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 one one on your telephone keypad. To withdraw your question, please press star one one. Now I will pass along to Karen Keyes Head of Investor Relations for Canadian Tire Corporation. Karen.

Thank you, Lauren. Good morning, everyone. Welcome to Canadian Tire Corporation's first quarter 2025 results conference call. In addition to having our President and CEO, Greg Hicks, with us today, we are delighted to have our new EVP and CFO, Darren Myers, with us for the first time. We are also joined by TJ Flood, who recently assumed a new role as EVP and Chief Operating Officer. Before we begin, I'd like to highlight the earnings disclosure, which is available on our website. It includes cautionary language about forward-looking information and the factors, risks, and uncertainties which may cause actual results to differ materially from those expressed or implied, which also apply to the discussion during today's conference call. I would highlight that our discussion today will focus on the results of the business on a continuing operations basis, with Helly Hansen being treated as a discontinued operation from this quarter. To assist with modeling the business on a continuing operations basis, we have included restated financials in our Q1 earnings deck, which you can find on our website. After our remarks today, the team will be happy to take your questions. We'll try to get in as many questions as possible, but we do ask that you limit your time to one question plus a follow-up before cycling back in the queue. And we welcome you to contact Investor Relations if we don't get through all the questions today. And with that, I'll turn the call over to Greg. Greg.

Thank you, Karen. Good morning and welcome, everyone. Overall, I'm pleased with our very strong Q1 performance, which reflects our proactive choice to buy for growth and the positive sales impact of seasonal weather and great seasonal products. It's clear we set our sales in the right direction and took full advantage of tailwinds. Our consolidated EPS of $2.18 was up sharply over last year as we drove sales, managed margins, and ran the business with discipline. We saw positive signs right across our business and banners, including increased customer visits, strong response to our new products, and notable momentum in Triangle loyalty. I want to thank our team for their hard work and commitment to being there for our customers. It's worth noting that the current retail environment remains somewhat uncertain, but we're doing a good job of navigating both what we know and what we don't. For instance, we know the direct impact of retaliatory tariffs, and we have that calculus firmly in check. with just 15% of our COGS tied to U.S. goods and a manageable fraction of that currently affected, our Tariff Task Force has been working to minimize possible impacts, seeking alternative sources, negotiating with vendors and managing margins to blunt the risk of price inflation for customers. With limited exposure today, we have visibility to potential impacts and a plan for the balance of year should we need it. In terms of the unknowns, it has been tough to predict consumer behavior. I'm pleased to report that despite low confidence levels, customers have been and remain more resilient than we anticipated. Even as we dug into the Q1 data for communities that rely on tariffed auto manufacturing, we saw no clear signs of softness. Further, spending across all the income levels we track was healthy. More broadly, essentials were up 8% and discretionary products were up slightly for the first time in three years. Anecdotally, because we know it's a trend people are watching, we saw some evidence of patriotic purchasing where Canadians seem to be favoring Canadian companies. This is a topic that gives us pride. Recently, we topped surveys for the most trusted, most reputable, and most Canadian companies in the eyes of customers. and the place they would choose to shop more. Our connection with Canadians is fundamental to our new four-year True North transformation strategy, which I will detail shortly. Before I do, I'd like to turn it over to Darren Myers, our new CFO, to give you specifics on the quarter. Many of you know Darren and will understand why we're so pleased to have him on the team and with us here today. Over to you, Darren.

