Q1 2025 Canadian Tire Corp Ltd Earnings Call
Lauren Cannon: Thank you for standing by. My name is Lauren Cannon and I will be your conference operator today. Welcome to the Canadian Tire Corporation earnings call.
Lauren Cannon: All lines have been placed on mute to prevent any background noise.
Lauren Cannon: Following today's presentation, there will be a question and answer period. If you would like to ask a question, simply press star 11 on your telephone keypad.
Lauren Cannon: To withdraw your question, please press star 11. Now I will pass along to Karen Keeze, Head of Investor Relations for Canadian Tire Corporation. Karen?
Lauren Cannon: Thank you Lauren. Good morning everyone. Welcome to Canadian Tire Corporation's first quarter 2025 results conference call.
Lauren Cannon: 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.
Lauren Cannon: We are also joined by T.J. Blood, who recently assumed a new role as the EVP and Chief Operating Officer.
Lauren Cannon: Before we begin, I'd like to highlight the earnings disclosure which is available on our website.
Lauren Cannon: 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.
Lauren Cannon: I would highlight that our discussion today will focus on the results of the business on the continuing operation spaces with Heli Hansen being treated as a discontinued operation from this quarter.
Lauren Cannon: To assist with modeling the business on the continuing operations basis, we have included restated financials in our Q1 earnings deck, which you can find on our website.
Greg Hicks: 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. 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, Sharon. 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.
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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, but we're doing a good job of navigating both what we know and what we don't.
For instance, we know the direct impact of retaliatory tariffs.
and we have that calculus firmly in check.
Greg Hicks: with just 15% of our COGS tied to U.S. goods, and a manageable fraction of that currently affected.
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 of SOAPS.
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 sub-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 such an iconic Canadian company.
Darren Myers: I see tremendous opportunity for Canadian Tire and Field Fortunate to be joining alongside the launch of True North.
Darren Myers: The strategy that has been laid out will allow us to accelerate our sales and earnings growth as we harness our scales and operating company utilize the incredible customer insights that we have and drive more efficient ways of working.
Darren Myers: I would like to thank and acknowledge Gregory Craig for all his contributions on the groundwork he has laid out.
Speaker Change: A 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.
Darren Myers: And with that, let's turn to the results for the first quarter.
Darren Myers: I'm pleased to report that we delivered a strong first quarter. We entered Q1 with a healthy balance sheet.
Darren Myers: announced the sale of Helle 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.
Darren Myers: Normalized earnings per share from continuing operations came into two dollars up 92 cents compared to last year. This was after normalizing for costs associated with our true North transformation.
Darren Myers: Normalized earnings for the quarter were strong, driven by sales growth, operating costs that were relatively flat year-over-year, favorable interest, including deleveraging and a one-time interest income benefit related to a prior-year tax settlement, which also will improve our normalized tax rate in the quarter.
Darren Myers: 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.
Darren Myers: Great end stock, our seasonal readiness, favorable winter weather, and some Canada strong sentiment led to increased trips and sales growth across all banners.
Darren Myers: We also had robust loyalty engagement with loyalty penetration on a rolling 12-month basis at 54.5%.
Darren Myers: As TJ 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.
Darren Myers: 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%.
Darren Myers: 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.
Darren Myers: Sport checks 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.
Darren Myers: Turning out inventory, which was up 4% year-over-year excluding
Darren Myers: 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.
Darren Myers: 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 shelter in Q1 combined with last year's focus on selling through existing spring and summer inventory.
Darren Myers: Moving out to retail gross margin, we may be helpful to take a minute to unpack the various movements this quarter.
Darren Myers: G1 Retail Gross Margin Excluding Petroleum was 36.1% representing an improvement of 19 basis points year-over-year on a continuing operations basis excluding
This was a strong result proven by improved product margin at CTR and SportCheck.
Darren Myers: 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.
Darren Myers: You will know that Heli Hanson is a higher gross margin business, which is historically contributed positively to gross margin. Looking at 2024, our full-year reported an ex-petroleum normalized retail gross margin rate was just over 36%.
