Mr. Greg Hicks reports

CANADIAN TIRE CORPORATION REPORTS THIRD QUARTER 2023 RESULTS, ANNOUNCES 14TH CONSECUTIVE YEAR OF ANNUAL DIVIDEND INCREASE AND RENEWAL OF SHARE REPURCHASE PROGRAM

Canadian Tire Corp. Ltd. has released its third-quarter results for the period ended Sept. 30, 2023.

Highlights:

• Consolidated comparable sales were down 1.6 per cent as consumers continue to shift to essentials.
• Increase in retail gross margin rate as higher Canadian Tire Retail product margin offset promotional intensity at other banners.
• Normalized diluted earnings per share (EPS) totalled $2.96; diluted loss per share totalled $1.19.
• Annualized dividend increased from $6.90 to $7 per share; intention to repurchase up to an additional $200-million of Class A non-voting shares during 2024.

"Against softening consumer demand, our Q3 results show the continued resilience, relevance and underlying strength of our business as we leveraged loyalty and prioritized essential categories within our multicategory assortment," said Greg Hicks, president and chief executive officer, Canadian Tire. "We remain focused on driving value for our customers as we head into the important fourth quarter.

"In a more-challenging economic environment, we are accelerating efficiency initiatives, prioritizing investments within our Better Connected strategy, and actively managing our resource allocation."

Third-quarter highlights:

• Consolidated comparable sales were down 1.6 per cent, as the consumer spend softening experienced in Q2 persisted into Q3, particularly in Ontario and British Columbia:
  • Canadian Tire Retail comparable sales were down 0.6 per cent; essential categories were up 4 per cent, led by automotive.
  • SportChek comparable sales were down 7.4 per cent; strong growth in team sports was offset by weakness in more discretionary categories, such as athletic footwear and clothing.
  • Mark's comparable sales were up 0.2 per cent, against strong growth in Q3 2022; ladies casualwear and casual footwear offset declines in industrial and men's casualwear.
  • Owned Brands penetration1 was up 42 bps to 36.2 per cent, driven by CTR. The Owned Brands portfolio delivered an 888-basis-point margin premium to National Brands.
• Diluted loss per share totalled $1.19; normalized diluted earnings per share totalled $2.96, down 11.4 per cent, as a result of lower retail and financial services income before income taxes (IBT):
  • Diluted EPS reflected the change in fair value charge related to the Scotiabank transaction announced on Oct. 31, 2023, which represented a charge of $328-million (an impact of $5.88). This was partially offset by a $1.73 contribution from the $131-million insurance recovery related to the March 15, 2023, fire at the A.J. Billes distribution centre (DC), which was recorded in the retail segment.
  • Retail IBT was $239-million. Normalized retail IBT was $108-million, down $40.8-million; stable revenue and an increase in gross margin was offset by higher SG&A (selling, general and administrative expenses) and net finance costs.
  • Financial services IBT was $125.7-million, down $13.9-million; higher net impairment losses and financing costs offset revenue growth of 9.0 per cent.

Consolidated overview:

• Unless otherwise specified, consolidated results include the previously disclosed margin sharing arrangement (MSA) change, which was effective from the first quarter of 2023.
• Revenue was $4,250.5-million, up 0.5 per cent compared with $4,228.8-million in the same period last year; Revenue (excluding petroleum) was $3,652.9-million, an increase of 1.1 per cent compared with the prior year.
• Consolidated IBT was $69.3-million, a decrease of $229.3-million compared with the prior year. Normalized IBT was $266.3-million, compared with $314.4-million in the prior year.
• Diluted loss per share was $1.19, compared with earnings per share of $3.14 in the prior year; normalized diluted EPS was $2.96, compared with $3.34 in the prior year.
• Refer to the company's Q3 2023 MD&A (management's discussion and analysis) sections 4.1.1 and 4.2.1 for information on normalizing items and the MSA change, and for additional details on events that have impacted the company in the quarter.

