Retailer Canadian Tire Corp. Ltd. reported a strong second-quarter profit despite an unseasonable spring in much of the country, but warned that sales at its sporting goods division will probably not hit its targets this year.
The company said overall quarterly sales at stores open a year or more rose 1.8 per cent in the second quarter. Those same-store sales are considered an important barometer of a retailer's health.
At FGL Sports, its sporting division that includes its flagship Sport Chek chain, sales increased 3.7 per cent in the quarter, which is below the retailer's annual 9-per-cent goal. FGL's same-store sales rose 2.6 per cent and 1.1 per cent at Sport Chek.
"In light of the recent sales results at FGL Sports, it is unlikely that their annual sales growth aspiration will be realized in 2017," the company said on Thursday.
Toronto-based Canadian Tire has shown resilience in the face of unco-operative weather although its once fast-growing sporting division is no longer enjoying the gains of the past with analysts pointing to slowing growth in some athletic categories and tougher online competition.
Class A shares of Canadian Tire, which sells everything from automotive parts to apparel, jumped 5.73 per cent to $149.89 on the Toronto Stock Exchange.
Brittany Weissman, an analyst at Edward Jones, said FGL is probably feeling the heat of athletic wear categories having peaked. As well, e-commerce competition has intensified, she said, which could also affect FGL's business.
"The normalized growth rate has come down for that business," she said. "There probably is an element of e-commerce to that."
But she said considering the cool and rainy spring weather, FGL generated stronger sales than many observers expected.
Stephen Wetmore, chief executive officer of Canadian Tire, told analysts FGL is moving "out of a period of expansionary growth to a phase focused on generating higher returns from our existing assets."
"FGL Sports will continue to play a critical role as our leader in digital marketing and our destination banner for millennials and achievers."
After a period of opening new stores and expanding existing ones, the retailer is now focused on refining its current offerings, said analyst Kenric Tyghe at Raymond James.
Mr. Wetmore also said Canadian Tire enjoyed major technology breakthroughs in the quarter that allowed it to cash in on its investments in artificial intelligence and machine learning. For example, Canadian Tire launched a new search engine which helps shoppers find items much faster.
In an internal project code-named Atlas – its first major foray into artificial intelligence and machine learning – Canadian Tire "dramatically" improved its critical search function, with Atlas now being used in about half of its web traffic, said Allan MacDonald, president of the namesake chain. It will roll out Atlas to the company's other banners this year. As well, Canadian Tire plans to start testing e-commerce home deliveries by the end of the year.
The new technologies will cut costs, generate revenue and help make decisions more efficiently, Mr. Wetmore said. For instance, testing the internal finance system now takes just "a couple of minutes" rather than up to three hours, Mr. Wetmore said. "That's spectacular progress."
He said data analytics are also improving Canadian Tire's operations. They' being used to assess whether Mark's clothing boutiques within Canadian Tire stores are running at maximum potential, for example. And the company's top 80 or 90 executives have attended an intensive data analytics course "to be able to take away the fear of using data and understanding the questions that should be asked and that could be solved," he said.
Same-store sales at Canadian Tire stores, which accounted for more than half of the company's total revenue in the quarter, rose 1.4 per cent. It was helped by higher demand for its own brand lines such as Noma electrical products and Master Chef kitchen appliances. Those lines generally aren't carried at rivals, although they are now available at Amazon.ca.
Mr. MacDonald acknowledged Canadian Tire products show up "unauthorized" on Amazon. Nevertheless, Canadian Tire's sales of its own brands, which can generate higher profit margins, increased by almost 8 per cent, he said.
Over all, the company experienced strong sales growth in June despite a slow start to the spring and summer, Mr. Wetmore said, adding the retailer carefully controlled its expenses and generated strong margins.
Profit increased to $195.2-million or $2.82 a share in the quarter ended July 1 from $179.4-million or $2.47 a share a year earlier. Revenue rose to $3.41-billion from $3.35-billion.
Irene Nattel, retail analyst at RBC Capital Markets, said in a note that Canadian Tire's "ability to deliver strong and better than expected results despite unseasonable weather is the direct result of work done by management on in-store offering/mix/sourcing terms." She titled her note on the results: "Singing in the rain!"
She said FGL benefited from strong outerwear sales which were offset by poor sales in seasonal categories in April and May as a result of cold weather. FGL also enjoyed good sales of licensed apparel, tied to a stronger showing from Canadian teams in the National Hockey League playoffs and growth in e-commerce sales.