TORONTO, Aug. 8, 2024 /CNW/ - Canadian Tire Corporation, Limited (TSX: CTC) (TSX: CTC.A) (CTC or the Company) today released its second quarter results for the period ended June 29, 2024.
- Consolidated comparable sales1 were down 4.6%, as consumers continued to prioritize essential spending in Canadian Tire Retail (CTR)'s most discretionary quarter.
- Diluted and Normalized Earnings Per Share1 (EPS) were $3.56, compared to $1.76 and $3.08 on a normalized basis in Q2 2023.
"We delivered well in the quarter, as top-line pressures were balanced by strong margin and cost control, improving our retail profitability," said Greg Hicks, President and CEO, Canadian Tire Corporation. "In a quarter that traditionally skews heavily to discretionary purchases, consumers remained cautious and weather conditions compounded declines. Yet, Canadians continued to turn to our banners for new products, seasonal favourites, and innovative Triangle Rewards campaigns – with categories and regions of our business providing us positive signals."
"Looking to the second half of the year, we are well positioned with the right assortment and inventory to meet the needs of Canadians and are confidently leveraging investments to strengthen our connection with customers, online and in stores."
SECOND QUARTER HIGHLIGHTS
- Consolidated comparable sales were down 4.6%. The consumer demand environment remained challenging, compounded by cold and wet weather, contributing to sales declines in all regions outside Atlantic Canada.
- CTR comparable sales1 were down 5.6%, compared to growth of 0.1% in Q2 2023. Automotive grew, offset by declines in other divisions.
- SportChek comparable sales1 were down 0.9%, helped by strong sales of footwear, while cycling and casual clothing experienced the most marked decline.
- Mark's comparable sales1 were down 0.8%. Outerwear categories grew, while sales of men's shorts and accessories and industrial wear were down compared to 2023.
- Loyalty sales outperformed non-loyalty sales, with record penetration rates at each banner. Innovative incremental Triangle promotions across CTC banners and the Company's strong Petro-Canada partnership were competitive differentiators. These resulted in elevated loyalty traffic, engagement, and new customer acquisition, driving strong electronic Canadian Tire Money (eCTM) issuance and redemption.
- In-store net promoter score (NPS) was up for the fourth and thirteenth consecutive quarters, respectively, at SportChek and Mark's; store investments and a focus on strong in-stock availability of key brands drove positive customer sentiment.
- Retail gross margin rate (excluding Petroleum)1 remained strong, up 36 bps to 36.0%. Margin improvement at CTR and Helly Hansen offset higher promotional intensity. Favourable freight rates also contributed to the improvement.
- Consolidated income before income taxes (IBT) was $295.8 million, compared to $173.9 million and $281.8 million on a normalized basis1 in the prior year:
- Retail IBT was $170.1 million, up $84.5 million or $9.9 million on a normalized basis1. Significant supply chain reductions and tighter cost control led to lower operating expenses, which more than offset lower Retail revenue and margin dollars.
- Financial Services IBT was $88.5 million, compared to $55.4 million or $88.7 million on a normalized basis1 in the prior year. Higher revenue was offset by lower gross margin, with net impairment losses and funding costs trending higher, as expected. Gross Average Accounts Receivable1 (GAAR) was up 3.2%, mainly due to higher average account balances1, which were up 3.4%, while card spend and average accounts were down slightly.
- CTC continues to make solid progress on the key areas within its Better Connected strategy to enhance the customer experience and drive efficiencies, including:
- Prioritizing the integration of in-store technology and improving access to assortment through the refresh, expansion, or replacement of approximately 20% of CTR stores since March 2022, including 18 in Q2 2024. CTC has also opened new Pro Hockey Life stores in four key Ontario hockey communities and seven new Mark's stores across Ontario, Alberta, and British Columbia.
- Completing the supply chain rollout of goods-to-person automation at the Company's Calgary and Montreal Distribution Centres by the end of Q3 2024.
- Enhancing broadband connectivity at over 800 retail locations, or over half the Company's retail store network, improving IT resiliency and security.
- Building traction with key Owned Brands such as MotoMaster, Vida by Paderno, Sherwood, and Forward with Design, to offset discretionary category headwinds and hold market share, while maintaining the gross margin differential relative to National Brands.
CONSOLIDATED OVERVIEW
- Revenue was $4,132.7 million, down 2.9% compared to $4,255.8 million in the same period last year; Revenue (excluding Petroleum)1 was $3,581.8 million, a decrease of 3.4% compared to the prior year.