Darren Myers: On a continuing operations basis, excluding Helly Hansen, our 2024 full year is close to 35% giving us a new north start to aim for on a go-forward basis.
Darren Myers: 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.
Darren Myers: Now turning to the expense side. Retail SGNA ended relatively flat to Q1 last year as we've benefited from timing and strong cost controls.
Darren Myers: 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 in the timing of IT projects which led to lower costs.
Darren Myers: As a reminder, with the announcement of True North, we highlighted that on a full-year basis, the initiative's would increase operating expenses by $60 million compared to our previous expectation, primarily for IT investments to enable transformation initiatives.
Darren Myers: While we expect everything we are doing on transformation to drive efficiency in future years, you should expect the investments we are making plus inflationary increases to contribute to some pressure on SGNA rate in 2025.
Darren Myers: So to wrap up the retail segment, it was a strong quarter. Normalized retail EBITDA on Q1 was up almost 13% for $38 million to $334 million.
Darren Myers: Normalized, Retail IBT was $64 million, up $69 million.
Darren Myers: Over the last year, we significantly delivered the retail balance sheet and that, along with lower rates, drove most of the $24 million decrease in net financing costs, all in a great part of retail.
Moving to CTFS now.
Darren Myers: Over all the bank performance came in as we expected, as higher net write-offs and funding costs were offset by higher revenue, delivering $97 million of IBT and continued strong RLE.
In terms of portfolio performance
Garbrose was up 1.6%.
Darren Myers: Average account balances were up 2% largely as a result of higher credit card spent.
Darren Myers: CTC spend on the cards was broadly in line with sales trends that are banners and ECTM issuance to cardholders continue to grow at a healthy rate with four credit card exclusive events
Darren Myers: Over the last 12 months, ECTM issuance to carholders is up 7%.
Darren Myers: Risk metrics remain stable through Q1, suggesting that card holders' ability to service that as so far remain resilient.
Darren Myers: BD2 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%.
Darren Myers: 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%.
Darren Myers: Given tariffs and uncertain 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.
Darren Myers: Additionally, it's worth noting that we do expect some increased stop acts associated with infrastructure investments at the bank this year.
Greg Hicks: Before I wrap up and hand the 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 month-school ahead. We're ready with great seasonal assortment and new products balancing discretionary goods with value-based essentials.
Greg Hicks: 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.
Greg Hicks: I'll conclude by reiterating my excitement for joining Canadian Tire in our Plants for True North. This transformation represents a significant opportunity to create long-term value for our stakeholders.
Greg Hicks: 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 true North strategy.
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 met dispatching old playbooks and fundamentally changing how we work. 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.
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 company.
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 Haley 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-check destination sport concept has rolled out in Moncton, 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: TrueNorth 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 Power 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 life's $4 of banner sales.
Loyalty equals Sales
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 Petra Canada, which has added more active triangle members and links back to 19 million dollars in sales in the quarter, more than 100 million since launch.
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 build and use 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: It will 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 in tires, 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 Pi, including products and service.
Greg Hicks: and 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 lifeblood 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.
How we're turning customer insights into action and results.
Greg Hicks: We call our fourth and final strategic cornerstone, one team agile and skilled.
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 focused experience to a Transformation Management Office.
Speaker Change: that will ensure that 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.
Speaker Change: 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.
Speaker Change: If our new Chief Operating Officer, TJ Flood, will ensure we go to market excellently.
Speaker Change: By leading core retail execution and growth across all our retail batters.
Speaker Change: 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.
Speaker Change: As our reorganization expands and takes root, a streamlined CTC will execute strategies.
Speaker Change: deliver results, invest 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.
Speaker Change: In short, our true North Transformation is a commitment to driving higher performance and accelerated value.
Speaker Change: as a great Canadian retailer and an efficient, modern operating business.
Speaker Change: As I look back at Q1, it was broadly representative of where we want to go.
Speaker Change: Strong core retail results, expanded loyalty activity within our banners and with partners, customer insights, driving category growth, and the start of a dramatically more efficient operation.
Speaker Change: 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
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.
Speaker Change: 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 Netel with RBC Capital Markets. Your line is now open.
