Alimentation Couche-Tard Inc

TSX:ATD

Earnings Call Transcript

[Operator]

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]

[Mathieu Brunet, executive]

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 Second 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.

[Alexander Miller, executive]

Thank you, Mathieu. Good morning, everyone, and thank you for joining us for our presentation of our second quarter results.

While parts of our convenience and fuel business continued to be challenged this quarter as consumers carefully watch their spending, we remain confident in the advantages of our globally diversified network and long-term strategic growth plan. In our European markets, most categories performed positively as did fuel volumes in Europe and Canada. Fuel margins also remained healthy across the network. Throughout the quarter, we focused relentlessly on providing value to our customers, including introducing bundle meal deals in the U.S., expanding our private brand offer at affordable price points and continuing popular Fuel Day promotions. Later in this presentation, I will go into more detail on these initiatives as well as on our convenience and mobility results.

However, before I do so, I will touch on 2 notable areas of the quarter, the catastrophic hurricanes in the U.S. and our global efforts to grow the network, both through M&A and organically. I want to start off by acknowledging the heroic work of our teams across the southeastern U.S., who had to contend with 2 major hurricanes, Hurricane Helene and Hurricane Milton, which impacted 4 of our business units within 2 weeks of each other. The hurricanes shut down hundreds of our stores, mainly due to power loss. But thanks to the extraordinary efforts of our operations, fuel, facilities and logistics teams, we were able to open all but a handful of them within a few days, make sure all our team members were safe and provide our communities with essential goods and services. This took massive coordination and outstanding dedication by thousands of team members, and I could not be more proud of how, as one team, they helped each other, and our customers and communities.

I also want to briefly mention our ongoing commitment to acquire Seven & i Holdings. No doubt you have seen much in the media about our most recent proposal to purchase the entire business as well as our visit to Japan to learn more about its store operations and to meet with key stakeholders. We continue to see a strong opportunity to grow together and enhance our offerings and service to millions of customers across the globe. We also remain confident in our ability to finance and complete this combination. We will be persistent and continue our friendly approach to creating what we see as the most compelling outcome for all shareholders, employees and key constituencies of both companies.

While discussing M&A, let me briefly mention the good progress we are making with GetGo, which we expect to close in calendar 2025. I and members of the executive team spent a very productive few days with the GetGo management and employees in September, visiting stores and facilities. We are excited about our early learnings about GetGo's extremely popular food and loyalty programs and dedicated team members. We also recently completed a small tuck-in purchase agreement in the U.S. with 20 stores in Oklahoma and Kansas, bringing our Circle K presence back to these 2 states.

Moving to Europe. We are pleased with the ongoing work with our 4 new business units as they successfully transition out of a complex carve-out with TotalEnergies. The teams are highly energized and engaged and are making good progress with store rebranding and integration plans. In organic growth, we continue to make strong strides on our 500 new store build goal. We opened 14 stores this quarter, and we are on track to open over 100 in North America this fiscal year. As part of our strategic growth ambition, our new stores include dozens of high-speed diesel and rural locations.

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 1.6% in the United States, by 1.5% in Europe and other regions and by 2.3% in Canada. As I mentioned earlier, in our European businesses, most categories performed positively with same-store sales increasing by 1.8%. However, the overall Europe and other region results were again impacted by weak results in our Hong Kong market, driven by decrease in cigarette units and increased sales taxes.

Again, this quarter as challenging inflationary conditions persisted, we have been relentlessly focused on providing customers with value, both inside our stores and on our 4 courts. In October, in the U.S., we launched our $3, $4 and $5 meal deals. We are encouraged by early results. After only 6 weeks, over 300,000 meals are being sold on a weekly basis, accelerating traffic and unit growth. While meal deals have become common in QSRs, we can differentiate ourselves through partnerships with our suppliers by offering a variety of options, including energy drinks and chips that are not available at QSRs.

We are also providing value through an expanding array of private labeled products, which are increasingly popular with customers looking for savings, but still wanting good quality and taste. Private label is growing for us in the high single digit across the network, and we are looking to add over 100 private label products this year. Reoccurring Fuel Days continue to provide value to our customers at the pump, while also driving traffic to our locations. Last week, we had about 5,000 locations across the U.S. participating in the Circle K Fuel Day, offering a Thanksgiving discount of up to $0.40 per gallon. With the holidays being full of busy celebrations and cost, we are proud to offer our customers a meaningful way to save.

