canadian tire

TIM HORTONS INC., $37.05, Toronto symbol THI, is selling its half of its Maidstone Bakeries business to Aryzta AG of Switzerland. (Tim Hortons and Aryzta own the bakery through a joint venture.) Based in Brantford, Ontario, Maidstone supplies donuts and other baked goods to Tim Horton’s stores in Canada and the U.S. Tim Hortons will receive $475 million when the sale closes later this year. As part of the deal, Maidstone will continue to supply Tim Hortons until 2016. The company has the option to extend this agreement for another year, if necessary. That gives it plenty of time to find new suppliers, or build its own bakery. Meanwhile, Tim Hortons earned $94.1 million in the three months ended July 4, 2010. That’s up 21.0% from $77.8 million a year earlier. Earnings per share rose 25.6%, to $0.54 from $0.43, on fewer shares outstanding. The latest earnings beat the consensus estimate of $0.50 a share. That caused the stock to rise 4% this week....

The Canadian consumer sector is highly competitive. Aside from other domestic retailers, Canadian retailers face rising competition from large U.S. discount retailers, like Wal-Mart and Costco. As well, consumer stocks are more exposed to swings in the overall economy than companies in some other sectors, such as utilities. That’s especially true when you indulge in aggressive investing in consumer stocks and buy small retailers. They tend to be less well-established than larger companies, such as Canadian Tire. However, aggressive investing in consumer stocks also holds the potential for spectacular gains. (In a just-published issue of Stock Pickers Digest, our newsletter for aggressive investing, we update our buy/sell/hold advice on a retailer that has risen 36% for us in the past year — and could go even higher. Read on for further details.)...

Rona Inc., $15.43, symbol RON on Toronto (Shares outstanding: 132.2 million; Market cap: $2.0 billion), is the largest Canadian distributor and retailer of hardware, home-renovation and gardening products. Rona operates a network of about 700 stores of various sizes and formats. Franchisees own some of these outlets. The company also operates 40 stores that are geared to commercial customers, particularly contractors. Rona supplies all of its stores through its own network, which consists of nine distribution centres across Canada. Rona first sold shares to the public for $6.90, and began trading on Toronto in October 2002. The company’s revenue more than doubled, from $2.3 billion in 2002 to $4.8 billion in 2009. Earnings grew 114.3% over the same period, to $1.20 a share in 2009 from $0.56 in 2002 (adjusted for a 2-for-1 split in 2005)....

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST $17.32 (Toronto symbol PMZ.UN; Units outstanding: 67.6 million; Market cap: $1.2 billion; SI Rating: Extra Risk; Dividend yield: 7.0%) owns large malls in medium-sized Canadian cities. It also owns major shopping centres in suburbs of large cities. In all, the trust owns 28 properties that contain 10.5 million square feet of leasable area. Primaris has a 96.7% occupancy rate. Its major tenants include Hudson’s Bay Company, Sears, Shoppers Drug Mart, Loblaw, Reitmans, Canadian Tire and Best Buy. In the three months ended March 31, 2010, Primaris’s revenue rose 13.6%, to $78.4 million from $69.0 million a year earlier. Cash flow per unit rose 2.9%, to $0.36 from $0.35. the trust’s annual distribution of $1.22 gives the units a 7.0% yield....

Most real estate investment trusts (REITs), including our two recommendations below, are exempt from Ottawa’s income-trust tax, which comes into effect on January 1, 2011. Even so, we still advise against overindulging in REITs. But if you stick with REITs that have steady cash flows and sound balance sheets, like the two we recommend on this page, you should earn attractive long-term returns at relatively low risk. ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $19.87 (Toronto symbol AP.UN; Units outstanding: 39.1 million; Market cap: $777.1 million; SI Rating: Extra Risk; Dividend yield: 6.6%) owns office buildings in Toronto, Montreal, Quebec City and Winnipeg. These mainly Class I properties contain over 5.7 million square feet of leasable area....

