Q1 2020 Earnings Call
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Good morning, My name is Melanie and I will be your conference operator today.
This time I would like to welcome everyone to the Canadian Tire Corporation Limited first quarter results Conference call.
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This morning, Canadian Tire Corporation limited release their financial results for the first quarter of 2020, a copy of the earnings disclosure is available on their web site and includes cautionary language about forward looking statements risks and uncertainties, which also apply to the discussion during today's conference call.
I'll now turn the call over to Greg Hicks, President and CEO Greg.
Thank you operator and welcome everyone.
Today marks my my first quarterly earnings calls CEO and I'm very pleased to be speaking with you. This morning.
I'm joined by Gregory Craig and today is also his first quarter since being appointed as our CFO.
I agree and I had a long history of working together and as we begin our respective tenures as CFO and CEO I couldn't ask for a better business partner and colleagues.
As you all know we typically have our full management team in the room for these calls however, given social distancing, it's Gregory and I, who will take you through our results and answer your questions.
Our intent is to provide you with a good understanding of what is happening in the business today. So our prepared remarks are a little longer than usual.
Before I speak to Q1, I must first address these extraordinary times in which we are living as cobot 19 has impacted nearly every aspect of our lives, including how we do business.
And as everyone knows this crisis is fluid.
With provincial and federal announcements and subsequent changes happening almost daily.
Just yesterday, we were very pleased with Premier Ford's announcement, permitting ctr ours to re ctr stores to reopen beginning on Saturday and curbside pickup for all of our banners with storefront retail.
This was a much anticipated announcement and I can assure assure you our dealers are already working hard to safely welcome customers back in their stores.
As you know in March we closed several of our retail banners to the public with the exception of Canadian tire retail and gas plus locations.
In our Ctr stores, we swiftly implemented a number of heightened safety measures and new processes, such as such as curbside pickup ensuring Canadians could still get their essentials.
We also understood that we had a bigger role to play in this.
Supporting our communities, especially in time.
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[noise] good morning, its Greg speaking, we apologize for the inconvenience for all doing our best in these times and we simply lost the line.
I'm going to restart from the beginning.
Welcome everyone. Today marks my first quarterly earnings call as CEO and I'm very pleased to be speaking with you. This morning.
I'm joined by Gregory Craig and today is also his first quarter since being appointed as our CFO.
Gregory and I had a long history of working together and as we begin their respective tenures as CFO and CEO I couldn't ask for a better business partner and colleague.
As you all know, we typically have or full management team in the room for these calls however, given social distancing, it's Gregory and I, who will take you through our results and answer your questions.
Our intent is to provide you with a good understanding of what is happening in the business today. So our prepared remarks are a little longer than usual.
Before I speak to Q1, I must first address these extraordinary times and which we are living as covert 19 has impacted nearly every aspect of our lives, including how we do business and as everyone knows this crisis is fluid.
Provincial and federal announcements and subsequent changes happening almost daily.
Just yesterday, we were very pleased with Premier Ford's announcement, permitting ctr stores to reopen beginning on Saturday and curbside pickup for all of our banners with storefront retail.
This was a much anticipated announcement I can assure you are dealers are already working hard to safely welcome customers back in their stores.
As you know in March we closed several of our retail banners to the public with the exception of Canadian tire retail and gas plus locations.
And our Ctr stores, we swiftly implemented a number of heightened safety measures a new processes, such as curbside pickup ensuring Canadians could still get their essentials.
We also understood that we had a bigger role to play in this.
Supporting our communities, especially in times of crisis is one of our brands fundamental values, which is why we launched our 5 million dollar Canadian tire Cobot 19 response fund on April nine.
As you can imagine a crisis of this magnitude requires simultaneous attention across many priorities.
In addition to protecting their health and safety of employees and customers and supporting our communities, we have prioritized frequent and transparent communication with all our stakeholders.
Our relationship with Canadian tire associated dealers as well as focusing on our company's cash position and financial flexibility.
Well, we entered the cobot 19 crisis and a healthy financial position, we felt it prudent to expand the horizon of our liquidity buffer and enter into incremental credit facility agreements by leveraging our trusted relationship with our banking partners their confidence in CTC is demonstrated by the.
Or willingness to quickly extend these new credit facilities.
Financial services continues to maintain a level of liquidity well in excess of the required regulatory minimums, we have a strong balance sheet and have fortified our capital and liquidity sources equipping us to stand up to this challenge.
Another significant priority during this crisis has been our E commerce platform.
Going into March our marks in sport Chek platforms were scalable.
Each allowed us to continue serving our customers through E commerce once their stores were closed.
This was not the story at Ctr.
For context prior to covert 19, the Ctr website was receiving 5000 orders per day.
We were aware of the Ctr site limitations and knew that eventually we would run into issues with scalability.
Development work was already underway with capital allocated for 2020 and 2021 to upgrade our platform.
But with so many customers turning to E commerce combined with the closure of our Ctr stores in Ontario in early April the eventuality of this issue came much sooner than we expected.
The Ctr website began to see unprecedented demand overnight.
And it was overcapacity.