This quarter, we also grew our loyalty membership programs in the U.S. and Europe. In the U.S., Inner Circle registrations and full enrollments reached 8.3 million fully enrolled customers, representing a 12% increase from the previous quarter. We continue to see a sales lift through increased personalization, making a key focus of the team. And in the coming quarters, we are committed to simplifying our sign-up process to drive even greater sign-up conversion. We are also linking our EasyPay fuel program with Inner Circle to unlock additional benefits to our customers and provide a more frictionless single card experience.

In Europe, active members in our Extra program have also increased, particularly in our Scandinavian markets, where we have integrated more closely with our strong EV charging business. In Sweden, the recently launched Extra 2.0 pilot is seeing a lift in both traffic and increased margin, and we are planning to scale it across Sweden and additional countries in Europe.

In the U.S., our popular summer beverage campaign continued into the beginning of this quarter. While it provided exceptional value and exciting exclusive flavors leading the unit growth in dispensed beverages, the compelling value did once again compressed margins this quarter.

In the adult beverage category, we experienced continued momentum with sales slightly down compared to the prior year, while unit velocity showed growth. This performance reflected ongoing efforts to drive value through singles and capitalized on favorable industry trends, particularly growing customer enthusiasm for Mexican imports.

Starting at the beginning of the quarter, following a change in legislation in Ontario, Canada's largest market, we have been able to offer a selection of beer, cider, wine and ready-to-drink alcoholic beverages in our eligible stores. To take full advantage of this opportunity, our team carefully allocated the proper space in a timely manner, we now command an impressive market leadership in beer sales in Ontario.

In cigarette sticks, we are seeing some stabilization in the U.S., and we continue to outperform our competitive peer group. This is partially due to our price optimization efforts, along with taking advantage of our scale to expand our portfolio of affordable products in a profitable manner. We also continued personalization programs for our age verified customers. And other nicotine products, strong growth continues across the U.S. and Europe.

Moving to our fuel business. Same-store road transportation fuel volumes decreased by 2.2% in the United States, impacted by lower industry demand in those 2 major hurricanes, while it increased by 1% in Europe and other regions and by 5 -- excuse me, 0.1% in Europe and in other regions and by 0.5% in Canada. As I mentioned earlier, our fuel margins remained healthy across the network as we continue to work on building value from our fuel supply chain and serving our customers through lower cost sourcing options.

Our Europe B2B fuel business had a solid second quarter with overall card volumes slightly ahead of prior year. The truck segment is showing resilience and maintaining national volumes in the legacy business units, while international volumes have seen strong growth, driven by changes in bio rates in Sweden and early wins in the new mid-European markets. In fleet, we continue to focus on developing our customer portfolio.

The B2B fuel share in the U.S. continues to grow quarter-over-quarter as we develop customer relationships with fleets of all sizes, enhance the B2B driver experience through specific B2B driver benefits on Inner Circle and expand our reach by developing and implementing strategic partnerships.

Our EV fast charging network in Europe now consists of over 2,900 charge points. We had a 65% increase on transactions on Circle K branded transit chargers from the same period last year, driven both by networking expansion and improved utilization. We also continue to expand the charging network in the mid-European markets as well as in Ireland. In North America, we continued with a disciplined approach to network expansion.

I also want to mention some of the work that we are doing to improve operational excellence, reinforcing our approach as a low-cost operator. In North America, reducing shrink is an important focus for us, and we are bringing in prevention technology as well as strategic vendor partnerships that can assist in identifying shrink via store surveillance systems. We are also looking to expand our gig worker partnership to improve our food program execution and grow our sales. Filipe will provide additional color on our cost management, including our fit to serve initiatives.

Coming back to where I started, fully recognizing the continued strain on our customers' discretionary spending, I'm pleased with the many ways we are providing meaningful value, while keeping our focus on driving traffic to our locations. We remain confident in the strength of our globally diversified network and long-term strategy and are encouraged by signs of positive momentum in parts of the business in both convenience and fuel.

And with that, I'll turn it over to Filipe.

[Filipe Da Silva, executive]

Thank you, Alex. Good morning, everyone. With a little over a year in my role as CFO, I witnessed this resilient organization tackle significant challenges from elevated interest rates, high inflationary pressures and disruptive supply challenges impacting our global network. I'm impressed of how we have come together to overcome some of these headwinds, delivering solid revenue growth as we continue to integrate our recent acquisitions and gain market share in key categories.

