Canadian Tire Corporation reported FGL Sports' retail sales increased 4.2 percent over the prior year reflecting the acquisition of Pro Hockey Life Sporting Goods Inc. and despite the net closure of over 50 stores related to the banner rationalization initiative that was completed in Q1 2013. Same store sales increased 6.3 percent largely reflecting continued strength at Sport Chek, which saw same store sales increase by 9.1 percent as a result of strong sales in equipment, apparel and footwear.
Companywide, Canadian Tire Corporation, Limited delivered retail sales growth of 3.1 percent with positive contributions
from all retail banners. Consolidated revenue increased 4.5 percent.
“Our financial performance highlighted a successful quarter and supports our decision to increase our dividend by 25 percent and to raise our dividend payout ratio,” said Stephen Wetmore, Chief Executive Officer, Canadian Tire Corporation. “We look forward to serving our customers as we head into our biggest quarter of the year.”
Consolidated net income grew 10.7 percent compared to Q3 2012 due in part to strong margin performance across the Retail and Financial Services segments. Diluted earnings per share increased to $1.79, up 11.5 percent over Q3 2012 and increased 15.7 percent after normalizing for the one-time costs associated with the formation of CT Real Estate Investment Trust (CT REIT) and the impact of the FGL Sports banner rationalization in Q3 2012.
“This has been a particularly strong quarter for our Retail businesses. Performances in our Sports and Apparel businesses continue to show strength and I'm encouraged by the continued sales momentum in our Automotive business,” continued Wetmore.
Appointment of President, Canadian Tire Corporation
Canadian Tire also announced today the appointment of Michael Medline as President of Canadian Tire Corporation.
“I am very pleased to announce Michael's expanded role with our company,” said Mr. Wetmore. “Michael's knowledge of our company, and his exceptional performance as President of FGL Sports and Mark's, uniquely qualify him to take on these additional responsibilities.”
Medline will take over operational responsibilities for Canadian Tire Corporation, including overseeing all of the company's business units (Canadian Tire, FGL Sports, Mark's and Canadian Tire Financial Services), reporting to Chief Executive Officer, Stephen Wetmore.
Most recently the President of FGL Sports and Mark's, Mr. Medline's 13 year career with CTC has included overseeing a revamped strategy for the automotive business, leading the company's corporate services group as Chief Corporate Officer and serving as a director on the Board of Canadian Tire Bank. In addition, Mr. Medline has led all of the company's acquisitions and integration efforts in the last 11 years, including Mark's, FGL Sports and Pro Hockey Life.
| Consolidated financial results1 | |||||||||||
| (C$ in millions, except per share amounts) | Q3 2013 | Q3 2012 | Change | YTD Q3 2013 | YTD Q3 2012 | Change | |||||
| Retail sales | $ | 3,261.6 | $ | 3,162.5 | 3.1% | $ | 9,244.2 | $ | 9,050.2 | 2.1% | |
| Revenue | |
2,956.0 | 2,829.8 | 4.5% | 8,456.9 | 8,260.5 | 2.4% | ||||
| Net income | 145.5 | 131.4 | 10.7% | 373.4 | 336.1 | 11.1% | |||||
| Basic earnings per share | 1.81 | 1.61 | 12.3% | 4.62 | 4.13 | 12.0% | |||||
| Diluted earnings per share | 1.79 | 1.61 | 11.5% | 4.60 | 4.11 | 11.9% | |||||
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 9.3 in the company's Q3 2013 MD&A for further information.
Retail
Sales at the Canadian Tire retail banner increased 2.8 percent and same store sales increased 2.0 percent in the quarter driven by strong performances in automotive, seasonal and kitchen categories. Sales in the automotive category were higher in light auto parts and auto maintenance as well as in hard parts due to increases in labour service. Positive customer acceptance of Living and Pro Shop merchandising and assortments contributed to strong sales in the quarter.
FGL Sports' retail sales increased 4.2 percent over the prior year reflecting the acquisition of Pro Hockey Life Sporting Goods Inc. and despite the net closure of over 50 stores related to the banner rationalization initiative that was completed in Q1 2013. Same store sales increased 6.3 percent largely reflecting continued strength at Sport Chek, which saw same store sales increase by 9.1 percent as a result of strong sales in equipment, apparel and footwear.
At Mark's, retail sales grew 4.7 percent and same store sales increased 4.3 percent, reflecting strong sales across all categories, particularly in industrial apparel and accessories and industrial footwear.
Petroleum retail sales increased 3.1 percent due primarily to higher gas prices over the same period in 2012, and the addition of seven incremental sites which contributed to higher gas volumes.
