Tire ready for home de­liv­ery fight

Roll­out to chal­lenge Wal­mart, Costco

National Post (Latest Edition) - - FINANCIAL POST - Hol­lie Shaw

• Cana­dian Tire re­leased a bullish out­look for the next three years as the com­pany pushed fur­ther into e-com­merce in the third quar­ter and posted its best sales per­for­mance in more than a decade at its epony­mous re­tail ban­ner.

The seller of auto parts and sport­ing goods said same-store sales, an im­por­tant mea­sure of re­tail per­for­mance that strips out the ef­fects of square footage changes, climbed 4.7 per cent in the pe­riod ended Sept. 30 at Cana­dian Tire’s re­tail stores. Shares rose three per cent on the Toronto Stock Ex­change Thurs­day.

The com­pany, which drew crit­i­cism for ax­ing its re­tail web­site in 2009 due to low pro­duc­tiv­ity, is now mov­ing in on re­tail­ers such as Wal­mart Canada and Costco, who offer home de­liv­ery of ecom­merce or­ders.

Cana­dian Tire re­launched dig­i­tal sales site in 2011 be­gin­ning with tires and has been ex­pand­ing its dig­i­tal op­er­a­tions ever since in or­der to bet­ter fight Ama­zon. The re­tailer be­gan of­fer­ing in- store pickup of cus­tomers’ on­line or­ders through a “click and col­lect” model in 2014, say­ing its prox­im­ity to cus­tomers’ homes made the pickup model at­trac­tive.

But in the spring, chief ex­ec­u­tive Stephen Wet­more con­firmed that Cana­dian Tire would roll out home de­liv­ery na­tion­ally to its cus­tomers, and launched the pro­gram at 10 stores in Ot­tawa in the third quar­ter.

“We are well- po­si­tioned over the next three or four years for any com­pe­ti­tion, from an on­line point of view,” Wet­more told an­a­lysts on a con­fer­ence call.

Greg Hicks, pres­i­dent of Cana­dian Tire’s re­tail di­vi­sion, said the e- com­merce de­liv­ery pro­gram in Ot­tawa cur­rently cov­ers 80 per cent of the re­tailer’s as­sort­ment, or about 100,000 mer­chan­dise items.

The re­main­ing 25,000 items, bulkier goods such as large ap­pli­ances, will be launched in the fourth quar­ter in Ot­tawa area, be­fore rolling out re­gion­ally and to the rest of Canada.

“Right now we are fo­cused on the cus­tomer ex­pe­ri­ence, cus­tomer de­mand, feed­back, in- store pro­cesses and tech­nol­ogy,” Hicks told an­a­lysts.

“We are see­ing solid cus­tomer re­sponse, in­clud­ing a much higher av­er­age or­der value than we are see­ing in bricks (and mor­tar).”

Al­lan Mac­Don­ald, ex­ec­u­tive vice- pres­i­dent of re­tail, said op­ti­miz­ing data in the third quar­ter al­lowed Cana­dian Tire t o make de­ci­sions such as not putting prod­ucts on sale too early. Tar­get­ing cus­tomers through its dig­i­tal loy­alty pro­gram also helped sales in the quar­ter, Mac­Don­ald said, adding its loy­alty pro­gram mem­bers spend twice as much on an av­er­age trans­ac­tion as non- mem­bers.

“The com­pany re­ported strong same-store sales growth at the Cana­dian Tire ban­ner of 4.7 per cent,” said Peter Sk­lar, an­a­lyst at BMO Cap­i­tal Mar­kets, com­pared with BMO’s pre­dic­tion of a two per cent in­crease.

While the quar­ter was slightly weaker than an­tic­i­pated on the earn­ings side due to an in­crease in sales, gen­eral and ad­min­is­tra­tive ex­penses, Sk­lar noted the per­for­mance at Cana­dian Tire’s core ban­ner arose due to ro­bust sales in all of its busi­ness lines, par­tic­u­larly in non- sea­sonal items, though sea­sonal items also sold well.

Cana­dian Tire re­ported profit of $ 176.6 mil­lion in the pe­riod ended Sept. 30, or $ 2.59 per share, com­pared with $ 176.4 mil­lion ($ 2.44) a year ago. Earn­ings were re­duced by 14 cents per share as the com­pany opened a $ 500 mil­lion re- place­ment dis­tri­bu­tion cen­tre in On­tario. An­a­lysts were pre­dict­ing av­er­age earn­ings of $2.70.

Rev­enue climbed 5.6 per cent to $ 3.3 bil­lion, up from $ 3.13 bil­lion in the same pe­riod last year, and rose 4.6 per cent ex­clud­ing the im­pact of higher gas prices.

Same- store sales were up 4.6 per cent at ap­parel chain Mark’s but were flat at the re­tailer’s FGL Sports di­vi­sion, ris­ing just 0.4 per cent.

The Toronto- based com­pany boosted its div­i­dend by 38 per cent and re­leased a three- year out­look pre­dict­ing con­sol­i­dated same­store sales growth of 3 per cent or more an­nu­ally be­tween 2018 and 2020, ex­clud­ing petroleum.

The out­look also tar­gets re­turn on in­vested cap­i­tal in the com­pany’s re­tail seg­ment of 10 per cent or more and av­er­age an­nual per­share earn­ings growth of 10 per cent or more. Cana­dian Tire ex­pects to make av­er­age an­nual op­er­at­ing cap­i­tal ex­pen­di­tures of $ 450 mil­lion to $ 500 mil­lion be­tween 2018 and 2020.

Stephen Wet­more

REY­NARD LI / BLOOMBERG

Cana­dian Tire re­ported profit of $176.6 mil­lion in the pe­riod ended Sept. 30, or $2.59 per share.

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