Canadian Tire Corporation, Limited

Thank you for standing by. My name is Valerie and I will be your conference operator today. Welcome to the Canadian Tire Corporation earnings call. All links have been placed on mute to prevent any background noise. If you would like to ask a question, simply press star, then the number 1 on your telephone keypad. To withdraw your question, press star, then the number 2. Now I will pass along to Karen Keyes, Head of Investor Relations for Canadian Tire Corporation. Karen?

Thank you, Valerie, and good morning, everyone. Welcome to Canadian Tire Corporation's first quarter 2023 results conference call. With me today are Greg Hicks, President and CEO, Gregory Craig, Executive Vice President and CFO, and TJ Flood, President of Canadian Tire Retail. Before we begin, I wanted to draw your attention to the earnings disclosure, which is available on the website. It includes cautionary language about forward-looking statements, risks and uncertainties, which also apply to the additional material included this quarter to help you better understand the results of discussion during today's conference call. After our remarks, the team will be happy to take your questions. We will try to get in as many questions as possible, but ask that you limit your time to one question plus a follow-up before cycling back into the queue. And we welcome you to contact Investor Relations if we don't get through all the questions today. I'll now turn the call over to Greg.

Thank you, Karen. Good morning and welcome, everyone. I'll start by saying that despite the challenging macro environment, we remain confident that our diligent focus on our better connected strategy positions us well for the short and long term. Similar to last quarter, this morning I'll discuss what we're seeing in terms of consumer demand. But before I do, I'll give you some color on our Q1 results. As is typical in the first quarter, our financial services segment drove our Q1 results. offsetting a retail segment earnings decline that was driven by a number of factors, including the fire at our A.J. Billis Distribution Centre. The weather in Q1 also did us no favours, especially in Ontario, where a warm winter was followed by a slow start to spring. This, along with a more challenging consumer demand environment, contributed to the decline in comparable sales at CTR. Increased expenses combined with the impact of dealers carrying higher inventory levels into Q1 resulted in a revenue and earnings decline compared to last year, which drove our normalized EPS to $1. Marks and SportCheck had a successful quarter, both achieving growth and comparable sales compared to Q1 of last year. Marks also secured its 11th consecutive quarter of growth, and we see opportunities to invest in sustaining that growth going forward. Across our business, we continue to manage OpEx well, even as we invest to ensure we have the right building blocks in place for the future. As we navigate a constantly evolving economic landscape, our triangle rewards and credit card data enable us to keep our finger on the pulse of customer trends. Our credit card data reveals that consumer spending has slowed, with spend per member remaining flat relative to Q1 of last year, marking the first slowdown since 2020. The observations we've made among our triangle Triangle Rewards members also reflects this downward trend in spending, with spending at our retail banners declining across all income groups. Furthermore, we noticed a shift in consumer behavior as customers moved away from best-level products in certain categories, such as tires and household consumables, towards our better and good-level products. The current high inflation rates have led customers to prioritize essential products over higher-ticket discretionary ones, which as you would expect has a more market impact on sales at Canadian Tower Retail than our other banners. But in a quarter like this one, it is difficult to separate that from the impact of weather. Despite these challenges, we remain focused on delivering value to our customers. We continue to reorient our tactics while staying anchored in our better connected strategy to provide more paths to value. The first path is through our Triangle Rewards program We often talk about the importance of converting shoppers into members, as that enables us to provide more value through Canadian Tire money and offers for the products our members want and need. Our ability to communicate promotions directly to our members through email, our app, and relevant one-on-one offers continues to translate into sales and fuels the redemption flywheel and associated spend. When it comes to deepening engagement to drive sales, we now have another tool in our toolbox. Triangle Select, which we launched nationally in March. Following a successful beta test of Triangle Select in 2022, the team launched the program nationally, and as of April 30th, 22,000 members have signed up and collectively earned nearly $2 million in incremental Canadian Tire money through their select memberships. And through our recently announced partnership with Suncor, we've expanded the reach of our Triangle Rewards programs, providing even more value by giving members more opportunities to earn CTM in a high-frequency category. By expanding the distribution of Canadian Tire money from more than 200 gas stations to a network of more than 1,800, we're driving more value for Canadians at the pumps while exploiting more value for our shareholders from an asset we own. The partnership is a win-win for our customers and our shareholders. The second critical path for delivering value to