Q1 2025 Canadian Tire Corp Ltd Earnings Call
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.
Following today's presentation, there will be a question and answer period. If you would like to ask a question, simply press star 1-1 on your telephone keypad.
Speaker Change: To withdraw your question, please press star 1-1. Now I will pass along to Karen Keyes, head of investor relations for Canadian Tire Corporation. Karen?
Karen Keyes: Thank you, Lauren. Good morning, everyone. Welcome to Canadian Tire Corporation's first quarter of 2025 Results Conference call.
Speaker Change: In addition to having our President and CEO , Greg Hicks with us today, we are delighted to have our new EVP and CFO , Darren Myers with us for the first time.
Speaker Change: We are also joined by QJ Flood, who recently assumed a new role as the EVP and Chief Operating Officer.
Speaker Change: Before we begin, I'd like to highlight the earnings disclosure, which is available on our website. It includes cautionary language about forward-looking information and the factors, risks and uncertainties, which may cause actual results to differ materially from those expressed or implied.
which also applied to the discussion during today's conference call.
Speaker Change: I would highlight that our discussion today will focus on the results of the business on a continuing operation spaces with Haley Hansen being treated as a discontinued operation from this quarter.
Speaker Change: To assist with modeling the business on the continuing operations basis, we have included restated financials in our Q1 earning stack, which you can find on our website.
Speaker Change: After our remarks today, the team will be happy to take your questions. We'll try to get in as many questions as possible, but we do ask that you limit your time to one question plus a follow-up before cycling back in the queue.
Greg Hicks: And we welcome you to contact investor relations if we don't get through all the questions today and with that I'll turn the call over to Greg.
Thank you, Karen. Good morning and welcome, everyone.
Greg Hicks: Overall, I'm pleased with our very strong Q1 performance, which reflects our proactive choice to buy for growth and the positive sales impact of seasonal weather and great seasonal products.
Greg Hicks: It's clear we set ourselves in the right direction and took full advantage of tailwinds.
Greg Hicks: Our consolidated EPS of $2.18 was up sharply over last year as we drove sales, managed margins and ran the business with discipline.
Greg Hicks: We saw positive signs right across our business and banners, including increased customer visits, strong response to our new products and notable momentum in triangle loyalty.
Greg Hicks: I want to thank our team for their hard work and commitment to being there for our customers.
Greg Hicks: It's worth noting that the current retail environment remains somewhat uncertain.
For instance, we know the direct impact of retaliatory tariffs.
and we have that Calculus firmly in check.
Greg Hicks: Our tariff task force has been working to minimize possible impacts.
Greg Hicks: Seeking alternative sources, negotiating with vendors and managing margins to blunt the risk of price inflation for customers With limited exposure today we have visibility to potential impacts and a plan for the balance of year should we need it
Greg Hicks: In terms of the unknowns, it has been tough to predict consumer behavior.
Greg Hicks: I'm pleased to report that despite low confidence levels, customers have been and remain more resilient than we anticipated.
Greg Hicks: Even as we dug into the Q1 data for communities that rely on tariff auto-manufacturing, we saw no clear signs subsoppess.
Greg Hicks: Further, spending across all the income levels we track was healthy.
Greg Hicks: or broadly, Essentials were up 8% and discretionary products were up slightly for the first time in three years.
Greg Hicks: anecdotally because we know it's a trend people are watching. We saw some evidence of patriotic purchasing where Canadians seem to be favoring Canadian companies.
This is a topic that gives us pride.
Greg Hicks: Recently, we talked surveys for the most trusted, most reputable, and most Canadian companies in the eyes of customers, and the place they would choose to shop more.
Greg Hicks: Our connection with Canadians is fundamental to our new four-year true North transformation strategy, which I will detail shortly.
Speaker Change: Before I do, I'd like to turn it over to Darren Myers, our DCFO, to give you specifics on the quarter. Many of you know Darren and will understand why we're so pleased to have him on the team and with us here today.
Darren Myers: Over to you, Darren. Thank you, Greg, and good morning everyone.
Darren Myers: Let me begin by saying a truly exciting am to be back in retail and I'm honored to be speaking to you today as a CFO of such an iconic Canadian company.
Speaker Change: IT tremendous opportunity for Canadian Tire and feel fortunate to be joining alongside the launch of True North. The strategy that has been laid out will allow us to accelerate our sales and earnings growth, as we harness our scale as an operating company, utilize the incredible customer insights that we have and drive more efficient ways of working.
Speaker Change: I would like to thank you to acknowledge Gregory Craig for all his contributions on the groundwork he has laid out.
Darren Myers: CFO , one of my main priorities will be to build on the strong foundation that Gregory has put in place and to work with the team to accelerate our financial performance through highly disciplined performance management and capital allocation that delivers more consistent, better outcomes for shareholders.
Speaker Change: And with that, let's turn to the results for the first quarter.
Speaker Change: I'm pleased to report that we delivered a strong first quarter. We entered Q1 with a healthy balance sheet.
Speaker Change: Announced the sale of Helen Hansen, delivered earnings growth to retail ROIC above 10% and reinitiated buybacks, repurchasing more than half a million shares for around 20% of our current share purchase intention.
Speaker Change: Normalized earnings per share from continuing operations came into $2 up 92 cents compared to last year. This was after normalizing for costs associated with our true North transformation.
Speaker Change: Normalized earnings for the quarter were strong, driven by sales growth, operating costs that were relatively flat year-over-year, favourable interest, including de-leveraging and a one-time interest income benefit related to a prior year tax settlement, which also improved our normalised tax rate in the quarter.
