CANADIAN TIRE CORPORATION, LTD. Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
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CANADIAN TIRE CORPORATION, LTD.
Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
FORWARD LOOKING INFORMATION consumer spending, interest rates, and foreign exchange
rates, current and future competitive conditions and the
This document contains information that may constitute Company’s position in the competitive environment,
forward-looking information reflecting Management’s anticipated cost savings and operational efficiencies as
current expectations relating to matters such as future well as anticipated benefits from strategic and other
financial performance and operating results of the initiatives, and the availability of sufficient liquidity.
Company. Forward-looking information provides insights Additional assumptions relating to Management’s
regarding Management’s current expectations and plans, expectations with respect to the Company’s strategic
and allows investors and others to better understand the investments and operating capital expenditures include:
Company’s anticipated financial position, results of (a) no material changes in the Company's strategic and
operations and operating environment. Readers are capital allocation priorities; (b) no material changes to the
cautioned that such information may not be appropriate Company's earning prospects and financial leverage; (c)
for other purposes. Certain information, other than no significant changes to the retail landscape or
historical information, may constitute forward-looking regulatory environment; (d) continued availability of
information, including, but not limited to, information skilled talent and source materials to execute on the
concerning Management’s current expectations relating capital investment agenda; and (e) continued successful
to possible or assumed prospects and results, the investments in businesses to achieve organic growth and
Company’s strategic goals and priorities, its actions and in projects and initiatives which yield improved asset
the results of those actions, and the economic and productivity. Although the Company believes that the
business outlook for the Company. Often, but not always, forward-looking information in this document is based on
forward-looking information can be identified by the use of information, assumptions and beliefs that are current,
forward-looking terminology such as “may”, “will”, reasonable, and complete, such information is
“expect”, “intend”, “believe”, “estimate”, “plan”, “can”, necessarily subject to a number of business, economic,
“could”, “should”, “would”, “outlook”, “forecast”, competitive and other risk factors that could cause actual
“anticipate”, “aspire”, “foresee”, “continue”, “ongoing” or results to differ materially from Management’s
the negative of these terms or variations of them or similar expectations and plans as set forth in such forward-
terminology. Forward looking information is based on the looking information. Some of the risk factors, many of
reasonable assumptions, estimates, analyses, beliefs and which are beyond the Company’s control and the effects
opinions of Management, made in light of its experience of which can be difficult to predict, but may cause actual
and perception of trends, current conditions and expected results to differ from the results expressed by the forward-
developments, as well as other factors that Management looking information, include: (a) credit, market, currency,
believes to be relevant and reasonable at the date that operational, liquidity and funding risks, including changes
such information is disclosed. in economic conditions, interest rates or tax rates; (b) the
ability of the Company to attract and retain high-quality
By its very nature, forward-looking information requires executives and employees for all of its businesses,
Management to make assumptions and is subject to Dealers, Petroleum retailers, and Mark’s and SportChek
inherent risk factors and uncertainties, which give rise to franchisees, as well as the Company’s financial
the possibility that Management’s assumptions, arrangements with such parties; (c) the growth of certain
estimates, analyses, beliefs and opinions may not be business categories and market segments and the
correct and that the Company’s expectations and plans willingness of customers to shop at its stores or acquire
will not be achieved. Examples of material assumptions the Company’s owned brands or its financial products and
and Management’s beliefs include, but are not limited to, services; (d) the Company’s margins and sales and those
the duration and impact of COVID-19 on the Company's of its competitors; (e) the changing consumer preferences
operations, liquidity, financial condition, or results, future and expectations relating to eCommerce, online retailing
economic conditions and related impacts on inflation, and the introduction of new technologies; (f) geopolitical
Page 1CANADIAN TIRE CORPORATION, LTD.
Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
risks (including the Russia-Ukraine conflict), and other Electronic Document Analysis and Retrieval) website at
developments including changes relating to or affecting http://www.sedar.com and at http://corp.canadiantire.ca.
economic or trade matters as well as the outbreak of
contagions or pandemic diseases; (g) risks and The Company cautions that the foregoing list of important
uncertainties relating to information management, risk factors and assumptions is not exhaustive and other
technology, cyber threats, property management and factors could also adversely affect the Company’s results.
development, environmental liabilities, supply-chain Investors and other readers are urged to consider the
management, product safety, competition, seasonality, foregoing risks, uncertainties, factors and assumptions
weather patterns, climate change, commodity prices and carefully in evaluating the forward-looking information and
business continuity; (h) the Company’s relationships with are cautioned not to place undue reliance on such
its Dealers, franchisees, suppliers, manufacturers, forward-looking information.
partners and other third parties; (i) changes in laws, rules,
regulations and policies applicable to the Company’s The forward-looking information contained herein is
business; (j) the risk of damage to the Company’s based on certain factors and assumptions as of the date
reputation and brand; (k) the cost of store network hereof and does not take into account the effect that
expansion and retrofits; (l) the Company’s capital transactions or non-recurring or other special items
structure, funding strategy, cost management program, announced or occurring after the information has been
and share price; (m) the Company’s ability to obtain all disclosed have on the Company’s business. The
necessary regulatory approvals; (n) the Company’s ability Company does not undertake to update any forward-
to complete any proposed acquisition; and (o) the looking information, whether written or oral, that may be
Company’s ability to realize the anticipated benefits or made from time to time by it or on its behalf, to reflect new
synergies from its acquisitions and investments. information, future events or otherwise, except as is
Additional risk factors related to Management’s required by applicable securities laws.
expectations with respect to the Company’s strategic
investments and operating capital expenditures include:
(a) the occurrence of widespread economic restrictions,
construction limitations, or supply chain delays due to,
among other events, a global pandemic resurgence; (b)
shortages of raw materials and/or skilled labour required
to execute capital investment plans; (c) higher than
expected cost inflation for materials, equipment, and
labour required to execute capital investment plans; and
(d) organizational capacity to execute the capital agenda.
