Canadian Tire Corporation Reports Third Quarter 2023 Results

Canadian Tire Corporation, Limited (TSX: CTC) (TSX: CTC.A) (“CTC” or the “Company”) today released its third quarter results for the period ended September 30, 2023.

• Consolidated comparable sales¹ down 1.6% as consumers continue to shift to essentials
• Increase in Retail Gross margin rate as higher CTR product margin offset promotional intensity at other banners
• Normalized diluted Earnings Per Share¹ (“EPS”) was $2.96; Diluted EPS was $(1.19)
• Annualized dividend increased from $6.90 to $7.00 per share; intention to repurchase up to an additional $200.0 million Class A Non-Voting Shares during 2024

“Against softening consumer demand, our Q3 results show the continued resilience, relevance, and underlying strength of our business as we leveraged loyalty and prioritized essential categories within our multi-category assortment,” said Greg Hicks, President and CEO, Canadian Tire Corporation. “We remain focused on driving value for our customers as we head into the important fourth quarter.”

“In a more challenging economic environment, we are accelerating efficiency initiatives, prioritizing investments within our Better Connected strategy, and actively managing our resource allocation,” added Hicks.

Third Quarter Highlights

• Consolidated comparable sales were down 1.6%, as the consumer spend softening experienced in Q2 persisted into Q3, particularly in Ontario and British Columbia (“BC”).
  • Canadian Tire Retail comparable sales¹ were down 0.6%; essential categories were up 4%, led by Automotive.
  • SportChek comparable sales¹ were down 7.4%; strong growth in team sports was offset by weakness in more discretionary categories, such as athletic footwear and clothing.
  • Mark’s comparable sales¹ were up 0.2%, against strong growth in Q3 2022; ladies casualwear and casual footwear offset declines in industrial and men’s casualwear.
  • Owned Brands penetration¹ was up 42 bps to 36.2%, driven by CTR. The Owned Brands portfolio delivered an 888 bps margin premium to National Brands.
• Diluted EPS was $(1.19); Normalized diluted EPS was $2.96, down 11.4%, as a result of lower Retail and Financial Services income before income taxes (“IBT”)
  • Diluted EPS reflected the change in fair value charge related to the Scotiabank transaction announced on October 31, 2023, which represented a charge of $328.0 million (an impact of $5.88). This was partially offset by a $1.73 contribution from the $131.0 million insurance recovery related to the March 15, 2023 fire at the A.J. Billes distribution centre (“DC”), which was recorded in the Retail segment.
  • Retail IBT was $239.0 million. Normalized Retail IBT¹ was $108.0 million, down $40.8 million; stable revenue and an increase in gross margin was offset by higher SG&A and net finance costs.
  • Financial Services IBT was $125.7 million, down $13.9 million; higher net impairment losses and funding costs offset revenue growth of 9.0%.

Consolidated Overview

• Unless otherwise specified, Consolidated results include the previously disclosed Margin Sharing Arrangement (“MSA”) change² which was effective from the first quarter of 2023.
• Revenue was $4,250.5 million, up 0.5% compared to $4,228.8 million in the same period last year; Revenue (excluding Petroleum)¹ was $3,652.9 million, an increase of 1.1% compared to the prior year.
• Consolidated IBT was $69.3 million, a decrease of $229.3 million compared to the prior year. Normalized IBT¹ was $266.3 million, compared to $314.4 million in the prior year.
• Diluted EPS was $(1.19) compared to $3.14 in the prior year; Normalized diluted EPS was $2.96, compared to $3.34 in the prior year.
• Refer to the Company’s Q3 2023 MD&A sections 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 Company in the quarter.

