TORONTO, Aug. 13 /CNW/ - Canadian Tire Corporation, Limited (CTC, CTC.a)
released its second quarter results today. Despite softer retail sales due to
challenging market conditions and unseasonable weather, the Company reported
an 8.8% increase in adjusted net earnings compared to the same period last
year. The growth in earnings year-over-year reflects healthy margins across
the retail businesses and lower operating expenses.
"Our focus on maintaining our gross margins and managing our operating
expenses has allowed us to deliver modest growth in earnings this quarter
compared to 2008 despite a challenging retail environment," said Stephen
Wetmore, President and CEO, Canadian Tire. "However, a significant amount of
our annual earnings are achieved in the third and fourth quarters and our
performance for the balance of the year will be very much influenced by the
economy and, of course, seasonal weather patterns."
------------------------------------------
Consolidated 2009 2008(2)
Highlights(1): 2nd Quarter 2nd Quarter Change
-------------------------------------------------------------------------
CTC retail sales $2.79 billion $2.95 billion (5.4)%
Gross operating revenue $2.32 billion $2.45 billion (5.1)%
Adjusted earnings before income
taxes (excludes non-operating
gains and losses)(3) $151.5 million $140.4 million 8.0%
Net earnings $103.7 million $97.7 million 6.1%
Adjusted net earnings (excludes
non-operating gains and
losses)(3) $103.0 million $94.7 million 8.8%
Basic earnings per share $1.27 $1.20 5.9%
Adjusted basic earnings per
share (excludes non-operating
gains and losses)(3) $1.26 $1.16 8.6%
(1) All dollar figures in this table are rounded.
(2) The 2008 earnings figures have been restated for implementation, on a
retrospective basis, of the CICA HB 3064 - Goodwill and Intangible
Assets and the amendments to CICA HB 1000 - Financial Statement
Concepts. Please refer to Note 2 in the Consolidated Financial
Statements.
(3) Non-GAAP measure. Please refer to section 15.0 of Management's
Discussion and Analysis.
Business Overview
CANADIAN TIRE RETAIL
($ in millions) Q2 2009 Q2 2008(1) Change YTD 2009 YTD 2008(1) Change
-------------------------------------------------------------------------
Retail sales(2) $2,153.2 $2,174.5 (1.0)% $3,421.1 $3,393.3 0.8%
Same store
sales(3) (year-
over-year %
change) (2.7)% (0.5)% (0.8)% (1.8)%
Gross operating
revenue $1,550.0 $1,562.1 (0.8)% $2,649.3 $2,633.4 0.6%
Net shipments
(year-over-year
% change) (1.4)% 3.2% (0.1)% 1.8%
Earnings before
income taxes $95.2 $85.1 12.0% $128.0 $128.7 (0.5)%
-------------------------------------------------------------------------
Less adjustment
for:
Non-operating
gains and
losses(4) (0.3) 0.1 (0.7) 4.0
Former CEO
retirement
obligations - 0.5 0.5 0.9
-------------------------------------------------------------------------
Adjusted earnings
before income taxes
and minority
interest(5) $95.5 $84.5 13.0% $128.2 $123.8 3.6%
-------------------------------------------------------------------------
(1) 2008 figures have been restated for implementation, on a
retrospective basis, of the CICA HB 3064 Goodwill and Intangible
Assets and the amendments to CICA HB 1000 - Financial Statement
Concepts. Please refer to Note 2 in the Consolidated Financial
Statements.
(2) Includes sales from Canadian Tire stores, PartSource stores 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 15.0 in Management's
Discussion and Analysis.
Canadian Tire Retail's sales decreased 1.0% from the same quarter in 2008
with unseasonably cool wet weather impacting some seasonal categories such as
outdoor living and climate control and challenging economic conditions
impacting other categories including tools and electronics. Despite overall
softer sales, Canadian Tire Retail did see an increase in sales in home repair
and maintenance and paint reflecting a focus by customers on repair projects.
The second quarter was also impacted by the timing of the Easter and
Canada Day holidays which reduced sales and same store sales by approximately
0.6%.
Canadian Tire Retail's second quarter adjusted earnings before taxes were
$95.5 million, up 13.0% compared to a year ago due to strong margins and
well-managed operating expenses, offset slightly by increased expenses from
the new Eastern Canada Distribution Centre and continued investments in
productivity initiatives.
Canadian Tire Retail opened five Smart stores in the quarter, two of
which contain a full-size Mark's Work Wearhouse offering, and closed one
traditional store, bringing the total number of stores in the network to 475.
Customer reaction to both the Smart store and Small Market store
continues to be very positive. Both concepts are generally performing above
expectations with higher than projected traffic count and basket size.
PartSource experienced double-digit year-over-year sales increases driven
by both the continued expansion of the network and improved product
assortment. PartSource opened one new store in the quarter bringing the
network total to 88 locations.
CANADIAN TIRE PETROLEUM (Petroleum)
($ in millions) Q2 2009 Q2 2008 Change 2009 YTD 2008 YTD Change
-------------------------------------------------------------------------
Sales volume
(millions of
litres) 435.1 429.6 1.3% 843.9 843.4 0.1%
Retail sales $425.7 $541.9 (21.4)% $779.1 $990.9 (21.4)%
Gross operating
revenue $390.8 $514.8 (24.1)% $712.7 $937.6 (24.0)%
Earnings before
income taxes $7.8 $8.0 (2.7)% $13.8 $13.0 6.2%
-------------------------------------------------------------------------
Less adjustment
for:
Non-operating
losses(1) (0.3) - (0.3) (0.2)
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(2) $8.1 $8.0 1.0% $14.1 $13.2 6.7%
-------------------------------------------------------------------------
(1) Includes asset impairment losses.
(2) Non-GAAP measure. Please refer to section 15.0 in Management's
Discussion and Analysis.
While there was a slight increase in gasoline sales volume over the
comparable period in 2008 due to lower prices at the pumps, Petroleum
experienced declines of more than 20% in gross operating revenues and retail
sales due to significantly lower retail gasoline prices.
Convenience store sales, however, were very strong this quarter due to an
increase in convenience store traffic.
Despite significantly lower revenues, margins in the quarter were
consistent year-over-year and Petroleum delivered another strong quarter based
on continued effective execution of promotional programs and good expense
management.
Petroleum replaced one gas station and closed one location during the
quarter bringing the total number of gas bars in the network to 273.