For more information on the material risk factors,
uncertainties and assumptions that could cause the
Company’s actual results to differ materially from
predictions, forecasts, projections, expectations or
conclusions, refer to section 4.0 (Strategy and Four-Year
[2022 to 2025] Financial Aspirations) and section 11.0
(“Key Risks and Risk Management”) and all subsections
thereunder in the Company’s MD&A for the Fourth
Quarter and Full-Year 2022 ended December 31, 2022.
For more information, also refer to the Company’s other
public filings, available on the SEDAR (System for
Page 2CANADIAN TIRE CORPORATION, LTD.
Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
CORPORATE PARTICIPANTS President and CFO; and TJ Flood. President of Canadian
Tire Retail.
Karen Keyes
Head of Investor Relations Before we begin, I wanted to draw your attention to the
earnings disclosure, which is available on the website. It
Greg Hicks includes cautionary language about forward-looking
President and Chief Executive Officer statements, risks and uncertainties, which also apply to
the discussion during today's conference call. After our
Gregory Craig remarks today, the team will be happy to take your
Executive Vice President and Chief Financial Officer questions. We'll try to get in as many questions as
possible. But we do ask that you limit your time to one
TJ Flood question plus a follow up before cycling back into the
President, Canadian Tire Retail queue. We welcome you to contact investor relations if we
don't get through all the questions today.
I'll now turn the call over to Greg. Greg?
CONFERENCE CALL PARTICIPANTS
Brian Morrison Greg Hicks, President and Chief Executive Officer
TD Securities
Thank you, Karen. Good morning and welcome everyone.
George Doumet I will start by saying that overall, I'm pleased with our
Scotia Bank results, which demonstrate we continue to manage well
through a dynamic economic environment.
Luke Hannan
Canaccord Genuity I'm going to spend some time this morning discussing
what we're seeing in terms of consumer demand. But
Mark Petrie before I do, I'll give you some colour on our Q4 and 2022
CIBC results.
Peter Sklar In Q4, we achieved a record normalized EPS of $9.34,
BMO Capital Markets which brought full year EPS to $18.75, a great finish to a
remarkable centennial year and barely shy of last year's
record. This was despite the fact that in 2022, we
PRESENTATION experienced elevated supply chain and product costs and
higher foreign exchange while investing heavily in the
Operator initiatives within our Better Connected strategy.
Comparable sales in the quarter were consistent with last
Thank you for standing by. My name is Paul, and I will be
year's exceptional growth, representing a 21 percent
your conference operator today. Welcome to the
increase on a three-year stacked basis. Revenue was up
Canadian Tire Corporation Earnings Call.
and stronger retail gross margin led to growth in our Retail
Segment IBT. Strong earnings at CTFS, driven by higher
Now I will pass along to Karen Keyes, Head of Investor
revenue and lower OPEX, also contributed to our record
Relations for Canadian Tire Corporation. Karen?
EPS.
We continue to grow and strengthen our connection to
Karen Keyes, Investor Relations Canadians through our Triangle Rewards loyalty program
and credit card with loyalty sales up 8 percent and loyalty
Thank you, Paul. Good morning, everyone. Welcome to penetration approaching 60 percent for the year.
Canadian Tire Corporation's Fourth Quarter and 2022 Full Additionally, in 2022, we successfully delivered our stated
Year Results conference call. With me today are Greg goal of more than $300 million of operating efficiencies.
Hicks, President and CEO; Gregory Craig, Executive Vice
Page 3CANADIAN TIRE CORPORATION, LTD.
Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
As I said, I'm pleased with what we achieved. But I'm What is new, however, is that we are better prepared and
equally pleased with how we achieved it, through our a more resilient company than we've ever been. Through
team's diligent management of our business and our our unique capabilities, learnings from the pandemic and
unwavering focus on our strategy. by remaining confident and committed to our Better
Connected strategy, we will continue to deliver value to
As I imagine we're all reading many of the same customers, because we know that's what they need.
headlines. I know I don't need to tell you that we continue
to operate against a backdrop of uncertainty. What I will We are responding not reacting by reorienting our tactics
tell you is what we're seeing in terms of consumer while remaining anchored in our strategy. We're doubling
demand through our Triangle credit card data, and our down on our unique enterprise capabilities, including our
loyalty program. Our credit card data tells us that we are Triangle Rewards loyalty program, broad and owned
in a different economy. Credit card spending remains brand multi-category assortment, improved omnichannel
elevated but growth materially softened on a year-over- experience, and financial services business to deliver
year basis starting in late September. Growth in Q4 was more paths to value for our customers in 2023.
4 percent, compared to 16 percent on a full-year basis.
I'll start with what I believe is our most important path
Within our Triangle Rewards Loyalty membership, driving value for our customers, our Triangle Rewards
specifically, we are seeing different spend patterns Loyalty Program. We welcomed a plethora of new
emerge based on household income levels. Triangle customers during the pandemic and our determined focus
members in every household income segment grew their ever since has been to convert these customers into
spend with us in the quarter and every quarter of 2022. Triangle Rewards Loyalty Members. This is about more
However, higher income Triangle members spend growth than getting our loyalty cards into the hands of our
softened in the quarter relative to previous quarters. customers, it's about encouraging them to register their
cards, redeem eCTM, shop across multiple banners,
There were two Triangle member segments that engage and connect with our brand on a deeper more
accelerated their spend and delivered outsized growth for personal level.
the quarter. The first segment is lower income members,
who traditionally have had lower levels of engagement By converting shoppers into members, we can provide
with CTC. The second segment is middle income them with more value through eCTM and offers for the
members who have traditionally had higher engagement products they want and need. In an environment where
with us. We think these are bullish indicators of our relevance will be critical, frequency matters and offering
increased relevance in a tougher economic backdrop. the right products to the right customers at the right time
is critical. When our customers become registered
Specifically at CTR, we are seeing evidence of trade down members, we can do this for them. Triangle is already one
in our best level assortments, especially in essential of our strongest capabilities for providing value. We're
categories. We are not seeing a meaningful shift in our working off a very powerful platform.