Throughout the second quarter, we saw sequential monthly improvement, particularly in U.S., same-store merchandise revenue and are encouraged by this positive momentum as we enter the third quarter. However, as Alex mentioned earlier, it's worth noting that the hurricanes affected our performance during the quarter on both our merchandise revenue and food volumes [ sold ]. Excluding this impact, we estimate that U.S. same-store merchandise revenues would have aligned closer to our Q1 results.

In addition, our focus on operational excellence and disciplined cost management drove a modest 2.3% of normalized growth in expenses, enabling us to outpace a slowing inflationary environment. We are also pleased to see impressive results coming from our fleet to serve initiatives, further enhancing our world-class cost culture and efficient approach to spending. More specifically, we continue to leverage our size and scale and data-driven approach to optimize costs across our network and store operations as we continue to invest in technology. This includes more efficient marketing, repairs and maintenance spend and renegotiating financial fees. With regards to our store operations, we continue to improve labor management and reducing utility consumption, while advancing our global capability networks. All of these initiatives are contributing to improved operational efficiency.

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 second quarter of fiscal 2025, net earnings attributable to shareholders of the corporation were nearly $709 million or $0.75 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 $705 million or $0.74 per share on an adjusted diluted basis, representing a decrease of 9.8% compared with the corresponding quarter of last fiscal year.

During the second quarter, excluding the net impact from foreign currency translation, merchandise and service revenues increased by approximately $272 million or 6.6% primarily attributable to the contribution from acquisition, which amounted to approximately $329 million, partly offset by softness in traffic. Excluding the net impact from foreign currency translation, merchandise and service gross profit increased by approximately $76 million or 5.3%. This is primarily due to the contribution from acquisitions, which amounted to approximately $109 million, partly offset by softness in traffic.

In the United States, our merchandise and gross -- service gross margin decreased by 1% to 33.8%, impacted by the promotional [ efforts ] to support our ongoing campaigns, while it increased by 0.4% in Canada to 33.6%, impacted favorably by a change in product mix. In Europe and other regions, our merchandise and solid gross margin decreased by 0.4% to 38.2%, impacted by the integration of certain retail assets from TotalEnergies, which have a different product mix than our other operations in Europe and other regions. Excluding this impact, our gross margin in Europe and other regions would have increased by 2.1% driven by a favorable change in product mix from lower cigarette revenues in Asia.

Moving on to the fuel side of our business. In the second quarter of fiscal 2025, excluding the net impact from foreign currency translation, road transportation fuel gross profit increased by approximately $128 million or 8.8%. This is mainly attributable to the contribution from acquisitions, which amounted to approximately $181 million, including the favorable impact from the renegotiation of the fuel supply agreement with a vendor, of which $38 million is related to previous quarters, partly offset by the decline in road transportation fuel gross margin in the United States.

Our road transportation fuel gross margin was $0.461 per gallon in the United States, a decrease of $0.0346 per gallon, a healthy margin in a competitive and well supplied market environment. And in Canada, it was CAD 0.1335 per liter, a decrease of CAD 0.28 per liter. In Europe and other regions, it was USD 0.1051 per liter, an increase of USD 0.31 per liter, impacted by the retroactive adjustment, which had a favorable impact on road transportation fuel gross margin of -- sorry, USD 0.88 per liter, partly offset by the impact of a change in our wholesale activities.

Now looking at SG&A. For the second quarter of fiscal 2025, normalized operating expenses increased by 2.3% year-over-year. This is mainly driven by inflationary pressures and incremental investment to support our strategic initiatives, partly offset by the ongoing import to control our expenses, including labor efficiency in our stores. More specifically, we reduced store administration through refined protocols and increased back office automation. U.S. store associates overtime costs were reduced just as we have also achieved an improvement in manager over time spend in the first half of FY '25.

Excluding specific items described in more details in our MD&A, the adjusted EBITDA for the second quarter of fiscal 2025 increased by just over $36 million or 2.4% compared with the corresponding quarter of fiscal 2024, mainly due to the contribution from acquisitions, which amounted to approximately $158 million, partly offset by lower road transportation fuel gross margin and investments in merchandise and service gross margin in the United States as well as by the softness in traffic and fuel demand as low income consumer remain impacted by challenging economic conditions.

From a tax perspective, the income tax rate for the second quarter of fiscal 2025 was 23.4% compared with 22.8% for the corresponding period for fiscal 2024. The increase mainly stems from the impact of different mix in our earnings across the various jurisdictions in which we operate.

As of October 13, 2024, we recorded a return on equity at 19.1%, and our return on capital employed stood at 12.3%. During the fiscal year, our leverage ratio decreased to 2.07. During the fiscal year, our leverage ratio decreased to -- we also had -- sorry, we also had strong balance sheet liquidity with $2.2 billion in cash and an additional $2.7 billion available through our main revolving credit facility.

