Canadian Tire Corp. (CTC) took a $22.7 million pre-tax charge to its Retail earnings in the second quarter to reflect store closings at FGL Sports (FGL), the largest national retailer of sporting goods in Canada. The charge included a $6.2 million provision for inventory markdowns FGL expect to take this as to clear out inventory, including winter goods carried over from last year.
Sales at FGL’ 501 stores increased 4.2 percent to $335.2 million in the period thanks in part to a 4.8 percent increase in same-store sales. The comps growth was attributed to strong sales of spring footwear and apparel, led by branded athletic clothing, and solid hard goods category sales including golf and equipment for team sports. Sales per square foot trended up at Sport Chek stores, while sales of NHL licensed product sagged due to the absence of Canadian teams in the post-season play.
“Overall, we had a very strong quarter with solid revenue momentum and improved margin performance in the Retail segment,” said CTC President and CEO Stephen Wetmore of CTC’s overall second quarter performance, which includes results from more than 1,700, general merchandise, auto parts, sporting goods and apparel stores as well as a credit card operation. “We continue to focus on execution and are well positioned for the increasingly competitive operating environment we expect in the second half of the year.”
Wetmore said he sees no signs that consumers are slowing down spending, except at CTC’s automotive parts and service stores, which saw sales decline because the milder winter resulted in less wear and tear on vehicles. He said CTC will pay particular attention in coming quarters to its inventory levels of outdoor recreation products at its nearly 500 Canadian Tire general merchandise stores.
While CTC does not break out FGL earnings, it disclosed the FGL charge in reporting results for its Retail segment, where revenues increased 16.4 percent to approximately $3 billion. The bulk of the increase came from the inclusion of FGL, solid sales growth across its other retail businesses, and growth at its Financial Services' segment. Even after the FGL charge, income before income taxes at the Retail segment increased 17.3 percent to $115.3 million compared to the prior year.
On May 30, FGL announced it would close 95 Sport Mart, Athletes World, Fitness Source and Econosports stores and convert another 20 into Sport Check or Atmosphere stores by the first quarter of 2013, when it will begin a major expansion of the Sport Check and Atmosphere banners. FGL has closed 33 stores since being acquired by CTC and is on track to reduce annual costs by $25 million this year as it integrates FGL into Canadian Tire Retail (CTR) logistics, purchasing and other operations.
