Canadian Tire ‘bullish’ on auto parts and service as consumers focus on essentials

Canadian Tire Corp. Ltd. capped its centennial year with strong growth in its automotive business as demand for auto parts and service helped offset softer spending on non-essential items, the company said Thursday.

The standout performance of its auto division underscored a broader consumer focus on essential goods and services across the company’s banners as inflation erodes discretionary incomes in Canada.

Canadian Tire, which includes its namesake Canadian Tire stores, PartSource, Mark’s and SportChek, said its consolidated comparable sales rose slightly in its fourth quarter, up 0.3 per cent compared against hefty gains posted in the same period a year ago.

At its Canadian Tire chain, comparable sales were flat in the quarter compared with the prior year as a sharp spending pullback on non-essential items like bikes and kayaks was tempered by strong automotive parts sales and service.

“The automotive division once again posted strong growth as it has done for 10 consecutive quarters now,” chief financial officer Gregory Craig told a conference call with financial analysts.

“Automotive was up five per cent and auto maintenance and light auto parts did particularly well both at Canadian Tire and PartSource.”

TJ Flood, president of the Canadian Tire retail store, said the chain is investing in new technology to “modernize the auto service experience for customers.”

Customers will be able to book service appointments online and communicate directly via text message with technicians, who will be equipped with new auto service tablets, he said.

“When you think about the average age of the fleet in Canada, it’s getting older because of the shortage of new cars,” Flood said. “That really provides a lot of tailwind for us. We’re very bullish about automotive as we go forward here.”

Overall, Canadian Tire said it earned net income attributable to shareholders of $531.9 million or $9.09 per diluted share for the 13-week period ended Dec. 31, up from $508.5 million or $8.34 per diluted share a year earlier.

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Revenue totalled $5.34 billion, up from $5.14 billion in the same quarter a year earlier.

SportChek comparable sales fell 1.7 per cent in the quarter. Greg Hicks, CEO of Canadian Tire Corp., said softening consumer demand and milder weather resulted in lower sales in categories like outerwear, skiing and snowboarding.

Also, aggressive promotions offered by brands like Nike and Adidas in their direct-to-consumer stores and online prompted SportChek to offer sales earlier in the year than usual, he said.

“When Nike or Adidas’ (business to consumer) stores mark down the same inventory that we’re carrying in our stores, it becomes pretty difficult for us not to react,” Hicks said.

Meanwhile, Helly Hansen revenue gained 20.6 per cent compared with a year earlier amid strong sportswear, workwear and e-commerce sales, he said.

Mark’s — formerly Mark’s Work Wearhouse — saw comparable sales rise 4.3 per cent as demand for national brands like Carhartt, Levi’s and Skechers rounded out sales of its private labels like Dakota, Denver Hayes and WindRiver.

The company plans to expand its industrial workwear assortment and will test a new Mark’s “pro store” concept this year, Hicks said.

Across the company’s banners, consumer spending has softened since September and is expected to remain muted for the first six months of 2023, he said.

“We are expecting a more constrained demand environment as we look forward,” Hicks told analysts.

At the Canadian Tire retail chain, there is evidence of “trade down” from more expensive products to more affordable items, he said.

Through data collected through its credit card users and Triangle rewards loyalty program, Hicks said spending patterns have changed in some surprising ways.

“Higher income Triangle members spending growth softened in the quarter relative to previous quarters,” he said, adding that higher income households participated in more discretionary spending during the pandemic.

But lower- and middle-income earners accelerated spending, Hicks said.

“We think these are bullish indicators of our increased relevance in a tougher economic backdrop,” he said. “We can provide value to lower income segments of the market.”

This report by The Canadian Press was first published Feb. 16, 2023.

Companies in this story: (TSX:CTC.A, TSX:CTC)

Brett Bundale, The Canadian Press