Consolidated 2008 2007(2)
Highlights(1): 3rd Quarter 3rd Quarter Change
-------------------------------------------------------------------------
Retail sales $2.61 billion $2.43 billion 7.3%
Gross operating revenue $2.26 billion $2.05 billion 10.2%
Adjusted earnings before
income taxes (excludes
non-operating gains and
losses)(3) $158.4 million $153.2 million 3.4%
Net earnings $108.6 million $102.2 million 6.3%
Adjusted net earnings
(excludes non-operating
gains and losses)(3) $115.5 million $102.5 million 12.7%
Basic earnings per share $1.33 $1.25 6.3%
Adjusted basic earnings
per share (excludes
non-operating gains and
losses)(3) $1.42 $1.26 12.7%
(1) All dollar figures in this table are rounded.
(2) The 2007 earnings figures have been restated for implementation, on a
retrospective basis, of the CICA HB 3031-Inventories. Please refer to
Note 2 in the Consolidated Financial Statements.
(3) Non-GAAP measure. Please refer to section 14.0 of Management's
Discussion and Analysis.
TORONTO, Nov. 6 /CNW/ - Canadian Tire Corporation, Limited (CTC, CTC.a)
released its third quarter results today. In a simultaneous news release, the
Company announced the appointment of Stephen Wetmore as its next president and
CEO effective the beginning of 2009. Tom Gauld will retire from the role at
the end of this year and will continue as a member of the Board of Directors.
Despite challenging economic conditions, the company reported a 7.3%
increase in retail sales and a 6.3% increase in net earnings compared to the
same period in 2007. Adjusted net earnings were $115.5 million, a 12.7%
increase over the previous year. The growth in adjusted earnings during the
quarter reflects strong quarterly performance in Canadian Tire Retail and
Financial Services, as well as benefits from lower effective tax rates.
"Given the challenging market conditions, we are pleased with third
quarter sales and the continuing strong sales momentum during the month of
October," said Tom Gauld, president and CEO, Canadian Tire Corporation. "The
positive sales trends in Canadian Tire Retail stores reflect improvements in
our pricing and promotional strategies which will continue through the fourth
quarter. Financial Services' earnings growth is also expected to remain strong
throughout the remainder of 2008 reflecting the impact of our recent card
relaunch and stable aging trends in past due accounts."
Business Overview
CANADIAN TIRE RETAIL (CTR)
Q3 Q3 YTD YTD
($ in millions) 2008 2007(1) Change 2008 2007(1) Change
-------------------------------------------------------------------------
Retail
sales(2) $1,860.3 $1,787.4 4.1% $5,253.6 $5,171.9 1.6%
Same store
sales(3)
(year-over-
year % change) 2.0% (2.7)% (0.5)% 0.0%
Gross
operating
revenue $1,399.3 $1,304.0 7.3% $4,032.7 $3,889.8 3.7%
Net shipments
(year-over-
year % change) 7.6% 1.4% 3.8% 3.1%
Earnings
before income
taxes and
minority
interest $94.0 $94.9 (1.0)% $222.6 $221.4 0.6%
-------------------------------------------------------------------------
Less adjustment
for:
Gain/loss on
disposals of
property and
equipment(4) (0.3) 6.6 3.7 10.3
Former CEO
retirement
obligations 0.2 0.2 1.1 (6.5)
-------------------------------------------------------------------------
Adjusted
earnings
before income
taxes and
minority
interest(5) $94.1 $88.1 6.9% $217.8 $217.6 0.1%
-------------------------------------------------------------------------
(1) 2007 figures have been restated for implementation, on a
retrospective basis, of the CICA HB 3031-Inventories. Please refer to
Note 2 in the Consolidated Financial Statements.
(2) Includes sales from Canadian Tire stores, PartSource stores, sales
from CTR's online web store and the labour portion of CTR's auto
service sales.
(3) Same store sales include sales from all stores that have been open
for more than 53 weeks.
(4) Includes fair market value adjustments and impairments on property
and equipment.
(5) Non-GAAP measure. Please refer to section 14.0 in Management's
Discussion and Analysis.
CTR's retail sales increased 4.1% over the same quarter in 2007
reflecting an increase in sales across all three lines of business. CTR
experienced a 20% increase in fall/winter seasonal categories driven by strong
early sales in winter tires and snow throwers and an increase across kitchen
and storage and organization. Overall same store sales were up 2.0% compared
to the third quarter in 2007.
CTR's third quarter adjusted earnings before taxes were $94.1 million, up
6.9% compared to a year ago due to strong shipment growth.
CTR opened three new stores in the quarter, all of which were replacement
stores. Two of the stores were CTR's new small store format with a fully
integrated Mark's Work Wearhouse.
During the fourth quarter, CTR will open the first two Smart stores in
Welland and Orleans, Ontario, which are expected to significantly enhance the
customer shopping experience and showcase core CTR growth categories in a new
and exciting way.
PartSource experienced another quarter of sales growth driven primarily
by strong commercial sales. PartSource acquired six new corporate stores, two
of which were converted to the PartSource brand at the end of the quarter.
PartSource also converted one franchise store to a corporate store and opened
one new hub store during the quarter, bringing the network total to 82
locations.
CANADIAN TIRE PETROLEUM (Petroleum)
Q3 Q3 YTD YTD
($ in millions) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Sales volume
(millions of
litres) 414.5 434.3 (4.6)% 1,257.9 1,287.0 (2.3)%
Retail sales $550.2 $451.3 21.9% $1,541.1 $1,308.6 17.8%
Gross operating
revenue $519.3 $424.0 22.5% $1,456.9 $1,232.4 18.2%
Earnings before
income taxes $7.5 $7.9 (5.5)% $20.5 $16.8 22.3%
-------------------------------------------------------------------------
Less adjustment
for:
Loss on
disposals of
property and
equipment(1) (0.1) (0.7) (0.3) (2.0)
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(2) $7.6 $8.6 (12.2)% $20.8 $18.8 11.0%
-------------------------------------------------------------------------
(1) Includes asset impairment losses.
(2) Non-GAAP measure. Please refer to section 14.0 in Management's
Discussion and Analysis.
Higher fuel prices drove a 4.6% decrease in gasoline sales volumes.
Petroleum's gross operating revenue totaled $519.3 million during the
quarter, a 22.5% increase over the $424.0 million in the comparable 2007
period, reflecting a significant increase in pump prices during the quarter
and a 10.7% increase in convenience store sales.
Petroleum recorded pre-tax earnings of $7.5 million compared to $7.9
million a year ago, based on continued stable margins and good expense
management. While adjusted earnings were down 12.2% from $8.6 million this
time last year, compared to historical norms, this represents a strong
quarterly performance.
Petroleum opened two new gas stations and rebranded two gas stations
during the quarter. The business also refurbished seven gas stations and
rebuilt one existing location during the period.
MARK'S WORK WEARHOUSE (Mark's)
Q3 Q3 YTD YTD
($ in millions) 2008 2007(1) Change 2008 2007(1) Change
-------------------------------------------------------------------------
Total retail
sales $194.5 $189.5 2.6% $600.1 $589.1 1.9%
Same store
sales(2)
(year-over-
year % change) (1.0)% 0.6% (2.0)% 7.2%
Gross operating
revenue(3) $168.7 $159.8 5.5% $516.8 $499.1 3.5%
-------------------------------------------------------------------------
Earnings (loss)
before income
taxes $(0.3) $6.2 (104.1)% $4.2 $31.0 (86.3)%
-------------------------------------------------------------------------
Less adjustment
for:
Loss on
disposal of
property and
equipment (0.3) (0.2) (0.4) (0.8)
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(4) $0.0 $6.4 (99.2)% $4.6 $31.8 (85.4)%
-------------------------------------------------------------------------
(1) 2007 figures have been restated for implementation, on a
retrospective basis, of the CICA HB 3031-Inventories. Please refer to
Note 2 in the Consolidated Financial Statements.
