Canadian Tire Corporation Reports First Quarter 2023 Results

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

• Diluted Earnings Per Share (EPS) of $0.13 included the impact of costs relating to the fire at the Company’s A.J. Billes distribution centre in Brampton, Ontario on March 15, 2023; normalized diluted EPS¹ was $1.00
• Financial Services delivered a strong contribution, at $118.7 million of income before income taxes (IBT)

“Our Q1 financial results were impacted by a number of factors. Our Retail segment was impacted by the fire at our A.J. Billes distribution centre, as well as unseasonably mild winter weather and a slow start to spring in several regions of Canada,” said Greg Hicks, President and CEO, Canadian Tire Corporation. “The Financial Services business historically makes a significant contribution to Canadian Tire Corporation’s performance in the first quarter, and this quarter was no different. The strength of our teams and our diligent focus on our Better Connected strategy leaves us confident in our ability to deliver long term returns for shareholders and value to our customers,” added Hicks.

“Our unrivalled competitive advantage lies in our deep understanding of Canadians, and in the context of a challenging macroeconomic environment, we intend to fully leverage this strength to maximize returns.”

First Quarter Highlights

• Consolidated comparable sales¹ were down 2.5% versus strong growth in 2022, in a more challenging consumer demand environment, driven by the impact of a mild winter and late arrival of spring
  • Canadian Tire Retail comparable sales¹ were down 4.8%. Lower sales of winter and spring products were partially offset by growth in non-winter related Automotive categories and in Living categories, driven by an expanded pet offering
  • Mark’s registered its eleventh consecutive quarter of comparable sales¹ growth, up 4.8%, on sales of men’s and ladies’ casualwear
  • SportChek comparable sales¹ grew 3.7% as athletic and casualwear sales offset softer outerwear demand
  • Helly Hansen revenue was up 22.9%, with the strongest growth in sports wholesale revenue and ecommerce

• Consolidated income before income taxes was $66.6 million, a decrease of $228.3 million compared to the prior year, with Financial Services segment income offset by a loss of $79.3 million in the Retail segment, resulting in diluted EPS of $0.13. Excluding the direct costs relating to the fire at the Company’s A.J. Billes distribution centre, normalized IBT¹ was $134.3 million and normalized diluted EPS was $1.00. Results for the quarter also included the impact of a change in accounting estimate² relating to the Company’s Margin-Sharing Arrangement with Dealers (the “change in accounting estimate”).
  • The normalized Retail segment loss before income taxes¹ was $11.6 million. Excluding the impact of a change in accounting estimate², the main factors affecting the Retail segment results were the anticipated lower Canadian Tire Retail Spring/Summer shipments, shipment delays relating to the distribution centre fire (“DC fire”), higher operating costs and a one-time cost to exit a supply chain contract.
  • Financial Services delivered income before income taxes of $118.7 million, down 5.3% against a strong 2022 result. Receivables growth of 10.4% and higher credit card sales growth¹, up 6.1%, drove an 11.5% increase in revenue, while higher net impairment losses and funding costs contributed to lower gross margin.
• Since the beginning of 2023, the Company has continued to invest in its strategic differentiators as part of its BetterConnected strategy, including:
  • Expanding the reach of the Triangle Rewards program and opportunities for engagement with our 11.4 million active members, including through the launch of the new Triangle Select subscription membership program, with more than 22,000 members signed up since the program’s January 2023 launch.
  • Continuing to steadily grow its portfolio of Owned Brands products, with the launch of the Stratus Owned Brand in the cycling category and the acquisition of plumbing faucets and fixtures brand Danze in Canada; Owned Brands¹ accounted for 35.8% of Retail sales in Q1 2023.
• CTC remains committed to making life in Canada better through communities and sport
  • Jumpstart hit a new quarterly record for disbursements with more than a quarter of a million kids helped in Q1, in addition to delivering Respect in Sport training to more than 5,000 new community coaches and youth activity leaders across Canada
  • CTC announced a new multi-million investment in the Women’s Sports Initiative, aimed at leveling the playing field, with a commitment to allocating 50% of our sports sponsorship to women’s professional sports by 2026 