During the second quarter of fiscal 2025, we repurchased 8.7 million shares for an amount of nearly $519 million. We also repaid our Canadian dollar-denominated senior unsecured note for CAD 700 million and set out the cross-currency interest rate swaps associated with the notes, which had an unfavorable fair value of nearly $52 million of settlement.

On August 16, 2024, we entered into a binding agreement to acquire 270 company-owned and operated convenience retail and fuel site operating under the GetGo Café + Market brand from supermarket retailer, Giant Eagle Inc. for a purchase price of approximately $1.6 billion, subject to post-closing adjustments. GetGo sites are located in the states of Indiana, Maryland, Hawaii, Pennsylvania and West Virginia in the United States. The transaction, which would be financed using our available cash and our existing credit facilities, including our United States commercial paper program, is expected to close in calendar year 2025 and is subject to customary closing conditions and regulatory approvals.

Turning now to the dividend. The Board of Directors declared yesterday a quarterly dividend of CAD 0.195 per share, an increase of 11.4% for the second quarter of fiscal 2025 to shareholders on record as of December 4, 2024, and approved its payment effective December 18, 2024.

With that, let me reiterate a few key points. We are maintaining solid momentum as we head into the third quarter with cautious optimism about the macro environment and consumer outlook. We continue to gain market share in key categories and capitalize on our recent acquisition, while maintaining operational excellence. We are focused on posting growth opportunities, leveraging our strong balance sheet and maintaining a disciplined capital deployment to support our proven long-term goal of creating value for our shareholders.

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

[Alexander Miller, executive]

Thank you, Filipe. With the many economic challenges across the globe, these are not easy days for our customers. As we are on the eve of Thanksgiving in the U.S., I just want to close by saying thank you. Thank you to our store and field team members for your commitment to making our customers' lives a little easier every day. And thank you to our valued customers for visiting us and seeing firsthand our efforts to provide you with compelling offers. Also want to thank our shareholders for your continued support of the business. For all of you in the U.S., I hope you have a wonderful Thanksgiving filled with family and friends. And if you need any last-minute items or fuel to get to your destination, come visit our locations as we are open.

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

[Operator]

[Operator Instructions] Your first question comes from Michael Van Aelst with TD Cowen.

[Michael Van Aelst, analyst]

Question first on the same-store sales performance in the U.S. and the promotional activity that came along with it at the same time. I think, last quarter, you talked about higher levels of promotional activity, and that was going to be limited to Q2, but we saw that again in Q3. Can you talk about how -- I guess, why the promotional activity was extended and it wasn't any different? And then was that directly tied to the improved performance on the same-store sales as you exited -- as you went through Q2 and if you're positive heading into Q3?

[Alexander Miller, executive]

Yes, sure. And thanks for the question. Our plans had -- especially around our dispensed beverages, they were summer campaigns kind of into the fall and that was always the plan. So those dispensed beverage campaigns continued through a fairly sizable chunk of this last quarter. Those have now ended. I think we're getting increasingly better with our data sets, increasingly faster, understanding our promotions. As a result, we have shut down quite a few promotions activity. And we're seeing the results of that over the last 8 weeks -- or the first 8 weeks of this quarter, and it looks like the things that we are doing are working.

So I think you'll see a difference going forward. And we feel really good about the traffic we drove, the unit growth we drove, the value we showed, and now we're pivoting to our meal deals. Those are being really well received. They're growing exponentially week on week, and we believe we've just scratched the surface. The margin profile of those meal deals are more attractive than what we were doing over the summer. And again, I think, we're encouraged by the first 8 weeks of this quarter.

[Michael Van Aelst, analyst]

Great. And can you just quantify the impact of the hurricanes as a follow-up?

[Alexander Miller, executive]

Filipe?

[Filipe Da Silva, executive]

Yes, it was -- we estimate the impact of roughly 40 basis points in our same-store sales in U.S. And that for the merch and for the volume actually, if you estimate that, that's 70 basis points actually.

[Michael Van Aelst, analyst]

Okay. And I'm not sure Alex answered this, but heading into Q3, was same-store sales in the U.S. positive?

[Alexander Miller, executive]

First 8 weeks was good.

[Operator]

Your next question comes from Mark Petrie with CIBC.

