Q3 2021 Canadian Tire Corporation Ltd Earnings Call
All participants please standby your conference is ready to begin.
Thank you for standing by my name is Valerie and I will be your conference operator today.
At this time I would like to welcome everyone to the Canadian Tire Corporation Limited third quarter results Conference call.
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After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press Star then the number one on your telephone keypad.
To withdraw your question Press Star then the number two.
We ask that you limit your time to one question plus a follow up question before settling back into the queue.
This morning, Canadian Tire Corporation limited released their financial results for the third quarter of 2021.
A copy of the earnings disclosure is available on their website. It includes cautionary language about forward looking statements risks and uncertainties, which also apply to the discussion during today's conference call.
I would now turn the call over to Gregg Hicks, President and CEO Greg.
Thank you operator, and good morning, and welcome everyone I'm joined today by our CFO Gregory Craig as well as T J, who will be participating in the Q&A portion of the call.
Before we get into the details of our Q3 results I'm going to start this morning by recognizing the incredible work of our corporate charity Jumpstart.
As you've heard me say before Canadian tire has a long history of supporting the communities, where we live and work.
The pandemic, we've proven that our purpose of being there for life in Canada is more than just a tagline.
After 20 months and our commitment has not wavered as proven by the busy quarter had by Canadian tire Jumpstart charities.
In Q3, Jumpstart continued to help build back sport and play in Canada through its $20 million Sport relief fund.
To date more than $17 million has been disbursed to help over 1500 community organizations keep their doors open.
In addition to addressing the challenges created by the pandemic jumpstart remains committed to removing financial accessibility and gender barriers to sport and play.
In Q3 alone the team completed four new inclusive playgrounds, and Whitehorse yellow light, Montreal, and burden B C as well as inclusive multi sport courts in Thompson, Manitoba and Oxbridge, Ontario.
Together these projects represent an additional 100000 square feet of accessible play.
Base, where all kids of all abilities can play together.
Constructing these recreation facilities truly takes a village at woods.
Not be possible without the hard work of our teams our authentic connection to our communities and the generosity of associated dealers employees and customers.
In addition to being there for kids today, we remain committed to protecting our communities for tomorrow.
We recently published our 2020 environmental footprint report, which outlines the energy consumption and emissions that result from our business across the entire value chain from the processing of raw materials to last mile delivery to customers.
In 2017, we set ambitious targets to reduce GHT emissions for buildings in operations by 22% by 2022 and.
And keep emissions from transportation flat both against the 2011 baseline.
As has been the case with many companies COVID-19 led to growth in volumes, particularly in e-commerce, which impacted our progress on our ambitious transportation targets.
We continue to work with our transportation partners to reduce our G. H T emissions footprint.
More broadly we continue to work on bringing our environmental work and social initiatives together in an integrated ESG strategy.
We recently established an internal executive leadership Council that brings many leaders together as well as a brand and corporate responsibility committee at the board level to oversee our ESG efforts.
We know ESG is a process not a project and our work continues.
With that let's dive into our third quarter results.
Overall, I am very pleased with our results this quarter.
We were excited to welcome customers back for in store shopping as most COVID-19 related restrictions were lifted in the quarter.
In Q3, we delivered strong comp store sales growth in all banners against exceptional third quarters in both 2020 and 2019.
Revenue declined as expected led by lower shipments to dealers after significant revenue increases in both Q1 and Q2.
I'm feeling really good about how our team is working to manage our margins and our opex disciplines, which Gregory will speak to in a moment.
From a broader customer health standpoint, we are beginning to see several key metrics starting to grow in our bank <unk>.
Including credit card sales being up over 23% in the quarter as well as Gar growth for the first time in several quarters.
We continued to ramp up our operating capital spend this quarter, primarily in real estate and it.
And continue to drive improvements to our retail ROIC.
I intend to spend more time in my prepared remarks. This morning discussing two critical areas cut.
Customer engagement and our supply chain capabilities.
There's no question that increased customer engagement with the Triangle Awards program has been a key driver of our topline performance overall and in the quarter.
On a rolling 12 month basis, we now have $10 7 million active triangle members.
These members are incredibly valuable quite simply because they spend more.
Their average basket size is higher and they shop across multiple banners and channels.
And in Q3, our loyalty members spent 30% more per visit than non loyalty members accounting for 57% of our total retail sales in the quarter.
Our member base continues to grow with 680000, joining in Q3 alone.
This brings our year to date acquisition to $1 7 million new members, putting us on track to exceed the $1 8 million members, who joined in 2020.
And looking at our 2020 in 2021 cohorts, it's clear that our triangle program is attracting younger more digitally engaged customers.
I also want to give a quick update on our triangle select subscription program.
We are currently conducting a beta test, which was designed to help us understand all aspects of the value proposition for the customer.
We've been in market for about six weeks and so far we are very pleased with our progress and results.
We have just over 5000 invite only customers subscribed as part of the beta test.
Over 50% of them are skewing younger than our average triangle remember many of our credit card and they're spending more across our banners.
To date the program benefits that had been used the most are the 10 times in the store CTF earn.
Which drives more traffic to our stores and the owned brands bonus, which further demonstrates their differentiation and popularity.
It's still early but we really like what we're seeing so far.
Between now and the end of the year, we're exploring new acquisition channels as we look to ramp up enrollment and we'll keep you posted on our progress.
