Canadian Tire released a bullish outlook for the next three years as the company pushed further into e-commerce in the third quarter and posted its best sales performance in more than a decade at its eponymous retail banner.
The seller of auto parts and sporting goods said same-store sales, an important measure of retail performance that strips out the effects of square footage changes, climbed 4.7 per cent in the period ended Sept. 30 at Canadian Tire’s retail stores. Shares rose three per cent on the Toronto Stock Exchange Thursday.
The company, which drew criticism for axing its retail website in 2009 due to low productivity, is now moving in on retailers such as Walmart Canada and Costco, who offer home delivery of e-commerce orders.
Canadian Tire relaunched digital sales site in 2011 beginning with tires and has been expanding its digital operations ever since in order to better fight Amazon. The retailer began offering in-store pickup of customers’ online orders through a “click and collect” model in 2014, saying its proximity to customers’ homes made the pickup model attractive.
But in the spring, chief executive Stephen Wetmore confirmed that Canadian Tire would roll out home delivery nationally to its customers, and launched the program at ten stores in Ottawa in the third quarter.
“We are well-positioned over the next three or four years for any competition, from an online point of view,” Wetmore told analysts on a conference call Thursday.
Greg Hicks, president of Canadian Tire’s retail division, said the e-commerce delivery program in Ottawa currently covers 80 per cent of the retailer’s assortment, or about 100,000 merchandise items.
The remaining 25,000 items, bulkier goods such as large appliances, will be launched in the fourth quarter in Ottawa area, before rolling out regionally and to the rest of Canada.
“Right now we are focused on the customer experience, customer demand, feedback, in-store processes and technology,” Hicks told analysts. “We are seeing solid customer response, including a much higher average order value than we are seeing in bricks (and mortar).”
Allan MacDonald, executive vice-president of retail, said optimizing data in the third quarter allowed Canadian Tire to make decisions such as not putting products on sale too early. Targeting customers through its digital loyalty program also helped sales in the quarter, MacDonald said, adding its loyalty program members spend twice as much on an average transaction as non-members.
“The company reported strong same-store sales growth at the Canadian Tire banner of 4.7 per cent,” said Peter Sklar, analyst at BMO Capital Markets, compared with BMO’s prediction of a two per cent increase. While the quarter was slightly weaker than anticipated on the earnings side due to an increase in sales, general and administrative expenses, Sklar noted the performance at Canadian Tire’s core banner arose due to robust sales in all of its business lines, particularly in non-seasonal items, though seasonal items also sold well.
Canadian Tire reported profit of $176.6 million in the period ended Sept. 30, or $2.59 per share, compared with $176.4 million ($2.44) a year ago. Earnings were reduced by 14 cents per share as the company opened a $500 million replacement distribution centre in Ontario. Analysts were predicting average earnings of $2.70.
Revenue climbed 5.6 per cent to $3.3 billion, up from $3.13 billion in the same period last year, and rose 4.6 per cent excluding the impact of higher gas prices.
Same-store sales were up 4.6 per cent at apparel chain Mark’s but were flat at the retailer’s FGL Sports division, rising just 0.4 per cent.
The Toronto-based company boosted its dividend by 38 per cent and released a three-year outlook predicting consolidated same-store sales growth of 3 per cent or more annually between 2018 and 2020, excluding petroleum.
The outlook also targets return on invested capital in the company’s retail segment of 10 per cent or more and average annual per-share earnings growth of 10 per cent or more. Canadian Tire expects to make average annual operating capital expenditures of $450 million to $500 million between 2018 and 2020.