Q1 2022 Canadian Tire Corporation Ltd Earnings Call

May 12, 2022

All participants please standby your conference is ready to begin.

Thank you for standing by my name is Valerie and I'll be your conference operator today.

Welcome to the Kinder entire corporation's earnings call.

All lines have been placed on mute to prevent any background noise.

If you would like to ask a question simply press Star then the number one on your telephone keypad.

To withdraw your question Press Star then the number two and.

Now we will pass along the Karen Keith head of Investor Relations for Canadian Tire Corporation Karen.

Thank you Valerie and good morning, everyone welcome to Canadian Tire Corporation's first quarter 2022 results Conference call with me today are Greg <unk>, President and CEO , Gregory Craig Executive Vice President and CFO and T. J <unk> president of Canadian tire retail.

Before we begin I wanted to draw your attention to the earnings disclosure, which is available on the website and includes the cautionary language about forward looking statements the risks and uncertainties, which also applies to the discussion during today's conference call.

After our remarks today the team will be happy to take your questions, we'll try to get in as many questions as possible. So we ask that you limit your time to one question plus a follow up before cycling back into the queue.

With that I'll turn the call over to Greg.

Thank you Karen and good morning, and welcome everyone.

I'll start by saying that I'm very pleased with our results we delivered a strong first quarter against what Youll recall was an exceptional Q1 last year.

Our consolidated comparable sales growth was significant at six 4% and EPS was up an impressive 23% to $3 <unk> and of course, we were pleased to announce a 25% increase to our quarterly dividend, which I will speak to in a few moments.

But before I get into the details of what drove our results I want to provide an update on how we're making life better for our communities.

As we announced at our Investor Day in March our Brown brand purpose is that we're here to make life in Canada better.

And that includes bolstering our communities today and tomorrow one way. We're doing this is by helping put kids on a path to a strong future through access to sports and recreation and.

In March Jumpstart release released its state of sport report through which we learn that there are now fewer options for kids to participate in sport and the options that are available are becoming increasingly more expensive.

This is why jumpstart continues to be so critical and remains firmly committed to helping kids return to sport and recreation.

I am pleased to share that in total $24 $9 million was dispersed to nearly 1700 community support organizations through the Jumpstart sport relief fund.

Now jumpstart to shifting their focus from savings sport to building sport back through recovery phase.

And they're making good progress with 33% more kids helped in Q1 of this year compared to the first quarter of 2021.

The charity also remains on track to help it to $3 million kit and start construction on seven new inclusive place spaces. This year.

In addition to making life better and our communities. Our brand purpose is about how we show up for our customers at.

At our Investor Day in March we announced our better connected strategy, which is supported by five strategic pillars. As a reminder, these pillars are customer experience product community and people and enablers. This morning, I'll provide color on our Q1 results and an update on some of the progress we're making on our better connected strategy.

<unk>, starting with the customer.

As mentioned at Investor Day, we are creating a valuable relationships through the power of the triangle Sim.

Simply put our triangle rewards members drove our results in the quarter with loyalty sales up 13% compared to last year.

As Youll recall from Susan O'brien presentation at Investor Day, we are focused on both new member acquisition and member engagement.

In terms of new member acquisition, we acquired 400000, new members in the quarter.

More than 25% of these new members now have a credit card and over 40% of them have registered for our one on one personalization program.

In terms of engaging existing members of the two 4 million new members. We acquired in 2021 over 30% returned in Q1 and among those who register who had registered with US 60% returned in the quarter.

We remain focused on driving member cross shop across our <unk> ecosystem and in Q1 over one third of our members shopped at more than one banner, which is significantly higher than last year.

We know the triangle rewards has the power to drive incremental sales one of the innovative ways. We are testing this power while increasing awareness of the triangle program is through something on our Ctr website that we're calling on offer widget.

The widget encourages customers to activate a triangle rewards offer by dynamically showing exactly how much bonus ECM. They will earn if they purchased the product.

For example, <unk>.

<unk> you are viewing the product details of a trampoline on the Ctr website.

Just below the add to cart button is an activate offer widget showing that if you spend $100 you will earn 20 times, the ECM, which equates to saving an additional $30 on the trampoline.

Testing offer widgets was very successful and drove a 17% lift in average order value compared to the control group group.

The team conducted a similar test on the <unk> website, which drove a 34% increase in average spend per visitor. We're really excited about the opportunities here in terms of driving engagement and incremental sales.

Team is currently moving to put this widget into production across more categories on our website and we will continue to test and learn and identify new and innovative opportunities to meaningfully engage with our customers.

Creating valuable relationships with our customers requires that we have a deep understanding of our customers.

In addition to the Rich first party data, we can mine through our triangle rewards loyalty program. Our triangle credit card provides critical insights into our customers their preferences and shopping behaviors in.

In Q1 alone over 55 million transactions were processed on our triangle credit cards.

These purchases spend not only our banners, but thousands of merchants across Canada, giving us a firsthand account of how consumer behavior is evolving across the country.

We monitor these trends closely to understand the demand for discretionary spending competitive activity and any potential headwinds that we should prepare for.

And here's what we learned about triangle credit card customers this past quarter.

They continue to invest heavily in their homes with sales in home improvement and general Homegoods, increasing by 67% over pre pandemic levels.

We can also see that Canadians are feeling more comfortable returning to restaurants spending nearly 50% more than they did in Q1 of 2019.

Travel related purchases, both domestic and international are approaching pre pandemic levels, not quite surpassing 2019, but showing more signs of life than we've seen over the past 24 months.