I manage this issue, we reprioritized our capital agenda to deliver on the development work earlier than planned.
We had the best possible team, who worked around the clock to overcome and solve this challenge with amazing results.
Today, our Ctr website is now processing more than 80000 orders daily.
We successfully dealt with something that was unmanageable and now our ecommerce platform has scaled up in a significant way, we're able to compete on a whole new level.
While we still have a significant work to do on our site and supporting processes.
We believe we now have the capacity to process and sustain this monumental shift in demand.
We will continue to deploy modifications to sustain the capacity.
While major development work is ongoing on a new digital platform.
The new platform, which involves moving to the cloud will add significant scale and stability.
Allowing for more personalization and making it easier to add skews.
The progress we're making on it in E. Commerce is a very important part of understanding our performance in the quarter.
Which brings me to our Q1 results.
As you know our results in the quarter were impacted by a number of coven related impacts and Gregory will walk us through these in more detail in a few minutes.
Q1 is our smallest quarter and were often at the mercy of volatile weather. This year, the mild weather winter weather paled in comparison to the unprecedented challenges brought on by Cobot 19.
Our consolidated comparable sales in the quarter were relatively flat to last year at negative 0.3%.
Ctr recorded comp sales growth of 0.7%.
Despite milder temperatures and a lack of snow early on the impact of Cobot 19 provided a tailwind to our sales in March as customers prepared for orders to stay at home and practice physical distancing.
For sport Chek it marks the comparable sales period ended on March 18.
At this as this mark the last day, the banners were fully operational in the quarter.
Over that period sport Chek was down 1.8% hallmarks was down 4.5%.
As both banners were impacted by steep sales declines early to mid March as growing concerns over cobot 19, deterred customers store visits and discretionary purchases.
The best way to understand the quarter is to break it into two parts the period up to March 11, when the pandemic was declared and then the remainder of March.
On March 11, consolidated comp sales were plus 1.3%.
Which we were quite happy with given we were up against last year's comp growth of 6% and a two year stack growth of 13% Ctr.
Ctr was up 0.9% and seeing strong performance in non seasonal categories, such as kitchen cleaning and pet while sport Chek was up 3.2% with thriving outerwear and accessories accessories categories and marks was up 0.8% on strong casual and ladies footwear perfs.
Fourmonths was unfolding as expected leading into the end of the quarter.
Beginning March 12.
Ctr experienced significant demand for health and cleaning focus categories.
And as the month progressed saw increased demand for what we now call boredom Busters.
Products, such as kids toys and games exercise equipment sports and outdoor recreation.
As Canadians prepared to spend more time at home.
The increased demand for these categories drove significant traffic to our stores and web site.
In addition, our own brands, such as tight Bay for living and Frank delivered triple digit growth rates.
Ctr as needed now assortment has typically been trip driving categories in automotive fixing and seasonal purchase through bricks and mortar due to the urgency with which customers need the products.
Cobot 19 has expanded the definition of what needed now means to our customers to include a wider range of products needed to live work and play at home as well as products needed to keep our home safe clean and healthy.
In Q1, and the last three weeks of margin particular, these products delivered leading sales growth clearly demonstrating how relevant Canadian tire is to its customers.
With physical distancing and government restrictions in place we were concerned that fewer trips to the store would translate into lower overall demand for our products that has not been the case.
We are seeing customers increasingly rely on Canadian tire is the one stop shop for a wider range of essential products, which is driving a significantly higher basket size.
We've also been seeing a particularly strong performance with our high ticket discretionary items, which may seem somewhat counterintuitive, especially during this period of economic uncertainty.
However, as Canadians equip themselves to stay and work from home.
Some of the top purchases include Trampolines basketball nuts, backyard play structures and treadmills and.
In light of these family related purchases, it's not surprising that we drove disproportionate growth amongst our active families customer segment in the quarter.
The one thing holding consistently true is that our customers continue to see ctr as a top destination for their jobs enjoys particularly during this unprecedented time.
It was a different story in sport Chek and marks following merged 12.
As they experienced double digit sales declines, especially following march 19th when the stores were closed across the country.
In a matter of three weeks the momentum the business had gathered through the quarter eroded completely.
And while we continued to see heightened demand on our ecommerce channels. It did not compensate for the loss of foot traffic in our clothes stores.
Hello Hansen also lost momentum in the latter weeks of the quarter as its major European and North American markets became paralyzed by increasingly stricter physical distancing measures.
As a result, Helly Hansen revenues decreased 7% in the quarter, but were relatively flat on a constant currency basis growing 0.6% versus prior year.
As with our other banners the ecommerce channel took on a larger role that Helly Hansen and grew at 36% for the quarter and ahead of our expectations.
In the quarter, we were encouraged by the strong Pos results of Helly Hansen outerwear categories that sport Chek, an atmosphere, where sales grew by 80% and at marks were workwear grew by 24%.
At financial services, while we saw another strong quarter of receivables growth with guar up 4.2% earnings were impacted by an increase in the estimate for expected credit losses, which Gregory will cover properly and just a few minutes.
