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Couche-Tard launches private-label cigarette in U.S.

A Couche-Tard in Montreal.

John Morstad/john morstad The Globe and Mail

Convenience store operator Alimentation Couche-Tard Inc. has launched a private-label cigarette in the United States to offset the impact of lower margins foisted on it by the makers of Marlboro.

The Quebec-based company said it has had trouble keeping its Crown brand on store shelves since it was introduced about five weeks ago.

"We're very, very excited with the market share we have taken so far over such a short period," chief executive officer Alain Bouchard said Tuesday during a conference call.

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"It has exceeded our year target after five weeks so it's very, very exciting."

The chain beat analyst forecasts for the third quarter as its net earnings soared nearly 25 per cent to $86.8-million (U.S.).

The company said it earned 48 cents per diluted share for the period ended Jan. 29. That compared with 37 cents a year earlier, or $69.6-million.

Couche-Tard's shares hit a new all-time high before closing at $31.91 (Canadian) each, up 49 cents, in Tuesday trading on the Toronto Stock Exchange.

The profit increase in the quarter was due to acquisitions, high merchandise sales and lower financial expenses, partly offset by higher depreciation and amortization costs and acquisition expenses.

Couche-Tard was expected to earn on average 46 cents per share on $6.1-billion of revenue in the third quarter of its fiscal year, according to analyst estimates compiled by Thomson Reuters.

Same-store merchandise sales increased by 3.4 per cent in the United States and by 3.1 per cent in Canada. But the U.S. sales were up 6.7 per cent if excluding tobacco products.

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Phillip Morris instituted a policy that forced retailers to reduce markups in order to lower consumer prices.

It wasn't immediately clear how Couche-Tard's Crown brand cigarettes differ in price and margins from the popular name brands.

"We have a shortage of inventory after a couple of weeks after launch so we are very happy," Mr. Bouchard told analysts.

He said Couche-Tard benefited from its focus on increasing store traffic through promotions and an improved fresh-food offering.

Total revenue increased to $6.6-billion from $5.5-billion a year earlier.

"Looking at the results of the last few quarters, I believe we can say that we are on the right path considering stores newly acquired, [and]programs we are currently testing and implementing."

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Same-store motor fuel volume increased by 1.1 per cent in the U.S. as total volume grew 14 per cent. Canadian fuel volume was up 4.6 per cent but same-store volume decreased three per cent.

Motor fuel gross margins increased 13 per cent to 14.84 cents per gallon (3.79 litres) in the United States. Margins fell in Canada by 8.3 per cent to 5.19 (Canadian) cents per litre.

Mr. Bouchard said Couche-Tard continues to look at acquisition opportunities in North America and Europe, although prices being asked in the U.S. are higher than it is prepared to pay.

Canada's largest convenience store chain is the second-largest in North America. Its network is comprised of more than 5,800 stores, of which 4,225 include motor fuel dispensing in 42 U.S. states, the District of Columbia and all Canadian provinces.

The company employs more than 53,000 people in the two countries.

During the quarter, it signed a new agreement for a total of 20 company-operated stores. Since the beginning of the fiscal year, it has acquired 227 company-operated stores, 243 stores operated by independent operators and 80 motor fuel supply agreements.

Couche-Tard continues to fight efforts to unionize its stores. Earlier this month it put a location in St-Liboire up for sale after workers obtained union accreditation.

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