Speaker Change: The business performed well in the top line this quarter. Comparable sales were up for a second consecutive quarter, increasing 4.7%, outpacing retail revenue, which was up 4% with about 50 basis points of benefit from petroleum revenue.
Speaker Change: Great end stock, our seasonal readiness, favorable winter weather, and some Canada strong sentiment led to increased trips and sales growth across all banners.
Speaker Change: We also had robust loyalty engagement with loyalty penetration on a rolling 12-month basis at 54.5%
Speaker Change: As T.J. and Greg made clear last quarter, we bought for growth in 2025, and that meant we were ready when seasonal weather hit in February , for having strong sales and winter categories at CTR, especially across the automotive seasonal and playing divisions.
Speaker Change: CTR Comparable Sales ended up 4.7%, and on a trailing 12-month basis, CTR Revenue and Sales Growth are now broadly in line with both being around, down around 1%.
Speaker Change: As you know, these metrics tend to track in line on a longer term basis, although there can be variation on a quarter by quarter basis.
Speaker Change: Sport checked stood out with sales up 6.3% on strong sales of skis, snowboards, hockey, and out-of-wear. Marks was up 2.2% as we saw renewed growth in the industrial business.
[inaudible]
Speaker Change: Turning out inventory, which was up 4% year-over-year excluding Helly Hanson.
Speaker Change: The increase is broadly in line with where we planned as we bought for spring summer demand and to support growth in categories such as Automotive at CTR.
Speaker Change: Understanding where CTR dealer inventory was trending is also a helpful future indicator. At the end of the quarter, dealer inventory was down 2%, reflecting strong winter self-true and Q1 combined with last year's focus on selling through existing spring and summer inventory.
Speaker Change: Moving out to retail gross margin, where it may be helpful to take a minute to unpack the various movements this quarter.
Speaker Change: G1 Retail Gross Margin Excluding Petroleum was 36.1% representing an improvement of 19 basis points year-over year on a continuing operation basis excluding Kelly Hanson.
Speaker Change: This was a strong result proven by improved product margin at CTR and SportCheck.
Speaker Change: Distribution Center Productivity Benefit Martin, Margin, as GTA DC throughput ramped over the last year. Freight was also a tailwind, but one we expect to become a headwind from Q2 as higher freight rates kick in.
Speaker Change: You will know that Heli Hanson is a higher gross margin business, which has historically contributed positively to gross margin. Looking at 2024, our full year reported ex-patrolem normalized retail gross margin rate was just over 36%.
Speaker Change: On a continuing operations basis, excluding Helly Hanson, our 2024 full year is close to 35%, giving us a new north start to aim for on a go for a basis.
Speaker Change: Keep in mind, while we continue to manage levers to hold longer term march and broadly around the North Star, there will always be quarter to quarter fluctuations driven by business performance and mix.
Speaker Change: Now turning to the expense side. Retail S-GNA ended relatively flat to Q1 last year as we benefit from timing and strong cost controls.
Speaker Change: Notably, we saw higher real estate costs, mainly due to higher property taxes and winter maintenance costs. These were more than offset by personnel savings and the timing of IT projects which led to lower costs.
Speaker Change: As a reminder, with the announcement of true North, we highlighted that on a full-year basis, the initiatives would increase operating expenses by $60 million compared to our previous expectation, primarily for IT investments to enable transformation initiatives.
Speaker Change: While we expect everything we are doing on transformation and drive efficiency in future years, you should expect the investments we are making plus inflationary increases to contribute to some pressure on the next junior rate in 2025.
Speaker Change: So, to wrap up the retail segment, it was a strong quarter. Normalized retail lebedon Q1 was almost 13% for $38 million to $334 million.
Speaker Change: Normalized Retail IBT with $64 million, up $69 million. Over the last year we significantly delivered the retail balance sheet and that along with lower rates drove most of the $24 million to decrease in that financing cost. All in, a great port of retail.
Moving to CTFS now.
Speaker Change: Overall, the bank performance came in as we expected, as higher net right-offs and funding costs were offset by higher revenue, delivering $97 million of IBT and continued strong ROE.
in terms of portfolio performance, GarGroath was up 1.6% [inaudible]
Speaker Change: Average account balances were up 2% largely as a result of higher credit card spent.
Speaker Change: CTC spend on the cards was broadly in line with sales trends that are banners and ECTM issuance to card holders continue to grow at a healthy rate with four credit card exclusive events in the
Speaker Change: Over the last 12 months, ECTM issuance to Carlilders is up 7%.
Speaker Change: Risk metrics remain stable through Q1, suggesting that card holders' ability to service that as so far remain resilient.
Speaker Change: DD2 Plus was up only slightly in last year and the right-off rate continued to stabilize up only 10 basis points versus last quarter at 7.1%.
Speaker Change: Finally, the allowance remained unchanged at the end of the quarter at $935 million, with the allowance rate at 12.7% within our targeted range of 11.5 to 13.5%.
Speaker Change: Given tariffs and uncertainty in the macroeconomic forecast, we continue to keep a close eye on unemployment and early stage aging and continue to have a playbook we can deploy should things change.
Speaker Change: Additionally, it's worth noting that we do expect some increased topics associated with infrastructure investments at the bank this year.
Greg Hicks: Before I wrap up on hand to call back to Greg, I'll briefly highlight some considerations looking into Q2.
Greg Hicks: We had a slow start to the quarter. However, we have seen good traffic volumes and sales through later April when the weather has shown up with continued customer resilience to date.