MARK'S WORK WEARHOUSE (Mark's)
($ in millions) Q2 2009 Q2 2008(1) Change 2009 YTD 2008 YTD(1) Change
-------------------------------------------------------------------------
Total retail
sales(2) $210.2 $233.1 (9.8)% $378.7 $405.6 (6.6)%
Same store
sales(3) (year-
over-year %
change) (11.3)% 0.9% (8.2)% (2.8)%
Gross operating
revenue(4) $182.2 $200.6 (9.2)% $329.3 $348.1 (5.4)%
-------------------------------------------------------------------------
Earnings before
income taxes $7.1 $7.3 (2.7)% $2.2 $3.9 (43.4)%
-------------------------------------------------------------------------
Less adjustment
for:
Non-operating
losses (0.1) (0.1) (0.3) (0.1)
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(5) $7.2 $ 7.4 (1.3)% $2.5 $4.0 (36.2)%
-------------------------------------------------------------------------
(1) 2008 figures have been restated for implementation, on a
retrospective basis, of the CICA HB 3064 Goodwill and Intangible
Assets and the amendments to CICA HB 1000 - Financial Statement
Concepts. Please refer to Note 2 in the Consolidated Financial
Statements.
(2) Includes retail sales from corporate and franchise stores.
(3) Mark's same store sales exclude new stores, stores not open for the
full period in each year and store closures.
(4) Gross operating revenue includes retail sales at corporate stores
only
(5) Non-GAAP measure. Please refer to section 15.0 in Management's
Discussion and Analysis.
Mark's second quarter total retail sales were $210.2 million down 9.8%
from the $233.1 million recorded a year ago, reflecting lower sales in all
parts of the country due to softer economic conditions, with Ontario and
Alberta posting the largest decreases. At the category level, while corporate
store sales in ladies wear experienced a modest decline, ladies accessories
and health wear posted double digit increases. Corporate store sales in
industrial wear, men's casual and casual footwear, however, were all down
significantly year-over-year.
Adjusted pre-tax earnings were $7.2 million down 1.3% from the $7.4
million recorded the previous year. The adjusted pre-tax earnings were similar
to a year ago because the gross margin rate improved significantly by 470
basis points principally due to a lower shrink expense during 2009 compared to
the prior year. Operating expenses were also well-managed.
During the quarter, Mark's opened two new stores, relocated three stores,
renovated one store and closed one store, bringing the total number of stores
in the network to 375.
CANADIAN TIRE FINANCIAL SERVICES (Financial Services)
($ in millions) Q2 2009 Q2 2008(1) Change 2009 YTD 2008 YTD(1) Change
-------------------------------------------------------------------------
Total managed
portfolio end
of period $4,109.9 $3,926.7 4.7%
Gross operating
revenue $232.9 $201.5 15.6% $450.2 $410.2 9.8%
Earnings before
income taxes $42.3 $44.4 (4.7)% $74.8 $98.6 (24.2)%
-------------------------------------------------------------------------
Less adjustment
for:
Non-operating
losses (0.1) - (0.2) -
Net effect of
securitization
activities(2) 1.7 3.9 2.2 16.8
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(3) $40.7 $40.5 0.5% $72.8 $81.8 (11.0)%
-------------------------------------------------------------------------
(1) 2008 figures have been restated for implementation, on a
retrospective basis, of the CICA HB 3064 Goodwill and Intangible
Assets and the amendments to CICA HB 1000 - Financial Statement
Concepts. Please refer to Note 2 in the Consolidated Financial
Statements.
(2) Includes initial gain/loss on the sale of loans receivable,
amortization of servicing liability, change in securitization reserve
and gain/loss on reinvestment.
(3) Non-GAAP measure. Please refer to section 15.0 in Management's
Discussion and Analysis.
Financial Services' total managed portfolio of loans receivable was $4.1
billion at the end of the second quarter, a 4.7% increase over the $3.9
billion portfolio at the end of the comparable 2008 period.
Financial Services' gross operating revenue was $232.9 million in the
quarter, a 15.6% increase over the $201.5 recorded in the prior year,
reflecting an increase in yield resulting from various pricing initiatives and
slowing of customer payments.
Adjusted pre-tax earnings were relatively flat for the second quarter
with higher revenues and well-managed operating expenses offset by increases
in provision for credit losses and an increase in interest expense caused by
the substantial increase in broker deposits. However, last year's earnings
were impacted by a $9.7 million investment in the Options MasterCard re-issue.
Excluding these re-issue costs, adjusted pre-tax earnings for the quarter were
19.0% lower than the same quarter in 2008, reflecting the impact of the higher
write-offs and bankruptcies noted below.
The net write-off rate for the total managed portfolio on a rolling
12-month basis was 6.82%, compared to 5.98% in the comparable 2008 period.
Overall aging of past due accounts deteriorated by 46 basis points. While
bankruptcy costs increased, analysis of Financial Services' performance versus
national statistics indicates that Financial Services continues to experience
lower bankruptcies than would be expected due to its effective credit risk
strategies.
Financial Services continued its investment in the retail banking pilot
and at quarter-end had more than $541 million in retail deposits, $167 million
in mortgages and approximately $1.6 billion in broker deposits. The average
term of maturity for the broker deposits is approximately 30 months.
2009 COMMENTARY
CTC plans to continue with its long-term productivity and efficiency
investments in Automotive Infrastructure, CTR Marketing Change Program and IT
Renewal projects. These programs are now expected to cost approximately $40
million in 2009 (net of benefits realized).
FUNDING AND LIQUIDITY
While the term securitization market through Glacier remains closed,
Financial Services continues to have access to multiple sources of funding
including:
- Operating cash flow
- Broker deposits
- High interest savings accounts
In addition, more than $800 million of the total $1.2 billion of the
Corporation's committed bank lines are available to Financial Services.
By the end of the second quarter, Financial Services had pre-funded
approximately $680 million of the approximately $1.0 billion which is expected
to be required during the balance of the year to repay maturing short-term GIC
deposits and finance the increase in receivables that will result when Glacier
term notes mature. The cost of this conservative approach was approximately
$4.2 million for the quarter.
At the CTC level, $200 million of Medium Term Notes were issued in the
quarter for seven years at 5.65% to pre-fund maturing corporate debt in 2010.
Overall, Management remains confident that given the various sources of
funding available, particularly for Financial Services, the Corporation has
more than sufficient cost-effective funding to support its businesses for the
foreseeable future.
CAPITAL EXPENDITURES
As a result of adjustments to the timing of projects and lower actual
project costs, Management now expects capital expenditures for the 2009 fiscal
year to be approximately $326 million, down from the originally planned $390
million and approximately $30 million lower than the capital forecast provided
at the end of the first quarter.
