Shoppers come and go from a Canadian Tire store in Ottawa on Aug. 11, 2023.Sean Kilpatrick/The Canadian Press
Canadian Tire Corp. Ltd. CTC-A-T reported a sharp drop in sales and profit for the fourth quarter, blaming mild winter weather, high interest rates and a protracted consumer pullback on non-essential purchases.
As one of the country’s largest retailers, Canadian Tire is broadly exposed to the consumer economy, which is under significant pressure. Housing sales have slumped, and people’s shelter costs are up as higher interest rates are making mortgage payments more expensive.
Canadian Tire has seen traffic to its stores fall off, and its financial services division has been recording higher writeoffs in its credit-card portfolio. The company is “operating through what I would call structural uncertainty,” chief executive officer Greg Hicks said during a conference call on Thursday to discuss the results.
That challenging economic environment led the company to again cut its spending targets. Canadian Tire had already been slowing its pace of investments, affecting the rollout of a growth plan launched two years ago involving store upgrades and improvements to its supply chain and digital operations.
The Toronto-based retailer reported a 67.6-per-cent decline in net income in the quarter, which included the important holiday shopping season. Shoppers were reluctant to spend on unnecessary items such as Christmas décor, while a mild December dampened sales for everything from wiper blades to snowboards.
Canadian Tire saw a “fairly material traffic decline” in the quarter because of that reduction in seasonal business, Mr. Hicks said.
Net income attributable to shareholders fell to $172.5-million, compared with $531.9-million in the same period the prior year. Excluding some normalizing items, net income attributable to shareholders fell to $3.38 per share in the quarter ended Dec. 30, compared with $9.34 per share in the prior year. According to the company, about $2.26 of that decline was related to an accounting change in how it records the impact of a margin sharing arrangement with its Canadian Tire store owners.
Canadian Tire’s share price fell by more than 3 per cent on Thursday, and the stock was trading near its 52-week low.
As a whole, 2023 was even more challenging than expected, Mr. Hicks said. Retailers have been offering much more aggressive promotions, particularly on discretionary products, but in some cases, this has not been effective in moving items off the shelves.
“Even with significantly deeper discounts, we aren’t seeing incremental demand materialize,” he said.
While Mr. Hicks said he believes these challenges are temporary, he added that he does not expect “any real growth in the economy” for at least the first half of this year.
“If the intent of restrictive monetary policy was to curb consumer demand and slow the consumer economy, we would certainly say the policy strategy is working,” he said.
The flagship Canadian Tire chain continued to see categories considered essential – such as pet care and automotive services – outperform discretionary purchases. Its credit-card business revealed that apparel sales were under pressure across the industry, with many retailers offering deeper markdowns. And unusually mild weather had an impact at all of its banners, including lower sales of winter items such as boots at Mark’s, and outerwear and skis at Sport Chek.
Across the company’s retail banners, comparable sales – an important metric that tracks sales trends not influenced by store openings or closings – fell by 6.8 per cent in the quarter ended Dec. 30, or 6.9 per cent excluding fuel sales at its gas stations. Mr. Hicks estimated that the weather accounted for roughly half of the sales decline.
For the full year, comparable sales fell by 2.9 per cent, or 3.1 per cent excluding petroleum.
Fourth-quarter revenue fell by 16.8 per cent compared with the same period the prior year, to $4.4-billion. Full-year revenue fell by 6.4 per cent to $16.7-billion.
In addition to its retail sales, Canadian Tire’s credit-card business also provided clear signals of a strained consumer. Credit-card writeoffs – reflecting debt that the company believes it cannot collect – jumped by 30 per cent in Canadian Tire’s financial services division in 2023, compared with the prior year, to $544.2-million. The company’s past-due credit-card receivables also appear to be climbing: In the fourth quarter, past-due bills accounted for 3.6 per cent of receivables, up from 3.3 per cent in the prior quarter.
The company has once again cut its spending targets as it continues to cope with the challenging economic environment. On Thursday, Canadian Tire forecast its operating capital expenditures would be in the range of $475-million to $525-million, pulling back on the range it disclosed three months ago, which had pegged expenditures at $550-million to $600-million for the upcoming year.
“We’re still operating with minimal economic visibility,” Mr. Hicks said on the call.
That has forced Canadian Tire to slow its spending on the four-year, $3.4-billion “Better Connected” strategy announced in March of 2022. That strategy aimed to increase sales, with investments including store upgrades, additional warehouse construction, new product launches and expansion of its Triangle loyalty program. In November, the company reported that it no longer expects to spend as much as $3.4-billion. At nearly the halfway mark, the company has spent roughly $1.4-billion in capital.
Delays in real estate projects and supply chain investments contributed to a decline in operating capital expenditures in 2023, which amounted to $615.3-million compared with $747.6-million in the prior year.
“We’re still firmly committed to our Better Connected strategy,” Mr. Hicks said. “We strongly believe that a new cycle will emerge. There always is. And we’ll continue to invest in front of it to be well-positioned when discretionary demand returns.”
With a report from David Milstead