Canadian Tire Corporation Posts Positive Fourth Quarter and Full Year Results

• Consolidated Revenue up 21.1% in Q4, up 12.7% for the full year 2011
• Excluding a Q4 2010 tax settlement, EPS up 43.1% in Q4, up 17.4% for the full year 2011

TORONTO, Feb. 9, 2012 /CNW/ - Canadian Tire Corporation, Limited (the "Company") (TSX: CTC)(TSX: CTC.a) reported positive results for the fourth quarter and full year 2011. The Company's results, as reported in the attached unaudited interim financial statements, include the operating results of FGL Sports (formerly The Forzani Group Ltd.) from August 19, 2011 and the acquisition-related items.

FOURTH QUARTER

Consolidated revenues totalled $3.1 billion in the quarter, up 21.1% over the fourth quarter of 2010, reflecting the inclusion of FGL Sports and higher retail revenues across all banners.  Diluted earnings per share (EPS) were $2.03 in the quarter. EPS for the same period in 2010 were $2.07, including the positive impact of a tax settlement, which amounted to approximately $0.67 per share. Normalizing for the tax settlement, EPS were up 43.1% in the fourth quarter of 2011 versus Q4 2010.

FULL YEAR

Consolidated revenues totalled $10.4 billion for 2011, up 12.7% versus 2010 as a result of the inclusion of FGL Sports and higher revenues across all retail banners.  Diluted EPS for the full year totalled $5.71, up 5.3% versus 2010. Normalizing for the Q4 2010 tax settlement, EPS were up 17.4%.

"We're very pleased with our results for the quarter and the year," said Stephen Wetmore, President and CEO, Canadian Tire Corp.  "I think our performance was strong despite unseasonable weather in many parts of the country.  As we begin 2012, our 90^th anniversary, we are optimistic about the year ahead and I believe we are pursuing the right priorities across the company to better serve the needs of our customers."

Consolidated financial results
(C$ in millions except per share amounts)					Q4 2011			Q4 2010			Change				YTD 2011			YTD 2010			Change
Retail sales				$	3,707.8		$	3,064.3			21.0%			$	11,596.7		$	10,328.5			12.3%
Revenue					3,135.1			2,588.3			21.1%				10,387.1			9,213.1			12.7%
EBITDA					350.4			285.2			22.9%				1,058.2			996.6			6.2%
Net income					166.3			169.3			(1.7)%				467.0			444.2			5.2%
Basic earnings per share					2.04			2.08			(1.7)%				5.73			5.45			5.3%
Diluted earnings per share					2.03			2.07			(1.7)%				5.71			5.42			5.3%

RETAIL SEGMENT SALES

Consolidated retail sales rose 21.0% in the quarter to $3.7 billion versus Q4 2010. For the year, consolidated retail sales rose 12.3% versus 2010 to $11.6 billion.

Retail sales at Canadian Tire Retail (CTR) increased 2.7% in the quarter versus the same period in 2010 (2.0% for the full year in 2011). Same store sales rose 1.8% in the quarter versus the same period in 2010 (1.1% for the full year in 2011). Sales in the quarter were strong in key Living, Fixing and Playing categories, including kitchen, home organization, paint and tools. Sales of winter tires, light automotive parts and outdoor tools were negatively impacted by unseasonable weather. While Automotive sales were down slightly in the quarter, the category recorded positive growth for the full year.

At Mark's, retail sales grew by 3.1% in the quarter versus the same period in 2010 (3.0% for the full year in 2011). Same store sales were up 3.1% in the quarter versus the same period in 2010 (2.8% for the full year in 2011). Sales in the quarter were driven by strong industrial wear sales. The unseasonable weather negatively impacted men's and women's casual wear sales and margins in the quarter and for the year.

At FGL Sports, corporate same store sales rose 3.8% in the quarter while franchise same store sales fell 5.0% in the fourth quarter compared to the previous year predominantly as a result of unseasonable weather in Quebec.  Overall, same store sales at FGL Sports increased by 0.7% in the quarter versus the same period in 2010 (2.6% since being acquired in August, 2011).  Retail sales increased 0.6% in the quarter versus the same period in 2010 (2.3% since being acquired in August, 2011).