Irene Nettel: 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 Nettel: 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, where are you driving to here with all of that?
Irene Nettel: 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 of the strategy over time.
Irene Nettel: and what are the building blocks of the top line which might kind of be a way to feather into your question.
Irene Nettel: You know, we certainly know that the path to higher shareholder returns requires a better performing top line, so this is just a key area of focus for True North.
Irene Nettel: 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.
Irene Nettel: and through our personalization capabilities to drive more engagement, not, you know, just incrementally through banners.
Irene Nettel: Second, we see great opportunities, as I mentioned, to roll out new concepts in each of our large banners.
Irene Nettel: Third, and I touched on this a little bit in my remarks as we need to be more purposeful with regards to e-commerce.
Irene Nettel: We built the requisite capabilities, including express same-day ship to home. You're seeing us now advertising these capabilities.
Irene Nettel: In 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.
Irene Nettel: given our lower share and the fact that this is the part of the market that's growing faster.
Speaker Change: but our strategy and where we continue to be differentiated is winning in store, you know, growth in e-commerce and declines in BRICS is not a winning strategy from our standpoint. For just growing the appeal of trying to rewards through partnerships.
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. You know what a Canadian, as an example, when a Canadian moves, that's 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: You know, we're certainly proud of the foundational strength we've built over time, but true North is 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, or 36 month in a glide path to your question.
It's...
Speaker Change: I think I said it. It's tough to really forecast consumer behavior with the uncertainty right now.
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: in 2026. We would love to give you broader aspirations and we will when we get some more market clarity but I think that's probably a way to think about some of the larger building blocks.
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 a 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?
Speaker Change: the greatest strength in the e-commerce piece of that on the channel approach.
Speaker Change: Hey, Aaron, 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 POS growth in terms of which categories.
Speaker Change: I think it's great 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.
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's 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.
Speaker Change: 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. Yeah.
Speaker Change: Component, but what do you see as the biggest challenge is to executing that pivot? And how do you address that?
Speaker Change: Good morning, Mark. Thanks for the question. Yeah, this is this is a big shift. This is a big shift
You know, I think want to be...
Speaker Change: When you think back to what we built during better connected, it was about improving.
Speaker Change: Just the requisite capabilities required to compete in today's retail business.
and it was born from...
You know, the harsh reality.
Speaker Change: when COVID hit that we just we just weren't ready on a number of fronts when you think about you know e-commerce.
What do you think about the infrastructure and the platform supporting?
Speaker Change: You know, order management for e-commerce when you think about how the stores.
Speaker Change: We're ready to deal with a more adaptive retail requirement in the business. You think about our supply chain, etc.
Speaker Change: and so all of those were kind of blocking and tackling core retail requisite capabilities to become, to have a better competitive posture. But the one area that we felt
was a more modern capability was was our customer data and and
Speaker Change: It puts, 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 standpoint in that customer data.
Speaker Change: You've heard me say before that the system is providing with clarity now and conviction.
Speaker Change: So, empirically, we can demonstrate that the system is providing more value than each component of the system can generate on their own. And so, when you think about the competitive landscape and scale players taking more share.
Speaker Change: and you look at the way we were operating, we just weren't aggregating the scale that we had created for ourselves.
and really using that data and all of our offering.
Speaker Change: You know, ripping the kind of physical roof off all of our completed procurement.
to offer more value.
to that kind of privileged understanding.
of other Canadian and life in Canada.
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, you know, a can-to-appear play e-commerce retailer that goes to market with their full, complete and procurement, you know, available to the customer. And so, I think the biggest thing will be mindset with respect to enterprise thinking.
... um...
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 cross-banner shopping.
Speaker Change: Matrix were certainly seeing it in terms of engagement around spend-per-member trip frequency.
Speaker Change: New to Banner. The New to Banner, if you just take the Marks concept stores, our ability to kind of move a triangle member into Marks and experience that concept for the very first time, really exciting. And so I think that's ultimately going to be the...
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.
Speaker Change: 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 patterns. Thanks.