The triangle select beta test in our entire triangle loyalty program are in service of learning more about our members.
We continue to hone and evolve our personalization efforts and drive more meaningful connections with and real value for our customers.
Changing gears I want to spend some time talking about supply chain as I know that it's been top of mind for the past few months.
In contrast to last year's supply chain challenges, which were related to manufacturing supply.
The challenges this quarter were primarily related to ocean freight capacity.
While we're not immune to the global supply chain issues. So I'll spend the next few minutes outlining how our strong supply chain capabilities and experienced management team enable us to navigate challenges, including higher commodity prices factory shutdowns port closures and shipping container shortages.
I'll start with the fact that we are the country's largest retailer of general merchandise and apparel.
And while we're very focused on inventory turns and the fact that we are neither a grocer nor fast fashion retailer means that in times like these we can be very flexible when it comes to holding inventory from quarter to quarter with a significantly lower risk of aging.
The non perishable nature of our products gives us flexibility around lead times in commercial terms and as the owner of significant distribution and storage capacity through our store network corporate owned real estate and the REIT, we can easily hold excess inventory in Canada.
In addition, more than one third of our revenue comes from our own brands.
In our direct line to the producers of products, such as Noma Christmas Lights Master craft tools in Denver Hayes apparel means we are in control of when and where goods are produced.
We also have line of sight into the shipping from factories, and a clear understanding where input shortages may require longer lead times, where cost inflation might lead to higher product costs or in cases of longer term shortages or inflation a product redesign.
And as one of the largest distributors for national brand products, such as the espresso and Nike we are quite confident that among Canadian retailers. We are getting our fair share of the products that we expect to be in high demand. This holiday season.
Finally, as the largest importer of record in Canada, we have built strong relationships with our vendors and in the shipping and transportation World, particularly on the main routes in and out of Asia and across Canada to our more than seven 700, plus retail locations and distribution centers.
We've proven that our supply chain capabilities can stand up to even the most unprecedented challenges.
As we mentioned last quarter, we chartered ships entirely dedicated to carrying ctr products to move our goods amid a global shortage of shipping containers. This strategic.
<unk> decision to charter for vessels enabled us to bring in key Christmas and winter categories in time for Q4.
We have successfully built inventory to meet anticipated customer demand, we ordered more and earlier in key categories and lengthened lead times in anticipation of shortages of inputs such as the micro chips used in our noma products.
We also continued to make use of third party logistic providers to increase our inbound storage capacity, ensuring that we could handle our extra inventory.
We've been planning for this quarter since before this time last year.
The work, which is led by our chief supply chain Officer, Paul Dropper has been extremely collaborative with our supply chain team is working closely with our merchant teams across all banners.
I'm happy to say that as of today most of our contracted Q4 product has arrived.
If all goes to plan by the end of this year, we will have shipped an estimated 15% to 20% more offshore containers than in 2020 to satisfy demand in 2021 and the early part of 2022.
And we're already working through our volumes and lead times for summer and fall of 2022, placing orders with vendors looking at our product pipelines and while not across the board anticipating an increase in some input costs.
While we're pleased with how we've set ourselves up managing the current supply chain challenges has resulted in incremental operating spend.
Which is reflected in our financial results in the quarter and year to date.
And we expect this trend will continue into 2022.
We will continue to build flexibility into our contracting around transportation logistics and storage providers to respond to consumer demand.
We will also continue to assess where these pressures can be absorbed or offset with our recently announced additional $100 million commitment to operational efficiency savings, giving us further flexibility.
The investments we will continue to make in our supply chain and distribution network will enable us to flex and respond to whatever pressures come our way as we return to a more normal supply chain environment.
With respect to the inflationary pressures I am pleased to say, we've been able to offset most of these headwinds in the quarter.
We have generated gross margin rate expansion by leveraging data and analytics capabilities related to promo and price management.
As stated earlier I am pleased with our efforts here across all businesses, but I'm, particularly pleased with what I'm seeing at both sport Chek in marks.
The merchant teams in these two businesses are focused on increasing sell through at regular prices and we're seeing great progress towards this objective.
Looking ahead, we will continue to pull the multiple levels levers at our disposal to mitigate gross margin and cost pressures. Although we recognize these pressures are not insignificant.
Finally, I want to touch on our capital allocation plans.
Investing in our core retail business as our highest priority.
Shortly Gregory will give you a little more color on our anticipated capital allocation plans and we intend to take you through more detail around future capital spend at our Investor day.
With that we are very pleased to be announcing a 10, 6% increase in the annual dividend.
Which marks our <unk> consecutive dividend increase and raises the annual dividend to $5 20 per share.
And having paused our share repurchase program during the pandemic. We believe now is the time to reinstate the program.
We have great confidence in our business and the management team.
And we're committed to repurchase up to $400 million in share buybacks by the end of 2022.
And with that I'll hand, it over to Gregory to take you through the financial highlights of the quarter.
Thanks, Greg and good morning, everyone as usual I'll walk you through the financial highlights in the quarter and then take a few moments to speak to our capital allocation and capital expenditure plans.
First on the financials, we are very pleased with the results this quarter.
Diluted earnings per share were $4 20 on a normalized basis after adjusting for $19 million of costs related to our operational efficiency program and this was down 15% from 2020, but up 21% compared to 2019.
