Q4 2023 Canadian Tire Corporation Ltd Earnings Call

Operator: Thank you for standing by. My name is Daniel, and I will be your commerce operator today. Welcome to the Canadian Tire Corporation earnings call. All lines have been placed on mute to prevent any background noise. Following today's presentation, there will be a question and answer period. If you would like to ask a question during that time, please press star, then one, one on your telephone. To end your question, please press star, then 1-1 again. Now I will pass this on to Karen Keyes, Head of Investor Relations for Canadian Tire. Karen?

Thank you for standing by.

Name is Daniel and I will be your conference operator today.

Welcome to the Canadian Tire Corporation earnings call.

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

Following today's presentation, there will be a question and answer period.

If you'd like to answer ask a question during that time. Please press Star then one one on your telephone keypad to withdraw your question. Please press Star then one one again.

Now I will pass along to Karen Keys head of Investor Relations for Canadian Tire Corporation.

Right.

Karen Keyes: Thank you, Daniel. Good morning, everyone. Welcome to Canadian Tire Corporation's fourth quarter and 2023 year-end results conference call. With me today are Greg Hicks, President and CEO, Gregory Craig, Executive Vice President and CFO, and TJ Flood, Executive Vice President and President of Canadian Tire Retail. Before we begin, I wanted to draw your attention to the earnings disclosure, which is available on the website. It includes cautionary language about forward-looking statements, risks, and uncertainties, which also apply to the additional material included this quarter to help you better understand the results discussion during the call. After our remarks today, the team will be happy to take your questions. We'll try to get through as many questions as possible, but ask that you limit your time to one question plus a follow-up before cycling back into the queue, and we welcome you to contact Investor Relations if we don't get through all your questions today. I'll now turn the call over to Greg. Thank you, Karen. Good morning and welcome, everyone.

Thank you Daniel good morning, everyone.

Canadian Tire Corporation fourth quarter, and 2023 year end results conference call.

With me today are Greg Hicks, President and CEO, Gregory Craig Executive Vice President and CFO and T. J flood executive Vice President and President of Canadian tire retail beef.

Before we begin I wanted to draw your attention to the earnings disclosure, which is available on the website.

It includes cautionary language about forward looking statements risks and uncertainties, which also apply to the additional material included this quarter to help you better understand the results discussion during the call.

After our remarks today the team will be happy to take your questions.

We'll try to get as many questions as possible, but ask that you limit your time to one question plus a follow up before cycling back into the queue.

And we welcome you to contact Investor Relations, if you don't get through all the questions today.

I'll now turn the call over to Greg.

Thank you Karen and good morning, and welcome everyone.

Greg Hicks: I'll start by saying that our Q4 and full year 2023 results fell short of our expectations. Even when normalized for the unusual items that came our way in 2023, our quarterly and annual EPS ended well below 2022. This past year was challenging, more so than we expected at the outset, given rising interest rates, stubborn inflation impacting discretionary spending, and unfavorable weather. But we believe these headwinds are temporary. We faced unfavorable weather throughout the year, especially in Q4. We estimate that weather accounted for around half of the comparable sales decline in the quarter.

I'll start by saying that our Q4 and full year 2023 results fell short of our expectations.

Even when normalized for the unusual items that came our way in 2023, our quarterly and annual EPS ended well below 2022.

This past year was challenging.

So then we expected at the outset, given rising interest rates stubborn inflation impacting discretionary spend and unfavorable weather, but we believe these headwinds are temporary.

We faced unfavorable weather throughout the year, especially in Q4, we estimate that either accounted for around half of the comparable sales decline in the quarter.

Greg Hicks: The team once again proved their unrelenting ability to work through and execute against the macroeconomic environment and other headwinds while also building for the future. I sincerely thank them for living our core values and our brand purpose, that we are here to make life in Canada better, no matter the circumstance. While we have made progress over the years in weatherproofing our business, we live and operate in Canada, where weather can be unpredictable.

The team once again proved their unrelenting ability to work through and execute against the macroeconomic environment and other headwinds while also building for the future.

I sincerely thank them for living our core values and our brand purpose that we are here to make life in Canada to better no matter the circumstances.

While we have made progress over the years and weather proofing, our business, we live and operate in Canada, where weather can be unpredictable.

Greg Hicks: That said, we know we need to be well-stocked in weather-related categories to support our customers' seasonal needs. Despite the headwinds we faced in 2023, we remain committed to transforming CTC through our Better Connected strategy, which will make Canadian Tire an even stronger competitor in the future. Since introducing our strategy in March of 2022, we have invested $1.4 billion in capital, with the vast majority of that spend targeted for growth initiatives, including new and remodeled stores, new and expanded distribution centers with automation, and upgrades to our technology infrastructure have also significantly improved our operating capabilities, our customer-facing websites, our mobile footprint, and our privileged own brand capability. Our Triangle Rewards membership remains healthy and engaged and provides us with a line of sight into the health of the Canadian consumer and their specific needs.

Said, we know we need to be well stocked in weather related categories to support our customers' seasonal needs.

Despite the headwinds we faced in 2023, we remain committed to transforming CTC through our better connected strategy, which will make Canadian tire, an even stronger competitor in the future.

Since introducing our strategy in March of 2022, we have invested $1 $4 billion in capital with the vast majority.

Juruti of that spend targeted for growth initiatives.

<unk>, new and remodeled stores, new and expanded distribution centers with automation and upgrades to our technology infrastructure.

We have also significantly improved our operating capabilities, our customer facing websites or mobile footprint and our privileged owned brands capabilities.

Triangle rewards membership remains healthy and engaged and provides US a line of sight into the health of the Canadian consumer and their specific needs.

Greg Hicks: Heading into 2024, we are placing heightened attention on our financial flexibility and controlling what we can control while mitigating what we can't. Our team is critically focused on maximizing leverage, including operating our existing assets and investments and our strong relationships we've built through Triangle Rewards. I will provide more color on all three areas, but before I do, I'm going to hand it over to Gregory to unpack our results. Thanks, Greg.

Heading into 2024, we are placing heightened attention on our financial flexibility.

And controlling what we can control while mitigating what we can't.

Our team is critically focused on maximizing leverage.

Including our operating leverage our existing assets and investments and our strong relationships, we've built through triangle rewards.

I will provide more color on all three areas, but before I do I'm going to hand, it over to Gregory to unpack our results.

Thanks, Greg and good morning, everyone. We spoke last quarter about our focus on controlling what we can control given an uncertain economic backdrop does continue to be our focus in Q4 and into 2024.

Gregory Craig: Good morning, everyone. I spoke last quarter about our focus on controlling what we can control, given an uncertain economic backdrop. That will continue to be our focus in Q4 and into 2024. Full year normalized EPS was $10.37, with a Q4 EPS contribution of $3.38, normalized for the headcount reduction charge we took in the quarter, which represented an impact of around $22 million, or 29 cents of EPS. Overall, our full-year financial performance was driven by a lower retail contribution and a more challenging consumer demand environment. While the financial services contribution remains strong, in Q4, lower retail earnings were mainly due to the marked decline in retail revenue, driven by weaker consumer demand and unfavorable weather, as well as the timing and magnitude of the, Let me start by taking you through these three drivers of our Q4 Retail Revenue Performance, first, and the continued softening of consumer demand, which drove weaker sales of discretionary products across our banners.

Full year normalized EPS was $10 37.

With a Q4 EPS contribution of $3 38.

Normalized for the head count reduction charge, we took in the quarter, which represented an impact of around $22 million.

Or 29 cents of EPS.

Overall, our full year financial performance was driven by a lower retail contribution and a more challenging consumer demand environment.

While the financial services contribution remains strong.

In Q4, lower retail earnings were mainly due to the marked decline in retail revenue driven by weaker consumer demand and unfavorable weather as well as the timing and magnitude of the MSA.

Let me start by taking you through these three drivers of our Q4 retail revenue performance.

First was the continued softening of consumer demand, which drove weaker sales of discretionary products across our banners.

Gregory Craig: Secondly, weather and the Retail Revenue Miss. While weather is often a factor in sales of seasonal products, this quarter, the weather impact was more pronounced as December was one of the warmest on record in many parts of the country, which affected all of our. In the context of that weaker consumer demand and the weather, we saw softer dealer demand at CTR, as dealers drew down their inventory rather than replenish it.

<unk> weather played a significant role in the retail revenue Miss.

There is often a factor sales of seasonal product this quarter. The weather impact was more pronounced as December was one of the warmest on record in many parts of the country. This affected all of our banners.

In the context of that weaker consumer demand and the weather, we saw softer dealer demand at ctr as dealers drew down their inventory rather than replenishing it well.

Gregory Craig: We were already expecting some of this, knowing that we were comping stronger shipments in Q4 last year, as we indicated in Q4. As I mentioned a moment ago, the timing and magnitude of the MSA created a significant variance to last year, when all of the MSA was recorded in the fourth quarter, and the contribution was higher on strong sales performance. As a result of the more marked revenue movement we saw this quarter, the disconnect between CTR and revenue and sales has widened, as has happened many times in our history. Retail sales were $5.3 billion in the quarter, down 7%, as have been comparable sales across our retail banners.

We were already expecting some of this knowing that we were comping stronger shipments in Q4 last year as we indicated in Q3.

As I mentioned, a moment ago, the timing and magnitude of the MSA created a significant variance to last year. When all of the MSA was recorded in the fourth quarter and the contribution was higher on strong sales performance.

As a result of the more marked revenue movement. We saw this quarter the disconnect between Ctr and revenue and sales has widened as has happened many times in our history.

Retail sales were $5 3 billion in the quarter down, 7% as where comparable sales across our retail banners.

Gregory Craig: Our petroleum business was down 8% in sales due to fewer locations compared to last year, but it was up on a comparable basis. Now, let me unpack some of the detail. At CTR, sales of essentials continue to outpace discretionary. Weather and consumer demand for discretionary products had the biggest impact on seasonal and gardening, as well as playing categories in Q4. With customers making fewer trips for these categories, we also saw a knock-on impact in our fixing and living divisions, even in essential categories. We did see some trade down in the quarter, and similar to last quarter, we saw fewer items in baskets at CTR. We were, however, pleased to see the investments we're making in key categories pay off. Automotive and, particularly, tires continue to do well despite lower sales of winter-driven categories like wipers and batteries.

Our petroleum business was down 8% in sales due to fewer locations compared to last year, but up on a comparable basis.

Now, let me unpack some of the detail by segment.

At Ctr sales is essential to continue to outpace discretionary whether in consumer demand for discretionary products had the biggest impact on seasonal and gardening as well as playing categories in Q4.

With customers, making fewer trips for these categories. We also saw a knock on impact and are fixing and living divisions, even in essential categories. We did see some trade down in the quarter and similar to last quarter, we saw fewer items and baskets at ctr.

We were however pleased to see the investments, we're making in key categories payoffs.

Automotive and particularly tires continued to do well despite lower sales of winter driven categories like wipers and batteries.

Pet care also proved to be a highlight within the living division as customers increased purchasing frequency.

And we continue to focus on exposing Canadians to the value we provide in these and other key essential categories through our assortment architecture promotional activity and our triangle rewards program.

