- Canadian Tire Corporation enters into far-reaching agreement
with Scotiabank that creates unprecedented opportunity for business
growth. Scotiabank to acquire 20% equity interest of financial
services business; agreement includes credit card funding facility
of up to $2.25 billion
- Consolidated revenue up 3.8% to $2.6
billion
- Delivers solid results in Q1 despite late arrival of spring
weather. Same store sales down 0.5% at Canadian Tire; up 6.4% at
FGL Sports and 2.9% at Mark's
- Consolidated net income up 3.6%; consolidated diluted EPS down
2.2% reflecting the impact of earnings attributable to public
unitholders of CT REIT
- Announces 14.3% increase in dividend, increased share purchase
commitment under NCIB of additional $100
million and intention to pursue early retirement of a
portion of its long-term debt
TORONTO, May 8, 2014 /CNW/ - Canadian Tire Corporation,
Limited (TSX:CTC, TSX:CTC.a) released its Q1 2014 earnings and,
earlier today, announced a wide-ranging business partnership that
will drive growth for its retail and financial services
businesses.
Financial Services Partner Announcement
Canadian Tire Corporation and Scotiabank announced a strategic
partnership earlier today that will see Scotiabank acquire a 20%
equity interest in Canadian Tire's financial services business for
$500 million in cash. The agreement
also includes a credit card funding facility whereby Scotiabank
will provide Canadian Tire's financial services business with
credit card receivable financing of up to $2.25 billion satisfying the original objective
of mitigating future funding risk. In addition, the partnership
includes the option for Canadian Tire to sell an additional 29% of
its financial services business to Scotiabank within 10 years.
"The agreement is unprecedented in the opportunity it creates
for business growth and benefits for customers across our retail
network," said Stephen Wetmore,
Chief Executive Officer, Canadian Tire Corporation. "With
Scotiabank's great brand and a shared focus on community, this
partnership will serve as a basis for continued innovation that we
believe will drive additional traffic to our Canadian Tire, Mark's
and Sport Chek stores and provides new opportunities to reward
loyal customers."
The Company and Scotiabank have agreed to work together on
opportunities that enhance customer affinity for their brands,
maximize sponsorship commitments and showcase a wide range of
products and services offered by both organizations.
The deal is subject to customary closing conditions and
regulatory approvals, and the transaction is expected to close by
September 30, 2014.
Q1 2014 Earnings
First quarter results for the period ended March 29, 2014, show positive sales, revenue and
margin growth.
"We saw the momentum from a very positive 2013 carry into the
first two months of the quarter, and we are strongly positioned for
the balance of the year," said Stephen
Wetmore, CEO, Canadian Tire Corporation. "Early in the new
year, the 2014 Olympic Winter Games presented an opportunity for
Canadian Tire, Sport Chek and Sports Experts to increase customer
affinity for the retail brands through new marketing initiatives.
The results of the campaigns and customer feedback have been
tremendous and were reflected in sales of Olympic-related
merchandise."
Consolidated revenue increased 3.8% or $93.3 million in the quarter as a result of
higher shipments in key categories at Canadian Tire, strong sales
at FGL Sports and Mark's, increased gasoline prices and higher
non-gasoline sales at Petroleum and increased credit card charges
related to gross average receivables growth at Financial Services.
Consolidated retail sales in the first quarter increased 1.2%, to
$2.5 billion, over the same period
last year.
Consolidated net income increased 3.6% to $75.6 million largely reflecting strong gross
margin contributions from the Retail segment as well as solid
revenue from accounts receivable in the Financial Services
segment. This was offset by a planned increase in selling,
general and administrative expenses that included marketing and
advertising expenses related to the Olympics and increased
stock-based compensation expenses. Diluted EPS attributable
to owners of Canadian Tire Corporation were $0.88 in the quarter, down 2.2% over the prior
year due to the impact of approximately $5.0
million, or $0.06 per share,
for earnings attributable to the public unitholders of CT REIT
(non-controlling interests).