Sharon: Let me, I'll take the first part of that mark there and here so
Speaker Change: We had a bit of a slow start, but I'd say things that picked up our 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.
Sharon: 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.
Speaker Change: And I maybe I'll just weigh in Mark on address discretionary. So 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.
Sharon: 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
Sharon: is a replacement cycle. If you think about categories like kids, bikes, patio, furniture as an example
Sharon: They've started the year very strong, and so 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.
Sharon: seems to be coming across all household income levels, even among higher dead households who have had previously pulled back. So we're feeling good about that signal, I think it's encouraging.
Thank you. Okay.
Speaker Change: Our question comes from the line of Tammy Chen with BMO Capital Markets. Your line is now open.
Tammy Chen: Hi, good morning. I look like 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.
Darren Myers: Yeah, it's around 10 million, about 5 million in each line.
Okay.
Darren Myers: 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 Tire retail banner, I think they largely continue to destalk. I don't think I've stalked them just the numbers.
Darren Myers: 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...
Darren Myers: 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.
Darren Myers: Hey Tammy, 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 let me give you you from a couple of fronts both from a corporate standpoint and then and then answer your question with respect to dealers. Thank you very much.
Darren Myers: We've really, as you know, and as we've articulated over the past, call it 12 to 24 months. We've focused at the core, on the corporate side of things, on right sizing our inventory.
Darren Myers: and made a lot of progress on that. But as we mentioned last quarter, we've now turned our attention in 2025 to reinvestment.
and with a big focus on newness.
Darren Myers: in the assortment. We like to talk about assortment vitality and that newness is...
Darren Myers: is really something that we're looking to invest in this year. So given that we did see that our CTR corporate inventory increased for the quarter, this was driven by purchases.
Darren Myers: to 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.
Darren Myers: 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.
Darren Myers: As Greg and Darren both alluded to, the signal so far, the customer has been there, the Canadian consumer has been quite resilient, but we'll be watching that very closely, and managing our inventory buys accordingly. It's really important with the backdrop we have to remain agile, and that's what we're going to do.
Thank you.
Darren Myers: 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
Darren Myers: 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 this.
And you're good.
Darren Myers: 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.
Darren Myers: We're seeing so far good demand from dealers and I do expect there'll be some choppiness but by and large we expect that they're going to.
their inventory buys will.
Darren Myers: will more closely mirror POS than have any type of burn or build strategy as we go.
forward here.
Tammy Chen: at the same quarter to quarter, and could be chopping. Tammy, maybe on your last part, which was on FX, so we generally hedge the maturity of the dollars within 12 months, so...
Tammy Chen: What you're actually still seeing is a little bit of pressure on our upper trade.
Tammy Chen: Despite the movement in the Canadian dollar, so it takes time for that trend to start hitting us. So we're not getting any tail winds from that right now.
Okay, thank you. Thank you.
Speaker Change: Our next question comes from the line of John Zampara with Scotia Bank. Your line is now open.
Speaker Change: 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.
Speaker Change: Yeah, great, John . It's great. You know, a big part of our Tire North strategy is, as I said, the embrace of customer data.
Speaker Change: and running our business as a system of businesses, not just banners.
Speaker Change: 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.
Speaker Change: I want to keep coming back to the kind of value creation here. When a dollar of issued ECTM comes back into our retail system for redemption, it drives $4 of incremental sales, so ultimately that's what these partnerships are all about.
Speaker Change: 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.
Speaker Change: and rewards for linking accounts in this case for everyday needs like air travel.
Speaker Change: and so these partnerships represent those everyday needs categories that we don't participate in, but our customer does today.
Speaker Change: and so by linking and establishing these relationships triangle shows up to play a more meaningful role in our members' lives.
Speaker Change: 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.
Speaker Change: for the member. Air travel is obviously not a business that we're going to get ourselves fully into. So to partner in an asset light way.
Speaker Change: 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.
and a system.
Speaker Change: with, you know, hundreds of partners, like some others have. You know, they're our goal for trying to move forward is to have a small handful of the highest values signature partners.
Speaker Change: to allow our members to get more value. So, you know, I think 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.