Gregory Craig: Care also proved to be a highlight within the living division as customers increased their purchase. And we continue to focus on exposing Canadians to the value we provide in these and other key essential categories through our assortment architecture and our Triangle Rewards Program. Now, moving on to our other batter. At Sports Check, we had lower sales and revenue due to unseasonable weather, with the most significant declines in outerwear, skiing, snowboarding, and winter accessories, tire, and Hair unloading management requirement thatnymirror.com. So we want to verify and address any jamming and diffusion leurocytes we have in the system.

Now moving onto our other banners.

Sport Chek, we had lower sales in revenue due to unseasonable weather with the most significant declines in outerwear skiing snowboarding and winter accessories.

Franchise sales were also down.

We were effective at driving traffic to stores in October but in the last two months of the quarter were tougher in a highly promotional and competitive environment, where headwinds due to weather and customers de prioritizing discretionary spending.

Similar to prior quarters, we did see growth in our strategic focus areas team sports hockey and footwear performed well and we strengthened our position as the leading destination for sport in Canada.

Finally, our athletic apparel owned brand forward with design hit $30 million of revenue by the end of 2023 up 25% since the end of last year.

Gregory Craig: So what we did was we added hydrogen peroxide to the framework of the pipeline and put hydrogen into the carbon footprint. And what we got out, it's a cross bundle treatment, if you will, through the carbon support, with some nitrate and nitric oxide direct injection for the trust committee. We were effective at driving traffic to stores in October, but in the last two months of the quarter, it was tougher in a highly promotional and competitive environment, where headwinds due to weather and customers deprioritizing discretionary spending. In prior quarters, we did see growth in our strategic focus areas. Team sports, hockey, and footwear performed well, reasserting our position as the leading destination for sport in Canada. Finally, our athletic apparel-owned brand, Ford with Design, hit $30 million in revenue by the end of 2023, up 25% since the end of last year. At Mark's, the comp was tougher than the other banners, which combined with the unseasonal winter weather impact meant sales were down 7% in Q4. Our higher-margin industrial wear, boots, and casual wear were down compared to last year.

That marks the comp was tougher than the other banners, which combined with the unseasonable weather.

With the winter weather impact men's sales were down 7% in Q4.

Our higher margin industrial wear boots, and casual wear were down compared to last year, but where we've experienced more seasonal weather in January we have seen some recovery.

Weather Winter weather also led to a lower mix of regular price sales. This quarter, we employed pricing to ensure inventories were well managed and mark finished the year with inventory levels below last year.

Finally, Helly Hansen revenue was down 9% with the decrease mainly due to timing of shipments as more fall winter product shipped in Q3 instead of Q4 this year.

Full year revenue was up 7%.

We did see strong levels of support wholesale replenishment in the quarter and our direct to consumer business continued to deliver strong results with e-commerce up 20% versus last year.

We continued to build momentum in the United States in line with our longer term strategic objectives.

Both there was up 10% in the quarter and up double digits for the year as well.

Moving on to retail gross margin a critical area of focus for us continues to be around margin management.

In 2022, we spoke about how our aim was to manage headwinds and tailwind to maintain the margin rate gains. We have made on the retail side since 2019, while recognizing the potential for variation on a quarter by quarter basis.

Gregory Craig: But where we've experienced more seasonal weather in January, we have seen some recovery; however, winter weather also led to a lower mix of regular price sales this quarter. We employed pricing to ensure inventories were well managed, and Mark finished the year with inventory levels below last year. Finally, Helly Hansen revenue was down 9% with a decrease mainly due to timing of shipments; fall winter product shipped in Q3 instead of full-year revenue was up 7%.

This was certainly the case for 2023 and the normal quarterly margin variance was further impacted by the change in the recognition on the MSA.

However, our full year retail margin rate, excluding petroleum did land exactly where we expected essentially flat compared to 2022 at 35, 5%.

Q4 margin rate was down compared to last year due to the MSA MSA as well as higher promotional intensity with these headwinds partially offset by improvements in our freight rates.

Looking ahead to the capabilities, we have developed around margin management become even more important given the uncertain macroeconomic backdrop.

Gregory Craig: We did see strong levels of sport wholesale replenishment in the quarter, and our direct consumer business continued to deliver strong results with e-commerce up. We continue to build momentum in the United States in line with our longer-term strategic objectives; growth there was up 10% in the quarter and up double digits for the year as well. Moving on to retail gross margin, a critical area of focus for us continues to be around margin management. In 2022, we spoke about our aim to manage headwinds and tailwinds, taking the margin rate gains we had made on the retail side while recognizing the potential for variation on a quarter by quarter basis. This was certainly the case; normal quarterly margin variance was further impacted by the change in the recognition of the. However, our full-year retail margin rate, excluding petroleum, did land exactly where we expected, essentially flat compared to 2022 at 35.5%. Q4 retail margin rate was down compared to last year due to the MSA, as well as higher promotional intensity, with these headwinds partially offset by improvements in our freight rate.

Turning now to SG&A, we took action to manage the structural opex drivers and as a result retail normalized opex was down 4% for the quarter as we had expected supply chain costs were down as we reduced inventory and the associated warehousing storage cost.

And is that where the initial benefits of the head count reductions and the lower hiring we announced last quarter as well as lower variable compensation expense.

All of which offset but slowing it investments as we transition to a cloud based infrastructure.

This was the first quarter since 2020 that normalized retail SG&A dollars declined and we have a continuing focus on opex discipline and prioritization in 'twenty, four which Greg will speak to shortly.

Turning to inventory now we made great progress managing inventory down again, despite the revenue decline and unseasonable weather.

Inventory at the end of Q4 was down 16% compared to last year.

Dealers inventory also arrange below where it was same time last year given.

Given softer sales in Q4, we are not expecting dealers to build significant inventory position in discretionary categories right now.

We expect continued drawdown in spring summer categories based on current inventory levels, unless we see a meaningful improvement in customer demand trends as a result, we expect the disconnect between revenue and sales may continue.

Gregory Craig: Looking ahead, the capabilities we have developed around margin management become even more important given the uncertain macroeconomic backdrop. Turning now to SG&A, we took action to manage the structural OPEX drivers, and as a result, retail normalized OPEX was down 4% for the quarter, had expected. Supply chain costs were down as we reduced inventory and the associated warehousing and storage costs, added that were the initial benefits of the headcount reductions and the lower hiring we announced last quarter, as well as lower variable compensation expense, all of which offset but slowing IT investments as we transition to a cloud-based infrastructure, first quarter since 2020, that normalized retail SG&A dollars declined, and we have a continuing focus on OPEX discipline and prioritization in 24, which Greg will speak to.

Let's now move on to how the performance of the financial services business went full year normalized <unk> of close to $420 million was only $21 million below last year's record result.

While full year revenue increased by eight 5% this was more than offset by lower margins due to higher funding costs and higher net impairment losses were also a factor.

In Q4, <unk> was only slightly below last year and again this was due to higher funding costs and net impairment losses offsetting the revenue growth with revenue up 6%.

Reflecting the economic environment credit card spend slowed for the second consecutive quarter.

And gahr was up four 7%.

<unk> average account balances were up by more than 3%. We also continued to grow active accounts, which were up 1%, but at a slower pace as we took proactive measures to manage acquisition strategies.

Credit management credit risk metrics trended up over the course of 2023 in line with our expectations. The PDD plus rate ended Q4 at three 6% and the write off rate was at six 1% both back to the lower end of historical ranges, but well below long term peak levels, we are watching internal and external.

Gregory Craig: Turning to inventory now, we made great progress managing inventory down again despite the revenue decline and unseasonable weather. Revenue inventory at the end of Q4 was down 16% compared to last year, and dealer's inventory was also below where it was at the same time last year. Based on software sales in Q4, we're not expecting dealers to build significant inventory positions in discretionary categories right now. We expect continued drawdown in spring and summer categories based on current inventory levels unless we see meaningful improvement in customer demand trends. As a result, we expect the disconnect between revenue and sales may continue. Let's now move on to how the performance of the financial services business went, with full year normalized IPT of close to $420 million, only $21 million below last year's record results. While full-year revenue increased by 8.5%, this was more than offset by lower margin due to higher funding costs, and higher net impairment losses were also a factor.

Key metrics and expect to be able to take additional actions from a risk playbook, if we find it necessary.

Ending receivables finished the quarter at $7 4 billion and the allowance rate at 12, 5% continues to be within our targeted range of 11, 5% to 13, 5% with the allowance up $14 million to $926 million this quarter.

Before I wrap up I want to touch on capital allocation.

During 2023, we invested $615 million in operating capital expenditures, taking the total to $1 4 billion since announcing our better connected strategy in Q1 of 2022.

Excuse me close to $400 million of our 2023 operating capital was focused on improving the omnichannel experience through investments in store and loyalty with a continued focus and how the investments help our competitive positioning more.

More than any stores have now been refreshed in 2022.

Accounting for over 15% of all Canadian tire stores or 18% of our overall footprint.

Despite a significant weather impact.

Gregory Craig: In Q4, IBQ was only slightly below last year, and again, this was due to higher funding costs and net impairment losses offsetting the revenue growth with revenue up 6%. Reflecting the economic environment, credit card spend slowed for the second consecutive quarter and GAR was up 4.7%, average attack, and average account balances were up by more than 3%.

The stores are continuing to perform well generating sales and NPS scores well above the benchmark we had for them.

Furthermore, the investments we have made in triangle and digital will be integral to how we differentiate with a customer in 2024, and we fully intend to leverage that as Greg will touch on shortly.

We have slowed our capital expenditure in response to more uncertain economic conditions.

Operating capital expenditures are expected to be in the range of $475 million to $520 million $505 million in 2024, which will include the refresh of a further 40 plus stores and a replacement store in Kitchener, Ontario. These.

Gregory Craig: We also continue to grow active accounts, which were up 1%, but at a slower pace as we took proactive measures to manage acquisition strategy. Credit risk metrics trended up over the course of 2023, in line with our expectations. The PDG plus rate ended Q4 at 3.6%, and the write-off rate was at 6.1%, both back to the lower end of historical ranges but well below long-term peak levels. We are watching internal and external key metrics and expect to be able to take additional actions to our risk playbook if we find it necessary. Ending receivables closed the quarter at $7.4 billion, and the allowance rate, at 12.5%, continues to be within our targeted range of 11.5% to 13.5%, with the allowance up $14 million to $926 million this quarter.

Our strategic investments, we are making in the future of the business for when the economy ultimately improves.

And we remain committed to the better connected strategy is the right one for the long term.

We have returned nearly $740 million to shareholders by way of buybacks and dividends over the past year.

While we are prudent in the back half of the year as we watched how consumer demand was playing out and after investing to repurchase scotiabank, 20% share in our Cts business, we are targeting up to $200 million of additional share buybacks during 2024.

While continuing to balance the higher short term leverage we've taken on in conjunction with the Cts repurchase and in protecting our investment grade rating.

Since November we have continued to move forward with an evaluation of the strategic alternatives for the financial services business our.

Our discussions are at an early stage exploring the attention that we had set out last year for an optimal structure, which has us owning triangle rewards our first party data and the relationship with the customer to maximize value creation, and our triangle rewards royalty program and the retail business.