Retail sales at Canadian Tire Petroleum increased by 10.3% in the quarter versus the same period in 2010 (19.0% for the full year in 2011) as a result of higher gas prices.

RETAIL SEGMENT OPERATING PERFORMANCE

Retail segment revenues in the quarter were $2.9 billion, an increase of 23.6% over the fourth quarter of 2010 (14.5% for the full year in 2011). Excluding FGL Sports, revenues grew 5.3% in the quarter versus the same period in 2010 (6.6% for the full year in 2011). The reasons for the revenue increases were similar to those outlined for retail sales in the previous section.

Gross margin dollars increased 27.7% in the quarter versus the same period last year (13.1% for the full year in 2011) predominantly as a result of the inclusion of FGL Sports. Excluding FGL Sports items (operating IBT and acquisition-related items), gross margin dollars increased 1.0% in the quarter versus Q4 2010 (2.3% for the full year in 2011) as a result of higher revenues. Gross margin rate in the Retail segment increased 88 basis points in the fourth quarter compared to the prior year due mainly to the inclusion of FGL Sports.  Excluding FGL Sports items (operating IBT and acquisition-related items), the gross margin rate was 108 basis points lower than the fourth quarter of 2010 (107 basis points lower for the full year in 2011). In the fourth quarter, the gross margin rate was impacted largely by promotional activity at Mark's to drive sales of casual wear in December. For the year, the margin rate decline resulted from the higher contribution of lower-margin Petroleum sales throughout the year and markdowns at Mark's.

Operating expenses in the quarter increased 30.5% versus the fourth quarter of 2010 (16.1% for the full year in 2011) primarily due to the inclusion of FGL Sports. Excluding FGL Sports, operating expenses in the Retail segment increased 2.2% in the quarter versus the fourth quarter of 2010 (4.1% for the full year in 2011).

Income before taxes (IBT) in the Retail segment was $175.2 million in the quarter, 13.5% higher than the same period in 2010. Excluding FGL Sports items (operating IBT and acquisition-related items) and interest income received in relation to the tax settlement in Q4 2010, IBT increased 4.3%. The increase reflected higher revenues, partially offset by lower margin contribution and slightly higher operating expenses.

For the full year 2011, IBT in the Retail segment was $410.8 million, an increase of 6.4% over 2010.  Excluding FGL Sports items (operating IBT and acquisition-related items) and interest income received in relation to the tax settlement in 2010 and 2011, IBT in the Retail segment grew by 1.2%.

The rolling 12-month retail return on invested capital (ROIC) was 7.68% at the end of 2011, compared to 8.32% last year. The difference in ROIC between the two years is predominantly due to the inclusion of the Q4 2010 tax settlement in the ROIC calculation.

FINANCIAL SERVICES SEGMENT

Financial Services had another successful quarter and year. Revenue increased by 1.6% in the quarter versus Q4 2010 (flat for the full year in 2011). As previously disclosed, Auto Club services results were included in Financial Services in 2010 and are now reported in the Retail segment.

Gross margin dollars increased 0.4% in the quarter versus Q4 2010 (decreased 0.8% for the full year in 2011) as revenue increases were partially offset by the effect of loan loss reserves released in 2010.

The rolling 12-month net write-off rate on the credit card loan portfolio was 7.32%, down from 7.49% at the end of 2010.

Financial Services' operating expenses declined 15.9% in the quarter versus Q4 2010 (6.2% for the full year in 2011).

Financial Services' income before taxes was $55.7 million, an increase of 34.6% in the quarter versus the fourth quarter of 2010 (9.2% for the full year in 2011) due to increased revenue and continued management of operating expenses.

The rolling 12-month return on receivables was 5.45%, up from 4.97% from 2010.

CAPITAL EXPENDITURES

Capital expenditures in the fourth quarter of 2011 including FGL Sports were $131.9 million versus $132.5 million in the prior year. For the full year 2011, capital expenditures totalled $364.7 million compared to $339.8 million in 2010.  Excluding FGL Sports, capital spending was in line with the 2011 target. Capital expenditures in 2012 are expected to be in the range of $360 million to $385 million. Excluding FGL Sports, capital spending in 2012 is expected to be in line with the 2011 target.