Magna International, $72.92, symbol MG.A on Toronto (Shares outstanding: 112.8 million; Market cap: $8.2 billion), has two classes of shares: the class A shares (symbol MG.A) are non-voting and the class B shares (which are not listed on a stock exchange) carry 300 votes per share. Frank Stronach, Magna’s chairman and founder, indirectly owns all of the 726,829 outstanding class B shares through the Stronach Trust. Because each class B share carries 300 votes, the Stronach Trust has about 66% of Magna’s voting rights. Stronach has proposed a plan to eliminate the dual-share structure. Subject to approval from the class A shareholders, Magna would buy all 726,829 class B from the Stronach Trust and cancel them. In return, the Stronach Trust would receive 9 million newly issued class A shares and $300 million U.S. in cash....

CANADIAN TIRE CORP., $57.22, Toronto symbol CTC.A, rose 8% this week after the company reported better-than-expected earnings. In the three months ended April 3, 2010, Canadian Tire earned $49.4 million, or $0.61 a share. That’s down 0.6% from $49.7 million, or $0.61 a share, a year earlier. If you exclude unusual items, such as losses on property sales, earnings per share would have risen 3.3%, to $0.63 from $0.61. On that basis, the latest earnings beat the consensus estimate of $0.55 a share. Sales rose 4.1%, to $1.83 billion from $1.76 billion. Overall sales rose 2.1% at the company’s main retail division, which consists of its Canadian Tire stores and the PartSource auto-parts chain. The division’s same-store sales rose 1.7%. Warmer-than-normal spring weather pushed up demand for seasonal items, such as bicycles and patio furniture. That helped offset lower sales of winter merchandise, like snow blowers....

The Canadian consumer sector is highly competitive. Aside from other domestic retailers, Canadian consumer stocks are facing increasing competition from large U.S. discount retailers, like Wal-Mart and Costco.

As the competition between retailers continues to heat up, it’s more important than ever for investors to focus on Canadian consumer growth stocks with a proven ability to adapt and prosper in the fast-changing retail landscape....

CANADIAN TIRE CORP. $56 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $4.6 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.5%; SI Rating: Above Average) sells automotive, household and sporting goods through 479 stores. These account for roughly 65% of its revenue, and 55% of its earnings. Canadian Tire owns 70% of its stores, but franchisees operate all of them. The company also owns other retail chains, including 378 Mark’s Work Wearhouse casual-clothing stores, 273 gas stations (some of which have car washes and convenience stores), and 87 PartSource auto-parts stores. Canadian Tire’s sales rose 18.2%, from $7.7 billion in 2005 to $9.1 billion in 2008. In 2009, sales fell 4.8%, to $8.7 billion. Same-store sales at the main retail division, which includes Canadian Tire and PartSource stores, fell 4.2%. Weak electronics sales offset higher sales of cleaning, kitchen and pet-care goods. As well, a lack of snow in Ontario and Quebec hurt sales of winter merchandise, such as snow shovels....

Canadian Tire is an example of what you might call a cyclical growth stock. It’s cyclical because its sales generally rise and fall with the economy. But it also has a growth element. Thanks to an aggressive store-renovation plan, its overall sales rose 70% in the past 10 years, even though it operates just 10% more stores. It has also spurred growth by expanding into new businesses, such as clothing, specialized auto parts and financial services. The company now aims to build on this success with a new strategy: It will fuel its long-term growth by focusing on its core products, particularly auto-related parts and services. Canadian Tire feels these moves will increase its annual sales by 3% to 5%, and its annual earnings by 8% to 10%. CANADIAN TIRE CORP. $56 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $4.6 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.5%; SI Rating: Above Average) sells automotive, household and sporting goods through 479 stores. These account for roughly 65% of its revenue, and 55% of its earnings. Canadian Tire owns 70% of its stores, but franchisees operate all of them....