QUARTERLY DIVIDEND
Canadian Tire Corporation has declared a quarterly dividend of $0.21 per
share on each Common and Class A Non-Voting share. The dividend is payable
December 1, 2009 to Common and Class A shareholders of record as of October
30, 2009. The dividend is considered an "eligible dividend" for tax purposes.
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 2008 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, 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 expected performance in 2009 that have the potential to affect the
operating performance and financial results of the Company's divisions are
outlined in Section 11.0 of the MD&A.
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 August
13, 2009. The conference call will be available simultaneously and in its
entirety to all interested investors and the news media through a webcast at
http://corp.canadiantire.ca/EN/investors, and will be available through replay
at this website for 12 months.
Canadian Tire Corporation, Limited (TSX: CTC.a, CTC), operates more than
1,200 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 475 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 research
more than 25,000 products online. PartSource is an automotive parts specialty
chain with 88 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 273 gas bars, 267 convenience
stores and kiosks, and 73 car washes. Mark's Work Wearhouse is one of the
country's leading apparel retailers operating 375 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.
Definitions
In this document, the terms "we", "us", "our", "Company" and "Canadian
Tire" refer to Canadian Tire Corporation, Limited and its business units and
subsidiaries. For commonly used terminology (such as retail sales and same
store sales), see section 5.3 (Business segment performance) and our Glossary
of Terms (pages 93 to 95) in our 2008 Financial Report, which can be found
online on SEDAR's website at www.sedar.com and our Canadian Tire website in
our Investor Relations section at http://corp.canadiantire.ca/en/investors.
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 August 13, 2009.
Quarterly and annual comparisons in this MD&A
Unless otherwise indicated, all comparisons of results for the second
quarter (13 weeks ended July 4, 2009) are against results for the second
quarter of 2008 (13 weeks ended June 28, 2008).
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. See section 14.1 and 14.2 of this MD&A and note 2 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. See section 12.0 in this MD&A for
further information.
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. See section 18.0 for additional important
information and a caution on the use of forward-looking information. This is
especially important in view of the current uncertain economic environment.
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 1,200 general merchandise and apparel
retail stores and gas bars. The Canadian Tire Financial Services(R) (Financial
Services) division of the Company also offers a variety of financial services
to Canadians, primarily its proprietary Options(R) MasterCard(R), personal
loans, lines of credit, insurance and warranty products, guaranteed investment
certificates (GICs) offered through third-party brokers, and a retail banking
pilot offering products to customers in certain test markets.
Canadian Tire's four main businesses are described below.
Canadian Tire Retail (CTR) is Canada's most shopped general merchandise
retailer with a network of 475 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 distribution channel and PartSource. PartSource is a chain of 88
specialty automotive hard parts stores that cater to serious
"do-it-yourselfers" and professional installers of automotive parts. The
PartSource network consists of 30 franchise stores and 58 corporate stores.
Mark's Work Wearhouse (Mark's) is one of Canada's leading clothing and
footwear retailers, operating 375 stores nationwide, including 332 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 name "Imagewear, a Division of Mark's Work Wearhouse(TM)".
Canadian Tire Petroleum (Petroleum) is one of Canada's largest
independent retailers of gasoline with a network of 273 gas bars, including
267 convenience stores and kiosks, 73 car washes, 12 Pit Stops and 87 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.
Canadian Tire Financial Services (Financial Services) markets a range of
Canadian Tire-branded credit cards, including the Canadian Tire Options
MasterCard and Gas Advantage(R) MasterCard. Financial Services also markets
personal loans, lines of credit, insurance and warranty products 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, the personal loan and line of
credit portfolios and is the issuer of GICs offered through third-party
brokers. CTB also offers high-interest savings accounts, retail GICs and
residential mortgages as well as the Canadian Tire One-and-Only(TM) account,
which consolidates customers' chequing, savings, loans and mortgage loan
balances into one account, in three pilot markets.
1.2 Store network at a glance
July June
4, 28,
Number of stores and retail square footage 2009 2008
-------------------------------------------------------------------------
Consolidated store count
CTR retail stores1 475 473
PartSource stores 88 75
Mark's retail stores(1) 375 364
Petroleum gas bar locations 273 267
-------------------------------------------------------------------------
Total stores 1,211 1,179
Consolidated retail square footage (in millions)
CTR 18.9 18.4
PartSource 0.3 0.2
Mark's 3.2 3.1
-------------------------------------------------------------------------
Total retail square footage(2) (in millions) 22.4 21.7
-------------------------------------------------------------------------
(1) Store count numbers reflect individual selling locations; therefore,
both CTR and Mark's totals include stores that are co-located.
(2) The average retail square footage for Petroleum's convenience stores
was 452 square feet per store in Q2 2009. It has not been included in
the total above.
1.3 Business unit performance at a glance
(year-over-year percentage change) Q2 2009 Q2 2008
-------------------------------------------------------------------------
CTR retail sales(1) (1.0)% 1.5%
CTR gross operating revenue (0.8)% 3.1%
CTR net shipments (1.4)% 3.2%
Mark's retail sales(2) (9.8)% 5.3%
Petroleum retail sales (21.4)% 14.8%
Petroleum gasoline volume (litres) 1.3% (1.8)%
Financial Services' credit card sales 1.1% 5.0%
Financial Services' gross average receivables 5.3% 6.8%
-------------------------------------------------------------------------
(1) Includes sales from Canadian Tire stores, PartSource stores and the
labour portion of CTR's auto service sales.
(2) Includes retail sales from Mark's corporate and franchise stores.
2.0 Our Strategic Plan
2.1 Rolling Five-Year Strategic Plan to 2013 (2013 Plan)
The 2013 Plan outlines our strategy to build Canadian Tire through a
continued focus on growth and productivity throughout the Plan period. The key
growth initiatives of the 2013 Plan include network expansion across all of
our retail businesses (CTR and PartSource, Petroleum and Mark's), store
concept renewals and the continued evolution of products and services at
Financial Services. Key productivity initiatives include continued upgrading
of our automotive supply chain, renewing our technology infrastructure and
streamlining our organizational design.
Specific objectives related to these programs are included in section 3.2
and section 3.3 of this MD&A and section 4.0 of the MD&A contained in the 2008
Financial Report.
2.2 Financial aspirations
The 2013 Plan included financial aspirations for the Company for the
five-year period ending in December 2013. In light of the credit market
disruption experienced since August 2007 and the subsequent economic downturn,
management is currently re-assessing its long-term financial aspirations in
the context of its annual review of our Strategic Plan and its ongoing
assessment of economic conditions.