discount mix, but we grew categories we would deem as
essentials, offset by a decline in non-essentials. Given the When you consider where we were five years ago, we
macro backdrop combined with what we are seeing in the knew very little about our members, and they were
performance of our business, we are expecting a more earning and redeeming their eCTM at mostly one banner,
constrained demand environment as we look forward, Canadian Tire Retail. In a relatively short amount of time,
especially in the first six months of this year. We believe we built an incredibly strong capability for our business.
it's fair to say that our customers are in a position where This year, we're reinforcing this strength in two main
they're looking for more value. That's where you can areas.
expect us to be laser focused in 2023.
The first is continuing to drive registration, as that enables
It was just about a year ago, that we announced our customers to see and fully realize the value of Triangle
evolved Brand Purpose: we are here to make life in Rewards through redemption. In 2022, growth from our
Canada better. This commitment includes providing value registered members outpaced growth from other loyalty
to Canadians in this dynamic environment. This isn't a members, and drove the $800 million increase in loyalty
new idea for us. It's something we've been doing for more sales. Registered members have consistently increased
than 100 years, and we've seen and overcome our share spend in both essential and discretionary items at CTR.
of challenging times. Although growth rates have declined since earlier in the
year, their behaviour is significantly different than non-
Page 4CANADIAN TIRE CORPORATION, LTD.
Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
registered and non-members. This further supports our working on this program for quite some time and believe
belief and engagement that Triangle and eCTM is this timing is perfect for adding even more value to our
enabling members to retain their spending. membership.
Additionally, every time a registered member shops or Another critical path for delivering value to customers is
redeems, we learn more about them, which helps us our unique multicategory product assortment. We've long
determine how best to deliver value to them in the future. been known for the breadth of our assortment, and by
This continuous cycle creates a flywheel effect in which continuing to expand our range of good, better and best
value begets more value. I'll also add that we issued $350 products over the last many years, we are in a better
million of eCTM to our membership in 2022, an increase position now than ever. The breadth of our assortment,
of 16 percent compared to 2021. The flywheel is primed especially in our Owned Brands portfolio enables us to
for value delivery in 2023. continue meeting customers wants and needs while
providing much needed value if and when they are looking
Our second focus area within Triangle is helping to trade down.
customers earn eCTM faster through the use of strategic
promo offers and driving cross shop across our banners. At CTR, we've designed entire categories, such as
During this call last year, I went fairly deep on Party City barbecues, kitchen appliances, bikes and tents to have
performance to demonstrate the power of the Triangle good, better and best product representation. This
Rewards program. As a reminder, last year, we disclosed strategy has enabled the engineering of profit at each
the fact that the standalone Party City business was up quality tier. For example, within kitchen appliances, we
26 percent for the full year, and that we had almost offer MASTER Chef which is our good tier product, Vida
400,000 Triangle members shop the banner, and that PADERNO as our better and PADERNO as our best.
these members over indexed on our key 30 to 49 year old
family customer segment. At SportChek, we are very pleased with our owned brand
performance, including Forward With Design and Woods,
In 2022 we continued to drive customers to Party City both of which are positioned within the better tier relative
through cross banner engagement. Another 400,000 to strong best level national brands.
members shopped the banner for the first time in 2022.
Full year comp sales in our standalone stores were up 18 At Marks, you've heard us talk about going the other way.
percent. On last year's call I also mentioned we had Rounding out our assortment architecture with best level
recently activated Triangle rewards at Pro Hockey Life. national brands, such as Carhartt, Sketchers, and Levi's
The power of the Triangle has manifested in this business to provide upsell alternatives to our Owned Brands and
as well, with 127,000 Triangle members shopping the attract new customers.
banner and our full year sales of 19 percent.
Additionally, as a high/low retailer, across our banners,
In addition to making our banners stronger through cross we have always been able to offer value to customers
shop initiatives, next month, we will launch the mass through our pricing and promo strategies. Now we have
marketing of Triangle Select, our subscription model that more tools to surface value across all our banners,
includes a number of perks including eCTM accelerators namely Triangle Rewards and our use of first party data
on products with our Owned Brands portfolio. You'll recall through which we can optimize promos and send offers
that throughout last year, we ran a beta test of Triangle directly to a member as opposed to relying only on mass
Select. What we learned is that Select really accentuates marketing. As I mentioned earlier, we are starting to see
our differentiators, our Owned Brands, our physical stores some bifurcation between essential and non-essential
and Canadian Tire Money. Subscribers earn eCTM faster products.
in large part, thanks to the program's eCTM accelerator
offers. For example, in our beta test the average This shift is aligned to what we previously planned through
member's annual incremental earnings through Select our strategic focus on pet, automotive and fixing as we roll
specific bonuses were more than three times the out a refresh Concept Connect at CTR stores, where we
subscription fee. can, we are accelerating shifting more of our resources
into essential categories.
We also saw that the program drives significantly more
spend and cross shop across our banners and members For example, we are well on our way with rolling out our
that cross shop spend an average of three times more enhanced Petco shop-in-shop experience across our
than those who shop at only one banner. We've been CTR network. Most of our stores have been extremely
Page 5CANADIAN TIRE CORPORATION, LTD.
Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
busy this month implementing the new concept. We have and our Mark’s and SportChek banners will migrate this
over 80 percent of the store network setup. We'll have 90 spring.
percent complete by the summer. We're also looking at
how we focus our inventory purchases and marketing Additionally, we continue to enhance the ways in which
spend into these types of categories. customers can shop with us by expanding our ship to
home options, including through our partnership with
For example, at Mark’s, we're looking to expand our DoorDash. As discussed in our Q2 call last year, through
industrial workwear assortment, including testing a new this partnership, we rolled out two hour same day delivery
Mark’s Pro store concept later in the year. Overall, all of across our SportChek network. We've been very pleased
these product examples illustrate the resiliency of our with the results and the customer experience scores have
offering, and our ability to pivot as different consumption been extremely positive. Earlier this week, we launched
patterns emerge. an express same day delivery pilot with DoorDash at 10
CTR stores in Ottawa. If the program scales positive
Finally, before I turn it over to Gregory, I want to spend experiences the same way it has for SportChek, our
some time talking about our determined focus on intention will be to roll out this program nationally.
providing a seamless omnichannel customer experience.
The experience we offer, both in store and online is all In terms of our supply chain, we continue to use 3PLs as
part of the larger value equation for the customer. We needed, while expanding our capacity through our new
remain confident and committed to these important distribution centre in the Greater Toronto area, which will
investments as they will further our competitive posture improve e-commerce fulfillment rates for Mark's and
and drive operational efficiency over the long term. SportChek. Overall, our ongoing investments and focus
areas demonstrate how we're providing more value to our
You'll recall from our Investor Day, that experience is one customers and enhancing their shopping experience.
of the top five pillars within our Better Connected strategy.
In 2022, we made good progress against these initiatives. With that, I'll pass it over to Gregory.
I'll give you a few of the highlights.
To help our CTR stores operate more efficiently and Gregory Craig, Executive Vice President and Chief
improve their in--stock position, we've implemented a new Financial Officer
assortment management platform we call Tetris, which
empowers stores to build customized assortments and Thanks, Greg. Good morning, everyone.
inventory depth at the item level. We've been building this
platform for two years. With the help of a committee of Overall, our strong operational performance through the
Associate Dealers and a partnership with Montreal based year and the strong finish to the fourth quarter against
IVADO Labs, who are world class leaders in AI, machine exceptional comps helped us achieve an outstanding
learning and optimization. The AI technology has been result in a dynamic economic environment. We were very
rolled out to over a third of the network with the remainder pleased to report full year normalized EPS of $18.75,
scheduled to be completed this quarter. within 1 percent of last year's record EPS despite the
headwinds we continue to face throughout the year, which
On the customer facing side, we continue to roll out in included higher freight and supply chain costs, and a
store automations at CTR. Eighty percent of stores now stronger U.S. dollar, to name a few.
have pickup lockers and more than half have electronic
shelf labels. Since we launched our new online For the quarter, normalized diluted EPS was up 11
automotive service appointment system in late percent to $9.34, after $20 million of normalization costs
September, over 80,000 customers have booked using related to the operational efficiency program, which
the system in more than 80 percent of our stores. This represented around $0.25 on a per share basis. Q4
year, we expect the number of stores offering online revenue was up in both retail and financial services and
booking to reach 90 percent and represent over 10 that, along with an improvement in the retail gross margin
percent of our total service visits. rate, translated into higher gross margin dollars. We
manage operating expenses carefully as we continue to
In terms of our e-commerce experience, we've moved invest in the business and operate with elevated supply
closer to having a single integrated website through the chain costs.
launch of our One Digital Platform at CTR in 2022. Party
City migrated to the new platform a couple of weeks ago,
Page 6CANADIAN TIRE CORPORATION, LTD.
Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
IT came in at 6 percent higher for the quarter, which when Investment on our Canadian Tire store network remains a
combined with the impact of share repurchases in 2022, key component of our strategy to grow the top line. Thirty
drove the 11 percent increase in EPS. six Canadian Tire stores were refreshed, expanded, or
replaced in 2022 and we were pleased with the results,
Let me now take you through the performance of the which continue to track ahead of our expectations.
business on a segment basis starting with retail. Another 23 projects are expected to come on stream in
the first half of 2023.
Retail sales were up just over 1 percent to $5.7 billion in
the quarter. In our petroleum business, higher prices at As I've done previously, I want to sum up where we ended
the pumps once again offset flat volumes, driving a 10 the year in terms of the relationship between sales and
percent increase in sales and contributing positively to revenue growth. Sales growth slowed at CTR in the
retail sales growth. second half of the year, as we started to comp quarters
without any of the impacts of pandemic restrictions, and
Now turning to retail’s comparable sales, which exclude with a softening consumer demand environment towards
petroleum. Comparable sales were in line with an the end of the year. Turning to revenue for CTR, we saw
exceptional Q4 last year, when they were up 11.3 percent. a similar pattern. Revenue was very strong in the first half
On a three-year stack basis comparable sales were up 21 of the year, up 7 percent on 2021, but decelerated for the
percent. Mark's and Helly Hansen were the standouts last six months with Q4 up 1 percent. However, on a full-
from a growth perspective. Mark's comp sales were up 4 year basis, revenue growth outpaced sales growth by
percent against a 15 percent comp last year, and Helly close to 300 basis points.
Hansen revenue was up 21 percent on top of strong
growth in 2021. As we have mentioned previously, given our dealer
model, revenue and sales growth can be out of sync in
Let's now look at the highlights for each of the banners any given quarter. Therefore, we would expect the growth
starting with Canadian Tire. patterns for revenue and sales to converge over the
course of the coming quarters as they typically do. I will
At Canadian Tire Retail, we continue to meet the changing speak more about this in a moment when we get to
needs of Canadians through the breadth of our inventory.
assortment, allowing us to hold comparable sales flat
against a 9.8 percent comp. Moving over to SportChek, comparable sales grew in
2022, up almost 2 percent driven by 4 percent growth in
The Automotive division once again posted strong growth, the first half of the year. Q4 comparable sales were down
as it has done for 10 consecutive quarters now. 2 percent against the 16 percent comp last year, when we
Automotive was up 5 percent and auto maintenance and had the benefit from the post-COVID resumption of team
light auto parts did particularly well both at Canadian Tire sports. A highlight in Q4 was Fanwear, our new name for
and PartSource. Seasonal and Gardening was in line with licensed apparel, with growth driven by World Cup related
last year. A great result considering the decline we saw in demand. We also had better national brand product
Christmas categories against the significant growth over availability as supply chain started to normalize. However,
the last three years with categories like Christmas lights the softening consumer demand environment and milder
and decor up 15 percent on a compound annual growth weather resulted in lower sales in categories like
rate basis since 2019. outerwear, skiing and snowboarding.
