Mr. Greg Hicks reports

CANADIAN TIRE CORPORATION REPORTS FIRST QUARTER 2023 RESULTS

Canadian Tire Corp. Ltd. has released its first-quarter results for the period ended April 1, 2023.

Highlights:

• Diluted earnings per share (EPS) of 13 cents included the impact of costs relating to the fire at the company's A.J. Billes distribution centre in Brampton, Ont., on March 15, 2023. Normalized diluted EPS totalled $1.
• Financial services delivered a strong contribution at $118.7-million of income before income taxes (IBT).

"Our Q1 financial results were impacted by a number of factors. Our retail segment was impacted by the fire at our A.J. Billes distribution centre, as well as unseasonably mild winter weather and a slow start to spring in several regions of Canada," said Greg Hicks, president and chief executive officer, Canadian Tire. "The financial services business historically makes a significant contribution to Canadian Tire Corp.'s performance in the first quarter, and this quarter was no different. The strength of our teams and our diligent focus on our Better Connected strategy leaves us confident in our ability to deliver long-term returns for shareholders and value to our customers.

"Our unrivalled competitive advantage lies in our deep understanding of Canadians, and in the context of a challenging macroeconomic environment, we intend to fully leverage this strength to maximize returns."

First-quarter highlights:

• Consolidated comparable sales were down 2.5 per cent versus strong growth in 2022, in a more-challenging consumer demand environment, driven by the impact of a mild winter and a late arrival of spring:
  • Canadian Tire retail comparable sales were down 4.8 per cent. Lower sales of winter and spring products were partially offset by growth in non-winter related automotive categories and in living categories, driven by an expanded pet offering.
  • Mark's registered its 11th consecutive quarter of comparable sales growth, up 4.8 per cent, on sales of men's and ladies' casual wear.
  • SportChek comparable sales grew 3.7 per cent as athletic and casual wear sales offset softer outerwear demand.
  • Helly Hansen revenue was up 22.9 per cent, with the strongest growth in sports wholesale revenue and e-commerce.
• Consolidated income before income taxes was $66.6-million, a decrease of $228.3-million compared with the prior year, with financial services segment income offset by a loss of $79.3-million in the retail segment, resulting in diluted EPS of 13 cents. Excluding the direct costs relating to the fire at the company's A.J. Billes distribution centre, normalized IBT was $134.3-million and normalized diluted EPS totalled $1. Results for the quarter also included the impact of a change in accounting estimate relating to the company's margin-sharing arrangement with dealers:
  • The normalized retail segment loss before income taxes was $11.6-million. Excluding the impact of a change in accounting estimate, the main factors affecting the retail segment results were the anticipated lower Canadian Tire retail spring/summer shipments, shipment delays relating to the distribution centre fire, higher operating costs and a one-time cost to exit a supply-chain contract.
  • Financial services delivered income before income taxes of $118.7-million, down 5.3 per cent against a strong 2022 result. Receivables growth of 10.4 per cent and higher credit card sales growth, up 6.1 per cent, drove an 11.5-per-cent increase in revenue, while higher net impairment losses and financing costs contributed to lower gross margin.
• Since the beginning of 2023, the company has continued to invest in its strategic differentiators as part of its Better Connected strategy, including:
  • Expanding the reach of the Triangle Rewards program and opportunities for engagement with the company's 11.4 million active members, including through the launch of the new Triangle Select subscription membership program, with more than 22,000 members signed up since the program's January, 2023, launch;
  • Continuing to steadily grow its portfolio of owned-brands products, with the launch of the Stratus owned brand in the cycling category and the acquisition of plumbing faucets and fixtures brand Danze in Canada. Owned brands accounted for 35.8 per cent of retail sales in Q1 2023.
• Canadian Tire remains committed to making life in Canada better through communities and sport:
  • Jumpstart hit a new quarterly record for disbursements, with more than 250,000 kids helped in Q1, in addition to delivering Respect in Sport training to more than 5,000 new community coaches and youth activity leaders across Canada.
  • Canadian Tire announced a new multimillion-dollar investment in the Women's Sports Initiative, aimed at levelling the playing field, with a commitment to allocating 50 per cent of the company's sports sponsorship to women's professional sports by 2026.

Consolidated overview:

• Unless otherwise specified, consolidated results include the impact of a change in accounting estimate.
• Revenue was $3,707.2-million, compared with $3,837.4-million in the same period last year; excluding the change in accounting estimate, revenue (excluding petroleum) decreased 4.9 per cent. Financial services segment revenue growth was partially offset the retail segment decline, mainly due to the anticipated lower revenue at Canadian Tire retail.
• Consolidated income before income taxes was $66.6-million, a decrease of $228.3-million compared with the prior year, due in part to costs of $67.7-million relating to the distribution centre fire. Normalized income before income taxes was $134.3-million.
• Diluted EPS totalled 13 cents, compared with $3.03 in the prior year. Normalized diluted EPS totalled $1, down $2.06, or down $2.72 excluding the 66-cent favourable impact of the change in accounting estimate, mainly attributable to a decline in earnings in the retail segment.