The year over year decline in EPS was primarily driven by lower shipments in ctr in the quarter and I'll speak more about this shortly.
Strong retail earnings performance over the last four quarters drove retail rollout to an impressive 13, 2%.
Now, let me walk you through the key drivers starting with sales.
As we commented on our Q2 call consolidated retail sales in Q3 started up flat to the prior year.
In the latter part of the quarter they picked up momentum as customers were able to return to shopping in store.
We finished the quarter with comparable sales up three 3% and up 21% compared to 2019.
E Commerce penetration of six 5% was down in the quarter with more visits to our bricks and mortar stores, but double what it was in 2019.
Comparable sales growth at CCR was one 4% in the quarter and up 25% compared to Q3 2019.
<unk> performance was helped by growth in on brands, such as canvas Master shaft Raleigh at Sherwood, having better control over the old branch sourcing process amid the ongoing global supply chain challenges continues to be a real advantage to us.
Our seasonal living and automotive divisions had the strongest performance in the quarter.
Gardening backyard living cleaning and car care, where amongst ctr's top performing categories and our access to inventory was a key contributor to their performance.
Our hockey business was another high point for us up double digits compared to both 2020 and 2019 more than making up for lost ground a year ago when organized sports were canceled.
Overall, we saw 55% of categories grow relative to the prior year with 26% to the growing double digits.
Versus 2019, three quarters of the category saw double digit growth.
The return to hockey and organized sports also benefited our sport chek business, where comparable sales for the quarter increased 11% and 7% compared to 2019 and growth was fueled by athletic footwear athletic clothing as well as hockey.
We also saw a strong comeback in our back to school categories, which grew 20% in the quarter.
<unk> also delivered impressive results with comparable sales up 8% in the quarter and 13% compared to 2019.
Men's casual wear footwear and industrial pair were among the key drivers of growth.
As was the case in the past few quarters, our focus was on attracting younger customers through premium brands, such as Levi's and timberland pro driving a 21% sales increase in national brand sales, while owned brands were up 2%.
And on the old branch front sell through of our Helly Hansen in Workwear was a highlight at marks up 13% in the quarter.
And briefly on Halle handsome results the business had a good quarter with external revenue up one, 5% and 3% on a constant currency basis with.
With strong growth from Continental Europe, and the U S from.
From a category perspective, workwear and direct to consumer has the largest increases up 21% and 17% respectively.
Now, let's switch gears and dive into the key drivers of our revenue performance.
Retail revenue, excluding petroleum was down 6% compared to the prior year, primarily due to an 11% decrease in <unk> revenue in the quarter.
As you know given our dealer model sales and revenue can be out of sync in any given quarter, but it has been our historical experience that over time, the two metrics tend to move together.
At the end of Q2 on a year to date basis.
<unk> revenue was up 23% with sales increasing by 8%.
We saw this relationship become more in line in the third quarter, which led to the decline in revenue at CCR in Q3.
Inventory at the end of the quarter was up $370 million relative to last year, reflecting our increased investment in product at Canadian tire to meet potential demand.
Retail gross margin rate, excluding petroleum was up 155 basis points compared to prior year driven by increases across our retail banners.
The rate improvement at CER was attributable to a favorable pricing mix despite freight cost headwinds building in the quarter we.
We are pleased with how the team continues to manage overall margin rates.
And margin rates at marks and sport Chek benefited from higher sales contributions from our bricks and mortar channel.
And lower promotional activity in the quarter.
Now turning to financial services.
The business continued to perform well in the third quarter as demonstrated by historically low aging.
Net write off rates.
We also saw encouraging trends around credit card sales and receivables growth.
Revenue in the quarter was up $6 million as card sales grew 23% and gross average accounts receivable recorded their first quarter of growth since the onset of the pandemic.
Gross margin improved by $32 million, primarily due to lower net impairment losses of $28 million, reflecting the continued stability in the delinquency and net write off rates.
Consistent with this performance allowance for loans receivable remained at $812 million flat to the previous quarter, while the allowance rate declined to 13, 4% from 13, 9% last quarter.
The team continues to assess the level of allowance on our books evaluating uncertainty related to card holder behavior and potential impact of government relief programs coming through in that among other indicators of economic health.
We also saw a $7 million increase in operating spend in the quarter, mostly as a result of an increase in our customer acquisition efforts.
So all in all financial services <unk> in the quarter increased $27 million or.
30%.
And while this earnings performance was mainly driven by lower net impairment losses, we are pleased with the growth and customer metrics this quarter.
Now.
Let's get back to some of our key performance indicators at the consolidated level.
Our normalized consolidated Opex ratio as a percentage of revenue came in at 24, 6% unfavorable by 367 basis points compared to 2020.
The decrease in revenue in the quarter as well as an increase in year over year Opex contributed to the decline in the Opex ratio.
The absolute dollar increase came from a few areas.
Drop in share price since the beginning of the quarter resulted in a mark to market loss on our equity hedges related to share based compensation.
This compared to a mark to market gain in Q3, a year ago.
The remainder of the increase was primarily due to higher marketing and higher supply chain costs as we navigated a more challenging supply chain environment and as Greg said, we anticipate an elevated level of supply chain expenses into 2022, while the supply chain backdrop normalizes.
As it relates to marketing there were some costs related to the Tokyo Olympics combined with the return to a more historic level of promotional and marketing activity and.
