Canadian Tire Corporation Reports Second Quarter 2023 Results

Canadian Tire Corporation, Limited (TSX: CTC) (TSX: CTC.A) (“CTC” or the “Company”) today released its second quarter results for the period ended July 1, 2023. 

• Consolidated comparable sales¹ were up 0.1%, following strong growth of 5.0% in Q2 2022
• Normalized diluted Earnings Per Share¹ (“EPS”) was $3.08, compared to $3.11 in Q2 2022; Diluted EPS was $1.76, compared to $2.43 in Q2 2022
• Loyalty sales as a percentage of retail sales¹ up 80 bps in the quarter

“As inflation persisted and rate hikes continued, consumer demand for discretionary goods softened, particularly in the latter half of the quarter, and Canadians shifted to more essentials within our multi-category assortment,” said Greg Hicks, President and CEO, Canadian Tire Corporation. “Loyalty sales continue to outperform non-member spend, driving an increase in loyalty penetration. During this time of macroeconomic uncertainty, Triangle Rewards remains our most important driver in delivering value for our customers.”

“Our ongoing commitment to our Better Connected strategy further positions us to deliver value over the long-term,” added Hicks. “The investments we are making to integrate our customers’ digital and in-store experiences continue to deliver strong results.” 

Second Quarter Highlights

• Consolidated comparable sales were up 0.1%, following 5.0% growth in Q2 2022, as consumer spend softened in the latter part of the quarter, particularly in Ontario
  • Canadian Tire Retail comparable sales¹ were up 0.1%, with a sales mix shift to more essential and value offerings. Automotive and Living grew, offsetting declines in Seasonal and Gardening, Playing and Fixing
  • SportChek comparable sales¹ were up 0.1%. Team sports and lifestyle footwear grew, while athletic clothing and outerwear were down
  • Mark’s comparable sales¹ were up 0.4%, with industrial and casual footwear growing ahead of other categories and offsetting casualwear declines against strong growth in Q2 2022
• Loyalty sales as a percentage of retail sales was up 80 bps, as loyalty sales continued to outperform non-loyalty sales
• Normalized diluted EPS of $3.08 was down 1.0% on the prior year; diluted EPS was down $0.67 to $1.76
  • Normalizing items of $107.9 million in the quarter reflected $74.6 million of direct costs relating to the previously-disclosed March 2023 distribution centre fire (“DC fire”), recorded in the Retail segment, and a $33.3 million GST/HST-related charge³ resulting from the recently-enacted federal budget legislation, recorded in the Financial Services segment
  • The previously-disclosed change in accounting estimate² related to one component of the Company’s Margin Sharing Arrangement (the “MSA change”) with its Dealers. The MSA change had a $86.5 million impact on revenue and income before income taxes, and 171 bps impact on Retail gross margin rate excluding Petroleum¹ during the second quarter of 2023.
• Normalized consolidated income before income taxes¹ (“IBT”) was $281.8 million, compared to $284.3 million in the prior year. Consolidated IBT was $173.9 million, compared to $238.1 million in the prior year:
  • Lower retail revenue, combined with strategic investments in the business, drove a decline in normalized retail earnings, despite faster than expected progress on the DC fire remediation and an 80 bps improvement in Retail gross margin rate¹ (excluding the impact of the previously-disclosed MSA change). Normalized Retail segment IBT¹ was $160.2 million, compared to $170.0 million in Q2 of the prior year. Retail segment income before income taxes was $85.6 million, compared to $123.8 million in the prior year.
  • Normalized Financial Services IBT¹ was down $1.3 million to $88.7 million; Financial Services IBT was down $34.6 million to $55.4 million. Gross Average Accounts Receivables¹ (“GAAR”) growth of 8.2% reflected more moderate growth in average account balances and average active accounts. Higher net impairment losses and funding costs contributed to lower gross margin, offsetting higher revenue. Portfolio performance metrics are trending to historic levels, in line with expectations.
• The Company’sBetterConnected initiatives have already proven to drive incremental sales and enhance connections to customers through an offering that has greater relevance and value:
  • More relevant and personalized offers to the Company’s 11.5 million Triangle members to earn eCTM are being activated. Sales driven by personalized offers accounted for 6% of all sales in the last 12 months, with 1:1 offers on track to deliver more than $150 million of incremental sales in 2023.
  • More than 10% of CTR stores, representing 13% of the CTR footprint, have now been refreshed, expanded or replaced since March 2022, driving incremental sales. 22 store projects have been completed in 2023 to date.
  • The completion of the multi-year rollout of the Company’s digital platform across all banners enhances the online experience for customers; eCommerce sales¹ were $1.1 billion during the last twelve months
  • Progress on Owned Brands penetration was driven by ongoing growth in Automotive categories, with Canadian Tire Retail Owned Brand penetration¹ up 20 bps, despite headwinds in discretionary categories

