Retail companies struggle during economic downturns for obvious reasons. As inflation and interest rates rise, the goal of the Bank of Canada is for consumers to cut back. This will decrease inflation, but in the process, retailers start to struggle.
Well, not all retailers, perhaps.
There is one retailer that continues to prove why it’s one of the top long-term holds on the market, with over 100 years of growth behind it. Let’s get into why investors may want to consider Canadian Tire (TSX:CTC.A) for their watchlist.
100 years and counting
Investors looking at a deal among retail stocks should consider Canadian Tire stock. The company has over 100 years of brand recognition, becoming one of the most trusted and widely known companies in Canada.
Part of its success comes from becoming a diversified business in that time. It does everything from retail stores to gas stations, financial services to auto repair. This alone helps considerably in managing the retail stock’s risk.
Furthermore, the company continues to offer both a growing dividend and an attractive valuation. So, if you are looking for a deal on a dividend, the company certainly offers it.
Earnings come in strong
During the company’s first-quarter earnings report for 2023, Canadian Tire stock managed to continue strong earnings, despite a number of negative factors. This included a fire at a distribution centre, a mild winter, and a slow spring. Yet even so, as proven during the pandemic, the company continued to have a strong position among Canadians, giving it a competitive advantage.
Sales were down 2.5% year over year during these challenging times, with consolidated income before income taxes falling to $66.6 million because of the tire, but even without the fire, income was still down. Revenue came in at $3.7 billion compared to $3.8 billion the year before.
“The Financial Services business historically makes a significant contribution to Canadian Tire Corporation’s performance in the first quarter, and this quarter was no different. The strength of our teams and our diligent focus on our Better Connected strategy leaves us confident in our ability to deliver long term returns for shareholders and value to our customers,”
Greg Hicks, president and chief executive officer, Canadian Tire Corporation
Recovering economy; rebounding stock
Canadian Tire stock remains down from its poor first-quarter earnings. However, this could provide investors with a strong growth opportunity. The fire was certainly a setback but not a repeatable one. What’s more, after a slow season and lower sales, consumers are coming back — and just in time for second-quarter earnings.
Yet even with all this, shares of Canadian Tire stock are up about 8% in the last year. This was in part helped by a partnership with Microsoft in recent months as well. The company continues to identify ways of bringing more customers in, which it was able to achieve, even during the pandemic and with supply-chain disruptions hurting every other retailer out there.
Shares of Canadian Tire stock now trade at just 12.57 times earnings, with a 3.72% dividend yield. It’s up 17% year to date, with the potential for more as earnings come around the corner. So, it’s certainly a retail stock to consider before a full economic recovery.
