Canadian Tire Corporation, Limited released positive first quarter results reflecting strong retail sales growth, a bouncing back of its financial services business, and an increase in earnings over Q1 2009.
Adjusted earnings before taxes increased 13.0% from the prior year as a result of the strong performance in Financial Services, which was up 41.8% from the first quarter of 2009. Consolidated retail sales were up 5.7% compared to the same period last year principally due to an increase of 2.1% at Canadian Tire Retail, sales growth of 3.8% at Mark’s and 19.5% in Petroleum.
“Our management team is committed to driving growth in the core Canadian Tire Retail business beyond historical norms,” said Stephen Wetmore, president and CEO, Canadian Tire Corporation. “While I’m pleased with the positive first quarter results and momentum heading into Q2, we’re still in the very early stages of the kind of growth we expect from the business.”
Although consolidated adjusted earnings before income taxes were up in the quarter, basic earnings per share were flat in Q1 2010. In the first quarter of 2009, the company benefited from a favourable tax adjustment of $4.6 million related to the taxation of capital gains realized from the disposition of MasterCard shares in 2006 and 2007. Figures in Canadian dollars.
Canadian Tire Retail
Canadian Tire Retail total sales increased 2.1% and same store sales were up 1.7% compared to the same period last year. A decrease in gross operating revenue of 0.7% reflects a decrease in net shipments of 0.6% for the quarter in comparison to the first quarter of 2009.
Canadian Tire retail numbers includes sales from Canadian Tire stores, PartSource stores, and the labour portion of CTR’s auto service sales.
While Canadian Tire Retail had a very slow start to the quarter due to soft sales in weather-related categories and in automotive, stronger sales in March positively impacted total first quarter results. For example, Canadian Tire’s backyard businesses performed well late in the quarter with sales up significantly over last year. Positive customer response to our spring offerings has continued into the second quarter.
Adjusted earnings before taxes decreased $4.5 million due primarily to higher corporate charges related to the company’s stock-based compensation plans and increased promotional expenses during the Olympics.
Canadian Tire Retail is on track to open approximately 60 Smart store retrofits, three new Smart stores, five replaced or expanded stores and three new Small Market stores in 2010. The Automotive Initiative, a strategic priority that will improve technology and supply chain capability in Canadian Tire’s core automotive business, progressed this quarter with a pilot in Dartmouth, Nova Scotia.
Petroleum plays a strategic role in increasing customer loyalty and driving traffic and transactions for Canadian Tire Retail and Financial Services. While sales volume was down slightly versus the same quarter in 2009, gross operating revenue increased 20.2% due to an increase in the cost per litre at the pump. Adjusted earnings before income taxes decreased $500,000 from the same period last year mostly due to gasoline margin pressure. Petroleum opened one new gas bar in the first quarter and, in April 2010, announced that it will expand its site network to include 23 stations along the 401 and 400 highways in Ontario. Seven sites will open by the fall of 2010 with 20 of 23 sites expected to open within the next three years.
Through its continued network expansion and product innovations, Mark’s is well positioned to continue to increase its market share as the Canadian apparel market recovers from the current recession.
Mark’s first quarter total retail sales were up 3.8% to $174.9 million and same store sales were up 1.5% compared to Q1 2009, which pushed its gross operating revenue up by 4.5%. Gross operating revenue in 2010, however, includes ancillary franchise royalty fees, embroidery and alteration revenue net of sales return provision, which were reflected as an offset to operating costs in 2009. Excluding this factor, gross operating revenue would have increased by 2.4% and retail sales would have increased by 2.6%.
Adjusted pre-tax earnings were up 5.9%. Mark’s improved sales results were driven by a 4.1% sales increase in industrial wear as resource-based customers returned to work and a 2.9% sales increase of ladies wear as customers responded well to the spring line of merchandise. Men’s wear sales were down 2.1%, with outerwear and sweaters seeing the largest dollar decreases.
Financial Services had a strong first quarter with gross operating revenues of $225.4 million in Q1 2010, a 3.8% increase over the $217.3 recorded in the prior year. Adjusted pre-tax earnings for the quarter were $45.5 million, 41.8% higher than the first quarter of 2009, reflecting higher credit card interest and lower operating expenses due to tight expense control. Aging of the portfolio stabilized, negating the need to grow allowance for future losses during the quarter versus a year ago.
Financial Services’ ending credit card portfolio grew 6.4%. The net write-off rate for the total credit card managed portfolio on a rolling 12 month basis was 8.01%, compared to 6.68% in the comparable 2009 period and 7.83% in the previous quarter.
Operating expenses are expected to increase throughout the fiscal year due to sales tax changes, mig ration to chip and PIN card technology and the implementation of processes to ensure compliance with new government regulations.