(2) Mark's same store sales exclude new stores, stores not open for the
full period in each year and store closures.
(3) Gross operating revenue includes retail sales at corporate stores
only.
(4) Non-GAAP measure. Please refer to section 14.0 in Management's
Discussion and Analysis.
Mark's third quarter total retail sales grew to $194.5 million, a modest
increase of 2.6% from the $189.5 million recorded a year ago. While sales
overall were challenging during the quarter, Mark's mature industrial wear
business led corporate store sales growth, with a 10.1% increase over last
year driven principally by men's industrial footwear and accessories.
Adjusted pre-tax earnings were $6.4 million lower than the same 2007
period due to lower margins related to promotional activity to clear seasonal
merchandise and continued investments in network expansion and longer term
growth and productivity initiatives.
During the quarter, Mark's opened three new stores, bought back four
franchise stores, expanded one store and relocated seven stores.
CANADIAN TIRE FINANCIAL SERVICES (Financial Services)
Q3 Q3 YTD YTD
($ in millions) 2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Total managed
portfolio
end of
period $4,002.3 $3,717.4 7.7%
Gross
operating
revenue $197.8 $187.2 5.6% $608.0 $555.6 9.4%
Earnings
before
income taxes $47.0 $43.7 7.4% $144.4 $157.7 (8.5)%
-------------------------------------------------------------------------
Less adjustment
for:
Gain on
disposal/
redemption
of shares - - - 18.4
Net effect
of
securitization
activities(1) (9.1) (6.3) 7.7 (3.8)
Loss on
disposals of
property and
equipment (0.6) (0.1) (0.6) (0.3)
-------------------------------------------------------------------------
Adjusted
earnings
before income
taxes(2) $56.7 $50.1 13.0% $137.3 $143.4 (4.3)%
-------------------------------------------------------------------------
(1) Includes initial gain/loss on the sale of loans receivable,
amortization of servicing liability, change in securitization reserve
and gain/loss on reinvestment.
(2) Non-GAAP measure. Please refer to section 14.0 in Management's
Discussion and Analysis in our 2007 Financial Report.
Financial Services' total managed portfolio of loans receivable was $4.0
billion at the end of the third quarter, a 7.7% increase over the $3.7 billion
portfolio at the end of the comparable 2007 period.
Financial Services' gross operating revenue was $197.8 million in the
quarter, a 5.6% increase over the $187.2 recorded in the prior year.
Adjusted pre-tax earnings for the quarter were $56.7 million or 13.0%
higher than the third quarter of 2007. The increase in earnings in the third
quarter was due to higher receivable balances in the quarter and tight
controls on operating expenses.
The net write-off rate for the total managed portfolio on a rolling
12-month basis was 6.04%, compared to 5.87% in the comparable 2007 period.
Overall aging of past due accounts is comparable to the same period in 2007
and 2006.
For Financial Services, a number of new actions have been taken to
mitigate future credit risk exposure which may arise due to current economic
conditions including: reducing credit limits for cardholders; enhancing
predictive scorecards to identify high risk customer behaviour; and further
enhancing collection strategies.
Financial Services continued its investment in the retail banking pilot
and at quarter-end had more than $128 million in high rate savings,
approximately $90 million in broker deposits, (net of liquidity reserves)
which on average, have a maturity of three years and $102 million in
mortgages.
2008 EARNINGS AND CAPITAL FORECAST
The Company confirms its expectation that earnings per share for 2008
will be in the range of $4.75 to $5.05, excluding non-operating items.
The fourth quarter of the year is the most significant for CTR and Mark's
due to the concentration of sales and shipment activity for the Christmas
season. While it is reasonable to expect that the current economic environment
could affect consumer behaviour, the quarter has started strongly for CTR,
with strong sales and same store sales performance in October resulting from
continued improvements in pricing and promotional activity.
As a result of the Corporation's long-standing currency hedging programs,
CTR's product purchasing in US funds will be largely sheltered from the recent
significant weakening of the Canadian dollar for the balance of 2008 and well
into 2009.
Ongoing effective management of credit risk points to strong fourth
quarter earnings for Financial Services based on the anticipated level of
provisions necessary for doubtful accounts. Expected growth from the card
relaunch earlier this year and very effective expense management will also
contribute to earnings growth.
Should economic conditions continue to deteriorate, rolling write off
rates may be outside the normal range of 5.0% to 6.0%. However, because of
ongoing productivity initiatives it is anticipated that returns on receivables
will remain at the upper end of the targeted range of 4.5% to 5.0% for 2008.
Total capital commitments for 2008 have been reduced to approximately
$543 million on a gross basis. As previously announced, two sale/leaseback
transactions, including a total of 13 CTR properties in locations across the
country, were completed for proceeds of $214 million in the third quarter.
FUNDING UPDATE
While overall credit market conditions in Canada remain challenging, the
Corporation has substantial sources of liquidity to support its retail and
financial services growth plans, including committed bank lines totaling
approximately $1.22 billion from major Canadian and other banks. These credit
facilities are committed until close to the end of fiscal 2009 and are
currently renewed on a quarterly basis.
In addition to the above bank lines, the following additional sources of
funding contribute to a strong liquidity position:
- Continued growth in high rate savings and broker deposits as part of
Financial Services banking activities;
- An authorized medium term note program of up to $750 million of which
$300 million has been utilized; and
- An authorized commercial paper program of $800 million, which is
backed dollar for dollar by the above noted bank lines, in support of
both Glacier Credit Card Trust ("Glacier") and the Corporation of
which $367 million was outstanding at the end of the quarter
The broker deposit channel makes Canadian Tire Bank non-cashable GIC's,
with 1 to 5 year terms, available to customers of established deposit brokers.
Broker deposits, which have grown, as of November 4th to $382 million
(net of liquidity reserves), have reduced the Corporation's dependency on the
securitization market for longer term funding.
In addition to all of these sources of funding the Corporation continues
to look at creating additional financial flexibility through:
- The addition of further committed bank lines for which it is in
active discussion with its current bankers and other lenders.
- Select real estate transactions at cost effective rates.
For Glacier, the 2003 five year term notes totaling $570 million mature
in November 2008 and will be repaid in late November from funds already on
deposit. In terms of refinancing, the asset-backed term securitization market
in Canada is currently inactive due to market conditions, Glacier does,
however anticipate being able to access this market when conditions improve,
based on the quality of the assets held by the Trust and the past performance
of the program.
As a result of current market conditions, the cost of funding for all
Canadian corporations has increased. However, as at the end of the quarter,
approximately 93% of the Corporation's and Glacier's funding rates were fixed,
thus sheltering it to a substantial degree from the impact of this cost
increase. Because of this significant fixed component of funding needs,
management estimates that the total impact on an annualized basis of expected
current or future funding cost increases, due to higher rates and fees, is not
material to the Corporation's consolidated earnings.
FORWARD-LOOKING STATEMENTS
This disclosure contains statements that are forward-looking. Actual
results or events may differ materially from those forecasted in this
disclosure because of the risks and uncertainties associated with Canadian
Tire's business and the general economic environment. Risks and uncertainties
are disclosed in other public filings by the Company, such as Management's
Discussion and Analysis ("the MD&A") and the 2007 Financial Report and
include, but are not limited to: changes in interest, currency exchange and
tax rates; the ability of Canadian Tire to attract and retain quality
employees, Associate Dealers, Petroleum agents and PartSource and Mark's Work
Wearhouse store operators and franchisees; and the willingness of customers to
purchase the Company's merchandise, financial products and services.
