Canadian Tire Corporation is a leading retail company in Canada having a presence in the retail, 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 larger 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’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 more than 1700 retail outlets and gas bars. It provides a wide range of products in the automotive, tools & hardware, home & essentials, sports, and outdoor living categories.
Canadian Tire also has a 76% interest in CT REIT, a closed-end real estate investment trust in Canada, of which it is the primary tenant.Investment Data
- Opportunity Score: 60
- Ticker: TSE:CTC.A
- Sector: Consumer Cyclical
- Industry: Specialty Retail
- Market Cap: 8.12B
- P/E: 16.04
- Dividend Yield: 3.52%
- Payout Ratio (Earnings): 56.41%
- Chowder Score: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 6/10
- Dividend Income Fit: 6/10
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 have 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 seamless and integrated shopping experience across differentiated brands, with more than 9 million active Triangle Rewards members and 2.1 million active 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 provides a platform for international expansion. Canadian Tire also operates the specialty automotive hard parts banner PartSource and the specialty hockey banner PHL. 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 stake in CT REIT further provides a diversified interest in the real estate business. It generates a distribution yield of 5.6% from the REIT. The company is further diversifying through acquisitions. It acquired Party City’s Canadian business in 2019, adding Canada’s No.1 party supply and celebration destination to its growing retail roster.
The company witnessed a surge of 400% in eCommerce sales across all banners during the latest quarter and delivered exceptional retail sales growth of 9.3% (excluding Petroleum). The company’s performance was adversely affected by retail store closures and falling gas prices during the pandemic.
Canadian Tire last raised its dividend by more than 9%. It has increased its dividend for nine consecutive years in a row. This 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 3.4% and a payout ratio of 56% 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 temporarily suspended its share repurchases and also deferred certain CapEx plans for the year.
Canadian Tire’s earnings per share have grown by more than 10% CAGR in the last five years, 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.
The company is focusing on future growth through the expansion of its portfolio of owned brands and product development. Some of Canadian Tire’s ventures such as the introduction of 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. Canadian Tire is also 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, national store network, and 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 differentiates 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, driving topline growth. The company is well-positioned to compete for the long-term once this pandemic ends.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.