[Mark Petrie, analyst]

I guess I wanted to ask mostly about the cost control initiatives. Obviously, Q1 was a little bit of an aberration with regards to the organic SG&A increase that came under or that, I guess, sort of normalized in Q2. Could you talk about the dynamics there? Was there sort of an incremental action? Or was this just sort of the natural ebb and flow of the business?

[Filipe Da Silva, executive]

Yes. And thank you for the question. Yes, as we mentioned a few times, our mid-long-term goal is always to beat inflation by 1%. So quarter-to-quarter, you -- as we have seen in Q1, we had some impact related to the investment that we are doing in some part of the business. And here, in that case, was the technology. But when we look at the overall cost, we feel pretty good about our Fit To Serve initiatives. We have mentioned that earlier in the call, but we see a lot of good stuff happening at in-store. So for example, to drive some more data, we have used a 3% less hours than last year in-store. So a lot of it is happening in terms of automation being streamlining processes, continuing with this Easy Office project to remove back-office task from the stores and to put on the shared service center.

We see a lot of, I would say, also a good initiative around the GNFR and centralization of the negotiation on the contract for GNFR. So on the marketing side, electronic payments. So we have gone through some good negotiation to initiate Mastercard, Visa [indiscernible] contract. So also a lot of savings coming from there. And finally, also on the global functions, we see costs going down compared to last year. So that's coming from also the centralization, the shared service center that we are putting in place.

So overall, you see many initiatives that give us a very good comfort that in terms of control -- cost control, but we'll continue to deliver. You know that we have this cost discipline in our DNA. So yes, we are very confident that the cost will help us to go through this challenging time on the top line.

[Mark Petrie, analyst]

Yes. Okay. That's helpful. And if I could just follow up on the comment earlier with regards to the beverage program through Q2 and the investment there. How did that program perform versus your expectations with regards to both the top line impact and then the net impact?

[Alexander Miller, executive]

It absolutely grew units, which is -- and in grew trips to our stores, which was the intent. It did not -- the basket associated was not what we expected. And as a result of that, it impacted our sales and it impacted our margin. It was about 80% of the margin miss. So that's the color.

[Mark Petrie, analyst]

Okay. Very helpful. And sorry, I just -- I didn't actually hear what you were saying with regards to Q3 and the momentum on Mike's question. What -- is Q3 to date positive? Or when you say improved momentum, you just mean not as negative on U.S. merchant same-store sales?

[Alexander Miller, executive]

Looks good. Looks good. It's positive.

[Operator]

Your next question comes from Irene Nattel with RBC Capital Markets.

[Irene Nattel, analyst]

If we could just turn to Europe for a moment. Certainly, when the assets were acquired from Total, I think you referred to it as sort of a carve-out, which is really what it was. Can you talk about where you stand right now in terms of stabilizing the business? And are we now at the point where you can actually start putting the Circle K programs into the Total network in Europe? And how we should think about sort of the rebranding going forward?

[Filipe Da Silva, executive]

I can take them if you want?

[Alexander Miller, executive]

Thank you, Irene. Do you want to take it, Filipe?

[Filipe Da Silva, executive]

Yes, I can. So on the integration of Total, Irene, we -- it's moving at pace. We feel very good. As you have seen, the result on this parameter is improving quarter-over-quarter. In terms of integration, so we have focused a lot of our intention in the first quarter to make sure that we're integrating in terms of back office, finance and that's happening there. Of course, at store level, we have already started to put in place pilots with our Horizon concept in the 4 market -- in the 4 BUs. Results are promising there, too. So feeling good about that.

And when we look at, I would say, the road map for the synergies, of course, it's -- it takes some time, and we believe that we'll see the full impact of the synergies, better on year 2 or year 3, but we see -- we are very confident that both in terms of merchandise, we'll see a nice uplift there on the cost side also. Both at store and corporate level, we'll see also great synergies coming from there.

So overall, feeling good. And the team also, most importantly, have integrated well, starting to share and to get best practice from other parts of the business. That's something that you know that is very important in our culture. So yes, feeling good about the plan that we have there and the execution so far.

Alex, anything that you want to add?

[Alexander Miller, executive]

Yes. No. I think, Irene, we started to retire some of the SLAs. We'll retire a couple more of them by the end of this calendar year. That realizes cost synergies, but it also enables other synergies as we take over accounting in different functions. So I think we're encouraged by that. The longest pull in the tent is IT. And we just finalized our plan to accelerate that over the next 24 months and excited. So I think we're feeling good about our journey with Total and hopefully -- and we believe we see it in our results, and you see it in our results, and I think we'll start reporting on synergies next quarter.