- Consolidated income before income taxes was $295.8 million, up $121.9 million compared to the prior year, due in part to the costs related to the A.J. Billes Distribution Centre fire and the GST/HST-related charge recorded in the prior year. On a normalized basis, consolidated income before income taxes was up $14.0 million.
- Diluted EPS was $3.56, compared to $1.76 or $3.08 on a normalized basis in the prior year.
- Refer to the Company's Q2 2024 MD&A section 4.1.1 for information on normalizing items and additional details on events that have impacted the Company in the quarter.
RETAIL SEGMENT OVERVIEW
- Retail sales1 were $5,000.2 million, down 4.1%, compared to the second quarter of 2023. Retail sales (excluding Petroleum)1 and consolidated comparable sales were down 4.7% and 4.6%, respectively.
- CTR retail sales1 were down 5.5% and comparable sales were down 5.6% over the same period last year.
- SportChek retail sales1 decreased 1.7% over the same period last year, and comparable sales were down 0.9%.
- Mark's retail sales1 decreased 0.9% over the same period last year, and comparable sales were down 0.8%.
- Helly Hansen revenue was up 1.2% compared to the same period in 2023.
- Retail revenue was $3,754.8 million, a decrease of $141.3 million, or 3.6%, compared to the prior year; Retail revenue (excluding Petroleum)1 was down 4.3%.
- Retail gross margin was $1,208.8 million, down 3.4% compared to the second quarter of the prior year, and down 3.3% excluding Petroleum1; Retail gross margin rate (excluding Petroleum) increased 36 bps to 36.0%.
- Retail IBT was $170.1 million in Q2 2024, compared to $85.6 million or $160.2 million on a normalized basis in the prior year.
- Retail Return on Invested Capital (ROIC)1 calculated on a trailing twelve-month basis, was 8.5% at the end of the second quarter of 2024, compared to 11.2% at the end of the second quarter of 2023, due to the decrease in earnings over the prior period.
- Refer to the Company's Q2 2024 MD&A sections 4.1.1 for information on normalizing items and additional details on events that have impacted the Retail segment in the quarter.
FINANCIAL SERVICES OVERVIEW
- GAAR was up 3.2% relative to the prior year, mainly due to growth in average account balances, which were up 3.4%. Average active accounts were unchanged.
- Financial Services gross margin was $178.9 million, essentially unchanged from the prior year; higher net impairment losses and funding costs were partially offset by strong revenue growth.
- Financial Services IBT was $88.5 million, up significantly compared to $55.4 million in the prior year, which included the impact of a $33.3 million GST/HST-related charge. On a normalized basis, IBT was down slightly.
- Refer to the Company's Q2 2024 MD&A section 4.1.1 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 3.6% compared to Q2 2023; diluted net income per unit was down 8.0%.
- Announced one new investment totalling $45.2 million, which is expected to add approximately 141,000 square feet of incremental gross leasable area upon completion.
- The sale of a redundant property in Chilliwack, BC, resulted in a one-time gain of $12.8 million to CTC on consolidation.
- For further information, refer to the Q2 2024 CT REIT earnings release issued on August 1, 2024.
CAPITAL ALLOCATION
CAPITAL EXPENDITURES
- Operating capital expenditures1 were $128.1 million in the quarter, $10.3 million lower than Q2 2023.
- Total capital expenditures were $139.8 million, compared to $148.2 million in Q2 2023.
QUARTERLY DIVIDEND
- The Company declared dividends payable to holders of Class A Non-Voting Shares and Common Shares of $1.750 per share, payable on December 1, 2024, to shareholders of record as of October 31, 2024. The dividend is considered an "eligible dividend" for tax purposes.
SHARE REPURCHASES
- On November 9, 2023, as part of its capital management plan, the Company announced its intention to repurchase up to $200 million of its Class A Non-Voting Shares during 2024, in excess of the amount required for anti-dilutive purposes, pursuant to the Company's Normal Course Issuer Bid in 2024. No such repurchases occurred during the quarter.
1) NON-GAAP FINANCIAL MEASURES AND RATIOS AND SUPPLEMENTARY FINANCIAL MEASURES
This press release contains non-GAAP financial measures and ratios, and supplementary financial measures. References below to the Q2 2024 MD&A mean the Company's Management's Discussion and Analysis for the Second Quarter ended June 29, 2024, which is available on SEDAR+ at http://www.sedarplus.ca and is incorporated by reference herein. Non-GAAP measures and non-GAAP ratios have no standardized meanings under GAAP and may not be comparable to similar measures of other companies.