Consolidated financial
results1 |
|
|
|
|
|
|
(C$ in millions, except per share amounts) |
|
Q1 2014 |
|
Q1 2013 |
|
Change |
Retail Sales2 |
$ |
2,460.5 |
$ |
2,431.2 |
|
1.2% |
Revenue |
|
2,573.1 |
|
2,479.8 |
|
3.8% |
Net income |
|
75.6 |
|
73.0 |
|
3.6% |
Net income attributable to owners of
Canadian Tire Corporation |
|
70.6 |
|
73.0 |
|
(3.3)% |
Basic earnings per share attributable
to
owners of Canadian Tire Corporation3 |
|
0.88 |
|
0.90 |
|
(1.8)% |
Diluted earnings per share
attributable to
owners of Canadian Tire Corporation3 |
|
0.88 |
|
0.90 |
|
(2.2)% |
1 |
Retail sales is a key operating performance
measure and refers to the point of sale (i.e. cash register) value
of all goods and services sold to retail customers at Canadian Tire
Dealer-operated, Mark's and FGL Sports franchisee-operated,
Petroleum retailer-operated and corporately-owned stores across the
retail banners and through its online sales channels and, in
aggregate, does not form part of the Company's consolidated
financial statements. Revenue, as reported in the Company's
consolidated financial statements, is comprised, primarily of the
sales of goods to Canadian Tire Associate Dealers and to
franchisees of Mark's and FGL Sports, the sale of gasoline through
Petroleum retailers, the sale of goods to retail customers by
stores that are corporately-owned under the Mark's, PartSource and
FGL Sports banners, the sale of services through the home services
business, the sale of goods to customers through INA International
Ltd., a business to business operation of FGL Sports, and through
the Company's online sales channels, as well as revenue generated
from interest, service charges, interchange and other fees and from
insurance products sold to credit card holders in the Financial
Services segment and rent paid by third-party tenants in the CT
REIT segment. Management believes that retail sales and
related year-over-year comparisons provide meaningful information
to investors and are expected and valued by them to help them
assess the size and financial health of the retail network of
stores; these measures also serve as an indicator of the strength
of the Company's brand, which ultimately impacts its consolidated
financial performance. Refer to section 8.3 in the Company's
Q1 2014 MD&A and section 10.3 in the full year 2013 MD&A
for additional information. |
2 |
Retail sales for the prior year have been
restated. Refer to section 8.3 in the Q1 2014 MD&A for
additional information. |
3 |
Earnings per share year-over-year amounts are
calculated using whole numbers. |
RETAIL SEGMENT OVERVIEW
Retail segment revenue increased 3.4% or $76.2 million to $2.3
billion in the quarter due to strong shipments at Canadian
Tire and sales growth at FGL Sports, Petroleum and Mark's.
Income before income taxes in the Retail segment was
$16.6 million in the quarter, down
28.2% over the prior year. This reflects the impact of the
operations of CT REIT during the quarter including the payment of
rent expense at market rates for properties acquired by CT REIT.
The earnings also reflect strong gross margin performance across
all retail businesses, which were offset by planned increases in
marketing and advertising expenses due to Olympic and sport
sponsorship activities and higher stock-based compensation
expenses.
Canadian Tire achieved first quarter 2013 retail sales levels
despite the late arrival of the spring selling season with same
store sales down 0.5% compared to the same period last year. Strong
sales in January and February were impacted late in the quarter by
continued winter weather in March.
Petroleum sales were up 3.3% in the quarter largely related to
higher gasoline prices and increased non-gasoline sales.
FGL Sports continued its strong performance with retail sales
growth of 1.7% and an increase of 6.4% in same store sales compared
to the prior year. Same store sales at Sport Chek, FGL Sports' core
corporate banner, increased 11.9% in the first quarter, which also
saw the opening of a new state-of-the-art flagship store in West
Edmonton Mall. Sales gains were led by higher sales across all
apparel categories and strong sales of hard goods as well as the
positive customer response to Olympic performance and Team Canada
hockey apparel supporting the Sochi Olympic Winter Games.
Mark's saw strong results early in the quarter with sales of
winter-related apparel and footwear but the extended winter season
led to softer sales through March. Despite the delayed start to the
spring selling season, retail sales were up 2.7% and same store
sales were higher by 2.9% compared to the same period in 2013.
These increases were driven by strong sales of industrial apparel
and footwear and men's apparel as the banner refocused on core
areas of the business.
CT REIT OVERVIEW
CT REIT began to execute its growth plan with the closing of a
third-party acquisition during its first quarter of 2014 and
remains committed to a further seven projects that are expected to
be completed through the remainder of the year. Earlier this week,
CT REIT announced its intention to make a further four acquisitions
and its plans for development of two smaller intensification
projects. Net operating income for the first quarter,
including straight line rent and land lease expenses amounted to
$58.0 million and funds from
operations for the same period were $42.7
million or $0.238 per
unit.