Greg Hicks: Of course, there's still lots of game to play with our two biggest months still ahead.
Greg Hicks: We're ready with great seasonal assortment and new products balancing discretionary goods with value-based essentials. Overall, we are pleased with our retail fundamentals and are remaining watchful of trends so we can proactively adjust should things change in the external environment.
Speaker Change: I'll conclude by reiterating my excitement for joining Canadian Tire in our plans for Tune Order. This transformation represents a significant opportunity to create long-term value for our stakeholders. I look forward to meeting many of you over the coming months to hear your thoughts. And with that, and my thanks to the business for delivering a strong first quarter, I will now hand the call back to Greg to speak about our Tune Order strategy. Thank you very much for joining us today.
Greg Hicks: Thanks, Darren. I'd like to take a few minutes to provide some depth and color on our true nor strategy announced in March.
Greg Hicks: Over the past many years, the progress we made with Better Connected became a springboard for True North, which inspired a great deal of introspection for our leadership team and for me.
Greg Hicks: We envision higher performance and accelerated value creation, well above our historic levels.
Greg Hicks: But we knew that our growth ambitions meant dispatching old playbooks and fundamentally changing how we've worked. More simply, we couldn't get there from here.
Greg Hicks: So we spent the last year building a four-year path to reach our higher ambitions to reach our higher ambitions.
Greg Hicks: based on a detailed assessment of both our competitive threats and the unique capabilities that set CTC apart.
Greg Hicks: The result was true north, and dozens of initiatives organized across four strategic cornerstones.
Delivering Great Modern Retail Experiences
Expanding the sales impact of our coveted Loyalty Programs.
Greg Hicks: Anchoring on customer data and insights that grow our business and by becoming a tech-driven agile and efficient.
Thank you for your time. Thank you. Thank you.
Greg Hicks: The first cornerstone, what we call retail-forward, includes initiatives designed to make us a modern retailer, providing customers great experiences in-store and online.
Greg Hicks: Fundamentally, we are a Canadian retailer, and that's the lens through which we're simplifying our business to drive core retail growth.
Greg Hicks: In recent months, we kept the bank for its retail driving capabilities.
Greg Hicks: Announce the divesture of Halley Hanson to unlock capital and closed underperforming stores to invest in productive new concepts.
Refining our retail portfolio.
That kicks us off.
Greg Hicks: However, ultimately, this is about driving the core retail metrics that matter, specifically our top line.
Greg Hicks: For the first time, we have three investible store concepts in our largest banners that we can really get behind, which contributed to our Q1 retail sales growth.
Greg Hicks: Our eight modern Marks stores are attracting new customers and demographics and contributed more than half of Mark's Q1 growth.
Greg Hicks: Our sport-checked destination sport concept has rolled out in Monkton and Toronto, outperforming our expectations with two more set to open in Q3.
Greg Hicks: and our new and refreshed Canadian Tire Concept Connect stores continue to resonate with customers.
Greg Hicks: with material improvements in NPS drivers, and with 2024 project stores delivering Q1 sales growth at twice the rate of the rest of our network.
Greg Hicks: Trunarth will also see us show up better for customers online, as we hone Omnichannel shopping experiences with digital and web investments.
Greg Hicks: In Q1, e-commerce growth outpaced bricks and mortar on the strength of our growing capabilities.
Greg Hicks: Our one digital platform is continuing to deliver better online experiences across all banner sites.
Greg Hicks: We have faster and easier fulfillment and are expressed same-day delivery is now available to nearly 90% of Canadians.
Greg Hicks: In fact, we added 100,000 new ship-to-home customers in the quarter and achieved record NPS results.
Greg Hicks: Stats like these give us conviction for our measured e-commerce ambitions.
Greg Hicks: As we drive retail growth, we are also committed to new approaches and AI tools to transform capabilities like product search and advance even age-old retail fundamentals like store and stock.
Greg Hicks: With more modern stores, sites, digital services and tools, we will improve customer experiences and drive core retail results.
Greg Hicks: Our second strategic cornerstone called Triangle Powered Every Day, establishes our Triangle Rewards Loyalty Program as the foundation of our retail ecosystem. It is the engine of our flywheel.
Greg Hicks: Remember, every $1 of Canadian Tire Money redeemed for $4 of banner sales.
Loyalty equals Sales [inaudible]
Greg Hicks: In Q1 we welcomed, registered, and re-engaged significantly more triangle members than we did last year, continuing to establish deeper, more meaningful relationships.
Greg Hicks: Active Registered Member, is someone we can get to know more personally.
Greg Hicks: It's a customer we can inspire and move across our banners. This creates data. It drives sales, and it is the reason our customer flywheel is spinning faster with every quarter.
as we build our internal ecosystem.
Greg Hicks: We're also pushing forward with everyday partnerships like Petrie Canada, which has added more active triangle members and links back to $19 million in sales in the quarter, more than $100 million
Greg Hicks: This illustrates in technical or the boost in value we get when we add big brand loyalty partners to our network.
Greg Hicks: It's why we are so thrilled to have announced a new loyalty partnership with RBC in March and with WestJet just today.
Greg Hicks: While there is overlap, our growing partnerships combine to reach tens of millions of customers and members, which means more benefits, more Canadian Tire money, and more data-driven personalization for CTC customers.
Greg Hicks: Across our banners, bank and partnerships, expect more coordinated strategies that increase triangle membership engagement and related sales.
