USA: Convenience stores set for modest profits, says Moody's

Convenience stores will generate modest profits in 2017, driven by acquisitions and selective increases in contract pricing, says Moody's Investors Service in a report.

Moody's expects the six companies in its rated universe of convenience stores to generate 2% to 3% in operating profit growth in 2017, trailing the overall retail industry.

Moody's convenience store sector consists of 7-Eleven Inc. (Baa1 stable), Alimentation Couche-Tard Inc. (Baa2 stable), Murphy Oil USA Inc. (Ba1 stable), Pilot Travel Centers LLC (Ba1 stable), Sunoco LP (Ba2 stable), and CST Brands, Inc. (Ba2 on review for upgrade).

“These retailers thrive when oil prices drop sharply, as this boosts their margins on gas sales. Conversely, when oil prices are stable, earnings growth is more likely to come from adding new stores and making acquisitions,” writes Moody´s.

As building new stores can be complicated by regulatory hurdles, convenience store operators will tend to turn to acquisitions to expand into new geographic areas.

"We expect Couche-Tard and 7-Eleven will continue to make the largest number of acquisitions," said Peter Trombetta, an analyst at Moody's. "They have the financial ability to do so, and have stated their intention of growing their respective store bases."

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