Canadian Tire Corporation,
Limited reported consolidated revenue was up $29.9 million reflecting
strong sales growth at FGL Sports and Mark's and increased shipments in
key categories at CTR. Consolidated net income rose 15.8 percent compared to Q2
2012 to $154.9 million, due in part to the impact of FGL Sports banner
rationalization charges in the previous year, as well as increased
revenues and stronger margin contributions in the Retail segment and
strong growth in the Financial Services business. Diluted earnings per
share increased to $1.91, up 16.5 percent over Q2 2012. Normalizing for the
one-time costs associated with the FGL Sports banner rationalization
initiative, diluted earnings per share increased 4.4 percent.
“We are excited by this quarter's strong sales performance
across our company, particularly in Sport Chek where we had exceptional
sales growth,” said Stephen Wetmore, President and CEO Canadian Tire
Corporation. “Mark's and CTR also achieved strong sales reinforcing
that our strategies in those businesses are delivering results. In
addition, we continued to successfully manage our retail margins and
benefited from another excellent quarter from Financial Services.”
| (C$ in millions, except per share amounts) | Q2 2013 | Q2 2012 | Change | YTD Q2 2013 | YTD Q2 2012 | Change | ||||
| Retail sales1 | $ | 3,557.5 | $ | 3,483.4 | 2.1% | $ | 5,993.0 | $ | 5,898.6 | 1.6% |
| Revenue | 3,021.1 | 2,991.2 | 1.0% | 5,500.9 | 5,430.7 | 1.3% | ||||
| Net income | 154.9 | 133.7 | 15.8% | 227.9 | 204.7 | 11.3% | ||||
| Basic earnings per share | 1.92 | 1.64 | 16.5% | 2.82 | 2.51 | 12.0% | ||||
| Diluted earnings per share | 1.91 | 1.63 | 16.5% | 2.80 | 2.50 | 12.0% | ||||
| 1 Retail sales refer to the point of sale (i.e. cash register) value of all goods and services sold to retail customers at Canadian Tire Dealer-operated, Mark's, PartSource and FGL Sports franchisee-operated, Petroleum retailer-operated and corporate-owned stores across the retail banners and do not form part of the Company's consolidated financial statements. Revenue, as reported in the Company's consolidated financial statements, is primarily comprised of the sales of goods to Canadian Tire Dealers and to Mark's, PartSource and FGL Sports franchisees, the sale of gasoline through agents, and the sale of goods to retail customers by Mark's, PartSource and FGL Sports corporate-owned stores. Management believes that retail sales and related year-over-year comparisons provide meaningful information to investors and are expected and valued by them to help them assess the size and financial health of the retail network of stores; these measures also serve as an indicator of the strength of the Company's brand, which ultimately impacts its consolidated financial performance. Refer to sections 2.3 and 8.3 in the Company's Q2 2013 MD&A for further information. |
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Retail Segment Overview
Retail sales increased $74.1 million or 2.1 percent in the
quarter despite the closure of over 80 FGL Sports stores and as a result
of higher sales at CTR, Mark's and FGL Sports compared to the prior
year.
CTR retail sales and same store sales increased 2.9 percent and
2.0 percent respectively in the quarter, led by strong sales performances
across all divisions, particularly in Automotive and Living. Automotive
service centres saw improved sales in “do it for me” parts and labour
while automotive maintenance, light auto parts and car care and
accessories also experienced strong sales in the quarter. Increased
sales in non-seasonal businesses such as key kitchen and home
organization categories also contributed to the positive sales results.
In addition, solid sales in key seasonal categories such as backyard
living and cycling also increased in May and June, offsetting the
softness seen in the first four months of the year in these categories.
FGL Sports had another very successful quarter as the
business continued to move ahead with the implementation of its growth,
rebranding and sports partnerships strategy. At Sport Chek, the core
corporate banner, sales were up 16 percent (same store sales up 10 percent). Overall
at FGL Sports, same store sales were up 7.2 percent over last year and retail
sales were up 1.4 percent despite over 80 fewer stores as a result of the
Company's banner rationalization initiative in Q2 2012. Sales were
strong across the country, especially in athletic apparel, running and
training shoes and in sports equipment.
Retail sales at Mark's grew 6.5 percent while same store sales
increased by 6.4 percent, driven in part by improved in-store presentation and
product assortment and by increased sales in women's casual wear,
industrial apparel and accessories. Sales results reflected the success
of the new rebranded Mark's stores and significantly fewer clearance
sales compared to the prior year. Sales were strongest in the first two
months of the quarter with positive sales performance spread across all
regions of the country.
As part of ongoing efforts to manage the balance between
sales and margins, the Company achieved higher gross margins in its
Retail segment due to less discounting and a more favourable mix of
products.
Retail segment income before income taxes was up 5.5 percent
(down 11.8 percent excluding one-time charges related to the FGL Sports banner
rationalization initiative) compared to the prior year. Increases in
Retail segment revenue and gross margin were impacted by lower volumes
and margins in the Petroleum business. Higher operating expenses in the
segment was largely related to the timing of marketing expenditures and
the planned incremental investment in advertising and marketing tied to a
number of the Company's major strategic initiatives.
Financial Services
Financial Services continued to be a strong contributor in
the second quarter. Financial Services' income before income taxes
increased 32.8% compared to the prior year. The increase was due to
higher revenue related to credit card receivables growth reflecting the
acquisition of new customers as well as improved write-off performance.
Real Estate Investment Trust Update
In the first quarter of 2013, the Company announced its
intention to create a Real Estate Investment Trust (REIT) to acquire a
geographically diverse portfolio of approximately 18 million square feet
of Canadian Tire's real estate assets. Since that announcement, work
has progressed according to plan. The Company expects to complete the
Initial Public Offering (IPO) of the REIT in the fall of 2013, subject
to prevailing market conditions and receipt of required regulatory
approvals, including approval to list the units on the Toronto Stock
Exchange.