[Irene Nattel, analyst]

That's really helpful. And then just as a follow-up, on the Hong Kong piece, recognize it's small. But any line of sight on when that drag will sort of not be a drag anymore?

[Alexander Miller, executive]

Hong Kong is doing better, but the drag of the cigarettes, I mean, they basically doubled cigarette prices in 2 years. So we'll cycle that kind of at the end of this fiscal. So assuming we don't get another tax increase or something else, we should cycle that about the end of this fiscal, Irene?

[Operator]

[Operator Instructions] Your next question comes from Luke Hannan with Canaccord Genuity.

[Luke Hannan, analyst]

I wanted to ask about -- you've talked about some of the synergies that you expect to get out of GetGo. And I'm curious to know, as far as the food program and the loyalty that they have, what do those specific programs have that are unique and differentiated versus maybe some of the other acquisitions that you've done in the past, where you've gotten perhaps similar reverse synergies?

[Alexander Miller, executive]

The Cafe Market concept that they deploy is a holistic food offer with ordering screens. It's much more like a Sheetz or Wawa you would see in the market. So it's different than anyone we've ever acquired. It's certainly different than our Fresh Food, Fast. The fresh products that they bring in from their commissary is robust, very high-quality products. So again, just a very broad breadth of food and fresh products underpinned by supply chain. Their loyalty flywheel with their grocery stores and the technology that backs that up is compelling. If you go to those markets, it really resonates with consumers. You absolutely see that in their per store volume. So we think there's a lot of learnings to how that program works. And we're really excited about the forward partnership with Giant Eagle. I think the more we work with them, just the cultural fit and the way we're engaging, we feel really good about it.

[Operator]

Your next question comes from Martin Landry with Stifel.

[Martin Landry, analyst]

I would like to touch on the merchandise margin in the U.S. It's been soft for several quarters. And I understand some of that comes from high promotional activity. But I was wondering if you could refresh us or update us on what are your gross margin drivers for the U.S. business for merchandise sales?

[Alexander Miller, executive]

I think, for us, it's all about understanding our data. We talked about it. We knew we were investing very heavily through the summer, and we wanted to drive traffic, and we wanted to drive unit growth. And I think most importantly, we wanted to show value to our customers. And we will continue to show value. Again, we're pivoting to meal deals as the way to do that, and we like the margin profile. And we also -- I think -- or we believe that's more compelling. We couldn't be more pleased with the first 6, 7 weeks' of data that we've seen and just the sequential growth we're seeing week on week.

When you look inside of our margins, I think we got very heavy on promotional activity, trying to show value and trying to drive sales. The positive of our data capability as we continue to improve, we now have the ability to analyze those promotions very quickly, in almost real time and shut down promotions that are not achieving what we intended them for them to achieve. The result of that has been that we're actually seeing increased sales, and we're seeing our margin improve.

[Filipe Da Silva, executive]

So if I can add, we have going on within the Fit To Serve initiative, COGS renegotiation with supplier. And that's bringing also some good results in U.S. We are now running out also that in the other regions. But that's helping us through, I would say, the data analytics. But to see that the table with suppliers and to get better at negotiating promotions and negotiating basically the run rate terms with our suppliers. So feeling good about also what's happening there. And I think that will help also in the next coming quarters to drive better, better GP rates.

[Operator]

Your next question comes from Chris Li with Desjardins.

[Christopher Li, analyst]

Just maybe following up on your comments that U.S. merchandise same-store sales is positive quarter-to-date. I was wondering, perhaps other than easier year-ago comparison and some of the enhanced promotions that are driving high traffic, are you seeing any green shoots or stabilization from the U.S. consumer that gives you some confidence that this momentum that you're seeing is sustainable?

[Alexander Miller, executive]

Thanks. I think we believe the consumer is under significant pressure. I don't think we've seen something that suggests that, that changes or that has changed. I think we're all optimistic and hopeful as we move into 2025, that as interest rates might come down, we might continue to see inflation come down. But I'd say right now, we -- that consumer is still under significant pressure. It's really -- our focus is on our execution. We are operators at the core. We are laser-focused on fast, friendly and in-stock. Our turnover is at the lowest levels we've ever achieved, and our operating metrics are improving period-on-period. We will continue to try and differentiate that way and differentiate through value perception through our meal deals, our private labels, using our data capabilities in our pricing to show value perception, where our customers see it.

And also we touched on Inner Circle and our loyalty programs. We are gathering tremendous amounts of data. We are understanding our customers better. We've set up a customer insights through our GCN. And the more we know about our customers, we are getting better at how do we show them the value that will make them come to us.

