While we might see some gains in the market, Alimentation Couche-Tard (TSX:ATD) continues to experience cutbacks. That’s especially from lower-income customers, where the company saw a decline in their use of their locations. Shares of ATD stock went on to fall by 6% after results. But the question is, can it recover?
What happened?
To understand the drop, let’s look quickly at earnings from ATD stock. ATD reported that lower-income consumers are feeling the strain from economic headwinds. This caused them to cut back on how often they’re visiting the chain and its convenience stores.
These customers were also seeking value and opting for more affordable products, which, of course, also brought down total revenue. Overall, it was a 15.5% decrease in net earnings for the third quarter, with a slight decrease in revenue compared to the same time last year.
Despite this, total merchandise and service revenues actually increased slightly year over year. Yet there were decreases in same-store merchandise revenues in the United States, Europe, and Canada. So, now, the company is aiming to address these problems, especially after a year of growth in its network.
Addressing concerns
ATD stock is attempting to address the concerns of its lower-income consumers through a number of means. This includes the marketing of its private-label products, offering more value for customers. Furthermore, it’s looking to grow its loyalty program, offering Fuel Day promotions as well.
While it’s notable that the company is addressing the issues of its customers, it’s not a guarantee of future results. Lower earnings are still profitable, but a decline isn’t great for current shareholders. What’s more, it’s expected that we will continue to see higher costs in the next year. And that could mean the continuation of lower-income consumers skipping out on purchasing products.
This all puts concerns on the future outlook of the company. Even so, with its vast network of retail locations and gas stations, the company certainly looks like it could rebound quickly. So, what would it take?
How to recover
If ATD stock is looking to recover, it’s certainly on the right track by first putting products that customers actually want out in front. Furthermore, its loyalty program expansion will be something that many will want to watch in the near future. This should stabilize consumer behaviour in the future.
From there, the company will need to execute its growth strategies. This includes its expansion plans, acquisitions, and initiatives to enhance its customer experience — something investors will want to watch for come future earnings reports.
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However, the biggest impact is likely to come from the decrease in interest rates and inflation. This will put less pressure on the consumer and more cash in their pockets. Finally, the company will likely see an increase in sales once more. However, that may not be for another year.
Bottom line
ATD stock is still a strong company, and is one of the largest convenience store operators in the world. It offers a global network of stores, and this is all bound to do well after we exit this downturn. That being said, the company will need to prove it can survive and even thrive in these downturns to win back investors. So, investors will need to continue paying attention to these strategies before buying back into the stock.
