Canadian Tire beats secondquarter curse despite rainy spring.

Canadian Tire outperforms expectations despite rain-heavy spring

Ongoing technology enhancements at Canadian Tire helped the retailer of kitchen, outdoor and automotive products beat a longstanding curse in its second quarter among retailers who carry a proportion of seasonal goods — the weather.

While record levels of rain in April and May could have ruined the quarter, the retailer outperformed analyst expectations, in part because it has diversified its assortment of goods and used technology to mine customer data and target more effective promotions. Its shares were up just under six per cent on Thursday after reporting a 14-per-cent increase in earnings per share.

“Our reliance on weather alone is not what it once was,” Allan MacDonald, president of Canadian Tire's retail division, told analysts on a conference call to discuss secondquarter results.

The veteran retailer has undergone fundamental changes since implementing more advanced data analytics, which are used to help plan flyers, loyalty strategies, and promotional events.

“Analytics helped us act more deliberately in response to the lack of spring in April and May,” MacDonald said. “In the past, we may have responded too swiftly or relied on intuition when the quarter started softly, but today we have a better understanding of consumer and category sensitivities in response to outside influences like weather.”

The retailer, once considered a relative e-commerce laggard, has spent the last two years accelerating its technology investment and implementation in the face of competition from rivals such as Amazon and Walmart. The company, whose website purchases are currently fulfilled in stores, is on track to launch a deliver-to-home test market run in the fall, executives said.

Chief executive Stephen Wetmore said the company’s efforts to improve the search functions on its website through machine learning, wherein computers derive increasingly sophisticated insights from data, led to “major breakthroughs” in the quarter, he said.

Revenue in the period ending July 1 rose two per cent to $3.4 billion from $3.3 billion in the same period a year ago.

Net income attributable to shareholders rose to $195.2 million, or $2.81 per share, up from $179.4 million ($2.46) in the same period last year. That was above mean analyst expectations of $2.52 per share in earnings, according to Thomson Reuters.

Same-store sales, a measure of retail performance that strips out year over year square footage changes, rose 1.8 per cent. At Canadian Tire’s retail stores, samestore sales were up 1.4 per cent; they rose 2.6 per cent at the FGL Sports division, and were up 4 per cent at Mark’s.

“The majority of the earnings beat came from higher-than-anticipated gross margin, as same-store sales growth was essentially inline with our estimates,” said analyst Peter Sklar of BMO Capital Markets.

Retail gross margin as a percentage of revenue improved to 33.7 per cent from 33.1 per cent in the same quarter of last year because of improvements in sourcing and the continued strength and penetration of the company’s private label goods, such as Mastercraft tools, Noma lights and Canvas home goods.

The retailer has retooled its stable of house brands in order to drive up customer loyalty and deter competition, and those goods are typically sold at a higher margin.

The company might also consider selling its private label goods outside of Canada if they continue to perform well, MacDonald said.

“We are evaluating what the right strategy might be for expansion beyond Canada of our private label, understanding what markets exist … and what options we have in terms of pursuing those, whether we do it directly or with other partners. It’s really early days in that respect, but if we get it right in Canada, every opportunity will be available for us.”