Thank you, Greg, and good morning, everyone. Let me begin by saying how truly excited I am to be back in retail, and I'm honored to be speaking to you today as a CFO of such an iconic Canadian company. I see tremendous opportunity for Canadian Tire and feel fortunate to be joining alongside the launch of True North. The strategy that has been laid out will allow us to accelerate our sales and earnings growth as we harness our scale as an operating company, utilize the incredible customer insights that we have, and drive more efficient ways of working. I would like to thank and acknowledge Gregory Craig for all his contributions and the groundwork he has laid out. As CFO, one of my main priorities will be to build on the strong foundation that Gregory has put in place and to work with the team to accelerate our financial performance through highly disciplined performance management and capital allocation that delivers more consistent, better outcomes for shareholders. And with that, let's turn to the results for the first quarter. I'm pleased to report that we delivered a strong first quarter. We entered Q1 with a healthy balance sheet, announced the sale of Helly Hansen, delivered earnings growth to retail ROIC above 10%, and reinitiated buybacks, repurchasing more than half a million shares for around 20% of our current share purchase intention. Normalized earnings per share from continuing operations came in at $2, up 92 cents compared to last year. This was after normalizing for costs associated with our True North transformation. Normalized earnings for the quarter were strong, driven by sales growth, operating costs that were relatively flat year over year, favorable interest, including deleveraging, and a one-time interest income benefit related to a prior year tax settlement, which also improved our normalized tax rate in the quarter. The business performed well on the top line this quarter. Comparable sales were up for a second consecutive quarter, increasing 4.7%, outpacing retail revenue, which was up 4%, with about 50 basis points of benefit from petroleum revenue. Great end stock, our seasonal readiness, favorable winter weather, and some Canada-strong sentiment led to increased trips and sales growth across all banners. We also had robust loyalty engagement, with loyalty penetration on a rolling 12-month basis at 54.5%. As TJ and Greg made clear last quarter, we bought for growth in 2025, and that meant we were ready when seasonal weather hit in February, driving strong sales in winter categories at CTR, especially across the automotive, seasonal, and playing divisions. CTR comparable sales ended up 4.7%, and on a trailing 12-month basis, CTR revenue and sales growth are now broadly in line, with both being down around 1%. As you know, these metrics tend to track in line on a longer-term basis, although there can be variation on a quarter-by-quarter basis. Sport checks stood out with sales up 6.3% on strong sales of skis, snowboards, hockey, and outerwear. Marks was up 2.2% as we saw renewed growth in the industrial business. Turning now to inventory, which was up 4% year-over-year, excluding Helly Hansen. The increase is broadly in line with where we planned as we bought for spring-summer demand and to support growth in categories such as automotive at CTR. Understanding where CTR dealer inventory was trending is also a helpful future indicator. At the end of the quarter, dealer inventory was down 2%, reflecting strong winter sell-through in Q1, combined with last year's focus on selling through existing spring and summer inventory. Moving now to retail gross margin, where it may be helpful to take a minute to unpack the various movements this quarter. Q1 retail gross margin excluding petroleum was 36.1%, representing an improvement of 19 basis points year-over-year on a continuing operations basis, excluding Helly Hansen. This was a strong result driven by improved product margin at CTR and SportCheck. Distribution center productivity benefited margin as GTA DC throughput ramped over the last year. Freight was also a tailwind, but one we expect to become a headwind from Q2 as higher freight rates kick in. You will know that Helly Hansen is a higher gross margin business, which has historically contributed positively to gross margin. Looking at 2024, our full-year reported ex-petroleum normalized retail gross margin rate was just over 36%. On a continuing operations basis, excluding Helly Hansen, our 2024 full year is closer to 35%, giving us a new North Star to aim for on a go-forward basis. Keep in mind, while we continue to manage levers to hold longer-term margin broadly around the North Star, there will always be quarter-to-quarter fluctuations driven by business performance and mix. Now turning to the expense side. Retail SG&A ended relatively flat to Q1 last year as we benefited from timing and strong cost controls. Notably, we saw higher real estate costs, mainly due to higher property taxes and winter maintenance costs. These were more than offset by personnel savings and the timing of IT projects, which led to lower costs. As a reminder, with the announcement of True North, we highlighted that on a full year basis, the initiatives would increase operating expenses by $60 million compared to our previous expectation, primarily for IT investments to enable transformation initiatives. While we expect everything we're doing on transformation to drive efficiency in future years, you should expect the investments we are making, plus inflationary increases, to contribute to some pressure on SG&A rate in 2025. So, to wrap up the retail segment, it was a strong quarter. Normalized retail EBITDA on Q1 was up almost 13% for $38 million to $335 $334 million. Normalized retail IBT was $64 million, up $69 million. Over the last year, we significantly deleveraged the retail balance sheet, and that, along with lower rates, drove most of the $24 million decrease in net financing costs, all in a great quarter for retail. Moving to CTFS now. Overall, the bank performance came in as we expected, as higher net write-offs and funding costs were offset by higher revenue, delivering $97 million of IBT and continued strong ROE. In terms of portfolio performance, GAR growth was up 1.6%. Average account balances were up 2%, largely as a result of higher credit card spend. CTC spend on the cards was broadly in line with sales trends at our banners, and ECTM issuance to cardholders cardholders continue to grow at a healthy rate with four credit card exclusive events in the quarter. Over the last 12 months, ECTM issuance to cardholders is up 7%. Risk metrics remain stable through Q1, suggesting that cardholders' ability to service debt has so far remained resilient. ED2 Plus was up only slightly in last year, and the write-off rate continued to stabilize, up only 10 basis points versus last quarter at 7.1%. Finally, the allowance remained unchanged at the end of the quarter at $935 million, with the allowance rate at 12.7% within our targeted range of 11.5 to 13.5%. Given tariffs and uncertainty in the macroeconomic forecast, we continue to keep a close eye on unemployment and early-stage aging and continue to have a playbook we can deploy should things change. Additionally, It's worth noting that we do expect some increased op-eds associated with infrastructure investments at the bank this year. Before I wrap up and hand the call back to Greg, I'll briefly highlight some considerations looking into Q2. We had a slow start to the quarter. However, we have seen good traffic volumes and sales through later April when the weather has shown up with continued customer resilience to date. Of course, there's still lots of game to play with our two biggest months still ahead. We're ready with great seasonal assortment and new products, balancing discretionary goods with value-based essentials. Overall, we are pleased with our retail fundamentals and are remaining watchful of trends so we can proactively adjust should things change in the external environment. I'll conclude by reiterating my excitement for joining Canadian Tire and our plans for True North. This transformation represents a significant opportunity to create long-term value for our stakeholders. I look forward to meeting many of you over the coming months to hear your thoughts. And with that, and my thanks to the business for delivering a strong first quarter, I will now hand the call back to Greg to speak about our True North strategy.

