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 4.5% dividend yield is just as impressive as the share price gains when you consider just how inexpensive the shares are right now.

They trade at just 13.6 times its 2024 forecast earnings.

Is Canadian Tire stock a good buy?

CANADIAN TIRE CORP. (Toronto symbol CTC.A; www.canadiantire.ca) operates 502 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 165 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 382 stores; and the Sport Chek Group sells sporting goods and athletic wear through 367 outlets, including Sport Chek and Sports Experts.

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Notably, the company’s Mark’s chain now plans to open four new stores under the Mark’s WorkPro banner in Edmonton, Toronto, Montreal and St. Catharines, Ontario. These new stores will focus on industrial customers, such as construction workers. Specialized stores like these will help Canadian Tire cope as consumers spend less on non-essential items due to rising interest rates and inflation.

Canadian Tire also provides a variety of banking services, including savings accounts, guaranteed investment certificates (GICs), insurance and credit cards.

In October 2014, the company sold 20% of its Canadian Tire Financial Services business to Bank of Nova Scotia (see below) for $476.8 million.

Canadian Tire has now re-acquired that 20% stake for $895 million. Meanwhile, the transaction will add to Canadian Tire’s 2024 earnings. As well, gaining full control over the financial services division will make it easier to integrate its Triangle customer loyalty program with its credit card business. That should encourage repeat visits and more spending per visit. (The Triangle plan currently has over 11 million active members, which includes 2.3 million credit card holders.)

Canadian Tire also announced that it is conducting a strategic review of the financial services division. That could lead to the sale of shares in this business, or even a spinoff. It expects to complete the review in 2024.

With the March 2024 payment, the company raised your quarterly dividend by 1.4%. Shareholders now receive $1.75 a share instead of $1.725. The new annual rate of $7.00 yields a high 4.5%. With this increase, the company has now raised that payment each year for the past 14 years. Including this latest increase, the company has now raised the dividend by an average of 11.0% annually over the last 5 years.

What’s more, Canadian Tire now plans to buy back $200.0 million of its class A shares in 2024. That’s on top of the $470.0 million it spent on buybacks under the previous plan.

In March 2024, Canadian Tire announced a new alliance with Suncor Energy (symbol SU on Toronto, and a recommendation of The Successful Investor). Suncor is Canada’s largest integrated oil firm, with major projects in the Alberta oil sands. It also operates four refineries (three in Canada and one in Colorado), along with 1,875 Petro-Canada gas stations.

Under this new agreement, Canadian Tire will re-brand over 200 of its gas bars to Petro-Canada stations, but it will continue to own them.

As well, the two companies will let customers who participate in their loyal rewards programs (Triangle for Canadian Tire and Petro-Points for Suncor) earn points when they buy gas at both gas chains.

The deal should encourage more visits and boost the earnings of both companies.

How does the economy affect Canadian Tire stock?

Economic factors like consumer spending, interest rates, inflation, housing market conditions, and overall retail sector health directly impact Canadian Tire’s performance as they affect both consumer purchasing power and the company’s operational costs.

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. In 2023, revenue then fell 6.5%, to $16.66 billion, mostly due to lower consumer confidence hurting demand.

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. In 2023, earnings fell 42.8%, to $716.1 million, or $10.37 a share. Profits fell along with sales, as well as higher costs.

The company reported better-than-expected sales and earnings for the second quarter of 2024, despite weaker consumer confidence. Wetter-than-normal weather also hurt demand for seasonal goods like gardening supplies and sporting equipment.

Canadian Tire’s revenue in the quarter ended July 1, 2024, fell 2.9%, to $4.13 billion from $4.26 billion a year earlier. Even so, that topped the consensus forecast of $4.08 billion.

Overall same-store sales declined 4.6%. At the main Canadian Tire chain, same-store sales also fell 5.6% as lower demand for seasonal and household goods offset better sales of automotive products.

Same-store sales also declined 0.9% at Sport Chek on lower sales of bicycles and athletic clothing. Lower sales of clothing to industrial customers also cut same-store sales at Mark’s by 0.8%.

E-commerce sales totalled $1.1 billion in the past 12 months. That’s equal to 6% of the company’s total retail sales over that same period.

If you factor out unusual items, Canadian Tire’s earnings in the quarter rose 14.3%, to $198.8 million from $174.0 million a year earlier. Due to fewer shares outstanding, per-share earnings improved at a faster pace of 15.6%, to $3.56 from $3.08. That was also much better than the consensus estimate of $2.42.

Part of that earnings gain is due to the company’s plan to improve productivity, including cutting 3% of its workforce.

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 March 2022, it has refreshed or upgraded more than 15% of its Canadian Tire stores. So far, those improvements are driving higher customer traffic and sales at those upgraded stores.

Canadian Tire will probably earn $11.55 a share in 2024, and the stock trades at 13.6 times that estimate.

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

We hope you benefited from this analysis of Canadian Tire. The company is just one of the top-performing stock picks of our Successful Investor newsletter.

Of course, not all our picks over the years have produced these kind of spectacular gains. Some, in fact, have led to losses. But all portfolios need superstar stocks like this to offset those inevitable losses.

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This post was originally published in April 2023 and is regularly updated.