Q3 2024 Canadian Tire Corp Ltd Earnings Call
Speaker Change: Thank you and good morning, everyone welcome to Canadian Tire Corporation third quarter 'twenty 'twenty four results conference call.
With me today are Greg Hicks, President and CEO, Gregory Craig Executive Vice President and CFO and T. J flood executive Vice President and President of Canadian tire retail.
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.
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 question before cycling back into the queue.
And we welcome you to contact Investor Relations, if we don't get through all the questions today.
Speaker Change: I will now turn the call over to Greg.
Greg.
Greg Hicks: Thank you Karen good morning, and welcome everyone.
Third quarter came to us as we expected and we delivered a normalized diluted EPS of $3.59 up significantly over Q3 of last year.
Although we've experienced multiple interest rate cuts this year consumers remain understandably cautious theyre spending reflected that restraint, but we were prepared.
Our strong strategy supported by our dedicated team guided us through lingering headwinds and has positioned us well.
Before we unpack our results I'll give you our view into the health of the Canadian consumer.
Our data shows that consumers are heavily influenced by two factors their spending power and their sentiment.
Greg Hicks: The first is simple.
Speaker Change: Economic factors like cost of living and unemployment have continued to constrained consumer spending.
At the same time consumer sentiment or the confidence with which they spend their money is the lowest we've seen in a long time.
Speaker Change: Sentiment is not unique to a specific cohort of household income.
Speaker Change: Over the past five quarters spending has declined across every segment we measure.
Speaker Change: Sustained evidence of the Canadian shift to value and discounts.
We believe the dual challenges of lower spending power and consumer sentiment are temporary.
Speaker Change: Said.
And then impending factors like mortgage renewals, we believe the near term will still be tough.
We also believe that consumer confidence will recover and slowly bring the market back to spending stability.
Speaker Change: We see the recent success of interest rate cuts as a potential catalyst.
Speaker Change: And it's worth noting that.
Speaker Change: But the gap between essential and discretionary spending narrowed in Q3.
These may be signals of a slight and gradual unlock of consumer restraint.
Speaker Change: Despite a challenging consumer environment, we are ready for our customers.
Our supply chain and in stock positions are strong we are delivering value through price investments and our ongoing product innovation has delivered the kind of assortment vitality critical for growth.
Speaker Change: This sets us up nicely to turn the proverbial corner.
Speaker Change: Whenever we reach it.
Speaker Change: Now, let's discuss the results.
Speaker Change: This year, we've consistently framed our quarterly updates around three points of leverage.
Speaker Change: <unk> value and deeper relationships through our triangle rewards program.
Maximizing our existing assets and driving operating leverage with a constrained top line.
We're making good progress achieving business efficiencies and delivering consumers value.
Speaker Change: Starting with triangle rewards Q3 loyalty sales were once again stronger than non loyalty sales.
Speaker Change: More comparable loyalty sales were up for the first time in over a year.
Effective earn rate or the amount of Canadian tire money that gets issued for every loyalty dollar spent at Canadian tire was up in the quarter and a concerted effort to encourage member engagement across our banners, we issued more Canadian tire money right across our enterprise.
Speaker Change: Loyalty sales at sport Chek and marks were notable contributors in the quarter up 12% and 6% respectively.
Speaker Change: With increases in loyalty penetration and continued growth in our active registered members.
Speaker Change: Enterprise wide loyalty penetration was the strongest it's been in two years.
Speaker Change: All of this activity translated to increased Canadian tire money redemption in the quarter up 10, 1% with the largest percentage being redeemed at ctr.
Speaker Change: In addition to driving value by integrating the assets we own we've continued to integrate our loyalty partner Petro Canada.
Speaker Change: Over 300000, Canadians have now linked or triangle rewards and Petro points accounts and virtually all of them have earned Canadian tire money already.
Speaker Change: The result is a 10% incremental spend per linked member delivering $33 million in incremental sales in just a few months.
Speaker Change: To get there the businesses, we built and the partner we welcomed into the program are creating a system that is greater than the sum of its parts.
Speaker Change: Expect us to continue driving engagement across the system and the businesses, we own and with partners.
Speaker Change: Creating a flywheel effect that provides more value for the customer while accumulating first party data upon which we will increasingly build our business.
Speaker Change: Moving now to how we continue to leverage our existing assets and investments starting with technology upgrades that bolster our key capabilities.
Speaker Change: This quarter, we implemented the first phase of modern cloud based technology supporting our transportation management capabilities.
