Alimentation Couche-Tard Inc

TSX:ATD

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]

English will follow. [Foreign Language] Good morning. I would like to welcome everyone to this web conference presenting Alimentation Couche-Tard's Financial Results for the Fourth Quarter of Fiscal Year 2025. [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 might 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. Filipe Da Silva, Chief Financial Officer. Alex, you may begin your conference.

Thank you, Mathieu. Good morning, everyone, and thank you for joining us for our presentation of our fourth quarter results. As we conclude this milestone year, the 45th year since we opened our first store, we are proud of the resilience of our business and the award-winning engagement of our team members. During the fourth quarter, in the face of difficult economic and geopolitical conditions, we held the line in same-store sales in the United States and had strong positive results in Canada and Europe. Our initiatives to provide compelling value to our customers with exclusive food and beverage offers are performing well across the network.

Compared to the same period last year, in our fuel business, we had positive volumes in Canada. And in the United States, we maintained market share and margins aligned with recent quarters. As we move into the new fiscal year, we remain confident in the strength of our global scale, long-term strategy and customer-centric teams. Later in this presentation, I will go into more detail on our convenience and mobility results and value-building initiatives. However, before I do so, I first want to address our global efforts to grow the network through M&A as well as our notable progress in organic growth.

Let me begin by briefly mentioning our ongoing commitment to acquire Seven & i Holdings. At the end of April, we announced that we had signed a nondisclosure agreement with Seven & i to progress transaction discussions, facilitate due diligence and collaborate on plans to engage with regulators. Over the last several weeks, we have begun those discussions and look forward to continuing to work with the special committee of Seven & i. We have also outlined what we believe is a clear path to U.S. regulatory approval, which you can find on our dedicated website, growingseven.com.

As we mentioned last quarter, and it is worth repeating that while there has been extensive media coverage of our interest in Seven & i, internally, a very small team is involved in these efforts as the vast majority of the business is laser-focused on our global operations. Also, as we discussed, we continue to consider other M&A opportunities as the strength of our globally diversified business allows us to pursue different tracks simultaneously as we have done so throughout our growth journey.

Moving to Europe. I recently returned from a terrific Pride tour to our new mid-European business units, visiting stores and team members and I was able to see firsthand the progress we have made in the region as we begin our second year since completing the acquisition. From the visit, it was abundantly clear that team members have embraced our culture, values and customer-focused approach to retail operations. We now have nearly 50 stores rebranded to Circle K and continue to see strong progress with store rebranding, both on the physical store layout as well as with product assortment and EV charging dispensers.

Synergies from the transaction continue to be on track with expectations, which Filipe will cover in more detail in his presentation.

While discussing M&A, let me briefly mention the ongoing progress we are making with GetGo, which we expect to close in the coming days. As we have always done with all our acquisitions, we have identified local management to lead the business as they know best how to serve local customers. We also continue to be excited about our learnings from GetGo's extremely popular food and loyalty programs and dedicated team members. In organic growth, we have made record progress with our 500 new store ambition. We have opened nearly 45 stores this quarter and over 110 stores in North America during this fiscal year. Our new stores include dozens of high-speed diesel and rural locations and are designed to win our customers by making it easy to enjoy our offers, both inside the store and on the forecourt.

As we start the new quarter, we have more than 40 stores currently under construction and 1,000 sites in our overall real estate development pipeline.

Now let me get back to our quarterly results, starting with convenience. Compared to the same quarter last year, same-store merchandise revenues decreased by 0.4% in the United States while they increased by 3.4% in Europe and other regions and by 3.5% here in Canada. The U.S. same-store performance continued to be impacted by challenging economic and inflationary conditions as consumers carefully watch their spending.

In Canada, same-store revenues were boosted by strong growth of the alcohol category. Europe's standout convenience performance was further supported by cigarette sales in the Netherlands as new legislation continues to be favorable to our industry.

I'll now go into more detail about our convenience offer and the ways in which we are focused on winning our customers by providing compelling value on products and services. Our meal deals in North America continued to deliver impressive sequential improvement. At the end of Q4, in the U.S., we topped over 500,000 meal deals sold each week, up over 35% from Q3. While on a smaller scale, Canada also showed good signs of growth with food bundle sales up over 50% from the previous quarter. I am proud to share that now, as we start the new fiscal year, we are already up to nearly 800,000 meal deals sold each week in North America.

Our win in food strategy continues to progress with nearly 6,200 fresh food fast stores opened globally by the end of the quarter. The focus of the food team is on execution simplification, SKU rationalization and consistency, margin improvement and spoilage control.

Back to the success of our meal deals, hot food units are increasing in percentage of those bundles as we strengthen the execution and popularity of our food offer.

