A weaker Canadian dollar and growing trouble in the oil industry put the squeeze on Canadian Tire Corp. (TSX:CTC.A) in the second quarter.
Chief executive Michael Medline said Thursday that while sales were up, even at stores in the oil hub of Fort McMurray, Alta., the falling price of crude looms large over its business.
"We are very concerned, until this picks up, with northern Alberta," Medline told analysts in a conference call
"We saw good sales but we are not fooling ourselves. It is going to be tough sledding there."
The negative impact was particularly evident at its Mark's industrial wear stores as the oil industry began to cut jobs and shut down projects earlier this year.
Canadian Tire thrives on sales of its industrial wear, like steel-toe boots and overalls, a segment that tends to have some of the highest margins across all of its businesses.
Mark's hopes to mitigate some of the slowdown by placing an emphasis on casual men's and women's clothing at its Alberta stores.
"We know that it will be an uphill battle to make up for industrial wear over the very near term," Medline said.
Outside of a slowdown in Alberta, the persistent weakness of the loonie is also causing some concern for the retailer.
The weaker currency left an impact of about $35 million on foreign-sourced products during the quarter that ended July 4, Medline said. Part of the effect was mitigated by price hedging with its suppliers.
In its results, Canadian Tire reported that second-quarter net income rose four per cent to $186.2 million, or $2.15 per diluted share. That compares to $178.9 million, or $2.12 per diluted share, a year earlier.
Total revenue increased three per cent to $3.26 billion, partly affected by slower growth in sports equipment and work apparel.
The earnings missed average analyst expectations by five cents per share, according to Thomson Reuters, and Medline said he thought the results were "not good enough" either.
Executives at Canadian Tire have been focused on boosting productivity across its business. During the quarter the company booked severance costs from recent layoffs, a move that Medline said will help make the financials of the organization stronger against the falling dollar.
"The proactive work that the Canadian Tire team has been doing to deal with foreign exchange challenges has made the difference in our results," he said.
"But we are not nearly done. We finally and convincingly have momentum behind productivity and are generating tangible results."
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This content appears as provided to The Globe by the originating wire service. It has not been edited by Globe staff.