And Canadian seem more willing to spend on themselves relative to last year as personal services like grooming are up significantly relative to last year.

Creating valuable relationships with our customers requires us to make decisions based on what we know not on what we think we know and we know a lot about how we can make life better for our customers. Thanks to the data.

A great example of this is our recent gas plus promo, which we launched in March and will continue through the middle of June .

Recognizing that more Canadians were getting back on the road while gas prices were at an all time high we added more value at the pump by doubling triangle rewards when customers fueled up at any gas station across Canada.

Traditionally we would have evaluated the success of an offer like this based on market share of leaders pumped.

And although we're very happy to see more Canadians turning to us for gas. The promotion is about much more than this it's about triangle member acquisition. The collection of first party data and most importantly, driving brand trust with Canadians.

Now I'll provide an update on the progress we're making in the second pillar of our better connected strategy, which has experience recall then in Q1 of last year. Many of our stores were closed for in store shopping due to COVID-19 restrictions.

What we saw in Q1 was a better reflection of customer choice in terms of how they're shopping across our banners.

Many customers are returning to in store shopping, which makes sense given our proximity needed now categories and ability to provide trip assurance through our websites.

Other customers are still choosing to shop with us online and e-commerce remains elevated compared to pre pandemic levels.

As I mentioned at Investor day, the future belongs to retailers, who can provide the most seamless experience across digital and physical channels.

We are investing to provide a seamless end to end connection along the supply chain and to our customers across whichever channel they choose.

Q1, we continued our efforts to enhance our omni channel experience to the deployment of in store technology across the store network.

This included the installation of electronic shelf labels, which through our App guide customers directly to products in our store.

Added new pickup lockers at 86, Ctr stores and we're also installing pickup lockers that our sport chek stores with 40 to be added this year.

And we're continuing to improve our last mile delivery through strategic partnerships with 90% of sport Chek e-commerce customers to be serviced by door dash by the end of Q2.

We're also enhancing our omni channel experience to the development took one digital platform, which we refer to as ODP.

ODP is our future state digital ecosystem that will serve as the new single digital platform used across all CTC banners.

As a critical part of our evolution from a company made up of disconnected banners brands and services to an enterprise wide platform, where all banners and channels collectively amplify and render each other more valuable creating a truly differentiated customer experience.

After successfully piloting ODP and new Brunswick in Q1, we recently launched ODP nationally on Canadian tire dossier.

This is a major deliverable and our it modernization agenda that will enable better online shopping experience as well at the same time provide enhanced site stability and capacity through our cloud based technology capability.

This launch is just the first step in the overall ODP plan, we plan to bring other sites, including marks sport Chek triangle and party city onto the updated platform by the end of the year.

The launch also enables us to transition into a new way of working.

Thereby we bring together dedicated cross functional digital squads to deliver continuous customer experience improvements and capabilities on regular three week cycles.

Want to thank John Coral Rex Lee and their teams for their two years of incredible commitment and dedication to driving outcomes. This is a major delivery milestone for CTC.

Moving on to the progress, we're making and the third pillar of our better connected strategy, which is product.

Q1 reinforced the fact that our ability to make life in Canada better is not weather dependent.

Although we didn't have the warm weather, we had last year in Q1, we made gains in other categories, which speaks to the strength of our highly relevant unique multi category assortment across our banners.

Our ctr growth in the quarter was led by automotive as Canadians began driving more as kilometers driven continues to increase so too does the need for auto repair and maintenance discretionary spending in this category continues to grow with oil lighting and oil change accessories, all up <unk>.

Bind us with the fact that new car sales are down 12% and we see considerable tailwind in the automotive category.

<unk> continued its momentum from our record 2021, achieving growth across all categories and national and owned brands Sport Chek delivered its strongest Q1 on record with comparable store sales up significantly as families returned to organized sport, namely hockey as well as skiing.

Traditionally Q1 is a lighter quarter for these banners.

This quarter. However, both businesses contributed significantly to the tremendous year over year improvement in the profitability of our retail segment.

As you May have seen just a few weeks ago, we launched our forward with design apparel line and all sport Chek in sports <unk> stores across the country as well as on our e-commerce channels.

As a reminder, this brand is designed and developed in house at CTC and was approximately 900 days in the making from initial concept discussion to full brand launch and let me tell you. The customer response has been extremely positive within the first two weeks of the launch forward with design surpassed one.

$5 million in sales.

But this is just part of a larger apparel story at CTC.

In 2021 between marks sport Chek sports expire in Ctr or total CTC annual business in the apparel and footwear category was a staggering $3 billion to $5 billion.

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We arent just an apparel company, we're an incredibly competitive apparel company that can run a successful house of owned and national brands because.

Because we understand Canadian customers, and we curate and design apparel apparel for them to make their lives better and it's working.

Finally, before I turn it over to Gregory I want to take a moment to talk about capital allocation.

At Investor Day, we committed to continuing to improve returns to shareholders, ensuring that shareholders would benefit from the performance of the business.

This commitment built on our impressive track record, we have returned $4 $8 billion to shareholders over the past 10 years, including more than $3 billion through our share buyback program.

We also recommitted to our dividend and to targeting a longer term payout ratio of between 30% and 40% of annual earnings.

Our strong growth in 2021 continued through Q1, reinforcing our confidence in our outlook as.

As mentioned earlier this morning, we announced an increase in the quarterly dividend.

<unk> in the September payment the dividend amount will increase 25% from the quarterly run rate of $1 30, which we announced previously to $1 62, and a half cent per share.

At our current share price this equates to a dividend yield north of three 5% base.

