Canadian Tire profit falls 20% as costs rise, consumer habits shift amid high inflation

Canadian Tire Corp. Ltd. CTC-A-T profit fell by almost 20 per cent in the third quarter, as it faced higher costs and saw shoppers cut back on non-essential spending to cope with inflation.

As shoppers face rising prices for everyday purchases such as gas and groceries, retailers have reported a shift in buying behaviour. Canadians trying to manage budgets have in some cases cut back on discretionary purchases and are buying more items on sale.

“Household spend is still robust,” chief executive officer Greg Hicks told analysts on a conference call on Thursday, citing credit card spending data from the company’s financial services segment, which was up 14.1 per cent in the quarter. “What we are seeing is a mix shift in that spend.”

While Canadian Tire’s customers are buying essential products such as tires, plumbing and pet supplies, other categories saw declines, including outdoor cooking, electronics and furniture. And sales of “boredom busters” such as exercise equipment, backyard and home entertainment products – which saw sales spike at the height of the pandemic – have declined 30 per cent so far this year. The automotive category has more than made up for such declines, according to the company.

The spending shift has been most pronounced among shoppers who are not members of the company’s loyalty program. Among non-loyalty customers, the percentage of transactions where every item in the shopping cart is discounted are on the rise.

While overall revenue grew, the Toronto-based retailer reported on Thursday that rising costs for shipping and products cut into profits in its retail segment. While that was offset partly by growth in income before taxes in the financial services segment of the business, overall profit declined. The company reported net income of $225-million or $3.15 per share, compared to $279.5-million or $4.01 per share in the third quarter last year.

The company’s retail sales grew by 2.8 per cent in the quarter, but excluding sales of petroleum at Canadian Tire’s gas stations, sales were roughly flat, growing by just 0.6 per cent.

Canadian Tire reported total revenue of $4.2-billion in the 13 weeks ended Oct. 1, up 8.1 per cent compared to the same period last year.

At flagship Canadian Tire stores, comparable sales – an important metric that tracks sales growth not tied to new store openings – were up 0.7 per cent.

Comparable sales fell by 1 per cent at SportChek on a softer back-to-school season compared to last year, when the stores saw a spike in demand for athletic clothing and footwear. At the Mark’s chain, continued demand for casual and industrial clothing pushed comparable sales up by 3.6 per cent.

The company’s financial services segment reported higher income before taxes, on revenue growth 17.2 per cent. According to the company both customer activity and account balances grew compared to last year.

“While the financial services division profits improved, the retail business remains the largest contributor to profit growth, and we expect the slowdown in consumer spending will negatively impact sales and profitability,” Edward Jones analyst Brian Yarbrough wrote in a research note on Thursday.

Canadian Tire declared a dividend of $1.73 per share payable on March 1, 2023, which combined with a previous dividend increase approved in May, boosted the company’s annual dividend by 33 per cent compared to last year, to $6.90 per share.

The company has now completed a $400-million share buyback program and on Thursday announced that it intends to repurchase another $500-million to $700-million in shares by the end of next year.