Q2 2024 Canadian Tire Corp Ltd Earnings Call

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Lauren Cannon: Thank you for standing by. My name is Lauren Cannon, 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.

Unknown Executive: Thank you for standing by.

Loren Cannon: Thank you for standing by my name is Loren Cannon, 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.

Lauren Cannon: My name is Lauren Cannon, and I will be your conference operator today.

Lauren Cannon: 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, simply press star 11 on your telephone keypad. To withdraw your question, please press star 11.

Lauren Cannon: Following today's presentation, there will be a question and answer period. If you would like to ask a question, simply press star 11 on your telephone keypad. To withdraw your question, please press star 12. Now I will pass along to Karen Keyes, Head of Investor Relations for Canadian Tire Corporation. Karen.

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

Speaker Change: If you would like to ask a question simply press Star one one on your telephone keypad to withdraw your question. Please press star one one now I will pass along to carrying keys head of Investor Relations for Canadian Tire Corporation Karen.

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

Karen Keyes: Karen, thank you, and good morning everyone.

Karen Keyes: Thank you and good morning everyone. Welcome to Canadian Tire Corporation's second quarter 2024 results conference. 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 and includes cautionary language about forward-looking statements, risks, and uncertainties, which also apply to the discussion during today's conference call.

Karen: Thank you and good morning, everyone welcome to Canadian Tire Corporation second quarter, 'twenty 'twenty four results conference call.

Karen Keyes: Welcome to Canadian Tire Corporation's second quarter 2024 results conference call. With me today are Greg Hicks, President and CEO, Gregory Craig, Executive Vice President and CFO, and TJ Flod, 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. And includes cautionary language about forward-looking statements, risks, and uncertainties, which also apply to the discussion during today's conference call. After our remarks today, the team will be happy to take your questions. We will try to get in as many questions as possible, but ask that you limit your time to one question plus two follow-ups before cycling back into the queue.

Speaker Change: 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 Canadian tire retail.

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

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

Speaker Change: We will try to get in 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.

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

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

Gregory Hicks: I will now turn the call over to Greg.

Karen Keyes: After our remarks today, the team will be happy to take your questions. We will try to get through as many questions as possible, but ask that you limit your time to one question plus the follow-up before cycling back into the queue, and we welcome you to contact Investor Relations if we don't get through all the questions today. I will now turn the call over to Greg.

Greg: I will now turn the call over to Greg Greg.

Gregory Hicks: Greg? Thank you, Karen.

Gregory Hicks: Thank you, Karen. Good morning and welcome, everyone.

Gregory Hicks: Good morning and welcome, everyone. Q2 is always our highest discretionary quarter, and we were challenged by a tough macro environment that continued to favor essential shopping. However, our consistent margin and op-ex discipline offset declines in our top line, and we delivered a strong improvement in profitability, with EPS of $3.56, up from $3.08 last year. This is a good result, with credit to our teams. There's no question that Canadians are cautious consumers right now, but not all consumers are the same. We see this in our data, which we interrogate constantly to establish a clear picture of the health of our customers and our business.

Greg Greg: Thank you Karen and good morning, and welcome everyone.

Gregory Hicks: Q2 is always our highest discretionary quarter, and we were challenged by a tough macro environment that continued to favor essential shopping. However, our consistent margin and OPEX discipline offset declines in our top line, and we delivered a strong improvement in profitability with EPS of $3.56, up from $3.08 last year. This is a good result, with credit to our team.

Speaker Change: Q2 is always our highest discretionary quarter and we were challenged by a tough macro environment that continued to favor essential shopping.

Greg Greg: However, our consistent margin and Opex discipline offset declines in our topline and we delivered a strong improvement in profitability with EPS of $3.56.

Greg Greg: <unk> from $3.08 last year.

Speaker Change: Hey, good results with credit to our teams.

Gregory Hicks: There's no question that Canadians are cautious consumers right now, but not all consumers are the same. We see this in our data, which we interrogate constantly to establish a clear picture of the health of our customers and our business. We are seeing some interesting and positive signals. First, our data tells us that debt burden customers, particularly those in Canada's six major Vectom markets, have tightened their belts considerably more than most other Canadians.

Speaker Change: There's no question that Canadians are cautious consumers right now.

Speaker Change: But not all consumers are the same we.

Speaker Change: We see this in our data, which we interrogate constantly to establish a clear picture of the health of our customers and our business. We are seeing some interesting and positive signals.

Gregory Hicks: We are seeing some interesting and positive signals. First, our data tells us that debt burden customers, particularly those in Canada's six major Vectom markets, have tightened their belts considerably more than most other Canadians. Although Vectom represents just a third of our total sales, they have trailed the rest of the country by about 4% in the first half of the year. This gap was more pronounced in Q2 with underperformance in both discretionary and essential spend. This is reflective of higher costs of living. While weather is a secondary theme, it was impactful nonetheless. Data shows that year over year, many parts of the country experienced about 50% more cold days and double the days of rain.

Speaker Change: First our data tells us that debt burden customers, particularly those in Canada, six major backed Tom markets have tightened their belts considerably more than most other Canadians.

Gregory Hicks: Although Vectom represents just a third of our total sales, they have trailed the rest of the country by about 4% in the first half of the year. The gap was more pronounced in Q2, with underperformance in both discretionary and essential spend. This is reflective of higher costs of living. While weather is a secondary theme, it was impactful nonetheless. Data shows that, year over year, many parts of the country experienced about 50% more cold days and double the days of rain.

Speaker Change: Although that Tom represents just a third of our total sales they have trailed the rest of the country by about 4% in the first half of the year.

Speaker Change: This gap was more pronounced in Q2 with underperformance in both discretionary and essential spend.

Speaker Change: This is reflective of higher cost of living.

Speaker Change: While weather is a secondary theme it was impactful nonetheless.

Speaker Change: Data shows that year over year, many parts of the country experienced about 50% more cold days and double the days of rain.

Gregory Hicks: As we dug into the data, we found it useful to isolate the Maritimes to examine the effects of macroeconomics and unseasonable conditions. In this region, with Canada's least indebted households and typical spring weather, our sales were up nearly 2% on top of strong results in 2023. Even more encouraging spring and summer categories at CTR were up 4% in the Maritimes versus a 9% decline nationwide. In most regions nationwide, are data suggests that lower debt customers are holding their discretionary purchases stable and increasing essential purchases as compared to more debt burdened customers. This is a valuable perspective as our teams continue to carefully manage dynamics like the variable gap between essential and discretionary categories.

Gregory Hicks: We dug into the data, and we found it useful to isolate the maritimes to examine the effects of macroeconomics and unseasonable conditions. In this region, with Canada's least indebted households and typical spring weather, our sales were up nearly 2% on top of strong results in 2023. This is encouraging. Even more encouraging, spring and summer categories at CTR were up 4% in the Maritimes versus a 9% decline nationwide.

As we dug into the data we found it useful to isolate the maritimes to examine the effects of macroeconomics and unseasonable conditions.

Speaker Change: In this region with Canada's least indebted households, and typical spring weather our sales were up nearly 2% on top of strong results in 2023.

Speaker Change: This is encouraging.

Speaker Change: Even more encouraging spring and summer categories that ctr were up 4% in the Maritimes versus a 9% decline nationwide.

Gregory Hicks: Dan Most regions, nationwide, data suggests that lower debt costs are holding their discretionary purchases stable and increasing essential purchases as compared to more debt-burdened customers. This is a valuable perspective, as our teams continue to carefully manage dynamics like the variable gap between essential and discretionary categories. We remain ambitious in essential categories where we have a competitive advantage, exciting new products, and own brand opportunities. In the quarter, sales growth and our own brand essentials were 600 basis points better than national brands. Combined, our Q2 observations and experiences helped shape our view forward. However, the June rate cut by the Bank of Canada was too late in the quartered impact results.

Speaker Change: In most regions nationwide, our data suggests that lower that customers are holding their discretionary purchases stable and increasing essential purchases as compared to more that burdened customers.

Speaker Change: This is valuable perspective, as our teams continue to carefully manage dynamics like the variable gap between essentials and discretionary categories.

Gregory Hicks: We remain ambitious and essential categories where we have competitive advantage, exciting new products, and own brand opportunities. In the quarter, sales growth and our own brand essentials were 600 basis points better than national brands.

Speaker Change: We remain ambitious and essential categories, where we have competitive advantage exciting new products and own brand opportunities.

Speaker Change: In the quarter sales growth in our own brand Essentials, we're 600 basis points better than national brands.

Gregory Hicks: Combined our Q2 observations and experiences help shape our view forward. The June rate cut by the Bank of Canada was too late in the quartered impact results. However, when combined with the July cuts, the better weather we experienced in early Q3 and the fact that we are cycling lighter sales comps, the environment appears more favorable for the balance of year.

Speaker Change: Combined our Q2 observations and experiences helped shape our view forward.

Speaker Change: One rate cut by the bank of Canada was too late in the quarter to impact results.

Gregory Hicks: However, when combined with the July cut, the better weather we experienced in early Q3, and the fact that we are cycling lighter sales comps, the environment appears more favorable for the balance of the year. In February, I outlined our focus on three points of leverage for 2024. Growing our Triangle Rewards Membership, maximizing value from our existing assets, and driving operating leverage. Let me give you a sense of our progress. Starting with Triangle Rewards, our Q2 loyalty sales were more resilient than non-loyalty sales, and eCTM redemption was up more than 8% over last year. This is continued proof of the appeal of Triangle Rewards.

Speaker Change: However, when combined with the July cut the better weather, we experienced in early Q3, and the fact that we are cycling lighter sales comps the environment appears more favorable for the balance of year.

Gregory Hicks: In February, I outlined our focus on three points of leverage for 2024. Growing our Triangle Rewards membership, maximizing value from our existing assets, and driving operating leverage.

Speaker Change: In February I outlined our focus on three points of leverage for 2024.

Speaker Change: Growing our triangle rewards membership.

Speaker Change: Maximizing value from our existing assets and driving operating leverage.

Gregory Hicks: Let me give you a sense of our progress. Starting with Triangle Rewards, our Q2 loyalty sales were more resilient than non-loyalty sales, and ECTM redemption was up more than 8% over last year. Continued proof of the appeal of Triangle Rewards. In addition to energizing existing members, we also attracted new ones. Growing both active registered members and promotable members in the quarter. We saw an encouraging response to our MACSDAQ promotion in May, which allowed customers to stack deals earning Canadian entire money multipliers at Canadian Tires, Sportcheck, and Marks. This is important because it was the first time we coordinated a loyalty campaign of this magnitude across our multi-category banners.

Speaker Change: Let me give you a sense of our progress.

Speaker Change: Starting with triangle rewards, our Q2 loyalty sales were more resilient than non loyalty sales and <unk> redemption was up more than 8% over last year continue.

Speaker Change: Continued proof of the appeal of triangle rewards.

Gregory Hicks: In addition to energizing existing members, we also attracted new ones, growing both active registered members and promotable members in the quarter. We saw an encouraging response to our MaxStack promotion in May, which allowed customers to stack deals and earn Canadian Tire Money Multipliers at Canadian Tire, SportCheck, and Mark. This is important because it was the first time we've coordinated a loyalty campaign of this magnitude across our multi-category banner, further establishing Triangle as the strategic system that binds our retail businesses together. Promotion required significant coordination between our loyalty, marketing, and banner business teams, and collaboration with associate dealers and store operators.

Speaker Change: In addition to energizing existing members. We also attracted new ones growing both active registered members and promoted members in the quarter.

Speaker Change: We saw an encouraging response to our Mac stack promotion in May which allowed customers to stock deals, earning Canadian tire money multipliers that Canadian tire sport Chek and marks.

Speaker Change: This is important because it was the first time, we've coordinated our loyalty campaign of this magnitude across our multi category banners <unk>.

Gregory Hicks: Further establishing Triangles that are the strategic system that binds our retail businesses together. The promotion required significant coordination between our loyalty marketing and banner business teams and collaboration with associate dealers and store operators. It showed how effectively we can move beyond a banner-specific approach, focusing instead on an enterprise-wide commitment to the customer as our collective starting point. Simply put, by knocking down silos, we created more value for our members. Not only did the promotion drive record loyalty penetration, but it also significantly increased new membership uptake. We welcomed almost 75,000 new members, and 40% of them remained active purchasers within the Triangle system after the event.

Speaker Change: Further establishing triangles that just as the strategic system that binds our retail businesses together.

Speaker Change: The promotion required significant coordination between our loyalty marketing and banner business teams and.

Speaker Change: Collaboration with associate dealers and store operators.

Gregory Hicks: Hitchhode, how effectively we can move beyond a banner-specific approach, focusing instead on an enterprise-wide commitment to the customer as our collective starting point. Simply put, by knocking down silos, we create more value for our members. Not only did the promotion drive record loyalty penetration, but it also significantly increased new membership uptake. We welcomed almost 75,000 new members, and 40% of them remained active purchasers within the Triangle system after the event. This is behavior we foster and track closely. I'm also pleased to report that more than a quarter million Canadians have now linked their Petra points and are trying to reward the count.

Speaker Change: It showed how effectively we can move beyond a banner specific approach.

Speaker Change: Focusing instead on an enterprise wide commitment to the customer as our collective starting point.

Speaker Change: Simply put by knocking down silos, we created more value for our members.

Speaker Change: Not only did the promotion drive record loyalty penetration, but it also significantly increased new membership uptake.

Speaker Change: We welcomed almost 75000, new members and 40% of them remained active purchasers within the triangle system. After the event.

Gregory Hicks: This is behavior we foster and track closely. I'm also pleased to report that more than a quarter million Canadians have now linked their Petro Points and Triangle Rewards accounts. More importantly, these linked members spent 9% more across our retail businesses than in Q2 of last year, demonstrating the value for everyday needs that this partnership provides.

Speaker Change: This is behavior, we foster and track closely.

Speaker Change: I'm also pleased to report that more than a quarter million Canadians have now linked their petro points and triangle rewards accounts.

Gregory Hicks: More importantly, these linked members spent 9% more across our retail businesses than in Q2 of last year, demonstrating the value for everyday needs that this partnership provides. As with Loyalty, we remain focused on driving leverage in our existing assets to provide a better customer experience. We are continuing to extract more value from our digital investment. Our modern ODP e-commerce platform has made us more innovative and nimbler, allowing us to test a new idea or feature in one banner.

Speaker Change: More importantly, these linked members spent 9% more across our retail businesses than in Q2 of last year.

Speaker Change: Demonstrating the value for everyday needs that this partnership provides.

Gregory Hicks: As with loyalty, we remain focused on driving leverage and our existing assets to provide better customer experiences. We are continuing to surface more value from our digital investments. Our modern ODP e-commerce platform has made us more innovative and nimble, allowing us to test a new idea or feature in one banner, and if it works, quickly roll out the same modular solution to other banners. This has led to simple but meaningful improvements, like a seamless checkout with simplified three box fulfillment options, single sign-on across our banners, and the addition of compelling triangle rewards offers on our websites.

Speaker Change: As with loyalty, we remain focused on driving leverage in our existing assets to provide better customer experiences.

Speaker Change: We're continuing to surface more value from our digital investments.

Gregory Hicks: And if it works, quickly roll out the same modular solution to other departments. This has led to simple but meaningful improvements, like a seamless checkout with simplified three-box fulfillment options, single sign-on across our banners, and the addition of compelling Triangle Awards offers on our website. Customer-facing AI, specifically our CT Generative AI Shopping Assistant, is now live and driving online tire conversion with the potential to extend the platform beyond tires.

Speaker Change: Our modern ODP E Commerce platform has made us more innovative and nimbler.

Speaker Change: Allowing us to test a new idea or feature in one banner and if it works quickly rollout the same modular solution to other banners.

Speaker Change: This has led to simple, but meaningful improvements like a seamless checkout with simplified three box fulfillment options.

Speaker Change: Single sign on across our banners and the addition of compelling triangle rewards offers on our websites.

Gregory Hicks: Customer-facing AI specifically, our CT generative AI shopping assistant is now live and driving online tire conversion with the potential to extend the platform beyond tires. Our auto service digital assets are saving customers valuable time. In the quarter, 20% of all service appointments were booked online, and over 400,000 service reminders were sent digitally. All helping to drive our auto service business up 7%. Our in-store roll-out of pickup lockers is now complete, with our implementation of Scan and Buy, an electronic shelf label technology, close behind. And at Marks, we continue to increase the speed of our buy online pickup in store fulfillment, with many orders now being completed in less than an hour.

Speaker Change: Customer facing AI, specifically, our Cte generative AI shopping assistant.

Speaker Change: It is now live in driving online tire conversion with the potential to extend the platform beyond tires.

Gregory Hicks: Our auto service digital assets are saving customers valuable time. In the quarter, 20% of all service appointments were booked online, and over 400,000 service reminders were sent electronically, all helping to drive our auto service business up 7%. Our in-store rollout of pickup lockers is now complete, with our implementation of scan-and-buy and electronic shelf label technology close behind. And it marks that we continue to increase the speed of our buy online pickup and store fulfillment, with many orders now being completed in less than an hour.

Speaker Change: Our auto service digital assets are saving customers valuable time.

Speaker Change: In the quarter, 20% of all service appointments were booked online and over 400000 service reminders were sent digitally.

Speaker Change: All helping to drive our auto service business up 7%.

Speaker Change: Our in store rollout of pickup lockers is now complete with our implementation of scan and by an electronic shelf label technology close behind.

Speaker Change: And in March we continue to increase the speed of our buy online pickup in store fulfillment with many orders now being completed in less than an hour.

Gregory Hicks: In bricks and mortar, we continue to move at pace. We open 18 refreshed or expanded CTR stores in the quarter, along with four new Pro Hockey Life stores, furthering our reach into key Ontario hockey markets. And by relocating three Mark stores into former Bed Bath and Beyond locations, we can now showcase a much broader assortment to our customers. We also tried something new, opening a Ford with design pop-up store in Toronto, a great way to drive awareness and sales while engaging and learning from our core customers through authentic experiences. Most important here, our customers are taking notice of our improvements.

Gregory Hicks: Inbrecht and Mortar, we continued to move at pace. We opened 18 refreshed or expanded CTR stores in the quarter, along with four new pro hockey life stores, furthering our reach into key Ontario hockey markets. And by relocating three Mark stores into former Bed Bath and Beyond locations, we can now showcase a much broader assortment to our customers.

Speaker Change: In bricks and mortar we continued to move at pace.

Speaker Change: We opened 18 refreshed or expanded ctr stores in the quarter, along with four new pro hockey life stores, furthering our reach into key Ontario hockey markets.

Speaker Change: And by relocating three mark stores into former bed Bath and beyond locations. We can now showcase a much broader assortment to our customers.

Gregory Hicks: We also tried something new, opening a Ford with design pop-up store in Toronto, a great way to drive awareness and sales while engaging and learning from our core customers through authentic experiences. Most importantly, here, our customers are taking notice of our improvement. Even at a time when the average consumer is stretched and stressed, we are charting improved in-store and digital NPS satisfaction scores. In other words, we are enhancing their experiences, even while tightening our costs.

Speaker Change: We also tried something new.

Speaker Change: Opening a forward with design pop up store in Toronto, a great way to drive awareness and sales while engaging in learning from our core customers through authentic experiences.

Speaker Change: Most important here our customers are taking notice of our improvements even at a time when the average consumer is stretched and stressed we are charting improved in store and digital NPS satisfaction scores.

Gregory Hicks: Even at a time when the average consumer is stretched and stressed, we are charting improved in-store and digital NPS satisfaction scores. In other words, we are enhancing their experiences, even while tightening our costs.

Speaker Change: In other words, we are enhancing their experiences even while tightening our costs.

Gregory Hicks: Finally, I'll quickly touch on operating leverage. Our merchant teams continue to adapt to a cautious discretionary demand environment. This is why we're leaning into essentials through our privilege on brand capabilities and key businesses like auto service. At the same time, our team is focused on driving new products and value for customers. In the case of CTR, new product sales were up 4%, representing a higher percentage of the overall sales mix. And both SportChek and Marks are generating strong results and innovation with popular brands like Hoka, On, Reebok, Silver, and Timberland Pro. There's no question across our banners.

Gregory Hicks: Finally, I'll quickly touch on operating. Our merchant teams continue to adapt to a cautious discretionary demand environment. This is why we're leaning into essentials through our privilege-owned brand capabilities in key businesses like auto service. At the same time, our team is focused on driving new products and value for customers. In the case of CTR, new product sales were up 4%, representing a higher percentage of the overall sales mix, and both Sportcheck and Mark's are generating strong results and innovation with popular brands like Hoka, On, Reebok, Silver, and Timberland Pro. There's no question across our banner.

Speaker Change: Finally, I'll quickly touch on operating leverage our.

Speaker Change: Our merchant teams continue to adapt to a cautious discretionary demand environment.

Speaker Change: This is why we're leaning into essentials through our privilege on brand capabilities in key businesses like auto service.

Speaker Change: At the same time, our team is focused on driving new products and value for customers.

Speaker Change: In the case of Ctr, new product sales were up 4%, representing a higher percentage of the overall sales mix.

Speaker Change: Both sport Chek in marks are generating strong results and innovation with popular brands like HOKA.

Speaker Change: Reebok silver and Timberland pro.