Greg Hicks: Our third strategic cornerstone called customer insights in action, entails initiatives that leverage our rich customer data to grow our business.
Greg Hicks: We have generational relationships and privileged first-party data that our competitors simply cannot match. We built and used this data through our better connected strategy, but through true north, we will take this to a new level.
Greg Hicks: When people ask me what's different about this strategy, this is key. We are putting customer insights at the core of every one of our strategies and re-engineering our operating model to deliver.
Greg Hicks: Data will be the foundation of our banner strategies. It will retool our one-on-one personalization, delivering offers based on our loyalty members' jobs, joys, and their weekend plans.
Greg Hicks: We'll help us expand our market share and even our potential tab.
Greg Hicks: Though it's still early days, we have already uncovered significant opportunities.
Greg Hicks: A great example is automotive. A business we can grow, not just because of our name and legacy.
Greg Hicks: But because the data is telling us we have runway entires, parts and auto service.
Greg Hicks: By delivering a data driven, more customer-centric experience, our Automotive Acceleration Initiative aims to take a bigger piece of the $18 billion Automotive Pie including products and service.
Greg Hicks: Having unlocked the right insights, we are unlocking the business and it's working.
Greg Hicks: In Q1, auto delivered as 19th consecutive quarter of growth in our auto service business is on track to hit new heights this year.
Greg Hicks: This demonstrates what we can do when we combine existing strengths, new AI tools and customer insights. When we have our site set on a range of both existing and unexpected categories ripe for growth.
Greg Hicks: We are also creating new enterprise value using our data to drive our burgeoning triangle retail media business and revenue.
Greg Hicks: By leveraging triangle insights and audiences, TRM offers innovative digital media products that help brand partners reach customers in curated ways through digital and social media and CT sites and apps.
We have no doubt that our data sets us apart.
In fact, we don't talk about this enough.
Greg Hicks: Beyond uncovering a new growth areas and customer loyalty data is the lightblood of our custom pricing AI platform called David.
Greg Hicks: which helps us analytically engineer our promotional programs and optimize regular pricing to provide customers the value they crave while managing our margins.
Greg Hicks: We will complete our CTR rollout of David in 2025, and we'll extend these capabilities enterprise-wide. This is a powerful one-two punch with our Margin Nerve Center, which continues to optimize how we turn value into sales and margin momentum.
So, expect to hear more. [inaudible]
How We're Turning Customer Insights into Action and Results [inaudible]
Greg Hicks: We call our fourth and final strategic cornerstone, one team, Agile and Scaled.
Greg Hicks: This is a commitment to transform CTC into a more efficient operating company.
to the structure and technology to thrive.
Greg Hicks: Over the past year, our introspection included the realization that our industry records scale and efficiency.
Greg Hicks: and that we could achieve both by reorganizing how we operate.
Greg Hicks: The started in Q1 with the announcement of our newly designed leadership team, including new, chief transformation, chief operating and chief commercial officer roles.
Greg Hicks: Our new structure brings clarity to how we make decisions, go to market and deliver results.
Greg Hicks: As our new Chief Transformation Officer, Susan O'Brien brings decades of customer focus of experience to a Transformation Management Office.
Greg Hicks: that will ensure the discipline delivery of true North initiatives and value over the next four years.
Greg Hicks: This role in this office will institutionalize our transformation and new ways of working.
Greg Hicks: Our new Chief Commercial Officer, Matt Moore, now leads all customer-focused retail product marketing and loyalty strategies to ensure we have an excellent go-to-market strategy.
Greg Hicks: Our new Chief Operating Officer, TJ Flood, will ensure we go to market excellently.
Greg Hicks: by leading core retail execution and growth across all our retail banners.
Greg Hicks: As you can imagine, I'm very pleased to have an executive team comprised of both existing and new leaders that is custom made for the chapter ahead.
Greg Hicks: As our reorganization expands and takes root, a streamlined CTC will execute strategies
Greg Hicks: Deliver results in best capital, apply technology and AI tools and engage customers through scale and coordination that we have never demonstrated before, and this will be a major unlock.
Greg Hicks: In short, our true north transformation is a commitment to driving higher performance and accelerated value.
Greg Hicks: as a great Canadian retailer and an efficient, modern operating business.
Greg Hicks: As I look back at Q1, it was broadly representative of where we want to go. Strong core retail results. Expanded loyalty activity within our banners and with partners, customer insights, driving category growth, and a start of a dramatically more efficient operation.
Greg Hicks: These are the strategic cornerstones and sources of value that we will flush out in increasing detail over the coming quarters and years.
And with that, we can open the call…
Two questions.
Speaker Change: At this time, I would like to remind everyone in order to ask a question, please press star then 1-1 on your telephone keypad. To withdraw your question, press star then 1-1 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.
Speaker Change: Our first question comes from the line of Irene Nattel with RBC Capital Markets. Your line is now open.
Irene Natal: Thanks and good morning, everyone. Thank you for that presentation. I'm Trunor. There was a lot in there to unpack. So I guess my first question is as we look forward over the next 12, 24, 36 months.
Irene Natal: How should we start to see some of those initiatives, materialize? And what are the key elements in terms of sort of the revenue metrics, the profitability metrics? You know, where are you driving to here with all of that?
Speaker Change: Well, thanks. Good morning, Irene. Yeah, I think one of the most significant questions we've got from investors since announcing is just how's the customer going to feel the strategy.
Speaker Change: And what are the building blocks of the top line which might kind of be a way to feather into your question?
