Canadian Tire Corporation Reports First Quarter 2024 Results
TORONTO, May 9, 2024 /CNW/ - Canadian Tire Corporation, Limited (TSX:CTC) (TSX:CTC) ("CTC" or "the Company") today released its first quarter results for the period ended March 30, 2024.
Consolidated comparable sales1 were down 1.6%, compared to a 2.5% decrease in Q1 2023.
Diluted and Normalized Earnings Per Share1 ("EPS") were $1.38, compared to diluted EPS of $0.13 and normalized EPS of $1.00 in the first quarter of 2023.
"Our operational resilience enabled us to navigate the ongoing macroeconomic environment and we're pleased with the performance of the business this quarter. Our Retail segment delivered solid results, underscored by product margin appreciation for the quarter, while also reducing inventory levels, and our Financial Services business continued to perform well, driving profitability in the quarter. We continue to leverage our investments in our assets and capabilities, manage costs, and adapt our assortment to meet the changing needs of our customers," said Greg Hicks, President and CEO of Canadian Tire Corporation.
"Through the increased issuance of Canadian Tire Money and successful launch of our Petro-Canada partnership, we are providing additional value to Canadians when they need it most and strengthening our connection with our customers," added Hicks.
FIRST QUARTER HIGHLIGHTS
Consolidated comparable sales were down 1.6%. Traffic to retail stores was only slightly below last year, although consumer spending remained down in a challenging consumer demand environment. Strong in-stock positions and enhanced store experiences contributed to improved customer Net Promoter Score ("NPS") across our banners.
Canadian Tire Retail comparable sales1 were down 0.6%, compared to a decrease of 4.8% in Q1 2023. Essential categories were up 2%, led by Automotive. Discretionary categories were down overall but Seasonal and Gardening categories grew, driven by key brand introductions.
Mark's comparable sales1 were down 1.2%. Effective use of loyalty incentives contributed to traffic growth and growth in casual footwear and outerwear categories. These increases were offset by industrial and workwear declines.
SportChek comparable sales1 were down 6.5% as a result of softer demand in skiing, snowboarding and outerwear in the early part of Q1, partially offset by growth in team sports, hydration and footwear.
Retail gross margin rate (excluding Petroleum)1, outperformed expectations, up 193 bps to 37.1%. Margin rate improvement reflected mix and favourable freight rates leading to product margin appreciation for the quarter. CTC's retail banners continued to offer customers an effective mix of Owned Brands and national brands, which also supported the increase.
Consolidated Income Before Income Taxes ("IBT") was $121.8 million, up $55.2 million compared to Q1 2023. On a normalized basis1, IBT was down $12.5 million or 9.3%.
Retail IBT was $0.6 million, up $12.2 million on a normalized basis1 compared to a loss of $11.6 million in Q1 2023 when the Company incurred shipment delays related to the A.J. Billes Distribution Centre ("DC") fire and a one-time cost to exit a supply chain contract. Significant supply chain reductions and tighter cost control led to lower operating expenses, which offset lower Retail revenue and margin dollars.
Financial Services delivered IBT of $95.7 million. The 19.3% decrease against a strong 2023 result was primarily due to lower gross margin, with net impairment losses and funding costs trending higher, as expected. Cardholder engagement remained strong, with Gross Average Accounts Receivable1 ("GAAR") growth up 4.5% and account growth of 0.6%. Card spend contracted slightly, down 0.6%.
Better Connected strategy investments in loyalty, supply chain, digital and stores are driving operating benefits as well as improving the omnichannel customer experience:
Investments in loyalty partnership capabilities resulted in the introduction of our Petro-Canada partnership at the end of Q1. This initiative has driven an increase in the issuance of Canadian Tire Money ("eCTM"), with the anticipated redemptions poised to generate incremental sales across our network of stores.
In its first full year of operations, the new Distribution Centre in the Greater Toronto Area is delivering beyond expected productivity improvements and managed 10% of CTC's total throughput.
Operating capital expenditures1 totalling $120.4 million in the quarter included the ongoing refresh of the CTR store network with 40+ stores expected to be refreshed during 2024 and the opening of two new format "Bigger, Bolder, Better" Mark's stores in Oakville, Ontario, and Grande Prairie, Alberta showcasing a broader assortment to customers in key markets.
Enabled a richer digital customer experience with the launch of "CeeTee", an artificial intelligence ("AI") shopping assistant designed to streamline the shopping journey around tire selection in CTR's automotive division, and the most recent output of the Company's work and investment in generative AI technology.
CONSOLIDATED OVERVIEW
Revenue was $3,524.9 million compared to $3,707.2 million in the same period last year, down 4.9% or 5.2% excluding Petroleum1.
Consolidated IBT was $121.8 million, an increase of $55.2 million, compared to IBT of $66.6 million in Q1 2023 when the Company recorded $67.7 million of costs related to the DC fire. On a normalized basis, IBT was down 9.3%.
Diluted EPS was $1.38 compared to $0.13 in the prior year. Normalized diluted EPS was $1.38, up $0.38.