3.0 Our performance in 2009
3.1 Consolidated financial results
($ in millions
except per share
amounts) Q2 2009 Q2 2008(1) Change 2009 YTD 2008 YTD(1) Change
-------------------------------------------------------------------------
Retail sales(2) $2,789.1 $2,949.5 (5.4)% $4,578.9 $4,789.8 (4.4)%
Gross operating
revenue 2,324.8 2,450.7 (5.1)% 4,082.9 4,276.0 (4.5)%
EBITDA(3) 250.1 216.6 15.5% 406.2 391.1 3.9%
Earnings before
income taxes 152.4 144.8 5.3% 218.8 244.2 (10.4)%
Effective tax rate 32.0% 32.5% 29.9% 32.5%
Net earnings $ 103.7 $ 97.7 6.1% $ 153.4 $ 164.8 (6.9)%
Basic earnings
per share $ 1.27 $ 1.20 5.9% $ 1.88 $ 2.02 (7.1)%
Adjusted basic
earnings per
share(3) $ 1.26 $ 1.16 8.6% $ 1.87 $ 1.84 1.3%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) 2008 figures have been restated for the implementation, on a
retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
and the amendments to CICA HB 1000 - Financial Statement Concepts.
See section 14.1 and 14.2 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 15.0 for non-GAAP measures.
Consolidated gross operating revenue
Gross operating revenue for the quarter declined 5.1 percent from the
prior year primarily as a result of a 24.1% decline in Petroleum's revenue,
due to lower pump prices compared with the second quarter of 2008. Mark's
gross operating revenue declined by 9.2% due to the impact of a softer economy
on sales of men's wear and industrial wear. CTR's gross operating revenue, in
spite of a softer economy, declined only marginally, by 0.8 percent. Financial
Services remained strong in the second quarter with gross operating revenue up
15.6% due to a higher yield and the growth in account balances.
Consolidated net earnings
Consolidated net earnings for the quarter increased from the prior year
by 6.1%, due to higher product margins in CTR and effective operating cost
management across all businesses. Partially offsetting this was higher loan
loss provisioning at Financial Services due to the economic environment and
higher interest expense, attributable to the rapid expansion of broker
deposits at Financial Services which are being used to prefund the increase of
credit card receivables arising from the maturation of the Glacier notes in
late 2009.
Consolidated net earnings were also impacted by non-operating items as
noted below.
Impact of non-operating items
The following table shows our adjusted consolidated earnings on a pre-tax
and after-tax basis.
Adjusted consolidated earnings before and after income taxes(1)
($ in millions
except per share
amounts) Q2 2009 Q2 2008(2) Change 2009 YTD 2008 YTD(2) Change
-------------------------------------------------------------------------
Earnings before
income taxes $ 152.4 $ 144.8 5.3% $ 218.8 $ 244.2 (10.4)%
Less pre-tax
adjustment for:
Former CEO
retirement
obligation(3) - 0.5 0.5 0.9
Net effect of
securitization
activities(4) 1.7 3.9 2.2 16.8
Gain (loss) on
disposals of
property and
equipment (0.8) - (1.5) 3.7
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(1) $ 151.5 $ 140.4 8.0% $ 217.6 $ 222.8 (2.3)%
Income taxes 48.5 45.7 65.0 72.5
-------------------------------------------------------------------------
Adjusted earnings
after income
taxes(1) $ 103.0 $ 94.7 8.8% $ 152.6 $ 150.3 1.5%
-------------------------------------------------------------------------
Basic earnings
per share $ 1.27 $ 1.20 5.9% $ 1.88 $ 2.02 (7.1)%
Adjusted basic
earnings per
share(1) $ 1.26 $ 1.16 8.6% $ 1.87 $ 1.84 1.3%
-------------------------------------------------------------------------
(1) See section 15.0 on non-GAAP measures.
(2) 2008 figures have been restated for the implementation, on a
retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
and the amendments to CICA HB 1000 - Financial Statement Concepts.
See section 14.1 and 14.2 for additional information.
(3) The former CEO retirement obligation has been recorded in CTR. See
section 3.3.1.
(4) Includes initial gain/loss on the sale of loans receivable,
amortization of servicing liability, change in securitization reserve
and gain/loss on reinvestment.
Consolidated net earnings in the second quarter were negatively affected
by a marginal loss on the sale of property and equipment compared with the
prior year, as well as a decrease of $2.2 million with respect to the net
effect of securitization activities.
Seasonal impact
The second and fourth quarters of each year are typically when we
experience stronger revenues and earnings in our retail businesses because of
the seasonal nature of some merchandise at CTR and Mark's and the timing of
marketing programs. The following table shows our financial performance by
quarter for the last two years.
Consolidated quarterly results(1)
($ in millions except
per share amounts) Q2 2009 Q1 2009 Q4 2008 Q3 2008
-------------------------------------------------------------------------
Gross operating revenue $2,324.8 $1,758.1 $2,587.8 $2,257.5
Net earnings 103.7 49.7 101.5 109.1
Basic and diluted earnings per
share 1.27 0.61 1.24 1.34
-------------------------------------------------------------------------
($ in millions except
per share amounts) Q2 2008 Q1 2008 Q4 2007 Q3 2007
-------------------------------------------------------------------------
Gross operating revenue $2,450.7 $1,825.3 $2,503.1 $2,049.2
Net earnings 97.7 67.1 131.3 102.2
Basic and diluted earnings per
share 1.20 0.82 1.61 1.25
-------------------------------------------------------------------------
(1) 2008 quarterly results have been restated for the implementation, on
a retrospective basis, of CICA HB 3064 - Goodwill and Intangible
Assets and the amendments to CICA HB 1000 - Financial Statement
Concepts. See section 14.1 and 14.2 for additional information. 2007
results have not been restated as the information required to
calculate the restatement on a quarterly basis is not readily
available.
Items that affected the usual seasonal pattern noted above include:
- Q2 2008 was negatively impacted by a $12.0 million pre-tax book-to-
physical inventory adjustment at Mark's;
- Q2 2008 was negatively impacted by a $9.7 million pre-tax expense
related to the Options MasterCard relaunch at Financial Services;
- Q3 2008 was positively impacted by an $8.6 million reduction in the
tax provision, most of which related to the impact of the sale-
leaseback transactions entered into since 2005; and
- Q4 2008 was negatively impacted by a $28.7 million pre-tax expense
related to a delayed-start interest rate swap adjustment.