Gregory Craig: Before I wrap up, I want to touch on capital... during 2020. We invested $615 million in operating capital expenditures, taking the total to $1.4 billion since announcing our Better Connected strategy in Q1 of 2022. Excuse me, close to $400 million of our 2023 operating capital was focused on improving the omnichannel experience through investments in stores and loyalty with a continued focus on how the investments help our competitive position. More than 80 stores have now been refreshed since 2022, accounting for over 15% of all Canadian Tire stores or 18% of our overall footprint. The stores are continuing to perform well, generating sales and NPS scores well above the benchmark we had. Furthermore, the investments we have made in Triangle and Digital will be integral to how we differentiate with the customer in 2024, and we fully intend to leverage that, as Greg will touch on shortly. We have slowed our capital expenditure in response to more uncertain economic conditions.

In the meantime, we will continue managing the financial services business for maximum benefit to our stakeholders.

Finally, before I wrap up and hand back to Greg Let me touch base briefly on what we've seen so far in Q1.

Consumer demand and weather is proving is difficult to predict in 2024 as it was in 2023 with snowy weather in January Canadians returned to us for their seasonal needs and ctr comparable sales were up mid single digits for the month before giving most of that back in the first half of February with more unseasonal weather.

Consolidated retail sales at mid February were down slightly as weather continued to impact sales of outerwear and winter categories at sport Chek in marks much will rest on our biggest month of the quarter March which is still to come.

And a softening consumer spending environment, we are expecting weaker dealer demand for discretionary spring summer categories to dampen replenishment revenue in Q1.

So to conclude here's what I hope you'll take away from today. This business is resilient and one that we continue to prudently pivot to control what we can.

In 2023, we maintain retail gross margin for the year managed inventory down focused on reducing our Q4 operating expense and delivered a strong financial services performance.

Gregory Craig: Operating capital expenditures are expected to be in the range of $475 to $525 million in 2024, which will include the refresh of a further 40-plus stores and a replacement store in Kitchener, Ontario. These are strategic investments we're making in the future of the business for when the economy ultimately improves, and we remain committed to the better connected strategy as the right one for the long term. We have returned nearly $740 million to shareholders by way of buybacks and dividends over the past year.

All of this was done in the context of a challenging retail demand environment that saw customer shift to value and unseasonal weather patterns that required our banners to react quickly.

We also saw risk metrics trending back to historic levels for the bank to manage and dealt with a major distribution center fire and our supply chain.

The fact that we're able to do so was in no small part to the work of many of our teams, including at the bank and our dealer network.

They are focused on delivering in the short term, while not losing sight of what is possible in 2024 and over the longer term.

With that I'll hand, it over to Greg for his remarks.

Thanks Gregory.

<unk> limited macro visibility with respect to monetary policy, we are in a better position to deal with the macro environment and its impact on our financial performance heading into 2024.

Gregory Craig: And while we were prudent in the back half of the year, as we watched how consumer demand was playing out, and after investing to repurchase Scotiabank's 20% share in our CTVS business, we are targeting up to $200 million of additional share buybacks during 2024, while continuing to balance the higher short-term leverage we've taken on in conjunction with the CTVS repurchase and in protecting our investment grade rating. Since November, we have continued to move forward with an evaluation of the strategic alternatives for the financial services business.

Gregory just touched on we know we will be operating in a challenged demand environment, which will constrain our topline growth.

Therefore, placing heightened attendant attention on our financial flexibility and on controlling what we can.

We see a number of important tailwind in 2024 that will drive improvements in our operational performance.

On the theme of leverage I'll start with our operating leverage.

A bright spot from 2023 was our margin management work, we committed to protecting the margin rate gains we accrued through the pandemic years, we have delivered well on that promise and remain committed to driving a stable margin profile.

Gregory Craig: Our discussion is right at an early stage, exploring the intention that we had set out last year for an optimal structure which has us owning Triangle Rewards, our first party data, and the relationship with the customer to maximize value creation in our Triangle Rewards royalty program and the retail business. In the meantime, we will continue managing the financial services business for maximum benefit to our stakeholders. Finally, before I wrap up, I'd like to hand back to you and say, Let me touch base briefly on what we've seen so far in Q1. Consumer demand and weather are proving as difficult to predict in 2024 as it was in 2023. With snowy weather in January, Canadians returned to us for their seasonal needs, and CTR comparable sales were up mid-single digits for the month before giving most of that back in the first half of February with more unseasonal weather. Consolidated retail sales at mid-February were down slightly as weather continued to impact sales of outerwear and winter categories at SportCheck and Mark.

Our team's efforts last year were exceptional on this front delivering what we're essentially flat margins, while drawing down over $500 million in inventory.

As we look to 2024, we are aggressively pursuing industry tailwind opportunities in global freight rates and commodity deflation or.

Our supply chain team completed our container procurement before the recent red sea inflationary impacts providing us with full year advantage.

Our margin nerve center at Ctr is focused on working commodity deflation through our Cogs negotiations with our vendor community we.

We experienced some price relief in Q4 and have good line of sight into additional opportunities.

We expect some of these opportunities to protect margin and some to translate into lower consumer pricing, which we know is what Canadians need from us right now on.

Greg Hicks: Much will rest on our biggest month of the quarter, March, which is still to come. In a softened consumer spending environment, we are expecting weaker dealer demand for discretionary spring-summer categories to dampen replenishment revenue in Q1. So, to conclude, here's what I hope you'll take away from this presentation. This business is resilient and one that we continue to prudently pivot to control what we can. In 2023, we maintained retail gross margin for the year, managed inventory down, focused on reducing our Q4 operating expense, and delivered a strong financial services performance. All of this was done in the context of a challenging retail demand environment that saw customers shift to value and unseasonal weather patterns that required our banners to react quickly. We also saw risk metrics trending back to historic levels for the bank to manage, and we dealt with a major distribution center fire in our supply chain.

On the Opex side, our personnel reductions heightened focused on disciplined expense management and slowing expense growth in our transition to cloud based infrastructure are providing us with enhanced financial operating leverage some of this showed up in our Q4 Opex as Gregory mentioned.

After the prolonged impact of COVID-19, 2024 is the first in many years that we expect to drive leverage in our supply chain Opex.

Sitting 15 third party warehouses and storage facilities over the last year provides hard opex savings in 2024.

Through our supply chain modernization program as part of our better connected strategy, we have invested $360 million and the transformation of our network. This.

This includes new automated goods to person technology, and our Montreal, and Calgary, Dcs, which will drive productivity savings in 2024.

With better cycle time, and density and Dcs closer to stores and customers, we will enable even more efficient product flow, making us very competitive with other players in the market.

Greg Hicks: The fact that we were able to do so was thanks in no small part to the work of many of our teams, including at the bank and our dealer network. They're focused on delivering in the short term while not losing sight of what is possible in 2024 and over the longer term. And with that, I'll hand it over to Greg.

Last year, we started full operations at our new fully automated GTA DC. This has been a five year investment totaling $180 million housing and distributing product for sport Chek Mark's atmosphere sports expire pro hockey life marks commercial insurer. What this is our first multi.

Greg Hicks: Thanks, Gregory. Despite limited macro visibility with respect to monetary policy, we are in a better position to deal with the macro environment and its impact on our financial performance heading into 2024. As Gregory just touched on, we know we will be operating in a challenging-demand environment, which will constrain our top-line growth. We are therefore placing heightened attention on our financial flexibility and on controlling what we can.

Banner Omnichannel fulfillment distribution center.

135 million square foot facility is reinforcing the strength flexibility and future scalability of our supply chain, while driving efficiencies by bringing multiple banners together under one roof.

This DC cost us less money to pick and ship products to our stores and delivers direct to home faster.

We've achieved this through a major leap forward in technology and automation.

We're also executing our final regionalization components with progress on our Vancouver facility. The base building and equipment are on track to be installed and tested by the end of the year with ramp up and normalization beginning in early 2025.

Greg Hicks: We see a number of important tailwinds in 2024 that will drive improvements in our operational performance. On the theme of leverage, I'll start with our operating leverage. A bright spot from 2023 was our margin management work. We committed to protecting the margin rate gains we accrued through the pandemic years.

And finally, we are driving better store fulfillment customer experience and enabling significant efficiency in domestic freight management through our transportation management system by.

Greg Hicks: We have delivered well on that promise and remain committed to driving a stable margin profile. The team's efforts last year were exceptional on this front, delivering what were essentially flat margins while drawing down over $500 million in inventory. As we look to 2024, we are aggressively pursuing industry tailwind opportunities in global freight rates and commodity deflation. Our supply chain team completed our container procurement before the recent Red Sea inflationary impacts, providing us with a full year advantage.

By implementing new technology that automates manual processes are Canadian tire dealers will have better real time visibility of their incoming shipments we are truly evolving our transportation team to be best in class.

Our one digital platform is another investment that offers considerable value creation opportunities in 2024.

ODP provides us with scalability enhanced stability and an improved customer experience in December we had zero customer facing disruptions across all our banners, which would not have been possible without ODP Mauro.

Moreover, ODP enables us to capitalize on the fact that the majority of our customer visits start online.

Greg Hicks: Our Margin Nerve Center at CTR is focused on working commodity deflation through our COGS negotiations with our vendor community, experiencing some price relief in Q4 and having good line of sight into additional opportunities. We expect some of these opportunities to protect margin and some to translate into lower consumer pricing, which we know is what Canadians need from us right now. On the OPEX side, our personnel reductions, heightened focus on disciplined expense management, and slowing expense growth in our transition to cloud-based IT infrastructure are providing us with enhanced financial operating leverage.

Now with the foundation in place, we can be laser focused on serving customers. The products. They are looking for not from one of our banners, but across our group of companies.

We continue to hone the ODP user experience, including embedding a generative AI shopping assistant and elevated triangle experiences for our members given the modern platform, we can develop and implement customer experience enhancements faster and deploy with agility to all banners sites.

Additionally, we're implementing automation and AI to streamline our development testing and deployment functions.

Wowing us to launch more features at a lower cost.

2023 was a productive year for omni channel customer experience enhancements and we are placing new disciplined managerial effort toward ensuring full value creation from these investments.

Greg Hicks: Some of this showed up in our Q4 OpEx, as Gregory mentioned. After the prolonged impact of COVID-19, 2024 is the first in many years that we expect to drive leverage in our supply chain. Exiting 15 third-party warehouses and storage facilities over the last year provides hard OPEC savings in 2024.

In late Q4 of last year, we rolled out express home delivery across all our banners.

85% of the Canadian population can now receive same day delivery within three hours with the rollout complete in 2024, we are turning our attention to increasing awareness and usage to extract the full benefits benefits. This offering provides.

Greg Hicks: Through our supply chain modernization program as part of our better connected strategy, we have invested $360 million in the transformation of our network. This includes new automated goods-to-person technology in our Montreal and Calgary DCs, which will drive productivity savings by 2024.

And we continue to focus on our mobile footprint with the Ctr mobile app.

Customers continue to view as a key component of their omni channel shopping journey and.

In addition to maintaining an industry leading score of four eight stars average monthly active users have grown for 12 straight quarters, increasing to $2 3 million in Q4.

Greg Hicks: With better cycle time and density and DCs closer to stores and customers, we will enable even more efficient product flow, making us very competitive with other players in the market. Last year, we started full operations at our new fully automated GTA DC. This has been a five-year investment totaling $180 million.

And we have seen significantly increased adoption of new features like in store mode and flashing electronic shelf labels discovery.

Based on competitive benchmarking and by continuing to embed value in the App. We believe there is significantly more room to grow in Canada, and I expect to continue to grow the base of App users through this year.