Thanks, Darren. I'd like to take a few minutes to provide some depth and color on our True North strategy announced in March. Over the past many years, the progress we made with Better Connected became a springboard for True North, which inspired a great deal of introspection for our leadership team and for me. We envisioned higher performance and accelerated value creation, well above our historic levels. But we knew that our growth ambitions meant dispatching old playbooks and fundamentally changing how we work. More simply, we couldn't get there from here. So we spent the last year building a four-year path to reach our higher ambitions, based on a detailed assessment of both our competitive threats and the unique capabilities that set CTC apart. The result was TrueNorth and dozens of initiatives organized across four strategic cornerstones, delivering great modern retail experiences, expanding the sales impact of our coveted loyalty program, anchoring on customer data and insights that grow our business, and by becoming a tech-driven, agile, and efficient company. The first cornerstone, what we call Retail Forward, includes initiatives designed to make us a modern retailer, providing customers great experiences in-store and online. Fundamentally, we are a Canadian retailer, and that's the lens through which we're simplifying our business to drive core retail growth. In recent months, we kept the bank for its retail driving capabilities, announced the divestiture of Helly Hansen to unlock capital, and closed underperforming stores to invest in productive new concepts, refining our retail portfolio. That kicks us off. However, ultimately, this is about driving the core retail metrics that matter, specifically our top line. For the first time, we have three investable store concepts in our largest banners that we can really get behind, which contributed to our Q1 retail sales growth. Our eight modern Marks stores are attracting new customers and demographics and contributed more than half of Marks Q1 growth. Our SportCheck destination sport concept has rolled out in Moncton and Toronto, outperforming our expectations with two more set to open in Q3. And our new and refreshed Canadian Tire Concept Connect stores continue to resonate with customers. With material improvements in NPS drivers, and with 2024 project stores delivering Q1 sales growth at twice the rate of the rest of our network. TrueNorth will also see us show up better for customers online as we hone omnichannel shopping experiences with digital and web investments. In Q1, e-commerce growth outpaced bricks and mortar on the strength of our growing capabilities. Our one digital platform is continuing to deliver better online experiences across all Banner sites. We have faster and easier fulfillment, and our express same-day delivery is now available to nearly 90% of Canadians. In fact, we added 100,000 new ship-to-home customers in the quarter and achieved record NPS results. Stats like these give us conviction for our measured e-commerce ambitions. As we drive retail growth, we are also committed to new approaches and AI tools to transform capabilities like product search and advance even age-old retail fundamentals like store and stock. With more modern stores, sites, digital services, and tools, we will improve customer experiences and drive core retail results. Our second strategic cornerstone, called Triangle Powered Every Day, establishes our Triangle Rewards loyalty program as the foundation of our retail ecosystem. It is the engine of our flywheel. Remember, every $1 of Canadian Tire money redeemed drives $4 of banner sales. So loyalty equals sales. In Q1, we welcomed, registered, and reengaged significantly more Triangle members than we did last year, continuing to establish deeper, more meaningful relationships. An active, registered member is someone we can get to know more personally. It's a customer we can inspire and move across our banners. This creates data, it drives sales, and it is the reason our customer flywheel is spinning faster with every quarter. As we build our internal ecosystem, we're also pushing forward with everyday partnerships like Petra Canada, which has added more active Triangle members and links back to 19 million members. dollars in sales in the quarter, more than 100 million since launch. This illustrates in Technicolor the boost in value we get when we add big brand loyalty partners to our network. It's why we are so thrilled to have announced a new loyalty partnership with RBC in March and with WestJet just today. While there is overlap, our growing partnerships combine to reach tens of millions of customers and members. which means more benefits, more Canadian Tire money, and more data-driven personalization for CTC customers. Across our banners, bank, and partnerships, expect more coordinated strategies that increase triangle membership, engagement, and related sales. Our third strategic cornerstone, called Customer Insights in Action, entails