FINANCIAL SERVICES OVERVIEW
Financial Services continued its strong performance in the
quarter. Income before income taxes was $82.2 million, an increase of 6.4% in the quarter
compared to Q1 2013 due to higher revenue from gross average
receivables and interest expense savings, partly offset by
increased credit card net write-offs and incremental allowance.
Financial Services selling, general and
administrative expenses increased 11.3% in the quarter compared to
the prior year due primarily to a planned increase in marketing
costs associated with account acquisition and volume related
increases in credit card operations costs and increased personnel
costs as a result of higher stock-based compensation expenses.
New account growth is due in part to the
continued execution of initiatives that have integrated Financial
Services into the retail environment as well as technology
improvements in-store that have improved the overall customer
experience. Processes within the store and point-of-sale
enhancements now facilitate the awarding of instant credit for same
day purchase.
CAPITAL EXPENDITURES
Capital expenditures for the first quarter were $74.0 million compared to prior year spending of
$62.0 million.
QUARTERLY DIVIDEND
Canadian Tire Corporation has declared an increase in the
quarterly dividend of 14.3% to $0.50
per share on each Common and Class A Non-Voting share. The dividend
is payable September 1, 2014 to
Common and Class A non-voting shareholders of record as of
July 31, 2014. The dividend is
considered an "eligible dividend" for tax purposes.
NORMAL COURSE ISSUER BID
During the first quarter of 2014, the Company purchased 311,319
Class A Non-Voting Shares under its normal course issuer bid
program ("NCIB"). This includes 294,900 Class A Non-Voting Shares,
which were purchased in addition to shares purchased for
anti-dilutive purposes.
Canadian Tire announced today that it intends to
utilize a further $100 million of its
anticipated free cash flow in 2014, in addition to the $100 million previously announced on February 13, 2014 (for an aggregate of
$200 million), for the purchase of
additional Class A Non-Voting Shares under its NCIB. The Company
intends to purchase such Class A Non-Voting Shares if, after
consideration of various factors, the Company determines that the
purchase would be expected to be in the best interests of the
Company and contribute to enhancing the value of the remaining
Class A Non-Voting Shares. As previously announced, the
Company will not purchase more than an aggregate of 2.5 million
Class A Non-Voting Shares in 2014 pursuant to its NCIB.
Any purchases made by CTC pursuant to its NCIB
may be made through the facilities of the TSX or alternative
trading systems, if eligible, by open market transactions at the
market price of the Class A Non-Voting Shares at the time of the
acquisition or as otherwise permitted under the rules of the
Toronto Stock Exchange ("TSX"). For open market transactions, CTC
is subject to a daily repurchase restriction of 47,649 Class A
Non-Voting Shares, which represents 25% of the average daily
trading volume of the Class A Non-Voting Shares on the TSX for the
six months ended January 31,
2014. Additionally, CTC may also acquire Class A
Non-Voting Shares under its NCIB through private agreements under
an issuer bid exemption order issued by one or more securities
regulatory authorities in accordance with applicable securities law
and any TSX requirements. Any private purchase made under an
exemption order issued by a securities regulatory authority will
generally be at a discount to the prevailing market price of the
Class A Non-Voting Shares. Class A Non-Voting Shares acquired
by CTC pursuant to its NCIB are restored to the status of
authorized but unissued shares.
Please refer to Management's Discussion and Analysis for further
detail and information on the following charts.
