As retail chains face increasing competition, both online and offline, this iconic Canadian firm seems to be making all the right moves.

It’s spending to upgrade its stores and e-commerce platform. It’s also making strategic acquisitions and alliances. Those include the purchase of a Norwegian outdoor clothing company and a key partnership with a pet food retailer. At the same time, it’s raised its dividend 38%.

CANADIAN TIRE CORP. (Toronto symbol CTC.A; www.canadiantire.ca) owns 501 Canadian Tire stores. They sell automotive parts and products, and household and sporting goods. Franchisees run most of the outlets. The company’s other operations include 297 gas stations and 106 PartSource locations; those stores are entirely focused on automobile supplies.

In the past few years, Canadian Tire has acquired other major retail chains: Mark’s sells casual and work clothing through 386 stores; and the Forzani Group sells sporting goods and athletic wear through 408 outlets, including Sport Chek and Sports Experts.

As well, the company recently formed a new alliance with U.S.-based retailer Petco. As a result, Canadian Tire stores and website will carry Petco’s WholeHearted premium pet foods. It plans to add more Petco products over the next few months. Teaming up with Petco will help the company profit from rising levels of pet ownership.

In the three months ended June 30, 2018, the company reported lower-than-expected earnings, mainly because it’s spending more on its stores and e-commerce operations.

Canadian Tire’s overall sales rose 3.2%, to $3.48 billion from $3.37 billion a year earlier. Overall same-store sales improved 1.6%.

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In the quarter, same-store sales at the company’s Canadian Tire department stores rose 2.0% on higher demand for seasonal products such as gardening tools and air conditioners. Same-store sales for Forzani stores declined 0.3%, as unusually cold spring weather slowed demand for summer-related clothing and footwear.

Same-store sales at the Mark’s chain gained 1.3% on improving footwear sales, while revenue at Canadian Tire’s gas stations jumped 16.7% due to higher gasoline prices.

Despite the higher sales, earnings in the quarter fell 12.6%, to $170.6 million from $195.2 million a year earlier. Per-share earnings declined just 7.2%, to $2.61 from $2.81, on fewer shares outstanding. That missed the consensus estimate of $3.04.

Those earnings exclude unusual items, including the rollout of a new loyalty rewards plan and costs related to the company’s acquisition of the Helly Hansen sportswear business.

Earlier in the year, Canadian Tire agreed to acquire the Helly Hanson sportswear business from the Ontario Teachers’ Pension Plan for $985 million. Based in Oslo, Norway, that business makes a variety of clothing for outdoor activities, such as skiing and sailing. It also operates retail stores in over 40 countries.

Canadian Tire completed the Helly Hansen purchase on July 3, 2018. It expects the new operations will immediately contribute to its earnings.

The company has benefited from upgrading its websites. Customers can place their orders at home and pick them up at the store. At the same time, the great variety products in Canadian Tire stores appear to encourage a more “hands-on” approach from customers who are willing to visit the store to make their final purchases.

In March 2018, Canadian Tire raised its quarterly dividend by 38.5%, to $0.90 a share from $0.65. The company’s dividend has grown an average 20.8% annually over the last 5 years. The new annual rate of $3.60 yields 2.1%.

Recommendation in The Successful Investor: Canadian Tire is a buy.

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