And partially setting offsetting these increases were savings achieved under our operational efficiency program.
Earlier today, we announced the achievement of our previously committed target of 200 million plus in run rate savings ahead of schedule.
As a reminder, the intent of our operational efficiency program has been two fold to take cost out of the business and to transform and change the way we work to prepare us for the future.
Since launching the program in the fall of 2019, we have completed more than 150 initiatives.
Our focus has been on eliminating redundancies simplifying processes and capturing enterprise wide efficiencies.
Some of the key achievements include the elimination of non value add process at our store and then the development of artificial intelligence to optimize our e-commerce freight costs and reduce delivery time.
We also announced today, a further $100 million increase in our run rate savings target can be achieved by the end of 2022.
We have significant number of initiatives well underway among them the implementation of our new transportation management system that will reduce transportation cross across the banners and the introduced introduction of robotic automation for picking product at our distribution centers.
Finally, let me turn to capital allocation.
As Greg said earlier, we are pleased to be announcing our 12th consecutive annual dividend increase.
Up 10, 6% along with the reinstatement of our share repurchase program targeted to buyback.
<unk> $400 million in shares by the end of 2022.
In the quarter, we also increased our capital spending primarily in Ctr for real estate projects operating capital expenditures were $70 million higher than last year when capital spend was down from pre pandemic levels and we expect this to continue into Q4 with operating capital expenditures for the full year expected to land in the range.
A $650 million to $700 million.
Looking forward to 2022, we expect to continue with a balanced capital allocation approach.
<unk> in our core retail business and our digital and supply chain capabilities continues to be a key priority building on the momentum of the business and the longer term strategic priorities, we expect to set up more detail at our Investor day early in the new year.
In summary, we are pleased with our financial performance and our key customer metrics and we believe we are well positioned as we head into what is typically our busiest season.
And with that let me hand, the call back to Greg.
Thank you <unk> before I close I want to give you some insight into what we're seeing so far in Q4.
Quarter to date, we continue to see healthy demand signals from the customer in both our retail business, which continues to be up against strong comps.
And our bank in terms of credit card spend.
I am confident with our readiness for the rest of the quarter.
We will continue to prioritize our supply chain and maximize the value of investments made in both triangle and digital.
We look forward to giving you more insight into our strategy, including how we will continue to allocate capital as we invest in the health of our store network and modernize our business model at our Investor Day.
With that I'll pass it over to the operator to open it up for questions.
Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
You limit your time to one question plus a follow up question.
Pause for just a moment to compile the Q&A roster.
Our first question is from Mark Petrie with CIBC. Please go ahead.
Yeah. Thanks, good morning.
We delivered another strong quarter on retail gross margin and obviously theres a lot of moving parts there, but I wanted to ask about your views on the sort of go forward margin levels, just given the increased prominence of all.
Loyalty as well as the continued payoff of all your work on price and promo efficiency. So how do you think retail gross margin will compare over time versus pre pandemic levels.
Thanks for the question, where it maybe it was just kind of look and see who is going to answer it maybe maybe we'll turn it over to TJ I think probably ctr is most relevant for you.
Yes, Mark.
Thanks for the question from a from a ctr perspective.
As I spoke to in the last earnings call.
We've built a lot of strong capabilities and analytical models to help us navigate through the year.
Inflation that we're seeing.
We have analytical modeling and manage discount levels, given our high low pricing model and we've been honing our elasticity curves to strike the balance between demand creation and managing margin.
And our own brands continue to be a key focus for us providing several differentiated advantage in one of which being healthy margin premium over national brands and then the other piece of work we've been doing over the last couple of years is just managing our assortments and from an architecture and breadth standpoint, because we play across the good better best price.
<unk> level in each of our categories, we're able to provide our customers with a lot of flexibility to make decisions that meet their needs. So we actually believe we're really well positioned with all the capabilities, we have and the data we have at our disposal through triangle to manage our margins pretty tightly as we go forward here and I think it's important to leave.
Is that when with armed with all of these capabilities and the knowledge that we gained through our triangle membership we've never been in a better position to provide value to our customers and we're always going to continue to ensure our customers are close to this value through our products or promotions in that experience and I think thats whats.
Is going to help us run that balance of managing margin and demand, creating as we go forward here.
That's very helpful. Thanks, and I guess, just a follow up specifically on triangle.
As you lap some of the big growth from last year, just in terms of retail sales, what's the loyalty data telling you about how the customers that re engaged with Canadians higher during the pandemic are behaving today.
Some of those pandemic behaviors fade a little bit.
Yes, great Great question, Mark I mean, as you have heard us talk.
We've talked about.
Tracking and managing the $1 8 million new triangle members in a hot like way and we continue to be very pleased with the results here today and we we do mine.
All of their activity I'd say as a reminder, the cohort has a much higher percentage of younger members than previous years, then our total loyalty base overall.
Which certainly makes us pleased that we've introduced a new generation of shoppers to our banners that has continued in 2021 as I said in my prepared remarks.
And these members continue to prove that there are more engaged more likely to shop Cross banner and spend more per visit to date in comparison to the 2019 cohort.
We believe really showcases the strength of the ecosystem. Let me give you some stats here over 70, 74% of the members in the 2020 cohort were acquired through Ctr and.
