Future Is Bright for Couche-Tard (TSX:ATD.B) as Company Releases Strong Q1 Results

Alimentation Couche-Tard Inc (TSX:ATD.B) may not have seen an increase in sales during the past three months, but it still found ways to improve its bottom line.

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Last week, convenience store giant Alimentation Couche-Tard (TSX:ATD.B) released its latest quarterly results, where it continued to show off its impressive growth. During the first quarter of 2020, the company’s sales were actually down from the previous year, falling from US$14.8 billion to US$14.2 billion — a decline of more than 4.2%.

However, despite the smaller top line, greater efficiency and lower operating expenses allowed the company to generate a much higher net income. With operating costs down by 3.6% along with gross margins being a bit higher, Couche-Tard’s net income rose from US$455.6 million to US$538.8 million, even though income taxes were up during the quarter. It was a big improvement from Q4 when profits and sales were both down.

It’s a strong testament to the company’s improved operations that even amid a drop in revenue, it was still able to produce a stronger net income.

Many growth initiatives undertaken by the company

Couche-Tard is a great example of a company that has found ways to grow, even in a very saturated market. While sales may have been down this past quarter, there’s reason to believe that might not be the case in future quarters.

In its earnings release, the company highlighted many different ways that it had worked to improve its customer experience, including an Easy Pay loyalty program in the U.S. as well as a pilot home delivery program that recently launched in Texas.

One reason that Couche-Tard can be aggressive when it comes to different growth initiatives is that the company is that has been generating a lot of cash. During the past three months, Couche-Tard was able to bring in US$865.8 million in cash from its operating activities, which was a 21% improvement from the prior year.

Cash helps give companies the freedom to do what they want and to expand strategically. With its cash flow on the rise, Couche-Tard can pursue many more options to help grow its business.

One area where the company believes it can achieve good growth in is cannabis after Couche-Tard announced earlier this year that it was investing in Fire & Flower Holdings. It’s a strategic move that could give the company an influx of sales in Canada, as the market is still in its very early stages.

Why Couche-Tard is a great buy on these results

There are many positives that investors can take away from Couche-Tard’s strong start to fiscal 2020. While the temptation may be to focus on sales growth, being more efficient and bringing down costs is arguably even more important, since it means more incremental revenue will flow through to the company’s bottom line.

Over the past five years, Couche-Tard’s share price has risen by more than 150%, providing investors with some great returns. However, there’s little reason to believe that’s going to change, as Couche-Tard remains committed to finding new ways to grow and improve its business. And at a price-to-earnings multiple of 25, the stock is still priced very well, considering both the growth it has achieved in the past and how much more it may be able to produce in the future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned. Couche-Tard is a recommendation of Stock Advisor Canada.

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