initiatives that leverage our rich customer data to grow our business. We have generational relationships and privileged first-party data that our competitors simply cannot match. We built and used this data through our Better Connected strategy, but through TrueNorth, we will take this to a new level. When people ask me what's different about this strategy, this is key. We are putting customer insights at the core of every one of our strategies and re-engineering our operating model to deliver. Data will be the foundation of our banner strategies. It will retool our one-on-one personalization, delivering offers based on our loyalty members' jobs, joys, and their weekend plans. It will help us expand our market share and even our potential TAN. Though it's still early days, we have already uncovered significant opportunities. A great example is automotive, a business we can grow not just because of our name and legacy, but because the data is telling us we have runway in tires, parts, and auto service. By delivering a data-driven, more customer-centric experience, our automotive acceleration initiative aims to take a bigger piece of the $18 billion automotive pie, including products and service. Having unlocked the right insights, we are unlocking the business, and it's working. In Q1, auto delivered its 19th consecutive quarter of growth and our auto service business is on track to hit new heights this year. This demonstrates what we can do when we combine existing strengths, new AI tools, and customer insights. We have our sights set on a range of both existing and unexpected categories ripe for growth. We are also creating new enterprise value using our data to drive our burgeoning Triangle retail media business and revenue. By leveraging Triangle insights and audiences, TRM offers innovative digital media products that help brand partners reach customers in curated ways through digital and social media and CT sites and apps. We have no doubt that our data sets us apart. In fact, we don't talk about this enough. Beyond uncovering new growth areas and customer loyalty, data is the lifeblood of our custom pricing AI platform called David. which helps us analytically engineer our promotional programs and optimize regular pricing to provide customers the value they crave while managing our margins. We will complete our CTR rollout of David in 2025 and will extend these capabilities enterprise-wide. This is a powerful one-two punch with our margin nerve center, which continues to optimize how we turn value into sales and margin momentum. So expect to hear more. how we're turning customer insights into action and results. We call our fourth and final strategic cornerstone One Team, Agile and Scaled. This is a commitment to transform CTC into a more efficient operating company with the structure and technology to thrive. Over the past year, our introspection included the realization that our industry rewards scale and efficiency. and that we could achieve both by reorganizing how we operate. This started in Q1 with the announcement of our newly designed leadership team, including new chief transformation, chief operating, and chief commercial officer roles. Our new structure brings clarity to how we make decisions, go to market, and deliver results. As our new chief transformation officer, Susan O'Brien brings decades of customer-focused experience to a transformation management office, that will ensure the disciplined delivery of True North initiatives and value over the next four years. This role in this office will institutionalize our transformation and new ways of working. Our new Chief Commercial Officer, Matt Moore, now leads all customer-focused retail, product, marketing, and loyalty strategies to ensure we have an excellent go-to-market strategy. Our new Chief Operating Officer, TJ Flood, will ensure we go to market excellently by leading core retail execution and growth across all our retail banners. As you can imagine, I'm very pleased to have an executive team comprised of both existing and new leaders that is custom made for the chapter ahead. As our reorganization expands and takes root, a streamlined CTC will execute strategies, deliver results, invest capital, apply technology and AI tools, and engage customers through scale and coordination that we have never demonstrated before. And this will be a major unlock. In short, our TrueNorth transformation is a commitment to driving higher performance and accelerated value as a great Canadian retailer and an efficient, modern operating business. As I look back at Q1, it was broadly representative of where we want to go. strong core retail results, expanded loyalty activity within our banners and with partners, customer insights, driving category growth, and the start of a dramatically more efficient operation. These are the strategic cornerstones and sources of value that we will flesh out in increasing detail over the coming quarters and years. And with that, we can open the call to questions.