Based on an annualized dividend of $6 50, making us one of the most attractive dividend stocks in the sector.

And we want to be clear this is not a change in our normal cadence, but quite simply what we know to be the right thing to do for our shareholders considering the exceptional year, we had in 2021.

We will revisit our dividend for 2023 as well as buyback intentions as part of the annual review and update our capital allocation plans in November .

And with that I'll pass the call over to Gregory.

Thanks, Greg and good morning, everyone Q1 was an exceptional quarter on a number of fronts and let me start off with the highlights first off as Greg has already mentioned diluted EPS was up 23% to $3 <unk>.

Which was off a strong quarter in Q1, 2021 and up 19% on a normalized basis.

The earnings growth this quarter with normalized diabetes up 13% came to us through a strong retail topline with comparable sales up 6% against a 19% increase a year ago, all of which contributed to a 36% increase in normalized retail IDT.

Financial services delivered earnings only slightly below last year, despite cycling last year's ECL allowance release of approximately $20 million.

Finally, as we highlighted at our Investor day retail ROIC continues to be a key metric for us and evaluating the efficiency of our capital allocation decisions.

We were pleased to see retail rock continued to increase to 13, 8% on a trailing 12 month basis, reflecting another consecutive quarter of strong retail earnings so with that let's dive right into the retail business results as I, usually do I will focus most of my comments. This morning on the results.

<unk> petroleum.

Though it is worth calling out as a strong top line quarter for our petroleum business.

As people return to driving comparable site volume growth was up 9% and increasing prices drove revenue up 45%.

Turning to comparable sales growth, excluding petroleum the 6% growth we saw came to us across all our retail banners.

Growth in Ontario, with strong against last year, particularly in January into February when Covid related restrictions were in place.

We also saw a higher mix of in store shopping and every banner and lower e-commerce penetration due to last year's closures.

Let me share some highlights for each of the banners starting with Ctr.

<unk> comp sales were <unk>.

Four 5% in the quarter close to 70% of the categories grew in Q1 and over 40% grew double digits.

Growth. This year was in categories, which are more representative of typical seasonal buying patterns.

Automotive was our strongest performing divisions this quarter up over 15%.

At the category level within automotive winter auto maintenance categories, like tires, which youll washer fluid and wipers drove growth.

Demand for key winter seasonal need it now and living products like ice melt snow blowers winter heating and humidifiers also drove increased sales compared to last year.

Within playing hockey was a standout again this quarter with kids continuing to return to organized sports, which benefited both ctr, which was up over 30% as well as pro hockey life, which was up over 90% in the quarter.

We were well stocked in seasonal categories that benefited from last year's pull forward as a result of an early spring such patio furniture and bikes and.

And while sales these categories remained well above 2019 levels, we did see some declines in the seasonal categories compared to 2021 as the cold weather hung on to the end of the quarter in most parts of the country.

The later late start to spring this year allowed us to exit the quarter with normal fall and winter seasonal inventory levels and our stores remain well stocked to capture demand for spring and summer products over the coming months.

The rebuilding of dealer inventory, followed a strong spring summer season last year and the continued replenishment of non seasonal categories. This year drove revenue growth in the quarter.

As a result, <unk> revenue growth of 13, 4% surpassed sales of four 5% in the quarter.

As we've discussed previously over the long term the growth patterns for revenue and sales tend to converge and if we consider the pattern on a rolling 12 month basis the growth in the two metrics are within 150 basis points of each other.

At sport Chek comparable sales were up 10%, while total sales were up 4% with a difference due to the closure of national sports in Q3 of 2021.

Over 70% of the categories grew but the standouts were hockey where sales were almost doubled last year as well as winter apparel skis and snowboards as Canadians got outside to enjoy winter in the arenas and on the ski slopes.

Having a fully open store network helped in Ontario, as did well stock stores, our strong vendor relationships and supply chain capabilities ensured we had good breadth of inventory in the right categories.

We also continue to benefit from improvements, we're making around inventory and promo management selling a better mix of regular priced product, which is driving better productivity and profitability.

Now turning to <unk>, which delivered impressive results in Q1.

Comparable sales were up 17% with 80% of Mark's category is growing double digit in industrial footwear workwear and Jim has been the strongest growth drivers this quarter.

The team has remained focused on redefining and broadening the appeal of the <unk> brand.

They continue to build a broader depth of national brand assortment as well as introducing new owned brand skus, such as Helly Hansen and new categories like ladies swimwear to drive broader sales to existing customers as well as attracting new customers to stores.

In this regard we are excited to be introducing a new kids line under our wind River brand to some of our stores over the coming quarters.

Rolling out a new simplified store plan in around half of our stores. Since late last year is also paying back in terms of labor efficiency and improve customer satisfaction, while our focus on inventory management drove higher inventory turns in the quarter.

Like the other banners Helly Hansen also delivered broad based growth.

Revenue was up 24% with sport workwear, and Moose still all experiencing double digit growth.

Within sport direct to customer sales were particularly strong up 42% compared to last year.

Apart from Russia, where our operations remain temporarily paused, we saw growth across our geographies as we continue to proactively manage supply chain to get product to customers with the USA and Canada seen the strongest uptake in demand followed by Europe .

Across CTC owned bank owned brand sales penetration was 36% in the quarter.

While down slightly compared to last year. This was primarily attributable to mix due to the lower growth in the quarter for our seasonal categories like backyard living in cycling, which have higher own brands penetration we.

We did see strong growth in ctr brands like modem Aster and certified along with sport Chek brands, such as <unk> zone.