Retail segment overview:

• Unless otherwise specified, retail results include the previously disclosed MSA change, which was effective from the first quarter of 2023.
• Retail sales were $4,639.3-million, down 2.0 per cent compared with the third quarter of 2022, as a result of softening consumer demand, particularly in Ontario and British Columbia, and a mix shift to more essential and value offerings; retail sales (excluding petroleum) and consolidated comparable sales were down 1.9 per cent and 1.6 per cent, respectively.
• CTR retail sales were down 0.9 per cent over the same period last year, and comparable sales were down 0.6 per cent.
• SportChek retail sales decreased 7.6 per cent over the same period last year, and comparable sales were down 7.4 per cent.
• Mark's retail sales decreased 0.1 per cent over the same period last year, and comparable sales were up 0.2 per cent.
• Helly Hansen revenue was up 28.2 per cent compared with the same period in 2022.
• Retail revenue was $3,867.3-million, a decrease of $6.4-million, or 0.2 per cent, compared with the prior year; retail revenue (excluding petroleum) was up 0.3 per cent. Excluding the favourable impact of the MSA change, retail revenue (excluding petroleum) was down $22.1-million.
• Retail gross margin was $1,207-million, up 4.7 per cent compared with the third quarter of the prior year, or up 4.6 per cent excluding petroleum; retail gross margin rate (excluding petroleum) increased 143 basis points to 35.1 per cent. Excluding the MSA change, retail gross margin rate (excluding petroleum) was up 77 basis points.
• Retail IBT was $239-million, compared with $133-million in the same period of the prior year, mainly due to the DC fire insurance recovery. Normalized retail IBT was $108-million in Q3 2023, compared with $148.8-million in the prior year.
• Retail return on invested capital (ROIC), calculated on a trailing 12-month basis, was 11.1 per cent at the end of the third quarter of 2023, compared with 12.5 per cent at the end of the third 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 (GAAR) was up 6.4 per cent relative to the prior year due to growth in average active accounts and average account balances. Growth in average active accounts and average account balances were up 2.6 per cent and 3.7 per cent, respectively, in the quarter.
• Financial services gross margin was $210.9-million, down 3.3 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 $125.7-million, down from $139.6-million compared with the prior year.
• Refer to the company's Q3 2023 MD&A sections 4.1.1 and 4.2.1 for information on normalizing items, and sections 4.3.1 and 4.3.2 for additional details on events that have impacted the financial services segment in the quarter.

CT REIT overview:

• Adjusted funds from operations (AFFO) per unit was 30.1 cents, up 3.1 per cent compared with Q3 2022; diluted net income per unit was 4.8 cents, compared with 28.5 cents in Q3 2022.
• The REIT made one new investment, totalling $28-million, which is expected to add approximately 113,000 square feet of incremental gross leasable area (GLA) upon completion.
• For further information, refer to the REIT's Q3 2023 earnings release, issued on Nov. 6, 2023.

Capital allocation

Capital expenditures:

• Operating capital expenditures were $155.1-million in the quarter, compared with $203.2-million in Q3 2022.
• Total capital expenditures were $176.4-million, compared with $231.7-million in Q3 2022.
• Two thousand twenty-three operating capital expenditures are expected to be in the range of $650-million to $700-million, compared with the company's previously disclosed range of $750-million to $800-million. Two thousand twenty-four operating capital expenditures are expected to be in the range of $550-million to $600-million.

Quarterly dividend:

• The company increased its annual dividend for the 14th consecutive year, to $7 per share from $6.90 per share, an increase of approximately 1.5 per cent since last year as a result of the dividend increase approved on Nov. 8, 2023.
• The company declared dividends payable to holders of Class A non-voting shares and common shares at a rate of $1.75 per share, payable on March 1, 2024, to shareholders of record as of Jan. 31, 2024. The dividend is considered an eligible dividend for tax purposes.

Share repurchases:

• On Nov. 10, 2022, the company announced 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 Sept. 30, 2023, the company had repurchased $470-million of its shares in partial fulfilment of its 2022/2023 share repurchase intention.
• On Nov. 9, 2023, the company announced its intention to repurchase up to an additional $200-million of its shares in excess of the amount required for anti-dilutive purposes during 2024.
• The share repurchases will be made under the company's existing normal course issuer bid (NCIB), which expires on March 1, 2024, and thereafter under a renewed NCIB, subject to regulatory approvals.

Resource allocation:

• The company expects a decrease of 3 per cent in full-time equivalent (FTE) employees as a result of targeted headcount reductions in Q4. In addition, the elimination of the majority of current vacancies will result in a further FTE reduction of 3 per cent. Annualized run-rate savings are expected to be approximately $50-million. The company expects to take a charge of between $20-million and $25-million in Q4 2023 in relation to these actions.

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 Thursday, Nov. 9, 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 Canadian Tire 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 services division and CT REIT. Its 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 activewear brands. The company's close to 1,700 retail and gasoline outlets are supported and strengthened by its financial services 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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