Speaker Change: A tech stack that effectively and efficiently supports all of our banners together as one.
Speaker Change: Similarly across the enterprise, we implemented a single modern cloud based infrastructure that supports our triangle loyalty program.
Speaker Change: Opening the door to better data real time insights and enhanced promotions.
Speaker Change: We expect the payoff to be better and more immediate engagement with our members.
Speaker Change: Last quarter I highlighted our one digital platform and a new single user sign on experience.
Speaker Change: Making cross banner shopping more seamless and a growing contributor to our performance.
Speaker Change: In September we had the highest penetration of digitally known triangle members across our enterprise digital assets.
Speaker Change: In store, we continued to streamline the locker pickup experience with improvements to E Mail communications and more flexible customer pickup locker.
Speaker Change: Locker NPS rose to 65 in Q3 and locker usage was up 13%.
Speaker Change: Overall, I am pleased with our focus on creating value from our existing assets capabilities and investments.
Speaker Change: More specifically I'm encouraged by what we've learned in the process.
Speaker Change: Not only have we identified how technology supports our strategy.
Speaker Change: We have also clarified the strategy behind our technology.
Speaker Change: For instance, it has become quite clear that legacy single banner operating models and technology hamper, our overall competitiveness and our work to deploy a modern enterprise technology continues.
Speaker Change: And finally, I will touch on how we're maximizing our operating leverage.
Speaker Change: Given the challenging economic conditions, our merchant team took targeted action to support those customers who need to be more selective with their purchases.
Speaker Change: This included a focus on essentials, specifically in automotive.
Speaker Change: There are various categories, including tires were up <unk>.
Speaker Change: Even in a 100 year old Tam that also happens to be in our name we continue to grow.
Speaker Change: More broadly we are seeing new assortment vitality across both owned and National brands drive improved performance relevance in sales.
Speaker Change: Year to date, new product sales have been driven by product introductions and living and automotive categories.
Speaker Change: This vitality as not only pleasing existing customers, but better still it's attracting new ones, including lower income that burdened and younger demographics.
Speaker Change: A good example is a tumbler collection, we launched in partnership with a popular influencer the birds, but by yes.
Speaker Change: This product line attracted a younger customer base generating incremental traffic and revenue.
Speaker Change: As I said last quarter across our banners, we are working hard internally and with vendors to drive sales.
Speaker Change: But the top line environment is still tough.
Speaker Change: So our efforts to control costs improve margins and manage inventory will continue.
Speaker Change: Beyond our disciplined expense control, we have also developed a greater appreciation for new efficient and agile ways of working.
Speaker Change: New ways of working that are better suited for today's challenges and change.
Speaker Change: Ways of working that enable the achievement of targeted outcomes.
Speaker Change: This is showing up not only in in our strategic prioritization and focus but also in our results we.
Speaker Change: We are encouraged with our progress this year, but know that we have more work to do.
Speaker Change: And with that I'll pass it over to Gregory.
Speaker Change: Thanks, Greg Good morning, everyone Q.
Greg Hicks: Q3 landed pretty much in line with our expectations as we continue to focus on controlling the controllable.
Speaker Change: There's also another clean quarter with no normalizing items.
Speaker Change: At $3.59 was strong up 21% or 63 on a normalized basis driven by improved retail profitability.
Speaker Change: Part of the increase was due to a onetime gain of sale of a retail property in Toronto as well as insurance recoveries related to the 2023 D C fire.
Speaker Change: These two items represented about 41 at the EPS level.
Speaker Change: Notwithstanding that we delivered a good operating result, controlling what we could in a soft consumer demand market and keeping opex flat to last year.
Speaker Change: Strong retail gross margin rate and solid cost control allowed us to offset lower retail revenue.
Speaker Change: And as Etfs, although write offs were up as expected the business delivered a solid performance on the back of good cardholder engagement.
Speaker Change: Now I'll take you through a little more detail by segment.
Speaker Change: Retail revenue was down one 8% to $3 8 billion.
Speaker Change: With lower petroleum revenue contributing to the decline down 8% on the back of lower volumes pumped.
Speaker Change: Excluding petroleum retail revenue was down 8% and traded slightly ahead of sales, which were down one 4%.
Speaker Change: Our sales trends improved in Q3 with comparable sales down one 5% compared to a four 6% decline in Q2.
Speaker Change: The timing of promotional events and a good back to school season. This year resulted in sport chek growing 3%, partially offsetting 2% declines at ctr and that marks.