The Living division was also up slightly on last year, with From a Triangle Rewards perspective, SportChek
solid performance in kitchen and growth in essential pet continues to attract new to CTC members and
and home categories. Party City also saw strong growth personalized Triangle member offers continue to drive
both within Canadian Tire and at the standalone stores, engagement for the banner, with more than a million
with sales up 30 percent and 10 percent, respectively. Our customers activating one to one offers.
fixing and playing divisions were down in the quarter
compared to last year, with playing seeing decline in Moving now to Mark's, we recorded our 10th consecutive
exercise categories, which grew well during the pandemic quarter of positive performance with comp sales up 4
and as we started to cycle the return to hockey and winter percent and closed the year up a significant 10 percent.
sports last year. In the quarter, sales of casual and industrial footwear
were key performers with casual footwear sales up 10
percent driven by the innovative IceFX technology, which
Page 7CANADIAN TIRE CORPORATION, LTD.
Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
is embedded in many of our owned brand boot products. hold and protect our retail margin rates over the longer
We sold over 150,000 pairs of IceFX boots in Q4 up an term, while striking the right balance between demand
impressive 50 percent over Q4 of last year. We continue creation and being price competitive as needed to ensure
to drive towards a healthy mix of national and owned we're driving value for our customers.
brand sales at Mark's and are very happy with the
outcomes the strategy is delivering. Let's now move on to how Financial Services performed
in 2022. The Financial Services business had its
Impressively, sales of Owned Brands at Mark's hit $1 strongest year on record generating $442 million of IBT.
billion for the first time in 2022, partially driven by the Receivables also exceeded $7 billion for the first time. Q4
strength of casual and industrial brands, Denver Hayes, IBT was up 38 percent to $87 million, as higher
and Dakota Pro. Mark's also continues to focus on receivables and higher spend, contributed to higher
growing national brand sales as a customer acquisition revenue and improved margins and reduced acquisitions
vehicle, and brands like Carhartt were up 27 percent for drove lower marketing expense.
the year. Our strategic initiatives have also helped Mark's
continue to attract new customers to our Triangle Cardholder engagement remained strong. Active
program. In 2022, we continue to see an increase in active accounts and average account balances were both up by
Triangle members in the under 30 segment at Mark's. around 6 percent. Gross average accounts receivables
were up by 12.4 percent in Q4, but lagged the full year
Now on to Helly Hansen, revenue was up 21 percent with growth of 13.2 percent as we slowed acquisition, and saw
strong sell through of both sportswear and workwear slowing card sales. While card sales grew 4 percent for
across wholesale and e-commerce channels. We had the quarter, spend growth has slowed considerably from
double digit revenue growth across most markets, the 21 percent growth in card sales we were seeing on a
including North America and Europe. In the U.S., a Q3 year-to-date basis.
continued focus on e-commerce, direct-to-consumer and
retail channels drove exceptional growth. We also Risk metrics are continuing to trend up as we expected.
continue to build our sales through CTC banners in The PD2 plus rate was back to historical levels at 2.9
Canada, and on a full-year basis, sales for CTC banners percent, and while write-off rates are still well below
were up 8 percent. historic norms at 4.9 percent, they did increase in the
quarter. Looking ahead, we expect write-offs to continue
Moving to margin now, you will recall that Q4 has returning to more historic levels, as the increased
historically been the strongest margin quarter for the retail investment in new accounts, a key strategic initiative that
segment, but this year was our highest yet. Retail gross we outlined at Investor Day, works its way through the
margin rate excluding Petroleum increased 40 basis portfolio and mature account performance stabilizes.
points in the quarter to 39.9 percent, with the full year
retail gross margin rate slightly behind last year at 35.6 Despite ongoing economic uncertainty, key indicators like
percent. At Investor Day last March, we said we were employment remain robust. Our portfolio remains healthy
aiming to retain the gross margin expansion we had and continues to perform well. We continue to keep a
achieved through the pandemic. We were really pleased close watch on macroeconomic data and are ready to
with the great job the team did managing through product enact our playbook for additional measures to manage
cost and freight headwinds to get us within range of last risk as needed.
year's margin rate.
Finally, the allowance rate at 12.6 percent continues to be
As expected, and as discussed in the previous calls, within our targeted range of 11.5 percent to 13.5 percent.
although still elevated, we started to see some easing this
quarter on both freight and product cost inflation. We were Now I'll move on to operating expense. This quarter
able to offset these costs with higher product margins at marked the culmination of our three-year Operational
CTR. Better mix also helped with contribution from Mark's Efficiency program. I want to take a minute to thank the
and Helly Hansen, which was partially offset by higher teams internally that have worked so hard to implement
promotional intensity at SportChek. around 250 initiatives across the business that have
delivered more than $300 million in annualized run-rate
Looking forward, we feel good about our negotiated savings, ranging from the heavy lifts of our Workday
freight contracts for the year and expect to see commodity implementation to the smaller day to day process
deflation work its way through our negotiations as we optimization projects across the business that mean we
move throughout the year. Our goal continues to be to are operating far more efficiently. While, at this time we
Page 8CANADIAN TIRE CORPORATION, LTD.
Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
don't expect to put a new program in place, we will expenditures at $850 million. We expect next year's
continue to bring up the operational discipline we have operating capital expenditures to fall in a similar range of
developed to how we run our business. Improving between $750 million to $800 million as we continue to
efficiency continues to be an important focus for us as we invest in our Better Connected strategy.
move forward.
Finally, turning to capital allocation, we continue to
The OE savings we achieved, combined with lower manage our cash and after capital expenditures, we have
variable compensation expense, contributed to full year generated significant available retail cash flow over the
normalized consolidated OPEX as a percentage of last two years. This has allowed us to fund strong returns
revenue of 25 percent, up only slightly versus last year. for our shareholders with $750 million paid out to
The increase was mainly driven by normalized retail opex, shareholders in 2022, of which $325 million was paid out
which continue to run slightly above revenue growth in dividends. We also continue to be active in buying back
driven by higher IT investments as we transition to a our shares, targeting a total of between $500 million and
cloud-based infrastructure and higher supply chain costs. $700 million in share repurchases by the end of 2023.
Now, moving on to inventory. Corporate inventory levels In summary, the operating environment has changed
were 30 percent higher this time last year. That compares around us as we've come through 2022 and it remains a
to a 20 percent increase at Q3. Our year-end inventory little uncertain as we enter 2023. But we delivered a
build was primarily due to three factors. First, as we strong set of results with the hard work of many teams
discussed last quarter, lower than expected planned sales across the business. Strong comps in early 2022 and the
in Q2, and Q3, were responsible for some of the build, spring/summer inventory carryover that we have
particularly in the spring/summer inventory at CTR. discussed will provide some headwinds on both sales and
revenue, which will impact quarterly phasing in 2023.
The second factor was early receipts of merchandise,
primarily at Helly Hansen, where inventory levels were However, we continue to believe we are better positioned
lower last year, as we built inventory in support of direct than we've ever been to operate with agility, and as Greg
consumer and strong wholesale demand. Unit cost discussed, deliver value to our customers. We remain
inflation remained an important contributor to the increase convinced that our strategic direction is the right one, and
in corporate inventory. A key focus for us remains will continue to deliver strong returns to shareholders over
managing through the higher level of corporate inventory. the longer term as we build an even better business.
Overall, we're managing our receipts and expect With that, I'll hand it over to Greg for his closing remarks.
corporate inventory levels to normalize over the course of
the year. We believe a strong in stock position across all
of our banners remains important to drive sales in a Greg Hicks, President and Chief Executive Officer
competitive environment.
Thanks, Gregory.
Dealer ending inventory is up a more modest 10 percent
relative to last year. A mild December means Dealers are I'll end my prepared remarks today by reiterating that we
now sitting on some carryover winter inventories, but we are fully equipped to navigate this dynamic economic
still have some selling window left for these businesses. environment. Our business model is resilient, our
We'll give you some perspective on where we land in our Management team is strong, and we are a much better
Q1 call. We also talked last quarter about the Dealers retailer today than we've ever been, because of our
ending heavier in spring/summer inventory. We are unique capabilities that we continue to strengthen through
expecting this to impact spring/summer sell through to our Better Connected strategy.
Dealers by around $150 million, which will drive softer
revenue at CTR in the first half of the year. We expect the We are of course watching, listening and learning from
largest impact of this to be in the first quarter. what's happening right now and keeping a keen eye on
where our customer is going. But we're running this
Turning now to operating capital. In 2022, operating business for the long term. Our collective ambition to
capital expenditures for the year were in line with our Q3 execute the initiatives within our Better Connected
expectations at just under $750 million as we continue to strategy has not changed. This is where my leadership
invest in the store network, our supply chain and the team and I will remain focused.
capital elements of our IT transformation. Total capital
Page 9CANADIAN TIRE CORPORATION, LTD.
Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
Sure, Brian. It's Gregory. I'll start and I think what I'll do is
One year ago, we made a commitment to our customers, I'll pass it over to TJ to talk a bit more specifics around
employees, communities and shareholders that we are some of the product margin work within CTR. Here's what
here to make life in Canada better, and that is what we I'd like to anchor everybody in. We've said this Brian for,
intend to do from providing customers with value through God I feel like a broken record. We've said it so often. But
our products, services and shopping experiences, to I want to bring everybody back to what we said an Investor
stepping up with support for our communities. I mentioned Day, which was we grew our retail gross margin rate,
this on last quarter's call, but I believe it bears repeating. excluding Petroleum, by around, I think, it was 140 basis
As Canadian families find themselves increasingly points between 2019 to the end of 2021.
stretched, Canadian Tire Jumpstart Charities can and will
be there to ensure that no matter what happens, kids can What we said at that point was our long-term target, our
continue to participate in sport and recreation. North star is we want to keep those gains that we
achieved over that window, and recognize that any
I'll end my prepared remarks this morning by thanking our quarter is going to have noise in it and some bumpiness
frontline team, our Associate Dealers, our corporate team around a kind of what can happen, given our banners and
members and our Board of Directors for their commitment our mix of businesses, etc.
and dedication in making 2022 our centennial year so
memorable. Although 2023 looks to be a little more I think what we saw last year just reinforces that point that
uncertain, we're moving forward with clarity and we wanted to get everybody to. To me, the most important
confidence in our strategy, and with a clear focus on thing I hope you can take from this call, in my mind is we
providing value to our customers. are committed, that is still our target, to basically maintain
that gross margin rate that we talked about at Investor
With that, I'll pass it over to the Operator for questions. Day, that full year achievement, and in any quarter there's
going to be some bumpiness.
QUESTION AND ANSWER SESSION Let me just say a little bit about Q4, and then I will get TJ
to unpack it a little bit more. You're right to acknowledge
and we said in the third quarter, there were some
Operator
headwinds that we saw are starting to dissipate into the
fourth quarter. Fuel surcharge is the one that I would draw
Thank you. The first question is from Brian Morrison from
your attention to. I know we had this exact discussion on
TD Securities. Please go ahead. Your line is now open.
it was a more meaningful impact in Q3, and we felt it was
going to be less meaningful in Q4. So that would be a
piece of the equation.