At this time, I would like to remind everyone in order to ask a question, please press star then 11 on your telephone keypad. To withdraw your question, press star then 11 again. We ask that you limit yourself to one question plus one follow-up question before cycling back into the queue. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Irene Nettel with RBC Capital Markets. Your line is now open.

Thanks and good morning, everyone. Thank you for that presentation on True North. There was a lot in there to unpack. So I guess my first question is, as we look forward over the next 12, 24, 36 months, how should we start to see some of those initiatives materialize? And what are the key elements in terms of sort of the revenue metrics, the profitability metrics? You know, where are you driving to? here with all of that?

Well, thanks. Good morning, Irene. Yeah, I think one of the most significant questions we've got from investors since announcing is just how's the customer going to feel the strategy over time and what are the building blocks of the top line, which might kind of be a way to feather into your question. You know, we certainly know that the path to higher shareholder returns requires a better performing top line. And so this is just a key area of focus for True North. So a few areas that the strategy will focus on in pursuit of that intended outcome. First, we need our businesses to come together digitally and through our personalization capabilities to drive more engagement, not, you know, with just incrementally through banners. Second, we see great opportunities, as I mentioned, to roll out new concepts in each of our large banners. Third, and I touched on this a little bit in my remarks, is we need to be more purposeful with regards to e-commerce. We've built the requisite capabilities, including express same day shift to home, You're seeing us now advertising these capabilities. And this quarter's probably exactly the way we'd like the business to come to us going forward, Irene. It's kind of strong overall top line with growth in bricks and mortar and e-commerce, with e-commerce outpacing bricks, given our lower share and the fact that this is the part of the market that's growing faster. But our strategy and where we continue to be differentiated is winning in store. You know, growth in e-commerce and declines in BRICS is not a winning strategy from our standpoint. Fourth, just growing the appeal of triangle rewards through partnerships with more ECTM in the market and we'll use that data to drive them into our retail system and hope to maintain or grow that four to one incremental sales ratio. And last, we see opportunities to use our customer data and insights to develop what I would say would be better end-to-end strategies across all of our businesses to own customer occasions or life pursuits and not just sell products. As an example, when a Canadian moves, that's an occasion. It's an occasion that our members trust us to participate in more elements of that occasion than we do today. It's a more expansive customer data-driven go-to-market strategy. We're certainly proud of the foundational strength we've built over time, but True North is about taking those assets and turning them into outsized, scalable growth. And we think we've got a path to do just that. Having said that, related to a 12-, 24-, 36-month glide path to your question, As I think I said, it's tough to really forecast consumer behavior with the uncertainty right now. So we're holding true to the metrics that we disclosed when we announced the strategy. When you think about buying for growth, when you think about a North Star margin rate and when you think about some of the OPEC savings we believe to feather through into the business in 2026. We would love to give you broader aspirations and we will when we get some more market clarity, but I think that's probably a way to think about some of the larger building blocks and we'll dimensionalize those in better articulated key metrics as we get more certain around the market.