Speaker Change: Our customer data tells us that the impact of interest rates has yet to translate into significantly different spending behavior, although trends did improve a little quarter over quarter.
Speaker Change: Canadians are still generally making fewer trips and putting fewer items in their baskets that a few years ago with more of their spend going to essentials.
Speaker Change: As Greg spoke to loyalty can be an important tool for delivering value to our customers in this environment.
Speaker Change: Customer engagement means we can enrich the insights we get around customer behavior.
Speaker Change: And in turn offer them value few personalized offers and more informed mass promotions to drive more and better incremental sales as we did again in Q3.
Speaker Change: Customers appreciate the impact of triangle, where it's in their lives as shown by the significant increase in the loyalty penetration rate on a direct scan basis over.
Speaker Change: Over the past 12 months the rate has risen by nearly 200 basis points to 55%.
Speaker Change: Driven by meaningful increases at marks to sport Chek.
Speaker Change: Turning to the performance by banner now.
Speaker Change: At Ctr comparable sales were down two 2% essentials continue to outpace discretionary and we're down to less than 1% against a strong comp in Q3 last year.
Speaker Change: Automotive had its 17th consecutive quarter of growth.
Speaker Change: Driven by growth in auto maintenance, which was up 7%.
Speaker Change: Customers continued to service aging vehicles kind of coming to us for more and bigger work.
Speaker Change: Outside automotive other division saw sales declines in the quarter. However, we continue to see pockets of growth in categories like watery as well as in bikes backyard fun and fishing.
Speaker Change: Leveraging our high low model and being in stock in key products, such as summer climate control through the shoulders of the season helped.
Speaker Change: And the discretionary sales trend improved down three 5% compared to down 8% in Q2.
Speaker Change: Ctr revenue ended ahead of sales down 1% as we saw some benefit from fall winter orders ahead of our biggest quarter.
Speaker Change: Retail revenue is tracking broadly in line with sales, we would expect that to continue until market conditions improve although there may be some quarter to quarter variation.
Speaker Change: Moving now to sport Chek comparable sales were up two 9%, marking two consecutive quarters in which sport chek outperformed industry trends.
Speaker Change: Demand for high ticket discretionary categories remains soft and we saw that during back to school season with need to have categories like backpacks water bottles and kids footwear being the key drivers of sales.
Speaker Change: To counter this promotional events continues to be a focus and contribute to the growth in athletic footwear and hockey in Q3.
Speaker Change: Improved customer experience through store refreshes and in stock availability of Keybanc and brands like Helly Hansen, Sherwood HOKA and Yeti continued to drive positive customer sentiment.
Speaker Change: Mark has had a tougher Q3 with comparable sales down two 3% for the quarter, taking their year to date decline down to one 4% and.
Speaker Change: Industrial where continues to be down while men's casual wear, particularly T shirts and shorts group.
Speaker Change: Another top performer was childrenswear, where the expansion of the assortment available in select stores is getting traction and driving some growth.
Speaker Change: The quarter finished stronger than it started and we are well positioned with the right inventory for fall as it arrives across the country.
Speaker Change: Turning now to Helly Hansen, where <unk> revenue was down 6% retail stores and E Commerce grew but sports wholesale revenue declined.
Speaker Change: A shift in timing of sports wholesale shipments to Q4 contrasted with the early deliveries of fall winter product. We saw in Q3 last year. It was only partially offset by stronger replenishment orders.
Speaker Change: If better whether it translates to better outerwear sales compared to last year. We also expect stronger wholesale replenishment as sales come through to benefit Q4.
Speaker Change: Retail gross margin rate, excluding petroleum beat our expectations again this quarter coming in at 35, 7% up 62 basis points compared to last year.
Speaker Change: Margin was favorable at Helly Hansen, and Ctr, partially offsetting investments in promotional activities to drive sales you will recall that last year's Ctr margin benefited for freight tailwind, which was not the case again this year.
Speaker Change: Improved product margin was partially due to the mix and partially as a result of the work we've done on product costs.
Speaker Change: 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.
Speaker Change: Retail SG&A was favorable again this quarter, we continued to manage costs tightly within $6 million of last year, despite ongoing investments in stores and technology.
Speaker Change: Higher marketing expense reflected costs related to the Olympics and Paralympics.
Speaker Change: These increases were offset by lower personnel costs and lower supply chain costs as we cycled the last quarter of exits of three pls and last year's inefficiencies related to the DC fire.
