CANADIAN TIRE CORP. $121(Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 72.8 million; Market cap: $8.8 billion; Price-to-sales ratio: 0.7; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.canadiantire.ca) owns 495 Canadian Tire stores, which sell automotive, household and sporting goods. Franchisees run most of these outlets. Other operations include 297 gas stations and 91 PartSource auto parts stores. Canadian Tire has acquired a number of specialty retailers in the past few years.
These chains include Mark’s Work Wearhouse (since shortened to Mark’s), which sells casual and work clothing through 378 stores, and the Forzani Group, which sells sporting goods and athletic clothing through 433 stores, mainly under the Sport Chek and Sports Experts banners.
As part of a new growth plan, Canadian Tire is upgrading its stores and growing online. It plans to spend $575 million a year on these initiatives from 2015 to 2017.
The cost of these upgrades, plus higher wages, cut the company’s earnings by 2.3% in the three months ended July 4, 2015, to $166.0 million from $169.9 million a year earlier. Earnings per share gained 1.3%, to $2.15 from $2.12, on fewer shares outstanding.
The latest quarter also included just 80% of the company’s financial services division after it sold a 20% stake to Bank of Nova Scotia (Toronto symbol BNS) last year. The deal cut $0.18 a share from Canadian Tire’s latest earnings.
Overall sales rose 2.9%, to $3.26 billion from $3.17 billion, as gains at the company’s retail stores and financial services division offset lower gasoline revenue.
Without gasoline, the company’s Canadian Tire outlets reported 3.2% higher same-store sales, thanks to higher demand for kitchen and gardening products, as well as tires. Same-store sales rose 4.8% at its sporting goods stores as more shoppers bought athletic shoes and clothing. Mark’s saw a 2.9% same-store sales increase on higher sales of men’s and women’s shoes.
The company will probably earn $7.78 a share in 2015, and the stock trades at 15.6 times that forecast. The $2.10 dividend yields 1.7%.
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