Retail segment financial results |
|
|
|
|
|
|
|
|
|
|
|
(C$ in millions) |
|
Q1 2014 |
|
Q1 2013 |
Change |
Retail sales1 |
$ |
2,460.5 |
$ |
2,431.2 |
1.2% |
|
|
|
|
|
|
Revenue |
$ |
2,293.1 |
$ |
2,216.9 |
3.4% |
Gross margin dollars |
$ |
656.3 |
$ |
599.5 |
9.5% |
Gross margin (% of revenue) |
|
28.6% |
|
27.0% |
158bps |
Selling, general and administrative expenses |
|
|
|
|
|
(excluding depreciation &
amortization) |
|
598.9 |
|
486.3 |
23.2% |
Other (expense) income |
|
23.0 |
|
7.5 |
202.8% |
EBITDA2 |
$ |
80.4 |
$ |
120.7 |
(33.6)% |
Depreciation and amortization |
|
69.1 |
|
80.2 |
(13.8)% |
Net finance (income) costs |
|
(5.3) |
|
17.5 |
(130.6)% |
Income before income taxes |
$ |
16.6 |
$ |
23.0 |
(28.2)% |
|
|
|
|
1 |
Retail sales for the prior year have been
restated. Refer to section 8.3 in the Q1 2014 MD&A for
additional information. |
2 |
Non-GAAP measure. Refer to non-GAAP measures in
section 8.3 in the Q1 2014 MD&A for additional
information. |
Key operating performance
measures1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(year-over-year percentage change, C$ in
millions,
except where noted) |
|
Q1 2014 |
|
|
Q1 2013 |
|
Change |
Retail segment - total |
|
|
|
|
|
|
|
|
Retail sales growth2 |
|
1.2% |
|
|
0.9% |
|
|
|
Revenue |
$ |
2,293.1 |
|
$ |
2,216.9 |
|
3.4% |
Retail segment - by
banner |
|
|
|
|
|
|
|
Canadian Tire |
|
|
|
|
|
|
|
|
Retail sales growth |
|
0.0% |
|
|
(1.6)% |
|
|
|
Same store sales growth |
|
(0.5)% |
|
|
(2.4)% |
|
|
|
Sales per square foot |
$ |
388 |
|
$ |
386 |
|
0.7% |
|
Revenue |
$ |
1,218.9 |
|
$ |
1,174.3 |
|
3.8% |
FGL Sports |
|
|
|
|
|
|
|
|
Retail sales growth3 |
|
1.7% |
|
|
5.7% |
|
|
|
Same store sales growth3 |
|
6.4% |
|
|
9.1% |
|
|
|
Sales per square foot |
$ |
282 |
|
$ |
268 |
|
4.9% |
|
Revenue |
$ |
379.4 |
|
$ |
367.4 |
|
3.3% |
Mark's |
|
|
|
|
|
|
|
|
Retail sales growth |
|
2.7% |
|
|
1.6% |
|
|
|
Same store sales growth |
|
2.9% |
|
|
1.5% |
|
|
|
Sales per square foot |
$ |
324 |
|
$ |
311 |
|
4.4% |
|
Revenue |
$ |
204.3 |
|
$ |
194.1 |
|
5.3% |
Petroleum |
|
|
|
|
|
|
|
|
Gasoline volume growth in litres |
|
0.0% |
|
|
2.7% |
|
|
|
Retail sales growth |
|
3.3% |
|
|
3.7% |
|
|
|
Revenue |
$ |
499.1 |
|
$ |
485.5 |
|
2.8% |
|
Gross margin dollars |
$ |
36.5 |
|
$ |
33.1 |
|
10.4% |
|
|
|
|
|
|
|
|
1 For financial
definitions refer to section 8.3 in the Q1 2014 MD&A and
section 7.4.1 in the full year 2013 MD&A for additional
information. |
2 Retail sales for
the prior year have been restated. Refer to section 8.3 in
the Q1 2014 MD&A for additional information. |
3 Retail sales and
same store sales metrics for the prior year have been
restated. Refer to section 8.3 in the Q1 2014 MD&A for
additional information. |
CT REIT segment financial results |
|
|
|
|
|
|
|
|
|
|
|
|
|
(C$ in millions) |
|
Q1 2014 |
|
Financial
Forecast |
|
Variance |
Net operating income1 |
$ |
58.0 |
$ |
57.4 |
$ |
0.6 |
Funds from operations1 |
|
42.7 |
|
42.2 |
|
0.5 |
Adjusted funds from operations1 |
|
32.3 |
|
31.6 |
|
0.7 |
1 Non-GAAP
measures. Refer to section 8.3 in the Q1 2014 MD&A for
additional information. |
|
(C$ in millions) |
|
Q1 2014 |
|
Financial
Forecast |
|
Variance |
Property revenue |
$ |
82.7 |
$ |
83.2 |
$ |
(0.5) |
Property expense |
|
(17.9) |
|
(18.8) |
|
0.9 |
General and administrative expense |
|
(1.9) |
|
(2.0) |
|
0.1 |
Interest income |
|
0.2 |
|
- |
|
0.2 |
Interest and other financing charges |
|
(20.4) |
|
(20.1) |
|
(0.3) |
Fair value adjustment on investment
properties |
|
127.0 |
|
- |
|
127.0 |
Net income |
$ |
169.7 |
$ |
42.2 |
$ |
127.5 |
Financial Services segment financial
results |
|
|
|
|
|
(C$ in millions) |
|
Q1 2014 |
|
Q1 2013 |
Change |
Gross average accounts receivable |
$ |
4,542.1 |
$ |
4,251.1 |
6.8% |
Net credit card write-off rate |
|
5.85% |
|
6.17% |
|
Return on receivables1 |
|
7.31% |
|
6.77% |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
264.6 |
$ |
250.0 |
5.8% |
Gross margin dollars |
|
150.4 |
|
139.8 |
7.6% |
Selling, general and administrative
expenses |
|
70.0 |
|
62.9 |
11.3% |
Income before income taxes |
$ |
82.2 |
$ |
77.3 |
6.4% |
1 Key operating
performance measure. Refer to section 8.3 in the Q1 2014
MD&A and section 10.3 in the full year 2013 MD&A for
additional information. |
To view a PDF version of Canadian Tire Corporation's full fourth
quarter and year-end earnings report please see:
http://files.newswire.ca/116/Q12014MDAFSandNotes.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
provided for the purposes of providing information about
management's current expectations and plans and allowing investors
and others to get a better understanding of our financial position,
results of operations and operating environment. Readers are
cautioned that such information may not be appropriate for other
circumstances.