But that's really helpful. Thank you. And just one quick follow up with respect to Q1 and the outpacing of e-commerce growth. It's really interesting, given the types of categories that outperform, which is not generally what we associate with online purchases. So can you talk about where you're seeing the greatest strength in the e-commerce piece of that omnichannel approach?

Hey Irene, it's TJ. I'll chime in a little bit on that one. I think to be honest, in a lot of ways, the e-commerce growth has been mirroring the POS growth in terms of which categories. I think as Greg alluded to, what we feel really good about is we've been building a lot of capability in this area over the past couple of years and our click and collect NPS scores are absolutely exceptional. And the consumer has resonated with our experience. And as Greg alluded to, we added same day shipped to home in Q4 and it came into Q1 as well and the experience there has been good so we're meeting customers where they are in terms of their choice and where to shop so I wouldn't say that there's a major kind of bifurcation in terms of the categories necessarily I think it's just we put in the effort over the last couple of years to get better in this area and the consumer is responding That's great, thank you Thank you

Our next question comes from the line of Mark Petrie with CIBC. Your line is now open.

Good morning. Thanks. Maybe just following up on that whole True North discussion, I'm just curious about this sort of pivot to an operating model. I know there's an infrastructure element. Obviously, there's a personnel component. But what do you see as the biggest challenges to executing that pivot, and how do you address that?

Yeah, good morning, Mark. Thanks for the question. Yeah, this is a big shift. This is a big shift. You know, I think one of the, when you think back to what we built, you know, during Better Connected, it was about improving just the requisite capabilities required to compete in today's retail business. And it was born from, you know, the harsh reality when COVID hit that we just weren't ready on a number of fronts. When you think about e-commerce, when you think about the infrastructure and the platform supporting order management for e-commerce, when you think about how the stores weren't ready to deal with a more adaptive kind of retail requirement in the business, you think about our supply chain, et cetera. And so all of those were kind of blocking and tackling core retail requisite capabilities to have a better competitive posture. But the one area that we felt was a more modern capability was our customer data. And we put our foot to the floor, so to speak, in terms of investing. in the structure of our data, in the personalization capability that allows us to move customers around the system. And it's what we're seeing from a data and analytics standpoint in that customer data. You've heard me say before that the system is providing with clarity now and conviction. Empirically, we can demonstrate that the system is providing more value than each component of the system can generate on their own. And so when you think about the competitive landscape and scale players taking more share and you look at the way we were operating, we just weren't aggregating the scale that we had created for ourselves and really using that data and all of our offerings, you know, ripping the kind of physical roof off all of our completed procurement to offer more value to that privileged understanding of a Canadian and life in Canada. When you think about just the way we've wired our talent, we've wired many of our down-the-line compensation systems, they're wired to win by banner. There are just these artificial walls in the back office and obviously physical walls in terms of physical store concepts that get in the way of operating, you know, akin to a pure play e-commerce retailer that goes to market with their full completed procurement, you know, available to the customer. And so I think the biggest thing will be mindset with respect to enterprise thinking. To get to your push, I think the biggest thing that we have to our advantage is the customer data pointing us to where the value could be created. And we're starting to see the efforts of personalization in terms of cross-banner shopping metrics. We're certainly seeing it in terms of engagement around spend per member, trip frequency, and You know, new to Banner, you know, the new to Banner, if you just take the Marks concept stores, our ability to kind of move a Triangle member into Marks and experience that concept for the very first time, really exciting. And so I think that's ultimately going to be the compass by which we operate, which is why we keep saying this is a customer-centric transformation. But mindset internally for sure. is something we're going to be very focused on going forward, Mark.