And about 25% of them crossed over to also shop at sport Chek in marks, which obviously helps their overall spend at the CTC level and it works both ways.
Between 60% to 70% of the members acquired at other banners in 2020.
<unk> also been active at CPR over the past 12 months and they spent a significant amount of money.
At.
At the banner so we like what we're seeing here in terms of engagement, you've probably heard me say this before that these outcomes.
Just don't happen on their own we've been very intentional.
Driving these outcomes acquire.
Acquiring the animal analytical visibility to manage customers in this type of way.
Having clarity on our objectives and fostering this test and learn fact based environment is really what's what's driving value and I guess I'd finish by saying I think you may have heard me say this before but this is all about scaling more capabilities and businesses and designing them to work together in a in a mutually.
Reinforcing way with triangle.
And we feel confident that we're moving.
With even more speed and aggressiveness.
On this front.
That's great. Thanks, a lot all the best in the holiday.
Thank you.
Our next question is from Chris Lee with <unk>. Please go ahead.
Hi, good morning, everyone.
Couple of questions on the outlook for the auto services business.
First question is is the supply chain disruption, having any significant impact on the business and then following that is are you seeing any sort of favorable factors in terms of higher miles driven and also increasingly used car ownership and how does that factor into your outlook for the next year or so on the auto services business. Thank you.
Hey, Chris It's it's T J thanks for the question.
It's an interesting one our automotive business has been very resilient. Despite the headwinds the industry has encountered during the pandemic and.
And in Q3, we grew 2% versus last year, which is 16% above 2019, and as you pointed out from our petroleum business. We know that we're still lagging 2019 levels are driving year to date based on our leaders pump. However, we saw that gap closed significantly in Q3 relative to the firm.
Two quarters of the year.
But despite these headwinds our automotive business has grown for five consecutive quarters and our growth continues continues to.
To be fuel through what we call our loss driven categories. For example car care accessories and added to our automotive adventure and.
And we also saw a resurgence in Q3 on several of our.
I would describe as need based categories like tires filters in auto.
And auto service to your point, we've actually just seen two consecutive quarters of growth in auto service and we haven't gotten back to 2019 levels, but but we certainly have been seeing some momentum in that business.
And what fueled our growth in Q3 was understanding customer trends early in investing in inventory to meet that demand and we're going to continue to take that approach as we go forward and we actually think as you think about inventory, we're actually advantaged relative to the industry because we are a diversified company.
And have the financial means we can take positions in categories like tires.
Despite some of the headwinds in the industries that other non diversified.
Letters might be able to take so in combination with the trends that we see in our financial wherewithal, our supply chain capabilities, we feel very good about our inventory levels going into Q4, and the prospects of fulfilling what consumer demand is going to be there.
Great. That's very helpful and maybe just a quick follow up on capital allocation.
Whereas those acquisition.
Within your capital allocation priorities are there any attractive M&A opportunities.
Might be looking at thank you.
Yes, no no changes from the commentary I would have provided last quarter or the quarter before.
As you heard both myself and Gregory talk about.
Today, our primary capital priority is the investment in our core retail business.
We continue to be on the look out for.
For brands that could tuck in.
Any or all of the family of companies I think you've heard me say that that will there is no finish line IR will.
<unk> two.
To look for our own brands that we can we can plug in and product develop and create value for the customer.
And I think the only nuance that may have been net new in my commentary on this last time, we talked about it as just.
Thinking about where we could potentially partner for four capability.
And our investment equity investment in the Ashcroft terminal that we announced would be a classic example.
Of that and when you think about core capabilities that allow us to have a more competitive posture going forward.
I think you'll continue to hear more will be active on that front to understand where we can improve our capabilities and partner for strength and scale.
Great. Thank you and all the measurement.
Yes.
Thank you. Our next question is from Irene <unk> with RBC capital markets. Please go ahead.
Thanks, and good morning, everyone.
I would like to spend if you don't mind, a couple of minutes just talking about ctr because.
Because I think if we go back two years, if we had said yeah over two year basis revenues are going to be up 25, 3% I don't think anyone would've believed.
Believe that so can you talk about.
Right.
Can you talk about where that strength is coming from the role of triangle of the categories and probably you can sustain that level.
Venue and.
Over the.
As things normalize as it works.
Well thanks Irene.
I'll start and T. J has obviously got a really good handle on the business with his team in.
And how he's thinking about the business going forward I mean, I I start always here.
From the conversation, we just had about the customer.
We just have such an.
Unbelievably net what I believe to be net new capability to look at the prospects for the future around how each customer engages with us in that banner.
Yes, you hear us talk about moving customers around banner to banner, but to T. J 's point around being multi category in answering <unk> question around.
Around the tire and auto service business Theres lots of opportunity to do that and we are doing that just within our family of businesses under the same roof of ctr.
There's all sorts of headroom.
In terms of how we.
Either bring a bring a customer over that we've acquired at sport Chek and get them to I believe it or not be introduced to Canadian tire is some of the stats that I provided to Mark's question, but.
But also in a business like auto service that we just talked about we're a very very small percentage of our active and even high value.
Customers in Ctr using that service so.
I tend to look at the business now very focused at.
At the customer level, and the engagement and the frequency and spend per customer.
The more and more we grow our total.
A percentage of sales on loyalty and ctr or at the aggregate consolidated level. The more first party data we have the more of the flywheel.
