Canadian Tire Corp. Q1 Retail Sales Up 3.7 Percent

Canadian Tire Corporation, Ltd, (CTC), which announced last week it’s intent to acquire Forzani Group Ltd., reported Consolidated retail sales increased 3.7%, consolidated revenues increased 4.6% and consolidated net income increased 13.3% in the first quarter ended April 2, compared to Q1 2010. Basic earnings per share increased 13.5% to $0.72 per share.

While comps declined 1.4 percent at the company’s 487 Canadian Tire stores, they rose 6.2 percent at its 382 Mark’s stores, which specialize in selling work clothes. CTC is one of Canada’s largest retailers with more than 1,200 retail and gasoline outlets from coast-to-coast. It’s primary retail business categories are Automotive, Living, Fixing, Playing and Apparel.

“Our revenue performance in Automotive, Apparel and Financial Services met our expectations for the quarter and we are pleased with our overall consolidated earnings and growth,” said Stephen Wetmore, President and CEO, Canadian Tire Corp.  “We saw strong Retail sales in January and February, however, unseasonable weather in March, and continuing into April, has reduced our customer traffic and sales in seasonal product categories.

“We are a strong business, executing well on all our key programs, so it’s unfortunate to see how our seasonal business impacted our results this quarter,” Wetmore said.

Total retail sales in the first quarter increased by 3.7% over the prior year. The Retail segment net income before taxes increased 16.1% primarily due to higher revenues, higher gross margin dollars and lower interest costs.

The lack of spring weather and the resulting decrease in customer traffic led to a 0.6% decrease in retail sales at Canadian Tire stores in Q1 2011 versus Q1 2010.  The cool weather later in the quarter impacted the Living, Fixing and Playing areas of the store, specifically in weather-related categories such as gardening, cycling and backyard.

Retail

Retail sales at Mark’s stores increased 6.2% over the prior year.  Growth was most prominent in the industrial wear category, with men’s industrial footwear and workwear contributing to the sales growth.  Sales declined slightly in men’s casual wear and women’s wear.

Retail sales at Canadian Tire Gas (Petroleum) locations increased 15.8% over the prior year, driven by a 4.2% increase in gas volumes that are attributable primarily to the new petroleum sites located along the 400 series highways in Ontario and a significant increase in pump prices over the previous year.  A strong increase in ancillary sales through car washes and convenience stores also contributed to Petroleum’s positive sales result.

Financial services

Financial Services net income before taxes increased 8.2% due to lower loan impairment expenses and reduced finance costs.  These were partially offset by increased operating expenses associated with sales tax changes and the migration to chip card technology.

The rolling 12-month net write-off rate on the credit card loan portfolio was 7.38%, down from 8.01% from Q1 2010.

The rolling 12-month return on receivables was 5.09% up from 3.93% in Q1 2010.  The return on receivables is slightly above our aspiration of 4.5-5.0%.