Risk factors associated with the assumptions that underlie Canadian
Tire's forecasted performance in 2008 that have the potential to affect the
operating performance and results of the Company's divisions are outlined in
Section 11.2 of the MD&A.
The Company has developed its 2008 forecast on the assumption that there
will not be a material deviation in the risks described in the MD&A compared
to the current operating environment. The Company cannot provide any assurance
that forecasted financial or operational performance will actually be
achieved, or if it is, that it will result in an increase in the price of
Canadian Tire shares.
REVIEW BY BOARD OF DIRECTORS
The Canadian Tire Board of Directors, on the recommendation of its Audit
Committee, has approved the contents of this disclosure.
CONFERENCE CALL
Canadian Tire will conduct a conference call to discuss information
included in this news release and related matters at 4:30 p.m. EDT on
Thursday, November 6th, 2008. The conference call will be available
simultaneously and in its entirety to all interested investors and the news
media through a webcast at http://investor.relations.canadiantire.ca, and will
be available through replay at this website for 12 months.
Canadian Tire Corporation, Limited (TSX: CTC.a, CTC), operates more than
1,180 general merchandise and apparel retail stores and gas stations in an
inter-related network of businesses engaged in retail, financial services and
petroleum. Canadian Tire Retail, Canada's most shopped general merchandise
retailer, with 473 stores operated by dealers across Canada offers a unique
mix of products and services through three specialty categories in which the
organization is the market leader - Automotive, Sports and Leisure, and Home
Products. www.canadiantire.ca offers Canadians the opportunity to shop online.
PartSource is an automotive parts specialty chain with 82 stores designed to
meet the needs of purchasers of automotive parts - professional automotive
installers and serious do-it-yourselfers. Canadian Tire Petroleum is one of
the country's largest and most productive independent retailers of gasoline,
operating 269 gas bars, 262 convenience stores and kiosks, and 74 car washes.
Mark's Work Wearhouse is one of the country's leading apparel retailers
operating 364 stores in Canada. Under the Clothes that Work(TM) marketing
strategy, Mark's sells apparel and footwear in work, work-related, casual and
active-wear categories, as well as health-care and business-to-business
apparel. www.marks.com offers Canadians the opportunity to shop for Mark's
products online. Canadian Tire Financial Services has issued over five million
Canadian Tire MasterCard credit cards and also markets related financial
products and services for retail and petroleum customers. Canadians can also
access Financial Services online at www.ctfs.com. More than 57,000 Canadians
work across Canadian Tire's organization from coast-to-coast in the
enterprise's retail, financial services, and petroleum businesses.
Management's discussion and analysis (MD&A)
-------------------------------------------------------------------------
Introduction
This Management's Discussion and Analysis (MD&A) provides management's
perspective on our Company, our performance and our strategy for the future.
We, us, our, Company and Canadian Tire
In this document, the terms "we", "us", "our", "Company" and "Canadian
Tire" refer to Canadian Tire Corporation, Limited and its business units and
subsidiaries.
Review and approval by the Board of Directors
The Board of Directors, on the recommendation of its Audit Committee,
approved the contents of this MD&A on November 6, 2008.
Quarterly and annual comparisons in this MD&A
Unless otherwise indicated, all comparisons of results for the third
quarter (13 weeks ended September 27, 2008) are against results for the third
quarter of 2007 (13 weeks ended September 29, 2007).
Restated figures
Certain of the prior period's figures have been reclassified or restated
to conform to the current year's presentation or to be in accordance with the
adoption of the Canadian Institute of Chartered Accountants (CICA) new
accounting standards. Please refer to notes 2 and 16 in the Notes to the
Consolidated Financial Statements for further information.
Accounting estimates and assumptions
The preparation of consolidated financial statements that conform with
Canadian generally accepted accounting principles (GAAP) requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of the
Consolidated Financial Statements and the reported amounts of revenue and
expenses during the reporting period. We calculate our estimates using
detailed financial models that are based on historical experience, current
trends and other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from those estimates. In our
judgment, none of the estimates highlighted in note 1 in the Notes to the
Consolidated Financial Statements for the quarter ended September 27, 2008
requires us to make assumptions about matters that are highly uncertain. For
these reasons, none of the estimates is considered a "critical accounting
estimate" as defined in Form 51-102F1 published by the Ontario Securities
Commission.
Forward-looking statements
This MD&A contains statements that are forward-looking. Actual results or
events may differ materially from those forecasted in this disclosure because
of the risks and uncertainties associated with Canadian Tire's business and
the general economic environment. In addition to the principal risks
identified and discussed in detail in MD&A sections 9.0 to 9.3 of the 2007
Financial Report, there are other external factors that could affect our
results. These include, but are not limited to: changes in interest rates,
currency exchange rates and tax rates; the ability of Canadian Tire to attract
and retain quality employees, Dealers, Canadian Tire Petroleum(TM) (Petroleum)
agents and PartSource(R) and Mark's Work Wearhouse(R) (Mark's) store operators
and franchisees; and the willingness of customers to shop at our stores or
acquire our financial products and services. Please also refer to section 11.2
of this MD&A which identifies some of the operational risks that can affect
our businesses.
We cannot provide any assurance that forecasted financial or operational
performance will actually be achieved, or if it is, that it will result in an
increase in the price of Canadian Tire shares.
1.0 Our Company
1.1 Overview of the business
Canadian Tire has been in business for over 85 years, offering everyday
products and services to Canadians through its growing network of interrelated
businesses. Canadian Tire, our Dealers, store operators, franchisees and
Petroleum agents operate more than 1,180 general merchandise and apparel
retail stores and gas bars. The Canadian Tire Financial Services(R) (Financial
Services) division of the Company also markets a variety of financial services
to Canadians, primarily its proprietary Options(R) MasterCard(R), personal
loans, lines of credit, insurance and warranty products, and a retail banking
pilot offering products to customers in certain test markets.
Canadian Tire's model of interrelated businesses provides market
differentiation and competitive advantage. Canadian Tire's businesses benefit
from the Company's key capabilities in merchandising, marketing and
advertising, supply chain and real estate, which enable us to achieve a
greater level of efficiency. Canadian Tire's primary loyalty program,
Canadian Tire 'Money'(R) - shared by Canadian Tire Retail (CTR), Financial
Services and Petroleum - is an example of how interrelationships between the
businesses create a strong competitive advantage for the Company.
The success of the loyalty program has proven - through high customer
acceptance and redemption - to be a key element of Canadian Tire's total
customer value proposition and is designed to drive higher total sales across
CTR, Financial Services and Petroleum. For example, a customer who fills up
with gas at Petroleum's gas bars and uses Canadian Tire credit cards spends
considerably more at Canadian Tire stores, on average, than a customer who
only shops at Canadian Tire stores.
Mark's has derived meaningful cost and operating synergies from Canadian
Tire's strengths in real estate and supply chain since its acquisition by the
Company in 2002. The Company co-locates Mark's and Canadian Tire stores in
certain locations and, where appropriate, has been extending its national
marketing and advertising channels to boost customer traffic and loyalty to
Mark's and increase its brand penetration.
1.2 Operational synergies
All of our businesses benefit from strategic and operational synergies
including real estate management, supply chain, merchandising, marketing and
advertising. Meaningful cost savings are also derived through Canadian Tire's
collective buying power and economies of scale, and we are continually
enhancing our customer value proposition by creating promotions and reward
programs to increase customer loyalty.
Canadian Tire's four main businesses are described below.