Update on Financial Aspirations

• The current macroeconomic environment and consumer demand differ significantly from the Company’s expectations when it set out its strategy and 2022-2025 financial aspirations (average annual Comparable sales growth, Retail Return on Invested Capital and Diluted EPS) at its Investor Day in March 2022. Since early 2022, the cumulative effect of increasing inflationary pressure and higher interest rates on consumer spend and financing costs, along with higher inventory costs, has significantly impacted the Company’s ability to deliver against its previous expectations. Given the slower pacing of growth, and the noticeable slowdown in retail sales during the second quarter of 2023, the Company is withdrawing its previously disclosed financial aspirations at this time.
• Despite the near-term consumer demand environment, the Company remains committed to pursuing the strategic objectives that demonstrate its long-term vision and build on its strong market position. The Company also continues to invest in the strategic initiatives outlined in the Better Connected strategy to grow earnings, and continues to make progress on the key initiatives highlighted above, to solidify CTC’s brand and competitive positioning in Canada over the long-term. 

Consolidated Overview

• Unless otherwise specified, Consolidated results include the previously disclosed margin-sharing arrangement change² which was effective from the first quarter of 2023
• Revenue was $4,255.8 million, down 3.4% compared to $4,404.0 million in the same period last year; Revenue (excluding Petroleum)¹ was $3,706.8 million, a decrease of 0.5 percent compared to the prior year
• Consolidated income before income taxes was $173.9 million, a decrease of $64.2 million compared to the prior year, due in part to direct costs of $74.6 million relating to the DC fire and $33.3 million relating to the GST/HST-related charge. Normalized income before income taxes was $281.8 million, compared to $284.3 million in the prior year.
• Diluted EPS was $1.76 compared to $2.43 in the prior year; Normalized diluted EPS was $3.08, compared to $3.11 in the prior year
• Refer to the Company’s Q2 2023 MD&A section 4.1.1 for information on normalizing items and the MSA change and for additional details on events that have impacted the Company in the quarter

Retail Segment Overview

• Unless otherwise specified, Retail results include the previously disclosed margin-sharing arrangement change² which was effective from the first quarter of 2023
• Retail sales¹ were $5,214.9 million, down 2.8%, compared to the second quarter of 2022, with Petroleum driving the decrease; Retail sales (excluding Petroleum)¹ and consolidated comparable sales were down 0.1% and up 0.1%, respectively, against strong comparatives in the prior year
• CTR retail sales¹ were down 0.1% and comparable sales were up 0.1% over the same period last year
• SportChek retail sales¹ decreased 0.2% over the same period last year, and comparable sales were up 0.1%
• Mark’s retail sales¹ increased 0.1% over the same period last year, and comparable sales were up 0.4%
• Helly Hansen revenue was down 2.9% compared to the same period in 2022
• Retail revenue was $3,896.1 million, a decrease of $171.1 million, or 4.2%, compared to the prior year; Retail revenue (excluding Petroleum)¹ was down 1.2%. Excluding the favourable impact of the MSA change², Retail revenue (excluding Petroleum) was down $127.1 million.
• Retail gross margin was $1,250.9 million, up 5.8% compared to the second quarter of the prior year, or up 5.9% excluding Petroleum¹; Retail gross margin rate (excluding Petroleum) increased 251 bps to 35.7%. Excluding the favourable MSA change, Retail gross margin rate (excluding Petroleum) was up 80 bps.
• Normalized retail income before income taxes was $160.2 million in Q2 2023, compared to $170.0 million in the prior year. Retail income before income taxes was $85.6 million, compared to retail income before income taxes of $123.8 million in the prior year.
• Retail Return on Invested Capital (“ROIC”)¹ calculated on a trailing twelve-month basis, was 11.2% at the end of the second quarter of 2023, compared to 13.5% at the end of the second quarter of 2022, due to the decrease in earnings and the increase in Average Retail Invested Capital over the prior period
• Refer to the Company’s Q2 2023 MD&A section 4.1.1 and 4.2.1 for information on normalizing items and the MSA change and for additional details on events that have impacted the Retail segment in the quarter

