Canadian Tire Corp. Ltd. is reporting a drop in earnings and revenue as inflation tamps down consumer demand for discretionary goods.A man cycles by a Canadian Tire store in Vancouver on May 10, 2012. THE CANADIAN PRESS/Jonathan Hayward
TORONTO – Canadian Tire Corp. Ltd. said Thursday it is withdrawing its sales growth target due to increasing pressures caused by inflation and higher interest rates as the company reported a drop in earnings and revenue.
In the three months ended July 1, the Toronto-based retail giant said net income attributable to shareholders fell 32 per cent to $99.4 million from $145.2 million in the same period a year earlier.
The 101-year-old company said revenue in its second quarter fell three per cent to $4.26 billion from $4.40 billion the previous year. Normalized diluted earnings decreased to $3.08 per share from $3.11 per share, roughly in line with analyst expectations, according to financial markets data firm Refinitiv.
“As inflation persisted and rate hikes continued, consumer demand for discretionary goods softened, particularly in the latter half of the quarter, and Canadians shifted to more essentials within our multi-category assortment,” said Canadian Tire president and CEO Greg Hicks in a press release.
The target of four per cent average annual sales growth by 2025 is no longer appropriate, the company said.
The current economic environment and level of consumer demand “differ significantly from the company’s expectations when it set out its strategy and 2022-2025 financial aspirations” in March 2022, it said.
That forecast included four per cent average annual comparable consolidated sales growth, diluted earnings per share of at least $26 and retail return on invested capital of more than 15 per cent by 2025. But Canadian Tire cautioned investors at the time that risks to its financial aspirations included a “decline in economic growth, consumer confidence, household spending and other market disruptions.”
It said Thursday that since early 2022, “the cumulative effect of increasing inflationary pressure and higher interest rates on consumer spend and financing costs, along with higher inventory costs, has significantly impacted the company’s ability to deliver against its previous expectations.”
“Given the slower pacing of growth, and the noticeable slowdown in retail sales during the second quarter of 2023, the company is withdrawing its previously disclosed financial aspirations at this time,” it said.
The company also noted a fire at a major Brampton, Ont. distribution centre in March cost it $74.6 million, searing its net earnings.
RBC analyst Irene Nattel called the formal forecast withdrawal a “non-event,” as most analysts had already considered them unachievable.
She said net results were “better than feared, highlighting the defensive nature of (Canadian Tire’s) core offering” but that but cautious consumer spending would likely keep “tire pressure on the lower side.”
This report by The Canadian Press was first published Aug. 10, 2023.
Companies in this story: (TSX:CTC, TSX:CTC.A)
