Canadian Tire reported first-quarter earnings on Thursday.Maria Collins/The Globe and Mail
Canadian Tire Corp. Ltd. CTC-A-T has been slashing prices on more than 10,000 items in its stores in recent months as it seeks to continue attracting customers that the retailer says are remaining resilient in the face of inflationary pressures, but are “selective” about their purchases.
“In the face of macroeconomic confusion, they have their chin up and their eyes wide open, even as budgets get strained,” president and chief executive officer Greg Hicks said during a conference call on Thursday to discuss the company’s first-quarter results. “Customers are still shopping, but they are more selective and more value-driven. We are obviously watching these trends very carefully.”
The price cuts helped to drive higher sales volumes for those products, Mr. Hicks said, although a slow start to spring dampened demand for seasonal and gardening items, contributing to a decrease in retail sales in the quarter.
A consistent surprise to the executives, however, has been that households with lower incomes and higher debt burdens are showing the highest sales growth among Canadian Tire shoppers. Credit-card holders with the company’s bank are also paying their balances at “healthy” levels, Mr. Hicks said.
However, the Toronto-based retailer is closely monitoring spending trends as gas prices have spiked because of the war in Iran, putting further pressure on Canadian households.
“This is no surprise, but it has our attention,” Mr. Hicks said.
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Higher fuel prices put pressure not only on consumers, but also on retailers, because it boosts the cost of producing many products and transporting them to stores. Those freight increases are still trickling down the supply chain.
“I do think there are going to be some inflationary headwinds for us, particularly as we head into the back half of this year,” executive vice-president and chief operating officer TJ Flood said during the call.
Canadian Tire reported that sales fell to $3.4-billion in the quarter ended April 4, down 1.4 per cent compared with the same period the year before. Growth at the company’s SportChek and Mark’s banners was offset by declines at the flagship Canadian Tire chain.
Comparable sales – an important industry metric that tracks sales growth and declines without the impact of store openings and closings – fell by 1 per cent, below analysts’ expectations of more than 2-per-cent growth, according to the consensus estimate from S&P Capital IQ.
Comparable sales fell by 2.3 per cent at Canadian Tire stores, which Mr. Hicks blamed on a “seemingly endless” winter that affected shopping behaviour. A calendar shift and snowy weather that pushed up seasonal purchases such as snow blowers into the prior quarter were also a factor.
Meanwhile, SportChek’s comparable sales grew by 3.3 per cent compared with the prior year on strong performance of items such as sports fan clothing and athletic shoes. Mark’s strength in casual clothing drove comparable sales up by 1.2 per cent.
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The first quarter is typically the smallest sales period of the year for many retailers, including Canadian Tire. In the second quarter so far, particularly in regions where spring weather has begun to arrive, sales are improving, executives said.
But the softness may indicate a broader shift in consumer sentiment. Canadian Tire’s results seemed to align with other retailers that sell “discretionary,” or non-essential products and have seen slowdowns in comparable sales, Scotiabank analyst John Zamparo wrote in a research note on Thursday.
Furthermore, recent investor-marketing meetings in the retailing and consumer products industry have revealed “incremental pessimism on the state of Canadian consumers,” Mr. Zamparo wrote in a separate note on Thursday.
Canadian Tire reported overall revenue grew 3.3 per cent in the quarter to $3.6-billion, boosted by higher shipments of products to store owners as they prepare for the spring and summer season, as well as growth in the company’s financial services segment.
Canadian Tire’s net income attributable to shareholders nearly quadrupled in the quarter, but the comparable results last year were affected by significant costs related to the company’s restructuring and transformation efforts. Adjusting for those prior-year costs, normalized net income attributable to shareholders declined to $107-million, compared with $111.4-million the prior year. Normalized diluted income per share grew to $2.02, compared with $2 in the prior year.