I continue to be very pleased with how our financial services business has responded in these times, we haven't experienced team at CFS, who are more than capable of working with our customers who might be facing financial difficulties right now.
We offer a number of relief measures to our customers and today, we have many customers that are benefiting from these programs.
As for our retail business ecommerce played an increasingly larger role in our performance in the quarter and beyond it became clear that one of the impacts of Cobot 19 was that it accelerated our customers desire to engage with CTC digitally.
Site traffic conversion rates and ecommerce sales all increased exponentially, surpassing our previous high watermarks set by cyber Monday is in the past.
In March alone Ctr tripled its recent E commerce sales growth rate, which speaks volumes to what we are seeing.
Active families in young adults lead customer acquisition to E Commerce as Ctr experienced strong customer count increases in members under 30 years old.
We believe that cobot 19 has permanently shifted the shopping behavior of many heightening the importance of delivering a compelling digital experience to our customers, which will continue to be a key priority for us going forward.
I want to switch gears slightly until you a little little about the performance we've seen to date in Q2 to the end of April as I'm sure you're eager to get a sense of our recent trends.
Ctr, despite the closure of 203, Ontario stores, which is 40% of our network and the website capacity challenges we experienced at the start of the quarter, our national Ctr sales are down 1.8% in April.
I am so encouraged to see Canadian tire fairing as well as it has.
We are an extremely resilient brand and when coupled with our strides in omnichannel deliver delivery, we are weathering the storm.
At sports second marks the declines we have been seeing or steeper, which is consistent with the more discretionary nature of our assortment in these banners.
On a consolidated basis retail sales are down 19% on a quarter to date basis.
And while we do not know the future impact Cobot 19 will have on our business or when our business will return to full strength.
We expect a more significant revenue impact from cobot 19 on our full quarter results in Q2, and it had on our full quarter results in Q1.
Before I hand, it over to Greg Gregory I want to reiterate our heightened focus on maintaining our liquidity and ensuring a strong cash position.
You may be surprised to hear that 70% of our cash is consumed by inventory.
This is a key focus area for our merchant teams, who are balancing a fine line between being there for our customers. While also keeping our working capital as lean as possible, where we don't need it.
We have been actively monitoring categories in the business that have seen strong consumer demand to ensure inventory is available for our customers and that we're setting ourselves up to succeed and grow as the year unfolds.
And with that I'll hand, it over to Gregory.
Thanks, Greg and good morning, everyone. This is my first opportunity to address you in this form in my new role I want to thank you for joining us today will cover the key financial impacts in the quarter to bring as much clarity as possible in this time of uncertainty.
So without further Ado, let's get started.
Our reported diluted EPS in Q1 was a loss of 22 cents and a loss of 13 cents when we normalized for the $7.5 million and operational efficiency charges, we recorded in the quarter compared to a normalized EPS of $1.12 in Q1 last year.
As Greg mentioned Cobot 19 has affected nearly every aspect of our business disrupting consumer behaviors equity in foreign exchange markets and the economy overall, leading to significant impacts on our consolidated earnings EPS, which I'd like to highlight for you next.
First I'll start with the most obvious one.
The loss of revenue at our retail banners in early March anxiety over covert 19 began to take a toll on customer foot traffic marks a check and an helly Hansen revenue in Europe and the U.S.
The declining trend accelerated further following our announcement that sport Chek and Mark stores would close on March 18.
Obviously with the stores closed our banners ability to generate revenue at the historic levels was significantly impacted.
To give you further context, we disclosed in our Mdna that sport Chek marks and Helly Hansen collectively contribute $140 million in revenue on average during the last two weeks of March 2018 in 2019.
Second and financial services, we recorded a $45 million increase in our allowance to reflect the increased probability of a recession and the resulting increase in expected account aging.
This impacted EPS by 43 cents and I will provide more color on it in a few moments when I cover off our financial services business.
Third and less obvious is the impact that the almost 40% drop in the value in our share price had in the first quarter due to the impact the pandemic had on our equity had on equity markets.
We utilized equity hedge instruments to offset share based compensation expenses from upward movement in the share price.
However, the reverse holds true when the share price declines.
As a result, the significant share price depreciation in the quarter led to a $42 million increase in our net share based compensation expense translating into an EPS impact of 44 cents.
Finally, a smaller impact of $7 million or nine cents EPS related to the non operational FX loss recorded Helly Hansen due to the sharp weakening of the Nok relative to the appreciation in the U.S. dollar.
I now want to spend some time going over the key performance metrics of our business and we'll attempt to do so while roofing any cobot related noise.
And I will let you know that we provided a comprehensive summary of the cobot impacts on the quarter in section three Dido of the Mdna.
First while reported retail revenue, excluding petroleum was down 1.8% for the quarter. It was trading at about 5% as of March 11th.
Despite a fairly mild winter ctr, we're seeing strong dealer demand with shipments growing across the automotive fixing and living categories and sport Chek was also on track with strong performance in outerwear accessories and footwear.
Would it started out as a healthy trend drastically reversed course in a matter of three weeks post post March 11.
The store closures that marks and an sport chek and the impact that Helly Hansen globally were the main drivers of this revenue decline.
