Even as early signs indicate a gradual rebound in spending may be on the way, Canadian consumer sentiment remains “the lowest we’ve seen in a long time,” Canadian Tire Corp. Ltd. CTC-A-T president and chief executive officer Greg Hicks said on Thursday.
The high cost of living and elevated unemployment are putting pressure on spending. And while the Bank of Canada has recently cut interest rates in a bid to stimulate growth, many people are continuing to face mortgage renewals at higher rates, constraining household budgets.
“Even with the rate cuts, there’s still a wide swath of Canadians that are really struggling right now, and it’s going to take some time for the easing cycle to affect consumption,” Mr. Hicks said.
As one of Canada’s largest retailers, which also operates its own bank, Canadian Tire has a broad view of consumer trends across the country. For more than a year, the company has seen spending decline – a trend that has not been limited to lower-income households.
Retailers across the country have been forced to respond by offering discounts to price-conscious shoppers. In the past 100 days alone, Canadian Tire has taken pricing down on hundreds of items in its stores. Executives expect the number of promotions to be up in November and December, as well.
The Toronto-based retailer reported on Thursday that comparable sales – an important metric that tracks sales growth at existing stores that have been open for more than a year – fell by 1.5 per cent in the quarter ended Sept. 28.
Still, there have been small improvements in some sales trends: while shoppers have continued to cut back, the decline in discretionary purchases was not as steep this quarter as in previous quarters, Mr. Hicks noted.
“These may be signals of a slight and gradual unlock of consumer restraint,” he said.
At the flagship Canadian Tire store chain, declines in categories such as gardening and toys persisted, but sales of products such as bikes and fishing gear grew. People who are holding off on buying new cars are also spending more on automotive services to maintain existing vehicles. Overall, comparable sales at the chain were down by 2.2 per cent.
Mark’s sales fell by 2.3 per cent. The stores saw growth in sales of men’s shorts and t-shirts, as well as children’s clothing – a new category at Mark’s. Those gains failed to make up for declines in sales of industrial wear.
At Sport Chek, by contrast, sales were up by 2.9 per cent, marking the first quarter of sales growth in more than a year. The company noted that product promotions and an improved experience at the stores helped to drive improvements in categories such as athletic footwear and hockey gear.
While sales have been softer, Canadian Tire has been cutting costs across its retail operations, and profit margins have been improving. The company reported its profits grew by 8.3 per cent in the third quarter, beating analyst expectations. Canadian Tire also announced a dividend increase, to $7.10 per share on an annualized basis, up from $7 per share previously.
Revenue in the company’s financial services segment grew by 1.5 per cent to $399.1-million, but profits fell amid higher net write-offs and an increase in operating costs.
Asked for his thoughts on this week’s U.S. election results, and the uncertainty that could result from president-elect Donald Trump’s promise of a 10-per-cent to 20-per-cent universal tariff on imports to the United States – with steeper tariffs for goods coming from China – Mr. Hicks said it was difficult to predict. He noted, however, that over the past year, as Canadian Tire continues to diversify its product sourcing globally, it has been importing fewer items that mark China as the country of origin.
“And so as it relates to any type of trade escalation between U.S. and China, and how that impacts us just from that standpoint alone, we’re in a less-risk position than we would have been this time last year, as an example,” Mr. Hicks said. “But you can expect us to be extremely active, really trying to size up what this is all going to look like for us.”
Canadian Tire reported its normalized net income grew to $220.7-million or $3.59 per share in the third quarter, compared to normalized earnings of $203.8-million or $2.96 per share in the same period the previous year.
The normalized figures excluded a charge in the previous year related to the company’s repurchasing a minority stake in its financial services division from Bank of Nova Scotia; insurance recoveries related to a 2023 fire at one of its largest distribution centres; and a one-time gain on a sale of retail property in Toronto. Not including those items, net earnings in the quarter were $220.7-million compared to a $27.8-million loss in the same quarter last year.
The company’s total revenue fell by 1.4 per cent to $4.19-billion. Excluding petroleum sales, revenue was down by 0.4 per cent to $3.6-billion. Sales at the company’s fuel stations were affected by lower gas prices, and the volume of gas sold also decreased.
The results surpassed analyst expectations of $4.18-billion in revenue and $3.04 per share for normalized earnings, according to the consensus estimate from S&P Capital IQ.