And Sherwood.

Moving down the P&L, let's look at margin at the consolidated level gross margin rate was lower with a higher mix of petroleum sales and the impact of higher net impairment, mainly due to a release of ECL allowance in Q1 2021 at financial services.

Retail gross margin dollars were up 12% driven by strong growth in retail gross margin rate, excluding petroleum was down only 14 basis points compared to a strong quarter last year. Despite the freight headwinds we had expected.

Across the banners higher freight costs were mostly offset through improved product margins targeted promotions and a higher mix of in store sales.

As we've discussed previously in quarterly calls margin rates may fluctuate from quarter to quarter, but we remain pleased at the long term trends in margin rates and how the teams are taking action to offset headwinds.

Now turning to Opex, our normalized consolidated Opex ratio as a percentage of revenue came in at 26, 7%.

Favorable by 44 basis points compared to 2021 with higher revenue and savings from our operational efficiency program offsetting some volume related supply chain increases as well as higher it and marketing spend within retail.

As was the case last quarter higher SG&A expenses within financial services were mainly due to higher credit card acquisition costs and related marketing spend.

Strategic and sustaining investments across the business drove higher it costs, while retail marketing spend was up mainly in relation to the Olympics sponsorship and the CTC 100 anniversary campaigns as well as a more normalized level of marketing and promotional activity across the business.

We continue to move significantly higher volume with goods in the first quarter through our supply chain and continue to incur cost related to using more third party logistics and storage at origin origin facilities near offshore ports as we increase purchase order lead times and commit early to orders to increase our.

<unk> to meet customer demand.

Finally, we continue to optimize our operational leverage and have a clear line of sight to the 100 million plus can run rate operational efficiency savings, we expect to achieve this year.

Turning to financial services, where we had strong operational metrics and where we saw pickup in customer activity in Q1 <unk>.

Credit card sales across our CTC banners increased $26, 21%, while total card sales grew 26% compared to 2021.

Active accounts were up 8% as we successfully prioritized acquisition across all channels and Upselling some of our most engaged base loyalty customers.

Increases in credit card sales and active accounts, partially offset by higher payments drove average receivables up by 11, 8%.

As a result of increased customer activity as expected we saw the PDT plus rate increase this year from 2% to two 4%.

Overall, we remain pleased with how we are balancing growth and the level of risk in the portfolio with the level of risk still being well below pre pandemic levels.

The allowance rate came in at 13, 3% in the quarter down 166 basis points from last year and within our target range of 11, 5% to 13, 5%.

Net write off rate decreased again, this quarter down 127 basis points to 4% and earnings were close to flat. Despite the release in ECL allowance in Q1 last year.

Moving now to operating capital spend as we set out at Investor Day, We expect operating capital spend in 2022 to be in the range of 825 million to.

$875 million as we focus on enhancing the omnichannel customer experience through investments in new and refresh ctr stores and further strengthening our fulfillment infrastructure.

In Q1 operating capital spend was $142 million.

This was up $56 million from last year, when much of Ontario, and Quebec were in Lockdown and includes investments in our distribution center capacity in the GTA and Montreal areas as well as store investments.

We discussed the importance of investing in the business at our Investor day, while recognizing that returning capital to our shareholders is an important part to a balanced approach for capital allocation we.

We are pleased to announce a 25 increase in our dividend payable in September and we are continuing to execute on our $400 million share repurchase program with over 225 million shares purchased by the end of the quarter.

All in all it was a great quarter and I want to thank everyone. The employees are dealers, who are all there for our customers and shareholders, who invest in us as we build an even stronger Canadian tire that continues to meet the needs of Canadians.

We are delighted to have that chance at our recent investor day to set out our strategy and clear financial aspirations for the years ahead, our focus continues to be executing on those priorities.

With that I'd like to hand, it over to Greg for his closing remarks.

Thanks, Gregory overall, we're very pleased with our results in Q1 as well as our continued momentum we remain confident in our ability to deliver on our financial aspirations, we set out at Investor day.

Before I close I want to give you some insight into what we're seeing so far in Q2.

At our bank, we remain focused on growing our base of credit card holders and our receivables and we will continue to invest to bring in the right mix of cardholders for the longer term.

Across our retail business, we continue to see healthy demand signals from the customer even against the strong comps of last year. When we benefited from pent up demand as restrictions finally, eased and we achieved our strongest quarter ever in terms of e-commerce penetration.

There is no question, we continue to operate in an environment, where inflation is real and global supply chain global supply chains continue to be challenged.

I want to first address how China's zero Covid policy is impacting our supply chain as I know that's a topic on many people's minds.

It's important to note that the ports in Shanghai, and Beijing are not shut down in.

And the reality is that supply chains out of China are functioning better than they were a year ago.

As I've mentioned in recent quarters, we've secured sufficient shipping capacity and flexibility through our existing contractual arrangements and the use of a dedicated charter to ensure we can transport our goods.

Although we're not immune to the global supply chain challenges, our previous and continued investments in this critical capability have enabled us to weather the storm better than most.

To ensure we have the inventory we need we have continued to adjust our lead times ordering early for spring and summer and as a result, our quarter end inventory sits above that of last year to.

To remain well positioned to continue meeting customer demand throughout 2022, we're now turning our attention to our fall and winter inventory to ensure delivery for those seasons and while we've yet we've yet to see it we're mindful that an environment, where consumers may be looking to trade down.

Our use of demand elasticity drivers in our triangle rewards program remain critical to delivering choice and value to customers.