Partially offsetting this was the continued growth and Ctr and includes the party cities revenue.
In an environment as tough as this I am pleased with the performance of our retail gross margin rate, which excluding controlling was only slightly lower down 10 basis points compared to last year. The gross margin rate benefited from strong performance at ctr due to a favorable business mix and freight related savings on the back of.
Lower fuel prices. This was offset by margin pressures that marks and check due to higher ecommerce contribution to sales.
You'll also notice that our consolidated Opex ratio performance, which had been on an improving trend over the past two quarters increased by 240 basis points.
This performance is directly related to a lower revenue in the last three weeks of the quarter and the sizable opex impact in our share based compensation I spoke about earlier.
Adjusting for these impacts the opex ratio would improve by 16 basis points compared to the prior year attributable to lower expenses and traveling marketing as well as the continued momentum with our operational efficiency program.
Maintaining a healthy balance sheet is a key priority for us of Canadian tire, we are well capitalized have access to multiple sources of liquidity.
As of the ended the quarter, we had 1.5 billion of available liquidity with in our retail segment over 300 million NCT read and 2.25 billion at financial services.
Financial services continues to maintain a level of liquidity well in excess of the required regulatory minimums.
In addition to the existing funding channels CGC recently entered into a one year committed bank credit facility for $650 million with for Canadian financial institutions.
These financial institutions were quick to respond to us, reflecting a high degree of confidence in CTC.
We are taking action to protect our cash position and financial flexibility as Greg mentioned, we continue to manage our cash prudently by managing our working capital and have taken steps to reduce discretionary costs at home office and our corporate stores.
We've also announced we have taken a pause on our share buyback program.
And we are carefully prioritizing capital projects in spending for the year. While we are confident in the long term outlook for our business. We are suspending the previously communicated annual operating capital range, which we indicated was going to be between 450 and $500 million, we will still execute on critical.
Actually those relating to strengthen our digital platform operational efficiency initiatives and a new dealer ordering system and we will differ expenditures on non essential projects.
We're also suspending our previously disclosed annual tax guidance of 26%.
Now before I hand, the call back to Greg for closing comments I want to address the performance.
Of our financial services business, which continues to be strong and healthy and is uniquely positioned to navigate through this challenging economic environment.
As discussed earlier, our earnings in the quarter reflect to $45 million, who bid related hit two allowance incorporating the increased risk of future credit losses.
Under the expected credit loss model, we are required to record expected losses upfront on a forward looking basis, incorporating changes in both economic conditions and customer behaviors.
As the probability of an economic downturn increase due to cope with 19, we recorded 30 million in incremental allowance and another 15 million as a result of expected increases in credit card aging.
Excluding the 45 million dollar in allowance financial services, IBT would've been up 2.4% in the quarter.
As a result of this adjustment our allowance rate increased to 13.64%.
Slightly outside of the previously communicated range of 11.5%, 13.5% given the continuing uncertainty yet the economic conditions. There is always a possibility for further changes to the expected credit loss model as we look ahead in the here.
With.
Prospective receivables over the last 15 quarters, we've been seeing continued receivables growth and this quarter was no extent exception with guar up 4.2%.
It's fair to assume that receivable growth will flat over the next few quarters.
As a continuing economic downturn is likely to translate into reduced discretion.
Gary spending and lower cards and lower sales on the card.
With respect to aging metrics reported in our quarterly results I would comment that at the end of March it would still be too early to see any significant movement and our past due receivables or net write off rates.
Our PD two plus rate at the end of the quarter was 3.07%.
And that was only 24 basis points worse than prior year and our net write off rate was 6.35% was still firmly within our planned range and comfort zone.
We are continuing to keep a close eye on aging metrics payment rates in spending and working closely with our customers, we're experiencing financial hardship by providing with a number of options to ease their burden.
Okay.
Priorities over the past eight weeks has been our relationship with our Canadian tire associate dealers I continue to be impressed but not surprised by their hard work innovation and dedication to their customers. During this challenge.
In addition to implementing countless safety measures and new processes across their stores.
Dealers have independently donated countless products, including 450000 masks and 25000 leaders of hand, sanitizer to local hospitals nursing homes and community organizations in need.
Dealers actions throat covert 19 crazy.
So this have only reinforced the vital role that they play in our company and their communities I'm pleased to tell you.
We've signed a five year extension to her a dealer contract, which was originally set to expire in December 2024.
We are thrilled with this development, which is a testament to the stability and strength of our relationship with the dealers are collaboration.
Has never been better.
Although cobot 19 is not something anyone could have planned for our previous investments in customer data and analytics as well as our lawn show triangle rewards in 2018 set us up her success during this crisis.
Systemic chefs and consumer behavior that will continue over the longer term.
Driven substantially by activity over the last several weeks.
We've added just under 1 million unique users to our at an email subscription.
Mmm year to date.
Triangle rewards now boasts more than 9 million active members and we are in a better position now more than.
Ever before to personally and relevantly engage with our customers across multiple channels. This will continue to services E. commerce and digital marketing keep playing an even bigger role.
Moving forward.