Turning to our loyalty membership programs. In the U.S., full enrollments in Inner Circle continue to grow quarter-over-quarter. It is now nearly 10.5 million members, and we are seeing an uptick in sign-ups resulting from simplified enrollment features. We've also introduced new value campaigns and personalization efforts, which are driving incremental sales and traffic. We continue to be pleased with the linkage of Easy Pay and Inner Circle introduced last quarter, which is allowing customers a more frictionless experience at both our pumps and in our stores.

The extra loyalty program in Europe ended the year with a record number of active members and strong growth in both fuel and merchandise penetration. Plans are underway to roll out the 2.0 loyalty concept currently in Sweden to Poland and soon after to other European business units. This new concept is designed to offer rewards across all products and services at our site, whether a customer is looking to fill up with fuel, charge an electric vehicle or grab a snack. Work is also underway to bring some of the communication and personalization capabilities to our new mid-European business units during the new fiscal year.

In our goal of Owning Thirst, we are excited about our many recent exclusive product launches in the U.S., including Celsius Watermelon Ice and our first Go's brand. We also recently launched the second Gatorade exclusive, Summer Blaze, which is a bold refreshing flavor only available at Circle K in 28-ounce bottles. These limited edition offers help drive excitement, customer engagement and traffic with store teams rallying support and display activity, making the offers hard to miss in our stores.

While packaged beverages continue to face headwinds in the U.S., energy drinks help bolster the overall performance of the category. Cold and frozen dispensed beverages in the U.S continued impressive growth, benefiting from traffic driving promotional campaigns and popular flavor options.

In the adult beverage category, Canada continued to have a strong performance in beer sales following the recent change in legislation in Ontario, Canada's largest market. The impressive same-store sales growth in alcohol in Canada more than offset the decline in tobacco in the region, which continues to be impacted by illicit trade and removal of popular products in the other nicotine products category. In the U.S., overall nicotine performance was slightly negative with declines in cigarettes driven by lower demand. However, we continue to outperform the market due to our efforts around price optimization, assortment expansion and personalization programs for our age verified customers. Other nicotine product sales were up in the U.S. over the quarter as we deployed a series of initiatives across the segment.

In Europe, we see signs of recovery in the nicotine category, driven by growth in other nicotine products. helping offset decline in combustibles. Legislation changes in cigarettes in the Netherlands and favorable competition in Luxembourg have resulted in positive nicotine performance as consumers increasingly shift their spending toward our channel.

Moving to our fuel business. Same-store road transportation fuel volumes decreased by 1.9% in the United States by 0.6% in Europe and other regions, while an increase by 3.7% in Canada. As I mentioned earlier, we are maintaining market share in the United States and margins aligned with the trends of recent quarters as we continue to work on building value from our fuel supply chain and serving our customers through lower cost sourcing options. We also continued our efforts to provide compelling value to our customers with our very popular fuel days, including one in late May at over 7,000 locations in North America. We once again drove excitement for our brands while providing impactful savings on fuel and exciting promotional offers inside the store, especially for Inner Circle members. This fuel event also supported our communities with donations to the Children of Fallen Patriots Foundation in the U.S. and Food Banks Canada.

Our European B2B fuel business demonstrated resilience this quarter despite adverse market conditions and volume volatility. Overall card volumes were slightly down. However, this was effectively offset by strong margin performance. Growing nonfuel income remains a strategic priority with B2B transit charging volumes growing steadily, up over 75% year-over-year. Integration and synergy delivery plans for the new business units in Benelux and Germany are advancing. B2B fuel share in the U.S. continued to grow quarter-over-quarter as we develop customer relationships with fleets of all sizes. As for our B2B truck segment, we saw significant growth across all business units, especially in northern and western states. This has been realized by continued execution of our commercial diesel growth strategy, implementation of new strategic partners and the optimization of existing partnerships.

Our EV fast charging network in Europe now consists of nearly 3,480 charge points, up nearly 40% from the same quarter last year with nearly 2,800 Circle K branded charge points. Our station, Circle K Järna, which is Sweden's largest ultrafast charging station located on a highway south of Stockholm, has been named 1 of the 3 best EV hubs in the world. We also just opened our first EV charging only convenience location in Europe in a high-traffic area of Gothenburg, Sweden.

With these notable EV developments, we are now the most preferred brand for charging in Sweden, surpassing Tesla and all other competitors, which is a testament to our brand strength and the quality of our product offering in winning local customers.

Before I turn the call over to Filipe, I want to mention some exciting recognition and game-changing investments in innovative technology, which are benefiting our recruitment and onboarding as well as inventory management. First, we have recently been awarded the 2025 NACS Convenience Retail Technology Award Europe for our AI-driven digital people platform. This solution designed to streamline recruitment, onboarding and ongoing training has been recognized as the industry's leading innovation in workforce technology.