[Operator]

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

[Tamy Chen, analyst]

My one question is going back to the OpEx or the SG&A. I just wanted to better understand a specific component of the investments that you need to make going forward, if there is something like that. And what I mean by that is I think last quarter, your organic growth was a little high. And I think you had called out there were quite a few nonrecurring items. So when I look at this quarter's organic SG&A growth of 2.3%, I think that's increased a bit sequentially, yet you've highlighted you continue to do a good job at reducing and optimizing labor hours. So can you just remind us what are the offsets that are driving this higher SG&A growth? Like is it digital or loyalty-related spend? And is that expected to continue and reflected in your 5-year target?

[Filipe Da Silva, executive]

Thanks, Tamy. And the short answer is, yes. As mentioned earlier and in the past conference, we are investing significantly in technology to improve our customer experience being -- at store level, digitizing the experience there, doing a lot also just to strengthen the foundations. The reality is that we have not invested enough in the past on our technology. So at store level, again, just making sure that the store can deliver proper experience to the employee, to the customer, but also at the back-office level, ensuring and making sure that we can automatize as much as we can.

So I would say the biggest component in terms of investment and expense investment is coming from tech, definitely. And that's something that we have embedded in our 10 for the Win domain. And yes, when we are talking about in terms of target to beat inflation by 1%, we embed in this target the investment that we are doing in tech. So the Fit To Serve initiative should fund this investment in tech.

[Operator]

Your next question comes from Vishal Shreedhar with National Bank.

[Vishal Shreedhar, analyst]

I just wanted a clarification on the margin. You said we've removed the heavy promotional activity. We feel like we're getting better at promoting, and our margin is improving. I didn't understand if that was an 8 weeks, a year-over-year comment or sequential or improving relative to what?

And as you reflect on that answer, maybe if you can also just take a step back and help us understand relative to the plan that you announced at the Investor Day, where are you tracking ahead? And where are you tracking behind with respect to your initiatives? Obviously, there's a lot of macro underneath the results, so we can't really see the performance and the underlying benefits.

[Alexander Miller, executive]

Filipe, do you want to take that or you want me to?

[Filipe Da Silva, executive]

Yes. I can start with the 10 for the Win and what's going well. I think we feel very good about when we look at the 4 pillar, win the customer, win growth, win the offer and win fuel. Win growth, I think, it's doing very well. As mentioned by Alex earlier, NTI program, we are running ahead of our plan. We are, as you know, active, and we have just announced 2 recent acquisitions. So we are being very active on that. So feeling good about this part of the 10 for the Win. We are definitely also moving in the right direction on the Fit To Serve, already identified $800 million on the SG&A side.

On the win the food and -- win the food and thirst, we believe that we have the right focus there. Of course, the macro has not helped there, but we believe that we have the plan. We just need now to execute, and we believe that the results will come. Food has been growing. The FSS program has delivered positive growth during the quarter. So we are going in the right direction, but that's not enough, and we know that, and we'll continue.

And on the fuel side, we have not mentioned that, but same here, of course, there is a pressure on the demand as well. We see that in the fuel volume. But we -- as you remember, we have said that B2B in U.S. will be one of our priority. And B2B in the U.S. is growing. We have delivered a 5% growth volume on the B2B side of the business in U.S. So that's quite positive. In the quarter, we see a number of customers growing in that part of the business. And we know that we have a good competitive advantage there, having sites across the 50 states of the U.S. So yes, it's moving in the right direction in that sense as well.

Alex, do you want to add anything there?

[Alexander Miller, executive]

Yes. I think we absolutely believe that the focus areas and our priorities within 10 for the Win are the right ones. And we remain extremely focused. And I think, as Filipe stated, we've got a couple of areas we feel really good about. We are on or ahead of our 10 for the Win plan. And in some of the areas, the macro has really not helped us, but we need to accelerate differentiation and accelerate unit growth and accelerate trips to our stores. So that's where our focus is. But we -- the areas we shared data, digital, thirst, food, cost controls, we absolutely believe are the right focus areas, and we continue to be laser-focused on those areas your question about margin, I'm talking sequentially.

[Operator]

Your next question comes from Bonnie Herzog with Goldman Sachs.

[Bonnie Herzog, analyst]

I know it's early, but I was hoping you could touch on how the incoming Trump administration might have an impact on your business here in the U.S., but also internationally. I guess given what we know and maybe what's been said publicly thus far, what do you see as the biggest areas of opportunity for your business? And then where do you see the most potential risk?

