Canadian Tire Corporation "On Offence"

  • Announces its intention to create a $3.5 billion real estate investment trust with initial public offering later this year
  • Appoints Allan MacDonald as new head of Canadian Tire Retail
  • Reports positive Q1 earnings with diluted earnings per share up 3.3%

TORONTO, May 9, 2013 /CNW/ - Canadian Tire Corporation, Limited (TSX:CTC, TSX:CTC.a) is announcing its intention to create a real estate investment trust (REIT) to surface the value of billions of dollars of owned property, appointing a new leader for Canadian Tire Retail and releasing overall positive Q1 earnings.

REAL ESTATE INVESTMENT TRUST

The Company today announced its intention to create a high-quality REIT that would:

  • Surface the value of Canadian Tire's real estate holdings
  • Create a stand-alone vehicle for Canadian Tire's real estate which will support continued real estate investment
  • Provide Canadian Tire with increased financial flexibility to pursue new opportunities to invest in and grow its business.

"We are executing a strategy that reinforces the strength of our Company while pursuing new growth opportunities organically and through acquisition," said Stephen Wetmore, President and CEO, Canadian Tire Corporation.  "Today's announcement regarding a REIT would increase CTC's financial flexibility, providing us with the ability to access funds at an attractive cost of capital as we continue to invest in and grow our business."

The proposed new REIT would acquire a majority of the Company's owned real estate, including a geographically diverse portfolio of approximately 250 properties comprised largely of Canadian Tire Retail stores, Canadian Tire anchored retail developments and one distribution centre; approximately 18 million square feet; and approximately $3.5 billion of estimated market value.  Canadian Tire owned properties currently comprise approximately 25 million square feet and are located in all provinces and two territories.  Canadian Tire Retail stores that are being considered for replacement, relocation, or further development would initially be retained by the Company and not be part of the REIT.

CTC would retain a significant ownership interest of 80% to 90% of the REIT with the remainder of the REIT's units offered to the public via an initial public offering anticipated in the fall of 2013.  The REIT would be designed to meet appropriate standards for management, governance and financial structure and with leases reflecting market rates and terms.

The REIT's financial statements would be consolidated with CTC's financial statements and it is expected that there would be minimal impact on consolidated net earnings, cash flow and debt metrics.

The creation of the CTC REIT would have no impact on the arrangements that exist between Canadian Tire and its Associate Dealer network.

The ongoing ownership and management of real estate assets have been and will continue to be an integral part of Canadian Tire Retail's success and operational flexibility.

The Company confirmed that its creation of a REIT would be subject to due diligence, favourable market conditions, regulatory and third party approvals and approval by the Canadian Tire Board of Directors.

ALLAN MACDONALD NAMED HEAD OF CANADIAN TIRE RETAIL

The Company also announced that its Senior Vice-President, Automotive and Marketing, Allan MacDonald will be the new Chief Operating Officer of Canadian Tire Retail.

Mr. MacDonald joined CTC four years ago and has held senior roles influencing all of CTR's areas of operations, including Dealer relations, global sourcing, merchandising, supply chain, marketing, digital strategy, store design and vendor management.

"Allan has clearly demonstrated the skills and commitment to lead Canadian Tire Retail as we enter a sustained period of unprecedented change in our industry," said Wetmore.

Marco Marrone, CTR's current Chief Operating Officer, has decided to leave the company following a 27 year career. Mr. Marrone has advised the Company that he is not able to make a longer-term commitment to his current role. With the recent agreement between the Company and its Dealers to a new Dealer contract, Mr. Marrone believes that the time is right for a smooth transition of his role to Mr. MacDonald.

Mr. Marrone has been known for exceptional execution throughout his career at Canadian Tire, including his successful leadership of the Financial Services division, his role as Chief Financial Officer for CTC and most recently as Chief Operating Officer at CTR where he has successfully executed a number of key initiatives to improve CTR.

Q1 EARNINGS

The Company today released first quarter results for the period ended March 30, 2013, showing positive sales, revenue and margin growth.

Consolidated revenue increased 1.7% or $40.3 million to $2.5 billion in the quarter as a result of strong performance at FGL Sports and sales growth at Petroleum, Financial Services and Mark's. Consolidated net income increased to $73.0 million and diluted earnings per share rose to $0.90, an increase of 3.3% over Q1 2012. Consolidated retail sales increased 0.8% or $20.4 million to $2.4 billion in the quarter.