3.2 Business unit Q2 2009 performance overview
-------------------------------------------------------------------------
Canadian Tire Retail Mark's Work Wearhouse
-------------------------------------------------------------------------
Q2 2009 Performance highlights Q2 2009 Performance highlights
- continued development of new - opened two new corporate stores,
store formats; one of which was a Combo store
- replaced one traditional and and closed one corporate store;
four "expanded and updated" - increased total retail space by
stores with five Smart stores, approximately 5.6 percent year-
two of which contains a full- over-year; store network totals
size Mark's; and 375 locations; and
- improved margins through - improved gross margins by over
effective management of 400 basis points due to
regular/promotional sales mix enhancements in inventory
and product cost controls. control and markdown management.
PartSource Q2 2009 Performance
highlights
- opened one new corporate store;
and
- increased the retail square
footage by approximately 13.7
percent year-over-year as a
result of ongoing network
expansion.
-------------------------------------------------------------------------
Canadian Tire Financial Services Petroleum
-------------------------------------------------------------------------
Q2 2009 Performance highlights Q2 2009 Performance highlights
- 5.3 percent increase in gross - grew store network by six gas
average receivables for the bars (since Q2 2008);
total managed portfolio; - grew convenience store business
- increase in insurance and by 19.1 percent over the prior
warranty products revenue; year; and
- continued growth in the broker - continued focus on improving the
GIC portfolio; and overall customer experience at
- continued testing of the retail Petroleum sites.
banking initiative.
-------------------------------------------------------------------------
The following sections outlining the Company's business segment
performance highlight the respective segment's achievements to date against
key initiatives identified in the 2013 Plan. The initiatives have been divided
into growth (increase sales primarily through network growth, new stores and
new products) and productivity (improve customer service metrics, service
levels, cost-effectiveness and rates of return).
3.3 Business segment performance
3.3.1 Canadian Tire Retail
3.3.1.1 Q2 2009 Strategic Plan performance
The following outlines CTR's performance for the second quarter of 2009 in
the context of our 2013 Plan.
-------------------------------------------------------------------------
Canadian Tire Retail Growth Initiatives
-------------------------------------------------------------------------
New store program
20/20 stores have been the cornerstone of CTR's growth agenda since 2003.
This program is now complete and CTR has developed new store concepts
which are designed to build on the successes of the 20/20 store program
with a greater focus on improving sales and productivity at a lower
capital cost. Plans for 2009 include opening new Smart stores that will
have the same focus on improving sales and productivity, as well as
providing a more exciting customer experience, and Small Market stores
which are designed to expand our presence in smaller markets.
-------------------------------------------------------------------------
2009 Key initiatives 2009 Performance
-------------------------------------------------------------------------
With the completion of the 20/20 Second quarter
program in 2008, CTR's strategy is
to test/rollout the next versions During the second quarter CTR
of the CTR store. This includes replaced one traditional store and
the building of, and conversion to, four "expanded and updated" stores
the new Smart stores and new Small with five Smart stores, two of
Market stores which are an which contain a full-size Mark's.
important aspect of the 2013 Plan. We also closed one traditional
store. At the end of the second
quarter, there were nine Smart
stores and five Small Market
stores.
The store network now totals 475
stores, 48 of which include a
Mark's component.
-------------------------------------------------------------------------
Customers for Life
Canadian Tire is committed to building customer loyalty through fostering
a positive, consistent and memorable customer experience. In 2008, CTR
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 and will continue this work through 2009.
-------------------------------------------------------------------------
2009 Key initiatives 2009 Performance
-------------------------------------------------------------------------
CTR plans to continue to make key Second quarter
improvements to the customer
experience to support continued CTR survey results show a 2.8
sales growth. percent improvement in overall
satisfaction when compared to
2008 results for the first half of
the year. The Store Support and
Dealer Relations teams continued
working with the Canadian Tire
Dealers to implement a new web-
based version of the Customer
Service Index program, which is
currently being tested.
-------------------------------------------------------------------------
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.
-------------------------------------------------------------------------
2009 Key initiatives 2009 Performance
-------------------------------------------------------------------------
Key initiatives for PartSource Second quarter
include building CTR as a new
commercial account for emergency During the quarter, PartSource
shipments, updating the continued making significant
organizational structure, testing progress on building the CTR
new operating systems and a new commercial account. The entire
auto parts catalogue. PartSource network (which consists
of hub stores, corporate stores
and franchise stores) supplies
emergency auto parts to
approximately 200 Canadian Tire
stores.
PartSource opened one new corporate
store, converted one franchise
store to a corporate store and
converted one unbranded corporate
store to the PartSource banner
during the quarter. This brings the
network total to 88 stores,
including nine hub stores. (Details
of the hub store are discussed
below in the "Automotive
Infrastructure initiative" section.)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Canadian Tire Retail Productivity Initiatives
-------------------------------------------------------------------------
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. The benefits of these projects include the ability to make
faster and better decisions and improve our agility and speed to market.
-------------------------------------------------------------------------
2009 Key initiatives 2009 Performance
-------------------------------------------------------------------------
In 2009, CTR plans to implement Second quarter
productivity/control initiatives in
the area of sales and operational Progress made on the CTR Change
planning; and analyze and build Program included:
requirements for 2010 - Completed and implemented
implementation in the areas of first phase of sales and
promotional planning and vendor operational planning
relationship management. enhancements across all CTR
merchandise divisions;
- completed design of new
processes and technology
solutions for promotional
planning capability; and
- continued analysis of vendor
relationship management
capability including scope
definition and process
design work.
-------------------------------------------------------------------------
Automotive Infrastructure initiative
Revitalizing the cornerstone automotive business is a key priority over
the 2013 Plan period as CTC continues to expand the network through
opening 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 CTR and PartSource
customers. In 2009, CTR plans to open an additional eight hub stores. In
addition, the Company is investing in infrastructure and technological
enhancements and is re-engineering customer facing processes.
-------------------------------------------------------------------------
2009 Key initiatives 2009 Performance
-------------------------------------------------------------------------
Throughout 2009, CTC plans to open Second quarter
eight hub stores. In addition,
there will be further investment in Progress on the Automotive
the physical retrofit of the Infrastructure initiative included:
automotive distribution centres as
well as a new project commissioned Emergency supply implementation:
to implement the Manhattan - completed the roll out of do-it-
warehouse management software into yourself emergency supply
the Calgary auto parts distribution processes in nine PartSource hub
centre. The investment in store markets which serve 140
distribution assets will support an CTR stores.
increase in the auto parts SKU
(stock keeping units) assortment by Assortment deployment processes:
an additional 20%. Work to - now stocking more than 50,000
implement an industry-leading SKUs in two auto parts
automotive hard parts catalogue distribution centres;
will be completed and rolled out to - developing the work plan to
CTR stores in 2010. implement the new warehouse
management system in the
Calgary auto parts
distribution centre; and
- solution design is underway
to improve the automotive
parts assortment planning
process.