Speaker Change: Theres no question across our banners, we are working hard internally and with vendors strategically and tactically to drive sales.

Gregory Hicks: We are working hard internally and with vendors strategically and tactically to drive sales. There's excitement in our stores, but the top-line environment is still tough. So we continue to place heightened emphasis on controlling our costs, improving our retail margins, and managing our inventory.

Gregory Craig: We are working hard internally and with vendors strategically and tactically to drive sales. There's excitement in our stores, but the top line environment is still tough. So we continue to place heightened emphasis on controlling our costs, improving our retail margins, and managing our inventory. In addition to G&A leverage, we've made significant improvements in our run rate supply chain costs, which Gregory will detail in his prepared remarks. We are driving variable efficiencies through our modernization effort.

Speaker Change: There is excitement in our stores.

Speaker Change: But the top line environment is still tough.

Speaker Change: So we continue to place heightened emphasis on controlling our costs.

Speaker Change: Improving our retail margins and managing our inventory.

Gregory Hicks: In addition to GNA leverage, we've made significant improvements in our run rate supply chain costs, which Gregory will detail in his prepared remarks. We are driving variable efficiencies through our modernization efforts, specifically. Our fully automated GTA DC and in-quarter implementation of our Calgary DC is good to person technology. Our network is operating very well right now, with fill rates higher than they have been in years, all well managing our inventory down. Our resulting inventory position contributes to our optimism, and the confidence that we are ready for customers when they are ready to spend. Today, our stores have fresh, new assortments, and our merchants are buying with an eye to better days ahead.

Gregory: In addition to G&A leverage we had made significant improvements in our run rate supply chain costs, which Gregory will detail in his prepared remarks.

Gregory: We are driving variable efficiencies through our modernization efforts, specifically, our fully automated GTA DC and in quarter implementation of our Calgary Dcs good to person technology.

Gregory Craig: Specifically, our fully automated GTA DC and the in-quarter implementation of our Calgary DC's good-to-person technology. Our network is operating very well right now, with fill rates higher than they have been in years, all while managing our inventory down. The resulting inventory position contributes to our optimism and the confidence that we are ready for customers when they are ready. Today, our stores have fresh, new assortments, and our merchants are buying with an eye to better days ahead.

Gregory: Our network is operating very well right now with fill rates higher than they have been in years, all while managing our inventory down.

Gregory: Our resulting inventory position contributes to our optimism and the confidence that we are ready for customers when they are ready to spend today.

Gregory: Today, our stores have fresh new assortments and our merchants are buying with an eye to better days ahead.

Gregory Hicks: Finding ways to accrete earnings and generate strong free cash flow in an environment like this requires a team effort, and I am pleased with our progress year-to-date.

Gregory Craig: Finding ways to accrete earnings and generate strong free cash flow in an environment like this requires a team effort, and I am pleased with our progress here today. And with that, I'll pass it over to Gregory.

Speaker Change: Finding ways to accrete earnings and generate strong free cash flow in an environment like this requires a team effort and I am pleased with our progress year to date.

Gregory Craig: And with that, I'll pass it over to Gregory.

Speaker Change: And with that I'll pass it over to Gregory.

Gregory Craig: Thanks, Craig. Good morning, everyone.

Gregory Craig: Thanks, Greg.

Gregory Craig: Good morning, everyone. I'll start with the headline financials. EPS for the quarter was strong, up 48 cents on a normalized basis to $3.56. Driven by improved retail profitability and a one-time gain on the sale of a property, which represented about 17 cents at the EPS level. Last quarter, we said we would not take our eye off controlling what we could control. In Q2, improved retail profitability was the result of a strong gross margin rate and off-ex discipline, which offset revenue declines and higher finance costs due to the CTFS repurchasing. Over the last few quarters, we've seen a disconnect between the growth rate of retail revenue and sales, led by CTR.

Gregory: Thanks, Greg Good morning, everyone I'll start with the headline financials EPS for the quarter was strong up 48 cents on a normalized basis to $3 56.

Gregory Craig: I'll start with the headline financials. EPS for the quarter was strong, up $0.48 on a normalized basis to $3.56, driven by improved retail profitability and a one-time gain on the sale of the property, which represented about 17 cents at the EPS level. Last quarter, we said we would not take our eye off controlling what we could control. In Q2, improved retail profitability was the result of a strong gross margin rate and OPEX discount, which offset revenue declines and higher finance costs due to the CTFS repurchase.

Gregory: Driven by improved retail profitability and a onetime gain on the sale of a property, which represented about 17 cents at the EPS level.

Speaker Change: Last quarter, we said, we would not take our eye off controlling what we could control.

Gregory: In Q2 improved retail profitability was the result of a strong gross margin rate and opex discipline.

Gregory: Which offset revenue declines and higher finance costs due to the <unk> repurchase.

Gregory Craig: Over the last few quarters, we've seen a disconnect between the growth rate of retail revenue and sales led by CTR, but we saw that gap close. Excluding petroleum, retail revenue was down 4.3%, essentially in line with sales, as dealers, franchisees, and wholesalers continue to manage inventory carefully. Retail sales were $5 billion in the quarter, down 4.1%, and down 4.6% on a comparable basis, excluding petroleum.

Speaker Change: Over the last few quarters, we've seen a disconnect between the growth rate of retail revenue in sales led by Ctr, but.

Gregory Craig: But we saw that gap closed this quarter. Excluding petroleum, retail revenue was down 4.3 percent, essentially in line with sales as dealers, branch eyes, and wholesalers continue to manage inventory carefully. Retail sales were 5 billion in the quarter, down 4.1 percent, and down 4.6 percent on a comparable basis, excluding petroleum. From a trend point of view, we saw a more significant decline in sales in the earlier part of the quarter, which improved in June, as we cycled weaker comps, and then saw the arrival of more seasonal weather. As Greg has highlighted, we were encouraged by the growth we saw in the Atlantic Canada region, where sales were up across each of our major banners and up 2 percent overall.

Gregory: But we saw that gap closed this quarter.

Gregory: Excluding petroleum retail revenue was down four 3% essentially in line with sales as dealers franchisees and wholesalers continue to manage inventory carefully.

Gregory: Retail sales were $5 billion in the quarter down four 1% and down four 6% on a comparable basis excluding petroleum.

Gregory Craig: From a trend point of view, we saw a more significant decline in sales in the earlier part of the quarter, which improved in June as we cycled weaker comps and then saw the arrival of more seasonal weather. As Gregory highlighted, we were encouraged by the growth we saw in the Atlantic Canada region, where sales were up across each of our major banners and up 2% overall. We also continue to track the progress we're making with the customer, and we were pleased with the results this quarter. Strong engagement, based on the initiatives we are undertaking, continues to drive loyalty sales outperformance, with more members scanning their cards.

Gregory: From a trend point of view, we saw more significant decline in sales in the earlier part of the quarter, which improved in June as we cycled weaker comps and then saw the arrival of more seasonable weather.

Gregory: Craig has highlighted we are encouraged by the growth we saw in the Atlantic Canada region, where sales were up across each of our major banners and up 2% overall.

Gregory Craig: We also continue to track the progress we are making with the customer, and we were pleased with the results this quarter. Strong engagement, based on the initiatives we are undertaking, continued to drive loyalty sales outperformance, with more members scanning their cards.

Craig: We also continue to track the progress, we're making with the customer and we were pleased with the results this quarter.

Gregory: Strong engagement based on the initiatives. We are undertaking continue to drive loyalty sales outperformance with more members scanning their carts.

Gregory Craig: Now, let me unpack some of the detail of how sales came to us by banner. Comparable sales at CTR were down 5.6% in Q2. Software consumer demand was the primary factor, leading to a double-digit decline in the high-ticket discretionary categories, like backyard living, which typically drive sales in our most discretionary quarter. That contributed to an 8% decline in discretionary sales at CTR. As Greg mentioned, weather was unseasonably cold, particularly in the western provinces, including Alberta, where it snowed in mid-June. Across the country, it was also wetter, with more days of rain compared to last year.

Gregory Craig: Now, let me unpack some of the details of how sales came to us by banner. Comparable sales of CTR were down 5.6% in Q2. Softer consumer demand was the primary factor, leading to a double-digit decline in the high-ticket discretionary categories, like backyard living, which typically drives sales in our most discretionary quarters, that contributed to an 8% decline in discretionary sales at CTR. Additionally, as Greg mentioned, weather was unseasonably cold, particularly in the western provinces, including Alberta, where it snowed in mid-June.

Gregory: Now, let me unpack some of the detail of how sales came to us by banner.

Gregory: Comparable sales of Ctr were down five 6% in Q2 softer consumer demand was the primary factor leading to a double digit decline in the high ticket discretionary categories like backyard living which typically drive sales in our most discretionary quarter.

Gregory: That contributed to an 8% decline in discretionary sales at Ctr.

Gregory: As Greg mentioned weather was unseasonably cold, particularly in the western provinces, including Alberta, where it snowed in mid June.

Gregory Craig: Across the country, it was also wetter, with more days of rain compared to last year. With cold and wet weather, fewer people went to the store for categories such as gardening and watering, and weather-related baskets were down. Sales and home environment categories, including air purifiers and air conditioners, were also down compared to last year when we were experiencing higher temperatures in many parts of the country. The bright light was automotive, where trips were stable, essential categories, and auto labor grew, resulting in an overall increase of 2% and our 16th consecutive quarter of growth in automotive. However, at Sportcheck, comparable sales were down 0.9%.

Greg Greg: Across the country. It was also wetter with more days of rain compared to last year with.

Gregory Craig: With cold and wet weather, fewer people came to the store for categories. Such as gardening and watering, and weather associated baskets were down. Sales and home environment categories, including air purifiers and air conditioners, were also down compared to last year when we were experiencing higher temperatures in many parts of the country. The bright light was automotive, where trips were stable. Essential categories and auto labor grew, resulting in an overall increase of 2% and our 16th consecutive quarter of growth in automotive. At SportChek, comparable sales were down 0.9%. This was an improving trend over the prior quarters, and external data points suggest we outperform the market.

Greg Greg: With cold and wet weather fewer people came to the store for categories, such as gardening, and watery and weather associated baskets were down.

Gregory: Sales in home environment categories, including Air Purifiers, and Air Conditioners were also down compared to last year. When we were experiencing higher temperatures in many parts of the country.

Speaker Change: <unk> was automotive where trips were stable.

Speaker Change: Central categories, and auto Labor grew resulting in an overall increase of 2% and our 16th consecutive quarter of growth in automotive.

Speaker Change: At sport Chek comparable sales were down 0.9%.

Gregory Craig: This was an improving trend over the prior quarters, and external data points suggest we outperformed the market. Although categories like cycling and casual wear were down compared to last year, SportChek's performance was helped by strong in-stock positions and good sales of footwear, with lifestyle performing particularly well. Across our other categories, fanware, and team sports also did well. We are pleased with where the team has taken the business in recent quarters.

Gregory: This was an improving trend over the prior quarters and external data points suggest we outperformed the market.

Gregory Craig: Although categories like cycling and casual wear were down compared to last year, SportCheck's performance was helped by strong stock positions and good sales in footwear, with lifestyle performing particularly well. Across other categories, fanwear and team sports also grew. We are pleased with where the team has taken the business in recent quarters. Refresh stores are driving incremental growth, with better positioning of key brands. The business has also been leveraging incremental triangle promotions and targeted in-store events to stimulate demand in a highly competitive environment. This included the MAC stack event during the quarter. At Marks, comparable sales were down 0.8%, as the lower traffic and weak consumer demand we experienced in March continues in the Q2.

Gregory: Although categories like cycling and casual wear were down compared to last year sport checks performance were helped by strong in stock positions and good sales is footwear with lifestyle performed particularly well.

Gregory: Across our other categories bandwidth and team sports also group.

Gregory Craig: Refresh stores are driving incremental growth with better positioning of key brands. The business has also been leveraging incremental triangle promotions and targeted in-store events to stimulate demand in a highly competitive environment. This included the Max Stack event during the quarter. At Mark's, comparable sales were down 0.8% as the lower traffic and weak consumer demand we experienced in March continued into Q2. Given the colder and wetter weather, Mark's was able to deliver on its mission to keep Canadians warmer and drier.

Gregory: We are pleased with where the team has taken the business in recent quarters.

Gregory: Fresh stores are driving incremental growth with better positioning of key brands the.

Gregory: The business has also been leveraging incremental triangle promotions and targeted in store events to stimulate demand in a highly competitive environment. This included the Mac stack event during the quarter.

Gregory: <unk> comparable sales were down 8% as lower traffic and weak consumer demand we experienced in March continued into Q2.

Gregory Craig: Given the colder and wetter weather, Marks was able to deliver on its mission to keep Canadians warmer and drier. Outer wear sales were up, but were offset by declines in industrial and men's casual categories, with men's shorts in particular down compared to last year. Increased use of promotions were also key to driving sales in the quarter, and continues to attract new customers to CDC. Finally, at Heli Hansen, revenue was up 1%. In a highly competitive environment, the US saw continued growth across all channels and market share gains. Outside of the US, wholesale was down as customers managed inventory.

Speaker Change: Given the colder and wetter weather marks was able to deliver on its mission to keep Canadians warmer and drier.

Gregory Craig: Outerwear sales were up but were offset by declines in the industrial and men's casual categories, with men's shorts in particular down compared to last year. An increased use of promotions was also key to driving sales in the quarter and continues to attract new customers. Finally, at Helly Hansen, revenue was up 1%, and in a highly competitive environment, the U.S. saw continued growth across all channels and market share gains; however, outside of the U.S., wholesale was down as customers managed inventory. Retail and e-commerce sales declined, lapping major sailing events last year.

Gregory: Outerwear sales were up but were offset by declines in industrial and men's casual categories with men's shorts in particular down compared to last year.

Gregory: Increased use of promotions were also key to driving sales in the quarter and continues to attract new customers to CTC.

Gregory: Finally at Helly Hansen revenue was up 1% and a highly competitive environment. The U S saw continued growth across all channels and market share gains outside of the U S. Wholesale was down as customers managed inventory.

Gregory Craig: Retail any commerce sales declined, lacking major sailing events last year.

Gregory: Retail and E Commerce sales declined lapping major sailing events last year.

Gregory Craig: Moving now to retail gross margin. Retail gross margin dollars, excluding petroleum, were down, reflecting the decline in retail revenue. new. However, retail gross margin rate, excluding petroleum, was up 36 basis points compared to last year at 36%. Heli Hansen contributed to the higher retail gross margin rate, despite modest top line growth. Lower freight cross across CTC were also a tailwind, which offset the higher promotional intensity, its Sport Chek and Marks. As CTR, investments in key capabilities, such as the Margin Nerv Center, we have built health protect product margin and create room for us to make optimal use of promotions to drive sales.

Gregory Craig: Moving now to Retail Gross Margin. Retail gross margin dollars excluding petroleum were down, reflecting the decline in retail revenue. However, the retail gross margin rate excluding petroleum was up 36 basis points compared to last year at 36%. Helly Hansen contributed to the higher retail gross margin rate, despite modest top line growth. Lower Freight Cross across CTC was also a tailwind, which offset the higher promotional intensity, store check, and Mark. At CTR, investments in key capabilities such as the Margin Nerve Centre we have built help protect product margin and create room for us to make optimal use of promotions to drive sales.

Speaker Change: Moving now to retail gross margin retail gross margin dollars, excluding petroleum were down reflecting the decline in retail revenue.

Gregory: However, retail gross margin rate, excluding petroleum was up 36 basis points compared to last year at 36%.

Hello Hansen: Hello Hansen contributed to the higher retail gross margin rate despite modest top line growth.

Hello Hansen: Lower freight cross across CTC, we're also a tailwind, which offset the higher promotional intensity at sport Chek and marks.

Hello Hansen: At Ctr investments in key capabilities, such as the margin nerve center. We have built helped protect product margin and create room for us to make optimal use of promotions to drive sales.

Gregory Craig: While we continue managing levers to hold margins over the longer term, there will always be quarter-to-quarter variances during my business performance and mix. In Q2, this worked in our favor, with margin coming in above our expectations. Turning now to SGNA, at a consolidated level, SGNA was down 6% on a normalized basis. In our retail segment, SGNA was down 60 million or 7%, despite increased real estate and store operation costs as we continued to invest in the business.

Gregory Craig: While we continue managing levers to hold margins over the longer term, there will always be quarter-to-quarter variances driven by business performance and mix. In Q2, this worked in our favor, with margin coming in above our expectations. Turning now to SG&A.

Hello Hansen: While we continue managing leavers to hold margins over the longer term, there will always be quarter to quarter variances driven by business performance and mix in.

Hello Hansen: In Q2, this worked in our favor with margin coming in above our expectations.

Gregory Craig: At a consolidated level, SG&A was down 6% on a normalized basis. In our retail segment, SG&A was down $60 million, or 7%, despite increased real estate and store operation costs as we continue to invest in the business. There were three main sources of decline this quarter. First, supply chain savings were partly due to improved operating efficiency. Last year, we exited third-party warehousing facilities as we reduced inventory, with nine facilities still in operation in Q2 of 2023 and a further six exited over the course of Q3 last year.

Hello Hansen: Turning now to SG&A at a consolidated level SG&A was down 6% on a normalized basis in our retail segment SG&A was down $60 million or 7% despite increased real estate and store operation costs as we continue to invest in the business.

Gregory Craig: There were three main sources of decline this quarter. First, supply chain savings were partly due to improved operating efficiencies. Last year, we exited third-party warehousing facilities as we reduced inventory, with nine facilities still in operation in Q2 of 2023, and a further six exited over the course of Q3 last year. We expect more modest savings in Q3, giving the timing of the exits last year. In addition, we also had some elevated costs in Q2 of last year for the temporary solutions put in place to cope with the impact of the DC fire. Second, in addition to slowing growth and sustaining IT spend, the second half waiting of IT projects contributed to lower costs in Q2 this year.

Hello Hansen: There were three main sources of decline this quarter first supply chain savings were partly due to improved operating efficiencies.

Hello Hansen: Last year, we exited third party warehousing facilities as we reduced inventory.

Hello Hansen: With nine facilities still in operation in Q2 of 2023 and a further six exited over the course of Q3 last year.

Gregory Craig: We expect more modest savings in Q3, given the timing of the exits last year. In addition, we also had some elevated costs in Q2 of last year for the temporary solutions put in place to cope with the impact of the DC fire.

Hello Hansen: We expect more modest savings in Q3, giving the timing of the exits last year in.

Hello Hansen: In addition, we also had some elevated costs in Q2 of last year for the temporary solutions put in place to cope with the impact of the Tc fire.

Gregory Craig: Second, in addition to slowing growth and sustaining IT spend, the second half weighting of IT projects contributed to lower costs in Q2 this year. We expect this pattern to reverse with higher costs in the back half of the year, given our planned project rollout. And third, we continue to operate with a lower headcount and prioritize resources, which has resulted in slower hiring, contributing to lower personnel. Moving now to inventory.

Hello Hansen: Second in addition to slowing growth and sustaining it spend the second half weighting of it projects contributed to lower costs in Q2 this year.

Gregory Craig: We expect this pattern to reverse, with higher costs in the back half of the year, given our planned project rollout. And third, we continue to operate with lower headcount and prioritize resourcing needs, which has resulted in slower hiring, contributing to lower personnel costs.

Hello Hansen: We expect this pattern to reverse with higher costs in the back half of the year given our planned project rollout.

Hello Hansen: And third we continue to operate with lower head count and prioritize resourcing needs, which has resulted in slower hiring contributing to lower personnel costs.

Gregory Craig: Moving now to inventory. Overall, corporate inventory dollars were down 15% or $477 million. Active management of inventory across all banners contributed to the decline. CTR inventory was down as we continued to draw down in both non-seasonal and spring-summer categories. Dealer inventory was down 6% in Q2, with significant decreases in spring-summer categories. At the corporate level, we expect some modest growth in non-seasonal categories to ensure we're well stocked ahead of our biggest selling season in Q3 and Q4.

Gregory Craig: Overall, corporate inventory dollars were down 15% or $477 million; active management of inventory across all banners contributed to the decline. CTR inventory was down as we continue to draw down in both non-seasonal and spring-summer categories. Dealer inventory was down 6% in Q2, with significant decreases in spring-summer categories.

Hello Hansen: Moving now to inventory overall, corporate inventory dollars were down 15% or $477 million.

Hello Hansen: Active management of inventory across all banners contributed to the decline.

Speaker Change: <unk> inventory was down as we continued to draw down in both non seasonal and spring summer categories.

Speaker Change: Dealer inventory was down 6% in Q2 with significant decreases in spring summer categories.

Gregory Craig: At the corporate level, we expect some modest growth in non-seasonal categories to ensure we're well stocked ahead of our biggest selling seasons in Q3 and Q4. Let's now move on to the performance of the financial services business. Financial Services performed as expected, with IBT ending at $89 million, flat to last year on a normalized basis.

Hello Hansen: At the corporate level, we expect some modest growth in non seasonal categories to ensure we are well stock ahead of our biggest selling season in Q3 and Q4.

