Canadian Tire looks to cut $200 million in annualized costs

Canadian Tire Corp. shares rose Thursday as the company announced it plans to cut more than $200 million in annual costs by 2022.

The more commonly traded class-A shares in the company rose $5.10, or 3.53 per cent, to $149.29 in early afternoon trading on the Toronto Stock Exchange.

The rise came as the company released its thirdquarter financial earnings and announced an operational efficiency program that targets more than $200 million in annualized savings by 2022.

“We expect the market will adopt a ‘wait and see’ attitude before incorporating (the costsavings initiative) into earnings forecasts,” wrote Irene Nattel, an RBC Dominion Securities Inc. analyst, in a note.

However, with “solid” thirdquarter financial results and plans for future growth, RBC views Canadian Tire’s valuation “as ripe for re-rating,” she said, with key catalysts being solid same-store sales and revenue performance, as well as the realization of cost reductions.

The cost-cutting program’s focus areas include eliminating duplicate systems and processes, decommissioning legacy infrastructure and continuing to reduce internal and external expenses.

Management expects to record one-time costs for items like severance, retraining and real-estate-related closure costs, the company said.

In the third quarter, it recorded $19.8 million for severance, store closure and other related expenses, it said, while on a year-to-date basis it has recorded $27.9 million.

The cost-cutting measures were announced as the company also said it would raise its quarterly dividend for the 11th time in a decade.

Canadian Tire will now pay a quarterly dividend of $1.1375 per share, an increase of 10 cents.

The retailer reported a profit attributable to shareholders of $197.2 million or $3.20 per diluted share for its third quarter. That compared with a profit attributable to shareholders of $203.8 million or $3.15 per diluted share in the same quarter last year when the company had more shares outstanding.

Canadian Tire’s normalized earnings per share amounted to $3.46 per diluted share for the quarter, down from $3.47 per diluted share a year ago, due to an accounting changes at its financial services business.

Revenue totalled $3.64 billion, up from $3.63 billion a year ago.