Customer Experience processes:
- the preferred software vendor
has completed one third of
the functional design
specifications needed to
support the customer
experience processes; and
- the parts data management
business requirements have
been completed.
-------------------------------------------------------------------------
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) Q2 2009 Q2 2008 YTD 2009 YTD 2008
-------------------------------------------------------------------------
Total retail sales(1) (1.0)% 1.5% 0.8% 0.3%
Same store sales(2) (2.7)% (0.5)% (0.8)% (1.8)%
-------------------------------------------------------------------------
(1) Includes sales from Canadian Tire and PartSource stores 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 retail sales
Second quarter
While our retail stores continue to be influenced by the challenging
economic conditions that are currently affecting Canada and unseasonably cool
wet weather in Ontario and Quebec, the modest 1.0% decline in retail sales
during the second quarter is considered to be a relatively good result,
especially considering that there were fewer selling days compared with the
prior year due to the timing of public holidays (Easter and Canada Day).
The unseasonably cool wet weather impacted some seasonal businesses such
as outdoor living and climate control and challenging economic conditions
impacted some of our other categories such as tools and electronics. Same
store sales were down 2.7% compared to the second quarter of 2008. On a
regional basis we experienced weaker sales in Ontario and Quebec than in other
provinces.
PartSource experienced another quarter of year-over-year double-digit
sales increases driven by both the continued expansion of the network and
improved product assortment. The nature of PartSource's business also makes it
somewhat resilient during economic downturns as consumers will tend to repair
rather than replace their vehicles at such times, especially in view of the
uncertainty in the North American auto sector. In addition, PartSource
shipments to CTR Dealers continue to increase as components of the Automotive
Infrastructure initiative project are rolled out.
CTR store network definitions
Our store network has evolved as we have introduced new store formats
into our store categories, which we define as follows:
-------------------------------------------------------------------------
Smart store format Small Market store Updated & Expanded
(late 2008) Average format (mid-2008) store format (1994 to
retail square Average retail square mid-2008) Average
footage: 63,000 footage: 18,000 retail square footage:
44,000
-------------------------------------------------------------------------
Next store concept Smaller format launched A combination of our
renewal, building off in July 2008, ranging newer format stores,
the 20/20 store with a in size from 14,000 to including "20/20",
focus on growth and 19,000 square feet. "Class-of" and "Next
improving productivity Small Market stores Generation" stores.
through inspiring meet the needs of These stores,
layouts, refreshed underserved rural previously referred to
assortments and more markets and include as "standard stores",
environmentally customized product range in size from
responsible options. selection to serve a 16,000 to 89,000
Stores range in size particular region, easy- square feet, most of
from 41,000 to 83,000 to navigate signage and which were opened or
square feet. There are walkways, prominent converted to these
currently nine Smart heritage departments formats between 1994
stores in the network (e.g.: hockey) and and mid-2008.
the first of which generously sized outdoor "Updated and
opened in November 2008. areas that "expand" the expanded" format
store in peak periods. stores make up
There are currently five approximately 90.4
Small Market stores in per cent of the
the network. retail square footage
in the CTR network
(excluding
PartSource).
-------------------------------------------------------------------------
---------------------------------------------------
Traditional store PartSource stores (2008
format (1994 and and prior) Average
prior) Average retail retail square footage:
square footage: 16,000 7,000
---------------------------------------------------
Smaller than the PartSource is an
"updated and expanded" automotive parts
store format on average. specialty store designed
Traditional stores have to meet the needs of
various sizes and major purchasers of auto
layouts ranging in size parts, professional
from 3,000 to 36,000 automotive installers
square feet. Traditional and serious do-it-
stores make up yourselfers. Stores
approximately 6.1 per carry a tailored product
cent of the retail assortment based on local
square footage in the vehicle needs and are
CTR network (excluding easily recognizable with
PartSource). the checkerboard
flooring design.
Beginning in 2007, new
larger warehouse
locations (hub stores)
were opened to help
bring more parts
inventory closer to
customers at both CTR
and PartSource stores.
---------------------------------------------------
CTR store count
Q2 2009(1) 2008(2) 2007(2) 2006(2) 2005(2)
-------------------------------------------------------------------------
Updated and expanded
stores(3) 388 393 381 363 345
Traditional stores 73 76 92 105 117
Small Market stores 5 4 - - -
Smart stores 9 2 - - -
-------------------------------------------------------------------------
Total updated and expanded,
traditional, Small Market
and Smart stores 475 475 473 468 462
PartSource stores 88 86 71 63 57
-------------------------------------------------------------------------
(1) Store count at the end of Q2 2009.
(2) Store count at the end of the year.
(3) "Updated and expanded" stores decreased by 5 in 2009. They were
converted into five Smart stores (one Smart store in Q1 and four
Smart stores in Q2).
CTR continues to retrofit its store network with a focus on converting
selected new or replacement stores and "updated and expanded" existing stores
to the latest formats. The 20/20 store format program was completed by the end
of 2008 and two new formats (Small Market and Smart stores) were tested in
late 2008 and in early 2009. Our latest formats have been well received by
customers to date. For the remainder of 2009 and in subsequent years, we will
continue to roll out the two new formats, consistent with the goals of the
2013 Plan.
Average retail sales per CTR store(1),(2)
For the 12 For the 12
months ended months ended
($ in millions) July 4, 2009 June 28, 2008
-------------------------------------------------------------------------
Updated and expanded stores $ 16.0 $ 16.0
Traditional stores 7.9 7.9
-------------------------------------------------------------------------
(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 "updated and expanded" stores typically experience higher customer
traffic and increases in average transaction value compared to traditional
store formats. For the rolling 12-month period, the average retail sales for
the "updated and expanded" stores, as well as the traditional stores, remained
flat.
Average sales per square foot of CTR retail space(1),(2),(3)
For the 12 For the 12
months ended months ended
July 4, 2009 June 28, 2008
-------------------------------------------------------------------------
Retail square footage(1),(3) (millions of
square feet) 18.9 18.4
Updated and expanded stores(2),(3)
($ sales per square foot) $ 382 $ 381
Traditional stores(2),(3) 497 496
-------------------------------------------------------------------------
(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.