A highly experienced senior management team for the REIT
is now in place. Ken Silver, President, Canadian Tire Real Estate
Limited, has been selected as Chief Executive Officer for the REIT. In
his former position, he had responsibility for Canadian Tire
Corporation's real estate portfolio in addition to a number of other
corporate responsibilities. Mr. Silver has more than 20 years of real
estate experience in Canada and the United States.
The Company also announced that Louis Forbes has been
selected as Chief Financial Officer for the REIT. Mr. Forbes is an
experienced executive with over 20 years in the real estate industry and
has most recently served as the Executive Vice President and Chief
Financial Officer of Primaris, a Canadian-based REIT organization with
approximately $5 billion in assets.
Capital Expenditures
Capital expenditures for the second quarter were $80.7 million
compared to prior year spending of $68.8 million. Capital expenditures,
while in line with the Company's 2013 plan, increased compared to the
prior year primarily due to increased capital spending on real estate
projects including costs associated with new FGL Sports banner store
openings, Smart store conversions at CTR and store network rebranding
and other activity at Mark's.
Quarterly Dividend
Canadian Tire Corporation has declared a quarterly
dividend of 35 cents per share on each Common and Class A Non-Voting
share. The dividend is payable December 1, 2013 to Common and Class A
shareholders of record as of October 31, 2013. The dividend is
considered an “eligible dividend” for tax purposes.
Please refer to Management's Discussion and Analysis for further detail and information on the charts below.
INTENTION TO SEEK FINANCIAL PARTNER FOR $4.4 BILLION CREDIT CARD PORTFOLIO
The Company announced that it intends to seek a financial partner for
the credit card assets and related funding liabilities of its Financial
Services business and to enter into an arrangement if appropriate
strategic and financial conditions are met.
A new arrangement would allow the Company to continue to enjoy the
meaningful financial and strategic benefits of its highly-successful
Financial Services business while further reducing the financing risk of
funding its credit card assets. The Company believes that the strong
performance of its portfolio and current capital market conditions will
make the Canadian Tire credit card portfolio an attractive asset for a
potential partnership.
“In recent years, we have been working to better integrate Financial
Services with our Retail operations,” Wetmore said. “As a result of
that work, we are now well-positioned to explore an arrangement that
would allow us to increase our financial flexibility while continuing to
enjoy the substantial contributions of our Financial Services
business.”
Any arrangement would be expected to result in minimal impact on jobs and existing operations.
| Consolidated financial results1 | ||||||||||
| (C$ in millions, except per share amounts) | Q2 2013 | Q2 2012 | Change | YTD Q2 2013 | YTD Q2 2012 | Change | ||||
| Retail sales2,3 | $ | 3,557.5 | $ | 3,483.4 | 2.1% | $ | 5,993.0 | $ | 5,898.6 | 1.6% |
| Revenue | $ | 3,021.1 | $ | 2,991.2 | 1.0% | $ | 5,500.9 | $ | 5,430.7 | 1.3% |
| Gross margin | $ | 944.0 | $ | 895.5 | 5.4% | $ | 1,710.7 | $ | 1,644.5 | 4.0% |
| Other income (expense) | (3.7) | (4.2) | (10.7)% | 4.0 | (0.3) | 1374.9% | ||||
| Operating expenses (excluding depreciation & amortization) | 616.6 | 592.1 | 4.1% | 1,179.3 | 1,138.6 | 3.6% | ||||
| EBITDA4 | $ | 323.7 | $ | 299.2 | 8.2% | $ | 535.4 | $ | 505.6 | 5.9% |
| Depreciation and amortization | 84.8 | 83.9 | 1.1% | 167.5 | 163.2 | 2.6% | ||||
| Net finance (income) costs | 26.1 | 31.5 | (16.9)% | 54.8 | 61.1 | (10.2)% | ||||
| Income before income taxes | $ | 212.8 | $ | 183.8 | 15.8% | $ | 313.1 | $ | 281.3 | 11.3% |
| Effective tax rate | 27.2% | 27.3% | 27.2% | 27.3% | ||||||
| Net income | $ | 154.9 | $ | 133.7 | 15.8% | $ | 227.9 | $ | 204.7 | 11.3% |
| Basic earnings per share | $ | 1.92 | $ | 1.64 | 16.5% | $ | 2.82 | $ | 2.51 | 12.0% |
| Diluted earnings per share | $ | 1.91 | $ | 1.63 | 16.5% | $ | 2.80 | $ | 2.50 | 12.0% |
| 1 | For financial definitions refer to the Glossary of Terms on pages 124-127 of the 2012 Annual Report and section 8.3 of the Q2 2013 MD&A for further information. |
| 2 | Retail sales for the prior year have been restated. Refer to section 8.3 for more details. |
| 3 | Refer to sections 2.3 and 8.3 of the Q2 2013 MD&A for further information on retail sales. |
| 4 | Non-GAAP measure. Refer to non-GAAP measures in section 8.3 for more details. |
| Retail Segment financial results1 | |||||||||||||||
| (C$ in millions) | Q2 2013 | Q2 2012 | Change | YTD Q2 2013 | YTD Q2 2012 | Change | |||||||||
| Retail sales2,3 | $ | 3,557.5 | $ | 3,483.4 | 2.1% | $ | 5,993.0 | $ | 5,898.6 | 1.6% | |||||
| Retail return on invested capital (ROIC) | 7.34% | 7.88% | N/A | N/A | |||||||||||