customers is our unique multi-category product assortment. In the quarter, 36% of our total retail sales came from our own brands, a portfolio we are continuing to grow as part of our Better Connected strategy. At CTR, we are strengthening our assortment, including in our Motormaster brand, with new product launches and expansions. We also recently introduced our Stratus bike brand in a category that is a key driver for our playing division. And our Party City and Petco Shop and Shops continue to drive sales for CTR, with sales up 38% and 18% respectively in the quarter. At SportCheck, we are building momentum with our Ford with Design brand. We've expanded the styles and colors and introduced an elevated technical apparel line within the brand, as well as growing the work leisure range for men. National brands, too, remain an important part of our assortment, especially at Marks. Among our top-selling national brands, Columbia, Silver, and Timberland Pro saw the highest growth among new to CTC customers. Our expanded national brand partnership with Columbia and Levi's and select stores continue to deliver exceptional growth, and we remain focused on finding new ways to deliver more value, including through the recent launch of a Levi's Next Gen Shop & Shop in Langley, British Columbia. We know it's not just about having the right products. It's also about showcasing them to our customers effectively and providing a seamless shopping experience, which leads me to the third piece of the larger value equation, our omnichannel experience. We're already seeing the impact of our new concept connect store investments at CTR. In our store projects to date, we are seeing an almost 700 basis point delta in top line performance relative to a comparable peer group of stores, and feedback related to customer experience has improved significantly. We're also seeing increased basket sizes in traffic, higher growth of our own brands, and disproportionate growth among our key categories, including pet, automotive, and Party City, among others. Our one digital platform is now live across CTR, Party City, and Atmosphere, with SportCheck and Marks to follow in Q2. We're also providing more convenience by adding new features to our mobile app, including the ability to book auto service appointments, and enhanced personalization and recommendation features. Our app continues to perform extremely well. In addition to maintaining a solid 4.7 out of 5 in the app store, we've grown monthly active users by 15% year-over-year to 1.8 million. Finally, on last quarter's call, I mentioned we just launched an express same-day delivery pilot with DoorDash at 10 CTR stores in Ottawa. The initial results have been very strong. Average click-to-delivery time is just over two hours. The program has an NPS score of 80, and we're recovering 100% of the costs. Given the success of the pilot, we plan to expand to the Ottawa Valley in Q2 and have our sights set on taking this program national throughout the back half of the year. While we continue to adjust tactically to provide more value, we do so within the building blocks of our Better Connected strategy and guided by our brand purpose. In addition to making life better for our customers, we drove positive social change in Canada during 2-1. For example, we launched our Women's Sport Initiative, which involved a multi-million dollar investment in the commitment to allocating 50% of our sponsorship dollars to women's professional sports. The response to this initiative was overwhelmingly positive, demonstrating the significant need and demand for this type of funding. Jumpstart had an outstanding quarter, helping more than 250,000 kids across the country, a new record for quarterly disbursements. It also mandated safe sport training for all Jumpstart community grant recipients, resulting in over 5,000 coaches and youth activity leaders completing their respect and sport training in Q1. Along with proactively supporting our communities through programs like Jumpstart, we're there to help when disaster strikes. Our thoughts are with those affected by the devastating wildfires in Alberta. In addition to supporting our local stores in the impacted regions, we've made a donation to the Red Cross Alberta Fires Appeal. Many Canadian Tire marks and sport check stores across our store network will also be accepting donations to the Red Cross at their registers. We continue to demonstrate where a brand Canadians can trust to do the right thing. reinforcing the strong emotional connection our customers and communities have with us. Our team members, too, feel this emotional connection to our brand as demonstrated not only by their outcomes, but also their actions throughout the quarter. When the fire broke out at our A.J. Billis Distribution Centre on March 15th, our teams flawlessly managed through the high-stress situation. From protecting the health and safety of our team members, through a seamless evacuation to managing the remediation efforts. In a matter of days, the team set up a temporary auto parts distribution center and diverted high-volume SKUs to neighboring DCs to help flow product to our CTR stores. The fire certainly disrupted our operations and performance this quarter, which Gregory will speak to during his prepared remarks. But throughout the challenge, we once again witnessed our team's commitment, grit, and fortitude and I want to thank them for their incredible efforts. I'm so grateful and proud that regardless of what we're up against, all our team members remain focused on making life in Canada better for all our stakeholders. And with that, I'll pass it over to Gregory.