All statements other than statements of
historical facts included in this document may constitute
forward-looking information, including but not limited to,
statements concerning CT REIT's proposed acquisition plans under
the heading "CT Real Estate Investment Trust", statements regarding
the Company's normal course issuer bid program (including
statements regarding the Company's expectations about the amount of
its anticipated free cash flow to be utilized in acquiring Class A
Non-Voting Shares pursuant to its normal course issuer bid) under
the heading "Normal Course Issuer Bid", statements regarding the
expected benefits of the strategic partnership with Scotiabank,
such as the mitigation of future funding risk, increased financial
flexibility, maintenance of the integration between the Company's
financial services and retail businesses, enhanced customer
affinity for Canadian Tire brands and maximization of sponsorship
commitments under the heading "Financial Services Partner
Announcement", and other 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, analyses, beliefs 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 information is provided.
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, estimates, analyses, beliefs and opinions
may not be correct and that the Company's expectations and plans
will not be achieved. Examples of management's beliefs, which may
prove to be incorrect include, but are not limited to, beliefs
about the effectiveness of certain performance measures, beliefs
about current and future competitive conditions and the Company's
position in the competitive environment, beliefs about the
Company's core capabilities and beliefs regarding the availability
of sufficient liquidity to meet the Company's contractual
obligations. Although the Company believes that the forward-looking
information in this document is based on information, assumptions
and beliefs 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 CTC to attract and retain high quality employees for all of its
businesses, Dealers, Canadian Tire Petroleum agents and Mark's Work
Wearhouse and FGL Sports 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) the
changing consumer preferences toward e-commerce, online retailing
and the introduction of new technologies; (f) risks and
uncertainties relating to information management, technology,
property management and development, supply chain, product safety,
changes in law, regulation, competition, seasonality, weather
patterns, commodity price and business disruption, our
relationships with suppliers, manufacturers, partners and other
third parties, changes to existing accounting pronouncements, the
risk of damage to the reputation of brands promoted by CTC and the
cost of store network expansion and retrofits; (g) our capital
structure, funding strategy, cost management programs and share
price; and (h) the possibility that the anticipated benefits and
synergies from the partnership with Scotiabank cannot be realized
or may take longer to realize than expected. 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 2013 and
our 2013 Management's Discussion and Analysis, as well as the
Company'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 8, 2014. 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 Corporation
Canadian Tire Corporation, Limited, (TSX:CTC.A) (TSX:CTC) or
"CTC," is a family of businesses that includes a retail segment, a
financial services division, CT REIT and Canadian Tire Jumpstart
Charities, CTC's affiliated national charity that is dedicated to
removing financial barriers so kids across Canada can participate in sports and physical
activities. Our retail business is led by Canadian Tire, which was
founded in 1922 and provides Canadians with products for life in
Canada across its Living, Playing,
Fixing, Automotive and Seasonal categories. PartSource and Gas+ are
key parts of the Canadian Tire network. The retail segment also
includes Mark's, a leading source for casual and industrial wear,
and FGL Sports (Sport Chek, Hockey Experts, Sports Experts,
National Sports, Intersport, Pro Hockey Life and Atmosphere), which
offers the best active wear brands. The nearly 1,700 retail and
gasoline outlets are supported and strengthened by our Financial
Services division and the tens of thousands of people employed
across the Company. For more information, visit
Corp.CanadianTire.ca.
SOURCE CANADIAN TIRE CORPORATION, LIMITED
PDF available at:
http://stream1.newswire.ca/media/2014/05/08/20140508_C7275_DOC_EN_40089.pdf