In addition, our triangle credit card further continues to drive cross banner engagement across our family of companies overall triangle rewards truly connects our banners together as one company.
Now more than ever our customers are relying on our entire family of companies for the essential products they need for their new normal life in Canada.
Built an ecosystem of brands products and services partners that are working together to provide locally relevant and personalized solutions for our customers.
Allowing them to get more done faster and easily with greater trust and rewards.
Aligning our assets and capabilities are one company is proving essential to life in Canada.
We know that customer behavior is shifting rapidly and permanently companies that have invested as we have and truly understanding their customer can act on and adapt to these systematic behavior chefs.
Between our investment and data analytics center establish.
<unk> history of always being their life in Canada, where well positioned to continue winning with our customers.
<unk> unexpected challenges. It also had it share unexpected opportunities opportunities that will continue to foster benefits as we move forward by leaning into our values and core purpose supporting life in Canada, regardless of what life may.
Look like we have set ourselves up for future success.
Before we take your questions I want to acknowledge and thank our leadership group and their extended teams for their support determination.
And then commitment to teamwork.
Might have had an unusual start in this role, but I am so very fortunate to have been support.
Guarded by such a strong and talented leadership team.
And speaking of our leadership team I'm pleased to share with you that T.J. flood. It has been appointed as president of Canadian tire retail effect is immediately.
As you know teacher has been the president of sport check for the past two years and has done unexceptional job.
He's had a very successful career and Canadian tire spending time as a merchant.
I'll conclude by saying that my commitment to communication is not unique to the current code that 19 crisis and extends to our investment community.
Trust the quarterly earnings calls will not be the only time you hear from me.
Thank you for joining us and I hope that you will tune into our first ever virtual A.G.M. at 10. This morning.
With that alternate back over to the operator for questions.
Thank you.
At this time I would like to remind everyone in order to ask a question. Please press start and then the number one on your telephone keypad.
We ask that you please pick up the handset or step close to your speaker phone system. When asking your question and you. Let your time to why don't question plus one follow up question well pots for just a moment to compile the <unk>.
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The first question is fine Peter's declare a female capital markets. Please go ahead.
Hi, Emily.
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Question on the L. allowance.
The 45 million <unk> total.
Well, that's just for the macroeconomics and 15 million list for the probability of the Oh, what's the difference between the two numbers and and are they both.
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Thanks, I believe that it's it's Gregory here and I should clarify for the call that trick, it's simple I'm going by Gregory for now and and and Darcy always going by Greg you're so so I can say that set the record straight now yeah, I I would say both those absolutely are related to cope with what we tried to do is to break them into components. One of the calculations that we have is within.
The actual detailed model itself is there's a there's what's called an overlay for profitability of of of an economic downturn recession. So that that's an assumption change around what that is going to look like.
Specifically the other is more kind of what you're actually seeing kind of an aging behavior ultimately you're right. Both will show up as as as a loss or as a write off down the road, but we have kind of from a modeling perspective.
There are two distinct pieces and both are absolutely related to <unk>.
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Oh, five more than $6 million I'll listen to pie side.
5 million.
Seem small as an adjustment that you wouldn't need four or something large it cold.
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Yeah takes at least Gregory again I.
Yeah, I think what you have to realize as the way that the the accounting works behind this is your basically booking at at the current Puerto at the quarter close what your expectations are based on the best information you have at that time, and and I think as I've I've talked to a previously with it with kind of the Guy I press nine in our allowance every month and every.
Quarter, and we're going to have to re value that that that allowance. If you will so this that 45 million based on the trends that we've seen that that could go up that could stay the same that could go down depending on the behavior that we kind of see going forward. So it's it's never really a static number of you will it's always going to be <unk>.
Changing based on kind of your latest drivers in your latest projection of where you see things going forward.
And maybe maybe I'll just I'll just add I'm I'm for Sherbet on a C.E.O. crash course, my first eight weeks on the job and <unk> and and especially getting up to speed the bank business.
The team has entertain might carry out curiosity, which I appreciate but here's the way I think about it I'm I'm confident that we have the experience in our financial services business to respond appropriately.
During these times and we have a number of relief measures as sprang talked about in Gregory talked about it in his prepared remarks for deployment to our customers.
Who need if <unk> financial financial assistance. During this time, so all that relates to how we managed through this on a day to day basis, which is critical but I've also been you know trying to understand as as you're asking about to understand the provision where I've found comfort my understanding is to think about this.
They forward looking estimate unexpected credit losses.
Provision just simply takes immediate right.
Recognition of these expected losses, so we increase the allowance by about 80 I think it was 83 bibs to 13.64 per cent of our receivables as Gregory said.
So then when I asked the team of it.
But how this compares to Oviedo nine they remind me that we had a provision of 2% of receivables at that time.
Now I understand that we are operating under a different accounting standard, but it's still an important point.
To consider about our level of allowance and 2020, certainly doesn't mean, we won't ever have to increase or allowance going for it depending on how the economic situation loans, but are starting point is an allowance of almost $850 million. So I'm not sure if that that's helpful. But it Angers me.
Yeah, that's very helpful. Thank you very much.
