Shoppers exit a Canadian Tire store in Toronto on May 9. The company reported lower sales in its first quarter, citing a challenging consumer demand environment.Sammy Kogan/The Globe and Mail
As Canadian consumers remain in a funk, cutting back on non-essential spending to cope with the higher cost of living, store owners are changing how they stock their shelves and delaying purchases while they await a revival in demand for their products.
That trend has been noticeable at one of Canada’s largest retailers: On Thursday, Canadian Tire Corp. Ltd. CTC-A-T reported lower retail sales in its first quarter, citing a “challenging consumer demand environment.” As they have in the past, executives noted that declines were sharpest in discretionary categories, as shoppers continue to tighten their budgets. With the spring and summer seasons approaching – where such non-essential categories as home goods and entertainment make up a large portion of sales – Canadian Tire dealers have been buying less than usual, leading to a reduction in shipments to stores.
“I think it’s really going to be linked to how consumer demand comes in, and they’re going to more tightly manage it that way,” TJ Flood, president of Canadian Tire Retail, said during a conference call on Thursday to discuss the company’s first-quarter results. In previous years, he added, store owners were more likely to buy their inventory in advance. But they have begun adjusting that approach this year, shifting to a more reactive strategy.
“They’re watching demand signals very closely. The back half of last year in discretionary, the signals weren’t strong,” Mr. Flood said. With the first signs of spring emerging in recent weeks, the company noted better-than-expected early sales in categories such as backyard amusement and outdoor cooking. The company is also continuing to emphasize essential products in its inventory purchases, and will be focused on advertising its own brands to price-sensitive shoppers.
Canadian Tire reported that traffic to its stores fell slightly in the first quarter ended March 30. Comparable sales – an important metric that tracks sales trends at stores open more than a year – fell by 1.6 per cent compared with the same period the prior year, when sales had also fallen by 2.5 per cent on a year-over-year basis.
At the flagship Canadian Tire chain, comparable sales fell by 0.6 per cent, and those declines came from discretionary categories, while sales of essential products and services grew by 2 per cent. Automotive categories such as tires, cleaning products and auto services were particularly strong, executives said.
Comparable sales fell by 1.2 per cent at casual clothing and work wear chain Mark’s, and by 6.5 per cent at Sport Chek. The athletic store chain saw lower sales for winter categories such as outerwear, skiing and snowboarding, which executives blamed on unseasonable weather in Ontario, Quebec and B.C. this year.
Over all, revenue fell by 4.9 per cent in the quarter compared to the prior year, to $3.5-billion. The first quarter is typically the slowest period of the year for Canadian Tire, as the post-holiday period is for many retailers.
“I’ve previously stated that Canadian Tire often acts as a barometer for the Canadian economy overall,” chief executive officer Greg Hicks said during Thursday’s call, adding that the macroeconomic environment has affected the business. “We remain vigilant, closely monitoring economic indicators. Recent reports point to a slower pace of growth, potentially signalling forthcoming interest rate adjustments. Such a move could foster stability, easing uncertainties in our business operations.”
The company has been cutting costs, and also saw one-time expenses fall compared with the first quarter in 2023, when Canadian Tire incurred a cost to cancel a supply-chain contract and was dealing with the effects of a fire at one of its largest distribution centres in Brampton, Ont. In the first quarter, the company benefited from lower inventory, which reduced storage and logistics costs. Canadian Tire also recorded the first savings from more than 200 job cuts announced last fall. The layoffs amounted to 3 per cent of the company’s work force at the time, and were coupled with a significant pullback in hiring.
Canadian Tire’s retail gross profit margin rate was 37.1 per cent, excluding petroleum sales. The gross margin rate was up 1.93 percentage points, exceeding the company’s expectations. The company benefited from lower shipping rates, and from the balance of its product mix, which includes both big national brands as well as private-label products that tend to deliver bigger profit margins.
Canadian Tire reported net income attributable to shareholders of $76.8-million or $1.38 a share, compared with $7.8-million or 14 cents a share in the same quarter the prior year – results that included a $49.8-million impact from the 2023 distribution centre fire. Adjusting for that amount, normalized net income attributable to shareholders in the prior year was $57.6-million or $1 a share.
During the fourth quarter, the company also completed a deal to buy back the 20-per-cent stake in its financial services division previously held by Bank of Nova Scotia. As a result, Canadian Tire’s net income attributable to shareholders in the first quarter reflected 100 per cent of the bank’s earnings – which typically account for the majority of the company’s first-quarter profitability.
When the $895-million deal was announced last October, the company also disclosed it would launch a strategic review of the financial services division, hiring Goldman Sachs to advise on “the optimal ownership structure” for the business. Chief financial officer Gregory Craig said on Thursday’s call that interest in the Triangle Rewards loyalty program has met the company’s expectations, and that the review is continuing.
The financial services division reported a 5.2-per-cent increase in revenue, to $19.2-million, largely owing to higher interest income from a growth in credit-card receivables. Past-due credit card receivables and the net write-off rate were both higher than the previous year, as they have been in recent quarters. Financial services income before income taxes fell by 19.3 per cent to $95.7-million in the quarter.