to deliver $850 million EBITDA by 2030 across merchandise cost of goods, not for resale, store operations, general and administrative expenses and controllable costs. We have already covered on investments in our supply chain will allow us to expand stable distribution, improving store operations and inventory management, but also to reduce our merchandise customers. Looking at goods not for resale, we are starting to leverage procurement statilization and vendor consolidation. Recent sourcing initiatives charting fastructure demonstrates the benefit of a more co-deleted approach to purchase it as we continue to enhance procurement activities across the organization with the additional opportunities to improve purchasing conditions, reduce complexity and drive efficiencies across a broad range of categories. While many of these opportunities will take time to pre-material, we are building the capabilities required for all of them while continuing to invest in the future growth of the business. As a result, we remain focused on balancing growth investments with operational discipline. We continue to operate with 1 of the leanest model in the sector and remain confident in our expects outlook a -- turning to depreciation for the fourth quarter fiscal 2026. -- depreciation expense increased by approximately $17 million or 3.1% compared to the fourth quarter of last year. This increase was primarily run by the impact from recent acquisitions, particularly Capco, which amount accounted for approximately $20 million as well as ongoing capital investment in epicentreplacement and networking projects. As we move into fiscal 2027, depreciation is expected to continue, reflecting the investment base made in recent years, including acquisitions, network expansion and capabilities that support the long-term growth of the business. From a tax perspective, the income tax rate for the fourth quarter of fiscal 2026 was 23.7% compared with 18.8% for the corresponding quarter of fiscal 2025. The increase is mainly taken from the impact of a different mix in our earnings across the various jurisdictions in which we operate. April 2026, we recorded a return on equity at 20.2% and our return on capital employed stood at 13.7%. During the fiscal year, our leverage ratio stood at 1.99, we also had strong balance sheet liquidity with over $3 billion in cash and an additional $3.5 billion available through our revolving unsecured operating credit facility. During the quarter, we repurchased 0.4 million shares for an amount of $22.6 million. Importantly, we have been able to improve returns while continuing to deploy significant capital during the year, including approximately $1.6 billion returned to shareholders for share repurchase alongside the integration of GetGo, which reflects the strength of our operating model and capitalization. We also issued a new real denominated senior ecutotaling EUR [ 750 ] million to replace existing notes of the same value, which were repaid subsequent to the end of the quarter. Turning to the dividend. The Board of Directors declared yesterday a quarterly side of CAD 21.5 per share for the fourth quarter of fiscal 2026 to shareholders on record after July 9, 2026, and approved its payment at July 23, 2026. Finally, let me briefly comment on our progress with Total energies. Now approximately 2 years into the integration, we continue to execute according to plan. with a clear focus on aligning the business to our operating model and capturing synergies. As of the end of the fourth quarter, our underlying synergy run rate reached over EUR 60 million, reflecting continued progress in operating expenses, cost of sales and commercial initiatives across the network. This puts us well on track to deliver our stated target of EUR 120 million by fiscal 2027 and EUR 170 million by fiscal 2029. In closing, fiscal 2026 represented an important year for the business. We improved our top line trajectory, strengthened our position in key categories and continue to build the capability that supports sustainable growth. While encouraged by the progress we are seeing in Core+ more, while being to unlock benefits from initiatives that leverage our scale to strengthen their operating model and improve the economics of the business. As we move into fiscal 2027, our priorities are clear, execute with discipline, focus on system control and invest where we see attractive returns. I thank you all for your attention. I will turn the call over again to Alex.

Thanks, Filipe. I'll leave you with a few final thoughts. We introduced our updated Core+ more strategy in February, and we are energized by the progress so far. The strategy is clearly working, and we are delivering strong execution against our growth algorithm in a profitable and sustainable way. We did what we set out to do, and this year, we executed against those priorities with a clear outperformance in several areas. We see better traffic, margin expansion and a more productive network while we continue to invest in the capabilities that will extend these advantages over time and reinforce our value proposition for customers. And importantly, our fuel platform continues to perform. As our teams lean into the strength and agility of our supply chain and global scale to capture opportunities and grow market share across the network. We are seeing a constructive start to the year as we move from Q4 into Q1 with continued momentum across our key initiatives and geographies. Thanks again for your time and your continued support. With that, let's open it up for Q&A.