"Following a strong 2012, we had a very encouraging start to the year with the successful execution of key initiatives across all of our banners, including reaching an agreement on the significant terms of our contracts with our Canadian Tire Associate Dealers," said Wetmore.

"We had a great start for the first 70 days of the quarter but that shifted dramatically in the last two weeks as a result of last March's early spring temperatures combined with this March's cold, wintry weather.  That said, the first quarter is our smallest for the retail segment.  Financial Services is the major contributor to our first quarter earnings and it continued its strong performance in 2013."

Consolidated financial results          
(C$ in millions, except per share amounts)   Q1 2013   Q1 2012 Change
Retail sales $ 2,435.5  $  2,415.1 0.8%
Revenue     2,479.8   2,439.5 1.7%
Net income   73.0   71.0 2.9%
Basic earnings per share   0.90   0.87 3.3%
Diluted earnings per share   0.90   0.87 3.3%
             

 

RETAIL SEGMENT OVERVIEW

Retail segment revenue increased 1.5% or $32.8 million to $2.2 billion in the quarter due to strong performance at FGL Sports and sales growth at Petroleum and Mark's.

Retail segment income before income taxes of $23.0 million was down 5.8% or $1.5 million compared to the prior year largely due to the timing of marketing and advertising expenses and higher depreciation and occupancy costs from additional stores in the network compared to the prior year.  Excluding depreciation and net finance costs, Retail EBITDA increased 1.8% in the quarter resulting from improved revenue and strong margin management across the businesses.

Consolidated retail sales were $2.4 billion, representing a 0.8% increase compared to the same period last year, primarily as a result of strong sales at FGL Sports and increased sales at Petroleum and Mark's, which were partly offset by a sales decline at CTR.

CTR had positive sales in January and February but experienced a sharp drop in the last two weeks of March, resulting in a 1.6% sales decline and 2.4% decrease in same store sales for the quarter.  Canadian Tire stores saw sales increases in key categories offset by declines in seasonal, gardening and outdoor living. While sales were lower compared to the previous year, gross margin rates were higher due to active management of the sales and margin mix.

Automotive started the quarter with solid sales of light automotive parts and in maintenance categories such as batteries, battery accessories and wipers. The strong performance at the beginning of the quarter was off-set by cooler March temperatures which impacted sales of automotive cleaning products and delayed both spring automotive maintenance and switching over to all-season tires. 

Petroleum retail sales increased 3.7% primarily due to increased convenience store sales and gas volumes related to the opening of 10 new sites, including two additional 400/401 series highway sites, and due to higher gasoline prices compared to the previous year.

FGL Sports had a very good start to the year with retail sales growth of 5.6% over the same period in 2012.  Same store sales grew by 8.8%, partly due to the planned closure of non-strategic banners such as Sport Mart and Athletes World. Adjusting for store closures, corporate same store sales still grew by a strong 3.1%, notwithstanding the impact of March weather. The core corporate banner, Sport Chek, experienced strong sales in apparel and equipment, particularly in winter-related categories such as hockey, ski and snowboard.

At Mark's, retail sales were up 1.6% and same store sales increased by 1.5% driven by growth in women's casual wear and industrial apparel and accessories sales, particularly in the Greater Toronto region of Ontario. Sales gains were partly offset by lower footwear and men's wear sales due to fewer clearance sales compared to 2012 and cooler March weather.

FINANCIAL SERVICES OVERVIEW

Financial Services was a very strong performer in the first quarter.  Revenue increased 3.4% to $250 million and income before income taxes of $77.3 million increased 5.8% compared to the prior year due to higher credit card charges on higher credit card receivables balances.

Financial Services gross margin rate increased 203 basis points in the quarter compared to the prior year primarily due to higher revenue from increased credit charges and favourable net write-offs.

Financial Services operating expenses increased 6.2% in the quarter compared to the prior year due to marketing expenses related to growing receivable balances.

CAPITAL EXPENDITURES

Capital expenditures for the first quarter were $62.0 million compared to prior year spending of $64.1 million.

QUARTERLY DIVIDEND

Canadian Tire Corporation has declared a quarterly dividend of 35 cents per share on each Common and Class A Non-Voting share. The dividend is payable September 1, 2013 to Common and Class A non-voting shareholders of record as of July 31, 2013. The dividend is considered an "eligible dividend" for tax purposes.