Gregory Craig: Let's now move on to the performance of the financial services business. Financial services performed as expected, with IBT ending at $89 million, flat to last year on a normalized basis. The 5% increase in revenue offset the increased funding costs and net impairment losses, as well as higher operational costs. Gross average receivables was up 3.2%, growing at a slower pace than in Q1, with the increase mainly due to a 3% increase in average account balance. For the first time this quarter, the impact of slowing acquisition in 2023 resulted in active accounts being flat, and we expect this slower acquisition and modest decline in car spend will continue to have an impact on the receivables growth rate.

Gregory Craig: The 5% increase in revenue offset the increased funding costs and net impairment losses, as well as higher operational costs. Gross average receivables was up 3.2%, growing at a slower pace than in Q1, with the increase mainly due to a 3% increase in average account balance. For the first time this quarter, the impact of slowing acquisition in 2023 resulted in active accounts being flat, and we expect this slower acquisition and modest decline in card spend will continue to have an impact on receivables growth.

Speaker Change: Let's now move on to the performance of the financial services business.

Speaker Change: Financial services has performed as expected with IBD ending at $89 million flat to last year on a normalized basis.

Hello Hansen: The 5% increase in revenue offset the increased funding costs and net impairment losses, as well as higher operational costs.

Hello Hansen: Gross average receivables was up three 2% growing at a slower pace than in Q1 with the increase mainly due to a 3% increase in average account balance.

Hello Hansen: For the first time this quarter the impact of slowing acquisition in 2023 resulted inactive accounts being flat and we expect this slower acquisition and modest declines in cars hard spend will continue to have an impact on the receivables growth rate.

Gregory Craig: When it comes to credit risk metrics, these are continuing to attend as we've expected. At 33.3%, it showed a 35 basis point increase in aging relative to last year. However, it came in better than our expectations, and we're starting to see improvements in our earlier stages of aging. The allowance rate was 12.5% within our targeted range of 11.5% to 13.5%.

Gregory Craig: When it comes to credit risk metrics, these are continuing to trend as we'd expect. The write-off rate was 6.7%, up slightly on 6.4% last quarter. While the PD2 plus rate is at 3.3%, it showed a 35 basis point increase in aging relative to last year. However, it came in better than our expectations, and we're starting to see improvements in our earlier stages of aging. The allowance rate was 12.5%, within our targeted range of 11.5% to 13.5%.

Hello Hansen: When it comes to credit risk metrics. These are continuing to a trend as we had expected.

Lauren Cannon: Thank you for standing by. My name is Lauren Cannon, and I will be your conference operator today. Welcome to the Canadian Tire Corporation earnings call.

Hello Hansen: The write off rate was six 7% up slightly on six 4% last quarter.

Lauren Cannon: 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, simply press star 11 on your telephone keypad. To withdraw your question, please press star 11.

Hello Hansen: While the PDT plus rate is at three 3%. It showed a 35 basis point increase in aging relative to last year. However, it came in better than our expectations and we are starting to see improvements in our earlier stages of aging.

Karen Keyes: Now I will pass along to Karen Keyes, head of investor relations for Canadian Tire Corporation. Karen, thank you and good morning everyone. Welcome to Canadian Tire Corporation's second quarter, 2024 results conference call. With me today are Greg Hicks, President and CEO, Gregory Craig, Executive Vice President and CFO and TJ Flod, 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.

Hello Hansen: The allowance rate was 12, 5% within our targeted range of 11, 5% to 13, 5%.

Gregory Craig: Meanwhile, our strategic review to consider a range of alternatives for the Canadian Tire Financial Services business is ongoing at this time. While we are not in a position to provide a specific update, the review remains a priority for us. We will be assessing alternatives on the basis of how they can help drive longer-term value for Triangle and our retail business.

Gregory Craig: Meanwhile, our strategic review to consider a range of alternatives for the Canadian Tire financial services business is ongoing at this time. While we are not in a position to provide a specific update, the review remains a priority and will be assessing alternatives on the basis of how they can help drive longer-term value for Triangle and our retail business. In the meantime, our focus is on ensuring that CTS continues to perform well and in line with our expectations, as it did again in, which brings me to capital allocation.

Hello Hansen: Meanwhile, our strategic review to consider a range of alternatives for the Canadian tire financial services business is ongoing at this time.

Hello Hansen: While we are not in a position to provide a specific update to review remains a priority for us we will be assessing alternatives on the basis of how they can help drive longer term value for triangle, and our retail business and.

Gregory Craig: In the meantime, our focus is on ensuring that CTBS continues to form well and in line with our expectations as it did again in Q2, which brings me to capital allocation. We continue to fundamentally believe that a balanced and consistent capital allocation approach, anchored on investing in our business for the longer term, is the best approach. However, in the interest of protecting our investment-grade credit rating, we remain paused on shared buybacks until we are further along in our CTBS strategic review process.

Hello Hansen: In the meantime, our focus is on ensuring that Cts continues to perform well and in line with our expectations as it did again in Q2.

Karen Keyes: And includes cautionary language about forward-looking statements, risks and uncertainties, which also apply to the discussion during today's conference call. After our remarks today, the team will be happy to take your questions. We will try to get in as many questions as possible, but ask that you limit your time to one question plus to follow up before cycling back into the queue. And we welcome you to contact investor relations if we don't get through all the questions today.

Hello Hansen: Which brings me to capital allocation.

Gregory Craig: We continue to fundamentally believe that a balanced and consistent capital allocation approach anchored on investing in our business for the longer term is the best approach. However, in the interest of protecting our investment grade credit rating, we remain paused on shared buybacks until we are further along in our CFAS strategic review process.

Hello Hansen: We continue to fundamentally believe that a balanced and consistent capital allocation approach anchored on investing in our business for the longer term is the best approach.

Hello Hansen: In the interest of protecting our investment grade credit rating, we remain paused on share buybacks until we are further along in our seats first strategic review process as.

Gregory Craig: As we normally do, we plan to update you on our capital allocation plans for 2025 when we report our Q3 results in November.

Gregory Craig: As we normally do, we plan to update you on our capital allocation plans for 2025 when we report our Q3 results in November. Before I wrap up and hand the call back to Greg, I'll briefly highlight some considerations for Q3. The pace of decline at CTR slowed in July, with sales down 2%.

Hello Hansen: As we normally do we plan to update you on our capital allocation plans for 2025, when we report our Q3 results in November.

Greg Hicks: I will now turn the call over to Greg. Greg? Thank you, Karen.

Greg Hicks: Good morning and welcome everyone. Q2 is always our highest discretionary quarter, and we were challenged by a tough macro environment that continued to favor essential shopping. However, our consistent margin and op-ex discipline offset declines in our top line, and we delivered a strong improvement in profitability with EPS of $3.56 up from $3.08 last year. This is a good result with credit to our teams. There's no question that Canadians are cautious consumers right now, but not all consumers are the same.

Gregory Craig: Before I wrap up and hand the call back to Greg, I'll briefly highlight some considerations looking into Q3. The pace of the client at CTR slowed in July; was sales down 2%. However, it's still early to call where Q3 sales were land with almost two months to go, and the back to school season being an important driver of September sales. The weather has so far been working more in our favor, notwithstanding that it remains unpredictable. We are hopeful that consumer sentiment may improve on the back of Bank of Canada's recent interest rate cuts. However, we saw the cycle of mortgage renewables to come over the next few quarters.

Hello Hansen: Before I wrap up and hand, the call back to Greg I'll briefly highlight some considerations looking into Q3.

Speaker Change: The pace of decline of Ctr slowed in July with sales down 2%.

Gregory Craig: However, it's still early to call where Q3 sales will land with almost two months to go and the back to school season being an important driver of September sales. The weather has so far been working more in our favor, notwithstanding that it remains unpredictable. We're hopeful that consumer sentiment may improve on the back of the Bank of Canada's recent interest rate cuts. However, we expect the cycle of mortgage renewals to come over the next few quarters.

Hello Hansen: However, it's still early to call, where Q3 sales were land with almost two months to go in the back to school season being an important driver of September sales.

Hello Hansen: The weather has so far been working more in our favor notwithstanding that it remains unpredictable.

Hello Hansen: We're hopeful that consumer sentiment may improve on the back of bank of Canada's recent interest rate cuts. However, we saw the cycle of mortgage renewals to come over the next few quarters.

Gregory Craig: We are also keeping an eye on employment trends, which historically influence consumer demand and card holder behavior. We will be watching these developments closely, as will our dealers as they finalize their orders for fall and for winter. Right now, it remains hard to tell how the revenue will flow, but we expect to be more closely linked to consumer demand over the next quarter or two. In that context, we will continue to maintain our balance between managing our margins and controlling costs while continuing to invest in the business. We go into Q3 with an equal measure of optimism and caution.

Greg Hicks: We see this in our data, which we interrogate constantly to establish a clear picture of the health of our customers and our business. We are seeing some interesting and positive signals. First, our data tells us that debt burden customers, particularly those in Canada's six major Vectom markets have tightened their belts considerably more than most other Canadians. Although Vectom represents just a third of our total sales, they have trailed the rest of the country by about 4% in the first half of the year.

Gregory Craig: We are also keeping an eye on employment trends, which historically have influenced consumer demand and cardholder behavior. We'll be watching these developments closely, as will our dealers as they finalize their orders for fall and winter. Right now, it remains hard to tell how revenue will flow, but we expect to be more closely linked to consumer demand over the next quarter or so. In that context, we will continue to maintain our balance between managing our margins and controlling costs while continuing to invest in the business.

Speaker Change: We are also key P&I unemployment trends, which historically to influence consumer demand and cardholder behavior will.

Speaker Change: We will be watching these developments closely as will our dealers as they finalize their orders for fall and for winter right now it remains hard to tell how the revenue will flow, but we expect it to be more closely linked to the consumer demand over the next quarter or two.

Hello Hansen: In that context, we will continue to maintain a balance between managing our margins and controlling costs, while continuing to invest in the business. We go into Q3 with an equal measure of optimism and caution we feel good about our performance on a year to date basis.

Gregory Craig: We go into Q3 with an equal measure of optimism and caution. We feel good about our performance on a year-to-date basis, about how that positions us for the second half of the year, but remain conscious that softer consumer demand will not reverse immediately. With some tougher comps on OPEX as we come into Q3, we will continue to focus on managing our costs carefully. Our ability to navigate through these uncertain times and balance delivering short-term results with investing in the long term is largely due to the significant efforts of our employees and our dealers, and I want to thank them for everything that they continue to do. With that, I'll hand it over to Greg for his closing remarks.

Gregory Craig: We feel good about our performance on a year-to-date basis and about how that positions us for the second half of the year, but remain conscious that softer consumer demand will not reverse immediately. With some tougher coughs on off-backs as we come up in the Q3, we will continue to focus on managing our costs carefully. Our ability to navigate through these uncertain times and balance to delivering short-term results with investing in the long term is largely due to the significant efforts of our employees and our dealers. I want to thank them for everything that they continue to do.

Greg Hicks: This gap was more pronounced in Q2 with underperformance in both discretionary and essential spend. This is reflective of higher costs of living. While weather is a secondary theme, it was impactful nonetheless. Data shows that year over year, many parts of the country experienced about 50% more cold days and double the days of rain. As we dug into the data, we found it useful to isolate the maritimes to examine the effects of macroeconomics and unseasonable conditions.

Hello Hansen: And about how that positions us for the second half of the year, but remain conscious at softer consumer demand will not reverse immediately.

Hello Hansen: With some tougher comps on Opex as we come into Q3, we will continue to focus on managing our costs carefully.

Hello Hansen: Our ability to navigate through these uncertain times and balance delivering short term results with investing in the long term is largely due to the significant efforts of our employees and our dealers and want to thank them for everything that they continue to do.

Gregory Hicks: With that, I'll hand it over to Greg for his closing remarks.

Hello Hansen: With that I'll hand, it over to Greg for his closing remarks.

Greg Hicks: In this region, with Canada's least indebted households and typical spring weather, our sales were up nearly 2% on top of strong results in 2023. Even more encouraging spring and summer categories at CTR were up 4% in the Maritimes versus a 9% decline nationwide. In most regions nationwide are data suggests that lower debt customers are holding their discretionary purchases stable and increasing essential purchases as compared to more debt burdened customers. This is a valuable perspective as our teams continue to carefully manage dynamics like the variable gap between essential and discretionary categories. We remain ambitious and essential categories where we have competitive advantage, exciting new products and own brand opportunities. In the quarter sales growth and our own brand essentials were 600 basis points better than national brands.

Gregory Hicks: Thanks, Gregory. Although Q2 was not what we wanted in terms of sales, we understand and sympathize with Canadian consumer caution. Ultimately, we don't control the state of household economics or the weather. So, we controlled what we could. We created more value through trying a rewards, which drove membership numbers and recurring revenue. We offered a more seamless shopping experience across our channels, maximizing our digital assets and pushing our NPS scores up. And we did this while managing costs down. I'm proud of our results as they reflect our team's innovation, collaboration, and sheer hard work. Quarter by quarter, we are a stronger, more efficient operating company with a system of compelling components tied together by loyalty and a commitment to customers at the core.

Gregory Hicks: Gregory, although Q2 was not what we wanted in terms of sales, we understand and sympathize with Canadian consumer caution. Ultimately, we don't control the state of household economics or the weather.

Greg Greg: Thanks for that Gary Although Q2 was not what we wanted in terms of sales, we understand and sympathize with Canadian consumer caution Ulta.

Greg Greg: Ultimately, we don't control the state of household economics or the weather.

Gregory Hicks: So we controlled what we could and created more value through Triangle Rewards, which drove membership numbers and recurring revenue. We offered a more seamless shopping experience across our channels, maximizing our digital assets and pushing our NPS scores up. And we did this while managing costs, Dan. I'm proud of our results as they reflect our team's innovation, collaboration, and sheer hard work. Quarter by quarter, we are a stronger, more efficient operation with a system of compelling components tied together by loyalty and a commitment to customers at the core. The engagement we saw this quarter reassures us that we are on the right track.

Greg Greg: So we're we controlled what we could create.

Greg Greg: It created more value through triangle rewards, which drove membership numbers and recurring revenue.

Hello Hansen: We offered a more seamless shopping experience across our channels maximizing our digital assets and pushing our NPS scores up.

Hello Hansen: And we did this while managing costs down.

Hello Hansen: I am proud of our results as they reflect our team's innovation collaboration and sheer hard work.

Hello Hansen: Order by quarter, we are a stronger more efficient operating company with a system of compelling components tied together by loyalty and a commitment to customers at the core the.

Gregory Hicks: The engagement we saw this quarter reassures us that we are on the right track.

Hello Hansen: The engagement, we saw this quarter reassures us that we're on the right track.

Gregory Hicks: In closing, I want to thank all our team members for their commitment to making life in Canada better. This includes being there for our communities when they need us most. Our thoughts are with those whose lives have been significantly disrupted by the Alberta wildfires. In addition to making corporate donations, the 2024 Alberta wildfire appeal and rebuilding efforts, select Alberta stores across our network are accepting customer donations on behalf of the Red Cross. I also want to thank our Mark's team for stepping up to meet the first responders' urgent need for industrial boots, establishing supply lines virtually overnight.

Gregory Hicks: In closing, I want to thank all our team members for their commitment to making life in Canada better. This includes being there for our communities when they need us most. My thoughts are with those whose lives have been significantly disrupted by the Alberta wildfire. In addition to making corporate donations to the 2024 Alberta Wildfire Appeal and rebuilding efforts, select Alberta stores across our network are accepting customer donations on behalf of the Red Cross.

Hello Hansen: In closing I want to thank all our team members for their commitment to making life in Canada better.

Greg Hicks: Combined our Q2 observations and experiences help shape our view forward. The June rate cut by the Bank of Canada was too late in the quartered impact results. However, when combined with the July cuts the better weather we experienced in early Q3 and the fact that we are cycling lighter sales comps the environment appears more favorable for the balance of year.

Hello Hansen: This includes being there for our communities when they need us most.

Hello Hansen: Our thoughts are with those whose lives have been significantly disrupted by the Alberta wildfires.

Hello Hansen: In addition to making corporate donations for the 2020 for Alberta, wildfire appeal and rebuilding efforts select Alberta stores across our network are accepting customer donations on behalf of the Red Cross.

Greg Hicks: In February I outlined our focus on three points of leverage for 2024. Growing our Triangle Rewards membership, maximizing value from our existing assets and driving operating leverage. Let me give you a sense of our progress. Starting with Triangle Rewards, our Q2 loyalty sales were more resilient than non-loyalty sales and ECTM redemption was up more than 8% over last year. Continued proof of the appeal of Triangle Rewards. In addition to energizing existing members, we also attracted new ones.

Gregory Hicks: I also want to thank our marketing team for stepping up to meet the first responders' urgent need for industrial boots, establishing supply lines virtually overnight. And to our customers, thank you for your continued trust in us and for generously helping us raise nearly $6.5 million during Jumpstart Month so that more kids can overcome the barriers to sport and play.

Speaker Change: Also want to thank our marks team for stepping up to meet the first responders urgent need for industrial boots.

Speaker Change: Stablish and supply lines virtually overnight.

Gregory Hicks: And to our customers, thank you for your continued trust in us and for generously helping us raise nearly $6.5 million during Jumpstart Month so that more kids can overcome the barriers to support and play.

Hello Hansen: And to our customers. Thank you for your continued trust in us and for generously, helping us raise nearly $6 $5 million during jumpstart month, so that markets can overcome the barriers to sport and play.

Lauren Cannon: And with that, I'll turn it over to the operator for questions.

Speaker Change: And with that I'll turn it over to the operator for questions.

Lauren Cannon: At this time, I would like to remind everyone: in order to ask a question, please press star, then one one on your telephone keypad. To withdraw your question, please press 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. We'll pause for just a moment to compile the Q&A roster.

Operator: At this time, I would like to remind everyone, in order to ask a question, please press star then one on your telephone keypad. To withdraw your question, please press star then one again. We ask that you limit yourself to one question plus one follow-up question before cycling back into the queue. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Irene Nattel with RBC Capital Markets. Your line is now open.

Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press Star then one on your telephone keypad.

Greg Hicks: Growing both active registered members and promotable members in the quarter. We saw an encouraging response to our MACSDAQ promotion in May which allowed customers to stack deals earning Canadian entire money multipliers at Canadian Tires, Sportcheck and Marks. This is important because it was the first time we coordinated a loyalty campaign of this magnitude across our multi-category banners. Further establishing Triangles that are the strategic system that binds our retail businesses together. The promotion required significant coordination between our loyalty marketing and banner business teams and collaboration with associate dealers and store operators.

Speaker Change: Withdraw your question. Please press 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.

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

Irene Nattel: Our first question comes from the line of Irene Natel with RBC Capital Markets.

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

Gregory Hicks: Your line is now open. Thanks and good morning, everyone. Thank you for all of the commentary on consumer demand. When we look at what you delivered at CTR and compared to prior downturn, it kind of seems to be consistent. But you also have a whole lot more color now than you have previously on what consumers are doing and spending. So how have you categorized what you're seeing now? What is the best way for us to think about the evolution as we go into 2025? And you know, what if anything more can you do to help deliver better results, even if spending remains where it is today?

Irene Nattel: Thanks and good morning everyone. Thank you for all of the commentary on consumer demand. When we look at what you delivered at CTR and compare it to prior downturns, it kind of seems to be consistent, but you also have a whole lot more color now than you did previously on what consumers are doing in terms of spending. So how would you categorize what you're seeing now? What is the best way for us to think about the evolution as we go into 2025? And, you know, what, if anything, more can you do to help deliver better results even if spending remains where it is today?

Irene <unk>: Thanks, and good morning, everyone and thank you for all of our commentary.

Irene <unk>: On consumer demand when we look at what you delivered at Ctr and compare it to prior downturn to it kind of seems to be consistent.

Speaker Change: You also have a whole lot more color now than you have previously on what consumers are doing and spending so how do you categorize what you are seeing now.

Greg Hicks: It showed how effectively we can move beyond a banner specific approach focusing instead on an enterprise-wide commitment to the customer as our collective starting point. Simply put, by knocking down silos, we created more value for our members. Not only did the promotion drive record loyalty penetration, but it also significantly increased new membership uptake. We welcomed almost 75,000 new members and 40% of them remained active purchasers within the Triangle system after the event.

Speaker Change: What is the best way for us to think about the evolution as we go into 2025.

Irene <unk>: And.

Speaker Change: What if anything more can you do.

Speaker Change: To help us deliver better result, even spending remains where it is today.

Gregory Hicks: Hello. Good morning, Irene. It's Greg.

Gregory Hicks: Oh, good morning, Irene. It's Greg. Maybe I'll start.

Irene <unk>: Hey, good morning, Irene it's Greg maybe I'll start TJ may have some color too as it seemed to be a little more focus on ctr look I think.

Gregory Hicks: Maybe I'll start. TJ may have some color too, as it seemed to be a little more focused on CTR. Look, you know, I think, as you suggest, the evidence, you know, is clear that consumers are still facing challenges. You know, data from our credit cards show that spending is down in almost all external categories and in all markets across the country. So ultimately, the trends that we've been seeing for the past few quarters continue to persist; you know, just consumers are spending less, their focus on essentials and where they could really get value. And as you point out, I think with our data, which would be, you know, very different from where we found ourselves in the 0809 standpoint, we can really, you know, dig deeper.