<unk> that helps us fulfill the needs of all Canadians and ultimately drives our success.

At CTC, we know our purpose, we're here to make life in Canada better.

We have a clear plan the financial aspirations and the team required to make it happen.

As I mentioned at Investor Day, we have a management team that understands the customer and has demonstrated we can execute in the most difficult times. Our results are a testament to this fact and the industry is taking notice as you may have seen not one but two members of our leadership team, our chief supply chain Officer, Paul <unk>.

Our chief brand and customer Officer, Susan O'brien were recently recognized among the global Mail's report on business 50 best executives.

I am pleased to see the team being recognized but I'm certainly not surprised.

And Susan play a critical role in our sector and our success in our growth and their leadership continues to make life in Canada better for their teams for our customers for our communities and for our shareholders.

On behalf of all of Us at GTC I want to thank and congratulate Paul and Susan.

And I'll now 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.

If you wish to withdraw your question. Please press star two.

We ask that you limit yourself to one question plus one follow up question would be more cycling back into the queue. We will pause for just a moment to compile the Q&A roster.

Our first question is from Irene <unk> with RBC capital markets. Please go ahead.

Thanks, and good morning, everyone. Following up on your last commentary, obviously product cost inflation is a big topic consumer ability to spend.

You heard what you said that it's not showing up in consumer spending yet, but can you talk about.

You are with respect to pricing to pass through your cost increases and your sort of your offering and your inventory should consumers get squeezed as we move through the fall and winter and start trading Daniel.

Yes.

Yes, Thanks, Irene it's Greg maybe I'll take take that one.

And I think I think what youre getting at is really our ability to just manage going forward if consumer spend spending starts to go down a little bit.

So I love that question.

We believe that we are better suited than we ever have been to manage going forward.

It's all about the capability work that we've been doing for the last number of years Irene.

I'd start first with procurement.

I've heard some of your recently participate on earnings calls with other large retailers who.

Are just now setting up centralized procurement centers of excellence.

Our central procurement group has been in place for the last number of years and I can't imagine where we'd be.

In a decentralized environment with all of the Cogs inflation that we're seeing.

We have sophisticated product specifications for all levels of our assortment architecture, we have should cost modeling based on raw materials that we track over I think it's 300 commodities and currencies and we have a supporting workflow process that insurers.

Oversight and controls on price inflation, so we actively manage inflationary pressures with skilled resources and capabilities.

Then once negotiated we now have an enterprise wide approach to supply chain.

So the movement of goods and all banners benefits from our scale.

So I'd say this is kind of the back office value that sets us up well, but the customer facing demand drivers are all much more sophisticated as well.

We are positioned with triangle.

Due to narrow audiences that we've talked about before and drive.

Relevance with offers we have our buy now pay later product and all of our banners stood up in all of our banners.

Our elasticity algorithms on what we call net promo return or NPR.

Which optimizes for the unit demand and total sales they werent existence in the last downturn I think T. J talked about the fact that we feel good about the lateral in our assortment architecture with a broader choice spectrum available across the portfolio at good better best.

And a great value driving owned brands portfolio. So we feel we feel really good.

All of that we feel good about our assortment architecture and check in marks as well.

And I guess lastly, Irene I'd say that we have more leverage with our suppliers than we ever have.

We've moved volume for our suppliers during an otherwise tough time.

And we'd expect them to come knocking at our door if growth becomes more scarce or ability to engineered demand with our high low programming across all banners has us being much more relevant for national brand businesses in important for manufacturers looking to cover overheads. So I could go on but all of that to say we feel free.

<unk> to address any any concerning shifts in spend behavior at a customer level.

That's really helpful. Thank you and can you just talk about where you are from a gross margin perspective, and your ability to pass through the ongoing cost increases.

Hey, Irene it's T J I can take that from a from a ctr perspective.

As Gregory touched on.

We feel really good or better performance from our management margin standpoint.

Given all the inflation that we've been seeing.

We have been able to manage our margins. Despite the headwinds we're seeing in commodity costs and freight increases and we've continued to leverage our capabilities here, whether it's our elasticity model modeling or or the customer data that we used to strike the right balance of managing margins and.

During demand as Greg pointed out we feel we're getting better at this over time and.

And then when you look at what we've got from a triangle rewards perspective that allows us to be a lot more efficient with our promotional offering and target. Our offers so that we can manage margins.

We're feeling very good a better ability to manage margins as we go forward.

We've said a few times, we're always trying to balance that strike that balance between managing margins and inspiring demand and also not giving an inch on being priced competitively with all of the data we have at our disposal. We have never been more able to really understand the value consumers crave and to be able to expose them to.

To that so we feel good about our capabilities and managing our margins as we go forward here, Yes, Irene let me it's Greg Let me just talk and similar comments in March and a check I mean, I think in my prepared remarks to get a sense of kind of how the team has been managing around if you went back two years ago, you would have seen a lot more of a store being 'twenty off as an example in the use of kind of.

Targeted promotional.

Offers is much more significant than it's been in the past sophistication has gone up significantly and I just.

My one you've given me an opportunity to say this I'm going to take advantage of it again.

I look at trends on a long term basis, and I think thats. The way we look at this business any quarter. We can have a mixed difference between automotive or a different banner. So that can cause some short term fluctuate fluctuation. If you will but the long term training trends have been very strong and where I'm just really pleased with the work the teams all the merchants and supply chain teams.

Done to really kind of sharpen the pencils and become.

Better at managing in these in these times.

Okay. That's really helpful. Thank you.

Thank you.

Our next question is from Mark Petrie with CIBC. Please go ahead.

