Canadian Tire Corp. Ltd. has laid off 3 per cent of its work force and is cutting costs and slowing planned capital spending, as persistent economic pressures continue to affect consumer demand and weigh on retail sales.
The layoffs were completed this week, and amount to more than 200 corporate “full-time equivalent” positions.
Like many other retailers, Canadian Tire has been noting a shift in consumer spending patterns for months, as persistent inflation and multiple interest rate hikes have put pressure on Canadians’ household budgets. There has been a notable turn in behaviour, as people cut back sharply on non-essential or “discretionary” purchases.
Retailers are also bracing for a slower holiday season, in which discounts and promotions will be more intense as stores compete for consumers’ dollars. While Canadian Tire’s credit card data shows that its sales have outpaced the market in many of its product categories, the company is still feeling the pinch.
“Despite the favourable share of spend, it is evident that customers are stretched and spending less overall,” chief executive officer Greg Hicks said during a conference call on Thursday to discuss Canadian Tire’s third-quarter results. “… We are operating with the assumption that there will be continued pressure on discretionary retail and credit metrics going forward.”
The layoffs are accompanied by a pullback in hiring, as Canadian Tire eliminates the majority of its job vacancies, amounting to a further 3 per cent of its head count.
The move is expected to save the company approximately $50-million on an annualized run-rate basis. Canadian Tire will also record a $20- to $25-million charge in the upcoming fourth quarter related to the cuts.
Canadian Tire is cutting back on spending as well. Last year, the company announced a four-year, $3.4-billion investment plan to improve its operations and bolster sales, forecasting 4 per cent average sales growth and setting a goal to more than double diluted earnings per share from 2019 to 2025. But in August, as the retailer noted a “turning point in the Canadian economy” amid dampened consumer spending, Canadian Tire withdrew that forecast. On Thursday, the company also reported it no longer expects to spend as much as $3.4-billion.
“At this juncture and given the changed economic conditions since early 2022 and continued softening of demand, the company will slow the pace of previously-identified operating capital investments for the remainder of 2023 and 2024, prioritizing its highest returning capital investments,” quarterly financial reporting documents released on Thursday stated.
While prices have been rising for more than two years, the effect on consumers has been accumulating, and interest rate hikes have been gradually working their way through the economy, as mortgage renewals and other debt-servicing costs bring home the impact of monetary policy for many people.
“The amount of time the central bank will need to be in a holding pattern before decreasing rates will be a key determinant of the impact on consumer spending and the economy,” Mr. Hicks said during the call on Thursday. “We are operating against a structurally uncertain macro backdrop, which has us laser-focused on controlling what we can control.”
Canadian Tire’s comparable sales – an important metric that tracks sales trends excluding the effect of store openings or closings – declined by 1.6 per cent in the third quarter, which ended Sept. 30.
Credit card data from Canadian Tire’s banking division gives the retailer visibility into how different consumers are shifting their spending habits. The company noted in August that shoppers with higher household debt were cutting back more significantly, a trend that continued in the third quarter. Debt-burdened shoppers accounted for 70 per cent of the sales declines in the third quarter, Mr. Hicks said. He added that sales were particularly soft in Ontario and British Columbia.
At Canadian Tire stores, comparable sales fell by 0.6 per cent in the quarter, with declines in discretionary purchases partly offset by spending on essentials such as cleaning products and automotive products and services. Those essential purchases rose by 4 per cent. At Sport Chek, comparable sales fell by 7.4 per cent as people pulled back on spending in categories such as athletic clothing. At Mark’s, comparable sales were up 0.2 per cent.
Canadian Tire has “leaned heavily” on discounts in certain categories in which sales were slow, such as home organization products, said TJ Flood, president of Canadian Tire Retail. But he added that the strategy was less effective in other categories such as kayaks. The stores will be balancing the need to create demand through promotions with preserving profit margins, he added, in a climate in which competitors are also more aggressive with discounts.
In the three months ended Sept. 30, Canadian Tire reported a net loss attributable to shareholders of $66.4-million, or $1.19 per diluted share, compared to net earnings of $184.9-million, or $3.34 per share, in the same period the prior year.
The loss reflects a $328-million charge related to Canadian Tire’s recent deal to buy back a minority stake in its financial services division from Bank of Nova Scotia. It also includes a $131-million insurance recovery related to a fire in March at one of its largest distribution centres, in Brampton, Ont.
Excluding these items, and including other adjustments, Canadian Tire said its normalized net income attributable to shareholders was $165.2-million, or $2.96 per share, down from $196.5-million, or $3.35 per share, in the prior year.
Canadian Tire reported $4.25-billion in revenue in the quarter, up 0.5 per cent compared to the same period the prior year.
On Thursday, the company also announced that its annual dividend paid to shareholders would increase by 1.4 per cent, to $7 per share.
As part of its four-year strategy, Canadian Tire has invested $1.1-billion in its business so far, but chief financial officer Gregory Craig said on Thursday that in light of the economic environment, a “slight slowdown” is appropriate. The company’s expected operating capital expenditures for the year have been cut to $650- to $700-million, compared to a previous estimate of $750- to $800-million.
Next year, the company plans to keep expenditures in the $550- to $600-million range, which is above its historic rate.