Greg Hicks: Housing and Distributing Products for SportCheck, Marks, Atmosphere, SportsXPair, Pro Hockey Life, Marks Commercial, and Sherwood, this is our first multi-banner, omni-channel, fulfillment distribution center. This 1.35 million square foot facility is reinforcing the strength, flexibility, and future scalability of our supply chain while driving efficiencies by bringing multiple banners together under one roof. This DC costs us less money to pick and ship products to our stores and delivers them directly to the home fast. We've achieved this through a major leap forward in technology and automation. We're also executing our final regionalization components with progress on our Vancouver facility. The base building and equipment are on track to be installed and tested by the end of the year, with ramp up and normalization beginning in early 2025.

Finally, I want to talk about the leverage we get from triangle rewards loyal.

Loyalty sales continued to outpace non loyalty sales in 2023 and moving forward. The investments we've made in our triangle rewards program will drive further opportunities for value creation.

Over the last two years, we've increased our total active registered members by almost $1 million and in the last year increased our promoted members by almost 200000 members.

Having our members registered and promoted <unk> is incredibly valuable our one on one program not only drive sales and deepens engagement, but it also generates a wealth of first party customer data for the organization.

Triangle members engaged in our digital properties, we learn more about them and the data insights, we glean or used to continuously optimize the program.

Greg Hicks: Finally, we are driving better store fulfillment, customer experience, and enabling significant efficiency in domestic freight management through our transportation management system by implementing new technology that automates manual processes. Our Canadian Tire dealers will have better real-time visibility of their incoming shipment. We are truly evolving our transportation team to be the best in class. Our one digital platform is another investment that offers considerable value creation opportunities in 2024. ODP provides us with scalability, enhanced stability, and improved customer experience. In December, we had zero customer-facing disruptions across all our banners, which would not have been possible without ODP. Moreover, ODP enables us to capitalize on the fact that the majority of our customer visits start online.

<unk> is to provide a more contextual and relevant experience and the most appealing offers for each customers.

As we think about the importance of privacy and how data regulations are changing accordingly, having a wealth of first party data as we have is emerging as an even more valuable differentiator for us.

As you know, we launched triangle select last year and by the end of 2023 of the program had over 45000 members.

The program is working as we'd expected in 2023 select members visited our retail banners more often and spent almost 40% more than similar members who are part of our control group.

We know the program is working and we're moving our focus to scaling membership.

Finally, with the anticipated launch of our Petro Canada loyalty partnership in a few weeks, we'll be able to offer Canadians the best value for gas with the spend once earn twice value proposition, which we believe will resonate with Canadians, especially during these challenging economic times.

Greg Hicks: Now with the foundation in place, we can be laser focused on serving customers the products they are looking for, not from one of our banners, but across our group of companies. We continue to hone the ODP user experience, including embedding generative AI shopping and Elevated Triangle Experiences for our members. Given the modern platform, we can develop and implement customer experience enhancements faster and deploy them with agility to all banner sites.

This upcoming launch will be our first opportunity to test loyalty integration and currency conversion on a flexible modern API based platform that we created last year, we expect to apply this to other programs and partnerships in the future.

Okay.

I'll end my prepared remarks today by reiterating that although we continue to operate in a challenging macroeconomic environment, we are not sitting back and waiting for the storm to pass.

Greg Hicks: Additionally, we're implementing automation and AI to streamline our development, testing, and deployment functions, allowing us to launch more features at a lower cost. 2023 was a productive year for Omnichannel customer experience enhancements, and we are placing new, disciplined managerial effort toward ensuring full value creation from these investments. In late Q4 of last year, we rolled out express home delivery across all our banners. 85% of the Canadian population can now receive same-day delivery within three hours.

The steps we are taking are not simply in service of managing our current reality, but also with a consideration for the long term.

We continue to have strong conviction around each of the drivers of our better connected strategy. Our investments are paying off and we'll continue to do so ultimately benefiting our stakeholders today and tomorrow.

We are managing our business through these tumultuous times by controlling what we can and mitigating against what we cant against what we can't and won't all while.

Making life in Canada, better, including for our communities in 2023, Jumpstart helped more than 440000 kids participate in sport and recreation and dispersed over 1000 grants to support community programming.

Greg Hicks: With the rollout complete in 2024, we are turning our attention to increasing awareness and usage to extract the full benefits this offering provides. And we continue to focus on our mobile footprint with the CTR mobile app, which customers continue to view as a key component of their omnichannel shopping journey. In addition to maintaining an industry-leading score of 4.8 stars, average monthly active users have grown for 12 straight quarters, increasing to 2.3 million in Q4. And we have seen significantly increased adoption of new features like in-store mode and flashing electronic shelf label discovery. Based on competitive benchmarking and by continuing to embed value in the app, we believe there is significantly more room to grow in Canada and expect to continue to grow the base of app users through this year.

The charity also completed construction on seven new inclusive place spaces, bringing the total incremental square footage added since 2017 to more than 550000 or the equivalent of 32 NHL hockey rinks the investment in our communities.

Is arguably now more important than ever as families navigate tough economic times.

Overall my confidence in our ability to turn the corner is bolstered by our team's commitment to our purpose no matter what.

We faced a lot of hurdles in 2023, and our people stepped up as they do every time they face a challenge and for that I'm very proud and grateful.

With that I'll pass it over to the operator for questions.

Thank you at this time I would like to remind everyone that in order to ask a question. Please press Star then one one on your telephone keypad.

And withdraw your question by pressing Star then one one again.

We ask that you limit yourself to one question plus one follow up question before cycling back into the queue.

Greg Hicks: Finally, I want to talk about the leverage we get from Triangle Rewards. Loyalty sales will continue to outpace non-loyalty sales in 2023. And moving forward, the investments we've made in our Triangle rewards program will drive further opportunities for value creation. Over the last two years, we've increased our total active registered members by almost 1 million, and in the last year, we increased our promotable members by almost 200,000 members.

We'll pause for just a moment to compile the Q&A roster.

Yeah.

Our first question comes from Irene <unk> with RBC capital markets. Your line is now open.

And good morning, everyone. Thank you for all of the information that you provided around your expectations.

And the outlook.

Would make it possible for me to dig in a little bit more on the inventory side.

Can you talk about the quality of the inventory.

Greg Hicks: Having our members registered and promotable is incredibly valued. Our one-on-one program not only drives sales and deepens engagement, but it also generates a wealth of first-party customer data for the organization. Triangle members engage in our digital properties, we learn more about them, and the data insights we glean are used to continuously optimize the program, allowing us to provide a more contextual and relevant experience and the most appealing offers for each customer. As we think about the importance of privacy and how data regulations are changing accordingly, having a wealth of first-party data as we do is emerging as an even more valuable differentiator.

Both at corporate and at dealer you mentioned sort of the dealers are happy on spring summer what is the magnitude that you expect in terms of the disconnect between consumer sell through and our shipments to dealers and.

In terms of your ordering for 2024, how are you positioned relative to what is what is the current expected demand.

Hey, Irene it's it's T. J. Thanks for the question I'll unpack that Theres a lot in in that question. So let me.

Unpack a couple of things.

As Gregory alluded to from a corporate perspective.

We continue to make really great strides at ctr on reducing our inventories we actually ended up down north of 20% in inventory at Ctr for the year.

Greg Hicks: As you know, we launched Triangle Select last year, and by the end of 2023, the program had over 45,000 members. The program is working as we'd expect. In 2023, select members visited our retail banners more often and spent almost 40% more than similar members who were part of our control group. We know the program is working, and we're moving our focus to scaling members. Finally, with the anticipated launch of our Petro-Canada Loyalty Partnership in a few weeks, we'll be able to offer Canadians the best value for gas with the spend once, earn twice value proposition, which we believe will resonate with Canadians, especially during these challenging economic times.

And keeping keep in mind here that inflation is actually embedded in that so when you look at it from a cube and units perspective, we're actually down slightly more than that and that obviously is what drives cost. So good news from that perspective.

And Gregory alluded to the operating leverage that we get associated with that.

And when you look at dealers on the other.

<unk> of our business their inventory is also down slightly.

Slightly a couple of hundred basis points.

As they have reacted to the consumer sentiment in the market. So.

So when you look at those two things and you look at how we're managing the business as we go forward here, we're adjusting our buys and managing inventory very surgically and pragmatically.

We continue to see the trends towards a gap in growth between our central in discretionary categories, and we're going to be buying accordingly.

Greg Hicks: This upcoming launch will be our first opportunity to test loyalty integration and currency conversion on a flexible, modern API-based platform that we created last year. We expect to apply this to other programs and partnerships in the future. I'll end my prepared remarks today by reiterating that although we continue to operate in a challenging macroeconomic environment, we are not sitting back and waiting for the storm to pass. The steps we are taking are not simply in service of managing our current reality but also with consideration for the long term. We continue to have strong conviction around each of the drivers of our better connected strategy.

And the teams have made significant progress on our inventory levels and continue to try to surgically rightsize. These as we go forward and I talked a little bit already about the leverage we get from that as we look at dealers I think a couple of things I'll point out.

We still have a little bit of game to play yet in this quarter in terms of finishing off our winter business. So we will be able to give you a better handle on how we land the season on winter related inventory as we get out of as we get into our Q1 call.

Filling quite good about dealer inventory levels with respect to Christmas we mentioned on our call.

Greg Hicks: Our investments are paying off and will continue to do so, ultimately benefiting our stakeholders today and tomorrow. We're managing our business through these tumultuous times by controlling what we can and mitigating against what we can't or against what we can't't control. And all while making life in Canada better, including for our community. In 2023, Jumpstart helped more than 440,000 kids participate in sport and recreation and dispersed over 1,000 grants to support community programming.

Earlier this year that we were they were heavy starting this year and they have done a really good job of working that down.

That was one area that we invested from an from a consumer standpoint to try to clear some inventory so they're in a much better position as they come out of the Christmas categories.

And I think one thing I'd like to highlight is given the consumer sentiment and softer Q4 sales as we go forward here, we're not expecting dealers to build significant inventory and discretionary and we do expect them to continue to draw down on spring summer inventory, unless we see meaningful change in.

Greg Hicks: The charity also completed construction on seven new inclusive play spaces, bringing the total incremental square footage added since 2017 to more than 550,000, or the equivalent of 32 NHL hockey fields. The investment in our community is arguably now more important than ever as families navigate tough economic times. Overall, my confidence in our ability to turn the corner is bolstered by our team's commitment to our purpose, no matter what. We faced a lot of hurdles in 2023, and our people stepped up, as they do every time they face a challenge. And for that, I'm very proud and grateful.

The consumer demand side of things so as a result, and I think Gregory alluded to this we expect the disconnect between revenue and sales may continue, particularly in Q1 and Q2.

That's really helpful can you quantify what the magnitude of that disconnect.

Hey, Irene it's Greg re sort of housekeeping, you'll read there for a second.

I think we tend not to give us kind of guidance in that in that in that regard I think what I.

I think what I would say is as you would go back to kind of Tj's comments is and the other thing you have to remember in March of last year, we had the <unk> fire as well right. So that impacted shipments a little bit. So it's not as kind of easy to give you kind of where we are now and trending given kind of some of that complexity as well I would just say I expect that would continue.