[Operator Instructions] Your first question comes from Michael Van is with TD Cowen.

Impressive quarter with big earnings. And a lot of it -- I mean, you're doing really well on the same-store sales growth in the U.S., but I wanted to ask first about the fuel margins -- the U.S. fuel margin was probably 30% higher than what the OPIS data would have implied. And it's clear that some of the investments that you're making and sourcing capabilities is deliver are delivering returns but it's even more evident now in these volatile markets. And I'm wondering if you could give us a few examples of how you're able to attract much higher or much better sourcing prices on the fuel side during this environment.

Michael, thank you for the question. I think you've heard us state many times over the years and the quarters that when volatility exists, we are well positioned to capture the advantages there and margin that becomes available with that volatility. And -- for us, this has been a journey for more than a decade as we've kind of pivoted and invested in our own brands and invested in our supply chain. And as we've talked about previously, it's really about building optionality that gives us sourcing choices when the market becomes volatile and/or constrained. And so you see us executing against that and utilizing that optionality to deliver against OPUS. So that is a litany of investments over multiple years over the last decade into terminals, into positions while maintaining a very tight bar or risk management profile. So I'm not going to go any deeper than that, but it's something that we have invested in for more than a decade. I think you've heard us consistently state when there is volatility. It is a strong opportunity for us, and you see us delivering in this very volatile time.

And to be on Alex also [indiscernible] , it's not just U.S. You can see that also in Europe. We are trading there. Alex just mentioned that we know we are even further investing in additional terminals there because we receive value also on that piece. So yes, very, very excited by what we have been and what what is still there in terms of opportunities. So we're confident that we'll continue to hold platform there.

Okay. And 1 follow-up, a shorter one, I guess, I'll let others get into the same-store sales and all that. But just on the exit run rate, I know you entered Q4 with a pretty strong same-store sales growth in the U.S. I'm wondering how you exited it amid the pressures that we were coming from the [indiscernible] and whatever.

Yes. I think we continue to execute very well, Michael. Core+ more is delivering. And it's not one category. It's the things we talked with you about -- we are clearly delivering in fuel. We are delivering in nicotine. We are growing thirst substantially. We are growing food. We are growing EV and our digital platforms are enabling traffic and growth across that. Our trends in Q1 are very similar to Q4. Our volume has improved a bit. Margins remain -- fuel margins remain robust traffic and same-store sales remain within our growth algorithm, and we continue to control costs and pursue the efforts we're making to expand margins. So Q1, the momentum continues, and we're just focused on executing against the strategy we shared with you in February.

Michael, I understand that that's your last coming calls with us. So just wanted to thank you. It has been a pleasure to work with you. And yes, just wanted to wish you a happy retirement, Michael. Well deserved.

It's been a great 25 years covering you guys.

Your next question comes from Irene Nattel with RBC Capital Markets.

Thanks for the comprehensive answer to Mike's question. Let me just pivot for a second and can we talk about capital allocation, please. Balance sheet is pretty clean at this point in time, your ratios are fabulous. Can you -- and yet there was no activity on the NCIB. Can you talk about how we should think about F27 perhaps from an M&A perspective around NCIB and just conceptually, we talk about continuing investment. How much dry powder are you keeping for CapEx, et cetera?

Thanks for the question. So -- our capital allocation framework remains unchanged. And really, it's about maintaining financial flexibility. In terms of priority, I would say, first, in terms of capital allocation, it serves investing in our organic business. and you have heard us aiming at reinvesting 30% to 25% of our EBITDA into the organic business. Second is, of course, M&A and pursue attractive M&A prophecies within our disciplined financial framework. And the third 1 is maintaining a disciplined leverage profile. So today, we are within our comfort level, so between 2 and 2.5x. And all the excess capital will be used to -- through a new share repurchase program. So that's how we have defined our capital framework, and that's how we'll continue to proceed. And yes, we're keeping always in mind that we want to create long-term value creation for our shareholders. and that that remains change. So that's what I can see in terms of capital allocation, Irene.

