Canadian Tire has offered our investors so much more than hammers and nails. The stock’s up over 1,022% since we first recommended it in The Successful Investor in April 1995.
A strong long-term growth plan that includes store, online business and private-label brand upgrades should help renew its momentum and provide a basis for further long-term gains.
The current 4.4% dividend yield is just as impressive as the share price gains when you consider just how inexpensive the shares are right now.
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Canadian Value Stocks:
They trade at just 8.6 times its 2024 forecast earnings.
CANADIAN TIRE CORP. (Toronto symbol CTC.A; www.canadiantire.ca) is a top pick for 2023.
Investors benefit from the company’s 503 Canadian Tire stores. They sell automotive parts and services, and household and sporting goods; franchisees run most of the locations. The company’s other operations also enrich its outlook. They include 161 stores operating under the PartSource (auto parts) and Party City (party supplies) banners.
Canadian Tire has several other major retail chains: Mark’s sells casual and work clothing through 379 stores; and the Sport Chek Group sells sporting goods and athletic wear through 370 outlets, including Sport Chek and Sports Experts.
With the March 2023 payment, Canadian Tire raised your quarterly dividend by 6.2%. Shareholders now receive $1.725 a share instead of $1.625. The new annual rate of $6.90 yields a high 4.4%. With this increase, the company has now raised that payment each year for the past 13 years. It also aims to buy back between $500 million and $700 million of its shares by the end of 2023.
Value Stocks: Revenue and earnings are enhanced by Canadian Tire’s e-commerce gains
Canadian Tire’s revenue rose 3.4%, from $14.06 billion in 2018 to $14.53 billion in 2019. In 2020, revenue growth slowed as the pandemic took hold, rising just 2.3% to $14.87 billion. Revenue then jumped 9.6% to $16.29 billion in 2021 as the economy re-opened. In 2022, revenue then climbed a further 9.3%, to $17.81 billion.
The company’s earnings rose 6.1%, from $870.4 million, or $11.95 a share, in 2018 to $923.3 million, or $13.04 a share, in 2019. In 2020, earnings fell 2.0% to $904.9 million, or $13.00 a share. The company incurred added costs as the pandemic shut stores. Earnings then jumped 42.6% to $1.29 billion, or $18.91 a share, in 2021 as the economy re-opened. In 2022, despite the higher revenue, earnings fell 3.1%, to $1.25 billion, or $18.75 a share. That was due in part to the company making strategic investments relating to its BetterConnected strategy. As well, it incurred higher supply-chain and other costs.
Meanwhile, Canadian Tire’s stock dropped after it reported lower-than-expected earnings for the second quarter of 2023. That’s because consumers are spending less on non-discretionary goods due to higher interest rates and inflation.
Canadian Tire’s sales in the three months ended July 1, 2023, fell 3.4%, to $4.26 billion from $4.40 billion a year earlier. That matched the consensus forecast.
Overall same-store sales improved 0.1%. At the main Canadian Tire chain, same-store sales rose 0.1%, as better sales of automotive and household products offset lower demand for gardening and sporting goods.
Same-store sales also improved 0.4% at Mark’s, and rose 0.1% at SportChek. As well, e-commerce sales totalled $1.1 billion in the past 12 months. That’s equal to 6% of the company total retail sales over that same period.
If you factor out unusual items, including costs related to a fire at a distribution facility in Ontario and a one-time tax charge, Canadian Tire’s earnings in the quarter fell 6.4%, to $174.0 million from $185.8 million a year earlier. Due to fewer shares outstanding, per-share earnings declined at a slower pace of 1.0%, to $3.08 from $3.11. That missed the consensus estimate of $3.09.
Canadian Tire’s long-term outlook remains bright. It continues to make progress on its new long-term growth plan, including upgrading its stores, online businesses and private-label brands. Since the start of 2023, it has refreshed or upgraded more than 10% of its Canadian Tire stores. So far, those improvements are driving higher customer traffic and sales at those upgraded stores.
Due to the current uncertainty regarding consumer confidence and debt, the company has decided against offering a three-year performance projection. Still, it will likely shift its focus to essential goods in the second half of 2023. That will help improve its inventory costs and reduce the risk of writedowns.
For all of 2023, Canadian Tire will probably earn $15.46 a share, and the stock trades at 10.2 times that estimate. However, earnings could rebound to $18.28 a share in 2024, and stock trades at an even more attractive 8.6 times that forecast.
Recommendation in The Successful Investor: Canadian Tire Corp. is a buy.
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