CTR is Canada's most shopped general merchandise retailer with a network
of 473 Canadian Tire stores that are operated by Dealers, who are independent
business owners. Dealers buy merchandise from the Company and sell it to
consumers in Canadian Tire stores. CTR also includes our online shopping
channel and PartSource. PartSource is a chain of 82 specialty automotive hard
parts stores that cater to serious "do-it-yourselfers" and professional
installers of automotive parts. The PartSource network consists of 34
franchise stores and 48 corporate stores.
Mark's is one of Canada's leading clothing and footwear retailers,
operating 364 stores nationwide, including 321 corporate and 43 franchise
stores that offer men's wear, women's wear and industrial wear. Mark's
operates under the banner "Mark's", and in Quebec, "L'Equipeur(R)". Mark's
also conducts a business-to-business operation under the "Imagewear by Mark's
Work Wearhouse(R)" brand.
Petroleum is Canada's largest independent retailer of gasoline with a
network of 269 gas bars, 262 convenience stores and kiosks, 74 car washes, 13
Pit Stops and 85 propane stations. The majority of Petroleum's sites are
co-located with Canadian Tire stores as a strategy to attract customers to
Canadian Tire stores. Substantially all of Petroleum's sites are operated by
agents.
Financial Services markets a range of Canadian Tire branded credit cards,
including the Canadian Tire Options MasterCard, Commercial Link(R)
MasterCard(R) and Gas Advantage(R) MasterCard(R). Financial Services also
markets personal loans, lines of credit, insurance and warranty products as
well as guaranteed investment certificates (GICs) offered through third-party
brokers and an emergency roadside assistance service called Canadian Tire
Roadside Assistance(R). Canadian Tire Bank(R) (CTB), a wholly-owned
subsidiary, is a federally regulated bank that manages and finances Canadian
Tire's consumer MasterCard and retail credit card portfolios, as well as the
personal loan and line of credit portfolios. CTB also offers high interest
savings accounts, GICs and residential mortgages in three pilot markets as
well as the Canadian Tire One-and-Only(TM) account which offers customers the
opportunity to pay down their loan balances faster by consolidating their
chequing, savings, loans and mortgage loan balances into one account.
1.3 Store network at a glance
September 27, September 29,
Number of stores and retail square footage 2008 2007
-------------------------------------------------------------------------
Consolidated store count
CTR retail stores(1) 473 468
PartSource stores 82 68
Mark's retail stores(1) 364 348
Petroleum gas bar locations 269 265
-------------------------------------------------------------------------
Total stores 1,188 1,149
Consolidated retail square footage (in millions)
CTR retail square footage 18.4 17.1
PartSource retail square footage 0.3 0.2
Mark's retail square footage 3.1 2.9
-------------------------------------------------------------------------
Total retail square footage(2) 21.8 20.2
-------------------------------------------------------------------------
(1) Store count numbers reflect individual selling locations; therefore,
CTR and Mark's store count numbers each include stores that are co-
located on the same property.
(2) The average retail square footage for Petroleum's convenience stores
was 400 square feet per store in 2007 and has not been included in
the total above.
2.0 Our Strategic Plan
2.1 Rolling Five-Year Strategic Plan to 2012 (2012 Plan)
The 2012 Plan outlines our strategy to build a Bigger and Better Canadian
Tire through a continued focus on growth and productivity from a consolidated
perspective. The key initiatives of the 2012 Plan include network expansion
across all of our retail businesses (CTR, PartSource and Mark's), store
concept renewals and the continued testing of our retail banking products.
Other initiatives to improve productivity include upgrading our automotive
supply chain, renewing our technology infrastructure and streamlining our
organizational design.
Specific objectives related to these programs are included in section 3.3
of this MD&A and section 3.0 of the MD&A contained in the 2007 Financial
Report.
2.2 Financial aspirations
The 2012 Plan includes financial aspirations for the Company for the
five-year period ending in 2012. These aspirations are not to be construed as
guidance or forecasts for any individual year within the 2012 Plan, but rather
as long-term, rolling targets that we aspire to achieve over the life of the
2012 Plan, based on the successful execution of our various initiatives.
Financial aspirations 2012 Plan
-------------------------------------------------------------------------
Same store sales
(simple average of annual percentage growth,
CTR stores only) 3% to 4%
Gross operating revenue
(compound annual growth rate) 6% to 8%
Retail sales
(compound annual growth rate) 6%+
Adjusted earnings per share(1)
(compound annual growth rate) 10%+
After-tax return on invested capital
(annual simple average) 10%+
-------------------------------------------------------------------------
(1) Excludes gains and losses on real estate and the net effect of
securitization activities, gain on disposal/ redemption of investment
and former CEO retirement obligation.
3.0 Our performance in 2008
3.1 Consolidated financial results
($ in
millions
except
per share Q3 Q3 YTD YTD
amounts) 2008 2007(1) Change 2008 2007(1) Change
-------------------------------------------------------------------------
Retail
sales(2) $2,605.0 $2,428.2 7.3% $7,394.8 $7,069.6 4.6%
Gross
operating
revenue 2,257.5 2,049.2 10.2% 6,533.5 6,101.0 7.1%
EBITDA(3) 223.9 218.0 2.7% 615.4 614.9 0.1%
Earnings
before
income taxes 148.2 152.7 (2.9)% 391.7 426.9 (8.2)%
Effective
tax rate 26.7% 33.1% 30.3% 34.3%
Net earnings $ 108.6 $ 102.2 6.3% $ 273.0 $ 280.4 (2.6)%
Basic
earnings
per share $ 1.33 $ 1.25 6.3% $ 3.35 $ 3.44 (2.7)%
Adjusted
basic
earnings per
share(3) $ 1.42 $ 1.26 12.7% $ 3.26 $ 3.32 (1.9)%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) 2007 figures have been restated for the implementation, on a
retrospective basis, of CICA HB 3031 - Inventories. See section 13.1
for additional information.
(2) Represents retail sales at CTR (which includes PartSource), Mark's
corporate and franchise stores and Petroleum's sites.
(3) See section 14.0 for non-GAAP measures.
Highlights of top-line performance by business
(year-over-year percentage change) Q3 2008 Q3 2007
-------------------------------------------------------------------------
CTR retail sales(1) 4.1% (0.7)%
CTR gross operating revenue 7.3% 1.3%
CTR net shipments 7.6% 1.4%
Mark's retail sales 2.6% 3.9%
Petroleum retail sales 21.9% 0.0%
Petroleum gasoline volume (litres) (4.6)% (1.5)%
Financial Services' credit card sales 14.0% 10.9%
Financial Services' gross average receivables 6.5% 7.2%
-------------------------------------------------------------------------
(1) Includes sales from Canadian Tire stores, PartSource stores and CTR's
online web store and the labour portion of CTR's auto service sales.
Gross operating revenue
During the third quarter of 2008, all of our businesses contributed to
the 10.2 percent increase in consolidated gross operating revenue, including
higher CTR shipment volume to Dealers, increased sales at Petroleum and Mark's
and receivables growth at Financial Services. Financial Services growth was
driven by both increased transaction volume and higher loan account balances.
Increased Petroleum revenues were a function of sustained higher retail
gasoline prices as well as strong convenience store sales. Revenue growth at
Mark's was attributable to the ongoing expansion of the store network.
Net earnings
Third quarter consolidated net earnings increased by 6.3 percent, despite
challenging economic conditions, reflecting strong adjusted earnings
performance at both CTR and Financial Services, as well as benefits
attributable to a lower effective tax rate. These were partially offset by
decreased earnings at Mark's which experienced a lower gross margin rate and
higher costs associated with the ongoing network expansion and increased
infrastructure.
