Canada’s largest publicly traded, big-box retailer is withdrawing its ambitious long-term profit target, saying inflation and higher interest rates are hammering consumer demand.
(Bloomberg) — Canada’s largest publicly traded, big-box retailer is withdrawing its ambitious long-term profit target, saying inflation and higher interest rates are hammering consumer demand.
Canadian Tire Corp. is abandoning the goal it set last year of earning C$26 per share by 2025, which would have been more than double its profit in 2019. Economic conditions have changed significantly since the target was established early last year, the Toronto-based company said Thursday.
“With 10 interest rate hikes in less than 18 months and persistent inflation impacting the cost of living and leading to reduced savings cushions, Canadian consumers are experiencing increased financial strain and facing tougher spending decisions,” Chief Executive Officer Greg Hicks told analysts. The shares fell 3.6% to C$167.70 at 11:04 a.m. in Toronto.
The Bank of Canada resumed increasing interest rates in June, saying consumer spending had been stronger than expected and that it needed to hit the brakes on the economy to cool inflation. The latest hike, in July, took the central bank’s policy rate to its highest level in more than 22 years and spurred commercial banks to lift their prime lending rates to 7.2%.
Canadian Tire’s analysis of its own data of suggests that “debt-burdened” households cut their spending on discretionary goods with the company “significantly” during the quarter, Hicks said. The trend was especially pronounced in British Columbia and Ontario, which have the country’s highest home prices.
Canadian Tire’s main business is its namesake chain of stores that sell hardware, auto parts, housewares and other goods. Some of those locations also offer vehicle maintenance. The company also owns SportChek, a sporting-goods and apparel chain, and other smaller retailers that offer work clothing and party supplies in Canada.
Revenue was C$4.26 billion ($3.2 billion) in the quarter, down 3.4% from a year earlier but broadly matching estimates. Retail sales were down 2.8%.
Canadian Tire also jettisoned its goals of generating comparable sales growth of more than 4% a year and a return on invested capital of at least 15% in its retail business.
What Bloomberg Intelligence Says
Canadian Tire’s withdrawal of long-term guidance signals stubbornly difficult economic conditions that will likely weigh on consumer demand for the next few quarters. We had doubts about the company’s ability to reach its profit goal of C$26 a share by 2025 without a significant increase in buybacks, expecting more normal operating leverage. The retailer’s C$3.4 billion investment to modernize, improve fulfillment and accelerate digital capabilities may bring sales in line with the overall industry in coming years amid increased competition, where it vies with better-established e-commerce players.
— Bloomberg Intelligence analyst Diana Rosero-Pena
–With assistance from Stephanie Hughes.
(Adds comment from Bloomberg Intelligence analyst)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.