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Canadian Tire sees strong fourth quarter after investing in new initiatives

Pedestrians pass a Canadian Tire store in downtown Toronto.


Canadian Tire Corp. Ltd. enjoyed a strong fourth quarter, helped by a strategy of adding more "weather-proof" products to its offerings such as housewares and investing in data analytics to pinpoint when to stock and promote merchandise heavily.

It also benefited from bulking up on private brands that are available only at Canadian Tire, helping protect it from stiff competition from e-commerce titan Inc. and other low-cost rivals by preventing them from carrying the exact same merchandise at a discount.

And while Canadian Tire's profit was robust, it could have been even stronger if it hadn't poured so much money into new initiatives, including the crucial development of its e-commerce business, chief executive officer Stephen Wetmore said.

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"We still have a long ways to go," said Mr. Wetmore, who made a surprise return as CEO last summer after having retired from the position about 18 months earlier while remaining on the board of directors.

"More margin could have dropped to the bottom line but we made some investments for the future, which affected our operating expense ratio in the fourth quarter. However, over all, it was a very good year."

Investors were pleased. Canadian Tire's class A shares rose almost 7 per cent or $9.94 to $154.51 on the Toronto Stock Exchange.

The retailer posted healthy sales gains at existing stores, including an 8.1-per-cent jump in those so-called same-store sales – an important retail measure – at its flagship Canadian Tire chain.

"I was impressed with those sales numbers," said Brittany Weissman, an analyst at Edward Jones. "You don't tend to see that from a large, mature retailer."

Still, despite Canadian Tire's progress, she is concerned about the retailer's need to keep investing in its online-shopping operations and the threat it faces from more established e-commerce players.

Mr. Wetmore told an analyst conference call that the retailer's e-commerce business is still not a meaningful part of its sales performance, even though online sales are enjoying large percentage gains – but on a tiny base. "It will be a while before it's a significant effect, that's for sure."

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The retailer is trying to beef up its online operations at its sporting-goods division, called FGL Sports and which includes its Sport Chek chain. As retail analyst Patricia Baker at Scotiabank said on the conference call, "it's probably the part of your business that's most vulnerable to online competition."

FGL's fourth-quarter same-store sales rose 5.1 per cent, which is "nothing to sneeze at," as Ms. Baker put it, but weaker growth than in past quarters.

FGL has borrowed a leaf from the Canadian Tire playbook and stepped up its offerings of "less weather-sensitive" products such as athletic apparel and footwear and wearable technology, said Duncan Fulton, president of FGL.

FGL is focusing on improving its existing stores rather than opening new ones, he said. "You will see renovations and relocations in stores where it makes sense, but certainly there's a lot of focus here for the next couple of years on getting a lot more from the assets that we already have," Mr. Fulton said.

To gain an edge, Canadian Tire has been bolstering its private label offerings, with about one-third of its sales now made of its own brands. For example, 88 per cent of its Christmas merchandise is now made up of private brands that Canadian Tire owns or has the exclusive right to carry, Mr. Wetmore said. Private labels can also generate higher profit margins because of lower marketing and other costs.

In its auto division, its brands such as Motomaster and Simoniz have helped both sales and the bottom line, he said. The company is looking to stock even more of its own lines, he said.

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Canadian Tire's fourth-quarter profit climbed 10 per cent to $246.8-million, or $3.46 a share from $225.2-million, or $3.01 a share a year earlier. Revenue grew 7.7 per cent to $3.64-billion from $3.38-billion. Same-store sales at its Mark's clothing division soared 10.6 per cent as it stepped up its casual clothing and footwear, including denim items, to offset the slide in sales of its industrial wear as a result of the downturn in the oil industry.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More


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