We are also advancing on our deployment of RELEX in North America, which we aim to start piloting in September. RELEX is a unified end-to-end inventory planning system that applies AI and machine learning to retailer data to assist with determining where merchandise should be positioned across the entirety of each store. Our investment in RELEX is part of a historic multiyear inventory management modernization journey that stands to deliver significant improvement to our ordering and space planning capabilities in North America, similar to recent successes achieved in our Europe business.

With that, let me turn it over to Filipe to dive deeper into our financial performance this quarter.

Thank you, Alex, and good morning, everyone. We closed the fourth quarter and fiscal year with disciplined financial results, reflecting the strength of our operations, the dedication of our teams and continued investment in technology and customer value. Our focus on efficiency allowed us to advance strategic initiatives while preserving healthy margins. Building on Alex's comments, we held the line on same-store sales in the U.S. despite a more value-conscious consumer. This, along with strong same-store sales in Europe and Canada, highlights the advantage of having a globally diversified network. We stayed focused on the levers within our control, executing with discipline and advancing initiatives that resonated with customers. While we don't report monthly trends, we ended the year on a positive note with modest same-store sales improvement in the U.S. The integration of our TotalEnergies assets progressed according to plan, driven by strong performance across the board.

Same-store merchandise revenue grew at a solid mid-single digit, nearly 30% higher than Q3 on a sequential basis. Gross fuel margins have continued to improve year-over-year, while same-store road transportation fuel volumes remain positive. These results reflect our team's execution and ability to integrate complex acquisitions effectively.

As of the end of Q4, we have delivered approximately EUR 20 million in operating expense synergies, exceeding our initial target of EUR 80 million. On an annualized basis, this now represents over EUR 40 million in synergies. We remain on track to achieve EUR 120 million in synergies by fiscal 2027 and EUR 170 million by fiscal 2029. These benefits are expected to come from reductions in operating, selling and administrative expenses as well as top line uplift from the deployment of our industry-leading retail standards, operational practices and customer initiatives.

I will now go over some key figures for the quarter. For more details, please refer to our MD&A available on our website. For the fourth quarter of fiscal 2025, net earnings attributable to shareholders of the corporation stood at $439 million or $0.46 per share on a diluted basis. Excluding certain items described in more detail in our MD&A, adjusted net earnings attributable to shareholders of the corporation were approximately $441 million or $0.46 per share on an adjusted diluted basis, representing a decrease of 4.2% compared to the corresponding quarter of last year.

For fiscal 2025, net earnings stood at $2.6 billion, a decrease of $149.3 million or 5.5% compared with fiscal 2024. Diluted net earnings per share stood at $2.71 compared with $2.82 for the previous fiscal year. Adjusted net earnings stood at $2.6 billion, a decrease of $139 million or 5.1% compared with fiscal 2024. Adjusted diluted net earnings per share were $2.71 compared with $2.81 for fiscal 2024, a decrease of 3.6%. The decrease in net earnings was primarily driven by higher depreciation, finance and operating expenses linked to the acquisitions and strategic investments. Adjusted EBITDA for the fourth quarter of fiscal 2025 increased by approximately $69 million or 6% compared with the corresponding quarter of fiscal 2024, mainly due to improved road transportation, fuel gross margin, partly offset by the impact of strategic investment on operating expenses.

During fiscal 2025, adjusted EBITDA increased by $345.2 million or 6.1% compared with fiscal 2024, mainly attributable to the contribution from acquisition which amounted to approximately $395 million. Softness in traffic and fuel demand in the United States as low income consumers were impacted by challenging economic conditions as well as what was just outlined for the fourth quarter.

Now let's review the detail of our business segments on an FX adjusted basis. During the fourth quarter, merchandise and service revenue increased by approximately $99 million or 2.4%, primarily attributable to organic growth, the net impact from organic changes to our network and the contribution from acquisitions, which amounted to approximately $22 million. During fiscal 2025, merchandise and service revenue increased by approximately $899 million or 5.1%. Merchandise and service gross profit increased by approximately $24 million or 1.7%. This is primarily attributable to organic growth in Europe and other regions and in Canada and into the contribution from acquisition, which amounted to approximately $7 million.

Our merchandise and service gross margin in the United States decreased by 0.2% to 33.9%, mainly driven by ongoing price investment and nonrecurring tobacco write-off and inventory optimization. On a positive note, we have seen the food spoilage decreasing by more than 500 basis points during the quarter compared to the previous year, which demonstrates the success of the store execution in -- the store execution of our food program. Our merchandise and service gross margin decreased by 0.6% to 38.6% in Europe and other regions and by 0.8% to 34.1% in Canada, both impacted by changes in product mix with the implementation of new legislation in our various locations. For fiscal 2025, merchandise and service gross profit increased by approximately $330 million or 5.2%. Our gross margin in the United States decreased by 0.1% to 33.9%, by 0.3% in Europe and other regions to 38.9% and by 0.3% in Canada to 33.7%.