And can you comment on the current M&A environment and sort of where your head may be at with all volatility in the market right now.

As we mentioned the last few quarters, and I'm sure that Alex can comment as well, but we continue to see activity there, their files. So of course, as it's part of our DNA. We are looking at that and remain confident that over the the framework of our Core+ more strategy. You will see us actually doing M&A in in our industry, of course, prioritizing the market we are present, but but also looking at why not expanding in other regions in the future. So yes, that remains -- we remain quite positive and optimistic in the environment in terms of M&A today. Alex?

Yes, sure. Irene, good to hear your voice. I just remind everybody, we're focused on our Core+ more, and we're not relying on M&A to deliver our growth algorithm and hopefully, we're increasingly showing you that. M&A remains very active. We're seeing multiple files and multiple geographies, large, medium, small. We just continue to pursue transactions with our focus on our strategic and financial criteria. And that's really what we can tell you, but there's plenty of activity in the M&A space right now.

Your next question comes from Vishal Shreedhar with National Bank.

Could you following on the fuel margins, which were exceptionally strong, could you comment on your fuel capability across your major geographies. I noticed that you purchased some terminals as well in Germany. My understanding is that the strongest in the U.S. to capitalize on this, but maybe you can expand and give you some context. And I'm also asking in the context of your longer inventory holds in Europe and how that might complicate your ability to take advantage of volatility.

Again, thanks for the question. Yes, we're in very volatile times. I think that's 1 of the reasons we have a little more cash on our balance sheet. It's also -- we upped our inventories in Europe a little bit. to ensure that we -- I think I shared on the last update that our supply and trading teams, their #1 responsibility is to keep our stores in product. And with the events, we thought it was wise for us to put a little more inventory into the system just to be safe. It really is about optionality. It's about recognizing various markets how those markets receive product, what options are there to supply those markets and building those options so that when you need them or when opportunity exists you can take advantage of that. In events like this, when markets get volatile, you start to see product flows change, certain areas get quite tight on product, that's when those options benefit us. and that's what you saw flow through our financials in this quarter.

Your next question comes from John Zamparo with Scotiabank.

I wanted to ask about the merchandise margins, particularly in the U.S. And I wonder if you could update us on where you are in your journey on building out new distribution centers. what type of impact did that have in the quarter? And how should we think about margin improvements to come from increased DC penetration over the next few years?

Thanks, on for the question. Yes, pretty excited. As we mentioned in last quarter, we have opened these 3 new DCs in U.S. And associated to that, we were commenting about some ramping up cost that were impacting our G&A, but we are seeing that actually going down in this quarter, and we start to see improvement in terms of avability in the store and and getting this operation starting to mature. So very excited about what's coming -- all these investments are being done with, of course, the objective of improving capability, making sure that we have the product in stores and we can help our stores to deliver the best experience to customers. But of course, also with the mind of getting returns on that. So yes, you will expect, we are expecting actually to have on the midterm, a positive impact in our cuts and of course, also in our SG&A because on the COG side, of course, getting deeper in the supply chain as we did with the fuel we get better economics with the vendors at some point. And we'll start to see that already this year, John. And on the SG&A side, but it's no doubt also that only the supply chain will help us actually to be more productive in store at some point. So there's a lot of benefits to see there. Of course, a supply chain, we are just at the beginning of the journey. It's a learning curve, you should expect over the end of this year. But I would say most importantly, in the coming 2 years, more positive impact in our P&L coming from the disease -- and as you know, we are continuing to assess what else we need in terms of supply chain on -- in U.S. and as well in Europe. So more to come by that, but very excited by what we see today.