FUNDING AND LIQUIDITY

Canadian Tire enters 2012 in a strong financial position with ready access to capital through diversified channels, including $1.37 billion in committed lines of credit.  Canadian Tire has no corporate medium term notes maturing in 2012.

2011 REVIEW AND STRATEGIC OUTLOOK FOR 2012

In 2012 - our 90^th anniversary - we will build on the progress made in 2011 in the following key areas:

Strengthen Core Retail:

The Company has launched a number of initiatives to strengthen its core retail business. In 2011, Canadian Tire Retail opened 66 Smart stores in communities across Canada and launched four new-concept automotive stores.  The largest investments in store and automotive staff training in the Company's history were rolled out and new, state-of-the-art technologies were introduced to improve the customer experience both on-line and in stores.   For 2012, a new loyalty program will be launched as a pilot offering customers more rewards and the Company more opportunities to serve them better.  The Company will continue to roll out new Smart stores in communities across the country.  Designed to provide a more inspiring experience for customers, Smart stores feature an enhanced Living department with a broader assortment of the best products and brands Canadian Tire customers are looking for.

Build Strong Business Units and Reinforce the Core:

Canadian Tire's business units continued to improve and strengthen the core in 2011.  Mark's continued its rebranding and 16 stores were completely redesigned to improve the customer experience.  Its popular e-commerce site was relaunched attracting higher than expected holiday sales.  Financial Services expanded its growing roster of payment options by introducing the Equal Payment Plan to make large-ticket purchases easier.  Canadian Tire entered the Home Services market, launching garage door opener and central vacuum system installation services for the added convenience for customers.   In 2012, Mark's will continue to roll out new store formats across the country.  The Company will consider expansion of its Home Services offerings and new financial products across the retail banners.

Build a High-Performing Organization and Boost Productivity:

Productivity and performance remained areas of focus for Canadian Tire in 2011.  Key functions of the Company continued to be centralized in a shared services model resulting in streamlined and improved processes.  Important advancements were made in merchandise procurement, product transportation and store operations to boost Canadian Tire's productivity.  Adoption of new design and technology in stores and operations resulted in reduced energy use, costs and greenhouse gas emissions.  In 2012, the Company will continue to introduce initiatives to maximize efficiencies and mitigate costs.

Create New Platforms for Growth:

FGL Sports was acquired by the Company in 2011 to create Canada's ultimate authority in sports.  FGL's strength in athletic apparel, footwear and equipment complement the Company's strength in sporting goods, making the acquisition an ideal fit.  With over 1,000 sports-related retail locations across Canada, Canadian Tire Corporation is able to serve the needs of sports lovers and athletes at all skill levels.  In 2012, FGL Sports will continue to drive sales, expand the successful "store within a store" concept, seek innovative new ways to connect with customers and realize the synergies identified during the acquisition.

QUARTERLY DIVIDEND

Canadian Tire Corporation has declared a quarterly dividend of $0.30 per share on each Common and Class A Non-Voting share. The dividend is payable on June 1, 2012 to Common and Class A shareholders of record as of April 30, 2012. The dividend is considered an "eligible dividend" for tax purposes.

Consolidated financial results
(C$ in millions except per share amounts)						Q4 2011			Q4 2010			Change				YTD 2011			YTD 2010			Change
Retail sales					$	3,707.8		$	3,064.3			21.0%			$	11,596.7		$	10,328.5			12.3%
Revenue						3,135.1			2,588.3			21.1%				10,387.1			9,213.1			12.7%
Gross margin						938.8			774.1			21.3%				3,060.7			2,791.0			9.7%
Operating expenses						680.8			560.5			21.5%				2,317.0			2,069.6			12.0%
EBITDA						350.4			285.2			22.9%				1,058.2			996.6			6.2%
Depreciation and amortization						86.6			70.5			22.9%				296.1			274.1			8.1%
Net finance costs						32.9			18.9			74.4%				132.2			135.7			(2.6)%
Net income						166.3			169.3			(1.7)%				467.0			444.2			5.2%
Basic earnings per share						2.04			2.08			(1.7)%				5.73			5.45			5.3%
Diluted earnings per share						2.03			2.07			(1.7)%				5.71			5.42			5.3%