It represents a point in time (instead of a rolling 12-month period)
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.
Retail square footage increased by approximately 0.5 million square feet,
year-over-year as noted above.
Average sales per square foot of retail space in the larger "updated and
expanded" 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 "updated and expanded" stores do
however, on average, generate more total sales and have a lower operating cost
for Dealers per retail square foot.
3.3.1.3 CTR's financial results
($ in millions) Q2 2009 Q2 2008(1) Change 2009 YTD 2008 YTD(1) Change
-------------------------------------------------------------------------
Retail sales $2,153.2 $2,174.5 (1.0)% $3,421.1 $3,393.3 0.8%
Net shipments
(year-over-year
% change) (1.4)% 3.2% (0.1)% 1.8%
Gross operating
revenue $1,550.0 $1,562.1 (0.8)% $2,649.3 $2,633.4 0.6%
EBITDA(2) 163.1 143.2 13.9% 259.9 245.3 5.9%
-------------------------------------------------------------------------
Earnings before
income taxes 95.2 85.1 12.0% 128.0 128.7 (0.5)%
Less adjustment for:
Gain (loss) on
disposals of
property and
equipment (0.3) 0.1 (0.7) 4.0
Former CEO
retirement
obligation - 0.5 0.5 0.9
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(2) $ 95.5 $ 84.5 13.0% $ 128.2 $ 123.8 3.6%
-------------------------------------------------------------------------
(1) 2008 figures have been restated for the implementation, on a
retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
and the amendments to CICA HB 1000 - Financial Statement Concepts.
See sections 14.1 and 14.2 for additional information.
(2) See section 15.0 on non-GAAP measures.
Explanation of CTR's financial results
Second quarter
Shipments and gross operating revenue experienced marginal declines in
the second quarter due to the impact of a softer economy and unseasonable
weather conditions, as noted above. The proportionately larger decline in
shipments compared with retail sales reflects ongoing efforts by Dealers to
manage their inventory levels in the face of economic uncertainty. As noted
above, these results are considered reasonable considering the fewer selling
days compared with the prior year due to the timing of holidays.
In spite of the decline in revenue, CTR earnings before taxes improved
12% over the prior year. This was attributable to stronger margins due to
effective management of pricing, regular/promotional shipments mix and product
cost controls. Operating expenses increased modestly as increased expenses for
the new Eastern Canada Distribution Centre, higher store occupancy costs and
continued investments in major initiatives (Automotive Infrastructure, CTR
Change Program and IT Renewal as well as ongoing expansion of the PartSource
store network) were partially offset by effective cost management in other
areas, such as personnel and administration.
3.3.1.4 CTR's 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. These include,
but are not limited to, supply chain disruption, seasonality and environmental
risks. Please see section 5.3.1.6 of our 2008 Financial Report for an
explanation of these business-specific risks. See also section 11.0 of this
MD&A for a discussion on Enterprise risk management and section 14.0 of our
2008 Financial Report for a discussion of some other industry-wide and
Company-wide risks affecting the business.
3.3.2 Mark's Work Wearhouse
3.3.2.1 Q2 2009 Strategic Plan performance
The following outlines Mark's performance for the second quarter of 2009
in the context of our 2013 Plan.
-------------------------------------------------------------------------
Mark's Work Wearhouse Growth Initiatives
-------------------------------------------------------------------------
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.
-------------------------------------------------------------------------
2009 Key initiatives Q2 2009 Performance
-------------------------------------------------------------------------
Mark's will continue network Second quarter
development through opening new
stores, relocating or expanding - opened two new corporate stores,
existing stores and renovating one of which was a Combo store;
older stores to the newest Mark's - relocated three corporate
format. For 2009, we plan to: stores, one of which was a Combo
store;
- Open 14 new stores; - renovated one corporate store;
- Relocate 10 stores; and
- Expand 3 stores; and - closed one corporate store.
- Grow the retail square footage
by 5% Mark's total retail square footage
at the end of the quarter was
3.2 million square feet, an increase
of 5.6% vs. Q2 2008.
In light of current economic
conditions, we have reduced our
expected store build activity for
2009 as follows:
- Open 10 new stores;
- Relocate 9 stores;
- Expand 2 stores; and
- Grow the retail square footage
by 3%.
-------------------------------------------------------------------------
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.
-------------------------------------------------------------------------
2009 Key initiatives Q2 2009 Performance
-------------------------------------------------------------------------
While participating in the Mark's Second quarter
portion of the newly-developed
concepts for CTR/Mark's Combo The two Combo stores opened in the
stores, such as Smart stores and second quarter, one new and one
Small Market stores, Mark's is relocation as noted above, were the
developing a new, stand-alone new format Smart Stores. Work is
"CLOTHES THAT WORK(R)" store that also in progress on Mark's first
will be tested in 2009. complete "CLOTHES THAT WORK(R)"
prototype store.
-------------------------------------------------------------------------
Category expansion
Mark's has set aggressive growth goals for the 2013 Plan period which
will be supported by category expansion in its three major product lines.
Although growth was modest in 2007 and 2008 and decreased slightly in
2009 to date, 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 is expected to bring continued growth during
the Plan period.
-------------------------------------------------------------------------
2009 Key initiatives Q2 2009 Performance
-------------------------------------------------------------------------
In 2009, Mark's will continue to Second quarter - corporate sales
expand its product assortment in - sales of women's wear decreased
the three main categories of by 1.3 percent;
apparel and footwear with a focus - sales of industrial wear
on the Clothes That Work campaign. decreased by 10.7 percent and
- sales of men's wear decreased by
14.1 percent.
In the second quarter of 2009, after
some testing in previous quarters,
Mark's completed its formal launch
of dri-WEAR(R) and this technology
is now used in Mark's underwear,
socks, T-shirts, polo shirts and is
being incorporated in the lining of
some of the Company's outerwear.
Mark's also continued to leverage
previously launched products such as
CURVETECH(TM) shape-enhancing
technology in its women's wear
category and QUAD COMFORT(R)
footwear for men and women. For the
second quarter, the company
established an interactive website
for consumers to answer their
questions about various footwear
product lines and health-related
benefits.
-------------------------------------------------------------------------
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) Q2 2009 Q2 2008 2009 YTD 2008 YTD
-------------------------------------------------------------------------
Total retail sales(1) (9.8)% 5.3% (6.6)% 1.5%
Same store sales(2) (11.3)% 0.9% (8.2)% (2.8)%
-------------------------------------------------------------------------
(1) Includes retail sales from corporate and franchise stores.