Speaker Change: You know, we certainly know that the path to higher shareholder returns requires a better performing top line.
Speaker Change: And so this is just a key area of focus for true North. So a few areas that the strategy will focus on and pursue of that intended outcome. First, we need our businesses to come together digitally.
Speaker Change: and through our personalization capabilities to drive more engagement, not, you know, just incrementally through banners.
Speaker Change: Second, we see great opportunities, as I mentioned, to roll out new concepts in each of our large banners.
Speaker Change: Third, and I touched on this a little bit in my remarks as we need to be more purposeful with regards to e-commerce.
Speaker Change: We built the requisite capabilities, including express, same-day ship to home. You're seeing us now advertising these capabilities.
Speaker Change: And this corner is probably exactly the way we'd like the business to come to us going forward, Irene. It's kind of strong overall top line with growth and bricks and mortar and e-commerce, with e-commerce outpacing bricks.
Speaker Change: given our lower share and the fact that this is the part of the market that's growing faster.
Speaker Change: with more ECTM in the market and will use that data to drive them into our retail system and hope to maintain or grow that 4-to-1 incremental sales ratio.
Speaker Change: And last, we see opportunities to use our customer data and insights to develop.
Speaker Change: What I would say would be better end-to-end strategies across all of our businesses to own customer occasions or life pursuits and not just sell products. And what a Canadian, as an example, when a Canadian moves, starts an occasion.
Speaker Change: It's an occasion that our members trust us to participate in more elements of that occasion than we do today so it's a more expansive customer data driven go-to-market strategy.
Speaker Change: about taking those assets and turning them into outsized scalable growth.
Speaker Change: and we think we've got a path to do just that. Having said that related to, you know, a 12, 24, 36 month in a glide path to your question.
It's
Speaker Change: So we're holding true to the metrics that we disclosed when we announced the strategy.
Speaker Change: When you think about buying for growth, when you think about a North Star margin rate, and when you think about some of the the op-ex savings we believe to feather through into the business.
Speaker Change: and we'll dimensionalize those in better articulated key metrics as we get more certain that you're on the market.
Speaker Change: That's really helpful. Thank you. And just that one quick follow-up with respect to Q1 and the outpacing of e-commerce growth. It's really interesting, given the types of categories that I've performed, which is not generally what we associate with online purchases. So can you talk about where you're seeing the greatest strength in the e-commerce piece of that on the channel approach? Thank you very much.
Speaker Change: Hey, Irene, it's TJ. I'll chime in a little bit on that one. I think, to be honest, in a lot of ways, the e-commerce growth has been mirroring the PLS growth in terms of which categories.
Speaker Change: I think as Greg alluded to what we feel really good about is we've been building a lot of capability in this area.
Speaker Change: Over the past couple of years and are clicking collect NPS scores are absolutely exceptional and the consumer has resonated with our experience and as Greg alluded to we added
Speaker Change: So the same day, shipped a home in Q4 and it came into Q1 as well and the experience there has been good so we're meeting customers where they are in terms of their choice and
Speaker Change: and where to shop. So I wouldn't see there say that there's a major kind of bifurcation in terms of the categories necessarily. I think it's just our, we put in the effort over the last couple of years to get better in this area and the consumer is responding.
That's great. 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, thanks. Maybe just following up on that whole true north discussion. I'm just curious about this sort of pivot to an operating model. I know there's an infrastructure element. Obviously there's a personnel component. But what do you see as the biggest challenge is to executing that pivot and how do you address that? Yeah, yeah, yeah, yeah, yeah.
Speaker Change: Good morning, Mark. Thanks for the question. Yeah, this is a big shift. This is a big shift.
You know, I think one of the...
Speaker Change: When you think back to what we built, you know, during better connected, it was about improving.
Speaker Change: Just the requisite capabilities required to compete in today's retail business.
Speaker Change: And so all of those were kind of blocking and tackling core retail requisite capabilities to become, take to have a better competitive posture, but the one area that we felt
Speaker Change: He put, you know, our foot to the floor, so to speak, in terms of investing.
Speaker Change: in the structure of our data, in the personalization capability that allows us to move customers around the system, and it's what we're seeing from a data and an analytic staff point in that customer data.
Speaker Change: You've heard me say before that the system is providing with clarity now and conviction.
Um, empirically, we can...
and really using that data and all of our offering.
Speaker Change: ripping the kind of physical roof off all of our completed procurement.
to offer more value.
to that kind of privileged, that privileged understanding.
of other Canadian and life in Canada. So,
Speaker Change: When you think about just the way, you know, we wired our talent, we wired our, you know, many of our, you know, down the line compensation systems, they're wired to win by banner.
Speaker Change: And so there are just these artificial walls in the back office and obviously physical walls in terms of physical store concepts that get in the way.
Speaker Change: of operating a can-to-appear play e-commerce retailer that goes to market with their full complete and procurement available to the customer. And so I think the biggest thing will be mindset with respect to enterprise thinking.
Speaker Change: to get to your, you know, your, your push. I think the biggest...
Speaker Change: The biggest thing that we have to our advantage is the customer data pointing us to...
You know, where the value could be created and where…
Speaker Change: You know, we're starting to see the efforts of personalization in terms of crossband or shopping.
Speaker Change: Matrix. We're certainly seeing it in terms of engagement around spend-per-member trip frequency.
Speaker Change: You know, new to banner, you know, the new to banner, if you just take the marks, concept stores, our ability to kind of move a triangle member into marks for an experience, that concept for the very first time, really exciting.