Earnings before income taxes were negatively impacted by non-operating
items, as noted below.
Impact of non-operating items
The following tables show our adjusted consolidated earnings on a pre-tax
and after-tax basis.
Adjusted consolidated earnings before income taxes(1)
Q3 Q3 YTD YTD
($ in millions) 2008 2007(2) Change 2008 2007(2) Change
-------------------------------------------------------------------------
Earnings
before
income taxes $ 148.2 $ 152.7 (2.9)% $ 391.7 $ 426.9 (8.2)%
Less pre-tax
adjustment
for:
Gain on
disposal of
shares - - - 18.4
Former CEO
retirement
obligation(3) 0.2 0.2 1.1 (6.5)
Net effect of
securitization
activities(4) (9.1) (6.3) 7.7 (3.8)
Gain (loss) on
disposals of
property and
equipment (1.3) 5.6 2.4 7.2
-------------------------------------------------------------------------
Adjusted
earnings
before
income
taxes(1) $ 158.4 $ 153.2 3.4% $ 380.5 $ 411.6 (7.5)%
-------------------------------------------------------------------------
(1) See section 14.0 on non-GAAP measures.
(2) 2007 figures have been restated for the implementation, on a
retrospective basis, of CICA HB 3031 - Inventories. See section 13.1
for additional information.
(3) See section 3.3.1 on CTR's performance.
(4) Includes initial gain/loss on the sale of loans receivable,
amortization of servicing liability, change in securitization reserve
and gain/loss on reinvestment.
Adjusted consolidated net earnings after tax(1)
($ in
millions
except
per share Q3 Q3 YTD 2007
amounts) 2008 2007(2) Change 2008 YTD(2) Change
-------------------------------------------------------------------------
Net earnings $ 108.6 $ 102.2 6.3% $ 273.0 $ 280.4 (2.6)%
Less after-tax
adjustment
for:
Gain on
disposal of
shares - - - 12.0
Former CEO
retirement
obligation 0.2 0.2 0.8 (4.2)
Net effect
of
securitization
activities(3) (6.2) (4.1) 5.2 (2.5)
Gain (loss)
on disposals
of property
and equipment (0.9) 3.6 1.6 4.7
-------------------------------------------------------------------------
Adjusted net
earnings
after
tax(1) $ 115.5 $ 102.5 12.7% $ 265.4 $ 270.4 (1.8)%
-------------------------------------------------------------------------
Basic earnings
per share $ 1.33 $ 1.25 6.3% $ 3.35 $ 3.44 (2.7)%
Adjusted
basic
earnings per
share(1) $ 1.42 $ 1.26 12.7% $ 3.26 $ 3.32 (1.9)%
-------------------------------------------------------------------------
(1) See section 14.0 on non-GAAP measures.
(2) 2007 figures have been restated for the implementation, on a
retrospective basis, of CICA HB 3031 - Inventories. See section 13.1
for additional information.
(3) Includes initial gain/loss on the sale of loans receivable,
amortization of servicing liability, change in securitization reserve
and gain/loss on reinvestment.
Included in the adjusted earnings table above, the tax provision was
impacted favourably by the net effect of adjustments to taxes on the sale and
leaseback of various properties and revisions to the estimate of tax
provisions. See section 9.0 for further details.
Seasonal impact
The second quarter and fourth quarters of each year are typically when we
experience stronger revenues and earnings in our retail businesses because of
the seasonal nature of some merchandise at CTR and Mark's and the timing of
marketing programs. The following table shows our financial performance by
quarter for the last two years.
Consolidated quarterly results(1)
($ in millions except per
share amounts) Q3 2008 Q2 2008 Q1 2008 Q4 2007
-------------------------------------------------------------------------
Gross operating revenue $2,257.5 $2,450.7 $1,825.3 $2,503.1
Net earnings 108.6 97.7 66.7 131.3
Basic earnings per share 1.33 1.20 0.82 1.61
Diluted earnings per share 1.33 1.20 0.82 1.61
-------------------------------------------------------------------------
($ in millions except per
share amounts) Q3 2007 Q2 2007 Q1 2007 Q4 2006
-------------------------------------------------------------------------
Gross operating revenue $2,049.2 $2,314.1 $1,737.7 $2,426.1
Net earnings 102.2 122.5 55.7 108.3
Basic earnings per share 1.25 1.50 0.68 1.33
Diluted earnings per share 1.25 1.50 0.68 1.32
-------------------------------------------------------------------------
(1) 2007 quarterly results have been restated for the implementation, on
a retrospective basis, of CICA HB 3031 - Inventories. See section
13.1 for additional information. 2006 results have not been restated
as the information required to calculate the restatement on a
quarterly basis is not readily available.
3.2 Business unit Q3 2008 performance overview
-------------------------------------------------------------------------
Canadian Tire Retail Mark's Work Wearhouse
-------------------------------------------------------------------------
Q3 2008 Performance highlights Q3 2008 Performance highlights
- continued development of - opened three new corporate stores
store network, now with a (two of which are co-located with
total of 473 stores including a CTR store), relocated seven
223 20/20 stores and two stores, bought back four
small market stores that franchise stores which were
opened in the pilot phase; converted to corporate stores,
- continued development of new and closed three stores;
store formats; and - increased total retail space
- replaced two traditional by approximately eight percent
stores with two new small year-over-year; store network
market stores and replaced totals 364 locations; and
one new-format store with a - continued focus on Clothes That
CTR-Mark's 20/20 store, the Work campaign, with the
Mark's component of which introduction of three new Clothes
will open in October 2008. That Work items during the
quarter.
PartSource Q3 2008 performance
highlights
- acquired six corporate stores
(two of which were converted
to the PartSource banner);
- opened one new hub store, and
converted one franchise store
to a corporate store; and
- approximately 12 percent
year-over-year increase in
retail square footage.
-------------------------------------------------------------------------
Canadian Tire Financial Services Petroleum
-------------------------------------------------------------------------
Q3 2008 Performance highlights Q3 2008 Performance highlights
- continued testing of the - growth of network to 269 gas bars
retail banking initiative; and 262 convenience stores;
- completion of the Options - refurbished seven gas bars and
MasterCard relaunch; and replaced one gas bar as part of
- continued increases in gross the initiative to improve the
average receivables for the overall customer experience at
total managed portfolio. Petroleum's sites; and
- grew convenience store business
by 10.7 percent over the prior
year, despite record high
gasoline prices.
-------------------------------------------------------------------------
The following sections outlining the Company's business segment
performance highlight the respective segments' achievements to date against
key initiatives identified in the 2012 Strategic Plan. The initiatives have
been divided into those contributing to building a "Bigger" Canadian Tire and
those designed to create a "Better" Canadian Tire.
In this context, "Bigger" is intended to convey the objective of
achieving increased sales and market share primarily through network growth,
new stores and new products. "Better" is intended to convey the objective of
improved productivity, service levels and rates of return.
3.3 Business segment performance
3.3.1 Canadian Tire Retail
3.3.1.1 Q3 2008 Strategic Plan performance
The following outlines CTR's performance for the third quarter of 2008 in
the context of our 2012 Strategic Plan.
-------------------------------------------------------------------------
Initiatives to build a "BIGGER" Canadian Tire
-------------------------------------------------------------------------
New store program
20/20 has been the cornerstone of CTR's growth agenda since 2003. This
program is now largely complete and CTR is developing new store concepts
which are designed to build on the successes of the 20/20 store with a
greater focus on improving sales and productivity. Plans for 2008 include
opening two of the new "smart" stores that will have the same focus of
improving sales and productivity, as well as providing a more exciting
customer experience, and four small market stores with the further goal
of expanding our presence in smaller markets.