Speaker Change: We will stay focused on SG&A discipline to constrain Opex op expense growth in 2024, but the comp will become harder from Q4, as we cycle the meaningful supply chain savings and lower personnel costs last year.
Speaker Change: Moving now to inventory overall corporate inventory dollars were $300 million below last year or down 9% due to ongoing inventory management across the banners.
Speaker Change: Spring summer inventory ended lighter than where we were at the end of Q2, but as expected. This was partially offset by some modest growth in non seasonal categories as expected at ahead of the important selling season in Q4.
Speaker Change: On the dealer side inventory is down 5% and units are down.
Speaker Change: The decline reflects lower inventory across both non seasonal and seasonal categories compared to last year, including spring summer inventory, which came down as a result of Q2 and Q3 sell through.
Speaker Change: I'll now move on to financial services, where results materialized as planned.
Speaker Change: Active accounts were flat on the backs of proactive measures, we implemented in previous quarters to manage portfolio risk, but we continue to see good cardholder engagement.
Speaker Change: Credit card sales were up in payments remains strong.
Speaker Change: <unk> was up 3% driven by growth in average account balances.
Speaker Change: New was up one 5% over last year lower gross margin reflected increases in both that impairment and funding costs, which were the primary drivers of a $15 $4 million decline in IBD.
Speaker Change: Risk metrics were up as expected the PD two plus rate, which is typically an early indicator of future write offs was three 4% and the write off rate was six 9% up 20 basis points compared to Q2.
Speaker Change: As we mentioned on the Q2 call. The team is keeping a close eye on insolvencies Kip been rising unemployment rates. It has a playbook ready to take additional measures to limit risk exposure over the medium term as necessary.
Speaker Change: The allowance rate was 12, 3% down slightly from last quarter on higher receivable any volumes and remains within our targeted range of 11, 5% to 13, 5%.
Speaker Change: As we said last quarter, our strategic review to consider a range of alternatives for the Canadian tire financial services business is ongoing at this time.
Speaker Change: The review remains a priority for US we continue to make progress in assessing how potential partners can help us drive long term value for triangle and our retail business.
Speaker Change: <unk> continues to run smoothly and to perform well as we saw it again in Q3. It continues to demonstrate that issues one of the best Sophie credit cards has recognized in the most recent J D power satisfaction study and one of the most well established risk management programs in the country.
Speaker Change: Turning now to capital allocation.
Speaker Change: Cash generation is ahead of last year with cash generated from operations up by more than $700 million on a year to date basis.
Speaker Change: This has been achieved through improved into working capital cost control and margin management, which in turn has helped us to significantly reduce our borrowing exposure.
Speaker Change: We continue to believe that balanced and consistent capital allocation anchored on investing in our business for the longer term is the best approach and that this will continue to be our guiding principle through 2025.
Speaker Change: Our operating capital spend is expected to be between 525 and $575 million, which is above our long term historical run rate with a continued emphasis on refreshing the store experience.
Speaker Change: We also plan to repurchase up to $200 million of shares during 2025.
Speaker Change: Finally, the dividend will increase in March to $7 10 per share, which will be our 15th consecutive year of dividend increase delivery one of the best yields among consumer discretionary peers.
Speaker Change: Before I conclude I wanted to speak briefly about our plans and expectations for Q4 and 2025.
Speaker Change: For Q4, we have planned for some sales growth that ctr against soft comps due to milder weather last year automotive should continue to be a driver for us with new tire products in the market and strong in stock positions on auto fluids in batteries and we will continue to provide Canadians with the value they see during the gift giving season.
Speaker Change: To wear and other banners should also see some growth if we get the weather consistent with the five year historical average.
Speaker Change: While October sales Trinidad head of our year to date trends October typically represents less than 25% of our Q4 sales activity. So it is unlikely to be an accurate predictor of where the quarter will end.
Speaker Change: As many of are aware sales. This Q4 are expected to be heavily weighted in December given the timing of black Friday this year.
Speaker Change: We continue to expect revenues to broadly mirror sales unless we see a marked increase in consumer demand.
Speaker Change: On a year to date basis, our retail gross margin is trending ahead of our targeted Northstar, However, where we land will very much depend on promotional intensity and sales mix in the fourth quarter.
Speaker Change: Our current expectation, especially given the mild start to winter weather to start the quarter is really heightened promotional intensity in November and December to capture sales.
Speaker Change: We will doing our part to capture our share with early campaigns in market already.
Speaker Change: On a year to date basis, we continue to be extraordinarily proud of.