Operator: And with that, I'll pass it over to the operator for questions. Thank you. At this time, I would like to remind everyone how to ask a question: Press Star, then 1-1 on your telephone keypad. Answer all your questions by pressing Star and 11 again.

The short term as T J said and then.

In the long term these trends always come back into line as you know.

But and again I would recall that Q1 is pretty much our smallest quarter as well so keep that in mind.

Irene Nuttell: We ask that you limit yourself to one question plus one follow-up question before cycling back into the queue. Pause for just a moment to follow the Q&A roster. Our first question comes from Irene Nuttell with RBC Capital Markets. Your line is now open. Good morning, everyone.

But I think the real question in the focus area for TJ and the team remains kind of kind of that longer term Q3.

Through to Q4, and what are the what are the economic conditions in sales conditions like at that point in time as we as we look ahead, so I would say.

TJ Flood: Thank you for all of the information that you provided around your expectations and the outlook. I would like, if possible, please to dig in a little bit more on the inventory side. Can you talk about the quality of the inventory, both at corporate and at dealer? You mentioned sort of the dealers are heavy on spring and summer, you know, what is the magnitude that you expect in terms of the disconnect between consumer sell-through and shipments to dealers and, and, you know, what, in terms of your ordering for 2024, how are you positioned relative to what is, what is the current expected demand? Hey, Irene, it's it's TJ.

<unk>.

Probably a little noisy in the in Q1.

Now you have to remember in Q4, as we talked about Q4 of this year had the issue of the MSA.

Have that to contend with when Youre looking at kind of a disconnect between revenue and sales like that won't be nearly as significant as it would have been in Q4. So.

I, just would say that as well.

Thank you.

Thank you.

For our next question.

Our next question comes from George <unk> with <unk>.

Scotiabank Your line is now open.

Yes, hi, good morning, just want to talk about the Opex line, obviously, some pretty good control there.

Does that number over the quarter kind of fully capture the initiatives, we outlined last quarter.

Trying to get some sense of how sustainable that is second part to that question.

TJ Flood: Thanks for the question. I'll unpack that. There's a lot in that question, so let me let me unpack a couple things. As Gregory alluded to, from a corporate perspective, we continue to make really great strides at CTR on reducing our inventories. We actually ended up down north of 20% in inventory at CTR for the year. And keep in mind here that inflation is actually embedded in that. So when you look at it from a cube and units perspective, we're actually down slightly more than that. And that obviously is what drives costs. So, good news from that perspective.

If we do end up getting a more difficult macro environment like is there more room to cut that Opex line even further.

Hey, George it's Greg here.

And I would think about just the wrap around effect associated with some of the moves that we made late last year. So it doesn't have full year benefit.

But.

When you think about the announcements of workforce transition and kind of November timeframe that wrap around in 2024 provides for 10 months 10 months of benefit.

The three PL costs.

In terms of a reduction from 15 to zero happened throughout the year, but at the end of the year, we ended with zero.

TJ Flood: Gregory alluded to the operating leverage that we get associated with that. And when you look at dealers on the other side of our business, their inventory is also down slightly, a couple hundred basis points, as they have reacted to the consumer sentiment in the market. So when you look at those two things and see how we're managing the business as we go forward here, we're adjusting our buys and managing inventory very surgically and pragmatically. We continue to see the trends toward the gap in growth between essential and discretionary categories, and we're going to be buying accordingly. And the teams have made significant progress on our inventory levels and continue to try to surgically right-size them as we go forward. And I talked a little bit already about the leverage we get from that. As we look at the dealers, I think there are a couple of things I'll point out.

So there is there's good benefit to be had there on a 22024 basis.

As Gregory said I mean in general if you think about leverage. This this is the first time since 2019 that normalized retail SG&A dollars have declined year over year.

And as Gregory said.

We're expecting further savings as we plan to drive that structural efficiency.

To reiterate we see opportunities presenting themselves both the margin and the opex level I unpack the drivers of our focus on both line items.

We made I think this year, we made solid 2023, we made solid progress with respect to our free cash flow yield.

Which is an area of focus this year as well so listen we're executing a full court press on.

TJ Flood: We still have a little bit of the game to play yet in this quarter in terms of finishing off our winter business. So we'll be able to give you a better handle on how we fared in the season on winter-related inventory as we get into our Q1 call. I am feeling quite good about dealer inventory levels with respect to Christmas. We mentioned on a call earlier this year that they were heavy starting this year, and they have done a really good job of working that down.

Driving operating leverage and Thats why we place the focus on it we did in our prepared remarks, but we're still operating with minimal economic visibility.

So the top of the P&L is tough to forecast.

And I guess, the only thing I would reiterate having said all of that is Gregory said, we're still firmly committed to better connected strategy.

Strongly believed in a new cycle will emerge there always is and will continue to invest in front of it and be well positioned when discretionary demand returns.

TJ Flood: That was one area that we invested in from a consumer standpoint to try to clear some inventory. So they're in a much better position as they come out of the Christmas categories. And I think one thing I'd like to highlight is, given the consumer sentiment and softer Q4 sales, as we go forward here, we're not expecting dealers to build significant inventory and discretionary. And we do expect them to continue to draw down on spring and summer inventory unless we see a meaningful change in the consumer demand side of things. So as a result, and I think Gregory alluded to this, we expect the disconnect between revenue and sales to continue, particularly in Q1 and Q2. That's really helpful. Can you quantify the magnitude of that disconnect? Hey, Irene, it's Greg.

Okay. Thanks for that.

Just a clarification on the Q1 data you guys provided the indication.

Mid single digits on January and then we gave it back in February.

Does that suggest that we're trending kind of.

In line and then how big is March and just to quantify how big is March compared to I guess, the first two months of the quarter.

I think to answer your second part first I think you are probably in the neighborhood of probably 45% to 50% of the quarters still to come with.

With with March.

And the reason we pointed out that the information the way we did it was kind of when the weather came to us back in January when we had that more kind of normalized condition. We were up kind of as I said that mid single digit despite kind of some of these economic the economic pressures haven't gone away either by the way. So when I say that we've kind of given that lead back that would infer.

Gregory Craig: Sorry, I have to keep adding Neil Rhee there for a second. And it's, I think, you know, we tend not to give, as you know, kind of guidance in that, in that, in that regard. I think what I would say is, is just go back to kind of TJ's comments. And the other thing you have to remember is that, in, in March of last year, we had the DC fire as well, right? So that impacted shipments a little bit. So it's not as kind of easy to give you kind of where we are now in trending, given kind of some of that complexity as well. I would just say, I expect that we continue in, in the short term, as TJ said, and then, in the long term, these trends always come back in a line, as you know, but, and again, I would recall that Q1 is pretty much our smallest quarter as well. So keep that in mind.

We're kind of at this point midway through the cycle flat to ctr, but down overall for all the other banners. So.

Really pleased on the performance so far but again, we've got a big month to go in terms of what our results are so.

And again as I mentioned, a few minutes ago, you have to recall you got it.

Some dealer uncertainty about ordering and you've got you've got the fire impacted the DCP a year ago, and whether I mean.

I really hope, we're seeing what I saw last Friday, when I saw people in shorts.

Basically that would be a very good thing in March for us, but I think.

That's what I say, but I come back to <unk> point, which I think is really really important to reiterate reiterate is we are trying to build as much protection and safety and flexibility kind of in margin and operating expense.

Against that backdrop of kind of uncertain revenue expectations. That's that's what I would say with what we're managing through.

Gregory Craig: But I think the real question and the focus area for TJ and the team remains kind of, kind of that longer term through to Q4 and, and what are the, you know, what are the economic conditions and sales conditions like at that point in time, as we look ahead. So I would say, you know, it'll probably be, you know, probably a little noisy in Q1. Now, you have to remember in Q4, as we talked about Q4 of this year having the issue of the MSA, you're not going to have that to contend with when you're looking at kind of a disconnect between revenue and sales, like that won't be, you know, nearly as significant as it would have been in Q4. So I just should say that as well. Thank you. Thank you.

Okay. Thanks, Michael.

Thank you one moment for our next question.

Our next question comes from Mark Petrie.

<unk> Your line is now open.

Hey, good morning.

I wanted to just ask about the competitive environment last quarter, you called out that you'd seen a pickup in promotional intensity.

And then I think what you said T. J earlier was that you guys had stepped up your promotional investment in Q4, and I think that was part of the plan.

Can you just update us on how that sort of played out through holiday and then what your views are.

So far in 2024.

Yes markets.

T J here if you.

If you think about the competitive context that we are.

We're kind of experiencing right now and we certainly did in Q4 the competitive intensity has stepped up I mean consumers are definitely feeling the pinch of the economy.

Operator: One moment for our next question. Our next question comes from George Dumet with Scotiabank. Your line is now open.

And what we found in Q4 was that retailers started to invest earlier, so black Friday kind of started quite early this year.

George Dumet: Yeah, hi, good morning. I just want to talk about the OpEx line. Obviously, there is some pretty good control there. Did that number for the quarter kind of fully capture the initiatives we outlined last quarter? Just trying to get a sense of how sustainable that is. The second part of that question is, you know, if you do end up getting a more difficult macro environment, like is there more room to cut that OpEx line even further? George, it's Greg here.

And we in particular started to make more investments and discretionary.

Discretionary categories Christmas is a great example of Christmas decor.

It doesn't get much more discretionary than than Christmas and so we had to make some investments there, but I think I think what we've been able to do.

And really when you talk about competitive intensity you always have to link link it back to how we're managing our margin rates and I feel very good about how we've managed our margin rates throughout 2023, I mean, we have.

Greg Hicks: You know, I would think about just the wraparound effect associated with some of the moves that we made late last year. So it doesn't have a full year benefit, but, You know, when you think about the announcement of the workforce transition and kind of November timeframe, that wraparound in 2024 provides for 10 months, 10 months of benefit. The 3PL costs, in terms of our reduction from 15 to zero happened throughout the year, but at the end of the year, we ended with zero. So there's, you know, there's good benefit to be had there on a 20, 2024 basis. As Gregory said, I mean, in general, you know, if you think about leverage, this is the first time since 2019 that normalized retail SG&A dollars have declined year over year.

Greg talked about earlier, we really want to hold those margin rates and we're able to do that.

This year and as we as we look forward.

Couple of things going on there we do expect to have.

Some relief from a commodity standpoint, certainly some relief from a freight standpoint, but offset a little bit by FX and what we expect to be.

Requirement for continued consumer investment we need to pass on some of that some of the savings that we have to consumers both in our regular pricing as well as our promotional pricing. So we do expect the intensity to continue here, but we feel very good about our ability to manage margins with all of the capabilities we've dealt with.

<unk> typically elasticity modeling what Greg described as our margin nerve center and of course, our triangle rewards and owned brands portfolio <unk> and.

Greg Hicks: And as Gregory said, you know, we're expecting further savings as we plan to drive that structural efficiency. You know, to reiterate, we see opportunities presenting themselves both at the margin and the opex level. I will unpack the drivers of our focus on both line items. We made, I think this year we made solid progress, or in 2023, we made solid progress with respect to our free cash flow yield, which is an area of focus this year as well. So listen, we're executing a full court press on driving operating leverage, and that's why we placed the focus on it, we did in our prepared remarks, but we're still operating with minimal economic visibility. So the top of the P&L is tough to forecast.