Yes, good morning, thanks for that.

I actually just wanted to ask a bigger picture question about triangle, and specifically monetizing that asset through.

New opportunities clearly, it's very unique and has a lot of value for you in your business, but hoping you can share some of your thinking about how that might evolve as a revenue and margin generator need immediate type business or other opportunities.

I think mark we talked a little bit about this on the last call or maybe the call before that.

We're very focused on integrating our existing banners into one enter what enterprise wide platform as I talked about.

Even today and we feel like we've still got a fair amount of work to do we just integrated party city and pro Hockey life as an example into.

The triangle rewards program, we're standing up digital audiences, we're feeding.

The data into our consumer data platform. So that we can automate more and more offers to provide value for customers.

What we're attempting to do Mark is to develop more of an automated system.

That's that's run by AI and utilizes the vast amount of first party data that we have.

So connecting all of our banners into that system as our first step and I think you've heard me talk about that but we absolutely believe we have an emerging capability with an opportunity to monetize going forward. We have a small G&A investment right now in terms of a triangle media services business I'll stop.

Short of kind of telling you what our competitive plans are what our plans are there for competitive reasons and quite frankly, we're going to let it have all.

But we.

I'll come back to the fact that we have a highly highly differentiated asset. We think first party data is going to become incredibly important going forward for retailers to win so it would stand to reason.

As you point out that we would have an opportunity to extend that capability beyond our existing business, but I wouldn't I wouldn't be thinking about it in your modeling as being anything.

Big in the short term for us in terms of a material driver of our business.

Yeah understood thanks for that.

I also just wanted to ask about concept connect and I'm wondering if you could just give us a bit more color in terms of the rollout plans the pace of that and anything you can share about cost per store and forecasted sales lifts and expected returns or payback period, I know, what you've shared but.

How about the Niagara Falls store, but just wondering if theres anything incremental you can share. Thanks.

Yes, Mark it's T J, maybe I'll take that one and I. Appreciate the question because as we laid out at Investor Day, we have a retail concept that you reference called concept connect that we plan to rollout to roughly 225 markets by the end of <unk>.

2025.

And we're making great progress.

In the midst of launching our spring tranche right now.

At our fall tranches will start kind of.

We're looking to launch them in kind of a September October timeframe.

<unk> already opened five of them in the spring, including markets like Hamilton in Montreal, and we're excited.

That we are on track to launch two of our what we're describing is remarkable retail versions of concept connect.

Which are kind of offer a little bit larger and augmented brand experience to showcase the best of best of what we have to offer so our long term program with this.

We rollout concept connect is that we're looking to expand our square footage by 10% in the network and we will it will be.

We're able to enhance over 50% of the square footage in the network and that will allow us to impact the brand perception of over 60% of the population. So our real estate folks are really busy right now I mean, the execution plan is very very aggressive.

And we're feeling very good about the early results in the stores that we have in market.

We're going to be monitoring this very closely as we go forward, it's really going to help us change the perception and how we how we operate and the customer experience from an omnichannel standpoint, really linking our digital assets.

With our in store shopping experience. So we're really excited about it and where we are on track with the pace of rollout.

Okay. Thanks for that.

Thank you.

Our next question is from Matt Luke Hannan with Canaccord Genuity. Please go ahead.

Yes. Thanks, good morning, I wanted to focus on the automotive performance during the quarter.

If I can really really strong performance, but I wanted to dig in a little bit and figure out if youre noticing what we've heard from others in the industry is that there is a bit of a labor shortage are finding it difficult to.

Find technicians, so thats sort of inhibiting the amount of work that these service.

Service providers can do right now are you noticing anything like that on your end.

Hey look at <unk>, It's T J.

I'll touch on that yes, our automotive business has been very resilient. Despite some of the headwinds that we've seen in the industry, we just experienced our seventh consecutive quarter of growth.

What we really believe is the cornerstone business for us.

It had led the charge as Greg and Gregory outlined in terms of our growth for Ctr.

When it when it comes to.

Kind of the labor side of things, obviously, when you look at.

Labor in the marketplace right now it is challenging.

There are folks that.

Across the industry that are that are struggling to get labor, but our dealer network is.

Very entrepreneurial and very.

Very aggressive at the local level with attracting and retaining talent and they.

They just do a great job at the local level, we're doing all that we can on our side working closely with them on operating efficiency initiatives to try to kind of reduce our dependency on labor, but they've done a great job in managing it and managing our automotive business our service.

It was up very strong in Q1, and we can we continue to believe that as we go forward. Here. This is a business that we have a lot of tailwind behind us.

The fleet in Canada is aging as Greg pointed out with car sales being down and we see this as tailwind for us so youre going to see us make a lot of investments in automotive as we go forward here.

And we see it as a big opportunity for us.

Understood and then as my follow up as well sticking with automotive here.

We've seen fuel prices spiked quite a bit of course, just given the commodity complex.

And I guess intuitively, one would think that that would make folks a little bit more apprehensive to go out and drive when it and it's going to be costing a little bit more but again sort of what we've seen from industry data suggests that that's not necessarily the case are you noticing the same thing on your end and what's your I guess in France for what exactly.

Driving that is that just pent up demand or is there something else, we should be thinking about.

Yes, I think as we look at the data right now in the context as leaders pumped in Q1 were up versus year ago. They still are lagging kind of pre pandemic levels, though right. So we're watching this very closely you've got a couple of dynamics going on people are starting to settle in with computing.

And getting back to a little bit of a new normal, but a little bit of so theres, probably a little bit of tailwind from that perspective.