Speaker Change: Compass by which we operate, which is why we keep saying this is a customer centric transformation. But mindset internally for sure is something we're going to be very focused on going forward, Mark.
Mark Petrie: Yeah, okay. Well, thank you. That's a comprehensive answer. Thanks a lot. I did want to follow up just about
The Q2 Trends.
Speaker Change: I didn't actually catch all of the comments there, if you could just reiterate them and then…
Speaker Change: If you're able to just comment about sort of discretionary and essentials, if those are also tracking in sort of similar concerts to what we would have seen in Q1, obviously different levels but similar sort of pattern. Thanks.
Let me, I'll take the first part of that, Mark, there and here, so.
Darren Myers: We had a bit of a slow start but I'd say things that picked up over last couple last couple weeks so we're kind of on track to where we would have expected at this time and of course, you know as Greg mentioned the consumer continues to be more resilient than you know or showing resilience through the community. Yeah.
Darren Myers: Through the cycle that we're in today, so we're watching for lots of signs, but so far things are tracking as we would have expected.
Darren Myers: And maybe I'll just weigh in Mark on the address discretionary. I'm not sure if you heard it, but for the first time in three years we saw discretionary spending edge back in the positive territory.
Darren Myers: And as we move into more seasonable weather here in Q2, I think what's an interesting and encouraging signal is we're one more year removed from over four or some of those discretionary categories.
And I think what we're starting to see is, is, um,
Darren Myers: is a replacement cycle. You know, if you think about categories like kids, bikes, patio furniture, as an example, they've started the year very strong.
Darren Myers: All that to say, you know, we think positive discretionary spend is really an encouraging signal for us, especially when you consider that that strength.
Thank you. Okay, thanks.
Speaker Change: The question comes from the line of Tamy Chen with BMO Capital Markets. Your line is now open.
Tammy Chen: Hi, good morning. I look at housekeeping question first was Darren, are you able to quantify that was it one time benefit in that retail segment? I think he was in financing and tax rate that benefit at the quarter?
Speaker Change: Yeah, it's around 10 million, about 5 million in each line.
Okay.
Speaker Change: And my next question is, I just wanted to talk about the inventory here. So I think from what it looks like, this quarter, your dealers in the Canadian Higher Retail Banner, I think they largely continue to destalk. I don't think I stalk them, just the numbers.
Speaker Change: Restock, so can you talk a bit about how the dealers are currently positioning themselves for the rest of this year? Do you think that they will restock more this year or still to uncertain? And if you can talk a bit about in your [inaudible]
Speaker Change: Gross Margin here, that the FX component, I think you talked already about great what to expect later this year, but if you can give an update on the FX, you've seen some some big moves in the Canadian dollars so far this year and how that may impact you through this year on the gross margin. Thank you. Thank you.
Speaker Change: Hey Tamy, it's CJ, there's a lot in your question there, so I'll tackle the first side of things on inventory and let me give you a couple of fronts, both from a corporate standpoint and then answer your question with respect to dealers. [inaudible]
Speaker Change: We really, as you know, and as we've articulated over the past, call it 12 to 24 months, we've focused on the corporate side of things on right sizing our inventory.
Speaker Change: and made a lot of progress on that. But as we mentioned last quarter, we've now turned our attention in 2025 to reinvestment.
Speaker Change: and with a big focus on newness in the assortment. We like to talk about assortment, vitality, and that newness is...
Speaker Change: is really something that we're looking to to invest in this year. So given that, we did see that our CTR corporate inventory increased from the corner. This was driven by purchases to...
Speaker Change: Support our growth expectations in auto and the upcoming spring summer categories. And we also saw a little bit of pull forward activity as part of our tariff mitigation tactics.
Speaker Change: So, overall, we feel very good about where we are from an inventory standpoint and we're going to continue to watch demand signals closely as Greg and Darren both alluded to. The signals so far the customer has been, the Canadian consumer has been quite resilient, but we'll be watching that very closely and managing our inventory lies accordingly. It's really important with the backdrop we have to remain agile and that's what we're going to do.
Youth.
Speaker Change: At the dealer level, their purchasing patterns have been really closely aligned with sales trends, and as you are articulated by the end of Q1,
Speaker Change: They were down slightly by about 2 percent. That's probably a function of how strong the winter was. As you look towards the back half of the year, they definitely whittle down their inventory on one side.
and for good.
Speaker Change: which should help us going forward with replenishment in the back half of the year. So with the customer remaining resilient so far and inventory having coming down from last year and all of the exciting new products that we have, we're seeing so far a good demand from dealers.
Tammy Chen: More closely mirror POS than have any type of burn or build strategy as we go forward here, but at least say quarter to quarter and could be choppy So Tamy, maybe on your last part which was on FX, so we generally we we had the maturity of the dollars within 12 months, so
Speaker Change: Trend to start hitting us, so we're not getting any tailwinds from that right now.
Okay, thank you. Thank you.
Speaker Change: Our next question comes from the line of John Zamparo with Scotiabank. Your line is now open.
John Zampara: Thank you. Good morning. I wanted to ask about the Westjet partnership and you shared some metrics on what you've seen from prior deals. I wonder if you can talk about the confidence you have in continuing to achieve incremental sales from incremental partners. It is travel, a growing category for Tire and should we expect additional partnerships still to come.
John Zampara: Yeah, great, John . It's great. You know, a big part of our true nor strategy is, as I said, the embrace of customer data.
John Zampara: and running our business as a system of businesses, not just banners. And our partnerships are intended to complement the core value of trying to reward and expand the places where Canadian Tire money is issued and promoted.