And Mark I would maybe just it's Greg I'll, just elevate a little bit for the rest of the banners.

Similar themes for sure absolutely promotional intensity intensified through the fourth quarter.

Aggregate top of house, all banners average unit retails are coming down.

So again I think this supports the objective for our restrictive monetary policy.

T J 's point on elasticity I'd say.

For the for the company Theres more forecast error in our elasticity models as the.

The historical equations for price investment driving incremental unit demand just arent holding to historical performance in many discretionary categories, even with significantly deeper discounts, we arent seeing incremental demand materials materialized. So the good news is as we as we move to kind of operating posture for 2024.

Greg Hicks: And I guess the only thing I would reiterate after saying all that is, as Gregory said, we're still firmly committed to our better connected strategy. You know, we strongly believe that a new cycle will emerge, there always is, and we'll continue to invest in front of it and be well positioned when discretionary demand returns. Okay, thanks.

We have more use cases in our models now.

Greg Hicks: And just a clarification on the Q1 data you guys provided in the indication, if I heard correctly, mid single digits in January, and we gave it back in February. So does that suggest that we're trending kind of in line? And how big is March?

Now than we did starting last year are starting when we in June when we really started to see a drop off last year. So we certainly hope to be more efficient.

But I would say that the apparel sector for sure is intensifying.

Our credit card data, we can see spend impact for apparel as a merchant category and specifically at Canadian apparel retailers and what I can tell you empirically is that apparel focused retailers are having a real challenge on the top line and we are therefore seeing the intensity ramp quite a bit so both <unk> and <unk>.

Greg Hicks: Just to quantify, how big is March compared to, I guess, the first two months of the quarter? I think to answer your second part first, I think you're probably in the neighborhood of probably 45 to 50% of the quarters still to come with March. And the reason we pointed out the information the way we did was kind of when the weather came to us back in January, George, when we had that more kind of normalized condition, you know, we were up kind of, as I said, that mid single digit, despite kind of some of these economic, the economic pressures haven't gone away either, by the way. So, you know, when I say that we've kind of given that lead back, that would imply we're kind of, at this point, midway through the cycle, flat to CTR, but down overall for all the other banners.

Our feeling feeling it but we feel.

Like our capabilities provides.

For benefit and the new DC as I called out in my prepared remarks provides a new tailwind for us on a cost per unit basis, especially especially in any and ecommerce and fulfillment around ecommerce.

Okay. Those are helpful. Very helpful comments, thanks for that and if I could just follow up could you give us a sense of sort of the balance of discretionary versus essential items for spring summer.

Versus fall winter would it be pretty balanced or would there be.

Greg Hicks: So, you know, really pleased with the performance so far, but again, we've got a big month to go in terms of what our results are. So, and again, as I mentioned a few minutes ago, you have to recall, you know, you've got, you know, some dealer uncertainty about ordering, and you've got the fire impact of the DC a year ago and weather. I mean, I really hope we're seeing what I saw last Friday when I saw people in shorts, you know, bicycling. That would be a very good thing in March for us.

We would skew one way or the other.

Yes, it's not it's not too dissimilar, it's probably in and around 60% of our business is what we would classify as discretionary in the spring.

Maybe you can kind of <unk> I would say so.

So it's not materially different between the between those two quarters.

Okay perfect all the best.

Thanks Mark.

Thank you one moment for our next question.

Our next question comes from Luke Hannan with Canaccord Genuity. Your line is now open.

Thanks, Good morning, I just.

Wanted to start with where I guess the dealers are standing as of today can you give us a rough idea of where their overall financial health or their profitability stands versus maybe a year ago or even pre pandemic.

Greg Hicks: But anyway, that's what I would say. But I come back to Greg's point, which I think is really, really important to reiterate is that we're trying to build as much protection, safety, and flexibility kind of in margin and operating expense against that backdrop of kind of uncertain revenue expectations. That's, that's what I would say about what we're managing. Okay, thanks. Bye.

Sure.

It's T J.

I can I can take that one.

Couple of things with with the dealer network, obviously huge component of our secret sauce, and how we run our business 500 passionate entrepreneurs they care deeply about our brand and they continue to transform and evolve for our customers.

And no one knows their business and their communities like they do so they play a huge role in connection with our with our local communities. We work with them really really closely from.

Operator: Thank you. One moment for our next question. Our next question comes from Mark Petrie with CIBC. Your line is now open. Good morning.

Mark Petrie: I wanted to just ask about the competitive environment. Last quarter, you called out that you'd seen a pickup in promotional intensity. And then I think what you said, TJ, earlier was that you guys had stepped up your promotional investment in Q4. And I think that was part of the plan. Can you just update us on how that sort of played out through the holiday? And then what your views are on so far in 2024? Yeah, Mark, it's TJ here.

From best practices on how to operate their stores to our better connected agenda and I think if you look at it from a financial health perspective.

Can't get into specifics about kind of individual dealers.

They they come into this period of economic uncertainty from a position of strength. We have had a lot of we've had a lot of benefit over the last couple of years and although they're coming in with a position from a position of strength there obviously from opinion.

TJ Flood: If you think about the competitive context that we're kind of experiencing right now, and we certainly did in Q4, the competitive intensity has stepped up. I mean, consumers are definitely feeling the pinch of the economy. And what we found in Q4 was that retailers started to invest earlier. So Black Friday kind of started quite early this year. And we, in particular, started to make more investments in discretionary categories. Christmas is a great example; Christmas decor; it doesn't get much more discretionary than Christmas.

Standpoint.

Feeling it from a Q4 standpoint with with sales and volume they are experiencing some headwinds on opex, particularly in things like interest rates labor rates are starting to snap back.

To pre pandemic levels and theyre, even experiencing some headwind with respect to minimum wage and things like that so they manage their business is really really tightly.

And I think you can you can expect that they will they will continue to do so and try to do whatever they can to generate sales. This year. They are entrepreneurs, who who try to try to do everything they can to serve their customers and generate revenue, but I think.

TJ Flood: And so we had to make some investments there. But I think I think what we've been able to do, and really, when you talk about competitive intensity, you always have to link it back to how we're managing our margin rates. And I feel very good about how we've managed our margin rates throughout 2023. I mean, we we've, as Greg talked about earlier, really want to hold those margin rates. And we're able to do that this year, too.

I think that's how I would answer it and then it's Gregory here I just wanted to it's another point I want to T. J touched on it but I do want to double down on a little bit.

Think about that the tenure and the experience we have in that network of dealers. This is not their first rodeo. This is not the first time, they've gone through a cycle of business cycle and to T. J 's point I look at just sales as a barometer. So go to pre pandemic levels and see where we are now in terms of sales.

Yes, there are some things that they are managing through but to T. J 's point, they're great at managing their businesses.

And I think it's actually a real plus for us kind of in these conditions that we've got a dealer network that frankly kind of been there done that seen it before.

Greg Hicks: And as we look forward, a couple things going on there. We do expect to have some relief from a commodity standpoint, certainly some relief from a freight standpoint, but offset a little bit by FX and what we expect to be a requirement for continued consumer investment. We need to pass on some of that some of the savings that we have to consumers, both in our regular pricing, as well as our promotional pricing. So we do expect the intensity to continue. But we feel very good about our ability to manage margins with all of the capabilities we've built with elasticity, elasticity modeling, what Greg described as our margin nerve center, and, of course, our triangle rewards and own brands portfolio. So, and Mark, I would maybe just, it's Greg, I'll just elevate it a little bit for the rest of the banners. Similar themes, for sure.

So anyway, that's all I would add look is just is just I think you should take some comfort in the fact, we've got such experienced in that network that that kind of understands how to react to local conditions as well can be there a difference in the rural versus urban type of setting. So anyway I just wanted to kind of say that as well because I think it's an important point.

I appreciate that thank you.

My next question here is just on the loyalty partnerships.

Starting to see what you guys are doing with Petro, Canada, what else would you view as we'll call. It complementary partnerships to what you feel triangle rewards offers today what other areas now that you have the flexibility to be able to explore this were freely do you see as the best opportunities.

Luke it's Greg.

We if you think about our system of retail banners today, its general merchandise and apparel focused.

And so as we as we think about the role that partnerships can play for US we think about an evolution from from the state we're at today to more of an everyday needs.

Greg Hicks: Absolutely, promotional intensity intensified through the fourth quarter. You know, aggregate top of house, all banners, average unit retail is coming down. So again, I think this supports the objective of restrictive monetary policy. To TJ's point on elasticity, I'd say, For the company, there's more forecast error in our elasticity models as the historical equations for price investment driving incremental unit demand just aren't holding to historical performance, and many discretionary categories, even with significantly deeper discounts, we aren't seeing incremental demand materialize.

State.

Playing more a more relevant role in the lives of our members through partnerships.

And the aim is the aim is pretty simple Lucas it's to accelerate the issuance of <unk>.

And look for opportunities to expand the reach of the program to a bigger network of Canadians.

Which will just help to provide more opportunities for members to earn <unk> in these everyday needs category. So our long term growth strategy is centered around how we accelerate a customer spend flywheel and our network of retail banners and partnerships will help drive <unk> issuance, which in.

Greg Hicks: So the good news is that as we move to kind of an operating posture for 2024, we have more use cases in our models now than we did, you know, starting last year or starting when we, you know, in June, when we really started to see a drop off last year. So we certainly hope to be more efficient. But I'd say that the apparel sector is, for sure, intensive. In our credit card data, we can see spend impact for apparel as a merchant category and specifically for Canadian apparel retailers.

Turning to drive spend in one of our retail banners, which drives first party data and then our personalization capabilities to get to work on driving further spend in cross shop across the system. So ultimately.

That's what the partnership system is all about and that's what you can expect from us.

Okay. Thank you very much.

Thank you.

Thank you one moment for our next question.

Greg Hicks: And what I can tell you empirically is that apparel-focused retailers are having a real challenge on the top line, and we're therefore seeing the intensity ramp up quite a bit. So both SportCheck and Marks are feeling it, but we feel like our capabilities provide a benefit. And the new DC, as I called it in my prepared remarks, provides a new tailwind for us on a cost per unit basis, especially in any commerce and fulfillment around e-commerce. Okay, those are helpful, very helpful comments. Thanks for that. And if I could just follow up, could you give us a sense of sort of the balance of discretionary versus essential items for spring, summer versus fall, and winter? Would it be pretty balanced? Or would there be a, would it skew one way or the other?

Our next question comes from Chris Li with de Jordan Your line's now open.

Good morning, everyone. I guess my first question is I know you guys don't provide any precise guidance and visibility on sales remains very low at the moment, but I'm. Just wondering just directionally speaking given that it sounds like you do have some pretty powerful levers to pull to offset some of these pressure is it reasonable to assume that we can get some.

Our earnings growth this year.

Hi, Chris its Greg.

I mean listen as I talked about we still we are still operating.

Through structure of what I would call structural uncertainty, we don't have visibility in terms of what the.

<unk> kind of moms monetary policy is going to look like and we have very minimal growth in the economy and pretty significantly negative growth on a per capita basis. So.

TJ Flood: Yeah, it's it's not, it's not too dissimilar. It's probably in and around 60% of our business is what we would classify as discretionary in the spring, maybe kind of the low 60s, I'd say. So it's not materially different between those two quarters. Okay, perfect. All the best.

We I think we tried to provide a view of our operating posture in our prepared remarks.