And then as you pointed out the pricing provides a bit of a headwind. So we're watching it very closely it is very dynamic, but we are seeing an increase in leaders pumped. It's just we're not back to pre pandemic levels overall.

Okay. Thank you.

Thank you. Our next question is from Peter Sklar with BMO capital markets. Please go ahead.

T. J question for you so you've talked about the categories.

The very strong categories that are Terry Canadian tire banner.

Like you've called out.

<unk>.

Other winter sport auto I'm, just wondering as you see spring and summer unfold. What do you think are going to be the the strong categories. Obviously the winter categories are.

All right.

Going to be there, but do you see do you see auto remaining strong because we're kind of out of the winter season, So nobody's buying winter blades.

I'm just wondering like what's going to carry what categories are going to carry the Canadian tire banner through the next two seasons.

Yeah. Thanks, Peter It's T J, maybe I'll give you a little bit of color. There I think Greg and Gregory said it well the strength of our offering is in the diversity of what we offer and its relevance to Canadians and that's really what's been fueling our growth. So you had 60% of categories in Q1 to grow in.

And I think 40% of them grew grew double digit.

As we look forward here.

We've had a late start to spring, but we buy.

But through what we're looking at the demand signals are still pretty strong.

So we're going to we're going to watch it really closely as we go forward. It's very early in the season right. If you look at on a quarter basis.

We'll have 65% of the season in front of us and our seasons don't they.

They don't really correspond to our lineup exactly with quarters. So if you think about the fall season.

It even extends further than that so we're watching consumption patterns very closely but we're liking the demand signals, we're seeing and obviously with the weather this past week in Ontario, and Quebec.

Starting to heat up so a lot of game to play yet.

But we're watching it closely.

And feeling good about the early demand signals, we're seeing so any categories you want to call out that you are looking you think you might see particular strength.

Yes, I think youre going to see continued strength in some of our non seasonal categories actually.

They've had a lot of strength.

In Q1 and into Q2.

And I think your point about automotive is a good one and I think we've got we've got some some tailwind there and we also feel like we are probably a better inventory position in a few categories. As we go in the spring, particularly this year. So we're we're watching it all very closely but those are a few that I have.

Got my my eyes on <unk>.

T J some other categories that were particularly strong.

During COVID-19.

I'd like to call the COVID-19 categories like.

The obvious one that people talk about with respect to Canadian tire bicycles.

And kitchen and outdoor furniture.

And those categories have begun begun to soften yet.

Yes, I think if you look at it.

Look at those categories on a relative basis versus pre pandemic there is extraordinarily strong.

And.

When you look at a late break to spring, it's actually remarkable with strength.

Been able to maintain.

As we as we kind of experienced March I mean, we had we had snow throughout the whole country.

In March so it's a very late.

Break to spring relative to last year, but those categories have been have been quite resilient.

Relative to the weather and we're going to see how it plays out here over the next.

Next month or so as the weather has been breaking.

We're feeling quite good about the trajectory.

Okay. Thanks P J.

Okay.

Thank you.

Our last question is from Vishal <unk> with National Bank. Please go ahead.

Alright, Thanks for taking my question.

That's on the continued strong performance I'm wondering as management to reflect on the performance has delivered through the pandemic if it can discuss it.

Accretive which is.

Elevated performance relative to pre pandemic, it's due to its own initiatives.

Progress has been making or is it due to.

Consumer shift and how much is due to consumer shifts.

Associated with COVID-19, or various stimulus measures associated with COVID-19.

Yes, vishal its Greg.

That ones that's.

That's tough to handicap it would be purely subjective I think.

We're.

I think Gregory has used the phrase a few times that were just punch in every key on the keyboard internally, we're very focused on the top line. The top line is giving us leverage were focused on our cost structure.

And.

And we're seeing just absolutely fantastic work on our front lines to make it all come together.

And deliver through the pandemic and.

And as we move hopefully post pandemic here.

Competitively I think.

I do believe that.

<unk>.

We've got we just have a stronger <unk>.

Capability set to be able to continue to take market share.

I think.

When you when you look at the disappointing guidance and earning releases recently.

Especially in the large e-commerce.

Ladies sector.

I think the results are being misinterpreted as consumer demand issues. When the issue is supply chain I really think that's critical for folks to understand.

You're a reseller on one of these platforms even.

A large one relatively speaking you just don't have the scale necessary to navigate what's happening in the supply chain.

You don't have sophistication in your procurement group I talked to earlier you don't.

<unk> managed by hedge.

A modest Easter currencies youre dealing at spot spot market freight rates and what its leading to is tremendously elevated retail pricing for marketplace offerings.

Real problems with inventory availability and poor service levels for fulfillment and so we're using all the capabilities that we've been talking about for 24 months to their fullest and we're very focused on the supply chain and inventory right now it's been the playbook for the last many quarters.

Going to continue to serve us well competitively going forward. So I would say from a competitive intensity standpoint.

It's less intense from this competitive segment in the industry at this point in time.

And we're benefiting from that.

Not sure why we need to need to be painted with the same brush in terms of how the market thinks about us.

Because I really do believe it requires a double click on what the true drivers of softness are in those businesses, but anyway, hopefully that gives you a little bit of color in terms of how we're thinking about it Michelle we just really think we're standing up in front of the customer in a much more relevant.

Better way than we than we had been traditionally.

Yes, no that is helpful. Thanks for that color and just on.

Your.

Is there a metric that we can use to assess the strength of your supply chain capabilities I am thinking maybe if you can give us a sense of in stock positions now versus 2019 are they are they.