And I'd just add on that, I think we've talked with you consistently about our data journey, our journey around analytics, around I think understanding better where to really push on compelling value, where to run promotions, where not to run promotions we just continue to get improved -- we continue to improve on that, and we continue to improve at our category management. And I think our pricing strategy is inside of category management I think we also talked with you on Core+ more about, we actually have some structural tailwinds around mix. And we shouldn't overlook Europe. Europe had a really strong merch margin in the quarter, and that I think we talked with you about our EV business, it continues to grow, and it is becoming meaningful for us. That is a really nice tailwind into our services. and merch margin as well as our investments in car wash. So there's some positives for us that I think we believe over the mid to long term, we'll continue to provide some momentum for our business.

Your next question comes from Chris Li with Desjardins.

So much for all the helpful comments so far. My question is I know market conditions are still obviously very fluid. But given all the positive comments you've made about the momentum of your business so far, I guess my question is, do you have a good line of sight to achieving your financial framework of more than 10% organic EPS growth this year. I just asked in the context of that, you'll be lapping some tough comps on the fuel margin at least later this year. So I wanted to just to gauge of what's your comfort level on achieving that target this year.

Thank you, Chris. And I would say we have a great momentum Alex has been mentioning what's happening in Q1. We feel very confident. The team are doing an amazing job there executing, as you know, at pace, transforming this company from 1 region to another. So there is no reason for us to tell you that our financial growth algorithm is not achievable. We announced that 5 months ago, we remain very confident and yes, we'll execute according to that. So is there good confidence there.

Just I think in this quarter, we delivered against every level of the algorithm. And that's our focus and fleet I brought up, but just -- our teams are really executing across across the geographies and the focus that they're having and the execution they're having they deserve the credit. And we sit here in a pretty confident strong position. And I think also we're just focused on winning the environment we're operating in, and we see resilience from consumers. So yes.

Your next question comes from Martin Landry with Stifel.

Given the high fuel prices during the quarter, I believe that triggers more trip to the pump as consumers put roughly the same dollar amount as usual. So I was wondering if this increased traffic at the pump has translated into more traffic inside the store -- would it be possible to break down your 3.4% same-store sales merchandise growth into traffic and basket for the quarter?

Yes. So our our fill rates are down 12%, 13%, 14%, but our traffic at our pumps are up because of the higher prices. I think the key element here is our ability to access those customers and incentivize them or entice them to go into the store and our digital platforms are what are enabling us to reach those consumers. And I referenced in my comments that we've quadrupled our capability of getting those fuel customers into our stores. The breakdown of our 3.4% we referenced, we had positive traffic that was slightly positive or up, but that's great for us, and the rest is basket. It's a mix of -- we had a really strong quarter in nicotine, really strong quarter in food. And first, we were 3.6 in cigarettes, other nicotine 8.5%, I'm doing this off my head. You heard me reference energy. I think PacBev was up 6%, 6.5% in Food, I referenced in my comments, right? We were up a little over 5% and 10% on same-store sales. So you see us executing against Core+ more and that mix is what's driving the 3.4%.

And to bid on Alex, on this traffic, we see that as an opportunity, a huge opportunity, and Alex was mentioning all the work that we are doing on the digital side and connecting the dots between the fourth court and the store. And there's an opportunity for us to to build on this profit that's coming to the forecast and to be even better and getting more customer entering in our stores. So we are doing that personalizing offer and -- and yes, I think here, we are already seeing some of that. Alex is mentioning it, but there's a huge unlock for us and a lot of opportunities to continue to grow in that space.

Your next question comes from Tom Palmer with JPMorgan.

Wanted to maybe kick off on the foodservice side. It's an area where you noted the top line strength really for multiple quarters now. last quarter. So in the third quarter, you had noted some margin pressures from shrink and I think some mix headwinds around the meal deals. Curious the progress we might have seen just given that improved margin in the fourth quarter? And any expectations in terms of continued progress as we move into '27.