As I said, we just continue to operate in a structurally uncertain environment. You can you can read two articles on the same day in the same papers, suggesting that the rates will go up and they will go down.

TJ Flood: Thanks, Mark. Thank you. One moment for our next question. Our next question comes from Lou Cannon with Cannon Corp Genuity. Your line is now open. Thanks. Good morning.

So the facts are that we are persistent and stubborn inflation being driven in large part by shelter costs and I don't see a path for them subsiding soon so.

Luke Cannon: I just wanted to start with where I guess the dealers are standing as of today. Can you give us a rough idea of where their overall financial health or their profitability stands maybe a year ago or even pre-pandemic? Sure. Hey, Luke, it's TJ.

If the what I would say if the intent of restrictive monetary policy was to curb consumer demand and slow the consumer economy, We would certainly say the policy strategy is working.

So we aren't <unk>.

TJ Flood: I can I can take that one. Couple things with the dealer network, obviously, a huge component of our secret sauce and how we run our business. 500 passionate entrepreneurs, they care deeply about our brand, and they continue to transform and evolve for our customers. And no one knows their business and their communities like they do. So they play a huge role in connection with our local communities. We work with them really, really closely, from best practices on how to operate their stores to our better connected agenda. And I think if you look at it from a financial health perspective, while I can't get into specifics about individual dealers, they come into this period of economic uncertainty from a position of strength.

Planning for any real growth in the economy certainly in tight here. The next six months, we've adjusted all of our operational Playbooks for meaningful performance separation between essential and discretionary businesses. We've had more time to plan source by.

Move in sync through value driver value delivery for these essential businesses. So we're in a better position as we start this year than we were reacting to it mid last year.

That's what I would say.

Okay. Thanks for that and then my other question is just maybe andi.

The potential finding a partner for the credit card business I know you mentioned earlier that you're still kind of in the early stages of discussion I was wondering if internally you guys have them have a timeline when you will try to find someone or is this sort of an ongoing thing where you'll just take your time until you actually find the right partners just wondering.

TJ Flood: We've had a lot of benefit over the last couple of years, and although they're coming in with a position from a position of strength, they're obviously from a P&L standpoint, feeling it from a Q4 standpoint with sales and volume. They are experiencing some headwinds on opex, particularly in things like interest rates, labor rates are starting to snap back to pre-pandemic levels, and they're even experiencing some headwinds with respect to the minimum wage and things like that. So they manage their businesses really, really tightly, and I think you can expect that they will continue to do so and try to do whatever they can to generate sales this year. They're entrepreneurs who try to do everything they can to serve their customers and generate revenue. But I think I think that's how I would answer it. And it's Gregory here.

Disruption perspective.

Risks that you can kind of.

Make this sort of investment and that could create some internal disruption to the business. Thank you.

Sorry, I missed the second half of the question I'll take the first half for sure on kind of timelines, what I'd say is its consistent with or at least we kind of had last year around.

We've kicked off our process we are on track.

I think I would call the process robust.

But it's going to take we said we're going to review our options during the year and we're on track.

To that timeline of that agenda in terms of operating the business I think we are as I said in my remarks again, we are operating the business for the interests of our shareholders and stakeholders at this time. So we're operating in an environment, where the risk metrics have returned to historical levels.

So we have been a bit more restrictive on new account growth, but that's consistent with our strategy from last year, but.

Gregory Craig: I just wanted to say it's another one I want to touch on. TJ touched on it, but I do want to double down on a little bit. It's, you know, think about the tenure and the experience we have in that network of dealers. This is not their first rodeo.

The bank is such an integral part of our rewards program and how we get kind of that flywheel effect and cleaned her money in our customers' hands.

More account growth, we can put it in there and frankly, the better for all of us over the long term, but we have to balance kind of those shorter term economic pressure. So I think I think that's the second half of your question, that's how I'd answer it in.

Gregory Craig: This is not the first time they've gone through a cycle, a business cycle. And, you know, to TJ's point, I look at just sales as a barometer. So go back to pre-pandemic levels and see where we are now in terms of sales. Yes, there are some things that they're managing through. But, to TJ's point, they're great at managing their businesses.

We remain comfortable in terms of where we are in the overall process I think the second Chris described the second half I think was was just about disruption to the business from a timing standpoint, and yes for sure I guess, what I would comment for sure. The economy has gotten worse on us.

Gregory Craig: And I think it's actually a real plus for us in these conditions that we've got a dealer network that, frankly, kind of has been there, done that, seen it before. So anyway, that's all I would add, Luke, is just, you know, I think you should take some comfort in the fact we've got such experience in that network that kind of understands how to react to local conditions as well. There may be a difference in the rural versus the urban type of setting.

Our core business has suffered but but as Gregory said that the decision to buy back the bank to have control of the control, we need and determined the best way to create value was a decision for the long term health of our business and the change in the economic cycle and any potential disruption that that provides.

Isn't it kind of takes a back seat to really thinking about long term value creation.

Okay. Okay. Thanks, Thanks, a lot guys.

Thank you one moment for our next question.

Gregory Craig: So anyway, I just wanted to kind of say that as well because I think it's an important point. I appreciate that. My next question here is just on the loyalty partnerships. It's exciting to see what you guys are doing with Petro-Canada. What else would you view as... we'll call it a complimentary partnership, what you feel Triangle Rewards offers today? What other areas, now that you have the flexibility to be able to explore this more freely, do you see as the best opportunities? Luke, it's Greg.

Our next question comes from Vishal <unk>.

National Bank. Your line is now open.

Hi, Thanks for squeezing me in here and on the.

On the initiatives that tire has looking into 2024 so.

A lot of potentially meaningful.

Cost reduction and efficiency initiatives.

Kicking in in 2024, I was hoping you could.

I was hoping you could quantify them for me and if not then maybe you can rank order some of the bigger initiatives that you expect to benefit you recognizing on the other side there is the economic uncertainties.

Commentary, but just for our own purposes to help us understand the magnitude of some of these.

These initiatives you're talking about.

Hey, Michelle it's Greg I'll, probably stop short of quantifying.

Yes.

But.

Greg Hicks: We, if you think about our system of retail banners today, it's general merchandise and apparel focused. And so, as we think about the role that partnerships can play for us, we think about an evolution from the state we're at today to more of an everyday need state, you know, playing more, a more relevant role in the lives of our members through partnerships. And the aim is pretty simple, Luke; it's to accelerate the issuance of ECTM and look for opportunities to expand the reach of the program to a bigger network of Canadians, which will just help to provide more opportunities for members to earn ECTM in these everyday needs categories.

But listen there.

I think you've heard me say before.

If any any leverage in our P&L has to travel through the supply chain.

We've been running here now for three or four years with a with a very inefficient.

Supply chain and a lot of those inefficient inefficiencies.

Driven by Covid in a very <unk>.

Strong demand side global environment, and the whole system buckled on us and so.

What we see as a global supply chain that that is now.

Close to a normalized state.

We look at the lead times that we have built into our.

Greg Hicks: So our long-term growth strategy is centered around how we accelerate a customer spend flywheel in our network of retail banners and partnerships to help drive ECTM issuance, which in turn drives spend in one of our retail banners, which drives first-party data, and then our personalization capabilities get to work on driving further spend and cross-shop across the system. So ultimately, that's what the partnership system is all about. And that's what you can expect. Okay, thank you very much.

Purchase orders.

And.

We're down $35, 40% versus the height of the pandemic in terms of lead time in days, we think about vendor service levels. We've gone from the 30% 40% range, both on our own brand factories and national National brands and now we're kind of there's a few exceptions here or there, but we're we're pretty much pre pre.

Pandemic state or normalizing the amount of inventory we have in our system, we're getting rid of the three pls all while implementing new technology to drive the variable costs down. So I think the order of magnitude for us would certainly start with the supply chain and like I said, it's the first time.

Greg Hicks: Thank you. Thank you. One moment for our next question. Our next question comes from Chris Lee with Desjardins. Your line is now open. Oh, good morning, everyone.

Chris Lee: I guess my first question is, I know, you guys don't provide any precise guidance, and visibility on sales remains very low at the moment. But I'm just, you know, wondering, just directionally speaking, given that it sounds like you do have some pretty powerful levers to pull to offset some of these pressures, is it reasonable to assume that we can get some earnings growth this year? Hi Chris, it's Greg. As I talked about, we, you know, we are still operating through structure, what I would call structural uncertainty, and we don't have visibility in terms of what the kind of monetary monetary policy is going to look like. And we have very minimal growth in the economy and pretty significantly negative growth on a per capita basis.

I guess since IV since I've been CEO that I feel optimism around our ability to drive leverage and we are working at it we're not letting that just come to us.

And then.

The global freight rates.

I mean, we're if we're a fraction of what we were.

And.

In the middle of the pandemic.

Spot rates the height of the spot rate market and the pandemic was around $30000 USD per can.

And now we're under 3000 so there.

There is material.

Material freight benefit and then.

There are some on the commodity grid. There is still some commodities that are working against us, but but for the most part the dashboard look it tilts to kind of favor for us and we're seeing that really come through.

Greg Hicks: So, you know, we, I think we tried to provide a view of our operating posture and our prepared remarks. As I said, we just continue to operate in a structurally uncertain environment. You can read two articles on the same day in the same paper suggesting that the rates will go up and down. So the facts are that we have persistent and stubborn inflation being driven in large part by, you know, shelter costs, and I don't see a path for them subsiding soon. You know, if the intent of restrictive monetary policy was to curb consumer demand and slow the consumer economy, we would certainly say the policy strategies work.

Our manufacturer quotations I mean, there there are a lot of these buildings. These manufacturing facilities are operating at half math. So they are eager to cover overhead in and maneuver. Some of this deflation into the Cogs basin, we're going to go after every single element of it and like I said some of it's going to have to go to the customers. So it's tough to.

Determine how much of that drops to the bottom line, but I think I think that's probably the way I'd think about the order of magnitude.

Okay, Thank you and and from the consumer standpoint.

<unk>.

It is you feel you feel quarter after quarter, its getting tougher or is that a fair way to characterize what the management said.

We feel we feel like the.

The discretionary our discretionary business. This was in tougher in Q4 than it was in Q3.

Greg Hicks: So we are planning for any real growth in the economy, certainly in tight here, the next six months. We've adjusted all of our operational playbooks for meaningful performance separation between essential and discretionary businesses. We've had more time to plan, source, buy, move, and think through value delivery for these essential businesses, so we're in a better position as we start this year than we were reacting to it mid last year. Okay, thanks for that.

We've got I think I think we've got some pretty good data modeling capabilities, it's tough to tease out the seasonal weather impact entirely because because what was different in Q4 versus previous quarters is a fairly material traffic decline.

And that traffic decline is a direct result of that seasonal business being down, but we would say that Q4 was more intense from a discretionary standpoint, I wouldn't say material because you have that weather impact, but we do feel like.

And intensified.

Greg Hicks: And then my other question is maybe on the potential for finding a partner for the credit card business. I know you mentioned earlier that you're still kind of in the early stages of discussion. I was wondering, you know, internally, do you guys have a timeline to say when you will try to find someone? Or is this sort of an ongoing thing where you just take your time until you actually find someone?

That answers your question.

Yes, yes. Thank you for your answers.

Thanks Vishal.

Thank you.

