Canadian Tire Corp. reported a 13.9-per-cent fall in quarterly profit on Thursday owing to increased spending in the automotive sector as it banks on lucrative sales from its return to auto product roots.
Earnings fell to $105.8-million or $1.29 per share, compared with $122.8-million or $1.50 last year. Its overall revenue increased 4.1 per cent to $2.57-billion from $2.47-billion, against analyst estimates of $2.62-billion.
In addressing worries of falling profit, chief financial officer Marco Marrone said that "most spending is related to growth related initiatives, and most of these projects are close to being completed and are already starting to show results."
The company reported strong sales in automotive, kitchen, and backyard products, but the capital spent in advertising and marketing along with beefing up infrastructure held back profit. Lower-than-expected sales of seasonal goods also wiped out any earlier gains.
"We performed well in a number of living categories. Cooler weather in the quarter dampened sales, but otherwise we managed our margins well," said chief executive officer Stephen Wetmore.
Flagship Canadian Tire chain's retail sales grew 5.1 per cent to $3.01-billion, showing strong consumer confidence despite worries of market chill. The company's retail at gas bar grew 22.8 per cent, thanks to climbing gasoline prices and new gas stations built along major Ontario highways. Its financial services revenue dropped 2.9 per cent.
The Toronto-based retailer spent $4-million more than average quarterly expenses on its $771-million bid for Forzani Group Ltd., Canada's top sports retailer and parent company to SportChek, Athletes World, and Nevada Bob's Golf. The Forzani purchase is set to bring in $25-million in synergies by 2012, says Canaccord Genuity researcher Derek Dley. The takeover, which received the green light from the Competition Bureau last week, enables Canadian Tire to touch on all points of a customer's life cycle by appealing to the 18-to-35 year old demographic who favour malls over one-stop shops. When completed, the transaction will make Canadian Tire the owner of the top two sporting goods retail chains in Canada.
Analysts are taking cues from the Mark's Work Wearhouse acquisition in 2001, which dramatically improved revenue and margins, as signs of good news to come once the Forzani transaction is complete.
Canadian Tire, a long time retailer of apparels, petroleum, financial services and automotive parts, continues to diversify its offerings. It is expected to begin selling large appliances such as stoves and dishwashers in the next quarter. It will also increase its living aisle, placing the company on the same platform as other home-improvement retailers such as Home Depot and Rona. E-commerce, formerly scrapped in favour of the comforts of brick and mortar stores, is being re-introduced in September.
Editor's note: An earlier online version of this story and the original newspaper version of this story incorrectly stated that Canadian Tire spent nearly $30-million more than average quarterly expenses on its bid for Forzani Group, and that the purchase was expected to bring in $25-million by 2012. The story also incorrectly stated that Canadian Tire's financial services revenue dropped 13.4 per cent to $65.8-million. This online version has been corrected.