NORMAL COURSE ISSUER BID

During the first quarter of 2013, the Company purchased 215,900 Class A Non-Voting Shares under its normal course issuer bid program. This includes 196,100 shares which were purchased in addition to shares purchased for anti-dilutive purposes.

Please refer to Management's Discussion and Analysis for further detail and information on the following charts.

Consolidated financial results          
(C$ in millions, except per share amounts)   Q1 2013   Q1 2012 Change
Retail sales $ 2,435.5 $ 2,415.1 0.8%
             
Revenue     2,479.8   2,439.5 1.7%
Gross margin   766.7   749.0 2.4%
Other income   7.7   3.9 99.3%
Operating expenses    645.4   625.8 3.1%
EBITDA     211.7   206.4 2.5%
Depreciation and amortization   82.7   79.3 4.2%
Net finance (income) costs   28.7   29.6 (3.2)%
Income before income taxes   100.3   97.5 2.9%
Effective tax rate   27.3%   27.3%  
Net income   73.0   71.0 2.9%
             
Basic earnings per share   0.90   0.87 3.3%
Diluted earnings per share   0.90   0.87 3.3%
             

 

Retail segment financial results              
(C$ in millions)       Q1 2013   Q1 2012 Change
Retail sales     $ 2,435.5  $  2,415.1 0.8%
Retail return on invested capital (ROIC)       7.35%   7.75%  
                 
Revenue        $ 2,216.9  $  2,184.1 1.5%
Gross margin        599.5   591.0 1.5%
Other income       7.5   2.0 288.9%
Operating expenses       566.5   551.2 2.8%
EBITDA         120.7   118.7 1.8%
Depreciation and amortization       80.2   76.9 4.2%
Net finance (income) costs       17.5   17.3 1.9%
Income before income taxes       23.0   24.5 (5.8)%
 

 

Retail Segment - by banner          
(C$ in millions, except number of stores and gas bars)   Q1 2013   Q1 2012 Change
CTR retail sales growth   (1.6)%   3.8%  
CTR same store sales growth   (2.4)%   3.3%  
CTR revenue  $  1,174.3  $  1,184.8 (0.9)%
Number of CTR stores   490   488  
Number of PartSource stores   87   87  
             
Canadian Tire Petroleum retail sales growth   3.7%   5.2%  
Canadian Tire Petroleum gasoline volume (litres) growth 2.7%   (1.9)%  
Canadian Tire Petroleum revenue  $  485.5  $  469.7 3.4%
Canadian Tire Petroleum gross margin dollars  $  33.1  $  32.0 3.4%
Number of gas bars   299   289  
             
FGL Sports retail sales growth   5.6%   6.4%  
FGL Sports same store sales growth   8.8%   7.3%  
FGL Sports revenue  $  367.4  $  341.8 7.5%
Number of FGL Sports stores   406   506  
             
Mark's retail sales growth   1.6%   6.7%  
Mark's same store sales growth   1.5%   5.8%  
Mark's revenue  $  194.1  $  191.5 1.4%
Number of Mark's stores   386   385  
             

Financial Services segment financial results          
(C$ in millions)   Q1 2013   Q1 2012 Change
Gross average accounts receivables (GAAR) $ 4,251.1  $ 4,014.1 5.9%
Net credit card write-off rate   6.17%   7.28%  
Return on receivables   6.77%   5.98%  
             
Revenue   $ 250.0  $ 241.7 3.4%
Gross margin dollars   139.8   130.2 7.3%
Operating expenses   62.9   59.2 6.2%
Income before income taxes   77.3   73.0 5.8%
   

To view a PDF version of Canadian Tire Corporation's full quarterly earnings report please see: http://files.newswire.ca/116/CanadianTire0509.pdf

FORWARD-LOOKING STATEMENTS

This document contains forward-looking information that reflects management's current expectations related to matters such as future financial performance and operating results of the Company. Forward-looking statements are presented for the purposes of providing information about management's current expectations and plans and allowing investors and others to get a better understanding of the Company's anticipated financial position, results of operation and operating environment. Readers are cautioned that such information may not be appropriate for other purposes.

All statements other than statements of historical facts included in this document may constitute forward-looking information, including but not limited to, statements concerning management's expectations relating to possible or assumed future prospects and results, our strategic goals and priorities, our actions and the results of those actions and the economic and business outlook for us. Often but not always, forward-looking information can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology. Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable at the date that such statements are made.