Financial Services Overview

• GAAR was up 8.2% relative to the prior year due to growth in average active accounts and average account balances. Growth in average active accounts and average account balances¹ moderated compared to the prior quarter and prior year, and were up 3.7% and 4.3%, respectively, in the quarter
• Financial Services gross margin was $179.5 million, down 4.5% compared to the prior year; higher net impairment losses and funding costs were partially offset by strong revenue growth
• Financial Services IBT was $55.4 million, down from $90.0 million compared to the prior year; normalized Financial Services IBT excluding the impact of the GST/HST-related charge was $88.7 million, down 1.4%
• Refer to the Company’s Q2 2023 MD&A section 4.1.1 and 4.2.1 for information on normalizing items and section 4.3.1 and 4.3.2 for additional details on events that have impacted the Financial Services segment in the quarter

CT REIT Overview

• Adjusted Funds From Operations¹ (“AFFO”) per unit was up 7.0% compared to Q2 2022; diluted net income per unit was up 27.0%
• Announced three new investments totalling $22.4 million, which are expected to add approximately 53,000 square feet of incremental gross leasable area (“GLA”) upon completion
• Completed lease renewals for over 1.3 million square feet of GLA, representing more than 4% of total GLA
• For further information, refer to the Q2 2023 CT REIT earnings release issued on August 8, 2023

Capital Allocation

Capital Expenditures

• The Company remains committed to its strategic direction and continues to invest in key priority areas, as outlined as part of the Better Connected strategy in March 2022. Full year operating capital expenditures are now expected to be at the lower end of the Company’s previously disclosed operating capital expenditures¹ range of $750 to $800 million, with the timing of some projects shifted to 2024
• Operating capital expenditures were $138.4 million in the quarter, $30.4 million lower than Q2 2022, as a result of timing of spend
• Total capital expenditures were $148.2 million, compared to $188.2 million in Q2 2022

Quarterly Dividend

• The Company declared dividends payable to holders of Class A Non-Voting Shares and Common Shares at a rate of $1.725 per share, payable on December 1, 2023, to shareholders of record as of October 31, 2023. The dividend is considered an “eligible dividend” for tax purposes.

Share Repurchases

• On November 10, 2022, the Company announced its intention to repurchase an additional $500 million to $700 million of its Class A Non-Voting Shares (the “Shares”), in excess of the amount required for anti-dilutive purposes, by the end of 2023 as part of its capital management plan (the “2022-23 Share Repurchase Intention”). As at July 1, 2023, the Company had repurchased $420.8 million of its Shares in partial fulfilment of its 2022-23 Share Repurchase Intention.

For the complete press release, click here.

About Canadian Tire Corporation

Canadian Tire Corporation, Limited, (TSX: CTC.A) (TSX: CTC) or “CTC”, is a group of companies that includes a Retail segment, a Financial Services division and CT REIT. Our retail business is led by Canadian Tire, which was founded in 1922 and provides Canadians with products for life in Canada across its Living, Playing, Fixing, Automotive and Seasonal & Gardening divisions. Party City, PartSource and Gas+ are key parts of the Canadian Tire network. The Retail segment also includes Mark’s, a leading source for casual and industrial wear; Pro Hockey Life, a hockey specialty store catering to elite players; and SportChek, Hockey Experts, Sports Experts and Atmosphere, which offer the best active wear brands. The more than 1,700 retail and gasoline outlets are supported and strengthened by CTC’s Financial Services division and the tens of thousands of people employed across Canada and around the world by CTC and its local dealers, franchisees and petroleum retailers. In addition, CTC owns and operates Helly Hansen, a leading technical outdoor brand based in Oslo, Norway. For more information, visit Corp.CanadianTire.ca.

Contact:

Stephanie Nadalin – Media Contact – stephanie.nadalin@cantire.com – (647) 271-7343

Source: Canadian Tire Corporation Limited