At levels that are comparable or are they stable are they improving.

That was hard to because when we look at kind of in stock or traditional retail operating metrics like holes whole counts in stores et cetera.

The reality of over the course of the last 24 years 26 months as inventory scarcity has been what everybody is dealing with.

So.

And I think that's that's a that's a trickier trickier one for us.

Our our total inventory right now.

As I think the best parameter around how bullish we are feeling about our business, we're carrying a significantly more we're carrying significantly more inventory on our balance sheet. The dealers are carrying more inventory on their balance sheets.

And once we get into a more standard operating environment I think for sure there'll be operating metrics with respect to variable cost as a percentage of sales.

Throughput metric.

<unk> all of those supply chain thing will be important but right now it's pretty difficult to get a handle on a relative in stock.

Prior to a relative to pre pandemic, because it's just such a different environment from an inventory standpoint.

Okay, and just to reiterate management feels comfortable with what it seeing into Q2.

That's correct yes.

Yes.

I mean, I think we provided our color with respect to the fact that we're still seeing good demand signals from.

The customer and I think TJ Senate ranked theres still a lot of game to play.

But as of right now we're feeling good about what we're seeing.

Thanks for that color.

Thank you.

There are no further questions registered at this time I would like to turn the meeting back over to you Greg.

Yeah.

Well. Thank you for your questions and for joining US today, we look forward to speaking with you when we announce our Q2 results on August 11th in the meantime, stay well and enjoy the spring bye for now.

Thank you everyone. This concludes today's call you may now disconnect.

[music].

Thank you for standing by my name is Valerie and I'll be your conference operator today.

Welcome to the kidney entire corporation's earnings call.

All lines have been placed on mute to prevent any background noise. If you would like to ask a question simply press Star then the number one on your telephone keypad.

The rest of all your question Press Star then the number two.

Now I will pass along the Karen Keith head of Investor Relations for Canadian Tire Corporation Karen.

Thank you Valerie and good morning, everyone welcome to Canadian Tire Corporation's first quarter 2022 results Conference call with me today are Greg Hicks, President and CEO , Gregory Craig Executive Vice President and CFO and T. J <unk> president of Canadian tire retail.

Before we begin I wanted to draw your attention to the earnings disclosure, which is available on the website and includes cautionary language about forward looking statements the risks and uncertainties, which also applies to the discussion during today's conference call.

With that I'll turn the call over to Greg.

Thank you Karen and good morning, and welcome everyone.

I'll start by saying that I'm very pleased with our results we delivered a strong first quarter against what Youll recall was an exceptional Q1 last year.

Our consolidated comparable sales growth was significant at six 4% and EPS was up an impressive 23% to $3 <unk>.

And of course, we were pleased to announce a 25% increase to our quarterly dividend, which I will speak to in a few moments.

But before I get into the details of what drove our results I want to provide an update on how we're making life better for our communities.

As we announced at our Investor Day in March our Brown brand purpose is that we're here to make life in Canada better.

That includes bolstering our communities today and tomorrow, one way. We're doing this is by helping put kids on a path to a strong future through access to sports and recreation and.

In March Jumpstart release released its state of sport report through which we learned that there are now fewer options for kids to participate in sport and the options that are available are becoming increasingly more expensive.

This is why jumpstart continues to be so critical and remains firmly committed to helping kids return to sport and recreation.

I am pleased to share that and totaled $24 $9 million was disbursed to nearly 1700 community support organizations through the Jumpstart sport relief fund.

Now jumpstart to shifting their focus from savings sport to building sport back through a recovery phase.

And they are making good progress with 33% more kids helped in Q1 of this year compared to the first quarter of 2021.

The charity also remains on track to help at $3 million, Ted and start construction on seven new inclusive place spaces. This year.

In addition to making life better and our communities. Our brand purpose is about how we show up for our customers at.

At our Investor Day in March we announced our better connected strategy, which is supported by five strategic pillars. As a reminder, these pillars are customer experience product community and people on enablers. This morning, I'll provide color on our Q1 results and an update on some of the progress we're making on our better connected strategy.

<unk>, starting with the customer.

As mentioned at Investor Day, we are creating valuable relationships through the power of the triangle Sim.

Simply put our triangle rewards members drove our results in the quarter with loyalty sales up 13% compared to last year.

As Youll recall from Susan O'brien presentation at Investor Day, we are focused on both new member acquisition and member engagement.

In terms of new member acquisition, we acquired 400000, new members in the quarter more than 25% of these new members now have a credit card and over 40% of them have registered for our one on one personalization program.

We remain focused on driving member cross shop across our <unk> ecosystem and in Q1 over one third of our members shopped at more than one banner, which is significantly higher than last year.

The widget encourages customers to activate a triangle rewards offered by dynamically showing exactly how much bonus ECM. They will earn if they purchased the product for.

For example, <unk>.

<unk> you are viewing the product details of a trampoline on the Ctr website.

Just below the add to cart button is an activate offer widget showing that if you spend $100 Youll earned 20 times, the ECM, which equates to saving an additional $30 on the trampoline.

Testing offer widgets was very successful and drove a 17% lift in average order value compared to the control group group.

The team is currently moving to put this widget into production across more categories on our website and we will continue to test and learn and identify new and innovative opportunities to meaningfully engage with our customers.

Creating valuable relationships with our customers requires that we have a deep understanding of our customers.

In addition to the Rich first party data, we can mind through our triangle rewards loyalty program. Our triangle credit card provides critical insights into our customers their preferences and shopping behaviors and.