Thank you.
The following question is from Mac, Petra and C.I.D. fee. These colors.
Ahead.
They're good morning, I'm, Greg you covered it with some help with commentary, but I wanted to ask about E. commerce business, specifically at T.T.R., and obviously all businesses had to cope with unprecedented demand, but there were clearly some execution issues, both online and in terms of inventory visibility in fulfillment. So do you think that the those issues have.
You at risk of losing customers and I'm, hoping you can be a bit more specific about sort of how you address that both from an execution standpoint, but also you know with regards to the customer relationship.
Yeah, I mean, we we did our best smart to be transparent with respect online and are prepared remarks on what we're dealing with.
You know, we're dealing with a surge of 25 to 30 times demand virtually overnight. So we certainly knew that we were going to run into compassionate capacity issues with their site, but but thought that we could grow our business two to three times before it was an issue beyond surged days like cyber Monday and Big Big.
Emotions so.
You know we'd identified a major transformational project that we may have talked about before as part of operational efficiency efficiency called ODP or one digital platform and it's it's it's a multi year Replatform initiative across all of our banners and and and has US moving all of our banners onto the same same plot for.
You know with modern technology cloud Blaze based platforms et cetera. So that's I guess just contacts in terms of what we you know what we were dealing with for a period of about 10 to 12 days, we we're managing multiple deployments every night to the site surge up our our abilities.
Take on take on more demand.
At the same time you know we were we were doing our best to to manage the expectations of.
Of customers and we were we developed a browse site. So that allowed some of the demand to offset so people can still look through.
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That that we've we've really been able to process here at anywhere between 80, and 110000 orders a day it looks like our experience scores are coming right back up but no one of the things that I'm really for looking forward to sharing with you as we just implemented <unk>.
Yeah, which is the voice of the customer listening tool and it's going to provide us unbelievable granularity on each one of our customer experience services and so we'll be able to to you know identify going for you know, how we think about that with with with real slump objective objective measures.
Okay. Thanks, <unk> I got you know anything sort of anything sort of specifically plans with regards to <unk> customer relationships and proactively reaching out to customers sort of on this topic and then again just as a follow up you've highlighted that you're you accelerated some investment in in your systems, but.
How do you expect us to effect operating costs.
[noise], Yeah, I mean, it's a little early let me deal with the first the operating cost pieces. It. It certainly is a little early where we're just doing our best to make sure. We're taking care of customers right now and we're not you know really.
Mindful of that I can tell you.
You know it it's a it's expensive to run at 100% Curbside operation I mean, we're we're you know the the the dealers will tell you they're off their feet I'm with every single product being concierge <unk>.
I would suggest you that they're probably operating with about 150% of the labor costs or you know not as much sales. So.
Part of that is just the nature of the service and part of that as friction in the technology. So we we absolutely intend to interrogate not only the customer facing side of this but the in store a process.
It's a little clumsy right now and and so we think there's opportunities for us to drive a efficiency eliminate friction take some steps out of the process, but but no doubt you know it's it's it's more expensive than you know whatever percent is your business is is is self serve.
On the customer experience front, we we've sent at least well we sent a few customer letters and where did where we've been very transparent to our triangle membership about the issues that we're dealing with our site. We have real time messaging looking for patients with respect to demand and our you know dealers engage.
Age on a a day in day basis with orders that are you know trending longer in terms of a service level standpoint, so I I feel pretty good about how are covering that mark but like I say you know I think real objective measures around how how customers are feeling about our service. After this in only only time is going to tell on that.
Oh.
Alright appreciate all the comments all the best.
<unk>.
Thank you.
Following question is fine and just how sweet our National Bank things go ahead.
Hi, all thanks for one more question.
<unk>.
Okay.
Multiples formalization.
[noise], who gave back home.
Corporate or something to work or school.
[noise] <unk>, we're really having trouble hearing you I think let me let me just I'll tell you what I think we heard.
I think you're wondering on the C.T.R. side, who pays for this incremental customer experience cost associated with it <unk>.
I <unk>, yet he calm yet a sanitized nation you're right.
Oh Sanitize <unk>, you know very obvious same corporate stores, that's our costs in a in associated dealer stores. It. It's a it's their cost but you know we're we're we're in this together you know the shall for anything that we're encouraging a here with the dealers <unk>.
We've got a really good relationship or we're not gonna, let traditional contractual measures you know impact how we how we you know what what side of the ledger that is definitively going to be beyond but I can tell you in the Grand scheme of things since it's a it's not material.
Okay, including the the curbside if every extra Baker all that.
Back there there may be so that was more of the clean up.
Yeah that was more of the cleaning I mean, certainly the most material costs and dealers businesses their labor.
So if you're if you're increasing that in a substantial way I I would suggest to you that that you know that is that it that is more material and so we'll sit down with the dealers. One. This is all you know all all done and will you know, we'll think about how to how to work through that with.
Okay, and just <unk> on the Ontario start <unk>, obviously unexpected down wondering if there's any way for sent that's just to think about the health clubs or dealer network at the financial House and talk yeah.