One moment for our next question.

Question comes from.

Brian Morrison with TD. Your line is now open.

Thanks, very much I wanted to follow up on the financial services potential monetization.

And then you have this control Greg is it fair to say that your plan is to build out or build out meaningfully year coalition partners in advance of a transaction or is this not a necessary prerequisite.

Greg Hicks: right partner. Just wondering from a disruption perspective, the risk that you do kind of make this sort of indefinite could create some internal disruption to the business. Thank you. The second half of the question. I'll take the first half for sure on the kind of timelines.

We don't see it as a necessary prerequisite Brian.

I mean, we're engaged in conversations where.

And there's many different ways you can approach a coalition you can go.

Gregory Craig: What I would say is it's consistent with the release we kind of had last year around, you know, we've kicked off our process. We are on track. I think I would call the process robust, but it's going to take, you know, we said we're going to review our options during the year, and we're on track to that timeline or that agenda.

Broad and wide or you can go deep and narrow and so we're thinking through the right approach for US right now our primary focus Bryan is.

Is the suncor.

Petro points relationship right now, we're very excited about the value that that can bring for Canadians. We've invested last year in developing the platform to be able to do the currency exchange as we talked about.

Gregory Craig: In terms of operating the business, I think, you know, as I said in my remarks, again, we're operating the business for the interests of our shareholders and stakeholders at this time. So, you know, we operate in an environment where the risk metrics have returned to historical levels. So we have been a bit more restrictive on new account growth, but that's consistent with our strategy from last year. But, you know, the bank is such an integral part of our rewards program and how we get kind of that flywheel effect and Canadian Tire money in our customers' hands.

And b the.

The ability to kind of link.

To get double the benefit we've really worked hard to make sure that that experience is a strictly frictionless as possible.

Now we can turn on all of our one on one personalization capabilities and let people know with about 10 seconds of their time.

Greg Hicks: Like, you know, the more account growth we can put in there, frankly, the better for all of us over the long term, but we have to balance those shorter-term economic pressures. So I think if that's the second half of your question, that's how I'd answer it. And, you know, we remain comfortable in terms of where we are in the overall process. I think the second, Chris, the second half was just a bit of a disruption to the business from a timing standpoint.

They can they can link programs and get double the benefit on something that's really causing harm.

The average household today so.

We want to approach each.

Partnership from the standpoint of understanding the value it will create and much like my commentary in my prepared remarks, when we established when we build an asset that we want on our focus on getting the right value out of it when we establish a partnership we want to all hands on deck on making sure we do get valley.

Greg Hicks: And, you know, for sure, I guess what I would comment, for sure, the economy has gotten worse for us, and our core business has suffered. But, as Gregory said, the decision to buy back the bank, to have control, the control we need, and determine the best way to create value was a decision for the long-term health of our business. The change in the economic cycle and any potential disruption that that provides, you know, it kind of takes a backseat to really thinking about, you know, long-term value creation. Okay. Thanks a lot, Derek.

<unk> for us and for the customer before we move onto the next one.

And so we see these.

Depending on who you're talking to on the bank.

Are things they it can get intertwined.

But but I think to answer your question, it's not a prerequisite.

And then if I can sneak in one on the retail side and maybe it's for T. J here, but I appreciate all your color on the gross margin I will say you are.

The operating margin performance in a tough backdrop is pretty impressive, but where do we stand on the private label shifts. This was going to be a driver of the gross margin and I. Appreciate it's holding in there, but I think you were targeting at going to 38% to 46% and it looks like it's flattish to the end of 2021 I'm just wondering what the variances to your goal there.

Greg Hicks: Thank you. One moment for our next question. Our next question comes from Vishal Shreedhar with National Bank. Your line is now open. Hi, thanks for coming in here and on the initiatives that tire has looking into 2024. So, you know, a lot of potentially meaningful cost reduction and efficiency initiatives kicking in in 2024. I was hoping you could, I was hoping you could quantify them for me.

Yes.

It's T J, Brian Yes, Ctr, we definitely are you alluding to trying to get on a trajectory, where our where our own brands kind of outpace the growth of National brands. We got we saw in Q4, we were up about eight basis points in terms of our penetration rate.

<unk> to be a major strategic thrust for us right, having a stable of owned brands that consumers covet and stay loyal to over time.

Greg Hicks: And if not, then maybe you can rank order some of the bigger initiatives that you expect to benefit you. You know, recognizing on the other side there's economic uncertainty, as you've commented, but just for our own purposes, to help us understand the magnitude of these emissions. Hey, Vishal, it's Greg. We'll probably stop short of quantifying.

Really important to us we've put a lot of energy behind product development and we continue to try to drive forward with penetration increases where you find us quarter to quarter it can be tough.

Just based on seasonality and the way the weather hits us sometimes there's businesses that are highly penetrated that just don't do well in that kind of stunt your growth a little bit and that's probably what we saw in Q4, we still kind of plowed through that and we're up a little bit, but certainly to your point our goal in terms of not only helping us strategically with a customer has.

Greg Hicks: But, listen, you know, I think you've heard me say before, if any leverage in our P&L has to travel through the supply chain. We've been running here now for three or four years with a very inefficient supply chain, and a lot of those inefficiencies were driven by COVID and a very strong demand-side global environment, and the whole system buckled on us. And so what we see is a global supply chain that is now pretty close to a normalized state. We look at the lead times that we have built into our purchase orders, and we're down 35-40% versus the height of the pandemic in terms of lead time and days. We think about vendor service levels. We've gone from the 30-40% range, both in our own brand factories and national brands, and now there are a few exceptions here or there, but we're pretty much in a pre-pandemic state.

A great one two punch of national brands and owned brands.

But also from a margin perspective, it's something we're going to continue to try to drive as we go forward here.

Thank you.

Yes.

Thanks, Brian.

Yeah.

Well. Thank you for your questions and for joining US today, we look forward to speaking with you when we announce our Q1 results on may 9th Bye for now.

Thank you. This will conclude today's call you may now disconnect.

[music].

Okay.

Greg Hicks: We're normalizing the amount of inventory we have in the system. We're getting rid of the 3PLs, all while implementing new technology that drives the variable cost down. So I think the order of magnitude for us would certainly start with the supply chain. And like I said, this is the first time, I guess, since I've been CEO, that I feel optimism around our ability to drive leverage, and we are working on it. We're not letting it just come to us. And then there are global freight rates. We're a fraction of what we were in the middle of the pandemic. The height of the spot rate market during the pandemic was around $30,000 USD per can, and now we're under $3,000.

[music].

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Greg Hicks: So there's material freight benefit. There are some on the commodity grid, there's still, you know, some commodities that are working against us, but for the most part, the dashboard, look, tilts to kind of favor for us. And we're seeing that really come through in manufacturer quotations. I mean, there, there, there are a lot of these buildings, these manufacturing facilities are operating at half mass.

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Greg Hicks: So they're eager to cover overhead and, and, and, and maneuver some of this deflation into cog space. And we're going to go after every single element of it. And like I said, some of it is going to have to go to the customer. So it's tough to determine how much of that drops to the bottom line. But I think I think that's probably the way I'd think about the order of magnitude. Okay, thank you.

Yes.

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Greg Hicks: And from the consumer standpoint, you feel, quarter after quarter, it's getting tougher. Is that a fair way to characterize what management? We feel like the discretionary, our discretionary business, was tougher in Q4 than it was in Q3. And we've got, I think, we've got some pretty good data modeling capabilities. It's tough to tease out the seasonal weather impact entirely because, because what was different in Q4 versus previous quarters was a fairly material traffic decline.

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Greg Hicks: And that traffic decline was a direct result of that seasonal business being down. But we would say that Q4 was more intense from a discretionary standpoint. I wouldn't say material because you have that weather impact, but we do feel like it intensified.

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Greg Hicks: If that answers your question. Yeah, yes. Thank you for your question. Thanks, Vishal.

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Yeah.

Greg Hicks: Thank you. One moment for our next question. Our next question comes from... Brian Morrison with TD. Your line is now open. Thanks very much.

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Brian Morrison: I want to follow up on financial services and financial monetization. Now that you have this control, Greg, is it fair to say that your plan is to build out or build out meaningfully your coalition partners in advance of a transaction? Or is this not a necessary prerequisite? We don't see it as a necessary prerequisite, Brian. I mean, we're engaged in conversations, we're, um, There are many different ways you can approach a coalition. You can go, you know, broad and wide, or you can go deep and narrow. And so we're thinking through the right approach for us right now. Our primary focus, Brian, is the Suncor Petropoints relationship right now. We're very excited about the value that that can bring for Canadians. We invested last year in developing the platform to be able to do the currency exchange as we talked about. And the ability to use this kind of link to get double the benefit.

Yes.

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Greg Hicks: We've really worked hard to make sure that that experience is as frictionless as possible. Now, we can turn on all of our one-on-one personalization capabilities and let people know that with about 10 seconds of their time, they can link programs and get double the benefit on something that's really causing harm in the average household today. So we want to approach each partnership from the standpoint of understanding the value it'll create. And much like my commentary and my prepared remarks, when we build an asset, now we want to focus on getting the right value out of it. When we establish a partnership, we want all hands on deck to make sure we do get value for us and for the customer before we move on to the next one. And so we see these, you know, depending on who you're talking to on the bank side of things, they can get intertwined. But But I think to answer your question, it's not a prerequisite.

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Greg Hicks: Okay, and then if I can sneak in one on the retail side, and maybe it's for TJ here, but I appreciate your call on the gross margin. I will say it's, you know, your operating margin performance against a tough backdrop is pretty impressive. But where do we stand on the private label shift? This was to be a driver of gross margin. And I appreciate it's holding in there, but I think you're targeting it going to 38% to 46%. And it looks like it's stable to the end of 2021. I just wonder what the variance is to your goal there. Yeah, it's TJ, Brian.

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TJ Flood: Yeah, at CTR, we definitely are, as you're alluding to, trying to get on a trajectory where our own brands kind of outpace the growth of national brands. We saw in Q4, we were up about eight basis points in terms of our penetration rate. And it continues to be a major strategic thrust for us, right? Having a stable of own brands that consumers covet and stay loyal to over time is really important to us. We've put a lot of energy behind product development, and we continue to try to drive forward with penetration increases. But what you find is, quarter to quarter, it can be tough, just based on seasonality and the way the weather hits us. Sometimes there are businesses that are highly penetrated that just don't do well, and that kind of stunts your growth a little bit.

Yes.

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TJ Flood: And that's probably what we saw in Q4. We still kind of plowed through that, and we're up a little bit. But certainly, to your point, our goal in terms of not only helping us strategically with the customer having a great one-two punch of national brands and own brands, but also from a margin perspective, it's something we're going to continue to try to drive as we go forward here.

Okay.

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Brian Morrison: Thank you. Thanks, Brian. Well thank you for your questions and for joining us today. We look forward to speaking with you when we announce our Q1 results on May 9th. Bye for now. Thank you, conclude today's call. You may now disconnect. ... ... ... ... ... ... ... ... ... ... ... ... ... ... Donald Trump Bible Thunderstorm Jeopardy!- Get Over It, Safeway, Lowe's, T-Mobile, E-Mart, Walmart, Walgreens, Walmart, Walmart, Walmart, Walmart, Walmart, Walmart, Walmart, Walmart, [inaudible] ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??

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