Moving on to the fuel side of our business. Our transportation fuel gross margin was $0.4327 per gallon in the United States, an increase of $0.0448 per gallon. In Europe and other regions, it was per [ USD 0.0557 ] per liter, an increase of USD 0.0127 per liter. And in Canada, it was CAD 0.1405 per liter, an increase of CAD 0.0037 per liter.

Fuel margin remained healthy throughout our network due to the continued work on the optimization of our supply chain, our fuel trading teams and strong execution in our stores.

During fiscal 2025, our transportation fuel gross profit increased by approximately $620 million or 10.7%. Our road transportation fuel gross margin was $0.4539 per gallon in the United States, $0.095 per liter in Europe and other regions and CAD 0.1351 liter in Canada.

Now turning to SG&A. In the fourth quarter of fiscal 2025, normalized expenses increased by 4.6% year-over-year, attributable to a mix of core operating expenses strategic incremental investment and by large changes in specific results. First, roughly 2% of the increase came from our core operating expenses. I want to emphasize that across all 3 regions, expense growth remain well controlled supported in part by our Fit to Serve initiatives and continue to track below the weighted average inflation across our network. This speaks to the discipline of our teams and our ongoing commitment on operational excellence.

Second, about 1.5% of the increase was tied to strategic incremental investments in the business, particularly in technology and operational tools that support our long-term growth.

And finally, the remaining increase, which was roughly $20 million in adjustment or about $0.02 on EPS is related to legal, general liabilities and environmental reserves tied to specific event in the quarter.

For the full fiscal year, normalized operating expenses rose by 3.3%.

Let me now turn to the work we're doing to modernize our operation and support future growth. Over the past year, we have continued to advance our digital road map, focused on enhancing the in-store experience and deepening engagement across our customer journey. Our loyalty platform investment are already helping us better connect with our customers while creating new personalized avenue for growth. We're also bolstering the underlying tech infrastructure needed to support this evolution. As Alex noted earlier, our rollout of RELEX in North America marks the next step in modernizing inventory management, improving forecasting and product availability. We are also scaling data capabilities and advancing the next phase of our new card platform in Europe, which will streamline onboarding, pricing and billing for our B2B customers.

Additionally, we are embedding smart tools to drive automation and efficiency across the network. In roughly 7,000 North American stores, new upgraded handheld devices are streamlining tasks like ordering and inventory management. We have also introduced a labor scheduler that tailors staffing plans to each store's expected traffic and sales pattern. In about 1,000 stores we are piloting an AI platform that converts raw data into clear actionable missions for store managers, enabling faster, more agile execution. And with the rollout of new floor cleaning equipment we're further reduce labor hours and time spent on routine tasks, allowing teams to focus on the in-store experience.

To support and fund some of these investments, we are delivering meaningful progress under our Fit to Serve program. Workforce productivity continues to improve when combining regular and overtime hours, total hours worked declined nearly 2% year-over-year. Overtime alone dropped by a remarkable 14%, 13% in the U.S., and we have reduced administrative task and associated store hours by nearly 50% over the past 4 years. Overtime for U.S. associated now remains below 2.5%, a clear reflection of our tools like handheld device, optimized labor scheduling and floor cleaning are helping teams operate more efficiently and dedicate more time on serving the customer.

We continue to drive cost improvement by centralizing procurement for goods not for resale, better leveraging our global scale. In parallel, through our global capability network, we have established a global customer care team supported by outsourced call center operation to enhance service consistency and efficiency. This structure also enables a stronger feedback loop, bringing valuable customer insights back into operations and offers.

In summary, the combination of thoughtful technology investment and our Fit to Serve initiative is strengthening execution, supporting growth and positioning us for long-term value creation. At the same time, disciplined cost management remains a priority, and we expect normalized expense growth to stay below inflation as we move into fiscal 2026.

Turning over to depreciation and amortization for the fourth quarter of fiscal 2025. Our depreciation expense increased by $49 million or 9.9% year-over-year, mainly driven by the acquisition of TotalEnergies assets, equipment upgrade and store remodel program across our network and the strategic investment in new stores opening, technology and EV chargers.

For fiscal 2025, our depreciation expense increased by approximately $352 million or 20%, mainly driven by the impact from acquisition investment in global tech projects, which amounted to approximately $205 million.

From a tax perspective, the income tax rate for the fourth quarter of fiscal 2025 was 18.8% compared with 10.2% for the corresponding quarter of fiscal 2024. In the corresponding quarter of fiscal 2024, the income tax rate included a net tax benefit derived from an internal reorganization, which had a favorable impact of 6.5% on the tax rate corresponding to an approximate EPS benefit of $0.03. The remaining increase is mainly stemming from the impact of a different mix in our earnings across the various jurisdictions in which we operate. As of April 27, 2025, we recorded a return on equity at 18.3%, and our return on capital employed stood at 12.2%. During the fiscal year, our leverage ratio decreased to 1.96. We also had strong balance sheet liquidity with $2.3 billion in cash and an additional $3.4 billion available through our revolving unsecured operating credit facility.