Gregory Hicks: TJ may have some color too, as it seemed to be a little more focused on CTR. Look, you know, I think as you suggest, the evidence is clear that consumers are still facing challenges. Data from our credit cards show that spending is down in almost all external categories and in all markets across the country. So ultimately, the trends that we've been seeing for the past few quarters continue to persist.

Speaker Change: As you suggest the evidence is clear that consumers are still facing challenges.

Greg Hicks: This is behavior we foster and track closely. I'm also pleased to report that more than a quarter million Canadians have now linked their petro points and triangle rewards accounts. More importantly, these linked members spent 9% more across our retail businesses than in Q2 of last year, demonstrating the value for everyday needs that this partnership provides. As with loyalty, we remain focused on driving leverage and our existing assets to provide better customer experiences.

Speaker Change: Data from our credit card show that spending is down in almost all external.

Irene <unk>: Categories and in all markets across the country.

Irene <unk>: So ultimately the trends that we've been seeing for the past few quarters continue to persist just consumers are spending less theyre focused on essentials, and where they can really get value.

Gregory Hicks: Consumers are spending less; they're focused on essentials and where they can really get value. And as you point out, I think with our data, which would be very different from where we found ourselves in the 08-09 standpoint, we can really dig deeper and see that the reality is that consumption patterns are less dependent on income levels, and they're more dependent on household debt. And indebted households, regardless of their income level, are consuming much less, especially in discretionary businesses.

Speaker Change: And as you point out I think with our with our data, which would be very different from where we found ourselves in <unk>.

Greg Hicks: We are continuing to surface more value from our digital investments. Our modern ODP e-commerce platform has made us more innovative and nimble allowing us to test a new idea or feature in one banner, and if it works, quickly roll out the same modular solution to other banners. This has led to simple but meaningful improvements, like a seamless checkout with simplified three box fulfillment options, single sign on across our banners, and the addition of compelling triangle rewards offers on our websites.

Irene <unk>: Standpoint, we can really dig deeper.

Gregory Hicks: And the reality is the consumption patterns are less dependent on income level, and they're more dependent on household and debtiness. And indebted households, regardless of income level, are consuming much less, especially in discretionary businesses. And as I called out on my prepared remarks, the highest indebted households in Canada are in Vectom. And we're seeing a real performance of bifurcation, a separation between Vectom performance and non Vectom performance that hasn't been the traditional run rate for us. So, and it's growing. You know, it grew in Q2. So, you know, I think from our standpoint, these are the realities of the market.

Irene <unk>: And the reality is the consumption patterns are less dependent on income level and they're more dependent on household indebtedness.

Irene <unk>: And indebted households, regardless of income level are consuming much less especially in <unk>.

Irene <unk>: Discretionary businesses and as I called out.

Gregory Hicks: And as I called out in my prepared remarks, the highest indebted households in Canada are in Vectom, and we're seeing a real performance bifurcation, a separation between Vectom performance and non-Vectom performance. That hasn't been the traditional run rate for us. And it's growing; it grew in Q2. So I think from our standpoint, these are the realities of the market. We talked to you about our focus as we kicked off the year in 2024 with the three focus areas that I outlined today.

Irene <unk>: In my prepared remarks, the highest indebted households, in Canada and back down and we're seeing a real performance.

Speaker Change: Bifurcation of separation.

Speaker Change: Between back Dom performance in non backed on performance that hasnt been the traditional run rate for us so.

Greg Hicks: Customer-facing AI specifically, our CT generative AI shopping assistant, is now live and driving online tire conversion with the potential to extend the platform beyond tires. Our auto service digital assets are saving customers valuable time. In the quarter, 20% of all service appointments were booked online, and over 400,000 service reminders were sent digitally. All helping to drive our auto service business up 7%. Our in-store roll-out of pickup lockers is now complete, with our implementation of Scan and Buy an electronic shelf label technology close behind.

Speaker Change: And it's it's growing and it grew in Q2, so I think from from our standpoint. These are the realities of the market.

Gregory Hicks: You know, we talked to you about our focus as we kicked off the year in 2024 with the three focus areas that I outlined today. It's really, you know, the playbook. As we, until we get a different demand signal, the playbook that we have for 2025 is exactly the playbook that we've been deploying here in 2024. You know, it's about leverage, leverage with our membership, leverage in the assets that we built, and operating leverage. And, you know, we don't expect to see material growth in the economy as we move forward in the last six months of this year.

Speaker Change: Talk to you about our focus as we kicked off the year in.

Speaker Change: 2024, with the three focus areas that I outlined today.

Gregory Hicks: It's really the playbook as we, until we get a different demand signal, the playbook that we have for 2025 is exactly the playbook that we've been deploying here in 2024. It's about leverage, leverage with our membership, leverage in the assets that we built, and operating leverage. And we don't expect to see material growth in the economy as we move forward in the last six months of this year. I think that is broadly in line with the expectations of the market.

Speaker Change: It's really the playbook as we until we get a different demand signal. The playbook that we have for 2025 is exactly the playbook that we've been deploying here in 2024.

Speaker Change: It's about leverage leverage with our MA membership leveraging the assets that we built.

Speaker Change: And operating leverage and.

Greg Hicks: And at marks, we continue to increase the speed of our buy online pickup in store fulfillment, with many orders now being completed in less than an hour. In bricks and mortar, we continue to move at pace. We open 18 refreshed or expanded CTR stores in the quarter, along with four new pro hockey life stores, furthering our reach into key Ontario hockey markets. And by relocating three mark stores into former bed bath and beyond locations, we can now showcase a much broader assortment to our customers.

Speaker Change: We don't expect to see material growth in the economy as we move forward.

Speaker Change: In the last six months of this year I think that is broadly in line with the expectations of the market.

Gregory Hicks: I think that is broadly in line with the expectations of the market.

Gregory Hicks: And so, we'll certainly let you know when we've got visibility in terms of how the playbook needs to change. But right now, as we tried to really, you know, focus on the prepared marks, I want, you know, everybody to know our teams are working extremely hard strategically and tactically to grow this business to learn more about consumption patterns, elasticity by category, et cetera. The models are getting smarter on that front as we move forward. And we're doing everything we can to stimulate demand. And as I said, I think it's more of the same; more of the same going forward.

Gregory Hicks: And so we'll certainly let you know when we've got visibility in terms of how the playbook needs to change. But right now, as we try to really focus on the prepared remarks, I want you, everybody, to know our teams are working extremely hard strategically and tactically to grow this business, to learn more about consumption patterns, elasticity by category, et cetera. The models are getting smarter on that front as we move forward.

Speaker Change: And so on.

Speaker Change: We will certainly let you know when we've got visibility in terms of how the playbook needs to change.

Speaker Change: But right now as we tried to really focus on the prepared remarks, I want everybody to know.

Speaker Change: Our teams are working extremely hard strategically and tactically to grow this business to learn more about consumption patterns elasticity by category et cetera. The models are getting smarter on that front as we move forward.

Greg Hicks: We also tried something new, opening a Ford with design pop-up store in Toronto, a great way to drive awareness and sales while engaging and learning from our core customers through authentic experiences. Most important here, our customers are taking notice of our improvements. Even at a time when the average consumer is stretched and stressed, we are charting, improved in-store and digital NPS satisfaction scores. In other words, we are enhancing their experiences, even while tightening our costs.

Gregory Hicks: And we're doing everything we can to stimulate demand. And as I said, I think it's more of the same going forward, as we start to compile some of the activity. We would expect to see some relief on a going forward basis.

Speaker Change: And we're doing everything we can to stimulate demand and as I said I think it is.

Speaker Change: It's more of the same.

Speaker Change: More of the same going forward and as we start to comp.

Gregory Hicks: And as we start to comp, you know, some of the activity we would expect to see some relief on a go forward basis.

Speaker Change: Some of the activity, we would expect to see some relief on a go forward basis.

Irene Nattel: That's really helpful. Thank you.

Irene Nattel: That's really helpful. Thank you.

Speaker Change: That's really helpful. Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Brian Morrison with TD Counts. Your line is now

Lauren Cannon: One moment for our next question.

Speaker Change: Thank you.

Brian Morrison: Question. Our next question comes from the line of Brian Morrison with TD Counts.

Speaker Change: Our next question.

Greg Hicks: Finally, I'll quickly touch on operating leverage. Our merchant teams continue to adapt to a cautious discretionary demand environment. This is why we're leaning into essentials through our privilege on brand capabilities and key businesses like auto service. At the same time, our team is focused on driving new products and value for customers. In the case of CTR, new product sales were up 4%, representing a higher percentage of the overall sales mix. And both Sportcheck and Marks are generating strong results and innovation with popular brands like Hoka, On, Reebok, Silver, and Timberland Pro.

Speaker Change: Our next question comes from the line of Brian Morrison with TD Count your.

Brian Morrison: Your line is now open. Oh, thanks very much.

Speaker Change: Your line is now open.

Brian Morrison: Oh, thanks very much. So, TJ, I have a question for you, please. I'll let others go through the gross margin, the SG&A, but I want to talk to you about the inventory position. It's down 15% at Corp. I presume it's getting better at the dealer level. Can you just talk to us about dealer inventory levels and how the revenue retail mismatch stabilized in this quarter? I assume you're going to have to catch up and believe you exited winter at the dealers pretty lean last year. So just talk to us about dealer replenishment, your dealer replenishment needs as we look out to the fall and holiday, please.

Brian Morrison: Alright, thanks, very much. So TJ question for you. Please I'll, let others go through the gross margin the SG&A, but I wanted to talk to you about the inventory position is down 15% at Corp. I presume. It is getting better at the dealer level can you just talk to us about dealer inventory levels and with the revenue retail mismatch stabilized in this quarter I assume youre going to have a catch up in <unk>.

TJ Flod: So, TJ, question for you, please. I'll let others go through the gross margin, the SG&A, but I want to talk to you about the inventory position. It's down 15% of Corp. I presume it's getting better at the dealer level. Can you just talk to us about dealer inventory levels and with the revenue retail mismatched stabilized in this quarter? I assume you're going to have a catch up and believe you with the expected winter at the dealer's pretty lean last year. So, just talk to us about dealer replenishment needs as we look out to the fall and holiday, please.

Speaker Change: <unk> exited winter at the dealers pretty lean last year, So just talk to us about dealer replenishing replenishment.

Speaker Change: Replenishment needs as we look out to the fall and holiday. Please.

TJ Flod: Brian, it's TJ. Thanks for the question. There's a lot in there. So, let me unpack a little bit some of your question. As you pointed out from a corporate standpoint, we continue to make significant progress in managing down our inventory during the quarter. And, as you pointed out, we are down 15%. So, that definitely helped us on the off-ex side. And given the changing consumer demand patterns, we're very focused on adjusting our buys and being surgical and strategic as we look to continue to manage our inventory levels well as we look to the back half of the year.

Thomas Flood: Hey, Brian. It's, it's TJ. Thanks for the question. There's, there's a lot in there. So let me, let me unpack a little bit, some of your questions. As you pointed out, from a corporate standpoint, we continue to make significant progress in managing down our inventory during the quarter. And as you pointed out, we are down 15%. So that definitely helped us on the OPEX side. And given the changing consumer demand patterns, we're very focused on adjusting our buys and being surgical and strategic as we look to continue to manage our inventory levels well as we look to the back half of the year.

Greg Hicks: There's no question across our banners. We are working hard internally and with vendors strategically and tactically to drive sales. There's excitement in our stores, but the top-line environment is still tough. So we continue to place heightened emphasis on controlling our costs, improving our retail margins, and managing our inventory.

Speaker Change: Hey, Brian It's T. J. Thanks for the question there is theres a lot in there. So let me let me unpack a little bit some of some of your question as you pointed out from a corporate standpoint.

Speaker Change: We continue to make significant progress in managing down our inventory during the quarter and as you as you pointed out we were down 15%. So that definitely helped us on the opex side and given the changing consumer demand patterns, we're very focused on adjusting our buys and being surgical.

Greg Hicks: In addition to GNA leverage, we've made significant improvements in our run rate supply chain costs, which Gregory will detail in his prepared remarks. We are driving variable efficiencies through our modernization efforts specifically. Our fully automated GTA DC and in-quarter implementation of our Calgary DC is good to person technology. Our network is operating very well right now, with fill rates higher than they have been in years, all well managing our inventory down.

Speaker Change: And strategic as we look to continue to manage our inventory levels as well as we look to the back half of the year.

Thomas Flood: And that means leaning more into essentials as we continue to see that gap between essentials and discretionary performance. So we're definitely surgically investing in essentials as we go forward here. And I did want to point out we are buying for stronger demand in Q4, coming off a very tough Q4 last year. And we do expect, as I said, strength and essential categories, and a couple I'll give you a flavor for automotive, household cleaning, and pet.

TJ Flod: And that means leaning more into essentials as we continue to see that gap between essentials and discretionary performance. So, we're definitely surgically investing in essentials as we go forward here. And I did want to point out we are buying for stronger demand in Q4, coming off a very tough Q4 last year. And we do expect, as I said, strength and essential categories in a couple. I'll give you a flavor for automotive household cleaning and pat. Those are some of the areas that we're going to lean into. And just a reminder, the Q4 is skewed more essential than Q2 and Q3.

Speaker Change: And that means leaning more into essentials as we continue to see that gap between essentials and discretionary performance. So we're definitely surgically investing in essentials as we as we go forward here and I did want to point out we are buying for stronger demand in Q4 coming off a very tough Q4 last year and we do it.

Speaker Change: <unk> as I said strengthen our central categories in a couple of I'll give you a flavor for automotive.

Greg Hicks: Our resulting inventory position contributes to our optimism, and the confidence that we are ready for customers when they are ready to spend. Today our stores have fresh, new assortments, and our merchants are buying with an eye to better days ahead. Finding ways to accrete earnings and generate strong free cash flow and an environment like this requires a team effort, and I am pleased with our progress year-to-date.

Thomas Flood: Those are some of the areas that we're going to lean into. And just a reminder that Q4 is skewed more essential than Q2 and Q3. So that kind of gives you a flavor on the corporate side.

Speaker Change: So cleaning and Pat and those are some of the areas that we're going to lean into and just a reminder, that Q4 is skewed more essential than as Q2 and Q3. So that kind of gives you a flavor on the on the corporate side and then from a dealer standpoint, I think it's important to understand that after two consecutive.

TJ Flod: So, I kind of give you a flavor on the corporate side. And then from a dealer standpoint, I think it's important that to understand that after two consecutive quarters where consumption outpaced dealer buying, we saw dealer buying patterns near consumption much more closely in Q2. And so the dealers finished down about 6% in inventory year over year. And as we look forward to the back half of the year, we feel good about where they landed in winter categories. As we finished off the winter in Q1 and they drew down inventory relative to how they closed last year's winter.

Thomas Flood: And then from a dealer standpoint, I think it's important to understand that after two consecutive quarters where consumption outpaced dealer buying, we saw dealer buying patterns mirror consumption much more closely in Q2. And so dealers finished down about 6% in inventory year over year. And as we look forward to the back half of the year, we feel good about where they landed in winter categories as we finished off the winter in Q1.

Speaker Change: Quarters, where consumption outpaced dealer buying we saw dealer buying patterns mirror consumption much more closely in in Q2.

Gregory Craig: And with that, I'll pass it over to Gregory. Thanks, Greg.

Gregory Craig: Good morning, everyone. I'll start with the headline financials. EPS for the quarter was strong, up 48 cents on a normalized basis to $3.56. Driven by improved retail profitability and a one-time gain on the sale of a property, which represented about 17 cents at the EPS level. Last quarter, we said we would not take our eye off controlling what we could control. In Q2, improved retail profitability was the result of a strong gross margin rate and off-ex discipline, which offset revenue declines and higher finance costs due to the CTFS repurchasing.

Speaker Change: So the dealers finished down about 6% in inventory year over year and as we look forward to the back half of the year, we feel good about where they landed in winter categories. As we finished off the winter in Q1, and they drew down inventory relative to how they.

Thomas Flood: And as I mentioned on the last call, we've got some early signals on Christmas dealer orders, and they came in as expected as well. So as we look forward, we expect their buying to be more closely reflective of what they're seeing from a consumer demand standpoint, and we're not expecting them to deploy any build or burn strategy as we go forward.

Speaker Change: They closed last year's winter and as I mentioned on the last call. We've got some early signals on Christmas dealer orders and they came in as expected as well. So as we look forward, we expect their buying to be more closely reflective of what theyre seeing from a consumer demand standpoint.

TJ Flod: And as I mentioned on the last call, we've got some early signals on Christmas dealer orders, and they came in as expected as well. So, as we look forward, we expect they're buying to be more closely reflective of what they're seeing from a consumer demand standpoint. And we're not expecting them to deploy any build or burn strategy as we go forward. We think it's going to be a lot closer linked to POS. So that's how we see it.

Gregory Craig: Over the last few quarters, we've seen a disconnect between the growth rate of retail revenue and sales, led by CTR. But we saw that gap closed this quarter. Excluding petroleum, retail revenue was down 4.3 percent, essentially in line with sales as dealers, branch eyes, and wholesalers continue to manage inventory carefully. Retail sales were 5 billion in the quarter, down 4.1 percent, and down 4.6 percent on a comparable basis, excluding petroleum. From a trend point of view, we saw more significant decline in sales in the earlier part of the quarter, which improved in June, as we cycled weaker comps, and then saw the arrival of more seasonal weather.

Speaker Change: And we're not expecting them to deploy any build or burn strategy. As we go forward. We think it's going to be a lot lot closer linked to Pos So that's how we see it.

Thomas Flood: We think it's going to be a lot closer linked to POS, so that's how we see it. There's a lot in that, and obviously, there are a lot of quarters to play in Q3 and Q4 is big for us, but that's how we see it as we go forward here.

Brian Morrison: There's a lot in that, and obviously a lot of quarter to play in Q3, and Q4 is big for us. But that's how we see it as we go forward here. Okay, so it sounds like it's a little like going into winter.

Speaker Change: There's a lot in that and obviously a lot of quarter to play in Q3, and Q4 is big for us, but thats, how we see it as we go forward here.

Gregory Craig: Okay, so it sounds like it's a little light going into winter. Um...follow-up question or second, I guess, partial question, but Gregory, I want to look at CTFS for a minute. Your GAR is up, your write-offs are up, yet your allowance provision is flat sequentially. The banks are increasing their card provisions, but you appear to have this under control. I hope you can maybe share some of this relative outperformance and how sequentially your PD2 plus is down sequentially.

Speaker Change: Okay. So it sounds like it's a little like going into winter.

Brian Morrison: Follow a question or second, I guess partial question, but Gregory, I want to look at the CTFS for a minute. Your car is up. You're right off the road. Yet your allowance provision is flat sequentially. The banks, they're increasing their car provisions, but you appear to have this under control. I hope you can maybe share some of this relative though performance and how sequentially your PD2 Plus is down sequentially.

Speaker Change: Follow up question or I.

Speaker Change: I guess personal question, but.

Gregory: Gregory I want to look at the CTF customer a minute Youre GARS up Youre right officer up yet your allowance provision was flat sequentially. The banks they are increasing their card provisions, but you appear to have this under control I hope you can maybe share some of this relative outperformance and how sequentially your.

Gregory Craig: As Greg has highlighted, we were encouraged by the growth we saw in the Atlantic Canada region, where sales were up across each of our major banners and up 2 percent overall. We also continue to track the progress we are making with the customer, and we were pleased with the results this quarter. Strong engagement, based on the initiatives we are undertaking, continued to drive loyalty sales out performance, with more members scanning their cards.

Speaker Change: PD two plus is down sequentially.

Gregory Craig: Yeah, thanks, Brian. I think part of this kind comes back to how, you know, the CDVS team has kind of managed throughout, frankly, going back to COVID days, if you can believe it. I mean, if I take it back historically, you know, I think the team recognized, you know, there might have been a change in the temporary, you know, we go back to the serve payments, but the reality was the underlying risk of the assets didn't change. So I think the team were a lot more conservative around kind of movements in the allowance down. And because I think we just fundamentally believed it was a timing issue, and the risk of that of our customer wasn't different.

Gregory Craig: Yeah, thanks, Brian. I think part of this kind of comes back to how, you know, the CDFS team has kind of managed throughout, frankly, going back to COVID days, if you can believe it. I mean, if I take it back historically, you know, I think the team recognized, you know, there might have been a change in the temporary, you know, we go back to the CERB payments, but the reality was the underlying risk of the assets didn't change. So I think the team was a lot more conservative around kind of movements in the allowance down.

Brian Morrison: Yes, Thanks, Brian.

Speaker Change: I think part of this kind of comes back to how the <unk> team is kind of managed throughout frankly going back to Covid days. If you can believe it I mean, if I take you back to historically.

Speaker Change: I think the team recognized there might've been a change in the temporary we go back to the serve payments, but the reality was the underlying risk of the assets didn't change. So I think the team. We're a lot more conservative around kind of movements in the allowance down and because I think we just fundamentally believed it was a timing issue.

Gregory Craig: Now, let me unpack some of the detail of how sales came to us by banner. Comparable sales at CTR were down 5.6% in Q2. Software consumer demand was the primary factor, leading to a double digit decline in the high ticket discretionary categories, like backyard living, which typically drive sales in our most discretionary quarter. That contributed to an 8% decline in discretionary sales at CTR. As Greg mentioned, weather was unseasonably cold, particularly in the western provinces, including Alberta, where it snowed in mid-June.