Speaker Change: Our teams have made to deliver a 22% increase in EPS on a normalized basis we.
Speaker Change: We have done this in a context of a 3% decline in retail sales.
Speaker Change: Increasing write offs at the bank and by managing our margin levers and controlling our costs.
Speaker Change: As we move into 2025 remember that we will be cycling some gross margin opex and <unk>.
Speaker Change: A tailwind that helped earnings in 2024, including insurance recoveries and outsized gains on property sales compared to our normal run rates.
Speaker Change: Our time is being spent ensuring we are well positioned to meet sales demand, including buying for flat to modest growth in 2025.
Speaker Change: While balancing margin levers and exercising discipline and how we go costs to drive earnings leverage.
Speaker Change: Our next question comes from the line of Tammy Chen with BMO Capital Markets. Your line is now open.
Tammy Chen: in CTR, two of the three seemed to lean more to discretionary. So this narrowing, I mean, I guess, how would you characterize it? Did that happen in Q2 at all, or this started to happen in Q3?
Speaker Change: Hey Tammy, it's TJ. I'll take that one. Yeah, I think we did see a big gap in both Q1 and Q2, and even in Q4 if you go back even into 2023. So the gap between essential and discretionary did close a bit. It was about 300 basis points.
Speaker Change: in Q3. To your point, there were some discretionary categories that did perform well, climate control being one of them, but we still expect a gap to persist as we go into Q4. Q4 is one of our biggest quarters for essential mix.
Speaker Change: And that's where we're investing in our inventory. And surgically, to your point, we have seen in pockets the discretionary bouncing back a little bit.
Speaker Change: but it is still in a decline, but the gap is narrowing and we're looking forward to the Christmas season to get a good barometer on whether there's gonna be a more fulsome bounce back in discretionary.
Speaker Change: Okay, I see. And my follow up is on the dealer activity. I noticed in this quarter,
Speaker Change: Your revenue trend is a bit better than the same store sales. So that suggests the dealers did stock up a little bit. Would you characterize that as they were just stocking up for?
Speaker Change: for an anticipation if there was any port strike disruptions or you're seeing from their behavior, some of them are willing right now to take that step into getting a bit more inventory. And when we eventually get to a point where more of these dealers do want to really restock, how quickly can you meet that demand? Thanks.
Speaker Change: Thanks, Tammy, for the question. There's a lot in that question, so let me try to unpack it a little bit. I think Gregory talked about it in his opening remarks.
We have seen the disparity between POS and revenue closing.
Speaker Change: in Q3 and even a little bit in Q2 relative to what you would have seen in Q23 and even a little bit before that. So that is our expectation going forward, is that the dealers are going to respond to how consumption comes to them.
Speaker Change: and that's what we saw in Q3. We expect that in Q4. There was a little bit of a discrepancy in Q3, as you pointed out, which is a bit of timing on preparing for the winter season. But for the most part, when you're about 100 basis points off, that's pretty tight.
Speaker Change: And in the long term, that's really what we expect from time to time, there's quarterly blips, but we do expect the dealers to operate really close to consumption and we're here and ready when the POS starts to pick up for them to draw into the inventories that we have here corporately.
Thank you.
Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Mark Petrie with CIBC. Your line is now open.
Mark Petrie: Good morning. I actually wanted to ask on financial services. You're still getting some pretty solid receivables growth well ahead of sales. And I know most of that is balances versus new accounts. But is that tracking as you would have expected? And where are you now versus, I don't know, six months ago or a year ago?
Speaker Change: in terms of monitoring and managing things like credit limit increases or sort of payment prompts and interactions, you know, are those efforts still ramping up or are you kind of stable or where are we at in that part of the business?
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Speaker Change: Thanks, Mark. It's great. Let me take that one. Yeah, I think if you think about receivable trends, I would still argue generally, if you look at quarter to quarter, they're a downward kind of cycle, right? It would have been 8% in the last year down to a receivable volume of, say, like 3% this year. And it points to what you've suggested kind of
Speaker Change: So, I don't think our focus on that has frankly changed at all. I would argue that there's more the team could do if they felt the need to do that, but they're being very careful around credit limit increases and probably more careful than usual even on new account acquisitions.
is what I would say.
Speaker Change: I mean, not to get too technical, which I'm scared to do, but any quarter, you know, there's a bank holiday where the month ends on a bank holiday, and that hurts payments, so you got some noise in the results in there as well, to be frank, but the general trends are continuing, as you've said, receivables are pacing down, we're now at about 3% growth rate.
