Canadian Tire Corp boosts earnings despite sliding revenue

TORONTO ? Canadian Tire Corp. didn’t sell nearly as many winter tires, snowboards or tuques as it normally would in the fourth quarter of 2015, because of an uncharacteristically warm winter.

But the retailer’s ability to squeeze out a rise in profits, margins and some divisional same-store sales nonetheless impressed analysts Thursday, who complimented executives on the business call for using solid merchandising and cost management strategies throughout a tough period for retailers such. 

Investors liked that they saw, too: Shares rose $9.08 or 7.8 percent to $125.63 in Toronto trading.

The Toronto-based retailer of auto parts and housewares and owner of the game Chek and Mark’s retail chains said revenue at that time ended Jan. 2 slid $273.6 million to $3.38 billion, down from $3.65 billion a year ago, as sales slid in apparel and sports and gas prices fell.

But net earnings at that time climbed to $241.5 million, or $3.01 per share, up from $206.6-million ($2.44) in last year’s fourth quarter, and also the retailer reported a 97 basis point improvement in its retail gross margin rate, excluding petroleum, during the period.

“We believe investors will be relieved that Canadian Tire was able to improve its margins despite the pressures around the Canadian consumer, the weakness in Alberta, and also the decline in the Canadian dollar,” said retail analyst Peter Sklar of BMO Capital Markets inside a note to clients.

Sales at Canadian Tire’s retail stores fell 2.6 per cent overall because of the sunshine, but same-store-sales, an important measure that strips the impact of square footage changes, rose two per cent in contrast to the same period in 2014.

About 25 % of all sales in the fourth quarter typically originates from winter-weather merchandise, chief financial officer Dean McCann told analysts, with the clothing division Mark’s depending on the season the most, accompanied by its FGL Sports division after which by Canadian Tire’s retail division.

Chief executive Michael Medline said Canadian Tire performed well throughout the period in its non-seasonal categories, due partly to broadening its assortment of private label merchandise over the course of this past year.

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He also said executives “learned from past experience” making a deliberate decision to not discount winter goods as heavily or as early as they’d in the past despite lower-than-normal sales volumes.

The company also tapped into data to assist control costs and keep its margins intact despite foreign currency pressure.

“(Foreign currency) is simply one element of the cost of goods that we trade,” McCann told analysts, saying smart data helped management negotiate more effectively with merchandise suppliers, or “having more analytics related to how those discussions take place.”  



He used kettles as an example based on how goods might be sold more profitably. “If we have five kettles on the shelf and we used to purchase them from four different suppliers, and that we do the analytics to figure out which of these five kettles make us as much as possible, (then executives might decide) we do not have to sell five kettles from four different suppliers – maybe we have to sell four different kettles from two different suppliers,” he explained. “It’s amazing so what can happen out of that.”

Keith Howlett of Desjardins Securities said Canadian Tire’s outlook is solid despite the fact that he expects retail sales trends is going to be challenging before the fourth quarter of this year.

“It is positive, in our opinion, that management is proactively managing the business to a lot more than compensate for the present economic headwinds and to deliver ongoing per-share earnings growth,” Howlett said inside a note to clients Thursday.

hshaw@nationalpost.com

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