We look at a retailer that has built a strong brand in its automotive, household and sporting goods markets. Canadian Tire is best known for its 495 franchise stores, but it also owns gas stations, PartSource auto parts stores, the clothing retailer Mark’s, and sporting goods stores such as Sport Chek. Strong earnings growth supported by rising sales recently allowed Canadian Tire to raise its dividend by 9.5%. In addition, the company has outlined a three-year growth plan that will see it add new stores, upgrade existing stores, and target online growth. We view Canadian Tire as a blue chip stock with long-term growth potential that will appeal to conservative investors.
CANADIAN TIRE CORP. (Toronto symbol CTC.A; www.canadiantire.ca) has 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.
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Canadian Tire also owns Mark’s, which sells casual and work clothing through 379 stores, and the Forzani Group, which offers sporting goods and athletic clothing at 428 outlets, mainly under the Sport Chek and Sports Experts banners.
In the quarter ended October 3, 2015, Canadian Tire earned $199.7 million, up 15.9% from $172.2 million a year earlier. Earnings per share rose 20.5%, to $2.62 from $2.17, on fewer shares outstanding.
The latest quarter included just 80% of the company’s financial-services division following last year’s sale of 20% to Bank of Nova Scotia (Toronto symbol BNS). The move reduced the latest earnings by $0.18 a share. Canadian Tire also sold some real estate for a $0.33-a-share gain.
Overall sales rose 1.9%, to $3.13 billion from $3.07 billion, as increases at the company’s stores and financial services division offset lower gasoline revenue.
Same-store sales at the Canadian Tire chain rose 3.4% on stronger demand for kitchenware and summer merchandise, like camping gear.
The sporting-goods stores saw a 7.0% same-store sales rise thanks to higher demand for shoes and clothing. Mark’s reported a 0.2% same-store sales decline, as layoffs at Alberta oil producers hurt sales of work clothes and shoes.
As part of a new growth plan, Canadian Tire is adding and upgrading stores and growing online. It will spend between $600 million and $625 million a year on these initiatives from 2015 to 2017.
The plan aims to raise annual sales by 3% at Canadian Tire locations and 9% at its sporting goods stores. However, Mark’s may have trouble achieving its goal of increasing annual sales by 5%.
Canadian Tire’s earnings will probably improve from a likely $8.04 a share in 2015 to $8.59 in 2016. The stock trades at 14.2 times the 2016 forecast. It also recently raised its dividend by 9.5%.
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The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
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