Shares of convenience store company Alimentation Couche-Tard (TSX:ATD) have continued to be a strong performer for investors over the years. Though the rise of EVs (electric vehicles) could change the way convenience retail is done in the distant future (think five to 10 years down the road), I still think there are no other firms ready for a shift in industry dynamic that Couche-Tard.
Undoubtedly, fuel sales are a big seller for the company. And as fewer cars need to fuel up, Couche-Tard needs to draw in customers in other ways. Couche-Tard has done a brilliant job of driving same-store sales growth (SSSG) through improved merchandise and the private label.
The private label isn’t just about offering customers a better bang for their buck; it’s about delivering a high standard of quality. For Couche-Tard, its private label is its brand, and its brand has really thrived amid lofty levels of inflation.
Indeed, convenience stores tend to be pricier than grocery stores on average. That said, Couche-Tard has done a great job of keeping customers happy. With the private label and relatively competitive prices, Couche-Tard has been able to keep driving impressive earnings growth, even amid the wobbly macro climate.
Couche-Tard stock is still a wonderful growth story
With Couche-Tard coming off an outstanding EPS (earnings per share) beat in its latest quarter, I think TFSA (Tax-Free Savings Account) investors who don’t have exposure may wish to consider giving shares of ATD another look now that it’s around 4% from its all-time high of $68 per share.
It’s been a somewhat volatile, albeit upward, ride for Couche-Tard stock over the past year. Buying the dips has proven a very profitable strategy, and I think it will continue to be for the foreseeable future. The company has made several acquisitions here and there, but it hasn’t yet exhausted its purchasing power.
It still has enough financial firepower to make a blockbuster deal. But rest assured; the firm won’t make a deal just for the sake of putting money to work. The company has a history of delivering synergies from its acquisitions.
As EVs become more common in North America, I’d look for Couche-Tard to seriously reconsider entering the grocery business, even if it means wandering off its traditional synergy-driving merger-and-acquisition strategy. With a grocery business aboard, Couche-Tard will have more access to fresh produce, a compelling draw to many of the company’s convenience stores.
The Couche-Tard of the future may look quite different. Look for EV charging stations to take the spot of a few gas pumps. Also, look for better merchandise selection, a greater quantity of fresh foods, and perhaps a sit-in restaurant attached.
Couche-Tard’s management is aware of the changes to come to convenience retail
The important thing is management is fully aware of the changes the industry will need to endure over the coming decade. And with an impressive liquidity position, I think Couche-Tard has options to adapt and keep many years’ worth of earnings growth alive.
Sure, big change will bring forth winners and losers. Couche-Tard stands out as a winner that may very well end up acquiring the losers at huge discounts to their true worth.