Gregory Craig: And because I think we just fundamentally believed it was a timing issue, and the risk of that for our customer wasn't different. So I think that's really how we've handled it from a CDFS perspective. And that's why, you know, when you look at it now, and, you know, I know it might sound counterintuitive, but I think some of those relationships you're talking about are related. So what I mean by that is, you know, the write-off rate being 6.7% now really is attributed to, frankly, kind of the credit risk and the growth strategy, the new accounts we had kind of 18 months ago.

Speaker Change: And the risk of that.

Gregory Craig: So I think that's really how we've handled it from a CDFS perspective. And that's why, you know, when you look at it now, and, you know, I know it might sound counterintuitive, but I think some of those relationships you're talking about are related. So what I mean by that is, you know, the right off rate being 6.7% now really is attributed to, frankly, kind of the credit risk and the growth strategy, the new accounts we had kind of 18 months ago, but that gets exaggerated because the minute you stop growing, you know, the right off rate is a mathematical equation, and you're starting to slow your denominator.

Speaker Change: Customer wasn't different so I think that's really how we handle it from a <unk> perspective, and Thats why when you look at it now.

Speaker Change: I know it might sound counterintuitive, but I think some of those relationships youre talking about are related so what I mean by that is you know.

Gregory Craig: Across the country, it was also wetter, with more days of rain compared to last year. With cold and wet weather, fewer people came to the store for categories. Such as gardening and watering and weather associated baskets were down. Sales and home environment categories, including air purifiers and air conditioners, were also down compared to last year when we were experiencing higher temperatures in many parts of the country. The bright light was automotive, where trips were stable.

Speaker Change: The write off rate being six 7% now really is attributed to frankly kind of the credit risk and the growth strategy is new accounts, we had kind of 18 months ago, but that gets exaggerated because the minute you stop growing the.

Gregory Craig: But that gets exaggerated because the minute you stop growing, you know, the write-off rate is a mathematical equation, and you're starting to slow your denominator. So you kind of have a bit of a self-fulfilling prophecy around an increase in the write-off rate. And what we're trying to say on the call, what we're encouraged by is that the early buckets, the pre-PD2 buckets, are actually looking, you know, better. So I would say this is exactly where we would expect all these drivers to be.

Speaker Change: <unk> freight is a mathematical equation and youre starting to slow your denominator. So you kind of have a bit of a self fulfilling prophecy around an increase in the write off rate and what we were trying to stay on the call that we're what we're encouraged by is the early buckets. The pre PD two buckets are actually looking better.

Gregory Craig: So you kind of have a bit of a self-fulfilling prophecy around an increase in the write-off rate. And what we were trying to say on the call that what we're encouraged by is the early buckets, the pre-KD2 buckets are actually looking, you know, better. So I would say, this is exactly where we would expect all these drivers to be, and the team's, you know, comfortable. You know, the one watch item that I would say, as we move forward, the unemployment rate has ticked up a little. And the team stands by to watch out kind of what impact if that were to have on the bankruptcy and solvency side of things.

Gregory Craig: Essential categories and auto labor grew, resulting in an overall increase of 2% and our 16th consecutive quarter of growth in automotive. At SportCheck, comparable sales were down 0.9%. This was an improving trend over the prior quarters, and external data points suggest we outperform the market. Although categories like cycling and casual wear were down compared to last year, SportCheck's performance were helped by strong and stock positions, and good sales was footwear, with lifestyle performing particularly well.

Speaker Change: So I would I would say we this is exactly where we would expect all of these drivers to be.

Gregory Craig: And the team's, you know, comfortable. The one watch item that I would say as we move forward is the unemployment rate has ticked up a little, and the team stands by to watch out kind of what impact that would have on the bankruptcy and solvency side of things. But no, I think we're really pleased with how the team has kind of managed this through the last two years to try to minimize, frankly, quarter to quarter volatility.

Speaker Change: And the team is comfortable.

Speaker Change: One watch item that I would say as we move forward the unemployment rate has ticked up a little.

Speaker Change: And the team stands by to watch out kind of what impact if that were to have on the bankruptcy and solvency side of things, but no I think we're really pleased with how the teams kind of manage this through the last two years to try to minimize frankly quarter to quarter volatility.

Gregory Craig: But now, I think we're really pleased with how the teams kind of managed this through the last two years to try to minimize, frankly, quarter-to-quarter volatility. All right, it's impressive.

Brian Morrison: All right, that's impressive. Good quarter.

Gregory Craig: Across other categories, fanwear and team sports also grew. We are pleased with where the team has taken the business in recent quarters. Refresh stores are driving incremental growth, with better positioning of key brands. The business has also been leveraging incremental triangle promotions and targeted in-store events to stimulate demand and a highly competitive environment. This included the MAC stack event during the quarter. At Marks, comparable sales were down 0.8%, as the lower traffic and weak consumer demand we experienced in March continues in the Q2.

Speaker Change: Alright, thats impressive quarter.

Brian Morrison: Good quarter. Thank you.

Speaker Change: Yes.

Speaker Change: Thank you.

Jonathan Matuszewski: Our next question comes from the line of Jonathan Matizewski with Jeffries. Your line is now open. Oh, hey, good morning. Thanks for taking my question. I wanted to zoom in on your observations regarding the promotional backdrop. It feels like promotions were higher year year in retail. That said, your retail gross margin, excluding petroleum, was better than what we had envisioned.

Operator: Our next question comes from the line of Jonathan Matuszewski with Jeffreys. Your line is now open.

Speaker Change: Our next question comes from the line of Jonathan <unk> with Jefferies. Your line is now open.

Jonathan Matuszewski: Oh, hey, good morning. Thanks for taking my question. I wanted to zoom in on your observations regarding the promotional backdrop. It feels like promotions were higher year over year in retail. That said, your retail gross margin excluding petroleum was better than what we had envisioned. So, just wanted to get your thoughts in terms of the promotional activity you're seeing in the competitive landscape and, you know, whether you're expecting, you know, based on, you know, some sequential improvement from May to June in terms of comp sales.

Jonathan <unk>: Oh, Hey, good morning, Thanks for taking my question.

Jonathan <unk>: I wanted to zoom in on your observations regarding the promotional backdrop.

Speaker Change: It feels like promotions were higher year over year in retail.

Speaker Change: That said your retail gross margin, excluding petroleum was better than what we had envisioned.

Gregory Craig: Given the colder and wetter weather, Marks was able to deliver on its mission to keep Canadians warmer and drier. Outer wear sales were up, but were offset by declines in industrial and men's casual categories, with men's shorts in particular down compared to last year. Increased use of promotions were also key to driving sales in the quarter, and continues to attract new customers to CDC. Finally, at Heli Hansen, revenue was up 1%.

Gregory Hicks: So just wanted to get your thoughts in terms of the promotional activity you're seeing in the competitive landscape. And, you know, whether you're expecting, you know, based on, you know, some sequential improvement from May to June in terms of comp sales. Are you expecting a shallower degree of promotional intensity as we head into, you know, the back half? And, and was there any changes in promotional activity in July that seemingly helped to spur some sequentially better trends, maybe versus the two key exit rate. Thanks so much.

Speaker Change: So just wanted to get your thought.

Speaker Change: In terms of the promotional activity you're seeing in the competitive landscape.

Speaker Change: Whether you're expecting based on some sequential improvement from May to June in terms of comp sales.

Jonathan Matuszewski: Are you expecting a shallower degree of promotional intensity as we head into, you know, the back half, and were there any changes in promotional activity in July that seemingly helped to spur some sequentially better trends, maybe versus the 2Q exit rate? Thanks so much.

Speaker Change: Are you expecting a shallower degree of promotional intensity as we head into the.

Gregory Craig: In a highly competitive environment, the US saw continued growth across all channels and market share gains. Outside of the US, wholesale was down as customers managed inventory. Retail any commerce sales declined, lacking major sailing events last year.

Speaker Change: The back half and was there any change has been promotional activity in July that seemingly help to spur some sequentially better trends may be versus that <unk> exit rate.

Gregory Craig: Moving now to retail gross margin. Retail gross margin dollars, excluding petroleum, were down, reflecting the decline in retail revenue, new. However, retail gross margin rate, excluding petroleum was up 36 basis points compared to last year at 36%. Heli Hansen contributed to the higher retail gross margin rate despite modest top line growth. Lower freight cross across CTC were also a tailwind, which offset the higher promotional intensity, its sport check and marks. As CTR, investments in key capabilities, such as the Margin Nerv Center, we have built health protect product margin and create room for us to make optimal use of promotions to drive sales.

Speaker Change: Thanks, so much.

Gregory Hicks: Good morning, Jonathan.

Gregory Hicks: Good morning, Jonathan. It's it's Greg here.

Speaker Change: Good morning, Jonathan.

Gregory Hicks: It's it's Greg here. I'll try and hit on the components, the large components of the question there. You know, in general, I think what we've seen from a promotional intensity standpoint is where our competitors have had. Bulges and builds in inventory. We've seen, you know, aggressive discounting to move that through. And I think about, you know, the Sport Chek and and Mark's business specifically in terms of where my mind goes to first. Any kind of branded D to see players and either of those businesses. I think, generally speaking, how to build up an inventory that they've been working through over the years.

Greg Greg: Greg here.

Greg Greg: I'll try and hit on the components.

Gregory Hicks: I'll try and hit on the components, the large components of the question there. You know, in general, I think what we've seen from a promotional intensity standpoint is where our competitors have had, bulges, and built an inventory. We've seen, you know, aggressive discounting to move that through. And I think about, you know, the sport check and Mark's business specifically in terms of where my mind goes to first, any kind of branded D to C players in either of those businesses. I think, generally speaking, how to build up an inventory that they've been working through over the course of the last 12, maybe even 18 months.

Speaker Change: Components of the question there.

Speaker Change: In General I think what we've seen from a promotional intensity standpoint is where where our competitors.

Greg Greg: Have had.

Greg Greg: Bulges and builds and inventory, we've seen aggressive discounting to move that through and I think about the sport chek and and.

Greg Greg: And Mark's business, specifically in terms of where my mind goes to first any kind of branded D to C. P.

Greg Greg: Players in either of those businesses.

Gregory Craig: While we continue managing levers to hold margins over the longer term, there will always be quarter to quarter variances during my business performance and mix. In Q2, this worked in our favor with margin coming in above our expectations. Turning now to SGNA, at a consolidated level, SGNA was down 6% on a normalized basis. In our retail segment, SGNA was down 60 million or 7%, despite increased real estate and store operation costs as we continued to invest in the business.

Greg Greg: I think generally speaking had a buildup in inventory that they've been working through over the course of the last.

Gregory Hicks: The course of the last 12, maybe even 18 months. And we've seen some pretty aggressive movements off map pricing for some of these brands that have caused, you know, real consternation for us in terms of providing and stacking up value, especially in a business like Sport Chek. We're seeing that real aggressive off map, almost more marked down activity, start to subside, not, you know, completely go away such that we're not paying attention or being concerned about it, but not as, you know, meaningful, an impact input and watch out as it was last quarter or in queue for.

Gregory Hicks: And we've seen some pretty aggressive movements off-map pricing for some of these brands that have caused, you know, real consternation for us in terms of providing and stacking up value, especially in a business like SportCheck. We're seeing that real aggressive off-map, almost more marked down activity start to subside, not, you know, completely go away such that we're not paying attention to or being concerned about it, but not as meaningful an impact, input, and watch out as it was last quarter or in Q4.

Greg Greg: 12, maybe even 18 months.

Greg Greg: And we've seen some pretty aggressive movements off map pricing.

Greg Greg: For some of these brands that have caused.

Greg Greg: Real consternation for us in terms of providing and stacking up value.

Greg Greg: Especially in a business like sport Chek.

Greg Greg: We're seeing that real aggressive off map.

Gregory Craig: There were three main sources of decline this quarter. First, supply chain savings were partly due to improved operating efficiencies. Last year, we exited third-party warehousing facilities as we reduced inventory, with nine facilities still in operation in Q2 of 2023, and a further six exited over the course of Q3 last year. We expect more modest savings in Q3, giving the timing of the exits last year. In addition, we also had some elevated costs in Q2 of last year for the temporary solutions put in place to cope with the impact of the DC fire.

Greg Greg: Almost more marked down activity start to.

Greg Greg: Subside not completely go away such that we're not paying attention or being concerned about it but not as meaningful on.

Greg Greg: On impact.

Greg Greg: And watch out as it was last quarter or in Q4, So I would expect that to continue for the for the back half of the year.

Gregory Hicks: So I would expect that to continue for the back half of the year. In CTR, you know, I don't think I'd comment about any increase from a competitive intensity standpoint over, you know, on a year-to-date basis. I think inventory seems to be, you know, in line. And so it's more, it's more traditional. You know, traditional discounting that we, you know, we continue to watch.

Gregory Hicks: I would expect that to continue for the back half of the year. In CTR, I don't think I'd comment on any increase from a competitive intensity standpoint over, you know, on a year-to-date basis. I think inventory seems to be, you know, in line. And so, it's more traditional, you know, traditional discounting that we continue to watch.

Speaker Change: In in Ctr.

Speaker Change: I don't think.

Speaker Change: I'd comment.

Speaker Change: About any.

Gregory Craig: Second, in addition to slowing growth and sustaining IT spend, the second half waiting of IT projects contributed to lower costs in Q2 this year. We expect this pattern to reverse, with higher costs in the back half of the year, given our planned project rollout. And third, we continue to operate with lower headcount and prioritize resourcing needs, which has resulted in slower hiring, contributing to lower personnel costs.

Speaker Change: The increase from a competitive.

Greg Greg: Intensity standpoint over on a year to date basis, I think inventory seems to be in line and so its more its more traditional.

Jonathan <unk>: Traditional discounting that we we continue to watch so I think the more important thing for US Jonathan is just.

Gregory Hicks: So I think the more important thing for us, Jonathan, is just, you know, how in an environment like this, similar to Irene's question, is how do you ensure you're getting the most amount of insight from a demand elasticity standpoint and how your models are applying those discounts to your own categories as opposed to, you know, looking outward. There's always nuances by region and whether and other circumstances when looking at just a 90-day window, but in general, we'd say that there does appear, especially in queue two, to be evidence of demand elasticity across many essential categories, especially in non-automotive categories.

Gregory Hicks: So, I think the more important thing for us, Jonathan, is just, you know, how in an environment like this, similar to Irene's question, how do you ensure you're getting the most amount of insight from a demand elasticity standpoint and how your models are applying those discounts to your own categories as opposed to... You know, looking outward, there's always nuances by region and weather and other circumstances when looking at just a 90 day window But in general, we'd say that there does appear, especially in Q2, to be evidence of demand elasticity across many essential categories, especially in non-automotive categories where our share is lower.

Jonathan <unk>: Now in an environment like this similar to Irene's question is is how do you. How do you ensure you are getting the most amount of insight from a demand elasticity standpoint, and how your models are applying those discounts to your own categories as opposed to.

Gregory Craig: Moving now to inventory. Overall, corporate inventory dollars were down 15% or $477 million. Active management of inventory across all banners contributed to the decline. CTR inventory was down as we continued to draw down in both non-seasonal and spring-summer categories. Dealer inventory was down 6% in Q2, with significant decreases in spring-summer categories. At the corporate level, we expect some modest growth in non-seasonal categories to ensure we're well stocked ahead of our biggest selling season in Q3 and Q4.

Speaker Change: Looking at word.

Speaker Change: There's always nuances by region.

Speaker Change: Whether in other circumstances when looking at just a 90 day window, but in general we would say that there does appear here, especially in Q2 to be evidence of demand elasticity across many essential categories, especially in non automotive categories, where our share is lower.

Gregory Hicks: Where are stairs lower? And in general, in general, again, there's less demand elasticity and high ticket discretionary businesses. And we really, you know, continue to take it on the chin and CTR for that portion of our business. So, I mean, overall, I like the way our capabilities are showing up here in this environment.

Gregory Craig: Let's now move on to the performance of the financial services business. Financial services performed as expected, with IBT ending at $89 million, flat to last year on a normalized basis. The 5% increase in revenue offset the increased funding costs and net impairment losses, as well as higher operational costs. Gross average receibles was up 3.2% growing at a slower pace than in Q1, with the increase mainly due to a 3% increase in average account balance.

Gregory Hicks: And in general, in general, again, there's less demand elasticity in high-ticket discretionary business; we really, you know, continue to take it on the chin and CTR for that portion of our business. So, overall, I like the way our capabilities are showing up here in this environment. And I think the last part of your question was, is there any incremental stimulus that we deployed in July that would have changed that, you know, top line trajectory for us? And the answer is, no.

Speaker Change: And in general in General again, Theres less demand elasticity in high ticket discretionary businesses and we really continue to take it on the chin in ctr for that portion.

Speaker Change: Of our business. So I mean overall I like the way our capabilities are showing up here in this environment and I think the last part of your question was is there any incremental stimulus that we deployed in July that would've changed that topline trajectory for us and the answer is no.

Gregory Hicks: And I think the last part of your question was, is there any incremental stimulus that we deployed in July that would have changed that, you know, top line trajectory for us? And the answer is no. The only thing that we have, which is a, you know, a fairly sizable dollar commitment on a year-over-year basis from an expense standpoint, is the Olympics advertising, but that, as you know, is more top of funnel and not really focused on, you know, generating demand at the, at the item level. But it certainly has, you know, some halo effect, you know, in the country for us.

Gregory Craig: For the first time this quarter, the impact of slowing acquisition in 2023 resulted in active accounts being flat, and we expect this slower acquisition and modest decline in car spend will continue to have an impact on the receivables growth rate. When it comes to credit risk metrics, these are continuing to attend as we've expected. At 33.3%, it showed a 35 basis point increase in aging relative to last year. However, it came in better than our expectations, and we're starting to see improvements in our earlier stages of aging. The allowance rate was 12.5% within our targeted range of 11.5% to 13.5%.

Jonathan Matuszewski: The only thing that we have, which is a, you know, a fairly sizable dollar commitment on a year over year basis from an expense standpoint is the Olympics advertising. But that, as you know, is more top of funnel and not really focused on, you know, generating demand at the item level. But it certainly has, you know, some halo effect, you know, in the country for us. But other than that, Jonathan, not much has changed from a stimulus standpoint, just the models getting smarter, really great color.

Speaker Change: The only thing that we have.

Speaker Change: Fairly sizable dollar commitment on a year over year basis from an expense standpoint, as the Olympics advertising, but that as you know is more top of funnel and not really focused on generating demand at the at the item level.

Speaker Change: But it certainly has some halo effect.

Gregory Hicks: But other than that, Jonathan, not much has changed from a stimulus standpoint; just the models getting smarter.

Jonathan <unk>: In the country for us, but other than that Jonathan not much has changed from a stimulus standpoint, just the model's getting smarter.

Jonathan Matuszewski: Really great color.

Jonathan Matuszewski: A really great caller. Thanks so much.

Jonathan Matuszewski: Thanks so much. Thank you.

Jonathan <unk>: Really great color. Thanks, so much.

Jonathan <unk>: Thank you.

Tamy Chen: Our next question comes from the line of Tamy Chen with BMO Capital Markets.

Operator: Our next question comes from the line of Tamy Chen with BMO Capital Markets. Your line is now open.

Speaker Change: Our next question comes from the line of Tami Chen with BMO capital markets. Your line is now open.

Tamy Chen: Your line is now open. Hi, good morning. Thanks for the question.

Tamy Chen: Hi, good morning. Thanks for the question. On the CTR thing, the intra-quarter trend, could you just talk about, I think you said exiting out in June was better than the quarter average. But was that still a negative comp? And just listening to you talk about now, at least until July, what you can see, you do sound more optimistic. And I'm wondering if that's purely from just a laughing perspective.

Speaker Change: Hi, good morning, Thanks for the question.

Gregory Craig: Meanwhile, our strategic review to consider a range of alternatives for the Canadian Tire Financial Services business is ongoing at this time. While we are not in a position to provide a specific update, the review remains a priority for us. We will be assessing alternatives on the basis of how they can help drive longer-term value for triangle and our retail business.

TJ Flod: On the CTR thing source, so the inter-quarter trend could you just talk about, I think you said exiting out in June, it was better than the quarter average. But, so was that still a negative confidence, just listening to you talk about now, at least to July of what you can see, you do sound optimistic and I'm wondering if that's purely from just a lack of something perspective, and I know Q4 last year was probably the easiest comp there, so I just wanted to get a sentence and wanted to make sure I heard right. Are you saying for July CTR things are sales right now, it's down 2%, did I hear that right?

Speaker Change: <unk>.

Speaker Change: Okay.

Speaker Change: Please go ahead Sir.

Speaker Change: Intra quarter trends could you just talk about I think you said exiting.

Speaker Change: Our engineering it was better than the quarter average, but that's still a negative comp just listening to you talk about now at least through July.

Gregory Craig: In the meantime, our focus is on ensuring that CTBS continues to form well and in line with our expectations as it did again in Q2, which brings me to capital allocation. We continue to fundamentally believe that a balanced and consistent capital allocation approach anchored on investing in our business for the longer term is the best approach. However, in the interest of protecting our investment-grade credit rating, we remain paused on shared buybacks until we are further along in our CTBS strategic review process.

Speaker Change: You do sound more optimistic and I'm wondering if that purely from just a lateral perspective than I thought.