Turning to the dividend. The Board of Directors declared yesterday a quarterly dividend of CAD 0.195 per share for the fourth quarter of fiscal 2025 to shareholders on record as of July 7, 2025, and approved its payment effective July 21, 2025.

Let me conclude by briefly highlighting a few key points. Fiscal 2025 is now in the rearview mirror. Like many of our peers, we faced our share of challenges and uncertainties, but I'm very proud of how the team responded in a disciplined way and delivered solid performance. We held the line supported by the strength of our globally diversified network and the resilience of our operating model. We also delivered synergies while integrating a large acquisition, all while employing local teams through the discipline of our organization and the strength of our culture.

As we enter fiscal 2026, our focus is clear: control our costs, strong discipline on CapEx deployment to continue delivering best-in-class returns while investing in areas that support our long-term strategy.

I thank you all for your attention, and I will turn the call over again to our President and CEO, Alex Miller.

Thank you, Filipe. I'm truly honored that my first year as President and CEO has coincided with the 45th anniversary of Couche-Tard. Few companies, large or small, make it as long and successfully as we have been able to do so. I have no doubt that this is because of our special culture of putting our people and customers first, an approach started by Alain when he opened our first store in Laval, Canada, and one that continues to guide us today across our global network. This year has also been among the more challenging in retail as our consumers are hurting and carefully watching their spending. That is why I've asked the entire company to make winning the customer by focusing on compelling value, ease and readiness our #1 priority as we begin the next 45 years of our company's journey.

With our globally diversified business, long-term growth strategy and customer-centric team members, I remain confident that we will continue to play to win far into the future.

On that note, let's turn it over to the operator to answer analyst questions.

[Operator Instructions] Your first question comes from Irene Nattel with RBC Capital Markets.

Could you talk a little bit more about the demand profile you're seeing across geographies, notably in the U.S.? You talked a little bit about tobacco and meal deals, but more broadly speaking, category trends. And if we're talking about innings, where are you on key initiatives like Fit to Serve and Owning Thirst?

Irene, thanks for the question. Let me start with Europe. I think demand is okay, I would say, stable. I think the big piece for us is just our outperformance of market. You see that in fuel, we are significantly outperforming market, taking market share. The same can be said in convenience. We are actually growing nicotine in Europe and have done so period-on-period for a while now. So we are extraordinarily bullish on our European performance. And going forward, not so much that the underlying demand. It's tough over there as well, but just the performance of our business is really humming.

In Canada, strong fuel. We are seeing period over -- period over period, excuse me, fuel growth. I think we still have opportunities to execute and take additional share inside of that. And then the significant tailwind that we have from alcohol in Ontario is more than offsetting the nicotine losses. Again, the consumer demand profile, it's not overly rosy nearly stable but challenged, I would say. In the U.S. I would say more of the same, Irene. I wouldn't say we're seeing it getting worse, but I can't say that we're seeing it getting better. We see our consumers lower end, lower middle-end consumers continuing to be very selective with their dollars, consolidating trips. And we just need to continue to take market share.

Your question around where are we at? Food, we are early innings, but I am extraordinarily pleased about the direction. We have 14 straight weeks. We have grown units, food units in the United States. Our digital programs are growing. We are executing on personalization. Our trip frequency is up 9%. Our spend per member is up 2%. Our member growth is up 40% over 2 years. We're just -- we're -- I'm seeing the focus and the execution on the core initiatives paying off. Cold dispensed is [indiscernible] for us in North America around thirst, and we've got some big initiatives coming over the summer. You heard me mention Summer Blaze with Gatorade. We blew that out last summer. So we're excited about that. We've got a global activation with Monster around Formula 1 in the new F1 movie in McLaren, really excited about that. So we are focused on our core strategy, digital, thirst, food, and we are going to leverage those down to take market share, Irene.

Your next question comes from Chris Li with Desjardins.

Just maybe a quick follow-up question, maybe also in the U.S. Can you share with us how did merchandise comps trend through the quarter? Did it improve? And how is it trending Q1 to date?

Yes. We were soft at the end of Q3 and soft at the start of Q4, and that improved over the final periods of the quarter. And we have seen the start of this quarter kind of trend with more towards the end of last quarter.

And just to complement, Chris, what we see is definitely food improving. As mentioned earlier in the call by Alex, our food program, the meal program is really working a lot and driving traffic to our stores. So we feel very encouraged by that. And for sure, helping the overall performance of the business this quarter.

Your next question comes from Michael Van Aelst with TD Cowen.