(2) Mark's same store sales excludes new stores, stores not open for the
full period in each year and store closures.
Second quarter
Mark's retail sales during the second quarter of 2009 continued to be
impacted by a further softening of economic conditions across Canada,
especially in the key Ontario and Alberta markets. Corporate store sales in
industrial wear were down double digit with the largest dollar decreases
occurring in men's industrial footwear and men's industrial work wear. This is
reflective of weakness in the labour market conditions in the manufacturing
sector in Ontario and the oil regions of Alberta. Corporate store sales of
men's casual clothing also declined double digit with categories such as
casual bottoms, jeans, woven shirts and T-shirts leading the decline.
Corporate store sales in ladies' wear were relatively better. While this
category experienced a modest decline, ladies accessories and healthwear
posted double digit increases.
Mark's continues to focus on its "CLOTHES THAT WORK(R)" strategy and has
maintained its pricing to focus on optimizing margins rather than driving
sales volumes.
Average corporate store sales(1)
For the For the For the
12 months 12 months 12 months
ended, ended, ended,
July 4, June 28, June 30,
2009 2008 2007
-------------------------------------------------------------------------
Average retail sales per store
($ thousands)(2) $ 2,619 $ 2,735 $ 2,867
Average sales per square foot
($)(3) 302 323 347
-------------------------------------------------------------------------
(1) Calculated on a rolling 12-month basis.
(2) Average retail sales per corporate store include corporate stores
that have been open for 12 months or more.
(3) Average sales per square foot is based on sales from corporate
stores. We have prorated square footage for corporate stores that
have been open for less than 12 months.
Mark's average retail sales per store and average sales per square foot
have been declining since the end of the second quarter of 2007, primarily due
to the economic slowdown which began then, combined with the fact that Mark's
has, through new stores, store relocations, store expansions and franchise
repatriations, increased its corporate store retail square footage by 20% over
that time frame.
According to a market research company that tracks the clothing industry
retail trends, Mark's continued to increase its market share of the total
Canadian apparel market in 2008 and maintained its market share through the
first quarter of 2009, the latest data available. Mark's believes that with
its continued network expansion it will be well positioned to increase its
market share and resume improving its average retail sales per store and
average sales per square foot when the Canadian apparel market recovers from
the current recession.
3.3.2.3 Mark's financial results
($ in millions) Q2 2009 Q2 2008(1) Change 2009 YTD 2008 YTD(1) Change
-------------------------------------------------------------------------
Retail sales(2) $ 210.2 $ 233.1 (9.8)% $ 378.7 $ 405.6 (6.6)%
Gross operating
revenue(3) 182.2 200.6 (9.2)% 329.3 348.1 (5.4)%
EBITDA(4) 14.0 14.2 (0.8)% 16.2 17.2 (5.3)%
-------------------------------------------------------------------------
Earnings before
income taxes 7.1 7.3 (2.7)% 2.2 3.9 (43.4)%
Less adjustment for:
Loss on disposals
of property and
equipment (0.1) (0.1) (0.3) (0.1)
-------------------------------------------------------------------------
Adjusted earnings
before income
taxes(4) $ 7.2 $ 7.4 (1.3)% $ 2.5 $ 4.0 (36.2)%
-------------------------------------------------------------------------
(1) 2008 figures have been restated for the implementation, on a
retrospective basis, of CICA HB 3064 - Goodwill and Intangible Assets
and the amendments to CICA HB 1000 - Financial Statement Concepts.
See sections 14.1 and 14.2 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 15.0 on non-GAAP measures.
Explanation of Mark's financial results
Second quarter
Gross operating revenue declined 9.2% in the second quarter vs. the prior
year, in line with the decline in retail sales as referenced above.
Mark's pre-tax earnings decreased in the second quarter of 2009 primarily
as a result of the decrease in gross operating revenue. The gross margin rate
on merchandise sold was very strong, up 470 basis points due to improved
inventory control and count processes, resulting in shrinkage returning to
historical norms. The year-to-date gross margin rate was also favourably
impacted by lower markdowns through the application of a new advanced
integrated merchandising planning system.
Total expenses were well managed during the second quarter of 2009,
increasing by only $0.6 million, or less than 1%, despite having 15 more
corporate stores in the network versus the second quarter of 2008. This was
due to aggressive management of store payroll expenses and reduced
advertising.
3.3.2.4 Mark's 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. These
include, but are not limited to, seasonality and market obsolescence risks.
Please see section 5.3.2.5 of our 2008 Financial Report for an explanation of
these business-specific risks. See also section 11.0 of this MD&A for a
discussion on Enterprise risk management and section 14.0 of our 2008
Financial Report for a discussion of some other industry-wide and Company-wide
risks affecting the business.
3.3.3 Canadian Tire Petroleum
3.3.3.1 Q2 2009 Strategic Plan performance
Petroleum plays a strategic role in increasing customer loyalty and
driving traffic and transactions for CTR and Financial Services. Petroleum
increases Canadian Tire's total value proposition by offering Canadian Tire
'Money' loyalty rewards on gas purchases paid for in cash or by Canadian
Tire's Options MasterCard. Petroleum also supports other cross-marketing
promotions and joint product launches, such as Canadian Tire's Gas Advantage
MasterCard, which has gained wide popularity since its introduction in Ontario
in mid-2006. Customers who have a Canadian Tire MasterCard and purchase gas at
Petroleum are Canadian Tire's most loyal and profitable customers.
The following outlines Petroleum's performance for the second quarter of
2009 in the context of our 2013 Plan.
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Canadian Tire Petroleum Growth Initiatives
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Network renewal and new store concept
Petroleum's business is an integral part of the Canadian Tire
organization as customers that use Petroleum's gas bars drive sales and
traffic to our other business units. Over the 2013 Plan period, Petroleum
will continue to develop its real estate plan, focusing on introducing
new store concepts into its existing network of locations, while
continuing to focus on renewing its current sites to enhance the customer
experience.
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2009 Key initiatives Q2 2009 Performance
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In 2009, Petroleum will continue to Second quarter
strengthen the existing network by
opening new sites and refurbishing - opened one new convenience
or rebuilding existing sites. store;
- replaced one gas bar; and
- closed one gas bar, one car wash
and one convenience store.
At the end of the quarter, Petroleum
had 273 gas bars, including 37
re-branded sites.
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Canadian Tire Petroleum Productivity Initiatives
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Enhancing interrelatedness
Petroleum's business is integrated with CTR and Financial Services
through Canadian Tire 'Money' and various cross-marketing programs
designed to build customer loyalty.