By its very nature, forward-looking information requires us to make assumptions and is subject to inherent risks and uncertainties, which give rise to the possibility that the Company's assumptions may not be correct and that the Company's expectations and plans will not be achieved. Without limiting the generality of the foregoing or the following, there can be no assurance that the Company ultimately will create a REIT or, if such a REIT is created, the final particulars thereof, including without limitation, the number, value or location of the properties that would be proposed to be transferred to the REIT, the size of the retained interest in the REIT that the Company would hold initially or in the future, and the other arrangements that would be proposed or exist as between the Company and the REIT.  The Company's determination to create a REIT is subject to a number of risks and uncertainties, including without limitation, those attendant with due diligence, favourable market conditions, regulatory and third party approvals, as well as the further approval by the Canadian Tire Board of Directors.  Although the Company believes that the forward-looking information in this document is based on information and assumptions which are current, reasonable and complete, this information is necessarily subject to a number of factors that could cause actual results to differ materially from management's expectations and plans as set forth in such forward-looking information for a variety of reasons. Some of the factors - many of which are beyond our control and the effects of which can be difficult to predict - include (a) credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, interest rates or tax rates; (b) the ability of Canadian Tire to attract and retain quality employees, Dealers, Canadian Tire Petroleum agents and PartSource, Mark's Work Wearhouse and FGL Sports store operators and franchisees, as well as our financial arrangements with such parties; (c) the growth of certain business categories and market segments and the willingness of customers to shop at our stores or acquire our financial products and services; (d) our margins and sales and those of our competitors; (e) risks and uncertainties relating to information management, technology, supply chain, product safety, changes in law, competition, seasonality, commodity price and business disruption, our relationships with suppliers and manufacturers, changes to existing accounting pronouncements, the risk of damage to the reputation of brands promoted by Canadian Tire and the cost of store network expansion and retrofits and (f) our capital structure, funding strategy, cost management programs and share price. We caution that the foregoing list of important factors and assumptions is not exhaustive and other factors could also adversely affect our results. Investors and other readers are urged to consider the foregoing risks, uncertainties, factors and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such forward-looking information.

For more information on the risks, uncertainties and assumptions that could cause the Company's actual results to differ from current expectations, please refer to the "Risk Factors" section of our Annual Information Form for fiscal 2012 and to sections 7.5.1.2 (Retail Segment Business Risks), 7.5.2.2 (Financial Services Segment Business Risks) and 11.0 (Enterprise Risk Management) and all subsections there under of our 2012 Management's Discussion and Analysis, as well as Canadian Tire's other public filings, available at www.sedar.com and at www.corp.canadiantire.ca.

Statements that include forward-looking information do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made have on the Company's business. For example, they do not include the effect of any dispositions, acquisitions, asset write-downs or other charges announced or occurring after such statements are made.

The forward-looking statements and information contained herein are based on certain factors and assumptions as of the date hereof. The Company does not undertake to update any forward-looking information, whether written or oral, that may be made from time to time by it or on its behalf, to reflect new information, future events or otherwise, unless required by applicable securities laws.

CONFERENCE CALL

Canadian Tire will conduct a conference call to discuss information included in this news release and related matters at 12:00 p.m. ET on May 9, 2013. The conference call will be available simultaneously and in its entirety to all interested investors and the news media through a webcast at http://corp.canadiantire.ca/EN/investors, and will be available through replay at this website for 12 months.

ABOUT CANADIAN TIRE

Canadian Tire Corporation, Limited (TSX:CTC.a) (TSX:CTC) is a Family of Companies that includes Canadian Tire Retail, Partsource, Gas+, FGL Sports (Sport Chek, Hockey Experts, Sports Experts, National Sports, S3 and Atmosphere), Mark's, Canadian Tire Financial Services, and Canadian Tire Jumpstart Charities.  With more than 1,700 retail and gasoline outlets from coast-to-coast, our primary retail business categories - Automotive, Living, Fixing, Playing and Apparel - are supported and strengthened by our Financial Services division. Nearly 68,000 people are employed across the Canadian Tire enterprise, which was founded in 1922 and remains one of Canada's most recognized and trusted brands. For more information, visit Corp.CanadianTire.ca.

SOURCE CANADIAN TIRE CORPORATION, LIMITED

PDF available at: http://stream1.newswire.ca/media/2013/05/09/20130509_C5147_DOC_EN_26563.pdf



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