I wanted to talk on the fresh food execution. It sounds like you're finally getting some really good traction on these meal deals. But I was hoping you could explain a little bit about why you think you were not getting traction on the fresh food to the extent that you wanted to in recent years and now what you're doing differently that's really driving the momentum in the last 14 weeks or so.

Yes, I think -- thanks for the question. Our focus is -- we have been laser-focused on execution and specifically SKU rationalization. I think I've mentioned on previous calls that we frankly had too many SKUs, and that was making it difficult for us to execute. So we've significantly reduced the number of SKUs We have focused on our operational execution, simplifying that execution, making it easier for our stores and we have launched our closed loop program that we have been piloting that really gets into detail across our processes to ensure that we are executing food on a day-to-day basis, and we are getting better and we have momentum.

I still think we're early innings on meal bundles. We set an initial target of 1 million. The team is telling me they are pretty hopeful that we can accomplish that in the next quarter. So I guess I'll be able to hopefully tell you that when I talk to you next time. But again, we -- our consumers are recognizing the value of our meal bundles and our partners are keen to partner with us across our drink options, which is differentiated against QSRs. So we continue to have really good conversations across our drink providers across categories and we will continue to build out those options.

Is your advertising and loyalty program also helping to drive this?

Yes. I think if you go into one of our stores, it's pretty tough to not see our meal bundles. So I think we are focused on digital. The progress we've made around personalization, being able to give customer offers that are relevant for them on their purchases, being able to know that our fuel customers are on the lot and give them an immediate deal to come into the store, which we're now converting at 20%. The team just continues to advance our capability. And I fully expect for our digital penetration to continue to grow up -- to go up to drive trips and to drive additional visits and to turn our traffic to positive.

And just so I understood clearly, you said you ended the fourth quarter in the U.S. with modest same-store sales growth?

Yes. That is accurate.

Your next question comes from Tamy Chen with BMO Capital Markets.

I just wanted to speak quickly with food here. So the improved spoilage you mentioned, it's quite significant year-over-year. I'm just wondering, has this also improved sequentially? And is that more from the SKU reductions or much more from uptake of the meal bundles by customers? And as you think about the level of spoilage now, like do you have the target you're trying to get to? Or are you still a bit far away from the target? If you can give us a sense of that, that would be helpful.

Yes, I can take this question. Tamy, thanks for the question. So on the spoilage, I think it's coming really from the SKU reduction. Definitely that helped to facilitate and to make simple the work and execution at store level. And we have kind of also implemented a program of zero-zero for [ EOS ] products. So just focusing and making sure that the merchandise that we need is available in stores when the customer needs it. So that need is helping. And providing tools also. So we are, as we mentioned a few quarters ago. So just helping the store to have a better idea about how much they need to produce sales forecasting.

So all that is combined help us actually to see across, I would say, our network in U.S. As you mentioned, a significant improvement in spoilage. There's still a lot to do there. We are not at the end of a journey. And we expect actually spoilage to continue to improve, okay? So difficult at this stage to tell you where we will land, but you should see some additional improvement on the food margin over the next coming quarters.

Your next question comes from Mark Petrie with CIBC.

Not to beat this too much more, but I do want to continue just asking about food. And I guess, specifically, the sort of production and distribution shifts that you're making. Could you just talk about the timing there? And how material you think the benefits will be, how those will how those will show up?

What do you mean here? In terms of supply chain and the way that we are -- in the store?

Yes, sure. Today, we have one commissary in the United States that supplies a fairly significant majority of our frozen items to 6 business units, I think, and the rest is provided by third-party vendors. For this next fiscal year, that model will continue from a supply chain, I think. We are active. We are adding 3 warehouses for our regular goods, not our food goods that we will add later this calendar year. And I believe we will add a couple of commissaries in the United States over the coming years and take more control of our supply chain, but that's not near-term activity.

Yes. supply chain is part of our strategic road map, Michael, and definitely, we are now wrapping up our capabilities on the dry side, on the -- on what is not nonfood. But definitely, we have in the road map as well to look at what we could potentially do on the fresh side. But more to come on that in the next coming quarters.

Your next question comes from John Zamparo with Scotiabank.

I wanted to come back to the U.S. same-store merch comp. Can you just confirm that the traffic was also negative in the quarter? Just to clarify that. And then the question is, you have specific drivers that are supporting same-store sales growth in Canada and Europe. And I wonder how material those are. If you normalize for the impact of those, how are Canada and Europe comparing to the U.S.? Is there still a meaningful delta there? And if so, what do you attribute that to?

Traffic was negative in the quarter, mid-1, 1.5 roughly. The Ontario beer is a massive driver for us and it's offsetting -- we lost Zonnic the white nicotine that's a real tailwind. We will cycle on both of those things in a quarter or 2 as we -- both loss of Zonnic and the initiation of alcohol and beer. But the amount of traffic that beer, and we are still learning our execution by our teams is so good. We are still learning about the basket, what's the mix. So having beer in our stores, the number of new customers is a real win in Canada, and we will continue to amplify that.

