Canadian Tire Corp. Ltd. posted higher earnings but continued to see softening demand for non-essential products, and has signalled that retailers will have to work harder in the coming months to draw in customers feeling the sting of inflation.
“Our credit card data tells us that we are in a different economy,” chief executive Greg Hicks told analysts during a conference call to discuss Canadian Tire CTC-A-T earnings on Thursday.
While credit card spending continued to rise, the growth in spending slowed significantly in the fourth quarter, he said. The company expects “a more constrained demand environment,” particularly in the first half of this year. “We believe it’s fair to say that our customers are in a position where they are looking for more value, and that’s where you can expect us to be laser focused in 2023.”
The Toronto-based retailer reported that its retail sales were roughly flat in the fourth quarter – growing just 0.3 per cent across all its store banners and down 0.1 per cent at the flagship chain – as its automotive business continued to offset declines in non-essential product sales.
The results for the 13 weeks ended Dec. 31 – including the all-important holiday period – showed that sales held steady at Canadian Tire compared to a strong period the prior year when comparable sales grew by nearly 10 per cent. But the purchasing trends still pointed to a continuing shift in behaviour across the country, as inflation-weary shoppers continue to spend on must-haves such as tires and pet supplies, while cutting back on other purchases.
Among members of the retailer’s Triangle Rewards loyalty program, customers with annual household incomes above $125,000 (those most likely to spend more on discretionary purchases) accounted for a much smaller proportion of Canadian Tire’s business near the end of the year. Meanwhile, middle- and lower-income shoppers spent more.
“We think these are bullish indicators of our increased relevance in a tougher economic backdrop,” Mr. Hicks said.
Overall, Canadian Tire’s profit was up as revenue increased and gross margins improved in its retail segment. The company reported net income of $562.6-million or $9.13 a share in the quarter, compared with $535.7-million or $8.40 in the same period the prior year. The results beat analysts’ estimates. The company’s share price rose by 5.05 per cent on Thursday to $173 each on the Toronto Stock Exchange.
Comparable sales at its Sport Chek were down by 1.6 per cent, as demand waned across categories and especially in outerwear. At its Mark’s, sales grew 4.4 per cent, as both casual and industrial footwear sold particularly well.
Revenue at the company’s financial services segment grew by 14.3 per cent in the quarter on higher interest income and fees related to growth in credit card sales.
Total revenue in the 13 weeks ended Dec. 31 grew by 3.9 per cent to $5.3-billion.
At an investor presentation last March, Canadian Tire announced a four-year growth strategy with the goal of increasing its comparable sales by 4 per cent on average annually – not including fuel sales at its gas stations – and to improve its e-commerce operations and supply chain efficiency.
For the full year 2022, comparable sales grew by 2.7 per cent. The fourth-quarter report to shareholders acknowledged that the company “is now operating in a more challenging environment in 2023″ than expected at the time the growth strategy was announced, and that some of the assumptions behind those goals “could be challenged” if consumer spending patterns continue to be affected by inflation.
“While the company remains committed to achieving its financial aspirations outlined at investor day, by continuing to invest in its building blocks for the longer term, the pacing will be different than originally planned,” the report stated.
For the full year, Canadian Tire reported that net earnings fell to $1.18-billion or $17.70 a share, compared with $1.26-billion or $18.56 in the prior year. Overall revenue grew by 9.3 per cent in 2022, to $17.8-billion.