Canadian Tire pushes into gifting as it forecasts a year of price pressure

Analysis

Canadian Tire Corp. Ltd. is pushing to become a major gifting destination, cutting prices on thousands of items as it braces for a holiday season and a year ahead dominated by consumer caution. The retailer reported a rise in third-quarter profit and increased its dividend, but executives warned that shoppers are demanding more value amid economic pressures and an unseasonably warm autumn. Chief executive Greg Hicks said the company is forecasting a "very dynamic and very value-oriented price cycle" for the next 12 to 18 months. The company's goal is to capture a holiday gift market Hicks estimates is worth more than $5 billion and extend that momentum to other occasions throughout the year. "That means not just leaning into having the right products to gift but also (looking at) how we get consumers to have us more front of mind when they're looking for gifts for other occasions, like birthdays or Mother's Day," Hicks said Thursday on a call with analysts. The retailer, which also owns SportChek, Mark's and Party City, has lowered prices on more than 5,000 goods, including gift wrap and ornaments, and expanded its toy department. It is launching cheaper items such as gift bags and wrapping under $2 and 99 cent ornaments to compete with value-oriented rivals like Walmart and Dollarama.

Hicks said the push comes as consumers face an "economic avalanche" from tariff tensions and conflict in the Middle East, which have driven up household expenses like gas. He noted one of the biggest monthly drops in consumer sentiment since the company began tracking it, with industry reports suggesting holiday spending will be "constrained." "The consumer psyche is still on high alert," Hicks said. "The clouds of geopolitics and macroeconomics haven't cleared." He added that while shoppers are cautious, they are not absent, and will spend when the value proposition feels right. "The bar is higher," Hicks explained. "They want value, they want relevance, they want convenience, they want price and they want to shop at a place that they trust."

READ MORE: Diesel prices drop 13 cents a litre in Nova Scotia as fuel costs fall across Canada

READ MORE: Inflation and high costs weigh on U.S. voters ahead of midterm elections

Promotions drive quarterly results

The company's own data showed that high-debt, low-income customers drove the highest spending increases during the quarter, indicating that price cuts and promotions are working. Canadian Tire beat analysts' estimates for its third-quarter sales and profits. The Toronto-based retailer reported net income attributable to shareholders of $219.6 million or $4.27 per diluted share for the quarter ended Oct. 3, up from $169.1 million or $3.13 per diluted share a year earlier. On a normalized basis, it earned $4.27 per diluted share, up from $3.78 a year ago. Total revenue reached $4.32 billion, up from $4.11 billion in the same quarter last year.

Comparable sales, which track sales at stores open for more than a year, rose 3.2 per cent across the company's banners. Excluding petroleum, comparable sales increased by 3.2 per cent. The war in the Middle East drove a 27.8 per cent jump in gasoline prices in September, according to Statistics Canada, and higher gas prices boosted Canadian Tire's retail sales by 4.4 per cent. Retail sales rose by 1.7 per cent when petroleum was excluded. At the flagship Canadian Tire chain, comparable sales increased 3.2 per cent, helped by seasonal and gardening categories and growth in automotive services. SportChek also saw a gain of 3.2 per cent, while Mark's reported 3.3 per cent growth in comparable sales.

A slow start to winter sales

Despite the strong quarterly results, executives cautioned that the current fourth quarter has begun slowly due to unusually warm weather. Sales of seasonal products, which usually pick up in the fall, have been hurt by the lack of winter conditions. "We're off to a slower start in October. Clearly, winter has not showed up," chief financial officer Darren Myers said on the call, comparing the recent weather to last year's early, snowy winter. "There's a lot of the quarter left to play but we do need the weather to turn." The company's financial services segment, which offers credit cards tied to the Triangle loyalty program, reported record revenue for the quarter.

Canadian Tire's executive vice-president and chief operating officer, TJ Flood, said the promotional environment is expected to persist. "We're going to be continuing in a very dynamic and very value-oriented price cycle for the next, probably, year to 18 months," Flood said during the call. The company announced it had increased its annual dividend to $7.30 per share, up from $7.20 per share previously. It will now pay a quarterly dividend of $1.825 per share, up from $1.80 per share. The results pushed Canadian Tire's share price up by more than seven per cent in trading on the Toronto Stock Exchange on Thursday.

With files from The Canadian Press, BNN Bloomberg and The Globe and Mail