The recovering Canadian economy is boosting the fortune of Canadian Tire's financial services division, making the unit a shining star within the retail giant.
Few people associate the Canadian Tire brand with financial services, but the retailer of rakes and windshield wipers controls one of Canada's largest credit card portfolios. And the unit is a profit powerhouse.
Financial services doesn't dominate revenues, generating just $242-million of the firm's $3.1-billion in consolidated revenue last quarter. But lower down the income statement, it accounted for $56-million of the $231-million in total income before taxes. That means it comprised just 8 per cent of total revenues, but about a quarter of the company's profits. High-margin, indeed.
The business's solid management has been noticed internally. In an executive shuffle last month, Dean McCann, the former head of financial services, was promoted to chief financial officer of the entire company.
Yet things weren't always this rosy. The credit card business wasn't exactly desirable during the financial crisis when write-offs spiked, but the division has since become a stalwart and is seeing big growth. Last quarter, the $56-million financial services brought in before tax was 35 per cent higher than the same period in 2010.
Driving this: credit card write-offs that are finally settling back in around the low 7 per cent range, down from the 7.49 per cent rolling 12-month rate recorded at this time last year, and the 7.83 per cent rate posted the year before that.
The unit has also adjusted to new sales tax charges, new credit card regulations and the migration to chip card technology, which required Canadian Tire to issue new plastic. The firm has also slashed the division's expenses.
Now the focus is on growing the number of cardholders. To do this, Canadian Tire embarked on big marketing campaign -- something food giant Loblaw is also doing to draw attention to its banking services.
Landing new clients will take time. Consumers can't put money on new Canadian Tire credit cards until they start shopping in droves again, and that won't happen until they feel more confident about the economic recovery. But in the mean time, the division is looking quite solid.