Yes, I think -- thanks for the question. I think we talked with you about the need to do a reset on food, our focus on execution. We are stable now. We are executing. We are producing food. You heard me reference that our hero items are over 90% production. So we are executing and we are stable and that presents the platform one, to continue to evolve our offer and to continue to work on our production and bring our shrink down. But we are still in early innings in food, and our goal is to drive traffic and to drive sales growth. Our meal deals are resonating with consumers. You heard me reference 1.2. Our compelling value is resonating with consumers, and we are going to lean into that over this summer in a big way with fuel unlocks, our new chicken wings I referenced, we have a $2.50 meal deal in play right now. But we are going to really focus on continuing to grow sales, but we can do that in a margin constructive way. And again, I just complement the teams. This has been a journey, and they are really executing really strongly right now.

Also I did a follow-up just on the fuel volume trends that you're seeing. You noted kind of the higher frequency, lower gallons per Philip. Do you guys look and kind of see like a price level or point where pressure becomes more acute in terms of price levels? And if so, -- are we there today? Just given some of the price moves that we've seen here over the last few weeks? Or was it maybe more pronounced if we look back to earlier period?

Yes. I think if you look at our quarter, where we had the most pressure was really out on the West Coast of the United States, and that's where prices were the highest, California, Arizona. So we reached $6.5, $7 a gallon in California, over $5 a gallon in Arizona. So we definitely see those price points impacting demand. The Southeast United States, the Midwest of the United States really continued with with really solid volume performance. As I shared, we've been strengthening on volume performance as we've moved into this quarter and prices are coming deck. So I will never predict the future of what's there, but prices are coming down really across our geographies. And we're confident in our ability to continue to capture market share and deliver strong volume performance.

Your next question comes from Mark Petrie with CIBC.

I actually just wanted to follow up on the topic. I think you touched on in your answer to Martin's question, but the impact of the loyalty program and the personalized promotions, hoping you can quantify the impact ideally to U.S. same-store sales and volumes. And I know you called it out specifically with cold dispensed, but maybe on a consolidated basis. And then, Alex, you referenced the up to store conversion up 4x -- but I'm assuming that's off a relatively low base, so some broader contracts would be helpful. And then what you think the runway or what you think the opportunity is from here as that program gains traction.

Yes. I think our capability in the space just continues to advance. And you heard me reference our launch of our new engine and new platform in Europe, and we're seeing very solid results. So you asked me to quantify it. I think for us, it's all about membership active members, increased visits, increased basket, and we are seeing that consistently. Those numbers continue to go up month-on-month, quarter-on-quarter. And we fundamentally believe that is playing in to our improved performance on same-store sales. Can I give you an exact percentage of what we we believe or know that to be, I cannot. But we know that the program is resonating with consumers. We know we hit the top 10 app downloaded in the United States. -- during this past quarter, and we know that more and more people are using the platform. And once they're on the platform, they are shopping with us more and they are buying more from us. And you're right, the quadruple is on a low platform, but we're in the early innings of personalization, which just gives me increased confidence -- but our teams are really executing our capability in that space, the way our digital teams are working with our operators has never been stronger. And again, this is another area that gives us confidence and we believe is underpinning the results we're sharing with you.

Okay. And maybe just to clarify, the 4 on the pump to store conversion. Like would that have been a material tailwind to the traffic growth that you're talking about?

No, it's not material enough to to be material. But the value of these platforms is we know who the customers are. We know what they're purchasing. We know when they're coming to buy fuel from us and if they're coming into our stores, and we're getting better at incentivizing them and enticing them to come into our stores.

Next question comes from Bobby Griffin with Raymond James.

I appreciate the details throughout this call. I guess, Alex, I wanted to ask more of a high-level question on just like the overall market from the fuel side of things. When you look at the last period of volatility in 2022 and compare it to this period of volatility here today, and you think about how the market reset, are there things that are different that give you confidence that the business resets differently than it did maybe last time and -- or vice versa, things that we should keep in mind. Does anything there on how you think about lapping kind of a period of volatility when the last 1 was a few years ago when we saw different aspects play out.