Personalizes, So I think I just wanted before we got into categories and market opportunities and market share and what have you.
I am quite certain T J will go.
I, just think grounding ourselves in spend per member.
That is our focus strategically.
As.
It's just a good place to start but why don't I don't know hand, it over to T. J here, yes.
Yes, Irene just just to build on that a little bit at the category level I think I think the strength of our business model has really come to the floor since the beginning of the pandemic and the diversity of the categories in which we compete are so relevant to Canadians in Q3 with no.
And there are some of the trends we saw just we continue to be impressed by how much consumer demand. There is in things like backyard living so as the summer months when went by.
Canadians just wanted to explode outside and they continued the consumption on spring summer businesses and that growth extended into September as well and they're also investing continuing to invest in their homes. We saw strong growth in categories like kitchen cleaning and home organization as well and then there was a big.
Bounce back and return to support so as the country reopens as Gregory mentioned in his opening remarks hockey bounce back I can attest to that my 10 year old needed brand, new states and new sticks and almost everything head to toe because he had been off for so long. So I think just the relevance of our assortment coupled with our capability.
From a supply chain standpoint, Greg talked a lot about it in his upfront having inventory has been given us such a leg up and has really allowed us to capitalize on the relevance of our assortment and allowed us to gain market share relative to 2019. So we think that there's still momentum in this business and we're going to continue to <unk>.
Average that realm.
Relevant assortment as we go forward here.
That's really helpful. Thank you. So if I could just have a follow up because obviously one of the debates among investors is the degree to which some.
The increase in revenues at Ctr is let's call. It one time versus is sustainable, but it sounds like from what Youre, saying by having this focus on the customer using the triangle that you.
You can take what may be may have been a onetime purchase like patio furniture.
And drive forward sustainable sales of other related categories is that sort of the way to think about it.
Yes and.
Just using that relevance.
To.
Just increase kind of spend.
And the categories in which they're shopping already I think.
The real.
When we started the pandemic I think the the posture.
The mindset potentially in the organization.
Irene would've started around this okay. There is there is there a significant tailwind.
There's lots of reasons for incremental consumer demand around the home the garage the yard.
Et cetera, and we're going to try and capitalize on that as much as we possibly can and now we're coming through.
2021 and that mindset here.
Here to tell you is changing.
And we don't intend to give any of this back Irene we're we're going on offense, we're legging up from here.
And.
Again, the capabilities and the relevance that we that we have talked about here.
It gives us a lot of confidence in this business going forward. So.
If that helps that's the mindset of the organization and our associated dealers in seat here.
That's really helpful. Thank you.
Thank you.
Next question is from Vishal <unk> with National Bank. Please go ahead.
Hi, Thanks for taking my question.
Given the.
Yeah.
Use of triangle wondering what management's comments are on an <unk>.
Monetizing that.
Data.
The.
Selling.
Suppliers at door.
Advertising and other digital platforms is that an avenue that tire has explored exploring could that be a meaningful.
Sure.
I think its reasonable its a reasonable question to think about for the future vishal weather, whether it's whether it's meaningful to us or not I wouldnt be able to answer that question as of yet. We're just very focused on our family of companies right now.
So.
It would have seen us just adding pro hockey life as an example into into the ecosystem.
Either late late last quarter early this quarter, our party city has been plugged right in.
And and just really building kind of a data capabilities the automation the machines getting getting opt in for one on one communications and our own audience et cetera.
Going back to Irene's question. We just believe we have got a plethora of things to do to drive our own business and keep us focused on the core.
But make no mistake.
We are building very strong capabilities here.
So as we look forward.
That could potentially.
It will be a part of our go forward strategic plans, but as of right now.
It's not a material component of our drawing board and nor do we expect it to be a material component of our financial results short term.
Thank you.
Given.
We didn't put basic concern about supply chain pressure and I know Canadian tire.
Your own inventory.
Capabilities, but I'm wondering how the dealers are starting to think about that and do they are you seeing them, perhaps think about holding excess inventory shipped this squeeze pressures persist longer than somebody proceed.
Hey, Vishal, it's it's.
P. J, yes, you raised a really interesting question here.
What I would say is the strategy we've under.
We have been deploying since the beginning of the pandemic and this is true of the corporation as well as dealers as we've been investing in inventory.
And when you look at what happened in 2020, and we grew five years' worth of growth.
One year, we on both sides of that equation, we both had the right size in an upward direction, our inventory levels and the dealers continue to invest.
Inventory and to your point they do have to start to look for ways of how to store that throughput that inventory, but this group of entrepreneurs it as our secret sauce and our strategic advantage. They know that inventory is something that they have to invest in.
It's what's been fueling our growth and Theyre going to continue to do that as we go forward here. So we're.
It's something that they'll be working on within their P&L.
They work it at the local level and do what's right for their business to deploy and get the right amount of inventory to buoy their business.
Okay and with respect to promotional activity are you finding your peers are passing on inflation in general in the industry.
Or are they holding the line at a time why not.
Comps get tougher year over year.
Yeah, it's a.
Great question Theres been a lot of media attention around kind of our global supply chain issues and there's been numerous prognostications with respect to promotional intensity and what we're seeing in inflation, but what I can tell you is that we.
We had Canadian tire I always strive to provide value to our customers and we'll continue to do that we're always running a balance of managing supply availability and demand creation and looking at our pricing and promotional activity.