Retail segment overview:

• Unless otherwise specified, retail results include the impact of a change in accounting estimate.
• Retail revenue was $3,337.9-million, a decrease of $166.6-million, or 4.8 per cent, compared with the prior year; retail revenue (excluding petroleum) was down 5.0 per cent. Excluding the favourable impact of the change in accounting estimate, retail revenue (excluding petroleum) decreased $201.4-million.
• Retail sales were $3,326.5-million, down 2.8 per cent compared with the first quarter of 2022, and retail sales (excluding petroleum) and consolidated comparable sales were both down 2.5 per cent against strong comparatives in the prior year in a more-challenging consumer demand environment, driven by the impact of a mild winter and a late arrival of spring.
• CTR retail sales were down 4.9 per cent and comparable sales were down 4.8 per cent over the same period last year.
• SportChek retail sales increased 3.9 per cent over the same period last year, and comparable sales were up 3.7 per cent.
• Mark's retail sales increased 5.0 per cent over the same period last year, and comparable sales were up 4.8 per cent.
• Helly Hansen revenue was up 22.9 per cent compared with the same period in 2022.
• Retail gross margin was down 2.5 per cent compared with the first quarter of 2022, or down 2.1 per cent excluding petroleum; retail gross margin rate (excluding petroleum) increased 103 basis points to 35.2 per cent. Excluding the favourable change in accounting estimate, retail gross margin rate (excluding petroleum) was down 17 basis points despite higher promotional intensity.
• Retail loss before income taxes was $79.3-million, compared with retail income before income taxes of $148.8-million in the prior year; normalized retail loss before income taxes was $11.6-million in Q1 2023.
• Retail return on invested capital, calculated on a trailing 12-month basis, was 11.3 per cent at the end of the first quarter, compared with 13.8 per cent at the end of the first quarter of 2022, due to the decrease in earnings and the increase in average retail invested capital over the prior period.

Financial services overview:

• Gross average accounts receivable was up 10.4 per cent relative to the prior year, due to increases in both active accounts and average account balance, up 4.4 per cent and 5.8 per cent, respectively, in the quarter.
• Financial services gross margin was $211.3-million, a decrease of $6.2-million, or 2.8 per cent, compared with the prior year. Higher net impairment losses and financing costs were partially offset by strong revenue growth.
• Financial services IBT was $118.7-million, down $6.6-million, or 5.3 per cent, compared with the prior year.

CT REIT overview:

• CT REIT confirmed a 3.5-per-cent distribution increase, which will be effective with the July, 2023, payment to unitholders.
• CT REIT received zero-carbon building design certification for a new distribution centre development in Calgary, Alta.

Capital allocation

Capital expenditures:

• Operating capital expenditures were $106.7-million in Q1 2023, compared with $142.0-million in Q1 2022.
• Total capital expenditures were $118.3-million, compared with $154.3-million in Q1 2022.

Quarterly dividend:

• The company declared a dividend payable to holders of Class A non-voting shares and common shares at a rate of $1.725 per share, payable on Sept. 1, 2023, to shareholders of record as of July 31, 2023. The dividend is considered an eligible dividend for tax purposes.

Share repurchases:

• On Nov. 10, 2022, the company confirmed its intention to repurchase an additional $500-million to $700-million of its Class A non-voting shares, in excess of the amount required for anti-dilutive purposes, by the end of 2023 as part of its capital management plan. As at April 1, 2023, the company has repurchased $279.3-million of its shares in partial fulfilment of its 2022/2023 share repurchase intention.

Normal course issuer bid and automatic securities purchase plan:

• On Feb. 16, 2023, the Toronto Stock Exchange accepted the company's notice of intention to make a normal course issuer bid to purchase up to 5.1 million shares between March 2, 2023, and March 1, 2024. Also on Feb. 16, 2023, the TSX accepted the company's new automatic securities purchase plan, which expires on March 1, 2024, and which allows a designated broker to purchase shares under the 2023/2024 NCIB during the company's blackout periods.

Conference call

Canadian Tire will conduct a conference call to discuss information included in this news release and related matters at 8 a.m. ET on May 11, 2023. The conference call will be available simultaneously and in its entirety to all interested investors and the news media through a webcast at the company's website and will be available through replay at this website for 12 months.

About Canadian Tire Corp. Ltd.

Canadian Tire is a group of companies that includes a retail segment, a financial service division and CT REIT. The company's retail business is led by Canadian Tire, which was founded in 1922 and provides Canadians with products for life in Canada across its living, playing, fixing, automotive, and seasonal and gardening divisions. Party City, PartSource and Gas+ are key parts of the Canadian Tire network. The retail segment also includes: Mark's, a leading source for casual and industrial wear; Pro Hockey Life, a hockey specialty store catering to elite players; and SportChek, Hockey Experts, Sports Experts and Atmosphere, which offer the best active wear brands. The more than 1,700 retail and gasoline outlets are supported and strengthened by Canadian Tire's financial service division and the tens of thousands of people employed across Canada and around the world by Canadian Tire and its local dealers, franchisees and petroleum retailers. In addition, Canadian Tire owns and operates Helly Hansen, a leading technical outdoor brand based in Oslo, Norway.

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