Refer to the Company's Q1 2024 MD&A section 4.1.1 for information on normalizing items and for additional details on events that have impacted the Company in the quarter.
RETAIL SEGMENT OVERVIEW
Retail revenue was $3,136.6 million, a decrease of $201.3 million, or 6.0%, compared to the prior year; Retail revenue (excluding Petroleum)1 was down 6.6%, primarily due to lower shipments at CTR.
Retail sales1 were $3,257.5 million, down 2.1%, compared to the first quarter of 2023. Retail sales (excluding Petroleum)1 and consolidated comparable sales were down 1.9% and 1.6%, respectively, in a challenging consumer demand environment.
CTR retail sales1 were down 0.7% and comparable sales were down 0.6% over the same period last year.
SportChek retail sales1 were down 7.5% over the same period last year, and comparable sales were down 6.5%.
Mark's retail sales1 decreased 1.5% over the same period last year, and comparable sales were down 1.2%.
Helly Hansen revenue was down 7.8% compared to the same period in 2023, mainly due to the timing and volume of sports wholesale orders and shipments; the direct-to-consumer eCommerce business continued to show strong momentum in North America.
Retail gross margin was down 1.1% compared to the first quarter of 2023, or down 1.4% excluding Petroleum1. Retail gross margin rate (excluding Petroleum) increased 193 bps to 37.1%.
Retail IBT was $0.6 million, compared to a Retail loss before income taxes of $79.3 million in the prior year, and up $12.2 million on a normalized basis.
Retail Return on Invested Capital1 ("ROIC") calculated on a trailing twelve-month basis, was 8.4% at the end of the first quarter, compared to 11.3% at the end of the first quarter of 2023, due to the decrease in earnings over the prior period.
Refer to the Company's Q1 2024 MD&A sections 4.1.1 and 4.2.1 for information on normalizing items and for additional details on events that have impacted the Company in the quarter.
FINANCIAL SERVICES OVERVIEW
GAAR was up 4.5% relative to the prior year, due to increases in both active accounts and average account balance1, up 0.6% and 3.8% respectively, in the quarter.
Financial Services gross margin was $189.9 million, a decrease of $21.4 million, or 10.2% compared to the prior year. As expected, higher net impairment losses and funding costs were partially offset by revenue growth of 5.2%.
Financial Services IBT was $95.7 million, down $23.0 million, or 19.3% compared to the prior year.
Refer to the Company's Q1 2024 MD&A sections 4.3.1 and 4.3.2 for additional details on events that have impacted the Company in the quarter.
CT REIT OVERVIEW
Net Operating Income1 ("NOI") and Adjusted Funds From Operations ("AFFO") per unit1 were up 5.6% and 4.8%, respectively, in Q1 2024.
CT REIT announced a 3.0% distribution increase that will be effective with the July 2024 payment to unitholders.
For further information, refer to the Q1 2024 CT REIT earnings release issued on May 6, 2024.
CAPITAL ALLOCATION
CAPITAL EXPENDITURES
Operating capital expenditures were $120.4 million, compared to $106.7 million in Q1 2023.
Total capital expenditures were $122.7 million, compared to $118.3 million in Q1 2023.
QUARTERLY DIVIDEND
The Company declared dividends payable to holders of Class A Non-Voting Shares and Common Shares at a rate of $1.75 per share, payable on September 1, 2024, to shareholders of record as of July 31, 2024. The dividend is considered an "eligible dividend" for tax purposes.
SHARE REPURCHASES
On November 9, 2023, the Company announced its intention to repurchase up to $200 million of its Class A Non-Voting Shares ("the Shares"), in excess of the amount required for anti-dilutive purposes, during 2024 as part of its capital management plan (the "2024 Share Repurchase Intention"). To date, the Company has not repurchased any Shares in fulfillment of its 2024 Share Repurchase Intention.
NORMAL COURSE ISSUER BID AND AUTOMATIC SECURITIES PURCHASE PLAN
On February 15, 2024, the TSX accepted the Company's notice of intention to make a normal course issuer bid to purchase up to 4.9 million Shares between March 2, 2024 and March 1, 2025 (the "2024-25 NCIB"). Also on February 15, 2024, the TSX accepted the Company's new automatic securities purchase plan which expires on March 1, 2025 and which allows a designated broker to purchase Shares under the 2024-25 NCIB during the Company's blackout periods.
1) NON-GAAP FINANCIAL MEASURES AND RATIOS AND SUPPLEMENTARY FINANCIAL MEASURES
This press release contains non-GAAP financial measures and ratios and supplementary financial measures. References below to the Q1 2024 MD&A mean the Company's Management's Discussion and Analysis for the First Quarter ended March 30, 2024, which is available on SEDAR+ at www.sedarplus.ca and is incorporated by reference herein. Non-GAAP measures and non-GAAP ratios have no standardized meanings under GAAP and may not be comparable to similar measures of other companies.
A) Non-GAAP Financial Measures and Ratios
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