Canadian Tire Corporation is a leading retail company in Canada also having a presence in finance, and real estate businesses.
The company’s retail and financial services businesses include Canadian Tire, PartSource, Petroleum, SportChek, Mark’s, Helly Hansen, CT REIT, and a Financial Services division. Retail is the largest segment accounting for more than 90% of total revenues, while the financial services segment constitutes the remainder.
The financial services segment offers credit cards and other financial products. Canadian Tire has a 76% interest in CT REIT, a closed-end real estate investment trust in Canada, of which it is the primary tenant.
Canadian Tire’s more than a century’s old existence has enabled the company to capture extensive market share and build a loyal customer base. The company operates through its huge network of nearly 1740 retail outlets and gas bars. It provides a wide range of products in the automotive, tools & hardware, home & essentials, sports, and outdoor living categories.
- Opportunity Score: 54
- Ticker: TSE:CTC.A
- Sector: Consumer Cyclical
- Industry: Specialty Retail
- Market Cap: 11.26B
- P/E: 14.91
- Dividend Yield: 2.56%
- Payout Ratio (Earnings): 38.18%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 6/10
- Dividend Income Fit: 6/10
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Revenue Growth & Market Exposure
Most of the Canadian Tire stores are located within high population density areas and serve Canadians from coast to coast. The company is enhancing the customer experience by rolling out home deliveries across the nation, best-in-class store, and digital experience. It is one of the largest e-commerce players in Canada. The company is better placed to address the changing needs and shopping patterns of Canadian shoppers, given its rich experience in the retail industry and a strong portfolio of national and consumer brands.
Customers trust the Canadian Tire brand for its product quality and a leading reputation. A diverse range of products, marketing expertise, dealer network, and a large footprint has enabled Canadian Tire to expand its retail footprint. The company offers a wide assortment of products ranging from automotive, apparel, wholesale, and living, to fixing, sports, and financial. Canadian Tire’s Triangle Rewards is one of its significant assets, imparting customers a seamless and integrated shopping experience across differentiated brands, with more than 10.8 million active Triangle Rewards members and credit cardholders. This further enhances sticky customer relationships.
Canadian Tire is one of Canada’s most-shopped general merchandise retailers. The acquisition of Helly Hansen further provided a platform for international expansion. Its other brands such as Petroleum and Mark’s are amongst the largest independent gasoline retailers and leading apparel and footwear brands, respectively in Canada.
Canadian Tire’s business is diversified in the Retail segment, financial services division, and CT REIT. The company witnessed strong growth in eCommerce sales, strong performance of national brands, and successfully reached 1.8 million customers to the Triangle Rewards program so far in 2020. Canadian Tire’s eCommerce sales grew 142% in the fourth quarter, and the penetration rate more than doubled from 2019 levels.
CTC’s retail sales (excluding petroleum) grew 11% in the last year with a strong performance in the second half of 2020. A strong business model and Triangle rewards program should enhance customer engagement in the future.
Canadian Tire last raised its dividend by 3.3%. It has increased its dividend for 11 consecutive years in a row. This Canadian Dividend Aristocrat has compounded its dividend growth in the double-digit range in the last few years, maintaining a dividend growth rate of 17%+ CAGR in the last decade. It sports a dividend yield of 2.6% and a payout ratio of just 38% currently. A reasonable payout ratio provides enough room for future growth. Canadian Tire is targeting to maintain dividend payments totaling 30% to 40% of prior year normalized earnings. It intends to purchase shares under the 2021-22 NCIB.
Canadian Tire’s earnings per share have grown by more than 11% CAGR in the last decade, driven by strong revenue and margin growth. The company’s earnings are supported by its reputation of being a one-stop-shop for the Canadians for their home and yard needs.
Canadian Tire is focusing on future growth through the expansion of its portfolio of owned brands and product development. Some of the company’s ventures such as the Triangle Rewards, home deliveries, and digital services have supported its earnings growth.
Increased revenue in retail banners and operational efficiencies are also yielding improved margins. Higher retail earnings and lower capital expenditures during the year led to a strong cash position at the year-end. Canadian Tire is targeting future growth from the expansion of the Helly Hansen brand offering in Canada and is well-placed to grow its owned brands through Helly Hansen’s international platform. Superior real estate locations, a national store network, and a strong dealer network are the company’s core strengths.
Canadian Tire Corp. faces intense competition from independent retailers, specialty shops, dealers, bricks and mortar shops as well as online shopping channels. E-commerce websites such as Amazon.com are pressurizing Canadian Tire’s retail business.
Large US retail brands such as Walmart, Costco, Home Depot, Cabela’s are also strong competitors. However, world-class brands and market-leading merchandising strategies differentiate Canadian Tire from its peers.
As a leading retail brand in Canada, Canadian Tire continues to grow through its comprehensive Owned Brands portfolio, developing curated and quality products, acquisitions, and in-house development. It is investing in both store network and digital growth, to drive topline growth. Canadian Tire is transforming itself to focus on being customer-centric and more digitally savvy. The company is well-positioned to compete for the long-term once this pandemic ends.