 

Retail Segment financial results
(C$ in millions)										Q4 2011			Q4 2010			Change					YTD 2011			YTD 2010			Change
Retail sales									$	3,707.8		$	3,064.3			21.0%				$	11,596.7		$	10,328.5			12.3%
Revenue										2,874.9			2,325.9			23.6%					9,363.5			8,178.9			14.5%
Gross margin										783.9			613.8			27.7%					2,446.7			2,162.7			13.1%
Operating expenses										595.1			456.0			30.5%					1,982.0			1,707.0			16.1%
EBITDA										278.6			226.1			23.4%					768.9			722.8			6.4%
Depreciation and amortization										83.9			68.0			23.6%					285.4			265.2			7.6%
Net finance costs										19.5			3.6			449.4%					72.7			71.4			1.8%
Income before income taxes										175.2			154.5			13.5%					410.8			386.2			6.4%

 

Financial Services' financial results
(C$ in millions)										Q4 2011			Q4 2010			Change				YTD 2011			YTD 2010			Change
Total gross average receivables									$	4,062.1		$	4,038.3			0.6%			$	4,035.5		$	4,041.2			(0.1)%
Revenue										241.6			237.8			1.6%				953.3			953.7			0.0%
Gross margin										136.3			135.7			0.4%				543.7			547.8			(0.8)%
Operating expenses										67.1			79.9			(15.9)%				264.7			282.1			(6.2)%
EBITDA										71.8			59.1			21.1%				289.3			273.8			5.6%
Depreciation and amortization										2.7			2.5			4.2%				10.7			8.9			20.3%
Net finance costs										13.4			15.3			(12.6)%				59.5			64.3			(7.5)%
Income before income taxes										55.7			41.3			34.6%				219.1			200.6			9.2%

 

Retail Segment - by banner
(C$ in millions, except number of stores and gas bars)							Q4 2011			Q4 2010			Change				YTD 2011			YTD 2010			Change
CTR retail sales growth^1							2.7%			0.5%							2.0%			1.4%
CTR same store sales growth^2							1.8%			(0.4)%							1.1%			0.7%
CTR revenue^3						$	1,573.6		$	1,535.5			2.5%			$	5,771.5		$	5,676.4			1.7%
Number of CTR stores^4							488			485							488			485
Mark's retail sales growth^5							3.1%			1.9%							3.0%			3.7%
Mark's same store sales growth^6							3.1%			0.5%							2.8%			1.5%
Mark's revenue^7						$	388.0		$	349.5			11.0%			$	979.5		$	872.6			12.3%
Number of Mark's stores^4							385			383							385			383
Canadian Tire Petroleum retail sales growth							10.3%			12.4%							19.0%			10.2%
Canadian Tire Petroleum gasoline volume (litres) growth							(1.4)%			5.3%							2.1%			1.6%
Canadian Tire Petroleum revenue						$	490.9		$	444.0			10.6%			$	1,981.2		$	1,642.7			20.6%
Canadian Tire Petroleum gross margin						$	36.0		$	35.5			1.5%			$	146.8		$	139.0			5.7%
Number of gas bars							289			287							289			287

 

¹Includes sales from Canadian Tire stores, PartSource stores and the labour portion of CTR's auto service sales

²Includes sales from Canadian Tire and PartSouce stores.  Starting in Q1 2011, CTR same store sales includes sales from the labour portion of CTR's auto service sales.  The Q4 and full year 2010 same store sales metric has been restated to reflect the change in methodology.

³In 2011 certain vendor support funds at CTR are reflected as a reduction in inventory/cost of producing revenue (for the rebates provided by suppliers) and a corresponding reduction in revenue (for amounts passed through to Dealers).  These amounts were previously offset.  This decreased the fourth quarter revenue and cost of producing revenue by approximately $11.8 million with no impact on gross margin dollars of earnings.

⁴Store count numbers reflect individual selling locations, therefore both CTR and Mark's totals include stores that are co-located

⁵Includes retail sales from Mark's corporate stores and franchise stores and, commencing in 2010, ancillary revenue related to embroidery and alteration services.