Speaker Change: Q4 last year with private label.

Tamy Chen: And I know Q4 last year was probably the easiest comp there, so I just wanted to get a sense and wanted to make sure I heard right. Are you saying for July, CTR things are sales right now down 2%? Did I hear that right?

Speaker Change: Comps there so I just wanted to get a sense I wanted to make sure I heard Brian for July <unk> comp store sales right now down 2% did I hear that right.

TJ Flod: Hey, Tammy, it's TJ. Yeah, I think you interpreted that correctly. If you kind of map out those four months, the trajectory, each of the months April, May, June, and July were down, but the declines were improving over that time, and July was the month with the minus two, and that would have been the best of the four months. So that even interpreted correctly, we are seeing a slowing in the decline, which provides us a little bit of encouragement as we go forward, and I think as you, as you look to the back app, particularly in Q4, we are, we are facing a lot weaker comps than we would have been in the first half of the year, in particularly in Q2, so I think you've characterized it appropriately.

Thomas Flood: Hey, Tamy, it's TJ. Yeah, I think you interpreted that correctly. If you kind of map out those four months, the trajectory, each of the months, April, May, June, and July were down, but the declines were improving over that time. And July was the month with a minus two, and that would have been the best of the four months. So, as you've interpreted correctly, we are seeing a slowing in the decline, which provides us with a little bit of encouragement as we go forward.

Speaker Change: Hey, Tommy It's T. J, Yeah, I think you you interpreted that correctly, if you kind of map out those four months the trajectory each of the months April May June and July were down, but the declines were improving.

Gregory Craig: As we normally do, we plan to update you on our capital allocation plans for 2025 when we report our Q3 results in November.

T. J: Over that time in July was the was the month with with a minus two and that would have been the best of the four months.

Gregory Craig: Before I wrap up and hand the call back to Greg, I'll briefly highlight some considerations looking into Q3. The pace of the client at CTR slowed in July was sales down 2%. However, it's still early to call where Q3 sales were land with almost two months to go and the back to school season being an important driver of September sales. The weather has so far been working more in our favor, notwithstanding that it remains unpredictable.

Speaker Change: You've interpreted it correctly we are seeing.

Speaker Change: Hey.

Speaker Change: Boeing and the decline, which provides us a little bit of encouragement as we go forward and I think as you as you look to the back half, particularly in Q4, we are we are facing.

Thomas Flood: And I think, as you look to the back half, particularly in Q4, we are facing a lot weaker comps than we would have been in the first half of the year, and particularly in Q2. So I think you've characterized it appropriately.

Speaker Change: A lot weaker comps and we would've been in the first half of the year and particularly in Q2. So I think you characterized it appropriately.

Gregory Craig: We are hopeful that consumer sentiment may improve on the back of Bank of Canada's recent interest rate cuts. However, we saw the cycle of mortgage renewables to come over the next few quarters. We are also keeping an eye on employment trends, which historically the influence consumer demand and card holder behavior. We will be watching these developments closely as will our dealers as they finalize their orders for fall and for winter. Right now, it remains hard to tell how the revenue will flow, but we expect to be more closely linked to consumer demand over the next quarter or two. In that context, we will continue to maintain our balance between managing our margins and controlling costs while continuing to invest in the business.

Gregory Craig: Okay, and my other question is on the retail growth margin. So you listed a couple of things between how we have been the year over your freight dynamics, all of that, and some wonder if you could talk about what were the biggest factors to this strong result. Was it predominantly that year over your freight dynamic and specifically at CTR? I mean, when we think about the mix, you talk about how discretionary was weaker, and that's usually, I think, higher margin. So again, just a very surprising result. You can specifically talk about the margin at CTR, too, that drove this result.

Tamy Chen: Okay, and my other question is on the retail gross margin. So you listed a couple of things between Helly Hansen, the year-over-year freight dynamics, all of that. And so I'm wondering if you could talk about what were the biggest factors for this strong result. Was it predominantly that year-over-year freight dynamic? And specifically at CTR, I mean, when we think about the mix, you talked about how discretionary was weaker, and that's usually, I think, higher margin. So again, just a very surprising result. If you can specifically talk about the margin at CTR, too, that drove this result.

Speaker Change: Okay and my other question.

Speaker Change: On the retail gross margin. So you listed a couple of things.

Speaker Change: Okay.

Speaker Change: The year over year freight dynamics all of that and so I'm wondering if you could talk about what are the biggest.

Speaker Change: Factors to the strong resolve was it predominantly that year over year freight dynamic and specifically I think you are I mean, when we think about the next hearing you talk about how discretionary with weaker and that's really I think higher margin. So again, just a very surprising result, Ken.

Speaker Change: Specifically talk about the margin.

Gregory Craig: Thank you.

Speaker Change: Two that Joseph Thank you.

Gregory Craig: We go into Q3 with an equal measure of optimism and caution. We feel good about our performance on a year-to-date basis and about how that positions us for the second half of the year, but remain conscious that softer consumer demand will not reverse immediately. With some tougher coughs on off-backs as we come up in the Q3, we will continue to focus on managing our costs carefully.

Gregory Craig: Yeah, it's Gregory Tammy. Maybe I'll start in TGA, Greg. Want to jump on? I'm sure they will. I think what I would say is, in terms of the margin, we did call out, frankly, the two biggest impacts. Like, you know, Heli Hansen, although we said it was a modest kind of revenue side of things, it did contribute positively to the overall gross margin, and you hit on the second one, which was freight. And, you know, freight was across all businesses, clearly the most significant in CTR, and as we've talked to it, there was a big freight impact and big freight benefit in Q1.

Unknown Speaker: Thank you. Unknown Speaker Yeah, it's Gregory, Tamy. Maybe I'll start and TGA, Greg, want to?

Gregory Craig: Yeah, it's Gregory and Tamy. Maybe I'll start, and T.J. and Greg want to jump on.

Gregory: Yes, its Gregory Tammy, maybe I'll start and T J, Greg jump on I'm sure I'm sure they will.

Greg Greg: I think what I would say is in terms of the margin we did call out frankly, the two biggest impacts like Helly Hansen, Although we said it was a modest kind of revenue side of things. It did contribute positively the overall gross margin and you hit on the second one which was freight and.

Gregory Hicks: Our ability to navigate through these uncertain times and balance to delivering short-term results with investing in the long term is largely due to the significant efforts of our employees and our dealers. I want to thank them for everything that they continue to do.

Greg Greg: It was across all business is clearly the most significant in ctr and as we've talked about there was a big freight impacting big freight benefit in Q1.

Gregory Craig: You know, it was in Q2 as well, but we expect that benefits going to dissipate a little bit over time. It's going to get less and less as we're comping off it, and there's, you know, there's always, as you know, every quarter we seem to say this, but there's a thousand levers in margin.

Gregory Craig: I think what I would say is, in terms of the margin, we did call out, frankly, the two biggest impacts. Like, you know, Helly Hansen, although we said it was a modest kind of revenue side of things, it did contribute positively to the overall gross margin. And you hit on the second one, which was freight.

Speaker Change: It was in Q2 as well, but we expect that benefit is going to dissipate a little bit over time, it's going to get less and less as we're comping off that and there is there is always is every quarter, we seem to say this but theres a thousand leavers in margin. So for every freight benefit there is an FX Costco and kind of the other way, which in my mind is why I always try to take us back to kind of what our long term.

Greg Hicks: With that, I'll hand it over to Greg for his closing remarks. Thanks, Gregory. Although Q2 was not what we wanted in terms of sales, we understand and sympathize with Canadian consumer caution. Ultimately, we don't control the state of household economics or the weather. So, we controlled what we could. We created more value through trying a rewards, which drove membership numbers and recurring revenue. We offered a more seamless shopping experience across our channels, maximizing our digital assets and pushing our NPS scores up.

Gregory Craig: So for every freight benefit, there's an effects cost going kind of the other way, which in my mind is why I always try to take us back to kind of what our long term aspiration is, which is the kind of maintain the games we had during the kind of that COVID period, recognizing any quarter, there could be quarter-to-quarter noise. But you talk business mix, automotive was up in the quarter, that's our high, you know, higher margin business, and you know, it's actually might sound counterintuitive, but are actually the margin profile in the essential business is much stronger than you might think actually kind of help us in the quarter.

Speaker Change: Aspiration is which is to kind of maintain the gains we had during that kind of that COVID-19 period, recognizing any quarter, there could be quarter to quarter noise.

Speaker Change: But you talked business VIX automotive was up in the quarter, that's our higher margin business and.

Speaker Change: It's actually might sound counterintuitive, but are actually the margin profile in the essential business is much stronger than you might think actually kind of helped us in the quarter. So look I put all of this on the benefit of having this focused effort around this margin nerve center and we're just really pleased with how the teams continue to develop that capability in and back.

Greg Hicks: And we did this while managing costs down. I'm proud of our results as they reflect our team's innovation, collaboration, and sheer hard work. Quarter by quarter, we are a stronger, more efficient operating company with a system of compelling components tied together by loyalty and a commitment to customers at the core. The engagement we saw this quarter reassures us that we are on the right track.

Gregory Craig: So look, I put all this on the benefit of having this focus staff around this margin nerve center, and we're just really kind of pleased with how the teams continue to develop that capability and balance all these elements off. But again, I come back to every chance you give me, Tammy. I'm going to say it.

Speaker Change: Once all of these these elements off.

Speaker Change: But again I come back to me every chance you gave me telling me I'm going to say it.

Gregory Craig: There's always going to be some risk of noise in the quarter to quarter given what can happen, but really pleased with kind of the long term posture and frankly, the capability that we built. I think is going to serve as well as we as we move forward.

Speaker Change: Theres always going to be some risk of noise in the quarter to quarter, given what can happen, but really pleased with kind of the long term posture and frankly the capability that we built I think is going to service well as we as we move forward.

Greg Hicks: In closing, I want to thank all our team members for their commitment to making life in Canada better. This includes being there for our communities when they need us most. Our thoughts are with those whose lives have been significantly disrupted by the Alberta wildfires. In addition to making corporate donations, the 2024 Alberta wildfire appeal and rebuilding efforts, select Alberta stores across our network are accepting customer donations on behalf of the Red Cross.

Gregory Craig: Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you.

Christopher Li: Our next question comes from Chris Li with Desjardin. Your line is now open.

Speaker Change: Our next question comes from Chris Li with days yard on your line is now open.

TJ Flod: Good morning, everyone. Maybe I'll start with a high-level question. I was running within the CTR when you look at some of the third-party data. When you look at the sales performance at CTR, is it outperforming the industry? I'm just trying to get a sense of, are you, you know, outgaining market share during this challenging environment? Thank you.

Chris Li: Good morning, everyone, just maybe I'll start with a high level question I was wondering within that Ctr. When you look at some of the third party data when you look at the sales performance of Ctr.

Greg Hicks: I also want to thank our Mark's team for stepping up to meet the first responders urgent need for industrial boots, establishing supply lines virtually overnight. And to our customers, thank you for your continued trust in us and for generously helping us raise nearly $6.5 million during jumpstart month so that more kids can overcome the barriers to support and play.

Speaker Change: Is it outperforming the industry I'm, just trying to get a sense of are you.

Speaker Change: Gaining market share during.

Speaker Change: During this challenging environment. Thank you.

TJ Flod: Hey Chris, it's TJ. Yeah, we try to cobble together market share data with a bunch of different sources, and there is at times a bit of a lag to that. So we track it relatively closely. If you look at the categories in which we compete and you look at our credit card data, there's a lot of tough numbers out there. If you look at the home improvement market as an example, it was tough sliding. We do think the category of the TAM in which we compete actually declined in Q2. And we're in some businesses. We felt like we did a better job on market share, like automotive, than in others.

Chris: Hey, Chris.

Chris: Jay Yeah, we try to cobble together.

Jay: Market share data with a bunch of different sources and there is at times a bit of a lag to that so we track it relatively closely if you look at the.

Lauren Cannon: And with that, I'll turn it over to the operator for questions. At this time, I would like to remind everyone in order to ask a question, please press star then one one on your telephone keypad to withdraw your question, please press 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. We'll pause for just a moment to compile the Q&A roster.

Chris Li: The categories in which we compete and you look at our credit card data, there's a lot of.

Chris: There is a lot of top numbers out there.

Chris: If you look at the home improvement market as an example, it was tough sledding we do.

Chris: The category of the Tam in which we compete actually declined in <unk>.

Chris: In Q2 and were.

Chris: In some businesses, we felt like we did a better job on market share like automotive Ben and others. So it's it was it was a tough quarter given the weather and given the economic situation for the categories in which we compete.

TJ Flod: So it was a tough quarter, given the weather and given the economic situation for the categories in which we compete. But we look at that really closely and we continue to try to do what we can to invest in the business, whether it be our better connected strategy with the new store rollouts or investment in our triangle membership to try to continue to try to drive market share. But it was overall for the industry; it was a tough quarter.

Irene Nattel: Our first question comes from the line of Irene Natel with RBC capital markets. Your line is now open. Thanks and good morning everyone. Thank you for all of the commentary on consumer demand. When we look at what you delivered at CTR and compared to prior downturn, it kind of seems to be consistent. But you also have a whole lot more color now than you have previously on on what consumers are doing and spending. So how have you categorized what you're seeing now?

Chris: But we're we look at that really closely and we continue to try to do what we can do invest in the business whether it be a better connected strategy with the new store Rollouts.

Chris: Or investment in our triangle membership to try to continue to try to drive market share, where we can but it was overall for the industry. It was a it was a.

Chris: Top quarter.

Christopher Li: Okay, no, thanks for that. And then maybe that's just a follow-up question for Greg.

Chris: Okay no. Thanks for that and then maybe just a follow up question for Greg just on your answer.

Gregory Craig: We're just on your answer about the gross margin. I just want to maybe drill down a little bit. So, you know, on a four-year basis, assuming four-year gross margin to be hovering around at 36%, which is a step up from the COVID period, that would imply second half gross margin will be a little bit less than the first half.

Greg Hicks: What is the best way for us to think about the evolution as we go into 2025? And you know, what if anything more can you do to help deliver better results even if spending remains where it is today? Hello. Good morning, Irene. It's Greg.

Speaker Change: About the gross margin I, just wanted to maybe drill down a little bit so on a full year basis, and assuming full year gross margin to be.

Chris: Hovering around 36%, which is the step up from the Covid period.

Speaker Change: It would imply second half gross margin will be a little bit less than the first half. So I want to make sure the environment sort of interpreting that correctly and then if you can also call out a little bit more sort of one of the key puts and takes on gross margin in second half I know you called out freight cost benefits being less in the second half than the first half are there anything anything else that we should be.

Gregory Craig: So I want to make sure that I'm sort of interpreting that correctly. And then if you can also call out a little bit more sort of one of the key puts and takes on gross margin in the second half. I know you called out free cost benefits being less in the second half than the first half. But are there anything else that we should be aware of in the second half?

Greg Hicks: Maybe I'll start. TJ may have some color too, as it seemed to be a little more focused on CTR. Look, you know, I think, as you suggest, the evidence, you know, is clear that consumers are still facing challenges. You know, data from our credit cards show that spending is down in almost all external categories and in all markets across the country. So ultimately the trends that we've been seeing for the past few quarters continue to persist, you know, just consumers are spending less their focus on essentials and where they could really get value.

Gregory Craig: And, you know, freight was across all businesses; it's clearly the most significant in CTR. And as we've talked about, there was a big freight impact and a big freight benefit in Q1. You know, it was in Q2, it was good, but we expect that benefits to dissipate a little bit over time; it's going to get less and less as we're comping off it.

Speaker Change: We're aware of.

Gregory Craig: Thank you.

Speaker Change: Second half thank you.

Gregory Craig: Yeah, I think, Chris, it's Greg. I think your commentary is fair. You know, that's why I do like looking at this on a longer term basis versus on a quarter-by-quarter isolation. But, you know, that is certainly our target is to maintain the gains every year. And I think we've done a great job in giving all the price increases, inflation, you know, everything that's been thrown at us, to have all the merchants and supply chain teams kind of maintain the gains. We might have been down 10 basis points in a couple of years, but really kind of pleased how we kind of managed our way through that.

Gregory Craig: And there's, you know, there's always, as you know, every quarter, we seem to say this, but there's 1000 levers in the margin. So for every freight benefit, there's an FX cost going kind of the other way, which, in my mind, is why I always try to take us back to kind of what our long-term aspiration is, which is to kind of maintain the gains we had during the COVID period, recognizing that in any quarter, there could be quarter-to-quarter noise.

Gregory Craig: But you talk about business mix; automotive was up in the quarter, that's our high, you know, higher margin business. And I, you know, it might sound counterintuitive, but the margin profile and the essential business are much stronger than you might think, actually kind of helped us in the quarter. So look, I put all this on the benefit of having this focused effort around this margin nerve center. And we're just really kind of pleased with how the teams continue to develop that capability and balance all these these elements.

Speaker Change: Yeah, I think Chris it's Greg here I think your commentary is fair.

Speaker Change: That's why I do like looking at this on a longer term basis versus on a quarter by quarter isolation, but that is certainly our target is to maintain the gains every year and I think we've done a great job and given all of the price increases inflation.

Greg Hicks: And as you point out, I think with our data, which would be, you know, very different from where we found ourselves in the 0809 standpoint, we can really, you know, dig deeper. And the reality is the consumption patterns are less dependent on income level, and they're more dependent on household and debtiness. And indebted households, regardless of income level, are consuming much less, especially in discretionary businesses. And as I called out on my prepared remarks, the highest indebted households in Canada are in Vectom.

Speaker Change: Everything thats been thrown out is to have all the merchants and supply chain teams kind of maintain the gains we might have been down 10 basis points in a couple of years, but really kind of pleased how as to how we managed our way through that so I don't think I don't think that changes that idea. So if there is a bit of a gain on a year to date than my expectations were still.

Gregory Craig: So I don't think, you know, I don't think that changes that idea. So if there is a bit of gain on a year to date, then my expectations were still still committing towards that idea kind of in the balance for the full year, I should say last half of the year. Look, I think there's a bunch in there. You talked about we talked a little bit about the freight benefit is going to start to minimize a little bit over time. I've shared you either where we are on FX, and the reality is, you know, as we kind of get deeper and deeper, the FX hedging program we have gives us a glide path.

Speaker Change: Still committing towards that idea of kind of in the balance for the full year I should say last half of the year look I think there's a bunch in there you talked about we talked a little bit about the freight benefit is going to start to minimize a little bit over time I've shared you either where we are in FX and the reality is.

Speaker Change: As we kind of get deeper and deeper at the FX. The hedging program. We have gives us a glide path, but eventually we get ourselves to the new exchange rate and Thats I think part of the reality as well and look we wanted to be prepared to keep our powder dry as Greg talked about I mean.

Greg Hicks: And we're seeing a real performance of bifurcation, a separation between Vectom performance and non Vectom performance that hasn't been the traditional run rate for us. So, and it's growing, you know, it grew in Q2. So, you know, I think from our standpoint, these are the realities of the market.

Gregory Craig: But eventually we get ourselves to the new exchange rate, and that's like part of the reality as well. And look, we want to be prepared and keep our powder dry, as Greg talked about. I mean, you know, it's a difficult competitive environment. I think we want to make sure that we have the ability to promote if we felt the need.

Greg Greg: It's a difficult competitive environment and I think we want to make sure that we have the ability to promote if we felt the need to.

Gregory Craig: to, and it's some of the businesses sell more of that need in Q2. For example, Mark's in a check and CTR didn't, so that's how we're thinking about this kind of overall is, you know, there's always going to be noise quarter to quarter. And, but you're right to say kind of I like that notion of kind of a full 12 months what we're kind of striving for.

Gregory Craig: But again, every chance you give me, Tammy, I'm gonna say it, like, there's always going to be some risk of noise in the quarter to quarter, given what can happen, but really pleased with kind of the long-term posture. And, and frankly, the capability that we built is going to serve as well as we as we move forward.

Mark: And as some of the business has felt more that need in Q2 for example, mark set a check in ctr didn't so that's how we're thinking about this kind of overall is is there's always going to be noise quarter to quarter, and but you are right to say I like that notion of kind of a full 12 months what were kind of striving for.

Greg Hicks: You know, we talked to you about our focus as we kicked off the year in 2024 with the three focus areas that I outlined today. It's really, you know, the playbook as we, until we get a different demand signal, the playbook that we have for 2025 is exactly the playbook that we've been deploying here in 2024. You know, it's about leverage, leverage with our membership, leverage in the assets that we built and operating leverage.

Gregory Craig: Okay, thanks very much. Thank you.

Speaker Change: Okay. Thanks very much.

Speaker Change: Thank you.

Luke Hannan: Our next question comes from Luke Hannan with Canaccord Genuity.

Operator: Our next question comes from Chris Lee with Desjardins. Your line is now open.

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

Luke Hannan: Your line is now open. Thanks.

Christopher Li: Good morning, everyone. Just maybe I'll start with a high-level question. I was wondering within that CTR, when you look at some of the third-party data, when you look at the sales performance at CTR, is it outperforming the industry? I'm just trying to get a sense of whether or not you are, you know, gaining market share during this challenging environment. Thank you.

Greg Hicks: And, you know, we don't expect to see material growth in the economy as we move forward in the last six months of this year. I think that is broadly in line with the expectations of the market.