Brian Morrison, TD Securities
Product margins at CTR, a big part of the equation, I'll get
All right. Good morning. Thanks very much. Gregory, TJ to speak to in a second. Even just business mix. Like
maybe two questions here. Maybe we can dive into the Mark's Work Warehouse continue to kind of punch above
gross margin and retail. I think last quarter, you thought its weight around results. That actually helped drive our
that ex petroleum, you're going to see some reprieve from overall margin rates as well.
freight and surcharges relative to Q3, but rather than
having a margin decline of 100 to 200 basis points, you're Maybe I'll let TJ give it a little bit more flavour on the great
up kind of 50 basis points year-over-year. Can you just go work his team did in delivering what I think are just across
through maybe breakdown surcharge and freight? I think all of our businesses, but I specifically want to give TJ
it was a headwind. The contribution from mix at CTR and (inaudible) to talk about CTR.
Mark's, maybe pricing and leverage. Just give us some
idea relative to last year that 50 basis point breakdown,
please.
TJ Flood, President, Canadian Tire Retail
Hey, Brian. Maybe I'll just add a little bit of colour here,
Gregory Craig, Executive Vice President and Chief just building on some of the things Gregory talked about.
Financial Officer Obviously when you're dealing with the inputs and the
variables associated with margin rate, there's a lot of
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Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
complexity to it, right. We're dealing with FX, we're dealing I think the key is managing the lead time down in our
with product costs, and we're dealing with freight. All of average purchase orders. I talked about this coming out
those headwinds hit us at varying intervals throughout the of Q3, and it's still about 25 to 30 days higher, which even
year, and particularly when you think about comping when we're running really efficiently impacts turns pretty
those variables year-over-year. When we set pricing significantly. It is in the domestic supply chain here in
strategy, we do so over a little bit of a longer-term time Canada. We're definitely focused on bringing our
horizon. inventory down, which will help with our cost efficiency,
and it'll roll through gradually. It'll roll through gradually
You may see some variability on how we comp our through the year. To the extent that we can deliver that
margins, quarter to quarter to quarter. But the team has drawdown as we move forward, tighten up the lead times,
done an amazing job in managing some significant we hope to see the variable cost in the supply chain start
headwinds on product costs, on freight, and even FX as to decrease as well.
we went through the year. When you think about our
promotional elasticity models, how we look at reg pricing, I think the key as I think about it, and how we're talking
how we look at our Owned Brands portfolio and how about our teams is in any inventory rebalancing, I think
utilize our Triangle ecosystem to be much more targeted the key is ensuring that we're being surgical and not
in our promotional activity, I'm very proud about how the overreacting with global policies and shotgun
team has performed in managing margins. You saw that approaches. We need to feed essential businesses and
come to life in Q4. work to wind down non-essential where the demand
signals are weaker.
As we go forward, everything gets—it continues to be
volatile. There's a lot of different headwinds and tailwinds But the teams have been focused on inventory since day
in front of us. You mentioned freight earlier. We do expect one of the pandemic. I have confidence that we can use
some freight relief next year, but we also expect our capabilities and strong vendor relationships to
competitive intensity to dial up a little bit particular in the manage the situation effectively.
discretionary category.
We are committed, as Gregory said to our long-term goal
of maintaining our margin rates that we built over the last Brian Morrison, TD Securities
couple of years in the pandemic. So that's how we see it
as we go forward here. Okay, thanks very much. Congratulations.
Brian Morrison, TD Securities Greg Hicks, President and Chief Executive Officer
Okay, thank you. Maybe I can follow up with one more Thanks. Thanks, Brian.
question with respect to you're seeing this easing in the
supply chain. When do you expect inventory to start to see
some—a decline year-over-year or moderate year-over-
Operator
year? I guess on that front, when should the 3PL and IT
costs start to dissipate within SG&A and then drive some
Thank you. The next question is from George Doumet
leverage? Should IT be in the second half of the year?
from Scotiabank. Please go ahead. Your line is open.
What about 3PL?
George Doumet, Scotia Bank
Greg Hicks, President and Chief Executive Officer
Yes, thanks. Good morning. Congrats on the quarter.
Yes, Brian, it's Greg. Maybe I'll take that. I think Gregory
Thank you for the margin breakdown. Maybe talk a little
spent a fair bit of time going through our inventory position
bit about the outlook and the sustainability on the gains
in his prepared remarks. I think it provided a pretty good
that we made on the retail gross margin ex fuel. Maybe
unpack.
how early can we see the benefits of commodity deflation,
how should we think of that?
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Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
As we talked a lot about at Investor Day back in March,
we're continuing to invest in our Automotive division in a
Gregory Craig, Executive Vice President and Chief myriad of ways across our assortment, our capabilities
Financial Officer and our customer experience. We're on a journey to
modernize the auto service experience for our customers
Yes, maybe I'll start with that. It's Gregory here. If Greg or through a suite of things that we call Auto Care which is
TJ would want to pile on as well, I'm sure they will. Look, updated technology and capabilities, like the ability for our
I want to take you back to what I just said to Brian's store staff to engage with customers directly with SMS,
question, which is—and I think TJ said it well around how new auto service tablets, which drive efficiency for our
difficult it is to manage this on a quarter-by-quarter basis. techs and our communication with our customers, and
We remain committed towards that target outlook range new online appointments.
of having our retail gross margin rate be flat to what the
gains we achieved up to 2021. At any given quarter, there When you think about what this business and the industry
could be some variation within there. has experienced, we believe that there's a lot of runway
here for us for growth. When you think about the average
Now you pointed out something specific around age of the fleet in Canada, it's getting older because of the
commodity, which is a great question. What happens is shortage of new cars. That really provides a lot of tailwind
that's going to come to us differently, depending on the for us. That, and the combination with the market share
business line negotiates their purchases for the year. I opportunities in front of us, we're very bullish about
think that's going to flow throughout 2023, to be frank, but automotive as we go forward here.
as TJ mentioned, for every debit, there's a credit. There's
some FX pressure on a year-over-year basis. But again,
so what I want you to take from this is that we are targeting George Doumet, Scotia Bank
over a long-term basis to maintain those gains we had
pre-pandemic and be in that kind of range we were at in Thanks for the answers.