Given the customer data that we have.
As I said earlier, we've never been in a better position to create value.
Customers crave and to expose them to that value, whether it'd be through our traditional flyer or discounting strategy or through mobile agent mobilization of our triangle reward.
We're going to be very competitive in the marketplace. So we're watching that closely in terms of how our competitive set are looking at pricing and inflation.
But I can tell you, we're really well positioned as we head into our busiest selling season.
Thank you.
Thank you. Our next question is from Peter Sklar with BMO capital markets. Please go ahead.
<unk>.
I wanted to ask you about the strong categories that you've mentioned today I mean, some of them that have come up.
Outdoor garden and cleaning supplies home organization.
Do you have.
The strong sales youre seeing or is it because those categories. Just generally our strong consumers are buying those categories or do you have good measures of.
What your market share is in Canada by category. Among your competitive set. So can you just talk a little bit about the strength of the category versus your market share gains or losses in those categories.
Yes, Peter it's T J again here.
At the category level I think you've hit on on both elements right. So we definitely have seen industry growth since the categories like backyard living.
Kitchen, and cleaning and even in our fixed and categories as well.
So there has been industry growth, but if you look at how the landscape has laid out from a market share standpoint, we have various data points that we draw on.
Our market share. It is certainly not an exact science by any stretch, but all indications are from the data points that we have that not only are we benefiting from industry growth. We are gaining market share relative to 2019, a little bit of noise in that from 2021 relative to 2020, because youre really kind of going through an environment, where not everybody.
It's open to full capacity in 2020 in Q3 relative to 2021, but over time from 2019 onward.
Certainly I believe we've been gaining market share in those categories.
And I would just add Peter that.
No.
Big Big Big category in the country casual wear obviously hit pretty hard structurally during the pandemic, maybe even leading up to the pandemic.
And.
<unk> as a category as an example, where mark's participates that we are absolutely taking share.
We believe that there is there is a meaningful opportunity to continue that trend well past the pandemic.
That would be inclusive of.
Both men's and women's jeans, as well, where we're seeing lots of gains. So I just point that out because it is a big category, where we have relatively low share where there has been some structural challenges in the marketplace.
You can expect us to continue to be aggressive to grow our share in that in that category in the Canadian market.
Okay.
The other topic I wanted to ask you about is.
The significant operational improvement projects that you have which is youre, saying, you've realized the $200 million and expect to achieve a $100 million run rate by the end of 2022.
How should we think about where those dollars go do they do they dropped to the bottom line.
Like I don't does that mean your 2023 earned.
Earnings are going to be $100 million higher than they would otherwise be or do they.
Do they find their way into other parts of the business, where you reinvest those savings if you could just talk a little bit about that sure I mean, it's the same as the way we would have positioned it.
When we announced the.
The $200 million, plus we keep saying plus.
Commitment.
As evidenced by what we're experiencing now post the <unk>.
The introduction of the program in 2019, we can't foresee.
The type of.
Transitory inflation that may come our way.
But if we were to to shut down the business Tonight and reopen it.
At the end of 2022, and nothing else happen you'd see the $100 million to the bottom line in one of the things that I'm really focused on is really.
How do I get a sense that the cost really is coming out of out of the business.
Peter and I am really happy with the fact that we are.
Seeing very strong.
Operating leverage in our retail segment and Thats net of the inflation that we're seeing so when you look at pre.
When you look at pre pandemic rare.
Relative to today it is very clear in the retail segment.
Currently.
We're getting leverage in.
In the business and we're doing that.
I say net of some pretty significant inflationary pressures that the industry.
Is dealing with with the supply chain.
That's the way to the here should be thinking about it in terms of $100 million is the way that we'll be looking at it internally to make sure that we are we're getting the progress that we're committing to here.
Okay. Thank you for your comment.
Thank you Peter.
Thank you.
Question is from Patricia Baker with Scotiabank. Please go ahead.
Well, thank you and good morning, everyone.
Greg I wanted to.
Ill turn back to triangle.
Thank you for providing us with the method.
Subscription program I noticed the beta testing.
But can you share with us a little bit about the thinking behind this program the mechanics and the strategic.
The rationale for that.
Sure.
Patricia.
Yes, I mean, it's.
It's really a.
It's really a program to pull kind of an enterprise value proposition together.
Two to drive incremental spend.
At the at the customer level.
I guess a reminder, I mean this is it is a new it's new for US it's a paid loyalty subscription program.
And we designed the value proposition and the benefits right now to focus on where we differentiate.
So element, it's not a meeting new <unk> program. This is a this is a program designed specifically to accentuate the differentiators of Canadian tire.
<unk> brand and shopping in store.
In ECM, primarily.
Yes, it involves added value with free shipping.
A one year crave subscription bonus multipliers across all the banners.
And it is about providing value at the customer level and our efforts right now are making sure that we have the right.
Benefit.
Proposition give you a little bit more granularity that I provided in my prepared remarks.
We did.
We did just launch the program in August nine.
But having said that it is.
It is yielding some significant learnings, although when youre doing kind of pre and post spend activity keep in mind, you're talking six to eight weeks.
And we haven't really been in a rush to use mass channels to acquire.
New new subscribers as I said.
5000 registered triangle select members right now over indexing with our target customer segment 30 to $5 49 years old.
