TORONTO – The head of Canadian Tire Corp. Ltd. says indebted shoppers are cutting back on spending even more — and he doesn’t see that trend turning around quickly.
Greg Hicks, president and chief executive of the housewares and sporting goods retailer, says consumers have “tightened their belts considerably” as the high cost of living continues to pummel their spending power.
“They’re focused on essentials and where they could really get value,” he said on a Thursday call with analysts.
“But the reality is the consumption patterns are less dependent on income level. They’re more dependent on household indebtedness, and indebted households, regardless of income level, are consuming much less, especially in discretionary businesses.”
Consumers with less debt, he said, have more stable spending patterns when it comes to discretionary goods and have even increased their essential purchases.
However, the overall pullback in spending has posed a challenge for Canadian Tire and its SportChek, Mark’s, Pro Hockey Life and Helly Hansen brands for the bulk of this year and some of last.
The company weathered the situation well enough to report a profit attributable to shareholders of $198.8 million or $3.56 per diluted share in its most recent quarter, up from $99.4 million or $1.76 per diluted share a year earlier.
Revenue for the second quarter, which ended June 29, totalled $4.13 billion, down from $4.26 billion in the same quarter last year.
Consolidated comparable sales, however, were down 4.6 per cent.
Comparable sales at the Canadian Tire banner fell 5.6 per cent compared with a year ago, while SportChek stores saw comparable sales edge down 0.9 per cent. Mark’s comparable sales fell 0.8 per cent.
“Although Q2 was not what we wanted in terms of sales, we understand and sympathize with Canadian consumer caution,” Hicks said.
“Ultimately, we don’t control the state of household economics or the weather.”
Weather can be both a benefit and detriment to Canadian Tire. If Mother Nature co-operates with the company’s predictions and product mix for each season, it can power the business to recording a good quarter.
But when temperatures, rainfall and snow levels buck what was anticipated, unexpected demand may crop up for products that are not well-stocked or people might delay purchases altogether if it’s not cold enough to need a parka or sled, for example.
In the second quarter, Hicks said many parts of the country experienced about 50 per cent more cold days and double the days of rain.
Gregory Craig, the company’s chief financial officer, added the weather was “unseasonably cold,” particularly in western provinces like Alberta, where it snowed in mid-June.
“With cold and wet weather, fewer people came to the store for categories such as gardening and watering,” Craig said on the same call as Hicks.
“Sales in home environment categories including air purifiers and air conditioners were also down compared to last year, when we were experiencing higher temperatures in many parts of the country.”
To cope with the shifts, Hicks said, “we controlled what we could.”
That meant turning to the brand’s Triangle rewards program to spur loyalty and recurring revenue. The plan worked so well that sales linked to the loyalty program outperformed those made by customers without Triangle.
Irene Nattel, an analyst with RBC Capital Markets, took such moves as a sign that Canadian Tire has “strong hands at the wheel.”
The company’s quarter was “better than expected despite the challenging backdrop” and “underscores the reasonably defensive nature” of Canadian Tire’s retail operations, she told clients in a note.
The market reacted to the results by pushing up Canadian Tire’s share price by $10.68, or 7.7 per cent, to close at $148.71 on Thursday.
Moving forward, Craig said Canadian Tire does not expect to see softer consumer demand reverse immediately.
As a result, Canadian Tire will be “managing down” its inventory, said TJ Flood, the president of Canadian Tire’s retail division.
The company will also lean more into essentials, which tend to reign supreme in the fourth quarter, and categories like automotive, household cleaning and pet supplies, he said.
This report by The Canadian Press was first published Aug. 8, 2024.
Companies in this story: (TSX:CTC.A, TSX:CTC)