2021.
Operator
George Doumet, Scotia Bank
Thank you. The next question is from Luke Hannan from
Great, thanks. Just my follow up on, if you can just talk a Canaccord Genuity. Please go ahead. Your line is open.
little bit about the strength in auto. Has it held throughout
the quarter? Are you seeing maybe a deferral of perhaps
some discretionary products? Can you talk a little bit Luke Hannan, Canaccord Genuity
about how the segment usually behaves and impact
economic slowdowns? Thanks. Good morning, everyone. Greg, I wanted to go
back to something that you mentioned at the beginning of
your prepared remarks, the dynamics that you're seeing
TJ Flood, President, Canadian Tire Retail across the different household income cohorts. I thought
that was interesting, because it sort of differs to what
Hey, George, it's TJ. Maybe I'll take that one. Just wanted intuitively we would think where the higher income
to kind of provide a bit of context. Our Automotive household would be a little bit more resilient than those
business has been very resilient over the last few years middle and lower income cohorts. You mentioned that
despite the headwinds the industry has been facing you're seeing strength in those non-essential—or rather
during the pandemic. We've demonstrated consistent strength in essential categories, less so in non-essential
growth in this division with Q4 representing our 10th categories. Can you give us a little bit more colour as to
consecutive quarter of growth. We're seeing higher what you're seeing in those higher income household
engagement and performance across many of our repair baskets beyond just those essential/non-essential mix?
and maintenance categories like oil and fluids as well as How does that compare for some—the cardholder data
on auto service. We're really liking the trajectory of the that you see for spend beyond just what's at CTC
business. banners?
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Q4 AND FULL YEAR 2022 EARNINGS CONFERENCE CALL
Thursday, February 16, 2023 – 8:00 A.M. ET
Greg Hicks, President and Chief Executive Officer of the depth of the discount, and the timing was much
earlier than we would have expected. I think the teams did
Yes, in general, Luke, if you think about income, the a really good job managing in the environment. But again,
representation of sales or the mix of sales at various it just speaks to how the competitive environment can
income levels, if you take under $75,000 households, and change on a dime, and you just have to be able to read,
then over $125,000 households, historically, those groups react and pivot.
represent about 30 percent of our sales mix on a
consolidated basis across all of our banners. What we In general, I don't think I would say it was any more
saw—and I just think this just speaks to the power of the intense than kind of pre-pandemic periods, it just came
data kind of analytics that we have here. from a different place. When Nike or an Adidas, a DTC
store marks down the same inventory that we're carrying
It did surprise us, was a real shift, especially in the fourth in our stores, it becomes pretty difficult for us not to react.
quarter, where—or on the year, higher income went from A little bit of a nuance relative to 2019, where we wouldn't
30 percent to 20 percent. In the fourth quarter was even have seen that type of aggressive activity. But I think with
lower than that. The opposite was true for under $75,000 minimal snow here in the fourth quarter in the outerwear
households were the percentage of mix for those income businesses, I think the trigger got pulled just a little bit
segments went up to 45 percent in Q4. quicker than previous years.
We think these are some bullish indicators of the
resiliency of our model, and that we can add value, Luke Hannan, Canaccord Genuity
provide value to lower income segments of the market.
Got it. Thank you very much.
Generally, when you get to your question with respect to
discretionary and non-discretionary, through the
pandemic, higher income households have participated
Operator
more in discretionary categories. It would stand to reason
that as that starts to pull back across all Canadian families
Thank you. The next question is from Mark Petrie from
that we would see that in our higher income households,
CIBC. Please go ahead. Your line is open.
we're just extremely fortunate here with our Triangle
Rewards program that we can rifle into other segments to
compensate for the softening we're seeing in higher
income households. So that's probably the way you Mark Petrie, CIBC
should think about it, Luke.
Yes, thanks. Good morning. I want to ask just about this
sort of shift from non-essentials to essentials is a bigger
part of your business. How would you characterize the
Luke Hannan, Canaccord Genuity
impact of that on top line? I would assume it's somewhat
deflationary. But if you could just talk about that. Also, if
Got it. Very helpful. As my follow up, it was mentioned in
there is an impact on margin rate? Thanks.
the MD&A that there was a higher than—well, higher than
last year level of promotional intensity at SportChek. I'm
curious to know where does that rank sort of relative to
pre-pandemic levels if you think about the average sort of TJ Flood, President, Canadian Tire Retail
level of promotional intensity that you would usually get
through the holiday period? Hey, Mark. It's TJ, thanks for the question. When we talk
about essential and non-essential, it's actually amazing
how our business and our assortment is set up to flex with
the needs of consumers and Canadians as they evolve. If
Greg Hicks, President and Chief Executive Officer
you look at some of the discretionary categories that we
had big growth in during the pandemic, so you think of
Yes, maybe I'll take that. It's Greg again. I think the
that, we’ve put together a basket of bikes, and outdoor
promotional intensity that we saw in SportChek really
kayaks and recreational type products with exercise and
magnified in the fourth quarter. The magnification
things like that. Big, big discretionary kind of portfolio of
stemmed from activity from big brands and the DTC
goods. We declined about $175 million in those
channel. We saw a more aggressive movement in terms
businesses this year. But in two categories that are more
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