John Zampara: I want to keep coming back to the kind of the value creation here when a dollar of issued ECTM comes back into our retail system for redemption address for dollars of incremental sales. So ultimately that's what these partnerships are all about.
John Zampara: You know, we're excited about all three of our partnerships, our VC, Petra Canada, WestJet.
and they all allow for the acceleration of ECTM issuance.
John Zampara: and rewards for linking accounts in this case for everyday needs like air travel.
John Zampara: and so by linking and establishing these relationships, triangle shows up to play a more meaningful role in our members' lives.
John Zampara: and accelerates that issuance, which again, we just turn on all these privilege capabilities around that data and the personalization engine to move them around our system once that, you know, value, initial value has been established.
John Zampara: for the member. And so, you know, air travel is obviously not a business that we're going to, you know, get ourselves fully into. So to partner in an asset light way.
John Zampara: And, again, show up more meaningfully in our members' lives. We think it's a great, you know, a great value creating strategy for us and a great value delivery for our members. Our intent is not to build a massive coalition.
System.
with hundreds of partners like some others have.
John Zampara: You know, there are our goal for trying to move forward is to have a small handful of the highest values signature partners.
John Zampara: to allow our members to get more value. So, you know, having a small number of the right partners selected by listening to our members really allows us to strategically plan with our partners and jointly market a very clear linking.
John Zampara: Proposition, so that's the way I want you to think about it, John .
John Zampara: Okay, that's great. Thank you for that. And secondly, I wonder if you could expand your comments on the theme of buying Canadian. And to what extent do you think it impacted the quarter? Has it continued or has it changed at all in Q2 today?
John Zampara: M.D. R.G. I.D. R.G. J.L. H.E. M.D. K.T. S.G. H.P. D.L. H.M. M.D. N.H.S. W.L.A. D.R. G.E. W.N.E. C.E. H.E. M.D. M.D. M.D. L.A. D.L. H.E. M.D. L.A. M.D.
John Zampara: It's really tough to tease out, John , especially in Q1. It's our smallest quarter. It's the quarter that's, you know, most impacted by seasonal traffic so
John Zampara: You know, traffic was up and you know from a I think from a sentiment standpoint.
John Zampara: You know, we're seeing our members and we're seeing polls, as I mentioned in my prepared remarks of kind of an intent to shop more, but I, you know, I think it's I think it's still
It's still relatively early, we've got great data.
John Zampara: You know, in our credit card to see what's happening with our competitors, you know, so we'll be watching that intently.
John Zampara: So we tried to tease out the impact. We thought that this would be a question, but we just can't isolate it. Not sure we'll be able to isolate it in Q2 either, but Q1 is even harder given the dynamics at play that I just articulate. .
Yeah, okay, understood. Thank you very much.
Thank you.
Speaker Change: Our next question comes from the line of Chris Lee with Jay Jardin. Your line is now open.
Chris Lee: Hi, good morning everyone. It might be a little bit too early to ask, but I'm just curious. Are you guys noticing any benefits in terms of sourcing from some of your Chinese vendors who might be potentially looking for alternative customers outside of the US because of the terrified impact? [inaudible]
Speaker Change: Yeah, maybe I'll take that if T.J. May want to weigh in. Again, that's relatively early too.
Speaker Change: I think, as I explained in my notes, we have a real cross-functional tear of task force at play. I'm really happy with the way the team has come together and galvanized.
Speaker Change: You know, around this, multiple strategies we bought forward some inventory in Q1.
Speaker Change: You know, we're negotiating, you know, to try and do everything we can, as I said, to avoid price increases. We're, I think we're being tough but fair and we're, we are finding opportunities. We're, we're, we're, we're, we're, we're,
Speaker Change: to reduce our cogs and some of the affected categories. I think we're even seeing some interesting creativity from our vendors coming to the table in terms of different options, different pickup points, etc.
I think what's happening.
Speaker Change: You know, in the US with respect to, you know, the trade war with China is just really starting to hit.
Speaker Change: Hit Factories in China today and we'll see what's happening.
Speaker Change: We're obviously very active with factories on a regular basis. We're watching what happens in the global supply chain around freight etc. And we'll probably be in a better position to answer a question like that when we come out of Q2.
Speaker Change: Great, that's helpful. Maybe a follow-up just switching gear to an uncapital allocation. I'm just curious to see where does M&A?
Speaker Change: Rank in terms of your capital allocation priorities, and I'm maybe focusing specifically about week ago, there were some media reports about the company potentially interested in some of Hudson's base assets. Not sure if you can speak to that in particular, but just overall where does M&A Rank in terms of your capital allocation at this moment.
Yeah, maybe I'll take that. I mean, it's it's an important event.
Uhm?
You know, it's obviously a critical...
Speaker Change: It's a critical time in Canadian retail. I think it's been tough for Canadian retailers for many years.
Speaker Change: And, you know, what we're seeing in the first few months of this year is really, you know, it's really tough to watch, you know, with Canadian retailers that have been around.
Speaker Change: for a long, long time in the categories in which we compete. I think on HBC specifically, you'll notice that the news reports.
Speaker Change: You know, are based on unnamed sources, so as a practice, we don't comment on rumors and speculation like this, but given the amount of
Speaker Change: of coverage. I think we do feel the need to clarify one thing. And that is our focus, as you heard from us today, is about executing our true nor strategy.
Speaker Change: and so we are therefore not contemplating a wholesale acquisition of HBC's operations.