Speaker Change: Proposition, so that's the way I want you to think about it, Chuck.
Speaker Change: 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?
Speaker Change: 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...
Speaker Change: traffic was up and I think from a sentiment standpoint
Speaker Change: You know, we're seeing our members and we're seeing polls, as I mentioned in my prepared remarks of
Speaker Change: kind of an attempt to shop more, but I think it's still...
Speaker Change: It's still relatively early. We've got great data in our credit card to see what's happening with our competitors, so we'll be watching that intently.
Speaker Change: 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.
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.
Speaker Change: Hi, good morning everyone. It might be a little bit too early to ask, but I'm just curious. You guys noticed any benefits in terms of sourcing from some of the Chinese vendors who might be potentially looking for alternative customers outside of the U.S. because of the terrified impact.
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 tariff 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 being tough but fair, and we are finding opportunities.
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.
You know, I think what's happening?
Speaker Change: in the US with respect to the trade war with China is just really starting to hit.
Speaker Change: hit factories in China today and and and we'll see we'll see what's happening. We believe
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: That's helpful. Maybe a follow-up just switching gear to on capital 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 a week ago there were some media reports about.
Speaker Change: The company potentially interested in some of Hudson's based 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
Um...
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 what we're seeing in the first few months of this year is really tough to watch 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: 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 that's 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.
Speaker Change: You know, on that same vein, we've got a lot of work to do on the core business to ensure that we can sustainably grow the top line.
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 sense. Thank you and all the best.
[inaudible]
Thank you.
Speaker Change: Our next question comes from the line of Brian Morrison with TD Cohen. Your line is now open.
Speaker Change: Oh, thanks very much. I have a couple of clarification questions while we're on that topic. When we say Q2 retail trends are tracking as expected, does that mean similar to what we just saw in Q1 and discretionary remain positive at this time? And then also when we talk about $100 million an Op-X savings for 2026 because of the restructuring and severance of atmosphere.
Speaker Change: Do we be thinking about the operating margin as the percentage of sales remaining constant less a hundred million like is it a true hundred million dollar savings?
Let me try to take those.
Speaker Change: And yeah, 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 are, you know, they picked up in the last couple weeks and they were soft at the beginning of the quarter.
Speaker Change: And of course, you know, we don't want to get too out of our skis. The environment is changing out there. You know, there's lots of green shoots, lots of things to be, you know, happy about, but of course we're mindful of looking at the environment and what's going on around us.
on your second question, you know, in terms of 100 million.
Speaker Change: 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...
Speaker Change: 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
Speaker Change: Efficiency so that we can invest back, you know, things like digital
Speaker Change: 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.
Speaker Change: and have financial benefits so that we can put back some of that to the business. So mortar comes, Greg said later, you know, at the right time we'll give more color on that but now it's just not the right time.
Lauren Cannon: Okay, and then my follow-up question is probably for you as well, Dan.
Speaker Change: The allowance rate, or excuse me, the allowance rate, the provision within CTFS, it's really remains unchanged or consistent ever since the Trump administration has come into power into a different world but cash.
Speaker Change: 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.
Speaker Change: Yeah, look, so as you know, I'm going 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.
Speaker Change: 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.
Speaker Change: The company did not go and release a large part of the provisions.
Speaker Change: 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 that they would have released.
Speaker Change: 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 it thinks change unemployment rate takes up
Speaker Change: 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 Natel with RBC Market. Your line is now open.
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 SPAND elsewhere.
Irene Natal: How would you categorize or describe your performance in Q1 relative to what you're seeing in the card data?
You listen, I would say that
Irene Natal: 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 HPC has iconic brands that would be a very natural fit.
Speaker Change: Should we be thinking that that is the kind of thing you might be interested in, or even as you look and 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 then play a role.
Speaker Change: in A category at an architecture level or play a role in many categories, maybe even cross-banner. And so, you know, we look at many brands on an inorganic basis every year.
Speaker Change: I don't, I can't really comment on the HBC process per se, but I know that, you know, Brandac was, I think we have very good playbooks for creating 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 in our retail system.
Thank you.
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.