Even as early signs indicate a gradual rebound in spending may be on the way, Canadian consumer sentiment remains “the lowest we’ve seen in a long time,” Canadian Tire Corp. Ltd. CTC-A-T president and chief executive officer Greg Hicks said Thursday.
The high cost of living and elevated unemployment rate are putting pressure on spending. And while the Bank of Canada recently cut interest rates in a bid to stimulate growth, many people are still renewing their mortgages at higher rates, constraining household budgets.
“Even with the rate cuts, there’s still a wide swath of Canadians that are really struggling right now, and it’s going to take some time for the easing cycle to affect consumption,” Mr. Hicks said.
As one of Canada’s largest retailers – it owns the Canadian Tire, Mark’s and Sport Chek brands, among others, and operates its own bank – the company has a broad view of consumer trends. For more than a year now, Canadian Tire has seen spending decline – a trend that has not been limited to lower-income households.
Retailers have responded by offering discounts to price-conscious shoppers. In the past 100 days alone, Canadian Tire has lowered prices on hundreds of items. Executives expect the number of promotions to increase in November and December as well.
The Toronto-based retailer reported Thursday that comparable sales – an important metric that tracks sales growth at stores that have been open for more than a year – fell 1.5 per cent in the quarter ended Sept. 28.
Still, there have been small improvements: While shoppers have continued to cut back, the decline in discretionary purchases was not as steep as in previous quarters, Mr. Hicks noted.
“These may be signals of a slight and gradual unlock of consumer restraint,” he said.
At the flagship Canadian Tire store chain, declines in categories such as gardening and toys persisted, but sales of products such as bikes and fishing gear grew. People are holding on to cars longer and spending more on automotive parts and services to keep them running. Over all, comparable sales at the chain were down 2.2 per cent.
Mark’s sales fell 2.3 per cent. The stores saw growth in sales of men’s shorts and T-shirts, as well as children’s clothing – a new category at Mark’s. But those gains failed to make up for declines in sales of industrial wear.
At Sport Chek, by contrast, sales were up 2.9 per cent, marking the first quarter of sales growth in more than a year. The company noted that product promotions and an improved experience at the stores helped drive improvements in categories such as athletic footwear and hockey gear.
While sales have been softer, Canadian Tire has been cutting costs across its retail operations, and profit margins have been improving. The company reported that normalized profits grew 21 per cent in the third quarter, beating analysts’ expectations. It also announced a dividend increase, to $7.10 per share on an annualized basis, up from $7.
Revenue at the company’s financial services segment grew 1.5 per cent to $399.1-million, but profits fell amid higher net write-offs and operating costs.
Canadian Tire reported its normalized net income attributable to shareholders grew to $200.6-million, or $3.59 per share, in the third quarter, compared with normalized earnings attributable to shareholders of $165.2-million, or $2.96 per share, in the same period last year.
The normalized figures exclude a charge in the previous year related to the company’s repurchase of a minority stake in its financial services division from Bank of Nova Scotia, as well as insurance recoveries related to a 2023 fire at one of its largest distribution centres. Not including those adjustments, net earnings attributable to shareholders in the quarter were compared with a $66.4-million loss in the same quarter last year.
The company’s total revenue fell 1.4 per cent to $4.19-billion. Excluding petroleum sales, which were down amid lower gas prices, revenue was down 0.4 per cent to $3.6-billion.
The results surpassed analysts’ expectations of $4.18-billion and $3.04 per share for normalized earnings, according to the consensus estimate from S&P Capital IQ.