In Europe, it's -- we're just executing. We do have some headwinds or some -- excuse me, some tailwinds, as we mentioned in cigarettes. Specifically, Mid-Europe was up low 6% last quarter. And that, a good chunk of that is the change in cigarettes in the Netherlands that moved cigarettes from grocery stores into our channel. So that is a specific activity that's helping us. But again, across our European business, nicotine is positive. So the combination of cigarettes and other nicotine products is positive to our same-store results.

I think lastly, I mentioned Hong Kong has been a real drag on us because of the increased cigarette taxes. We have finally cycled on that. We have started to see positive same-store sales coming out of Hong Kong. Our -- we've got a make your own cup of coffee, cold coffee, iced coffee that is proven to be tremendously popular that we are continuing to roll out. So really excited for our Hong Kong business as we look to the future.

Just a bit more color on Europe. For example, Europe today, it's positive traffic overall. And something that Europe has done historically better than U.S. is food. Food penetration is strong there, and that's definitely helping. So that's indicating that existing and enhancing our food offer in the U.S. is the right path as you know.

But also, I think what we see also in the Scandinavian countries is the progress that we are making on the EV and being a very relevant and leading actor there, that's helping also driving traffic. And of course, on the forecourt, but in store as well. So there is all this combination for forecourt plus store that's helping driving traffic in Europe and making this business very, very resilient actually to the environment that remains quite challenging in Europe, to be honest.

Your next question comes from Vishal Shreedhar with National Bank.

I wanted to get your perspective on capital allocation as it relates to the acquisition backdrop. In the preliminary comments, you indicated that you'll continue to look for deals, notwithstanding your interest in Seven & i. So I wanted to get your perspective on how you perceive the acquisition backdrop and prices and opportunities and how we should think about that in the fiscal year ahead? And does your comment also relate to buying back your own stock? Is that something that is on the table as well?

Yes, sure. I think, first of all, let me reference GetGo. It's not a small transaction. I think we are very close to GetGo, and we expect to close that in the coming days. And we are really excited to bring GetGo over as a new business unit into the United States, and really understand their very strong food and loyalty programs. So we're excited about that.

Our focus on M&A, it hasn't changed. We have a defined playbook that our founders and Brian have given us. We deploy it across our business units. I would say activity has not been as pronounced in the recent weeks as it had been over the previous months, but we remain active on some things, and we will continue to look at those things as we have always done.

Capital allocation for us, I think with Seven & i, we are engaged. We've signed the NDA. We are engaged in diligence. We are engaged in management meetings. We are engaged on the divestiture. And I think the benefit of that is it's setting a timeline to bring clarity to both us and to Paul and their special committee if a transaction is going to be reached. And I believe that timeline will be shorter rather than longer.

Our deployment of capital across our base, we have a very disciplined way around how much we deploy traditionally. We've lowered that a little bit this year, really just for capital discipline practices. But we continue to invest in our business heavily. And you hear 40-plus openings this year, thousand stores in our NTI pipeline. Our new stores do phenomenally with great returns and our real estate group continues to ramp up the activity, and we will continue to do that.

Just on your question regarding the share buyback program. So as you know, we have stopped actually to this program due to [ Sapporo ]. And Sapporo would go and we conclude that, that will sorry, Seven & i -- 7-Eleven transaction will go at the end, we'll need cash. So that's why we have stopped the share buyback program. But we will re-initiate it if Sapporo -- if 7-Eleven does not continue. So that's the way that we believe that will -- is very optimum to use the share buyback program when it's needed. But today, given Seven & i, again, we are stopping it.

Your next question comes from Mark Carden with UBS.

On the food front, how is the rollout of meal deals going in Canada? It sounds like alcohol is a major driver, but did food contribute to the strength in your merch comps as well in the quarter? And how do you think about the long-term opportunity there relative to the U.S.?

We are committed to food across our geographies, and we are committed to meal deals and bundles across our geographies. And we are growing them in Canada at actually a faster percentage clip, not on an absolute clip than we are in the United States. And we are growing them in Europe as well where our food penetration is much deeper. So we are absolutely committed to meal deals in Canada. We grew food this quarter once again. And our intent is to grow at even greater basis than we did this quarter and to ramp that up.

We've talked a lot about our food margin. We had a great quarter. If you look quarter, Q4 versus Q4 last year, significant improvement in food margin. And we talked about our processes, the simplification. We, as Filipe said, we believe there's more runway to that. We believe food, along with digital is right at the center that's going to flip our traffic to positive.

Your next question comes from Luke Hannan with Canaccord.

