Canadian Tire Corporation, Limited

Thank you for standing by. My name is Lauren Cannon and I will be your conference operator today. Welcome to the Canadian Tire Corporation earnings call. All lines have been placed on mute to prevent any background noise. Following today's presentation, there will be a question and answer period. If you would like to ask a question, simply press star 1 1 on your telephone keypad. To withdraw your question, please press star 1 1. Now I will pass along to Karen Keyes, Head of Investor Relations for Canadian Tire Corporation. Karen.

Thank you, and good morning, everyone. Welcome to Canadian Tire Corporation's third quarter 2024 results conference call. With me today are Greg Hicks, President and CEO, Gregory Craig, Executive Vice President and CFO, and TJ Flood, Executive Vice President and President of Canadian Tire Retail. Before we begin, I wanted to draw your attention to the earnings disclosure, which is available on the website and includes cautionary language about forward-looking statements, risks, and uncertainties, which also apply to the discussion during today's conference call. After our remarks today, 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 question 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 will now turn the call over to Greg. Greg?

Thank you, Karen. Good morning and welcome, everyone. The third quarter came to us as we expected, and we delivered a normalized diluted EPS of $3.59, up significantly over Q3 of last year. Although we've experienced multiple interest rate cuts this year, consumers remain understandably cautious. Their spending reflected that restraint, but we were prepared. Our strong strategy, supported by our dedicated team, guided us through lingering headwinds and has positioned us well. Before we unpack our results, I'll give you our view into the health of the Canadian consumer. Our data shows that consumers are heavily influenced by two factors. their spending power and their sentiment. The first is simple. Economic factors like cost of living and unemployment have continued to constrain consumer spending. At the same time, consumer sentiment, or the confidence with which they spend their money, is the lowest we've seen in a long time. This sentiment is not unique to a specific cohort of household income. Over the past five quarters, spending has declined across every segment we measure, sustained evidence of the Canadian shift to value and discounts. We believe the dual challenges of lower spending power and consumer sentiment are temporary. That said, given impending factors like mortgage renewals, we believe the near term will still be tough. We also believe that consumer confidence will recover. and slowly bring the market back to spending stability. We see the recent successive interest rate cuts as a potential catalyst. And it's worth noting that the gap between essential and discretionary spending narrowed in Q3. These may be signals of a slight and gradual unlock of consumer restraint. Despite a challenging consumer environment, we are ready for our customers Our supply chain and in stock positions are strong. We are delivering value through price investments and our ongoing product innovation has delivered the kind of assortment vitality critical for growth. This sets us up nicely to turn the proverbial corner whenever we reach it. Now let's discuss the results. This year we've consistently framed our quarterly updates around three points of leverage. creating value and deeper relationships through our Triangle Rewards program, maximizing our existing assets, and driving operating leverage with a constrained top line. We're making good progress, achieving business efficiencies and delivering consumers' value. Starting with Triangle Rewards, Q3 loyalty sales were once again stronger than non-loyalty sales. What's more, comparable loyalty sales were up for the first time in over a year. Effective earn rate, or the amount of Canadian Tire money that gets issued for every loyalty dollar spent at Canadian Tire, was up in the quarter. In a concerted effort to encourage member engagement across our banners, we issued more Canadian Tire money right across our enterprise. Loyalty sales at SportCheck and Marks were notable contributors in the quarter, up 12% and 6% respectively, with increases in loyalty penetration and continued growth in our active registered members. Enterprise-wide loyalty penetration was the strongest it's been in two years. All this activity translated to increased Canadian Tire Money redemption in the quarter, up 10.1%. with the largest percentage being redeemed at CTR. In addition to driving value by integrating the assets we own, we've continued to integrate our loyalty partner, Petro Canada. Over 300,000 Canadians have now linked their Triangle Rewards and PetroPoints accounts, and virtually all of them have earned Canadian Tire money already. The result is a 10% incremental spend per linked member delivering 33 million dollars in incremental sales in just a few months together the businesses we built and the partner we welcomed into the program are creating a system that is greater than the sum of its parts expect us to continue driving engagement across this system in the businesses we own and with partners creating a flywheel effect that provides more value for the customer while accumulating first-party data upon which we will increasingly build our business. Moving now to how we continue to leverage our existing assets and investments, starting with technology upgrades that bolster our key capabilities. This quarter, we implemented the first phase of modern cloud-based technology supporting our transportation management capabilities, a tech stack that effectively and efficiently supports all of our banners together as one. Similarly, across the enterprise, we implemented a single modern cloud-based infrastructure that supports our triangle loyalty program, opening the door to better data, real-time insights, and enhanced promotions. We expect the payoff to be better and more immediate engagement with our members. Last quarter, I highlighted our one digital platform and a new single user sign-on experience, making cross-banner shopping more seamless and a growing contributor to our performance. In September, we had the highest penetration of digitally known Triangle members across our enterprise digital assets. In-store, we continued to streamline the locker pickup experience with improvements to email communications and more flexible customer pickup. Locker NPS rose to 65 in Q3, and locker usage was up 13%. Overall, I am pleased with our focus on creating value from our existing assets, capabilities, and investments. More specifically, I'm encouraged by what we've learned in the process. Not only have we identified how technology supports our strategy, but we've also clarified the strategy behind our technology. For instance, it has become quite clear that legacy single banner operating models and technology hamper our overall competitiveness, and our work to deploy a modern enterprise technology continues. And finally, I'll touch on how we're maximizing our operating leverage. Given the challenging economic conditions, our merchant team took targeted action to support those customers who need to be more selective with their purchases. This included a focus on essentials, specifically in automotive, where various categories, including tires, were up. Even in a 100-year-old TAM that also happens to be in our name, we continue to grow. More broadly, we are seeing new assortment vitality across both owned and national brands drive improved performance, relevance, and sales. Year-to-date new product sales have been driven by product introductions in living and automotive categories. This vitality is not only pleasing existing customers, but better still, it's attracting new ones, including lower income, debt burdened, and younger demographics. A good example is a Tumblr collection we launched in partnership with a popular influencer, The Birds Papaya. This product line attracted a younger customer base, generating incremental traffic and revenue. As I said last quarter, across our banners, we are working hard internally and with vendors to drive sales, but the top line environment is still tough. So our efforts to control costs, improve margins and manage inventory will continue. Beyond our disciplined expense control, we have also developed a greater appreciation for new, efficient and agile ways of working. New ways of working that are better suited for today's challenges and change. Ways of working that enable the achievement of targeted outcomes. This has shown up not only in our strategic prioritization and focus, but also in our results. We are encouraged with our progress this year, but know that we have more work to do.