Retail Segment Overview

• Unless otherwise specified, Retail results include the previously disclosed MSA change² which was effective from the first quarter of 2023.
• Retail sales¹ were $4,639.3 million, down 2.0%, compared to the third quarter of 2022, as a result of softening consumer demand, particularly in Ontario and BC, and a mix shift to more essential and value offerings; Retail sales (excluding Petroleum)¹ and consolidated comparable sales were down 1.9% and 1.6%, respectively.
• CTR retail sales¹ were down 0.9% over the same period last year, and comparable sales were down 0.6%.
• SportChek retail sales¹ decreased 7.6% over the same period last year, and comparable sales were down 7.4%.
• Mark’s retail sales¹ decreased 0.1% over the same period last year, and comparable sales were up 0.2%.
• Helly Hansen revenue was up 28.2% compared to the same period in 2022.
• Retail revenue was $3,867.3 million, a decrease of $6.4 million, or 0.2%, compared to the prior year; Retail revenue (excluding Petroleum)¹ was up 0.3%. Excluding the favourable impact of the MSA change², Retail revenue (excluding Petroleum) was down $22.1 million.
• Retail gross margin was $1,207.0 million, up 4.7% compared to the third quarter of the prior year, or up 4.6% excluding Petroleum¹; Retail gross margin rate (excluding Petroleum)¹ increased 143 bps to 35.1%. Excluding the MSA change, Retail gross margin rate (excluding Petroleum) was up 77 bps.
• Retail IBT was $239.0 million, compared to $133.0 million in the same period of the prior year, mainly due to the DC fire insurance recovery. Normalized Retail IBT was $108.0 million in Q3 2023, compared to $148.8 million in the prior year.
• Retail Return on Invested Capital¹ (“ROIC”) calculated on a trailing twelve-month basis was 11.1% at the end of the third quarter of 2023, compared to 12.5% at the end of the third 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 Q3 2023 MD&A sections 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

• Gross Average Accounts Receivable¹ (“GAAR”) was up 6.4% 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 were up 2.6% and 3.7%, respectively, in the quarter.
• Financial Services gross margin was $210.9 million, down 3.3% compared to the prior year; higher net impairment losses and funding costs were partially offset by strong revenue growth.
• Financial Services IBT was $125.7 million, down from $139.6 million compared to the prior year.
• Refer to the Company’s Q3 2023 MD&A sections 4.1.1 and 4.2.1 for information on normalizing items and sections 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 $0.301, up 3.1% compared to Q3 2022; diluted net income per unit was $0.048, compared to $0.285 in Q3 2022.
• CT REIT announced one new investment totalling $28.0 million, which is expected to add approximately 113,000 square feet of incremental gross leasable area (“GLA”) upon completion.
• For further information, refer to the Q3 2023 CT REIT earnings release issued on November 6, 2023.

Capital Allocation

Capital Expenditures

• Operating capital expenditures¹ were $155.1 million in the quarter, compared to $203.2 million in Q3 2022.
• Total capital expenditures were $176.4 million, compared to $231.7 million in Q3 2022.
• 2023 operating capital expenditures are expected to be in the range of $650 million to $700 million, compared to CTC’s previously disclosed range of $750 million to $800 million. 2024 operating capital expenditures are expected to be in the range of $550 million to $600 million.

Quarterly Dividend

• The Company increased its annual dividend for the 14^th consecutive year, to $7.00 per share from $6.90 per share, an increase of approximately 1.5% since last year as a result of the dividend increase approved on November 8, 2023.
• The Company declared dividends payable to holders of Class A Non-Voting Shares (the “Shares”) and Common Shares at a rate of $1.750 per share, payable on March 1, 2024, to shareholders of record as of January 31, 2024. 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 $500.0 million to $700.0 million of its Class A Non-Voting 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 September 30, 2023, the Company had repurchased $470.0 million of its Shares in partial fulfilment of its 2022-23 Share Repurchase Intention.
• On November 9, 2023, the Company announced its intention to repurchase up to an additional $200.0 million of its Shares in excess of the amount required for anti-dilutive purposes during 2024.
• The Share Repurchases will be made under the Company’s existing normal course issuer bid (“NCIB”), which expires on March 1, 2024, and thereafter under a renewed NCIB, subject to regulatory approvals.

Resource Allocation

• The Company expects a decrease of 3% in full-time equivalent (FTE) employees as a result of targeted headcount reductions in Q4. In addition, the elimination of the majority of current vacancies will result in a further FTE reduction of 3%. Annualized run-rate savings are expected to be approximately $50.0 million. The Company expects to take a charge of between $20.0 million and $25.0 million in Q4 2023 in relation to these actions.

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.

Source: Canadian Tire Corporation Limited