[Alexander Miller, executive]

Thanks, Bonnie. It's awfully early days, and there's an awful lot of speculation. I think we've looked at a couple of things. EBT is an example. EBT is about 0.6% or 0.7% of our sales in the United States. Some of the things that have been talked about, perhaps half of that, a little less than half of that would be at risk, as an example. We've looked -- about 3% of our goods today in our stores come from China, so a very small amount. Most of that is -- or all of that is general merch, specifically, kind of phone, chargers and things like that. And we think everyone would be impacted similarly. So we don't see a big issue with that.

There's just so much unknown around what's actually going to happen, Bonnie, that for us, it's early days, and we have started to consider some things. But we don't see anything at this time that we think is going to overly impact us. And what we hope is that the consumers around the world can -- inflation goes down and folks can start to feel better about their disposable incomes. But we don't know what's going to happen.

[Operator]

Your next question comes from Anthony Bonadio with Wells Fargo.

[Anthony Bonadio, analyst]

I just wanted to follow up on Total. You called out a $158 million benefit to EBITDA from M&A in the quarter, but it looks like that is gross of a $30 million -- $38 million onetime benefit related to that fuel supply renegotiation. So one, am I thinking about that latter piece correctly? And two, can you just help us understand where Total is not running versus that initial $500 million EBITDA run rate when you guys announced the deal?

[Filipe Da Silva, executive]

So your read is correct, and $38 million are related to previous quarter. When you look at the TotalEnergies and where we stand compared to our goal of $500 million, we feel pretty good there. Now that this fuel supply agreement has been, I would say, renegotiated. So yes, plus the synergy that we mentioned earlier, we are very confident that we'll deliver what we said on this acquisition.

[Operator]

Your next question comes from Bobby Griffin with Raymond James.

[Robert Griffin, analyst]

Alex, just curious on the quarter-to-date improvement, I'm just curious, how do you guys look at the environment? Has the environment stabilized? Because there's a lot of noise between hurricane, some of the initiatives you guys are doing. And when you saw the quarter-to-date improvement, was it broad-based across categories and regions? Any additional color you can offer there would be helpful.

[Alexander Miller, executive]

Yes. I think -- we think the consumer remains under stress. I think we feel like we're getting better and executing better. It is pretty broad-based across our business units of the improvement. It's -- we always have different business units performing at different levels and different pockets of strength and weakness. But holistically, it is broad-based. We believe the consumer remains under pressure, and we believe we're executing better, both operationally and in our 10 for the Win initiatives. And we've talked to you guys a long time about our data and our journey, and we are getting better at understanding our data and understanding our customers, and we think we're seeing the benefit of that.

[Operator]

[Operator Instructions] Your next question comes from John Zamparo with Scotiabank.

[John Zamparo, analyst]

I wanted to ask about the fuel side of the business, in particular, same-store volumes. Those turned positive in Canada and Europe, but still negative in the U.S., even adjusting for, I think, you'd said 70 basis points from the hurricane. And I wonder what you might attribute that to? Is there still an element of partial fill-ups from customers? And would you characterize the U.S. fuel market as any more or less competitive than Canada and Europe at the moment?

[Alexander Miller, executive]

I think as price comes down, we always see fill go up, and that's what we're seeing. Prices coming down, we are seeing average fill rate go up, but the consumer remains stressed. And I think trips, I think they're being very cautious in their trips and their travel. They're reducing travel. Demand remains under pressure. The U.S. remains a very competitive fuel market for sure.

So we think demand will continue to decline in the United States due to vehicle efficiency in the fleet, and we have got to take share. And where we're focused on doing that is really in 3 areas. You heard Filipe mentioned our focus on B2B. We shared that intent for the win. We are accelerating that. I think we feel positive. Our growth this quarter was more than our growth last quarter. We have strong ambition there, and we're largely meeting our target for this year. We have a new pricing tool that we're rolling out right now that we feel really good about. We tested very heavily that we think will help us gain some share.

And then the third thing is Inner Circle. It is really understanding, where that value sits that drives additional trips and will allow us to take share. And as we collect more data and get more folks signed up, we believe that should help us take share. So those are kind of our 3 big focus areas, but demand in the U.S. remains under pressure.

[Operator]

There are no further questions at this time. I will now turn the call over to management for closing remarks.

[Mathieu Brunet, executive]

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 third quarter 2025 results in March. [Foreign Language]

[Filipe Da Silva, executive]

Thank you, everyone.

[Alexander Miller, executive]

Thank you.

[Operator]

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your lines.