Canadian Tire Corp. Ltd. CTC-A-T profits fell by more than 30 per cent in the second quarter even amid increased sales, as the company incurred costs related to an operational efficiency program and to pulling its Helly Hansen business out of Russia.
The Toronto-based retailer reported net income attributable to shareholders of $145.2-million, or $2.45 per share, in the 13 weeks ended July 2 – compared with $259.1-million, or $3.68 per share, in the same period the prior year.
The exit from the Russian market had a $33.4-million impact on Canadian Tire’s bottom line. Excluding the impact of such incurred costs in the second quarter, the company said normalized net income attributable to shareholders was $185.8-million, or $3.11 per share.
Canadian Tire first announced a temporary pause to Helly Hansen’s Russian operations in March after that country’s invasion of Ukraine. The company has now sold all of its store leases, remaining inventory and other assets to its long-time business partner in Russia, but the sale did not include the rights to the Helly Hansen brand name or other trademarks; once remaining inventory is sold off, its stores will be closed and products will no longer be shipped to the country. As of March, Helly Hansen had 41 stores in that market and employed more than 300 people.
Canadian Tire said that demand for its products remains healthy, even in an inflationary environment. Shoppers have been returning to physical stores in greater numbers as COVID-19 restrictions have eased, and e-commerce sales remain higher than prepandemic levels, according to the company.
Some major retailers south of the border – including Walmart and Target – have recently cautioned that they will be forced to mark down products to clear out store shelves after they bought too much inventory to cope with supply chain snarls. But chief executive officer Greg Hicks said this is not the case for Canadian Tire – even though the company has been ordering products further ahead of time to ensure availability.
“I’m very pleased with our team’s ability to manage our inventory, especially considering what we’re seeing with large retailers south of the border,” Mr. Hicks told analysts on a conference call Thursday to discuss the results.
The automotive category has grown, as people venture out more and a shortage in new cars led to more spending on maintenance. Demand for casual and industrial clothing has continued to boost sales at its Mark’s stores, and the return to team sports has helped sales at the Sport Chek chain.
A late start to warm weather this year, and unusual spring storms, led to unexpected shifts in buying patterns. Sales of products such as trampolines, bikes and pool floaties fell, though some of these categories have been rebounding in July as the weather shifted.
Revenue grew by 12.4 per cent compared with last year, to $4.4-billion in the quarter.
Executives also noted that the company is seeing growth in products priced above $250 – an unusual trend considering that with high inflation, shoppers frequently “trade down” to lower-priced items to keep their budgets under control. In some cases the retailer is seeing shoppers trade up.
“Although we’re not immune to macroeconomic circumstances, our business is resilient … we’re seeing solid customer demand,” Mr. Hicks said.
Excluding petroleum, retail sales grew by 4.6 per cent in total. Comparable sales – an important metric that tracks sales growth not related to new store openings – grew by 3.9 per cent at Canadian Tire stores, and were up 4.1 per cent at Sport Chek. Mark’s comparable sales grew by 20.9 per cent compared with the prior year.
The “messy” quarter masked “solid underlying performance,” Royal Bank of Canada analyst Irene Nattel wrote in a research note on Thursday. She said customer demand remains strong and comparable sales growth was better than expected.
Strong retail sales were partially offset by higher expenses, including foreign exchange costs.
Canadian Tire’s financial services segment has been signing on more credit-card customers, and saw 25.4-per-cent credit-card sales growth in the quarter. The company reported an increase in its allowance for expected credit loss compared with a decrease in the allowance last year, leading to a $57.6-million variance in income before taxes.
“Risk levels remain below historic levels,” the company said in a statement.
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