-------------------------------------------------------------------------
2008 Key initiatives 2008 Performance
-------------------------------------------------------------------------
Third quarter
With the substantial completion
of the 20/20 program in 2008, During the third quarter CTR replaced
CTR's strategy is to test the two existing traditional stores with
next versions of the CTR store. two new small market stores and
This includes completion of the replaced one existing new-format
new small market stores and new store with a CTR-Mark's 20/20
"smart" stores which will be an combination store, the Mark's
important aspect of the 2012 Plan. component of which will open in
October 2008. All of the stores
opened in the quarter incorporate a
full-size Mark's store inside.
The store network now totals 473
stores, 39 of which include a Mark's
component, with a 40th scheduled to
open in October 2008.
-------------------------------------------------------------------------
Customers for Life
Canadian Tire is committed to building customer loyalty through fostering
a positive, consistent and memorable customer experience. During 2007,
Canadian Tire began working on a new strategic model for the organization
that will lead to a stronger focus on customer service and improvements
in generating Customers for Life.
-------------------------------------------------------------------------
2008 Key initiatives 2008 Performance
-------------------------------------------------------------------------
CTR is committed to generating Third quarter
consistent and coherent customer
service measures, tracking and The Customer Satisfaction Index (CSI)
performance. was successfully developed, piloted
and rolled out in 2007. The
collecting of data for 2008
continued, as planned, completing
approximately two-thirds of the data
gathering for the year. The Dealer
relations team has also continued
working with the Canadian Tire
Dealers Association to address issues
that will improve the overall process
and survey results.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
PartSource network expansion
PartSource will continue its expansion into new markets through a
combination of new stores and small-scale acquisitions. PartSource's
strategy to buy small local businesses and convert them to the PartSource
banner has proven successful, with high rates of customer retention after
conversion.
-------------------------------------------------------------------------
2008 Key initiatives 2008 Performance
-------------------------------------------------------------------------
Key initiatives for PartSource Third quarter
include building CTR as a new
commercial account for emergency During the quarter, PartSource
shipments, updating the continued making significant progress
organizational structure, testing on building the CTR commercial
new operating systems and account and is now used by 170
launching a new auto parts Canadian Tire stores for emergency
catalogue. auto parts. Progress on this
initiative will continue building
throughout the year.
PartSource acquired six new corporate
stores (of which two had been
rebranded to the PartSource banner by
the end of the quarter), opened one
new hub store, relocated and/or
retrofitted two existing stores into
hub stores and converted one
franchise store to a corporate store
during the quarter. This brings the
network total to 82 stores, including
seven hub stores.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Initiatives to build a "BETTER" Canadian Tire
-------------------------------------------------------------------------
Automotive Infrastructure initiative
CTR has made revitalizing its cornerstone automotive business a key
priority over the 2012 Plan period and began to roll out Phase One of
this project in 2007 through opening two PartSource hub stores. Regional
hub stores are larger than traditional PartSource stores and are designed
to provide a broader assortment of automotive parts to service both
Canadian Tire and PartSource customers on an as needed basis. In
addition, the Company is investing in physical distribution
infrastructure and re-engineering customer facing processes and enabling
technologies.
-------------------------------------------------------------------------
2008 Key initiatives 2008 Performance
-------------------------------------------------------------------------
The Automotive Infrastructure Third quarter
initiative is an important factor
in CTR's future growth and Progress on the Automotive
involves a significant investment Infrastructure initiative included:
in fixed assets, working capital
and the redesign of core processes Emergency supply implementation:
and enabling technologies. - opened PartSource hub stores in
Pickering, Ontario; Sudbury,
Ontario and Edmonton, Alberta,
bringing the total number of hub
stores to seven.
Corporate assortment expansion:
- proceeded with the physical
retrofit of the Vaughan auto
parts distribution centre to
accommodate a significantly
larger auto parts assortment;
- increased auto parts SKU count by
10 percent;
- completed testing of a new, state
of the art warehouse management
system in the Vaughan auto parts
distribution centre.
Enabling technologies:
- signed agreement with core
software provider to secure
licenses and professional
services;
- completed level two process
designs and constructed a
software test environment for
in-depth training.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CTR Change program
During 2007, CTR began to implement its multi-year productivity effort
with projects designed to overhaul and upgrade internal processes and IT
systems. As the benefits of these projects begin to unfold, we will be
able to make faster and better decisions and improve our agility and
speed to market.
-------------------------------------------------------------------------
2008 Key initiatives 2008 Performance
-------------------------------------------------------------------------
CTR will implement Third quarter
productivity/control initiatives
in the areas of pricing and Progress made on the CTR change
product hierarchy to streamline program in the third quarter
and strengthen operations and included:
improve organizational structures - continued implementation of new
and efficiencies. pricing system across the
merchandising division;
- continued implementation of
Master Data Management
infrastructure for CTR's core
data;
- began design of new promotional
planning system;
- continued work on vendor
management capability; and
- began initiative to review
organizational design in
merchandising and marketing
areas.
-------------------------------------------------------------------------
3.3.1.2 Key performance indicators
The following are key measures of CTR's sales productivity:
- total same store sales growth;
- average retail sales per store; and
- average sales per square foot of retail space
CTR total retail and same store sales
(year-over-year percentage change) Q3 2008 Q3 2007 2008 YTD 2007 YTD
-------------------------------------------------------------------------
Total retail sales(1) 4.1% (0.7)% 1.6% 2.0%
Same store sales(2) 2.0% (2.7)% (0.5)% 0.0%
-------------------------------------------------------------------------
(1) Includes sales from Canadian Tire and PartSource stores, sales from
CTR's online web store and the labour portion of CTR's auto service
sales.
(2) Includes sales from Canadian Tire and PartSource stores, but excludes
sales from CTR's online web store and the labour portion of CTR's
auto service sales.
CTR's retail sales
Retail sales represent total merchandise sold at retail prices and the
labour portion of automotive sales to consumers across CTR's network of
stores, including CTR's online web store and PartSource.
CTR same store sales by store format
(year-over-year percentage change) Q3 2008 Q3 2007 2008 YTD 2007 YTD
-------------------------------------------------------------------------
Same store sales(1)
20/20 stores 2.9% 0.0% 0.4% 3.1%
New-format stores 0.6% (4.8)% (1.7)% (2.1)%
Traditional stores 2.4% (5.0)% (0.9)% (2.3)%
-------------------------------------------------------------------------
(1) Excludes sales from PartSource stores, CTR's online web store and the
labour portion of CTR's auto service sales.
-------------------------------------------------------------------------
CTR's same store sales
Same store sales include sales from all stores that have been open for
more than 53 weeks.
-------------------------------------------------------------------------
As our store network continues to evolve, we will be introducing new store
formats into our store class categories. In this 2008 third quarter MD&A, we
continue to report three separate classes of stores, defined as follows:
-------------------------------------------------------------------------
20/20 stores New-format stores Traditional stores
(mid 2003 to 2008) (1994 to mid 2003) (1994 and prior)
Average retail square Average retail square Average retail square
footage: 53,000 footage: 31,000 footage: 16,000
-------------------------------------------------------------------------
Larger format launched Large format, including Smaller than either the
in September 2003, "Class Of" and "Next new-format or 20/20
ranging in size from Generation" stores, stores on average.
approximately 18,000 to ranging in size from Traditional stores are
89,000 square feet 16,000 to 66,000 square characterized by varied
(excluding the Mark's feet, most of which were sizes and layouts.
component of Mark's- opened between 1994 and Traditional stores make
inside-a-CTR store). mid 2003. New-format up approximately seven
20/20 stores make up stores make up percent of the retail
approximately 65 percent approximately 28 percent square footage in the
of the retail square of the retail square network.
footage of the network. footage in the network.