Consolidated gross margin increased $70.1 million or 8.2 percent. Consolidated gross margin rate increased 108 basis points reflecting strong margin performance across the retail banners including a shift in sales to higher-margin products in key categories at Canadian Tire and stronger sell-through of regularly priced merchandise at Mark's. Strong margin performance at Financial Services was primarily related to higher interest revenue and a lower write-off rate.
Retail segment income before income taxes of $126.1 million was up $20.5 million or 19.4 percent compared to the previous year.
Financial Services
Financial Services results reflect another quarter of strong year-over-year performance. Revenue increased 5.0 percent over the prior year due to increased interest income generated on higher credit card receivables. Income before income taxes increased 8.5 percent in the quarter due to credit card receivables growth and favourable funding costs, partly offset by operating expenses related to account acquisition.
Capital Expenditures
Capital expenditures, while in line with the company's 2013 plan, increased $141.5 million year-over-year due primarily to the purchase of land for potential future distribution capacity and increased capital spending on real estate projects and digital initiatives announced earlier in the year.
CT Real Estate Investment Trust Update
Subsequent to the end of the quarter, CT REIT completed its initial public offering of 30,302,500 trust units for $303.0 million which included the exercise of a $39.5 million over-allotment option. CT REIT commenced trading on the Toronto Stock Exchange on October 23, 2013 under the symbol “CRT.UN.”
Quarterly Dividend
The company announced earlier today that it has modified its dividend policy for 2014 to pay 25 percent to 30 percent of prior year normalized basic net earnings per share, after giving consideration to the period end cash position and future cash flow requirements. In addition, the company also announced that it has declared a 25 percent increase in the quarterly dividend, to $0.4375 per share, on each Common and Class A Non-Voting share. The dividend is payable on March 1, 2014 to Common and Class A shareholders of record as of January 31, 2014. The dividend is considered an “eligible dividend” for tax purposes.
Dividends declared on Common and Class A Non-Voting shares in the third quarter of 2013 of $0.35 per share are payable on December 1, 2013 to shareholders of record as of October 31, 2013.
Consolidated financial results1
| (C$ in millions, except per share amounts) | Q3 2013 | Q3 2012 | Change | YTD Q3 2013 | YTD Q3 2012 | Change | ||||
| Retail sales2,3 | $ | 3,261.6 | $ | 3,162.5 | 3.1% | $ | 9,244.2 | $ | 9,050.2 | 2.1% |
| Revenue | $ | 2,956.0 | $ | 2,829.8 | 4.5% | $ | 8,456.9 | $ | 8,260.5 | 2.4% |
| Gross margin | $ | 929.1 | $ | 859.0 | 8.2% | $ | 2,639.8 | $ | 2,503.5 | 5.4% |
| Other (expense) income | (0.8) | 0.8 | (206.4)% | 3.2 | 0.5 | 591.4% | ||||
| Operating expenses (excluding depreciation & amortization) | 609.0 | 564.7 | 7.8% | 1,788.3 | 1,703.3 | 5.0% | ||||
| EBITDA4 | $ | 319.3 | $ | 295.1 | 8.2% | $ | 854.7 | $ | 800.7 | 6.8% |
| Depreciation and amortization | 88.1 | 84.1 | 4.8% | 255.6 | 247.3 | 3.4% | ||||
| Net finance costs | 25.1 | 31.7 | (21.0)% | 79.9 | 92.8 | (13.9)% | ||||
| Income before income taxes | $ | 206.1 | $ | 179.3 | 14.9% | $ | 519.2 | $ | 460.6 | 12.7% |
| Effective tax rate | 29.4% | 26.7% | 28.1% | 27.0% | ||||||
| Net income | $ | 145.5 | $ | 131.4 | 10.7% | $ | 373.4 | $ | 336.1 | 11.1% |
| Basic earnings per share | $ | 1.81 | $ | 1.61 | 12.3% | $ | 4.62 | $ | 4.13 | 12.0% |
| Diluted earnings per share | $ | 1.79 | $ | 1.61 | 11.5% | $ | 4.60 | $ | 4.11 | 11.9% |
| 1 | For financial definitions refer to the Glossary of Terms on pages 124-127 of the 2012 Annual Report and section 9.3 of the Q3 2013 MD&A for further information. |
| 2 | Retail sales for the prior year have been restated. Refer to section 9.3 of the Q3 2013 MD&A for further information. |
| 3 | Refer to sections 2.3 and 9.3 of the Q3 2013 MD&A for further information on retail sales. |
| 4 | Non-GAAP measure. Refer to non-GAAP measures in section 9.3 of the Q3 2013 MD&A for further information. |