Started getting Michelle and having a hard time was it <unk> last part with the financial health dealers is that what you <unk>.
That's right sorry, Uh huh.
Hopefully I'm more clear now.
No yeah, we've I I you know I think if I talk about we've we've tape is Craig said, we're very close with the dealers working hand in hand, it as part of this crisis and you know we've looked at our liquidity, we looked at dealer liquidity and both positions are very strong across the network and I I want to go back to the data point that Greg gave around what.
What you've seen in terms of sales across the network and and granted there. It's different you know province by province, but an overall basis, you know given that that store as an entire were closed for you know two thirds, let's say of April and only having kind of curbside per per the overall network sales only be down what Craig talk to us, but 1.8% is is incredibly.
Promising so so I I would tell you that liquidity both at the Corporation and dealer network accurate is is very strong.
Okay and just one last one here are the press release for tire hopefully you can hear me at the press release for fear quarter set 200 million of efficiency benefits, but I think in prior commentaries has 200 million plus says anything change.
No I I don't think that's changed to shall I think I think Gregg said 200 million plus and his commentary we probably that's good catch we should have a included that in the press release. So it's no we haven't cut that down on your <unk>, It's still 200 million plus Craig wouldn't let us up to look like that don't worry [laughter] second.
[noise]. Thank you.
Mmm.
That's fine question <unk> are they see capital markets. Please go ahead.
I think I'm learning <unk> and just following up on the the performance in in April What's your name. Okay. That's an idea what what you were saying that say in yeah in the 60% of the network that was operating versus Ontario, and Chandra Levy case.
Performance has he moved real cute too as we come up to I guess, the clean gardening she's starting soon she says Oh, therefore tech sending them [laughter].
We're hoping soon to yeah I was it's pretty dynamic Irene in a in April we had though whether break the spring weather break N.B.C. in the early part of of April which was a significant tail end to the overall sales.
In the network. So you know the you know I think I refer to the category new term of boredom busting. So it was still yard related but became much more gardening I'm focused so kind of all things or spring et cetera, with our gardening business watering business et cetera.
Essentially extremely strong and then we moved into probably the second week of April in that weather maneuvered, it's way a into Alberta.
The last couple of weeks have come out a bird Alberto sales have been unbelievably strong now we're seeing that kind of move into the <unk> and so the same themes with respect to you know our seasonal business are playing businesses been you know really really strong because of some of those boredom busting categories that I talked about bikes.
Exercise and Ah Trampolines and all those types of things, but now you're seeing our real seasonal business Barbecue's, a patio furniture and gardening, you know really start to take hold in the last and we hope here once we get past this little Gore tax over the couple next couple of days in Ontario that as our store.
As open that that good fortune comes to comes to Ontario.
That's great. Thank you.
<unk>.
<unk> <unk> actually thinking about how you operate overall in sort of in in the current environment. If if we look at.
<unk>, you're distribution centres hearing tired supply chain.
<unk> Dot test social distance things. So how do we think about the evolution of your off box.
We moved served.
Through this period.
Yeah, I I <unk>, I mean, clearly where experiences that to date in terms of what we're moving through.
The distribution centres and and and call centers as examples of those are still kind of up and running out to to get product and and and the service our customers over the phone. So I mean, it's it's you know clearly as Craig alluded to that's one of our key priorities is making sure that employees safety I think it's one thing that we're we're continue to work on I think we're really happy with.
What we're seeing it at at all the disease and the service something could call Centre I don't think it's had a significant impact on our costs and had to today, where they will will will keep an eye on it but again, what's paramount who is going to be keeping our employees say throughout this.
So there might be some slight cost crush on that going forward, but here's what I've always realized in my career Katie entire specifically in supply chain. If you give to supply chain guys. A challenge they kind of react very well to it so I'm I'm comfortable that that that that over time will find efficiencies through operational efficiency listens, where like that would offset any kind of.
Increase that we'd be forced to kinda bear in the in the in the the long term.
That's great. Thank you and just one more if I <unk> and that's about an inventory how do you think <unk> current levels of <unk> in a dealer network in your network and and really how did they plan for serve as we move through with the next few months and into the fall and how are you thinking about buying.
And and as you move into recession and all the rest.
Yep, a iranians Greg that too is a very dynamic situation you know as you can appreciate when the when the when the pandemic or the crisis starts and your organization kicks into crisis mode, and you're thinking about you know managing a look.
Quit at insuring things up and.
I think I gave you the statement that 70% of our cash uses inventory. That's the first place you want to go and you want a model stress stress test test test scenarios.
[noise], which we've done lots of and then you've got to react to what's actually happening because all those scenarios are are hypothetical even if you feel good about you know how you how you.
Oh, you've covered the risk from illiquidity standpoint, and so that's what the teams that's exactly what the teams have been doing over the course.
<unk> last two or three weeks here just an extreme focus the the answers difference by banner too obviously with with most of sport jacket marks closed and tell some of the relieved that we've got here.
Over the course of the last couple of days scenarios that we're planning for in terms of buying inventory and support checking marks right now it's been pretty easy you know we haven't we Ain't we've been buying very little we've been burning through our existing inventory. So you know I think you would've seen or inventory.