See section 3.3.1.1, This format immediately
Q3 2008 Strategic Plan preceded the 20/20 format.
performance for more
information on the
20/20 rollout.
-------------------------------------------------------------------------
20/20 stores represented approximately 65 percent of CTR's retail square
footage and 58 percent of total retail sales in the third quarter of 2008.
CTR store count
Q3 2008 2007 2006 2005 2004
-------------------------------------------------------------------------
20/20 stores(1) 225 192 126 53 25
New-format stores(2) 167 189 237 292 302
Traditional stores 81 92 105 117 130
-------------------------------------------------------------------------
Total new-format,
traditional and 20/20
stores 473 473 468 462 457
PartSource stores 82 71 63 57 47
-------------------------------------------------------------------------
(1) The 20/20 store total in 2008 includes seven 20/20 Mark's-inside-a-
CTR stores (the Mark's component of one will open in October 2008),
two small market stores which have been opened in pilot phase and 28
CTR-Mark's combination 20/20 stores.
(2) New-format store total in 2008 includes three CTR-Mark's combination
stores.
CTR continues to expand and retrofit its store network with a focus on
converting older format stores to the new formats. The 20/20 store format will
be completed by the end of 2008 and new formats consistent with the goals of
the 2012 Plan will be piloted in 2008 and rolled out in subsequent years.
Average retail sales per Canadian Tire store(1),(2)
For the For the
12 months 12 months
ended ended
September September
($ in millions) 27, 2008 29, 2007
-------------------------------------------------------------------------
20/20 stores $ 19.2 $ 19.6
New-format stores 13.5 13.7
Traditional stores 7.9 8.1
-------------------------------------------------------------------------
(1) Retail sales are shown on a 52-week basis in each year and exclude
sales from PartSource stores, CTR's online web store and the labour
portion of CTR's auto service sales.
(2) Only includes stores that have been open for a minimum of two years
as at the end of the quarter.
The 20/20 stores experience higher customer traffic and increases in
average transaction value compared to previous store formats as customers
spend more time browsing in these stores.
Average sales per square foot of Canadian Tire retail space(1),(2),(3)
For the For the
12 months 12 months
ended, ended,
September September
27, 2008 29, 2007
-------------------------------------------------------------------------
Retail square footage(1),(3) (millions of
square feet) 18.4 17.1
20/20 stores(2),(3) $ 365 $ 374
New-format stores(2),(3) 437 444
Traditional stores(2),(3) 492 503
-------------------------------------------------------------------------
(1) Retail square footage is based on the total retail square footage
including stores that have not been open for a minimum of two years
as at the end of the quarter.
(2) Retail sales are shown on a 52-week basis in each year for those
stores that have been open for a minimum of two years as at the end
of the current quarter. Sales from PartSource stores, CTR's online
web store and the labour portion of CTR's auto service sales are
excluded.
(3) Retail space does not include warehouse, garden centre and auto
service areas.
The two tables above show a year-over-year decrease in retail sales per
store and retail sales per square foot. The decrease is partially due to the
significant number of new-format and 20/20 stores that are excluded from the
calculation as they have not been open, in that format, for a period of two
years. Once the stores have been open for two years, they are included once
again in the average sales metrics.
Average sales per square foot of retail space in the larger store formats
are lower than in traditional stores because additional space is designed to
display more merchandise, accommodate wider aisles, include more appealing
product displays and provide a more compelling shopping experience overall.
The larger 20/20 stores and new-format stores do however, on average, generate
more total sales and have a lower operating cost for Dealers per retail square
foot.
CTR retail sales
Third quarter
CTR's third quarter same store sales increased by 2.0 percent and retail
sales increased 4.1 percent over the same quarter of 2007. The positive sales
performance reflected increases in our home, leisure and automotive businesses
and increases in both our regular and promotional sales when compared to the
third quarter of 2007. Retail sales were also positively affected by
improvements in non-seasonal categories and by strong early season results in
fall/winter categories, driven by winter tires and snowthrowers and an
increase across kitchen, storage and organization.
While our retail stores continue to be influenced by the challenging
economic conditions that are currently affecting Canada, CTR experienced
increased retail sales in all provincial markets during the third quarter with
stronger sales experienced in Quebec and Eastern Canada and weaker sales
results in Alberta and in BC than in past quarters. In particular, retail
sales were up 8.2 percent for the quarter in Quebec and are up 2.8 percent on
a year-to-date basis.
PartSource experienced another quarter of year-over-year sales increases
driven by both the continued expansion of the network and growth in the
commercial customer segment. In addition, PartSource shipments to Dealers
continue to increase as components of the Automotive Infrastructure initiative
project are rolled out.
3.3.1.3 CTR's financial results
($ in millions) Q3 2008 Q3 2007(1) Change 2008 YTD 2007 YTD(1) Change
-------------------------------------------------------------------------
Retail sales $1,860.3 $1,787.4 4.1% $5,253.6 $5,171.9 1.6%
Net shipments
(year-over-year
% change) 7.6% 1.4% 3.8% 3.1%
Gross operating
revenue $1,399.3 $1,304.0 7.3% $4,032.7 $3,889.8 3.7%
EBITDA(2) 152.8 148.5 2.8% 398.0 376.7 5.6%
-------------------------------------------------------------------------
Earnings before
income taxes 94.0 94.9 (1.0)% 222.6 221.4 0.6%
Less adjustment
for:
Gain (loss) on
disposals of
property and
equipment (0.3) 6.6 3.7 10.3
Former CEO
retirement
obligation 0.2 0.2 1.1 (6.5)
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(2) $ 94.1 $ 88.1 6.9% $ 217.8 $ 217.6 0.1%
-------------------------------------------------------------------------
(1) 2007 earnings figures have been restated for the implementation, on a
retrospective basis, of CICA HB 3031 - Inventories. Please refer to
section 13.1 for additional information.
(2) See section 14.0 on non-GAAP measures.
CTR's net shipments
-------------------------------------------------------------------------
CTR's net shipments are the total value of merchandise shipped to
Canadian Tire and PartSource stores, and through our online web store,
less discounts and net of returns. Shipments to stores are recorded at
the wholesale price that we charge to our Dealers and PartSource
franchisees.
-------------------------------------------------------------------------
Explanation of CTR's financial results
Third quarter
Third quarter gross operating revenue increased 7.3 percent compared to
the third quarter of 2007, primarily as a result of higher net shipments to
Dealers, particularly in the automotive and home categories.
Adjusted pre-tax earnings in CTR increased 6.9 percent in the third
quarter principally due to an increase in product shipments. This was
partially offset by a slight decline in the margin rate primarily due to
aggressive promotional activity and product mix. Third quarter earnings also
included $2.7 million of incremental expenses to support long-term
productivity and growth initiatives, including the Automotive Infrastructure
initiative and Information Technology Renewal, which will provide long-term
benefits.
3.3.1.4 Business risks
CTR is exposed to a number of risks in the normal course of its business
that have the potential to affect its operating performance. The following are
some of the business risks specific to CTR's retail and other operations.
Please also refer to section 9.0 of our 2007 Financial Report for a discussion
of some other industry-wide and Company-wide risks affecting the business.
Supply chain disruption risk
An increasing portion of CTR's product assortment is being sourced from
foreign suppliers, lengthening the supply chain and extending the time between
order and delivery to CTR's warehouses. Accordingly, CTR is exposed to
potential supply chain disruptions due to foreign supplier failures,
geopolitical risk, labour disruption or insufficient capacity at ports, and
risks of delays or loss of inventory in transit. The Company mitigates this
risk through effective supplier selection and procurement practices, strong
relationships with transportation companies, port and other shipping
authorities, supplemented by marine insurance coverage.