Yes. I think every event is different. And the global fuel and products markets are incredibly resilient. So what you see is product flows adjusting real time and movements of where product goes to really keep the world supplied with product and those flows changes and any event like this it adapts and the changes from last time are not the changes from this time. I can't predict when the next big volatile occasion will come. And I cannot predict fuel margins. What I can predict is that our ability to execute our capabilities in this space, I think, continue to grow. I think we are well prepared to compete under any environment. And when we see these volatile environments, we realize significant value.

And then just quickly for me, a second one. Philippe, on the productivity of the capital employment, I don't believe you mentioned kind of new store productivity, but could you maybe touch quickly on what you're seeing out of the new store class as you guys have rated the organic openings and how those are opening up and hitting pro forma numbers?

Yes. Very excited by our ATI program. The stores that we're opening are for 5x more profitable than the average stores that we are in the network. -- after 3 years of operations. So both stores are really making a big difference. That's why we have to in the decision actually to accelerate our inter program -- and yes, you have heard Alex mentioning that, yes, we are well on track to open 750 stores over the next 4 years.

Next question comes from Corey Tarlowe with Jefferies.

Great. I wanted to touch on SG&A. So it was up quite substantially in the prior quarter and then the quarter you just reported costs, I'd say, were relatively well controlled. Could you give us maybe a lens into kind of what's changing from a cost perspective in the business, what we might be able to expect going forward, especially as you invest more into foodservice?

Yes, thank you for the question. And let me start saying that I'm very proud of what the team is achieving on the cost of [indiscernible] -- you're hearing us a lot talking about transformation, how we are deeply transforming this company on investing in many places this company more digital, faster and really enabling better execution, better customer experience. And that is possible because we are keeping a very significant discipline on the cost, okay? You heard me saying last quarter that, yes, we were above completion, but it was linked to some of the vestments -- so -- and directly related to the supply chain. And when you look at this quarter, we had not so significant investment control of investment ramping costs. And you can see the underlying costs, they are going down at 2.6% growth during the quarter, softening good, a lot of pending in terms of selling initiatives, Teams market in Europe in in their overhead cost structure on the marketing piece. So when you look at U.S., a lot happening there also in the store, the rigor model on looking at supply, waste management, security, we have mentioned to you many times about all the procurement set up and the good thing that we're seeing there. So pretty excited by what we see -- the way that you need to look at gene and we have said that during the corpsman presentation is really aiming at delivering normalized expenses below inflation. That's our goal on -- and you should look at on a yearly basis, not quarter-to-quarter because again, there will be some investment there time to time. But yes, you -- you can trust -- we are very confident on the team. We were again yesterday looking at both plants. And yes, there is a lot happening on the savings that it was a huge confidence that will be there in terms of guidance from a cost perspective.

And I'd just add, you've heard me reference the execution of our teams. And at the end of the day, you look at our P&L and our cost lines, our big cost lines are our labor lines in our lines in our stores. And the teams are really executing there as well, really strong overtime management -- you'll hear me talk about turnover, that directly relates to training cost -- so you see the productivity gains, the strong overtime management, the reduction in training hours the teams are executing, and we are just fighting hard to save dollars in our core operations to enable the investments we're talking with you about. But again, the teams are executing well, and we're well positioned. And we gave you our growth algorithm, and we plan to execute inside of that growth algorithm.

Understood. And then just a quick follow-up, Alex, on the same-store fuel volumes, the margins are quite robust and better than you've seen in quite a long time if ever. So -- as you think about the level of margin that you're generating and the volumes that you have in the U.S., is there a consideration about potentially investing more into price to drive better volumes?

Yes. I mean we compete every day at every site, and it is all about customer value proposition and being extremely consistent for the customer that they can count on us to be in a certain price position against our competitor sets. And candidly, that does not change, regardless of the supply environment or our underlying margin. This is about consumer value proposition being very consistent on the to, on the price side and then leveraging our digital platforms to deliver additional value for visits and additional trips for loyal customers.

This concludes the Q&A. I will now turn the call over to Mathieu for closing remarks.

Thank you, Alex, and Filipe. That covers all the questions for today's call. Thank you all for joining us. We wish you a great day and look forward to discussing our first quarter 2027 results in September. [Foreign Language]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.