A) Non-GAAP Financial Measures and Ratios
Normalized Diluted Earnings per Share
Normalized diluted EPS, a non-GAAP ratio, is calculated by dividing Normalized Net Income Attributable to Shareholders, a non-GAAP financial measure, by total diluted shares of the Company. For information about these measures, see section 9.1 of the Company's Q2 2024 MD&A.
The following table is a reconciliation of normalized net income attributable to shareholders of the Company to the respective GAAP measures:
YTD | YTD | |||
(C$ in millions) | Q2 2024 | Q2 2023 | Q2 2024 | Q2 2023 |
Net income | $ 223.5 | $ 126.9 | $ 319.5 | $ 169.7 |
Net income attributable to shareholders | 198.8 | 99.4 | 275.6 | 107.2 |
Add normalizing items: | ||||
DC fire | — | 54.9 | — | 104.8 |
GST/HST-related charge1 | — | 24.7 | — | 24.7 |
Normalized Net income | $ 223.5 | $ 206.5 | $ 319.5 | $ 299.2 |
Normalized Net income attributable to shareholders1 | $ 198.8 | $ 174.0 | $ 275.6 | $ 231.7 |
Normalized Diluted EPS | $ 3.56 | $ 3.08 | $ 4.94 | $ 4.07 |
1 | $5.0 million relates to non-controlling interests and is not included in the sum of Normalized net income attributable to shareholders. |
Consolidated Normalized Income Before Income Taxes, Retail Normalized Income Before Income Taxes, and Financial Services Normalized Income Before Income Taxes
Consolidated Normalized Income before income taxes, Retail Normalized Income before income taxes, and Financial Services Normalized Income before income taxes are non-GAAP financial measures. For information about these measures, see section 9.1 of the Company's Q2 2024 MD&A.
The following table reconciles Consolidated Normalized Income before income taxes to Income before income taxes:
YTD | YTD | |||
(C$ in millions) | Q2 2024 | Q2 2023 | Q2 2024 | Q2 2023 |
Income before income taxes | $ 295.8 | $ 173.9 | $ 417.6 | $ 240.5 |
Add normalizing items: | ||||
DC fire | — | 74.6 | — | 142.3 |
GST/HST-related charge | — | 33.3 | — | 33.3 |
Normalized Income before income taxes | $ 295.8 | $ 281.8 | $ 417.6 | $ 416.1 |
The following table reconciles Retail Normalized Income before income taxes to Income before income taxes:
YTD | YTD | |||
(C$ in millions) | Q2 2024 | Q2 2023 | Q2 2024 | Q2 2023 |
Income before income taxes | $ 295.8 | $ 173.9 | $ 417.6 | $ 240.5 |
Less: Other operating segments | 125.7 | 88.3 | 246.9 | 234.2 |
Retail Income before income taxes | $ 170.1 | $ 85.6 | $ 170.7 | $ 6.3 |
Add normalizing items: | ||||
DC fire | — | 74.6 | — | 142.3 |
Retail Normalized Income before income taxes | $ 170.1 | $ 160.2 | $ 170.7 | $ 148.6 |
The following table reconciles Financial Services Normalized Income before income taxes to Income before income taxes.
