Over a century of operation, Canadian Tire (TSX:CTC.A) has gathered an umbrella of banners, including SportChek, Mark’s, and Party City. With its long history, Canadian Tire is an iconic Canadian brand that offers an assortment of products relevant to our lives. There are over 500 Canadian Tire retail locations across Canada with products in Automotive, Playing, Fixing, Seasonal, and Living. Furthermore, it has a large gasoline retailer, Gas+, which has more than 295 locations.
SportChek, as the name suggests, is a large sports retailer. Mark’s is a nice place to shop for casual clothing and workwear. Party City is a one-stop shop for life’s celebrations.
As a consumer discretionary business, Canadian Tire’s earnings will be impacted by consumer preference changes and the ebb and flow of the economic cycle. Typically, during recessions, the stock will fall regardless before actual results are reflected in the earnings.
For example, in the 2020 pandemic market crash, the consumer discretionary stock fell more than 40% from peak to trough, but its earnings per share for the year remained resilient with only a 2% decline, and the stock recovered past the peak before the year end.
The Canadian retailer reported its fourth-quarter (Q4) and full-year 2023 earnings results on Thursday. Here is an overview.
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Canadian Tire: Earnings by the numbers
In the fourth quarter (Q4) of 2023, Canadian Tire’s consolidated comparable sales were down 6.8%, and consolidated retail sales excluding Petroleum declined 6.9%, representing softer consumer demand.
In the press release, the company also noted that “weaker sales in winter categories across all banners due to unseasonable weather across the country in December” — particularly impacting Seasonal and Gardening categories. Automotive ended up being Canadian Tire Retail’s strongest division during the quarter. SportChek comparable sales fell 6.4%, led by declines in outerwear, skis, and snowboards. Mark’s comparable sales dropped 7.2%, primarily in winter weather categories.
For the full year 2023, consolidated retail sales rose 3.9% year over year to $18.5 billion. Excluding Petroleum, consolidated retail sales declined 3.1% and consolidated comparable sales dropped 2.9%. The consolidated revenue fell 6.5% to $16.7 billion. Excluding Petroleum, it was a decline of 6.1%. The normalized earnings per share ended up being $10.37 (down 45% year over year), resulting in a payout ratio of about 67%.
The retail return on invested capital was 7.9% versus 12.5% in 2022 “due to both the decrease in earnings and the increase in average retail invested capital over the prior period,” as the press release explained.
Investing takeaway
So far, Canadian Tire stock is holding up after earnings. At the recent price of $141.78 per share, it trades at a reasonable price-to-earnings ratio of about 11.3. And the 12-month analyst consensus price target represents a discount of about 10%.
Notably, it is a Canadian Dividend Aristocrat with a dividend-growth streak of about 13 consecutive years. For your reference, its five-year dividend-growth rate is 13.9%, and its last dividend hike was 1.4% in November.
Better days will come for Canadian Tire. When consumer demand returns, earnings will rise, and the dividend stock will be able to raise its dividend at a faster pace. Investors must be patient with the stock, and while they wait, they can enjoy a dividend yield of almost 5% today.