A lot of active families. We're over indexing on high value customers and credit card customers compared to our base loyalty customers. The feedback on the registration process has been very strong empirically with with CSI NPS scores.
Our monthly dashboards, whereby we provide a select number of view.
At their level of dashboard as to the value they are getting relative to the subscription price.
Is getting rave reviews.
And our intent is to continue to remain connected to customers throughout the test gave gathering feedback and fine tuning the value prop and it is really about.
To go to your overall strategic question is its about providing value for the member.
They're way providing.
Providing the best value for them.
At anytime they want to shop as opposed to pre supposing that putting a product on sale.
Friday to next Friday is the ideal timing for them to come to our store our website et cetera. So this every day value.
And really connecting with them with a personalized understanding and using our entire family of companies to engage with them to spend more across the across the family. So I don't think it's any more I don't think I can wax poetic anymore than that.
Yes.
We really we really do believe it has the opportunity to change the way we provide value to customers, but it's early it's early.
But like I said, where we're quite happy with.
With the spend trends pre and post.
And the type of customer that we're acquiring here.
Well, thank you for that and then particularly.
I appreciate your point.
Hello.
Michelle when and how they want to shop.
It would be truly differentiated I have a follow up question on capital allocation and thanks again.
<unk>.
That's the point.
Now you did note.
Greg.
And that's again the retail network.
The most important and the largest piece of the capital allocation and you gave us capex for the current year, but not for next year.
Is it going to be in that similar range 50 to.
700 million or is that something.
We're going to have to wait for the Investor day to get the amount and the.
Specific project.
Yes, Thanks, Patricia it's Gregory here, we had a long discussion on this.
Frankly, getting ready for the quarter and our thought was.
The more appropriate process was to kind of share where we were strategically we know we needed to do to get through this year and we thought.
It was it was more appropriate frankly to handle that as part of our Investor day. So that was kind of how we're thinking about things and we're looking forward to having this discussion it's unfortunate.
Timing happened the way that it did on the federal election, but having said that I know the teams are excited and looking forward to sharing all the strategies and part of that of course will be where we're seeing our capital spend.
And the next few years, but again I'll just reinforce I think Greg said, it I think I've said it as well.
Core retail continues to be our focus around where we're going to continue to invest capital as we're moving forward. We're not we're not stopping waiting for investors and let me assure you that that is not the case.
Okay, and you did indicate that the investor day would be.
Early two.
2020, when when do you anticipate you're going to be me.
Yesterday.
I think probably.
I think we've got a date, we're working towards internally at all let me make sure we've got the location and the logistics to help before I give a date and then I don't have that right. So suffice to say be shortly after our Q1 Q4 release excuse me. It's just I'd want to make sure that we have all the logistics, we are hoping that we're going to do this in person.
And see everybody again.
One of the one of the things, we're hoping to able to do so we have some logistics we are still working out, but we will be able to share that I think fairly fairly soon.
Okay look forward. Thank you.
Thank you.
And our last question is from Graeme Kreindler with eight capital. Please go ahead.
Hi, Good morning, and thank you for taking my question I wanted to follow up with respect to the financial services business. Some some strong positive trends in the quarter here with gone up as well as credit card spend and I'm wondering if you could touch on for a moment, what sort of metrics or continued metrics you would need to see in order for that business to reclaim its prepaying.
That make levels, particularly as in store shopping becomes more prevalent here. Thank you very much.
Thanks Graham its Gregory.
Interesting.
What I would say is twofold first and foremost the good news is the narrative, we've been giving for the last six quarters five quarters on financial services Hasnt changed what I mean by that is the risk metrics customer payments our loss experience all our incredibly strong relative to historic levels.
That's continuing.
Greg said in his remarks, so what I've said in my remarks stance true is there is now an emerging narrative in my mind that youre seeing that business turning the corner, we're seeing growth in customer metrics, we're seeing growth in usage and as we've talked about previously this is not a light switch like this isn't a situation where the business is going to return back to.
The $6 5 billion in receivables that we're at kind of at the end of 2019 it.
It's going to come through acquisition, it's going to come through building relationships with customers with triangle as Greg talked about it and it's but what I would say the positive sign is I know acquisition of new accounts is up fairly significantly versus last year still probably behind where we were in 2019, but I think what's more important is again.
Type of customer the behavior, we're seeing is different as we acquired digitally it's a different type of customer profile. So I think we're all very excited about what the team's doing and how how theyre investing in acquiring accounts, but it's going to take a little time before we get back up to where we would have been kind of in that end of 2019 timeframe granted what do we look at act.
Physician attrition rates engagement.
All the metrics that you've heard us talk about before or just more important now and early indicators like triangle, how are they engaging with all of the banners would be another one that I would point out so lots of things that we're keeping a close eye on but but I think I'll speak for Gregg and I were both pretty pleased with what we're seeing in.
Financial services.
Thank you that is all the time, we have two questions today I would now like to turn the meeting over to Mr. Mike.
Thank you operator before we sign off in honor of Remembrance day, we at Canadian tire would like to recognize.
Those who have served and continue to serve Canada during times of war conflict and peace.
Thank you again for joining us today enjoy the upcoming season and continue to stay safe.
Thank you.
This concludes today's conference you may now disconnect.
Thank you. This will conclude today's call you may now disconnect.
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