YTD | YTD | |||
(C$ in millions) | Q2 2024 | Q2 2023 | Q2 2024 | Q2 2023 |
Income before income taxes | $ 295.8 | $ 173.9 | $ 417.6 | $ 240.5 |
Less: Other operating segments | 207.3 | 118.5 | 233.4 | 66.4 |
Financial Services Income before income taxes | $ 88.5 | $ 55.4 | $ 184.2 | $ 174.1 |
Add normalizing items: | ||||
GST/HST-related charge | — | 33.3 | — | 33.3 |
Financial Services Normalized Income before income taxes | $ 88.5 | $ 88.7 | $ 184.2 | $ 207.4 |
CT REIT Adjusted Funds from Operations and AFFO per unit
AFFO per unit, a non-GAAP ratio, is calculated by dividing AFFO by the weighted average number of units outstanding on a diluted basis. AFFO is a non-GAAP financial measure. The following table reconciles GAAP Income before income taxes to FFO and further reconciles FFO to AFFO:
YTD | YTD | |||
(C$ in millions) | Q2 2024 | Q2 2023 | Q2 2024 | Q2 2023 |
Income before income taxes | $ 295.8 | $ 173.9 | $ 417.6 | $ 240.5 |
Less: Other operating segments | 192.5 | 64.5 | 213.2 | 60.6 |
CT REIT income before income taxes | $ 103.3 | $ 109.4 | $ 204.4 | $ 179.9 |
Add: | ||||
CT REIT fair value loss (gain) adjustment | (22.9) | (31.6) | (46.6) | (27.4) |
CT REIT deferred taxes | (0.2) | 0.4 | 0.8 | 0.8 |
CT REIT lease principal payments on right-of-use assets | (0.2) | (0.2) | (0.4) | (0.5) |
CT REIT fair value of equity awards | (0.8) | (0.5) | (1.2) | (0.2) |
CT REIT internal leasing expense | 0.2 | 0.3 | 0.6 | 0.5 |
CT REIT funds from operations | $ 79.4 | $ 77.8 | $ 157.6 | $ 153.1 |
Less: | ||||
CT REIT properties straight-line rent revenue | (1.3) | (0.4) | (2.5) | (0.8) |
CT REIT direct leasing costs | 0.2 | 0.4 | 0.5 | 0.6 |
CT REIT capital expenditure reserve | 6.2 | 6.1 | 12.7 | 12.4 |
CT REIT adjusted funds from operations | $ 74.3 | $ 71.7 | $ 146.9 | $ 140.9 |
Retail Return on Invested Capital
Retail Return on Invested Capital (ROIC) is calculated as Retail return divided by the Retail invested capital. Retail return is defined as trailing annual Retail after-tax earnings excluding interest expense, lease related depreciation expense, inter-segment earnings, and any normalizing items. Retail invested capital is defined as Retail segment total assets, less Retail segment trade payables and accrued liabilities and inter-segment balances based on an average of the trailing four quarters. Retail return and Retail invested capital are non-GAAP financial measures. For more information about these measures, see section 9.1 of the Company's Q2 2024 MD&A.
Rolling 12 months ended | ||
(C$ in millions) | Q2 2024 | Q2 2023 |
Income before income taxes | $ 749.9 | $ 1,291.3 |
Less: Other operating segments | 178.4 | 509.6 |
Retail Income before income taxes | $ 571.5 | $ 781.7 |
Add normalizing items: | ||
Operational Efficiency program | — | 35.4 |
DC fire | (111.4) | 142.3 |
Retail Normalized Income before income taxes | $ 460.1 | $ 959.4 |
Less: | ||
Retail intercompany adjustments1 | 214.9 | 214.8 |
Add: | ||
Retail interest expense2 | 349.1 | 283.2 |
Retail depreciation of right-of-use assets | 612.8 | 616.7 |
Retail effective tax rate | 25.9 % | 27.3 % |
Add: Retail taxes | (312.7) | (448.1) |
Retail return | $ 894.4 | $ 1,196.4 |
Average total assets | $ 22,243.2 | $ 22,079.3 |
Less: Average assets in other operating segments | 4,350.0 | 4,380.6 |
Average Retail assets | $ 17,893.2 | $ 17,698.7 |
Less: | ||
Average Retail intercompany adjustments1 | 4,140.3 | 3,526.0 |
Average Retail trade payables and accrued liabilities3 | 2,711.4 | 2,994.4 |
Average Franchise Trust assets | 560.1 | 484.9 |
Average Retail excess cash | — | — |
Average Retail invested capital | $ 10,481.4 | $ 10,693.4 |
Retail ROIC | 8.5 % | 11.2 % |
1 | Intercompany adjustments include intercompany income received from CT REIT which is included in the Retail segment, and intercompany investments made by the Retail segment in CT REIT and CTFS. |
2 | Excludes Franchise Trust. |
3 | Trade payables and accrued liabilities include trade and other payables, short-term derivative liabilities, short-term provisions and income tax payables. |
Operating Capital Expenditures
Operating capital expenditures is a non-GAAP financial measure. For more information about this measure, see section 9.1 of the Company's Q2 2024 MD&A.
