Canadian Tire Corporation, Limited outlined its three-year vision to keep the Company on offence in a rapidly changing retail environment and grow annual sales by at least 3 percent at Canadian Tire, 5 percent at Mark’s and 9 percent at FGL Sports.
Growth from Core Businesses
“We can unlock tremendous growth in our existing businesses,” said Michael Medline, President and incoming CEO of Canadian Tire Corporation. “We have an innovative and aggressive management team that I would put up against the best in the industry. We have exceptional entrepreneurs in our Associate Dealers at Canadian Tire. Each of our businesses has a clear three-year vision for growth-and were already seeing the early results of changes that were initiated in recent years.”
Canadian Tire and Mark’s are executing a generational shift in the target customer-continuing to be relevant for today’s core customers, while becoming more relevant to young families with kids. This will involve an evolution in product assortments, marketing, store layouts and investments in digital and online offerings.
Sport Chek is one of the fastest growing retailers in North America and will continue to drive growth through significant brand investments and over two million square feet of new, premium retail space between 2012 and 2017. Investments in digital innovations and technology at Sport Chek are expected to attract new customers and increase the frequency and size of purchases-and learnings from the digital journey will accrue to the rest of the Company.
Canadian Tire Financial Services will continue to provide a strong value proposition for Canadian Tire customers, including in-store instant credit and increased loyalty rewards through the new Canadian Tire loyalty program for Options MasterCard holders.
Canadian Tire’s greatest asset is its strong, trusted brand with customers. The Company will continue to invest in communities, with a focus on sports through its We All Play for Canada platform and national partnership with the Canadian Olympic Committee. This will include getting kids active for an hour a day in schools through the Active at School program, and helping families in need get their kids into organized sports programs through the Company’s charity, Jumpstart.
The Company announced financial aspirations for its businesses, including annualized sales growth of 3%+ at Canadian Tire, 5%+ at Mark’s and 9%+ at FGL Sports. In addition, the Company also announced targets for return on invested capital of 9% by the end of 2017, return on receivables growth in the financial services business of 6%+ and average diluted EPS growth of 8-10% over the three-year period.
Balanced Approach to Capital Allocation
“We will be judged on our results and how wisely were investing shareholders money,” said Medline. “Our core businesses will have the capital they need to grow and compete-including increased investments in digital and technology. We are continually evaluating acquisition opportunities, but we have proven that were slow to the trigger and are vigilant in our selection criteria. Any acquisition has to make sense strategically and financially. It has to be the right cultural and business fit and it has to generate a strong return.”
“Meanwhile, we will continue to return capital to our shareholders-through dividend payments and buying back our shares when we believe that we are undervalued in the market and that it is the best use of our cash,” added Medline.
The Company expects to make an average annual capital investment of $575 million from 2015-2017, including significant new investments in digital technology and an expansion and upgrade of the Company’s store network. These investments do not include expenditures related to distribution centre capacity and any properties acquired by CT REIT from vendors other than the Company.
The Company announced that it intends to buy back an additional $400 million of the Company’s Class A Non-Voting Shares through to the end of 2015, subject to regulatory approval. It also confirmed that it will maintain its dividend policy, paying out 25-30% of the prior year’s normalized earnings. The Company has a history of increasing its dividend, with nine increases over the last ten years to reach the current payout of $2.00 per share.
As the Company continues to evaluate possible acquisitions to grow core categories, it will look for companies with a strong financial outlook, a brand with great potential, a profitable base and runway for growth. Also, any acquisition must have a distinctive long-term value proposition that can be strengthened through existing CTC expertise.