Seasonality risk
CTR derives a significant amount of its revenues from the sale of
seasonal merchandise and, accordingly, bears a degree of risk from
unseasonable weather patterns. CTR mitigates this risk, to the extent
possible, through the breadth of our product mix as well as effective
procurement and inventory management practices.
Environmental risk
Environmental risk within CTR is primarily associated with the handling
and recycling of certain materials, such as tires, paint, oil and lawn
chemicals, sold in Canadian Tire and PartSource stores. The Company has
established and follows comprehensive environmental policies and practices to
avoid a negative impact on the environment, protect CTR's reputation and
comply with environmental laws.
3.3.2 Mark's Work Wearhouse
3.3.2.1 Q3 2008 Strategic Plan performance
The following outlines Mark's performance for the third quarter of 2008
in the context of our 2012 Strategic Plan.
-------------------------------------------------------------------------
Initiatives to build a "BIGGER" Canadian Tire
-------------------------------------------------------------------------
Network expansion
A critical aspect of Mark's growth plan revolves around its objective of
capturing an increasingly significant share of overall apparel sales in
each geographic market in which Mark's competes. To increase Mark's
market presence, the Company plans to continue with its aggressive goal
of expanding the network of Mark's stores.
-------------------------------------------------------------------------
2008 Key initiatives Q3 2008 Performance
-------------------------------------------------------------------------
Mark's will continue network Third quarter
development through opening new
stores, relocating or expanding - opened three new corporate
existing stores and renovating stores, two of which are
older stores to the newest Mark's co-located inside a CTR
format. store;
- expanded one corporate store;
- relocated six corporate
stores and one franchise
store;
- bought back and converted
four franchise stores to
corporate stores; and
- closed three corporate stores.
Mark's total retail square
footage at the end of the
quarter was 3.1 million square
feet.
-------------------------------------------------------------------------
New store concepts
In addition to adding incremental stores to the total network, Mark's is
in the process of developing new store concepts that will be rolled out
over the Plan period.
-------------------------------------------------------------------------
2008 Key initiatives Q3 2008 Performance
-------------------------------------------------------------------------
Mark's will continue to expand the Third quarter
store network by developing new
and innovative ways to bring Mark's opened two new
Clothes That Work to consumers Mark's-inside-a-CTR stores as
across the country, resulting in part of CTR's small market store
an increased physical presence network expansion (included in
across the geographic regions of total above).
Canada.
-------------------------------------------------------------------------
Initiatives to build a "BETTER" Canadian Tire
-------------------------------------------------------------------------
Category expansion
Mark's has set aggressive growth goals for the 2012 Plan period which
will be supported by its plans for category expansion in its three major
product lines. Although growth was modest in 2007 and the first three
quarters of 2008, women's wear is still expected to be the fastest
growing segment of the business over the plan period as it is the least
developed of the Mark's main category lines. Improvements in the product
assortment in the women's wear category are expected to bring continued
growth during the Plan period.
-------------------------------------------------------------------------
2008 Key initiatives Q3 2008 Performance
-------------------------------------------------------------------------
In 2008, Mark's will continue to Third quarter - corporate sales
expand its product assortment in - sales of industrial wear
the three main categories of increased by 10.1 percent;
apparel and footwear with a focus - sales of women's wear
on the Clothes That Work campaign. increased by 5.2 percent; and
- sales of men's wear decreased
by 0.2 percent.
Mark's continued to focus on the
Clothes That Work campaign with
the introduction of three new
Clothes That Work items during the
quarter.
-------------------------------------------------------------------------
3.3.2.2 Key performance indicators
The following are key performance indicators for Mark's:
- retail and same store sales growth;
- average sales per corporate store; and
- average sales per square foot of retail space
Mark's retail and same store sales growth
(year-over-year
percentage change) Q3 2008 Q3 2007 2008 YTD 2007 YTD
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Total retail sales 2.6% 3.9% 1.9% 9.9%
Same store sales(1) (1.0)% 0.6% (2.0)% 7.2%
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(1) Mark's same store sales excludes new stores, stores not open for the
full period in each year and store closures.
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Mark's retail sales
Mark's retail sales represent total merchandise sales to consumers and
business-to-business customers, net of returns, across Mark's entire
network of stores, fulfillment centres and Mark's online web store,
recorded at retail prices.
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Third quarter
Mark's retail sales during the third quarter of 2008 continued to be
impacted by further softening of retail and economic conditions across many
parts of Canada. Despite these factors, retail sales increased 2.6 percent due
to expansion in the store network. Same store sales growth decreased slightly
compared to the third quarter of 2007. Men's industrial footwear demonstrated
the largest dollar sales increase in corporate store sales in the third
quarter, along with positive sales performance in men's accessories, women's
sweaters, men's workwear and men's casual footwear categories.
Average corporate store sales(1)
For the For the For the
12 months 12 months 12 months
ended, ended, ended,
September September September
27, 2008 29, 2007 30, 2006
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Average retail sales per store
($ thousands)(2) $ 2,712 $ 2,862 $ 2,623
Average sales per square foot ($)(3) 318 341 331
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(1) Calculated on a rolling 12-month basis.
(2) Average retail sales per corporate store include corporate stores
that have been open for 12 months or more.
(3) Average sales per square foot is based on sales from corporate
stores. We have prorated square footage for corporate stores that
have been open for less than 12 months.
Mark's continues to focus on productivity at its stores. Due to the
softening retail environment in Canada during 2008, there was a decrease in
the current rolling 12 months average sales per store and average sales per
square foot. This followed strong nine percent and three percent year-over-
year increases in those respective measures for the two previous periods due
to the factors noted above in the retail sales discussion.
3.3.2.3 Mark's financial results
($ in millions) Q3 2008 Q3 2007(1) Change 2008 YTD 2007 YTD(1) Change
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Retail sales(2) $ 194.5 $ 189.5 2.6% $ 600.1 $ 589.1 1.9%
Gross operating
revenue(3) 168.7 159.8 5.5% 516.8 499.1 3.5%
EBITDA(4) 6.7 11.7 (41.6)% 24.4 46.4 (47.4)%
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Earnings (loss)
before income
taxes (0.3) 6.2 (104.1)% 4.2 31.0 (86.3)%
Less adjustment for:
Loss on
disposals of
property and
equipment (0.3) (0.2) (0.4) (0.8)
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Adjusted earnings
before income
taxes(4) $ 0.0 $ 6.4 (99.2)% $ 4.6 $ 31.8 (85.4)%
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(1) Mark's 2007 results have been restated for the implementation, on a
retrospective basis, of CICA HB 3031 - inventories. Please refer to
section 13.1 for additional information.
(2) Includes retail sales from corporate and franchise stores.
(3) Gross operating revenue includes retail sales at corporate stores
only.
(4) See section 14.0 on non-GAAP measures.
Explanation of Mark's financial results
Third quarter
Mark's pre-tax earnings decreased in the third quarter of 2008 primarily
as a result of the decrease in gross margin rate attributable to higher
markdowns, mainly related to inventory clearance, and a higher inventory
shrinkage accrual provision made in the third quarter of 2008 compared to the
same period of the previous year. Operating expenses, including depreciation
but excluding interest, increased by 9.6 percent over the third quarter of
2007, largely attributable to higher personnel, occupancy and depreciation
expenses to support the growth in the store network and backline
infrastructure, that has occurred over the last several years.
3.3.2.4 Business risks
Mark's is exposed to a number of risks in the normal course of its
business that have the potential to affect its operating performance. The
following are some of the business risks specific to Mark's.