Speaker Change: That is just not a good fit for us right now, give it all the things that we have going on.
as it relates to inorganic plans going forward.
and Earnings. That's what True North is all about.
Speaker Change: So our focus now is the development and integration of this broader Canadian retail ecosystem that brings our customers to us on an everyday needs basis.
Speaker Change: But we have always considered attractive tuck-ins and brands, and this time period is no different on that front.
Speaker Change: Great, that makes all our sense. Thank you and all the best.
Thank you.
Speaker Change: Our next question comes from the line of Brian Morrison with TD Cohen. Your line is now open.
Brian Morrison: Oh, thanks very much. I have a couple clarification questions while we're on that topic.
Brian Morrison: When we say Q2 retail trends are tracking and expected, does that mean similar to what we just saw in Q1? And does discretionary remain positive at this time? And then also when we talk about a hundred million dollars in op-x savings for 2026 because of the restructuring and severance and atmosphere. Thank you very much.
Brian Morrison: Do we be thinking about the operating margin as a percentage of sales remaining constant less
Let me, let me, let me try to take those [inaudible]
Brian Morrison: And we're not going to give the growth levels for April where I made that comment. It's just relative to our internal plans things. They picked up in the last couple weeks and they were soft at the beginning of the quarter.
Brian Morrison: And of course, we don't want to get too out of our skis. The environment is changing out there. There's lots of green shoots, lots of things to be happy about, but of course we're mindful of looking at the environment and what's going on around us.
Brian Morrison: on your second question, you know, in terms of a hundred million.
Brian Morrison: Absolutely, from a true North perspective, those are the savings. I don't want people just to eat. We haven't given a guidance out there for an operating margin. Of course, we're still going to be investing in the business. We're going to be...
Brian Morrison: You know, we may have inflation in areas of the business. There's a lot to unpack in that, but we do want to get efficiency so that we can invest back, you know, things like digital, you know, things like Omni Channel. There's a lot of areas. So, you know, this is the critical thing to get the company to be more efficient, to be more agile, to be able to move faster. Thank you very much.
Brian Morrison: and have financial benefits so that we can put back some of that to the business. So Mortar Comes Greg said later at the right time we'll give more color on that, but now it's just not the right time.
Darren Myers: Okay. And then my follow-up question is probably for you as well, Dan. The allowance rate or excuse me, the allowance rate, the provision within CTSS, it's really remains unchanged or consistent. Ever since the Trump administration's come into power into different world with terrorists.
Darren Myers: I'm wondering if, you know, with a certain economy, you've typically been very conservative with your provision and I'm wondering what the economic outlook is baked into your outlook into your economic outlook that's baked into your provision at this point in time.
Darren Myers: Yeah, look, so as you know, I want to be here just over four weeks. The team, as I've gone through with them, is very, very, does a very comprehensive job of managing this portfolio and the risk and the way I would describe it right now as things are stable.
Darren Myers: So when you look at all the key metrics, they remain stable with a very close watchful eye on the future of the business and I think the other thing to look at just in the benchmarking what the company did when COVID after COVID kind of passed.
Darren Myers: The company did not go and release a large part of the provisions of the provisions.
Darren Myers: So, you got to look at these things in time. You know, I know some of the banks are, you know, providing more but if you go look at some of their history you will have seen they they would have released.
Darren Myers: As things got better, the company stayed conservative, so you know, that's part of it, but all in all, when you look across the metrics today, everything remains okay, and you know, the team's got a lot of tactics to manage risk, but of course, the things change, unemployment rate takes up.
Darren Myers: If things change then of course there will be some impact on the allowance.
Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Irene Nattel with RBC Market. Your line is now open.
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Irene Natal: Hello again, just a couple of follow up questions to some of your answers to last couple of questions. So first of all on the credit card data you said that it gives you visibility on spend elsewhere.
Speaker Change: How would you categorize or describe your performance in Q1 relative to what you're seeing in the card data?
You'll listen, I would say that...
Speaker Change: Our performance looked good. I mean, we saw growth and spend outside, which gives you the point about the customer is being resilient and we stacked up well against the spend that we're seeing with others.
Speaker Change: Okay, thank you, helpful. And then coming back to the question about M&A, you've had a lot of success in the past in buying specific brands and certainly an iconic retailer like HBC has iconic brands that would be a very natural fit.
Speaker Change: Should we be thinking about as the kind of thing you might be interested in, or even as you look in focus on true North, you might be more reluctant at this time.
Speaker Change: Yeah, I think the way to think about it, Irene is, we are always on the lookout for brands that can complement our own brands portfolio.
and to play our role.
Speaker Change: in A category at an architecture level or play a role in many categories, maybe even cross-banner.
Speaker Change: And so, you know, we look at many brands on an inorganic basis every year. So I can't really comment on the HPC process per se, but I know that Brandac was, I think we have very good playbooks for, for, for, uh, training value.
I think we demonstrated that with...
you know, brands that, you know, we're buying and the...
Speaker Change: $3 to $5 million that are now over $100 million. And so we do have a value creation playbook there. And you shouldn't think that that would be untoward if you sauce make an acquisition for anything that you thought would fit within in our retail system.
Thank you.
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Greg Hicks: Thank you. This concludes the question and answer session. I would now like to turn it back to Greg for closing remarks.
Greg Hicks: Thanks, Lauren, and thanks everybody for your questions, and for joining us today. We look forward to speaking with you when we announce our Q2 results in August . Bye for now.
This will conclude today's call. You may now disconnect.