Gregory Hicks: Good morning, everyone. I wanted to ask a question on the new products that you have in your store minutes. It seems like that's a lever that most retailers are looking to pull, introducing new products as a way to stimulate demand and traffic, and I believe you'd mentioned that new product sales grew up 4%. So can you just share with us one?

Luke Hannan: Thanks, Good morning, everyone I wanted to ask a question on on the new products that you have in your assortment. It seems like that's a lever that most retailers are looking to pull introducing new products as a way to stimulate demand and traffic and I believe you had mentioned that new product sales.

Greg Hicks: And so, we'll certainly let you know when we've got visibility in terms of how the playbook needs to change. But right now, as we tried to really, you know, focus on the prepared marks, I want, you know, you everybody to know our teams are working extremely hard strategically and tactically to grow this business to learn more about consumption patterns elasticity by category, et cetera, the models are getting smarter on that front as we move forward.

Speaker Change: We're up 4%. So can you just share with US one I mean are you are you looking to I know I've asked this in the past are you looking to accelerate the rate at which you deploy some of your newer owned brands or products within those owned brands in the market and then maybe also secondly, your national brand partners are you noticing a trend from them looking to create and introduce.

Gregory Hicks: I mean, are you looking to, I know I've asked this in the past, are you looking to accelerate the rate I wish you deploy some of your newer own brands or products within those own brands in the market? And then maybe also, your national brand partners, are you noticing a trend from them looking to create and introduce new products into the market through your shelf space as well?

Speaker Change: New products enter the market through your shelf space as well.

Thomas Flood: Hey, Chris, it's TJ. Yeah, we try to cobble together market share data from a bunch of different sources. And there is at times a bit of a lag between that, so we track it relatively closely. If you look at the categories in which we compete, and you look at our credit card data, there's a lot of tough numbers out there. If you look at the home improvement market, as an example, it was tough sliding. We do think the category of the TAM in which we compete actually declined in, in, in Q2.

Gregory Hicks: Maybe all I'll start. It's Greg and TJ can weigh in too. I mean own brands you know in general you know we've talked at length about you know how excited we are about our capabilities. We really believe they are privileged, and we had some great successes across a number of brands in the quarter, and we're even more excited about the pipeline of innovation that we have on a go-forward basis. I think we may have quoted last quarter somewhere in the neighborhood of 20,000 new skews in various stages of development and listen the the national there's always a little bit of competitive tension in in in categories but where we have national brands and own brands we think that is a healthy dynamic and in a tough environment like this where the industry is suffering as TJ suggested in the categories in which we compete there's much more focus on innovation and newness and you know selling selling in for for channel you know distribution and so that that just all you know ladders up to what I had suggested in my prepared remarks around how busy this organization is right now and I mean we could wax poetic about some of the excitement across you know 15 to 20 brands right now in terms of you know what the teams are working on so we haven't we haven't stopped the foot has been you know on the gas you know accelerating and trying to elevate more vitality in our assortments and we're just pleased to see with that 4 percent growth rate the you know that it's you know with we're getting some traction you know with the customer as you can appreciate when you're trying to draw down your inventory in the manner in which we have for the course of you know the last many quarters you've you've got to be surgical in terms of where you allocate incremental inventory and so now that we're getting that inventory in a right size you can expect to see even more you know innovation and newness in terms of how we go to market and we feel really good right now that we've got a strong balance that's standing up well in front of the cuss Thanks.

Speaker Change: Maybe I'll I'll start, it's Greg and T. J can weigh in too I mean owned brands in general.

Greg Hicks: And we're doing everything we can to stimulate demand. And as I said, I think it's more of the same, more of the same going forward. And as we start to comp, you know, some of the activity we would expect to see some relief on a go forward basis.

Irene Nattel: That's really helpful. Thank you.

Greg Greg: We've talked at length about how excited we are about our capabilities, we really believe they are.

Unknown Executive: One moment for our next question.

Speaker Change: Privileged.

Speaker Change: And we had some great successes across a number of brands.

Speaker Change: In the quarter and we're even more excited about the pipeline of innovation that we have on a go forward basis. I think we may have quoted last quarter somewhere in the neighborhood of 20000, new skus in various stages.

Brian Morrison: Question. Our next question comes from the line of Brian Morrison with TD Counts. Your line is now open. Oh, thanks very much. So, TJ, question for you, please. I'll let others go through the gross margin, the SGNA, but I want to talk to you about the inventory position. It's down 15% of corp. I presume it's getting better at the dealer level. Can you just talk to us about dealer inventory levels and with the revenue retail mismatched stabilized in this quarter?

Speaker Change: Development and lessen the.

Speaker Change: The national Theres always a little bit of competitive tension in categories.

Speaker Change: Where we have national brands and owned brands, we think that is a healthy dynamic in and in a tough environment like this where the industry is suffering.

Thomas Flood: And we're, in some businesses, we felt like we did a better job on market share, like in the automotive category, than in others. So it was a tough quarter, given the weather and given the economic situation for the categories in which we compete. But we're, we look at that really closely. And we continue to try to do what we can to invest in the business, whether it be our Better Connected strategy with the new store rollouts or investment in our Triangle membership to try to continue to try to drive the market, but overall, for the industry, it was a tough quarter.

Speaker Change: As TJ suggested in the categories in which we compete.

TJ: There is much more focus on innovation and newness.

Brian Morrison: I assume you're going to have a catch up and believe you with the expected winter at the dealer's pretty lean last year. So, just talk to us about dealer replenishment needs as we look out to the fall and holiday, please. Brian, it's TJ. Thanks for the question. There's a lot in there. So, let me unpack a little bit some of your question. As you pointed out from a corporate standpoint, we continue to make significant progress in managing down our inventory during the quarter.

TJ: Selling selling in.

TJ: Four four channel distribution and so that that just all ladders up to what I had suggested in my prepared remarks around how busy this organization is.

TJ: Right now.

TJ: And I mean, we could wax poetic about some of the excitement across.

Brian Morrison: And as you pointed out, we are down 15%. So, that definitely helped us on the off-ex side. And given the changing consumer demand patterns, we're very focused on adjusting our buys and being surgical and strategic as we look to continue to manage our inventory levels well as we look to the back half of the year. And that means leaning more into essentials as we continue to see that gap between essentials and discretionary performance.

Speaker Change: 15% to 20 brands.

Speaker Change: Right now in terms of.

Speaker Change: What the teams are working on so we haven't we haven't stopped the foot has been on the gas.

Speaker Change: Accelerating and trying to elevate more vitality in our assortments.

Speaker Change: And we're just pleased to see with that 4% growth rate.

Speaker Change: The.

Speaker Change: We're getting some traction with the customer as you can appreciate when you're trying to draw down your inventory in the manner in which we have.

Speaker Change: For the course of the last many quarters.

Brian Morrison: So, we're definitely surgically investing in essentials as we go forward here. And I did want to point out we are buying for stronger demand in Q4 coming off a very tough Q4 last year. And we do expect, as I said, strength and essential categories in a couple. I'll give you a flavor for automotive household cleaning and pat. Those are some of the areas that we're going to lean into. And just a reminder, the Q4 is skewed more essential than is Q2 and Q3.

Speaker Change: <unk> got to be surgical in terms of where you allocate incremental inventory and so now that we're getting that inventory.

Speaker Change: Right size, you can expect to see even more innovation and newness in terms of how we go to market and we feel really good right now that we've got a strong balance that standing up well in front of the customer.

Speaker Change: Okay.

Christopher Li: Okay, no, thanks for that. And then maybe just a follow-up question for Gregory on your answer about the gross margin. I just want to maybe drill down a little bit. So you know, on a four-year basis, we're assuming four-year gross margin to hover around 36 percent, which is a step up from the COVID period. That would imply second half gross margin will be a little bit less than the first half.

Gregory Craig: And then for my follow-up question here, Gregory, maybe this one's for you.

Speaker Change: Thanks, and then for my follow up question here Gregory and maybe this one's for you I just wanted to clarify the commentary on freight being less of a tailwind for the back half of the year is that more indicative of.

Gregory Craig: I just wanted to clarify the commentary on freight being less of a tailwind for the back half of the year. Is that more indicative of going up against tougher cops from a freight perspective? Is that more indicative of the freight environment being a little bit more expensive now? Is that a combination of both? Maybe just sharing what's underpinning that? Yeah.

Christopher Li: I want to make sure that I am interpreting that correctly. If you can also call out a little bit more, what are the key puts and takes on gross margin in the second half? I know you called out free cost benefit being less in the second half than in the first half. Is there anything else that we should be aware of in the second half? Thank you.

Brian Morrison: So, I kind of give you a flavor on the corporate side. And then from a dealer standpoint, I think it's important that to understand that after two consecutive quarters where consumption outpaced dealer buying, we saw dealer buying patterns near consumption much more closely in Q2. And so the dealers finished down about 6% in inventory year over year. And as we look forward to the back half of the year, we feel good about where they landed in winter categories.

Gregory Tammy: Going up against tougher comps from a freight perspective is that more indicative of the freight environment being a little bit more expensive now is that a combination of both maybe just sharing what's underpinning that.

Gregory Craig: Yeah, I think Chris, it's Gregory here. I think your commentaries are fair, you know, that's why I do like looking at this on a longer term basis versus on a, you know, a quarter by quarter basis. But, you know, that is certainly our target, to maintain the gains every year. And I think we've done a great job and given all the price increases, inflation, you know, everything that's been thrown at us to have all the merchants and supply chain teams kind of maintain the gains, we might have been down 10 basis points in a couple years, but really kind of pleased as to how we've kind of managed our way through that.

Gregory Craig: Yeah, thanks. It's Gregory. I would say it's more the former around the idea of what we're comping off of, but you know, we hedge a lot of our containers. But the reality is where we did need to get the spot, it would be more expensive to your point year over year. But I would just say it's more of a compass. If you have the way to two, then what we're actually, but it is both to be fair.

Gregory Tammy: Yeah. Thanks, It gets Greg it.

Greg Greg: I'd say its more of the former around the idea of what we're comping off of but you know we hedge a lot of our containers, but the reality is we're we did need to get to spot it would be more expensive to your point year over year, but I would I would just say it's more of a comp issue out of the way to two then.

Gregory Craig: So, I don't think, you know, I don't think that changes that idea. So, if there is a bit of a gain on the year to date, then my expectations were still, you know, still committing towards that idea kind of in the balance for the full year. Last half of the year, look, I think there's a lot in there.

Brian Morrison: As we finished off the winter in Q1 and they drew down inventory relative to how they they closed last year's winter. And as I mentioned on the last call, we've got some early signals on Christmas dealer orders and they came in as expected as well. So as we look forward, we expect they're buying to be more closely reflective of what they're seeing from a consumer demand standpoint. And we're not expecting them to deploy any build or burn strategy as we go forward.

Speaker Change: And then what were actually.

Greg Greg: But it is both to be fair.

Gregory Craig: Thank you.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Mark Petrie: Our next question comes from Mark Petrie of CS. Hi, B.C. Your line is now open. Hey, good morning. Thanks. A couple of quick ones, I think. First, just on the dealer inventory, I'm curious if you are seeing any variation in the dealer inventory positioning by region. I mean, you highlighted Vectom as sort of underperforming in retail, and just curious if you're seeing that echoed in the dealer behavior.

Speaker Change: Our next question comes from Mark Petrie of CIBC. Your line is now open.

Gregory Craig: You talked about, we talked a little bit about the freight benefit starting to start to decrease a little bit over time. I've shared with you where we are in FX. And the reality is, you know, as we kind of get deeper and deeper, the FX, the hedging program we have gives us a glide path, but eventually, we get ourselves to the new exchange rate.

Mark Petrie: Hey, good morning. Thanks.

Mark Petrie: Couple of quick ones I think first just on the dealer inventory I'm curious if you're seeing.

Brian Morrison: We think it's going to be a lot closer linked to POS. So that's how we see it. There's a lot in that and obviously a lot of quarter to play in Q3 and Q4 is big for us. But that's how we see it as we go forward here.

Gregory Craig: And that's, I think, part of the reality as well. And look, we want to be prepared and keep our powder dry, as Greg talked about. I mean, you know, it's a difficult competitive environment. I think we want to make sure that we have the ability to promote if we felt the need. And some of the businesses sell more that need. In Q2, for example, Mark sent a check and CTR didn't.

Mark Petrie: Any variation in the dealer inventory positioning.

Mark Petrie: Positioning by region, I mean, you highlighted Tom as sort of underperforming in retail and just curious if youre seeing that echoed in the dealer behaviour.

TJ Flod: Okay, so it sounds like it's a little like going into winter. Follow a question or second, I guess partial question, but Gregory, I want to look at the CTFS for a minute. Your car is up. You're right off the road. Yet your allowance provision is flat sequentially. The banks, they're increasing their car provisions, but you appear to have this under control. I hope you can maybe share some of this relative though performance and how sequentially your PD2 plus is down sequentially.

TJ Flod: Hey, market CJ, there's not a lot of material change by region that I would call out. I would, I would simply say after, as I said a bit earlier, after two quarters of kind of shipment, dialing back a lot faster than the consumption patterns were that dealers are kind of reacting more to demand as it comes versus a build burn strategy, but there's not a lot to highlight from a regional perspective on that front as you get. But as you get through the summer season, you may see some slight differences as we get into spring summer next year, just given some of the weather patterns. But by and large, as we go into the back half, there's not a lot of nothing really material to point out there.

Gregory Craig: So that's how we're thinking about this kind of overall picture is, is, you know, there's always going to be noise quarter to quarter and, and but you're right to say kind of, I like that notion of kind of a full 12 months, what we're kind of striving for. Thanks very much.

Mark Petrie: Hey, Mark it's T J theres not a lot of material change by region that I would call out I would I would simply say after as I said a bit earlier after two quarters of kind of shipments dialing back a lot faster than the consumption patterns, where that that dealers are kind of reactor.

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

Speaker Change: More to demand as it comes versus a build burn strategy, but theres not a lot.

Mark Petrie: To highlight from a regional perspective on that front as you get as you get through the summer season.

TJ Flod: Yeah, thanks, Brian. I think part of this kind of comes back to how, you know, the CDVS team has kind of managed throughout, frankly, going back to COVID days, if you can believe it. I mean, if I take it back historically, you know, I think the team recognized, you know, there might have been a change in the temporary, you know, we go back to the serve payments, but the reality was the underlying risk of the assets didn't change.

Mark Petrie: You may see some slight differences as we get into spring summer next year, just given some of the weather patterns, but by and large as we go into the back half.

Mark Petrie: There is not a lot of nothing really material to point out there.

Mark Petrie: Okay, fair enough, thanks.

Luke Hannan: Thanks. Good morning, everyone.

Speaker Change: Okay Fair enough. Thanks, and then just second on on SG&A.

Gregory Craig: And then just second on SGNA, obviously retail SGNA, specifically, obviously some nice year of year decline, particularly in Q2. Could you just contrast the lower dollar spend in Q1 and Q2? The pace is significantly more material in Q2 and just give us a sense of what shifted exactly and then how to think about the sustainability of those year of a year decline.

TJ Flod: So I think the team were a lot more conservative around kind of movements in the allowance down. And because I think we just fundamentally believed it was a timing issue and the risk of that of our customer wasn't different. So I think that's really how we've handled it from a CDFS perspective. And that's why, you know, when you look at it now, and, you know, I know it might sound counterintuitive, but I think some of those relationships you're talking about are related.

Speaker Change: Obviously retail SG&A, specifically, obviously, some nice year over year decline, particularly in Q2 could you. Just contrast, the lower dollar spend in Q1 and Q2, the paces significantly more material in Q2, and just give us a sense of what shifted exactly and then how to think about the sustainability of those year over year decline.

Gregory Craig: Hey, Mark, it's Gregory here.

Gregory Hicks: I wanted to ask a question about the new products that you have in your assortment. It seems like that's a lever that most retailers are looking to pull, introducing new products as a way to stimulate demand and traffic. And I believe you mentioned that new product sales were up 4%. So can you just share with us one? I mean, are you looking to, I know I've asked this in the past, are you looking to accelerate the rate at which you deploy some of your newer own brands or products within those own brands in the market? And then, maybe also, secondly, your national brand partners, are you noticing a trend from them looking to create and introduce new products into the market through your shelf space as well?

Speaker Change: Hey, Mark it's Greg here I'll take that one I think we tried in the prepared remarks as well.

Gregory Craig: I'll take that one. I think we tried in the prepared remarks as well, you know, all of our disclosures. We were calling Q2 of last year; we incurred some additional expenses related to the kind of the fire, right? You know, the inefficiencies around shipping and shunting and things along those lines. And that wasn't have been present in Q1. So when you're looking at Q2, we got a little bit of an additional boost in that savings, if you will, because we were comping up a cost that disappeared, as an example. And as I said, I think some of the IT costs have kind of skipped it a little bit as well, more to kind of that later timeframe that we had initially.

TJ Flod: So what I mean by that is, you know, the right off rate being 6.7% now really is attributed to, frankly, kind of the credit risk and the growth strategy, the new accounts we had kind of 18 months ago, but that gets exaggerated because the minute you stop growing, you know, the right off rate is a mathematical equation, and you're starting to slow your denominator. So you kind of have a bit of a self-fulfilling prophecy around an increase in the right off rate.

Mark Petrie: All of our disclosures you'll recall.

Speaker Change: In Q2 of last year, we incurred some additional expenses related to the fire right.

Greg Greg: The inefficiencies around shipping and shunting or things along those lines and that wasn't a been present in Q1. So when you when youre looking at Q2, we got a little bit of an additional boost in that savings. If you will because we were comping. We're comping up a cost that disappeared as an example, and as I said I think some of the it cost that kind of shifted a little bit as well.

TJ Flod: And what we were trying to say on the call that what we're encouraged by is the early buckets, the pre-KD2 buckets are actually looking, you know, better. So I would say, this is exactly where we would expect all these drivers to be, and the team's, you know, comfortable. You know, the one watch item that I would say, as we move forward, the unemployment rate is ticked up a little. And the team stands by to watch out kind of what impact if that were to have on the bankruptcy and solvacy side of things. But now, I think we're really pleased with how the teams kind of managed this through the last two years to try to minimize, frankly, quarter to quarter volatility. All right, it's impressive.

Mark Petrie: More into kind of that later time frame that we had initially so I think thats kind of what youre seeing and I want to take it back kind of upper level I mean, when we started talking about the year and this is always a great question that folks had for us.

Gregory Craig: So I think that's kind of what you're seeing.

Gregory Craig: And I want to take it back kind of up a level. I mean, when we started talking about, you know, the year and, you know, this is always a great question that folks had for us, you know, Greg, I teach all of us talked about this notion of it's an unpredictable consumer demand environment, so we're looking to control the controllables. And what we said, but that for the full year is we're looking to kind of maintain our operating expenses within that full year, given kind of that operating environment. And that objective, frankly, hasn't changed. It's frankly probably as important now as it would have been in December.

Gregory Hicks: Maybe I'll start. It's Greg and TJ can weigh in too. I mean, own brands, you know, in general, we've talked at length about how excited we are about our capabilities. We really believe they are privileged, and we had some great successes across a number of brands in the quarter, and we're even more excited about the pipeline of innovation that we have on a going forward basis. I think we may have quoted last quarter somewhere in the neighborhood of 20,000 new SKUs in various stages of development.

Gregory Hicks: And listen, the national brands; there's always a little bit of competitive tension in categories, but where we have national brands and own brands, we think that is a healthy dynamic. And in a tough environment like this, where the industry is suffering, as TJ suggested, in the categories in which we compete, there's much more focus on innovation and newness and selling in for channel distribution. And so that just all ladders up to what I had suggested in my prepared remarks around how busy this organization is right now. And I mean, we could wax poetic about some of the excitement across 15 to 20 brands right now in terms of what the teams are working on. So we haven't stopped.

Mark Petrie: Greg <unk> talked about this notion of it's an unpredictable consumer demand environment. So we're looking to control the controllable and what we said, but that was for the full year as we were looking to kind of maintain our operating expenses within that full year, given kind of that operating environment and that objective frankly hasnt changed its frankly, probably as important now as it is it would it be.

Gregory Hicks: The foot has been on the gas, accelerating and trying to add more vitality to our assortments. And we're just pleased to see with that 4% growth rate that we're getting some traction with the customer, as you can appreciate when you're trying to draw down your inventory in the manner in which we have. For the course of, you know, the last many quarters, you've got to be surgical in terms of where you allocate incremental inventory.

Gregory Hicks: And so now that we're getting that inventory in the right size, you can expect to see even more innovation and newness in terms of how we go to market. And we feel really good right now that we've got a strong balance that's standing up well in front of the customer.

Luke Hannan: Thanks. And then for my follow-up question here, Gregory, maybe this one's for you. I just wanted to clarify the commentary on freight being less of a tailwind for the back half of the year. Is that more indicative of going up against tougher comps from a freight perspective? Is that more indicative of the freight environment being a little bit more expensive now? Or is that a combination of both? Maybe just sharing what's underpinning that. Yeah, thanks, Gregory.

Gregory Craig: Good quarter.