Speaker Change: and the team is still very focused on kind of managing kind of overall risk levels within the bank.
Speaker Change: Yeah, Mark, it does, we believe, absolutely point to the fact that a member is just much more engaged in our program, in the system.
when they're redeeming. There's also...
Speaker Change: an average benefit of $4 worth of spend that comes with every dollar of redemption. So there's a nice benefit in terms of having that Canadian Tire money rinsed through the system.
Speaker Change: in the form of redemption, and as we talked about on the quarter, if we can move, if the engagement in the program can continue to move more and more of our members to registered members, then, you know, we really see stickiness, and more importantly, recurring revenue.
Speaker Change: and it's that recurring revenue that we continue to look towards.
Speaker Change: in terms of, you know, the ultimate, I guess, volatility disturber for our business. If more and more of our membership can be registered.
Speaker Change: and more and more of our revenue can be recurring, then there should be less volatility in the business going forward. So that's the ultimate objective.
Speaker Change: Okay, very helpful and all the best in the holiday. Take care. Thanks, Mark. You too, Mark.
Speaker Change: Thank you. Our next question comes from the line of Vishal Sridhar with NBC. Your line is now open.
Vishal Sridhar: Hi, thanks for taking my questions. With respect to the product margins that.
Speaker Change: CTR, can you just talk about some of your initiatives and how much white space is remaining to exploit the potential of those initiatives that you're working on?
Speaker Change: Hey Vishal, it's TJ. Thanks for the question. As Gregory pointed out in his opening remarks, we're pretty proud of how the team at CTR
up about 30 basis points for the quarter.
Speaker Change: As we unpacked how the quarter came to us, we got some benefit from reduced product costs with how strong our teams have been negotiating with vendors. We saw some positive shipment mix as well with our automotive business outpacing some of the other businesses. Automotive, as you know, is one of our higher margin businesses.
Speaker Change: And those two factors kind of offset some FX headwind that we had, as well as our need to invest a little bit back in the consumer to try to drive.
some consumer demand.
Speaker Change: the elasticity modeling that's becoming more and more machine learning based. We're really good at understanding where we need to invest promotionally. Greg mentioned a bit earlier, we know where elasticity is important when value creation is required on the reg pricing side of things and we got some traction there.
Speaker Change: So we feel really good about that. Our triangle membership base and the loyalty program benefits that we're able to provide allows us to provide value to consumers and manage margins. And then our own brands, our stable of own brands really helps insulate our margin rates. So our belief is that going forward in what's a tough economic backdrop and a tough consumer backdrop, all of these capabilities are going to help us maintain our margin rates and kind of run that balance of demand creation and managing our margins going forward. So feel really good about the work the team has done and what we've invested in from a capability standpoint.
Speaker Change: I would just add, Michelle, just at the CTC level, you know, we certainly have our publicly stated North Star objective.
Speaker Change: We, to the point TJ makes, we always have puts and takes here every quarter, every year, but our objective doesn't and won't change. Next year, we do have some headwinds that weren't as pronounced this year, including, you know, foreign exchange.
Speaker Change: We've seen what's happened with the dollar over the course of the last couple of months.
Speaker Change: and global freight rate given, you know, the Suez Canal's impact on the overall shipping industry. So two big headwinds that, you know, we didn't really have this year. We had a little bit of foreign exchange headwind, but it's more pronounced next year. So we need to be working through those things in 2025.
Speaker Change: Okay, thank you for that. And with respect to Triangle and the ability to add more retail banners into the system and have them issue points as well and accept them, is there a capital light way to do this?
Speaker Change: You know, just thinking about some of the partnerships that you already have and if this is, we should expect more of that as we look out in the future.
Speaker Change: Yeah, it's Greg, Michelle, I can take that. I mean, we're, as you heard, we're really happy with what we're seeing in the Petro-Canada.
Speaker Change: Petro-Canada Partnership. I'll stop short of providing you specific names, but know that we're very active. We're transitioning our loyalty program and our business, for that matter, from
Speaker Change: what we would call, you know, a general merchandise and apparel retail system with owned assets.
Please.
That may sound...
Subtle, but it's
Speaker Change: not. And that's our objective. The Petro-Canada partnership demonstrates to us that we can derive value from businesses that we don't own. And that, in and of itself, to your point, is a more capital light way to drive value in our business.
and we've built...
the platform, the technology platform in terms of
Speaker Change: our ability to integrate with other businesses and other loyalty programs.