The following table reconciles total additions from the Investing activities reported in the Consolidated Statement of Cash Flows to Operating capital expenditures:
YTD | YTD | |||
(C$ in millions) | Q2 2024 | Q2 2023 | Q2 2024 | Q2 2023 |
Total additions1 | $ 155.9 | $ 78.9 | $ 273.8 | $ 208.0 |
Add: Accrued additions | (16.1) | 69.3 | (11.3) | 51.4 |
Less: CT REIT acquisitions and developments excluding vend-ins | 11.7 | 9.8 | 14.0 | 21.4 |
Operating capital expenditures | $ 128.1 | $ 138.4 | $ 248.5 | $ 238.0 |
1 | This line appears on the Consolidated Statement of Cash Flows under Investing activities. |
B) Supplementary Financial Measures and Ratios
The measures below are supplementary financial measures. See Section 9.2 (Supplementary Financial Measures) of the Company's Q2 2024 MD&A for information on the composition of these measures.
- Consolidated retail sales
- Consolidated comparable sales
- Revenue (excluding Petroleum)
- Retail revenue (excluding Petroleum)
- Retail sales and retail sales (excluding Petroleum)
- Canadian Tire Retail comparable and retail sales
- SportChek comparable and retail sales
- Mark's comparable and retail sales
- Retail gross margin (excluding Petroleum)
- Retail gross margin rate (excluding Petroleum)
- Gross Average Accounts Receivables
- Average account balance
- Loyalty sales as a percentage of retail sales
1) Impact of Bill C-47 GST/HST Legislative Amendments (the "GST/HST-related charge")
The 2023 Federal Budget, released on March 28, 2023, included certain tax measures affecting Canadian Tire Bank, specifically a proposal to amend the definition of "financial services" to exclude clearing services rendered by a payment card network operator. On June 22, 2023, Bill C-47, which included this proposal, received Royal Assent and, as a result, these services are subject to GST/HST both prospectively and retroactively, with a one-year deadline from Royal Assent for the CRA to reassess prior periods that are statute-barred. As a result, a $33.3 million provision was recorded in the second quarter of 2023 in Selling, general and administrative expenses and Provisions in the Consolidated Statements of Income and Consolidated Balance Sheet. This was treated as a normalizing item in the Financial Services segment.
To view a PDF version of Canadian Tire Corporation's full quarterly earnings report please see:
https://mma.prnewswire.com/media/2477891/Q2_2024_Combined_MDA_and_FS___Canadian_Tire_Corporation___English_ID_efc8108ef0fc.pdf
FORWARD-LOOKING STATEMENTS
This press release contains information that may constitute forward-looking information within the meaning of applicable securities laws. Forward-looking information provides insights regarding Management's current expectations and plans and allows investors and others to better understand the Company's anticipated financial position, results of operations and operating environment. Readers are cautioned that such information may not be appropriate for other purposes. Although the Company believes that the forward-looking information in this press release is based on information, assumptions and beliefs that are current, reasonable, and complete, such information is necessarily subject to a number of business, economic, competitive and other risk factors that could cause actual results to differ materially from Management's expectations and plans as set forth in such forward-looking information. The Company cannot provide assurance that any financial or operational performance, plans, or aspirations forecast will actually be achieved or, if achieved, will result in an increase in the Company's share price. For information on the material risk factors and uncertainties and the material factors and assumptions applied in preparing the forward-looking information that could cause the Company's actual results to differ materially from predictions, forecasts, projections, expectations or conclusions, refer to section 13.0 (Forward-Looking Information and Other Investor Communications) of the Company's Q4 2023 MD&A as well as CTC's other public filings, available at https://www.sedarplus.ca and https://investors.canadiantire.ca. The Company does not undertake to update any forward-looking information, whether written or oral, that may be made from time to time by it or on its behalf, to reflect new information, future events or otherwise, except as is required by applicable securities laws.
CONFERENCE CALL
Canadian Tire will conduct a conference call to discuss information included in this news release and related matters at 8:00 a.m. ET on Thursday, August 8, 2024. The conference call will be available simultaneously and in its entirety to all interested investors and the news media through a webcast at https://investors.canadiantire.ca and will be available through replay at this website for 12 months.
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 Company's close to 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.
FOR MORE INFORMATION
Media: Stephanie Nadalin, (647) 271-7343, stephanie.nadalin@cantire.com
Investors: Karen Keyes, (647) 518-4461, karen.keyes@cantire.com
SOURCE CANADIAN TIRE CORPORATION, LIMITED - INVESTOR RELATIONS