⁶Excludes new stores, stores not open for 53 weeks, store closures and ancillary revenue

⁷Includes retail sales from Mark's corporate stores.  In 2011 inventory transfers to Mark's franchisees are reflected as revenue with the corresponding inventory cost reflected in cost of producing revenue (previously only the franchise royalty was reflected in revenue).  This increased revenue and cost of producing revenue by approximately $23.4 million with no impact to gross margin dollars or earnings.

 

FGL Sports - sales metrics
(C$ in millions, except number of stores)				Q4 2011							Aug 21, 2011 to December 31, 2011
FGL Sports retail sales growth^1				0.6%							2.3%
FGL Sports same store sales growth^1				0.7%							2.6%
FGL Sports revenue^2			$	426.1						$	645.6
Number of FGL Sports stores				534							534

¹These metrics are calculated using the Company's weekly sales calendar, which begins on Sunday and ends on Saturday.  For 2011, the Sunday after the acquisition date was August 21, 2011 (comparative - August 22, 2010).  The metrics reported are for comparison purposes only as the Company did not own FGL Sports in 2010.

²FGL Sports revenue for the year-to-date includes revenues beginning on August 19, 2011      

  

NORMAL COURSE ISSUER BID

Canadian Tire also announced that it intends to make a normal course issuer bid (NCIB) to purchase from February 19, 2012 to February 18, 2013, through the facilities of the Toronto Stock Exchange (TSX), certain of its outstanding Class A Non-Voting Shares. As at February 8, 2012, there were 78,020,208 Class A Non-Voting shares issued and outstanding. The number of Class A Non-Voting Shares which may be purchased during the period of the bid will not exceed 2.5 million Class A Non-Voting Shares, which is approximately 3.3 percent of 75.3 million shares, the approximate public float of Class A Non-Voting Shares issued and outstanding as of February 8, 2012.

Canadian Tire has a policy of purchasing Class A Non-Voting Shares to offset the dilutive effects of the issuance of Class A Non-Voting Shares pursuant to its deferred profit sharing plan, stock option plan and dividend reinvestment plan, and the deferred profit sharing plan for employees of Canadian Tire Dealers. Canadian Tire intends to continue that policy. In addition, Canadian Tire may purchase additional Class A Non-Voting Shares if the Board of Directors of Canadian Tire determines, after consideration of market conditions and Canadian Tire's financial flexibility and investment opportunities, that a purchase of additional Class A Non-Voting Shares is an appropriate means of enhancing the value of the remaining Class A Non-Voting Shares.

The number of Class A Non-Voting Shares purchased by Canadian Tire during 2011 pursuant to its NCIB was 191,396. The weighted average price at which such purchases were made was $62.25 per Class A Non-Voting Share, including commissions.

Any purchases made by Canadian Tire pursuant to the NCIB will be made in accordance with the rules of the TSX and will be made at the market price of the Class A Non-Voting Shares at the time of the acquisition. No purchases (other than by way of exempt offers, exemption orders or otherwise in accordance with applicable regulations of the TSX) will be made except through open market transactions during the period the NCIB is outstanding. Subject to any block purchases made in accordance with the rules of the TSX, Canadian Tire will be subject to a daily repurchase restriction of 57,217 Class A Non-Voting Shares, which represents 25 percent of the average daily trading volume of Canadian Tire's Class A Non-Voting Shares on the TSX for the six months ended January 31, 2012. The Class A Non-Voting Shares acquired by Canadian Tire pursuant to the NCIB will be restored to the status of authorized and unissued shares.

Canadian Tire's NCIB is subject to regulatory approval.

To view a PDF version of Canadian Tire Corporation's full quarterly earnings report please see: http://files.newswire.ca/116/CTCFinancialsandNotes.pdf

FORWARD-LOOKING STATEMENTS

This document contains forward-looking information that reflects management's current expectations related to matters such as future financial performance and operating results of the Company. Forward-looking statements are provided for the purposes of providing information about management's current expectations and plans and allowing investors and others to get a better understanding of our financial position, results of operation and operating environment. Readers are cautioned that such information may not be appropriate for other circumstances.