Speaker Change: with the most flexible technology that we can build, you know, through APIs and...
and so what we've built for Petro-Canada is scalable.
Speaker Change: And the great news, you know, is this isn't just creating, you know, value for just our business, but we see meaningful value being delivered to the customer associated with the Petro-Canada Partnership, and we think we can replicate that.
Thank you.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from the line of Luke Hannon with Canaccord Genuity. Your line is now open.
Luke Hannon: Thanks. Good morning, everyone. I wanted to ask about the campaigns that you have in the market thus far into Q4, and specifically, you know, what are you noticing from a competitive backdrop or promotional intensity thus far into Q4? I know you mentioned you expect that.
Speaker Change: intensity in the market to pick up towards the end of the quarter where the bulk of the sales are located. But is there anything that you're noticing thus far into the quarter as far as promotional intensity in the marketplace and then how your campaigns are responding to that?
Speaker Change: Hey Luke, it's TJ. I can give you a little bit of insight there. I mean, the biggest thing that we're seeing this year, as we pointed out in some of the
Speaker Change: earlier comments is the shift in the timing of Black Friday and every retailer in the country is obviously dealing with that so
Speaker Change: That just creates an environment where we've got to kind of think through our marketing campaigns in the lead up.
Speaker Change: to Black Friday and then also kind of with the last sprint between Black Friday and Christmas. So, we're being very aggressive in recognizing that consumers are definitely coveting value right now and we have so many opportunities to provide them value, whether it be through our high-low model or our triangle rewards. So, without tipping my hand to the competition, you can expect us to be showing up with value across the board to help.
Speaker Change: inspired gift-giving, and we're also, as Greg pointed out, we're really excited about our assortment vitality as we head into Christmas. We've got over 360 new a new color scheme in Christmas decor called the Night Before Christmas. We've got some great
Speaker Change: new product launches in Paderno and Ninja in the kitchen area, and we're ready to roll, whether it be for Christmas decor, gift giving, or when the seasonal weather hits. So that's how we see it playing out as we go forward here.
Speaker Change: Thanks, that's actually a good segue into my follow-up here which is on that assortment vitality.
We know it is a big
Speaker Change: traffic driver both the national brands and the own brands you have and Greg you had mentioned that There's been sort of an acceleration of the introduction of those new products this year as well Can you help us frame up or dimensionalize where that stands stacks up for this year this holiday season versus maybe past years?
Thank you. Thank you. Thank you.
Speaker Change: Yeah, I think this would be directionally correct, Luke. I don't have the stats off the top of my mind, off the top of my head to really...
Speaker Change: relate total net new skews to previous years. In general, we're still we're still working down, you know, inventory, you know, we talked about, you know, the working capital benefit that we received in the quarter.
Speaker Change: drawing down our inventory at the same time as introducing new SKUs. And so your ending inventory position in any category is gonna impact your ability.
Speaker Change: to really drive innovation. And that would be not only for our own brands, but national brands.
Speaker Change: But generally, and why we're calling it out, is we are seeing, again I've used the terminology green shoots, we're just seeing green shoots in terms of the innovation that's coming to us across all of our banners from our national brands.
Speaker Change: and the role that that's playing in driving, you know, overall growth in any one of our formats. I mean, PJ and I were just talking the other day, if you look at.
Speaker Change: If you look at Mark's, we're one of only two retailers to partner with Levi's.
Um...
Speaker Change: in their strategic partnership with Beyonce. And so, you know, the denim activation kick started in the, you know, first or second week of October, and we've got almost 100 doors activated with that innovation and the entire store for those 94 doors, the performance is extremely elevated.
Speaker Change: I don't think Levi's would have been in a position in terms of their overall global inventory.
Speaker Change: But I would still say it's not at the run rate delivery of years gone by.
Speaker Change: and I wouldn't include 2023. You know, you go back to 2022 and...
Speaker Change: prior in terms of where innovation was really showing up in the business and driving the lion's share of the growth on the top line. So we're moving in the right direction is what I would say.
Okay, great. Thank you very much.
Thank you.
Speaker Change: Our next question comes from the line of Chris Lee with Desjardins. Your line is now open.
Chris Lee, your line is now open.
I lost Chris. Okay.
Maybe go to the next question.
One moment, please.
Speaker Change: Our next question comes from the line of Mark Petrie with CIBC. Your line is now open.
Mark Petrie: Yeah, thanks. I just had a very quick follow-up, which was on the comments around dealer inventory. I think when you were talking about spring-summer, I heard you say that you had made progress from Q2, but would you characterize the spring-summer inventory as clean as you exited that season?
