Canadian Tire Corp. will launch two new store concepts this year as it races to capture more business in smaller markets while also re-modelling bigger stores to focus on its stronger categories, such as sporting goods and hardware supplies.
The initiatives – smaller stores as well as so-called “smart” stores – are aimed at helping Canadian Tire bolster it business after weak sales in its first quarter as consumers became skittish about higher gas prices and the economy in general.
“It was a soft quarter and we acknowledge this but this company is strong,” chief executive officer Tom Gauld told reporters after the annual meeting in Toronto. “We are in good shape to compete going forward.”
And while the first quarter was challenging, business in April picked up as the weather improved and the company lowered some of its prices and concentrated its discounting in fewer areas to be able to profit from economies of scales in its purchasing, he said.
Canadian Tire Corporation
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Still, he told shareholders: “Given the economic headwinds, we expect 2008 to be a challenging year.”
In early afternoon trading, Canadian Tire Class A shares dropped 3.06 per cent, or $2.02, to $63.98.
Canadian Tire and other retailers have been trying to drop prices since last fall when the loonie hit parity with the U.S. dollar and consumers started to head south of the border for better bargains.
Mr. Gauld said that Canadian Tire is constantly passing on exchange-rate savings to its customers. It has also benefited from its extensive offshore product purchasing, passes on those savings to consumers also, he said.
But the company has recently found even more opportunities to lower prices in categories such as tools and plumbing, he said. The moves have helped improve sales in those areas.
The new store concepts will start to be launched in the summer, with about 100 rural and “underserved” smaller markets already identified for the smaller stores, he said.
The stores will have about one-third the selling space of a regular Canadian Tire outlet, he said. Each will generate between $5- to $9-million of sales, roughly half the sales of a conventional store. They will have a Mark's Work Wearhouse clothing boutique, and generally a gas bar and convenience store on the site.
Other Canadian Tire stores will be converted to “smart” stores which will focus on more productive categories, such as sporting goods, pet care and storage merchandise, in in-store shops, while shrinking less productive departments, he said. The re-jigging will create 20 per cent more space for the expanded offerings.
The smart stores also may add items in other categories, such as household “consumable” goods which draw shoppers to stores more frequently, he said. But he didn't say whether the stores would expand into food.
The company Thursday morning reported first-quarter profit of $66.7 million or 82 cents, up 19.8 per cent from the year-earlier period's profit of $55.7 million or 68 cents. It pointed to lower taxes and one-time gains offsetting soft sales “as customers reacted to news of slowing economic growth and higher gasoline prices.”
January-March sales at the biggest Canadian hard-goods retailer rose 1.9 per cent from a year ago, to $1.84 billion from $1.81 billion, in what is seasonally its weakest quarter.
Sales at stores open a year or more dropped 4 per cent, and Canadian Tire's share price sank by 3.7 per cent in morning trading.
First-quarter profit, excluding non-operating gains and losses, fell 4.9 per cent to $55.2 million or 68 cents per share, from a year earlier. Analysts surveyed by Thomson Financial had expected flat profit, excluding one-time items.
“Incremental investments in the information technology renewal initiative, slower retail sales and shipments, and an increase in the allowance on the loan portfolio at financial services, partially offset by strong earnings at petroleum, were the key factors impacting the consolidated adjusted net earnings,” Canadian Tire said.
The slackness in sales was most pronounced in Ontario and Quebec, and Canadian Tire said the timing of Easter and Ontario's new Family Day holiday in February chopped off $18-million in sales.
“We are, however, encouraged by the strong customer response to Canadian Tire Retail's spring seasonal product offerings, which helped us post solid retail sales growth throughout April,” Mr. Gauld said.
“We remain confident in our long-term strategies and our financial plan for the year, and we are confirming our original forecast that 2008 operating earnings per share will be in the range of $5.15 to $5.40.”
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