All statements other than statements of historical facts included in this document may constitute forward-looking information, including but not limited to, statements concerning management's expectations relating to possible or assumed future prospects and results, our strategic goals and priorities, our actions and the results of those actions and the economic and business outlook for us. Often but not always, forward-looking information can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology. Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable at the date that such statements are made.

By its very nature, forward-looking information requires us to make assumptions and is subject to inherent risks and uncertainties, which give rise to the possibility that the Company's assumptions may not be correct and that the Company's expectations and plans will not be achieved. Although the Company believes that the forward-looking information in this document is based on information and assumptions which are current, reasonable and complete, this information is necessarily subject to a number of factors that could cause actual results to differ materially from management's expectations and plans as set forth in such forward-looking information for a variety of reasons. Some of the factors - many of which are beyond our control and the effects of which can be difficult to predict - include (a) credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, interest rates or tax rates; (b) the ability of Canadian Tire to attract and retain quality employees, Dealers, Canadian Tire Petroleum agents and PartSource, Mark's Work Wearhouse and FGL Sports store operators and franchisees, as well as our financial arrangements with such parties; (c) the growth of certain business categories and market segments and the willingness of customers to shop at our stores or acquire our financial products and services; (d) our margins and sales and those of our competitors; (e) risks and uncertainties relating to information management, technology, supply chain, product safety, changes in law, competition, seasonality, commodity price and business disruption, our relationships with suppliers and manufacturers, changes to existing accounting pronouncements, the risk of damage to the reputation of brands promoted by Canadian Tire and the cost of store network expansion and retrofits and (f) our capital structure, funding strategy, cost management programs and share price. We caution that the foregoing list of important factors and assumptions is not exhaustive and other factors could also adversely affect our results. Investors and other readers are urged to consider the foregoing risks, uncertainties, factors and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such forward-looking information.

For more information on the risks, uncertainties and assumptions that could cause the Company's actual results to differ from current expectations, please refer to the "Risk Factors" section of our Annual Information Form for fiscal 2010 and our 2010 Management's Discussion and Analysis, as well as Canadian Tire's other public filings, available at www.sedar.com and at www.corp.canadiantire.ca.

Statements that include forward-looking information do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made have on the Company's business. For example, they do not include the effect of any dispositions, acquisitions, asset write-downs or other charges announced or occurring after such statements are made.

The forward-looking statements and information contained herein are based on certain factors and assumptions as of the date hereof. The Company does not undertake to update any forward-looking information, whether written or oral, that may be made from time to time by it or on its behalf, to reflect new information, future events or otherwise, unless required by applicable securities laws.

REVIEW BY BOARD OF DIRECTORS

The Canadian Tire Board of Directors, on the recommendation of its Audit Committee, has approved the contents of this disclosure.

CONFERENCE CALL

Canadian Tire will conduct a conference call to discuss information included in this news release and related matters at 4:30 p.m. EST on February 9, 2012. The conference call will be available simultaneously and in its entirety to all interested investors and the news media through a webcast at http://corp.canadiantire.ca/EN/investors, and will be available through replay at this website for 12 months.

ABOUT CANADIAN TIRE

Canadian Tire Corporation, Limited (TSX: CTC, CTC.a) is one of Canada's most-shopped general retailers and the country's largest sporting goods retailer, with more than 1,700 retail and gasoline outlets from coast-to-coast. Our primary retail business categories - Automotive, Living, Fixing, Playing, Sports and Apparel - are supported and strengthened by our Financial Services division, which offers such products and services as Canadian Tire Home Services, credit cards, retail deposits, in-store financing, product warranties, and insurance. Nearly 68,000 people are employed across the Canadian Tire enterprise, which was founded in 1922 and remains one of Canada's most recognized and trusted brands.

 

 

 

 

PDF with caption: "Canadian Tire Corporation's full quarterly earnings report". PDF available at: http://stream1.newswire.ca/media/2012/02/09/20120209_C2693_DOC_EN_9887.pdf

Investors: Angela McMonagle, 416-480-8225 [email protected]

Media: Rob Nicol, 416-480-8414 [email protected]