Speaker Change: Yeah, Mark, I think as it's TJ, as we went through the Q2 and Q3 season, the dealers definitely reduced their inventory on spring summer. There still is some kind of carry over from kind of the 23 and 22 levels, but by and large, we're feeling pretty good about as we go into Q1 and Q2 next year with respect to spring summer. So, again, we don't see it as a burn build situation in terms of the strategy from the dealers based on their inventory and they're going to track very closely to consumption as we go forward in the spring.
It's no different.
Okay, great. Thanks for the clarification. Thank you.
Thank you. One moment, please.
Speaker Change: Our next question comes from the line of Chris Lee with Desjardins. Your line is now open.
Chris Lee: Hi, good morning everyone. Sorry about that. Hopefully you can hear me now.
Speaker Change: We can, Chris. Glad you got back in. Thank you. My first question is, you know, obviously there's still a lot of uncertainties next year. I suppose one unknown could be higher tariffs. I just wanted to see, you know, what are your thoughts on that and what, if anything, can the company do to manage the potential impact?
Thanks.
Speaker Change: Yeah, it's a little fresh, obviously, since the announcement. So we get, as you can imagine,
Speaker Change: All sorts of, you know, advice from advisors and various, you know, councils and committees that we participate on it or participate in. It's really
Speaker Change: It's really tough to ascertain the impact. It's kind of like forecasting the dollar. Everybody's got a different opinion in terms of how it's going to...
Speaker Change: show up and impact our business, you know, is it, you know, wide scale swathing across all all imports
Speaker Change: Will it be more surgical and transactional? Can it wait until the negotiation of USMCA? I mean, there's so many things to think about here.
Speaker Change: You know, the good news is, you know, we continue to diversify our sourcing, you know, all over the globe.
Speaker Change: and we've seen a pretty sizable shift in our country of origin sourcing out of China just this year alone.
and so as it relates to any type of...
Speaker Change: you know, trade escalation between U.S. and China and how that impacts us, just from that standpoint alone, we're
Speaker Change: in a less risk position than we would have been this time last year, as an example. But you can expect us to be extremely active, really trying to size up what this is all going to look like for us. And I'd imagine it'll be something that we'll be talking about in future quarters.
Greg Hicks: Great, that's very helpful. Thanks, Greg. My follow-up question is, you know, I know the market has obviously changed a lot since yesterday back in 2022.
Speaker Change: I think at that time we provided some KPI targets for low T-cells penetration.
Speaker Change: and Ombren's penetration. I think you're tracking slightly below those targets right now. Is that mainly because of the macro challenges that are weighing on discretionary spending, which obviously...
I'm just curious to know if those targets are still...
Greg Hicks: realistic because obviously they are very key drivers of sales and margin, and if so, do you expect them to pick up as conditions become more favorable? It certainly sounds like you have a lot of great initiatives in the pipeline as we speak. Thanks.
Yeah, it's Gregory here, Chris. Let me take that one.
First just I think
Greg Hicks: Technically, as we, you know, talked about last year with the withdrawal of our aspirations, that would have included kind of all those
aspects we considered as well.
Greg Hicks: What I will note, we did talk today about a loyalty penetration rate.
Greg Hicks: We've actually altered the definition from what we would have provided as Investor Day. We think...
Greg Hicks: moving forward. The one we have now is a pure direct scan of cards versus a previous definition that we use.
Greg Hicks: we've learned more about loyalty in the last two or three years. So the reason that number looks lower, as I've said, is because we've got a bit of a different definition that we can...
Greg Hicks: take offline and kind of walk your way through. But this is the one we're going to be using going forward is what I would say and the previous session would have been higher. Own Brands, you know, I think we've talked every quarter, you know, about what our own brands and it is still a key focus of this business that the margin differential, the competitive posture, you know, proven it gives us as well from a demand perspective, it's still critically important. So, you know,
Speaker Change: Okay, great. That's helpful, thanks Gregory and all the best to you guys.
You too, Chris. Thanks, you too, Chris.
Speaker Change: , , , , , , , , , , , , , ,
Speaker Change: Thank you. This concludes the question and answer session. I would now like to turn it back to Greg for closing remarks.
Greg Hicks: Well, thank you, Lauren, and thank all of you for your questions and for joining us today. We look forward to speaking with you when we announce our Q4 and full year 2024 results in February. Bye for now.
This will conclude today's call. You may now disconnect.