I wanted to follow up on a couple of one-timers in the quarter. Firstly, it was mentioned the tobacco spoilage in the U.S. Can you just shed -- share more details on what exactly that entails? And was that broad-based across all your BUs or just focused on a couple and also across product lines? And then secondly, the $20 million in the provisions within OpEx. Just more details on what exactly that was and potentially whether there could be a release on that reserve in the relative near-term?

Yes. It was really a SKU rationalization in nicotine of products that we elected to exit and it was in 3 of our BUs, but it was significant. The second part of the question was...

Regarding the OpEx.

The one-offs. Go ahead.

Related on that. Yes. So on these 2, actually, those reserve, it's actually to anticipate a real expense coming. So half of the $20 million is coming from a settlement regarding U.S. litigation that happened during the quarter. So we have to reserve that and the payment will happen in Q1 of this year.

And the second component roughly also $10 million. It's linked to environmental reserve and linked to additional remediation that we have to do in a site in Canada. So again, here, a reserve on Q4 and expense to come in the next coming quarters. So no reserves or potential reserves that will ease the P&L in the next coming quarters to -- coming from these 2 reserves. It will be an expense.

Your next question comes from Corey Tarlowe with Jefferies.

Alex, you used the phrase compelling value a number of times in your script, and it's clear that what you're doing is working as a part of your strategy. So as you think about whether it's in the stores or at the pump, how do you think about leaning into value more to drive market share gains, given this strategy seems to be working so well?

Yes. I think value price perception is at the core of our focus. And it's more -- it's not a new trend. It's just been heightened, right, I think, in this environment. So it's not something that's new to us, but I think it's more important than ever.

How are we thinking about it. Again, I'll come back to our digital tools. Our digital tools and personalization allow us to understand customers and what drives their behavior and what value triggers they act upon. We are getting smarter and better in those places, and we will continue to deploy our extra 2.0 and our Inner Circle here in North America and to deliver value to customers. Our Fuel Days, where we offer -- that we do a few times a year. The response to that and the loyalty sign-up and the return visits from those customers that we can now see is very compelling. And private label, we have opportunity in private label to continue to expand our growth.

We have new products coming. We are actively looking at how we continue to position those products to get value recognition from our consumers for that. And then within our food and meal bundles that we've talked a lot about on this call, it is clearly resonating with consumers. For us to grow from about 100,000 meal deals to 800,000 really in a couple of quarters, certainly suggests that this resonates with our consumers.

So we are laser focused, but I also want to be clear, it wasn't a great -- in the U.S., it wasn't a great merch margin quarter. Some of that's, that nicotine piece. But I still believe we can offer value, grow traffic and sales while improving margins year-over-year in the U.S.

That's very helpful. Just as a follow-up, I think you talked about the trajectory for expense growth. I was curious to get your thoughts in terms of how you're thinking about leveraging technology and the ability to perhaps keep expense growth a little bit more controlled than the rate of inflation, perhaps, if that is a possibility, given the emphasis on investments in AI and technology.

Yes. That's our goal. Let's be very clear. We want expense to grow below inflation. That's what we ambition for this year and the next coming on. So there is definitely a strategic investment that we are doing that are not necessarily for the long-term. So I explained many of these tools that we believe that will make a huge difference for the customer and for teams in stores. But at the same time, we have the Fit to Serve program, the $800 million program that we have announced about 2 years ago. Just this year, we delivered more than $250 million savings. We are very confident that this year, we'll continue to execute on these plans. We have identified a lot of initiatives. We have just beginning -- just began the journey on the centralization of the non-COGS items. And we see already the benefits of that. And we are very confident that we'll be able to offset the necessary investment, that work within tech.

Yes. I'll build on that a little bit. And we talk about our culture a lot. Controlling cost is a cornerstone of our culture. And in this environment, it is an absolute. So we will continue to control costs. We have stated many times that our goal is to deliver cost at or under inflation, and we will continue to execute against that. We will do that while we are making investments into technology, data platforms, customer data platforms, back-end technology that enables the things that I've been talking about around this call. Those are investments in our future. Those are investments in future customers that we believe we need to make. We will offset those investments through efficiencies in Fit to Serve and through the operating improvements that you heard us mention. But thanks for the question.

Our last question comes from Martin Landry with Stifel.

I was wondering if we can return back to 7-Eleven quickly. What is the likelihood of a transaction happening at this point? Is it a high likelihood or is it low likelihood? And how engaged is 7-Eleven in the discussion? Is there a real willingness on their end to transact?

I'm not going to say more than what I previously said, which was we are engaged with them on due dil, on management meetings, on the FTC process. I believe that the good -- there's a lot good about that, but this gives us a definitive timeline for both us and Paul and the special committee at Seven & i to reach a conclusion on this transaction, and I anticipate that timeline being shorter rather than longer.

There are no further questions at this time. 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 2026 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.