Gregory Craig: So, you know, you know, quarter to quarter, as you pointed out, there's going to be some noise in the comp due to when 3PLs closed this year versus last year. But some in a margin, I take it back to kind of that notion of the full year and what our overall objectives are around how we want to manage the place because you got to remember, we haven't stopped building new stores. We haven't stopped incurring kind of additional leasing costs and rent costs and store operations costs. So anyway, that's how I think about it kind of overall mark is, you know, I would have expected, you know, given kind of that that Frank, the DC element kind of that gain more in the second quarter.

Speaker Change: In December so.

Unknown Executive: Thank you.

Mark Petrie: Quarter to quarter as you pointed out there is going to be some noise in the comp due to win three pls closed this year versus last year, but similar margin I take you back to kind of that notion of the full year and what what our overall objectives are around how we want to manage the place because you got to remember we haven't stopped building new stores, we haven't stopped incurring kind of additional leasing cost.

Jonathan Matuszewski: Our next question comes from the line of Jonathan Matizewski with Jeffries. Your line is now open. Oh, hey, good morning. Thanks for taking my question. I wanted to zoom in on your observations regarding the promotional backdrop. It feels like promotions were higher year year in retail. That said, your retail gross margin, excluding petroleum was better than what we had envisioned. So just wanted to get your thoughts in terms of the promotional activity you're seeing in the competitive landscape.

Speaker Change: And rent costs and store operations costs. So anyway, that's how I'd think about it kind of overall mark as I would've expected.

Speaker Change: Given kind of that freight.

Speaker Change: The DC element kind of that gain more in the second quarter, but but I'd encourage you to think of this kind of again on that full year basis.

Gregory Craig: But, but I'd encourage you to think of this kind of again on that full year basis.

Gregory Craig: Yeah, thanks, Luke. It's Gregory. I mean, I would say it's more the former around the idea of what we're comping off of, but you know, we hedge a lot of our containers, but the reality is, where we did need to get the spot, it would be more expensive to your point year over year. But I would just say it's more of a comp issue if you have to weigh the two than we actually are, but it is both to be fair.

Speaker Change: That's very helpful. Thanks, a lot Gregory and all the best guys.

Jonathan Matuszewski: And, you know, whether you're expecting, you know, based on, you know, some sequential improvement from May to June in terms of comp sales. Are you expecting a shallower degree of promotional intensity as we head into, you know, the back half. And, and was there any changes in promotional activity in July that seemingly helped to spur some sequentially better trends, maybe versus the two key exit rate. Thanks so much.

Gregory Craig: Thank you.

Operator: Our next question comes from Mark Petrie of CIBC. Your line is now open.

Mark Petrie: Hey, good morning. Thanks. A couple quick ones, I think.

Mark Petrie: Thanks, Mark Thank you.

Thomas Flood: First, just on the dealer inventory, I'm curious if you are seeing any variation in the dealer inventory positioning by region. I mean, you highlighted Vectom as sort of underperforming in retail. I'm just curious if you're seeing that echoed in the dealer behavior.

Lauren Cannon: This concludes the question and answer session.

Thomas Flood: Hey, Mark, it's TJ. There's not a lot of material change by region that I would call out. I would simply say after, as I said a bit earlier, after two quarters of kind of shipments dialing back a lot faster than the consumption patterns were, that dealers are kind of reacting more to demand as it comes versus a build and burn strategy. But there's not a lot to highlight from a regional perspective on that front.

Thomas Flood: As you get through the summer season, you may see some slight differences as we get into spring and summer next year, just given some of the weather patterns. But by and large, as we go into the back half, there's not a lot really material to point out there.

Speaker Change: This concludes the question and answer session I would now like to turn it back to Greg for closing remarks.

Mark Petrie: Okay, fair enough. Thanks.

Mark Petrie: That's very helpful. Thanks a lot, Gregory. All the best, guys.

Gregory Hicks: I would now like to turn it back to Greg for closing remarks. Thank you for your questions and for joining us today. We look forward to speaking with you when we announce our Q3 results on November 7th.

Mark Petrie: And then just second on SG&A, obviously, retail SG&A specifically, obviously, some nice year-over-year decline, particularly in Q2. Could you just contrast the lower dollar spend in Q1 and Q2? The pace is significantly more material in Q2, and just give us a sense of, you know, what shifted exactly and then how to think about the sustainability of those year-over-year declines.

Operator: Thanks very much. Thank you. This concludes the question and answer session. I would now like to turn it back to Greg for closing remarks.

Gregory Craig: Hey Mark, it's Gregory here. I'll take that one.

Gregory Craig: I think we tried in the prepared remarks as well, you know, in all of our disclosures, they were calling Q2 of last year, we incurred some additional expenses related to the kind of fire, right? The inefficiencies around shipping and shunting and things along those lines. And that wasn't present in Q1. So when you're, you know, when you're looking at Q2, we got a little bit of an additional boost in that savings, if you will, because we're comping up a cost that disappeared, as an example.

Gregory Craig: And as I said, I think some of the IT costs have kind of shifted a little bit as well, more into kind of that later timeframe that we had initially. So I think that's kind of what you're seeing. And, you know, I want to take it back kind of to a level.

Gregory Craig: I mean, when we started talking about the year, and, you know, this is always a great question that folks have for us, Greg, I, TJ, all of us talked about this notion of it being an unpredictable consumer demand environment. So we're looking to control the controllables. And what we said, but not for the full year, is that we're looking to kind of maintain our operating expenses within that full year, given kind that operating environment.

Gregory Hicks: Thank you for your questions and for joining us today. We look forward to speaking with you when we announce our Q3 results on November 7th.

Gregory Craig: And that objective, frankly, hasn't changed. It's, frankly, probably as important now as it would have been in December. So, you know, quarter to quarter, as you pointed out, there's going to be some noise in the comp due to when 3PLs close this year versus last year. But on a margin, I take you back to kind of that notion of the full year and what our overall objectives are around how we want to manage the place.

Greg Greg: Thank you for your questions and for joining US today, we look forward to speaking with you when we announce our Q3 results in November 7th.

Gregory Craig: Because you got to remember, we haven't stopped building new stores; we haven't stopped incurring any kind of additional leasing costs, rent costs, and store operations costs. So anyway, that's how I think about it kind of overall, Mark, is, you know, I would have expected, you know, given kind of that, the DC element, kind of that gain in the second quarter, but I'd encourage you to think of this kind of again, on a full year basis.

Gregory Hicks: Bye for now.

Speaker Change: Bye for now.

Lauren Cannon: This will conclude today's call. You may now disconnect.

Operator: This will conclude today's call. You may now disconnect.

Speaker Change: This will conclude today's call you may now disconnect.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: [music].

Greg Hicks: Good morning, Jonathan. It's it's Greg here. I'll try and on hit on the components, the large components of the question there. You know, in general, I think what we've seen from a promotional intensity standpoint is where, where our competitors have had. Bulges and builds in inventory. We've seen, you know, aggressive discounting to move that through. And I think about, you know, the sport check and and Mark's business specifically in terms of where my mind goes to first.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Okay.

Greg Hicks: Any kind of branded D to see players and either of those businesses. I think generally speaking, how to build up an inventory that they've been working through over the years. The course of the last 12, maybe even 18 months. And we've seen some pretty aggressive movements off map pricing for some of these brands that have caused, you know, real consternation for us in terms of providing and stacking up value, especially in a business like sport check.

Greg Hicks: We're seeing that real aggressive off map, almost more marked down activity, start to subside, not, you know, completely go away such that we're not paying attention or being concerned about it, but not as, you know, meaningful, an impact input and watch out as it was last quarter or or in queue for. So I would expect that to continue for the for the back half of the year. In CTR, you know, I don't think I'd comment about any increase from a competitive intensity standpoint over, you know, on a year to date basis.

Greg Hicks: I think inventory seems to be, you know, in line. And so it's more, it's more traditional, you know, traditional discounting that we, you know, we continue to watch. So I think the more important thing for us, Jonathan is just, you know, how in an environment like this, similar to Irene's question is, is how do you, how do you ensure you're getting the most amount of insight from a demand elasticity standpoint and, and how your models are applying those discounts to your own categories as opposed to, you know, looking outward.

Greg Hicks: There's always nuances by region and whether and other circumstances when looking at just a 90 day window, but in general, we'd say that there does appear, especially in queue two to be evidence of demand elasticity across many essential categories, especially in non automotive categories. Where are stairs lower? And in general, in general, again, there's less demand elasticity and high ticket discretionary businesses. And we really, you know, continue to take it on the chin and CTR for that portion of our business. So, I mean, overall, I like the way our capabilities are showing up here in this environment.

Greg Hicks: And I think the last part of your question was, is there any incremental stimulus that we deployed in July that would have changed that, you know, top line trajectory for us and the answer is no. The only thing that we have, which is a, you know, a fairly sizable dollar commitment on a year over year basis from an expense standpoint is the Olympics advertising, but that, as you know, is more top of funnel and not really focused on, you know, generating demand at the, at the item level.

Greg Hicks: But it certainly has, you know, some halo effect, you know, in the country for us. But other than that, Jonathan, not much has changed from a stimulus standpoint, just the models getting smarter. Really great color. Thanks so much.

Unknown Executive: Thank you.

Tamy Chen: Our next question comes from the line of Tamy Chen with BMO capital markets. Your line is now open. Hi, good morning. Thanks for the question. On the CTR thing source, so the inter-quarter trend could you just talk about, I think you said exiting out in June, it was better than the quarter average. But, so was that still a negative confidence, just listening to you talk about now, at least to July of what you can see, you do sound optimistic and I'm wondering if that's purely from just a lack of something perspective, and I know Q4 last year was probably the easiest comp there, so I just wanted to get a sentence and wanted to make sure I heard right, are you saying for July CTR things are sales right now, it's down 2%, did I hear that right?

Tamy Chen: Hey, Tammy, it's TJ, yeah, I think you interpreted that correctly, if you kind of map out those four months, the trajectory, each of the months April, May, June and July were down, but the declines were improving over that time and July was the month with the minus two, and that would have been the best of the four months. So that even interpreted correctly, we are seeing a slowing in the decline, which which provides us a little bit of encouragement as we go forward, and I think as you, as you look to the back app, particularly in Q4, we are, we are facing a lot weaker comps than we would have been in the first half of the year in particularly in Q2, so I think you've, you've characterized it appropriately.

Tamy Chen: Okay, and my other question is on the retail growth margin, so you listed a couple of things between how we have been the year over your freight dynamics, all of that, and some wonder if you could talk about what were the biggest factors to this strong result, was it predominantly that that year over your freight dynamic and specifically at CTR, I mean, when we think about the mix, you talk about how discretionary was weaker, and that's usually I think higher margin. So again, just a very surprising result, you can specifically talk about the margin at CTR, too, that drove this result.

Gregory Craig: Thank you. Yeah, it's Gregory Tammy, maybe I'll start in TGA Greg, want to jump on, I'm sure they will. I think what I would say is in terms of the margin, we did call out, frankly, the two biggest impacts, like, you know, Heli Hansen, although we said it was a modest kind of revenue side of things, it did contribute positively, the overall gross margin, and you hit on the second one, which was freight, and you know, freight was across all businesses, clearly the most significant in CTR, and as we've talked to it, there was a big freight impact and big freight benefit in Q1.

Gregory Craig: You know, it was in Q2 as well, but we expect that benefits going to dissipate a little bit over time, it's going to get less and less as we're comping off it, and there's, you know, there's always as, you know, every quarter we seem to say this, but there's a thousand levers in margin. So for every freight benefit, there's an effects cost going kind of the other way, which in my mind is why I always try to take us back to kind of what our long term aspiration is, which is the kind of maintain the games we had during the kind of that COVID period, recognizing any quarter, there could be quarter to quarter noise.

Gregory Craig: But you talk business mix, automotive was up in the quarter, that's our high, you know, higher margin business, and you know, it's actually might sound counterintuitive, but are actually the margin profile in the essential business is much stronger than you might think actually kind of help us in the quarter. So look, I put all this on the benefit of having this focus staff around this margin nerve center, and we're just really kind of pleased with how the teams continue to develop that capability and balance all these elements off.

Gregory Craig: But again, I come back to every chance you give me, Tammy, I'm going to say it. There's always going to be some risk of noise in the quarter to quarter given what can happen, but really pleased with kind of the long term posture and frankly, the capability that we built, I think is going to serve as well as we as we move forward.

Unknown Executive: Thank you.

Chris Li: Our next question comes from Chris Li with Desjardin. Your line is now open. Good morning, everyone.

TJ Flod: Maybe I'll start with a high-level question. I was running within the CTR when you look at some of the third-party data. When you look at the sales performance at CTR, is it outperforming the industry, I'm just trying to get a sense of, are you, you know, outgaining market share during this challenging environment? Thank you. Hey Chris, it's TJ. Yeah, we try to cobble together market share data with a bunch of different sources and there is at times a bit of a lag to that.

TJ Flod: So we track it relatively closely. If you look at the categories in which we compete and you look at our credit card data, there's a lot of, there's a lot of tough numbers out there. If you look at the home improvement market as an example, it was tough sliding. We do think the category of the TAM in which we compete actually declined in Q2. And we're in some businesses. We felt like we did a better job on market share like automotive than in others.

TJ Flod: So it was a tough quarter given the weather and given the economic situation for the categories in which we compete. But we look at that really closely and we continue to try to do what we can to invest in the business, whether it be our better connected strategy with the new store rollouts or investment in our triangle membership to try to continue to try to drive market share. But it was overall for the industry, it was a tough quarter. Okay, no, thanks for that.

Gregory Craig: And then maybe that's just a follow-up question for Greg. We're just on your answer about the gross margin. I just want to maybe drill down a little bit. So, you know, on a four-year basis, assuming four-year gross margin to be hovering around at 36%, which is a step up from the COVID period, that would imply second half gross margin will be a little bit less than the first half. So I want to make sure that I'm sort of interpreting that correctly.

Gregory Craig: And then if you can also call out a little bit more sort of one of the key puts and takes on gross margin in second half. I know you called out free cost benefits being less in the second half than the first half. But are there anything else that we should be aware of in the second half? Thank you. Yeah, I think Chris, it's Greg. I think your commentary is fair. You know, that's why I do like looking at this on a longer term basis versus on a quarter by quarter isolation.

Gregory Craig: But, you know, that is certainly our target is to maintain the gains every year. And I think we've done a great job in giving all the price increases inflation, you know, everything that's been thrown at us to have all the merchants and supply chain teams kind of maintain the gains. We might have been down 10 basis points in a couple of years, but really kind of pleased how we kind of managed our way through that.

Gregory Craig: So I don't think, you know, I don't think that changes that idea. So if there is a bit of gain on a year to date, then my expectations were still still, you know, still committing towards that idea kind of in the balance for the full year, I should say last half of the year. Look, I think there's a bunch in there. You talked about we talked a little bit about the freight benefit is going to start to minimize a little bit over time.

Gregory Craig: I've shared you either where we are on FX and the reality is, you know, as we kind of get deeper and deeper the FX the hedging program we have gives us a glide path. But eventually we get ourselves to the new exchange rate and that's like part of the reality as well. And look, we want to be prepared and keep our powder dry as Greg talked about. I mean, you know, it's a difficult competitive environment.

Gregory Craig: I think we want to make sure that we have the ability to promote if we felt the need, to, and it's some of the businesses sell more of that need in Q2, for example, Mark's in a check and CTR didn't, so that's how we're thinking about this kind of overall is, you know, there's always going to be noise quarter to quarter and but you're right to say kind of I like that notion of kind of a full 12 months what we're kind of striving for. Okay, thanks very much.

Unknown Executive: Thank you.

Luke Hannan: Our next question comes from Luke Hannan with Canaccord Genuity. Your line is now open. Thanks. Good morning everyone. I wanted to ask a question on on the new products that you have in your store minutes. It seems like that's a lever that most retailers are looking to pull introducing new products as a way to to stimulate demand and traffic and I believe you'd mentioned that new product sales grew up 4%. So can you just share with us one?

Luke Hannan: I mean are you are you looking to I know I've asked this in the past are you looking to accelerate the the rate I wish you deploy some of your newer own brands or products within those own brands in the market and then maybe also secondly, your national brand partners are you noticing a trend from them looking to create and introduce new products into the market through your your shelf space as well.

Greg Hicks: Maybe all I'll start it's Greg and TJ can weigh in too. I mean own brands you know in general you know we've talked at length about you know how excited we are about our capabilities we really believe they are privileged and we had some great successes across a number of brands in the quarter and we're even more excited about the pipeline of innovation that we have on a go-forward basis. I think we may have quoted last quarter somewhere in the neighborhood of 20,000 new skews in various stages of development and listen the the the national there's always a little bit of competitive tension in in in categories but where we have national brands and own brands we think that is a healthy dynamic and in a tough environment like this where the industry is suffering as TJ suggested in the categories in which we compete there's much more focus on innovation and newness and you know selling selling in for for channel you know distribution and so that that just all you know ladders up to what I had suggested in my prepared remarks around how busy this organization is right now and I mean we could wax poetic about some of the excitement across you know 15 to 20 brands right now in terms of you know what the teams are working on so we haven't we haven't stopped the foot has been you know on the gas you know accelerating and trying to elevate more vitality in our assortments and we're just pleased to see with that 4 percent growth rate the you know that that it's you know with we're getting some traction you know with the customer as you can appreciate when you're trying to draw down your inventory in the manner in which we have for the course of you know the last many quarters you've you've got to be surgical in terms of where you allocate incremental inventory and so now that we're getting that inventory in a right size you can expect to see even more you know innovation and newness in terms of how we go to market and we feel really good right now that we've got a strong balance that's standing up well in front of the cuss Thanks.

Gregory Craig: And then for my follow-up question here, Gregory, maybe this one's for you. I just wanted to clarify the commentary on freight being less of a tailwind for the back half of the year. Is that more indicative of going up against tougher cops from a freight perspective? Is that more indicative of the freight environment being a little bit more expensive now? Is that a combination of both? Maybe just sharing what's underpinning that?

Gregory Craig: Yeah. Yeah, thanks, it's Gregory. I would say it's more the former around the idea of what we're comping off of, but you know, we hedge a lot of our containers, but the reality is where we did need to get the spot, it would be more expensive to your point year over year, but I would just say it's more of a compass. If you have the way to two, then what we're actually, but it is both to be fair. Thank you.

Mark Petrie: Our next question comes from Mark Petrie of CS. Hi, B.C. Your line is now open. Hey, good morning. Thanks. A couple of quick ones, I think. First, just on the dealer inventory, I'm curious if you are seeing any variation in the dealer inventory positioning by region. I mean, you highlighted Vectom as sort of underperforming in retail and just curious if you're seeing that echoed in the dealer behavior. Hey, market CJ, there's not a lot of material change by region that I would call out.

Mark Petrie: I would, I would simply say after, as I said a bit earlier, after two quarters of kind of shipment, dialing back a lot faster than the consumption patterns were that that dealers are kind of reacting more to demand as it comes versus a build burn strategy, but there's not a lot to highlight from a regional perspective on that front as you get. But as you get through the summer season, you may see some slight differences as we get into spring summer next year, just given some of the weather patterns, but by and large as we go into the back half, there's not a lot of nothing really material to point out there.

Mark Petrie: Okay, fair enough, thanks. And then just second on on SGNA, obviously retail SGNA, specifically obviously some nice year of year decline, particularly in Q2. Could you just contrast the lower dollar spend in Q1 and Q2? The pace is significantly more material in Q2 and just give us a sense of what shifted exactly and then how to think about the sustainability of those year of a year decline. Hey, Mark, it's Gregory here.

Mark Petrie: I'll take that one. I think we tried in the prepared remarks as well, you know, all of our disclosures. We were calling Q2 of last year, we incurred some additional expenses related to the kind of the fire, right? You know, the inefficiencies around shipping and shunting and things along those lines. And that wasn't have been present in Q1. So when you're looking at Q2, we got a little bit of an additional boost in that savings, if you will, because we were comping up a cost that disappeared as an example.

Mark Petrie: And as I said, I think some of the IT costs have kind of skipped it a little bit as well, more to kind of that later timeframe that we had initially. So I think that's kind of what you're seeing. And I want to take it back kind of up a level. I mean, when we started talking about, you know, the year and, you know, this is always a great question that folks had for us, you know, Greg, I teach all of us talked about this notion of it's an unpredictable consumer demand environment, so we're looking to control the controllables.

Mark Petrie: And what we said, but that for the full year is we're looking to kind of maintain our operating expenses within that full year, given kind of that operating environment. And that objective frankly hasn't changed. It's frankly probably as important now as it would have been in December. So, you know, you know, quarter to quarter, as you pointed out, there's going to be some noise in the comp due to when 3PLs closed this year versus last year.

Mark Petrie: But some in a margin, I take it back to kind of that notion of the full year and what what are overall objectives are around how we want to manage the place because you got to remember, we haven't stopped building new stores. We haven't stopped incurring kind of additional leasing costs and rent costs and store operations costs. So anyway, that's how I think about it kind of overall mark is, you know, I would have expected, you know, given kind of that that that Frank, the DC element kind of that gain more in the second quarter. But, but I'd encourage you to think of this kind of again on that full year basis. Thank you. This concludes the question and answer session.

Greg Hicks: I would now like to turn it back to Greg for closing remarks. Thank you for your questions and for joining us today. We look forward to speaking with you when we announce our Q3 results in November 7th. Bye for now.

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