SportChek’s comparable sales climbed 4.1 percent in the second quarter ended July 2 over the same period last year, overcoming supply chain disruption and benefiting from the return to organized team sports.
The 4.1 percent comp gain came on top of a 28.6 percent hike in the 2021 second quarter as stores comped against year-ago pandemic-related closures.
“Getting national brands on shelves in the quarter was challenging, giving supply chain issues, but the hard work the team put in meant we got our fair share relative to others in the market,” said Gregory Craig, EVP and CFO, of the SportChek segment on a conference call with analysts. “And we were in stock in key categories, which helped across the SportChek banners. The continued resumption of organized team sports, particularly baseball and soccer, drove growth.”
The SportChek segment includes stores that operate in Canada under the SportChek, Sports Experts, Atmosphere, Sports Rousseau, and Hockey Experts banners.
Licensed clothing sales were also up with the return of spectator sports, including the NHL playoffs, the Blue Jays return to Toronto, and increased attendance at Toronto Raptors games, contributing to higher customer demand, said Craig. Hockey also continued to enjoy a tailwind into the second quarter.
The introduction of the athleisure brand FWD (Forward With Design) in the first quarter was another contributor to strong sales growth.
“We had a higher mix of in-store sales with the stores fully open,” added Craig. “And again, this quarter, margin benefited from the improvements we were making around inventory and promo management. Selling a better mix of regular priced product is driving better productivity and profitability and allowed us to more than offset higher freight costs.”
Overall sales for the SportChek segment increased 0.6 percent in the second quarter and reached Canadian C$476.1 million. Comparable-store sales exclude the impact of the National Sports banner, which was closed last year.
At Helly Hansen, which Canadian Tire acquired in 2018, external revenue in the quarter grew 38.9 percent to C$139.6 million from C$100.6 million a year ago. Sales surged 50 percent on a currency-neutral basis.
Craig said growth for Helly Hansen was broad-based across sport, workwear and Musto, the British sailing brand acquired by Helly Hansen in 2017.
“All regions delivered double-digit sales growth, and the growth was particularly strong in North America, which represents almost a quarter of Helly Hansen revenue,” said Craig. “Both Canada and the U.S. were up significantly as we introduce new products at our banners and continue to strengthen our distribution capabilities.”
Canadian Tire’s overall results were impacted by a one-time expense of CC$36.5 million related to the exit of Helly Hansen operations in Russia.
Asked by an analyst if the decision to exit Russia was made for business reasons, Greg Hicks, Canadian Tire’s CEO, said, “It was a choice. We decided the right decision for our brand and our company was to exit the market tactically, operationally….There’s no real barriers for us to continue to operate in the country. But we made the strategic choice that we did.”
Companywide, retail sales reached C$5.36 billion, up 9.9 percent, compared to the second quarter of 2021. Consolidated comparable sales (excluding petroleum) increased 5.0 percent.
At its other operations, retail sales at the flagship Canadian Tire chain increased 3.8 percent in the quarter with comparable sales up 3.9 percent over the same period last year. At Mark’s, the workwear chain, sales increased 21.1 percent in the quarter, and comparable sales were up 20.9 percent over the same period last year
Reported income before income taxes (IBT) was C$238.1 million, down 33.4 percent compared to the second quarter of 2021. The quarter included one-time costs related to the exit of Helly Hansen operations in Russia, and operational efficiency program costs, which in total represented a C$46.2 million impact to income before income taxes level
On an adjusted basis excluding the charges, income before taxes were down 22.0 percent to C$284.3 million.
Lower earnings at its retail operations reflect higher expenses, including foreign exchange costs, offsetting strong revenue growth and increased gross margin dollars. The higher expenses reflected increased marketing costs and store operations expense, given stores were open for the whole quarter, and some additional marketing expense in relation to Canadian Tire’s 100th-anniversary campaign.
Retail gross margin rate excluding petroleum remained basically flat to last year, despite absorbing significant freight headwinds as fuel prices spiked. Some product cost inflation was seen across banners. Targeted promotions, improved product margins and the shift to a higher mix of in-store sales drove gross margin improvements at Mark’s and SportChek and led to a modest decline in the Canadian Tire business.
The company’s financial services were also lower due mainly to the impact of the year-on-year change in incremental allowance on the credit card portfolio.
Merchandise inventories were up C$465.6 million year over year to C$3,033.9 million.
Hicks said higher merchandise inventories at the end of June partially reflected a later start to spring this year and he noted that summer inventories saw “good movement” as warmer weather finally arrived in July. The higher stocks also reflect more than C$260 million of goods in transit for fall and winter categories as the company’s buying team bought earlier to ensure minimal supply chain disruptions. Hicks said, “We feel good about our inventory levels and don’t see any meaningful margin risk or incremental markdown requirements to clear inventory.”
Photo courtesy SportChek/Helly Hansen