Is up a couple of $100 million a good chunk of that is in support check I think two thirds of it and I was part of a conscious decision to to to buy and 2019. So it was part of carry over and we.
We've whittled away at that so in a sport check banner you know we're sitting.
Oh, you know, we're we're putting a more aggressive by plan into the into the C.T.R. business. We've done a tremendous amount of granular modeling with a view to purchase order lead times, and and visibility <unk> et cetera to.
Understand you know what indicators, we would have if if things started to kind of go sideways on us. So we've got lots of the year that we can continue to impact on that and so every banner has a little bit of a story, but I'll I'll play that gives you a little bit of color in terms of how are thinking through it.
It does thank you very much.
[noise] and King.
The following question <unk> Patricia Daycare Scotiabank. Please go ahead I. Thank you could mark.
I mean, everyone crack thing for all the content you gave us on what you're doing a forced T.T.R.E. commerce kicked it though because you know for for quite a while you're capability there.
[noise] has been concerned for investors night indicated that the still further development work going on and you anticipate that you will be moving to the cloud can you tell us when that will happen.
Yeah we've.
Patricia as a result of this as you can appreciate we've.
We're we're gonna poured gas on that initiative from from an execution standpoint, we're going to change our phasing. We originally planned on phasing the sport checking marks Ah matters to the new platform now, we're gonna or we're gonna move with C.T.R. first so we would expect are are kind of existing.
Arms, sorry, our new hybris.
Applying for him to be in the cloud towards the end of this year in the fourth quarter in C.T.R. and any customer experience benefit that would come associated with that we would move into into <unk> early 2021 and on the other banners would follow.
Yeah.
In in a in 2021, so we would expect to have some material scaling benefit as we head to the all important fourth quarter here, which will allow us to syringe, even well <unk> well.
The on some of the the the order capacities as I walked you through which is a huge increase to where we were okay. Thank you. Good luck with that and my next question is for Gregory you you aren't here cash flow in the quarter benefited from the fact that either differing your tax <unk> installments when do you anticipate.
That you will have to pay it off installments.
Later in the year I believe I think it's kinda cute four I think it's a timeline Patricia can we differ them until okay. Thank you and congratulations t., both and also congratulations on teachers appointment and the dealer contact.
Thank thank you.
[noise] thinking.
It has to question is <unk> T.D. Securities. Please go ahead.
A good morning.
Question on the credit card <unk> looks like there's a lot of focus on C.D.F.S. and or any allowance prohibition. So can you may be just updated about the collections or payments through maybe the month of April.
[noise]. Thanks, <unk>, it's correct Gregory sorry, I mean, I'm, even getting used to this anyway, yeah. So what we I'll start off maybe talking about a receiver position and then talking at collections in payments and sales into April. So we we ended receivables up 2.6% is the ending number average.
Was a bit higher as Greg alluded to in the quarter, but the ending was 2.6 up what we've seen in the month of April is kind of two things first and foremost we've seen a fairly significant decline in spending on the card categories. Like travel that you would expect is is basically you know not there anymore at least in April, but what we have seen on collections or what I would call <unk>.
Repayments is the absolute dollars in payments is relatively than flat April.
20, 20% April 19, so even though customers are spending less we really haven't seen kind of pressure yet on the on the payments in the month of April now as we all know one month does not make a trend.
But what I think is also going to be interesting and it's gonna be the impact that the government subsidies had as you would have remembered you'd kind of the Serb payment kind of came out around April 11th. So I think that's also help payment activities. So clearly a metric we'd keep a very close ironwood, but please excuse in April but as I said in my <unk> My remarks, I still think there's.
We're we're we're still she where months to go I think before we kind of feel comfortable calling the trend on this.
Okay. Thank you and then two housekeeping items like can can you just Gregory explained the rationale behind the classy units in enrolling those to 2025, rather than other options that you may have had and can you just repeat the liquidity at C.T.R.I. from the retail side I missed that relative to the reading C.T.F.
So yeah. So let me do the second part first if I talked with available liquidity at court around.
The retail segment had about 1.5 billion available credit.
The read had about 300 million and see and the financial services Division was 2.25 billion, but then I said after the quarter, though for the retail side, we did acquire 650 million more in line I.
I didn't get to suggest on the on the real question, probably maybe we can follow up with you off line on that one if you don't mind.
Sure. Thanks very much appreciate it.
[noise]. Thank you.
<unk>.
This will conclude today's call a web cast has a conference call will be archive I'm Canadian Tire Corporation limited Investor Relations flat site for 12 months. Please contact investor relations with their follow up questions regarding taste call orphaned materials provided you may not disconnect Caroline's.
Mhm.
This conference is no longer being recorded knowledge is promoted coffee homes at Delta Hope. This conference is no longer being recorded nobody's promoted coffeehouse at Delta home.
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Okay.
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Okay opinion, that's because it does it tell me.
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Okay opinion, not good for that that's going to host autonomy.
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If you compare opinion up because it had medical sales to tell me see for pick a consumer spending.
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I would say opinion, that's because it took us.
Gentlemen.
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