Consolidated Overview

• Unless otherwise specified, Consolidated results include the impact of a change in accounting estimate².
• Revenue was $3,707.2 million compared to $3,837.4 million in the same period last year; excluding the change in accounting estimate², Revenue (excluding Petroleum)¹ decreased 4.9%. Financial Services segment revenue growth partially offset the Retail segment decline, mainly due to the anticipated lower revenue at Canadian Tire Retail.
• Consolidated income before income taxes was $66.6 million, a decrease of $228.3 million compared to the prior year, due in part to costs of $67.7 million relating to the distribution centre fire. Normalized income before income taxes was $134.3 million.
• Diluted EPS was $0.13 compared to $3.03 in the prior year; Normalized diluted EPS was $1.00, down $2.06, or down $2.72 excluding the $0.66 favourable impact of the change in accounting estimate², mainly attributable to a decline in earnings in the Retail segment.
• Refer to the Company’s Q1 2023 MD&A section 4.1.1 for information on normalizing items and the change in accounting estimate and for additional details on events that have impacted the Company in the quarter.

Retail Segment Overview

• Unless otherwise specified, Retail results include the impact of a change in accounting estimate²
• Retail revenue was $3,337.9 million, a decrease of $166.6 million, or 4.8%, compared to the prior year; Retail revenue (excluding Petroleum)¹ was down 5.0%. Excluding the favourable impact of the change in accounting estimate², Retail revenue (excluding Petroleum)¹ decreased $201.4 million
• Retail sales¹ were $3,326.5 million, down 2.8%, compared to the first quarter of 2022 and Retail sales (excluding Petroleum)¹ and consolidated comparable sales were both down 2.5% against strong comparatives in the prior year in a more challenging consumer demand environment, driven by the impact of a mild winter and late arrival of spring
• CTR retail sales¹ were down 4.9% and comparable sales were down 4.8% over the same period last year
• SportChek retail sales¹ increased 3.9% over the same period last year, and comparable sales were up 3.7%
• Mark’s retail sales¹ increased 5.0% over the same period last year, and comparable sales were up 4.8%
• Helly Hansen revenue was up 22.9% compared to the same period in 2022
• Retail gross margin was down 2.5% compared to the first quarter of 2022, or down 2.1% excluding Petroleum¹; Retail gross margin rate (excluding Petroleum)¹ increased 103 bps to 35.2%. Excluding the favourable change in accounting estimate², Retail gross margin rate (excluding Petroleum)¹ was down 17 bps despite higher promotional intensity
• Retail loss before income taxes was $79.3 million, compared to retail income before income taxes of $148.8 million in the prior year; normalized retail loss before income taxes was $11.6 million in Q1 2023
• Retail Return on Invested Capital (ROIC)¹ calculated on a trailing twelve-month basis, was 11.3% at the end of the first quarter, compared to 13.8% at the end of the first 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 Q1 2023 MD&A section 4.1.1 and 4.2.1 for information on normalizing items and the change in accounting estimate and for additional details on events that have impacted the Company in the quarter

Financial Services Overview

• Gross average accounts receivable (“GAAR”)¹ was up 10.4% relative to the prior year, due to increases in both active accounts and average account balance¹, up 4.4% and 5.8% respectively in the quarter
• Financial Services gross margin was $211.3 million, a decrease of $6.2 million, or 2.8% compared to the prior year; higher net impairment losses and funding costs were partially offset by strong revenue growth
• Financial Services IBT was $118.7 million, down $6.6 million, or 5.3% compared to the prior year
• Refer to the Company’s Q1 2023 MD&A section 4.3.1 and 4.3.2 for additional details on events that have impacted the Company

 CT REIT Overview

• CT REIT announced a 3.5% distribution increase that will be effective with the July 2023 payment to unitholders
• Received Zero Carbon Building Design Certification for new distribution centre development in Calgary, Alberta
• For further information, refer to the Q1 2023 CT REIT earnings release issued on May 8, 2023

Capital Allocation

Capital Expenditures

• Operating capital expenditures¹ were $106.7 million in Q1 2023, compared to $142.0 million in Q1 2022
• Total capital expenditures were $118.3 million, compared to $154.3 million in Q1 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 September 1, 2023, to shareholders of record as of July 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 April 1, 2023, the Company has repurchased $279.3 million of its Shares in partial fulfilment of its 2022-23 Share Repurchase Intention.

Normal Course Issuer Bid and Automatic Securities Purchase Plan

• On February 16, 2023, the TSX accepted the Company’s notice of intention to make a normal course issuer bid to purchase up to 5.1 million Shares between March 2, 2023 and March 1, 2024 (the “2023-24 NCIB”). Also on February 16, 2023, the TSX accepted the Company’s new automatic securities purchase plan which expires on March 1, 2024 and which allows a designated broker to purchase Shares under the 2023-24 NCIB during the Company’s blackout periods.

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