Improved sales of automotive parts and sporting goods led to an 18.4% revenue boost for this company during the most-recent quarter.
A series of recent casual wear, sportswear, and party supplies acquisitions continues to enhance the firm’s ability to compete effectively against big U.S. chains and Amazon even as COVID-19 forces the closure of most bricks-and-mortar stores.
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CANADIAN TIRE CORP. (Toronto symbol class A non-voting CTC.A; www.canadiantire.ca) gives you exposure to the country’s 504 Canadian Tire stores. They sell automotive parts and services as well as household and sporting goods. Franchisees run most locations. The company’s other operations include 297 gas stations and 82 PartSource (auto parts) outlets.
To better compete with big U.S. chains such as Walmart and Costco, Canadian Tire has steadily acquired other retailers in the past few years. As a result, it now owns 380 Mark’s stores (casual clothing) and 402 SportChek, Sports Experts and Atmosphere (athletic shoes and clothing) stores.
With the aim of adding value for investors, Canadian Tire paid $174.4 million in October 2019 for the 65 Canadian outlets of U.S.-based Party City. Those stores sell party supplies such as balloons, decorations and paper plates.
You also benefit from Canadian Tire’s acquisitions beyond retail stores. In July 2018, it paid $985 million for sportswear maker Helly Hansen. The purchase expands its portfolio of exclusive products, which helps it compete with online sellers like Amazon.
Thanks to those new businesses, Canadian Tire’s revenue rose 18.4%, from $12.28 billion in 2015 to $14.53 billion in 2019.
If you disregard costs to integrate the new operations, overall earnings during those five years jumped 25.5%, from $735.9 million to $923.3 million. The company is an aggressive buyer of its own shares, which is why earnings per share soared 51.5%, from $8.61 to $13.04. In fact, Canadian Tire now aims to repurchase $433.5 million of its class A non-voting shares by the end of 2020.
Dividend Stocks: Balance sheet and efficiency plan add to appeal
The company’s sound balance sheet is another big plus for investors. As of December 31, 2019, its long-term debt of $3.7 billion is a high but manageable 73% of its market cap. It also held cash of $407.2 million.
Under a new efficiency plan, the company is closing unprofitable stores and consolidating administrative functions for its chains. These initiatives should let Canadian Tire cut at least $200 million from its annual costs by the end of 2022.
Canadian Tire’s ongoing savings will also help to expand its online operations and protect investors from a growing number of competing sellers. Its websites currently generate sales of around $500 million a year (3% of the total).
The company also just increased your quarterly dividend by an impressive 9.6%. Starting March, you’ll receive $1.1375 a share, up from $1.0375. The new annual rate of $4.55 offers you a solid 5.6% yield.
The company’s dividend has increased an average of 16.7% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Highest.
This stock enjoys our HIGHEST Dividend Sustainability Rating.
Comments
Jim
it looks like your research on Can Tire is predicated on pre-COVID conditions and earnings trajectories. what impact do you contemplate? what changes is the company making to maintain revenues. etc?
Thanks for your question. We plan to update our advice on Successful Investor recommendation Canadian Tire, and its prospects given the pandemic, in an upcoming issue
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it looks like your research on Can Tire is predicated on pre-COVID conditions and earnings trajectories. what impact do you contemplate? what changes is the company making to maintain revenues. etc?
Thanks for your question. We plan to update our advice on Successful Investor recommendation Canadian Tire, and its prospects given the pandemic, in an upcoming issue