Yeah. Okay. Well, thank you. That's a comprehensive answer. Thanks a lot. I did want to follow up just about the Q2 trends. I didn't actually catch all of the comments there. If you could just reiterate them. And then if you're able to just comment about sort of discretionary and essentials, if those are also tracking in sort of, similar concert to what we would have seen in Q1, obviously different levels, but similar sort of pattern.

Thanks. I'll take the first part of that, Mark. Darren here. So we had a bit of a slow start, but I'd say things have picked up over the last couple of weeks. So we're kind of on track to where we would have expected at this time. And of course, as Greg mentioned, the consumer continues to be more resilient than you know, are showing resilience through the cycle that we're in today. So we're watching for lots of signs, but so far things are tracking as we would have expected.

And maybe I'll just weigh in, Mark, on the discretionary. I'm not sure if you heard it, but for the first time in three years, we saw discretionary spending edge back into positive territory. And, you know, as we move into more seasonable weather here in Q2, I think I think what's an interesting and encouraging signal is we're one more year removed from COVID for some of those discretionary categories. I think what we're starting to see is a replacement cycle. If you think about categories like kids' bikes, patio furniture as an example, they've started the year very strong. All that to say, we think positive discretionary spend is really an encouraging signal for us, especially when you consider that that strength seems to be coming across all household income levels, even among higher debt households who had previously pulled back. So we're feeling good about that signal. I think it's encouraging.

Thank you.

Okay, thanks.

Our next question comes from the line of Tammy Chen with BMO Capital Markets. Your line is now open.

Hi, good morning. I have a quick housekeeping question first. Darren, are you able to quantify that one-time benefit in that retail segment? I think it was in financing and tax rate that benefited the quarter?

Yeah, it's around $10 million, about $5 million in each line.

Okay, got it. And my next question is, I just wanted to talk about the inventory here. So I think from what it looks like this quarter, your dealers in the Canadian Tire retail banner, I think they largely continue to destock. I don't think I stock, just the numbers restock. So can you talk a bit about how the dealers are currently positioning themselves for the rest of this year? Do you think that they will restock more this year or still too uncertain. And if you can talk a bit about in your gross margin here, that the FX component, I think you talked already about freight, what to expect later this year, but if you can give an update on the FX, you've seen some big moves in the Canadian dollar so far this year and how that may impact you through this year on the gross margin. Thank you.

Hey, Tammy, it's TJ. There's a lot in your question there. So I'll tackle the first side of things on inventory. And let me give you a view from a couple fronts, both from a corporate standpoint and then answer your question with respect to dealers. Um, we really, as you know, and as we've articulated over the past call at 12 to 24 months, we focused at the core on the corporate side of things on right sizing our inventory, um, and made a lot of progress on that. Um, but as we mentioned last quarter. We've now turned our attention in 2025 to reinvestment and with a big focus on newness in the assortment. We like to talk about assortment vitality and that newness is really something that we're looking to invest in this year. So given that, we did see that our CTR corporate inventory increased for the quarter. This was driven by purchases to support our growth expectations in auto and the upcoming spring-summer categories. And we also saw a little bit of pull-forward activity as part of our tariff mitigation tactics. So overall, we feel very good about where we are from an inventory standpoint, and we're going to continue to watch demand signals closely. As Greg and Darren both alluded to, the signals so far, the Canadian consumer has been quite resilient, but we'll be watching that very closely and managing our inventory buys accordingly. It's really important with the backdrop we have to remain agile, and that's what we're going to do. At the dealer level, their purchasing patterns have been really closely aligned with sales trends. And as you articulated by the end of Q1, they were down slightly by about 2%. That's probably a function of how strong the winter was. As you look towards the back half of the year, they definitely whittle down their inventory on winter goods, which should help us going forward with replenishment in the back half of the year. So with the customer remaining resilient so far and inventory having coming down from last year and all of the exciting new products that we have, We're seeing so far good demand from dealers, and I do expect there will be some choppiness, but by and large, we expect that their inventory buys will more closely mirror POS than have any type of burn or build stratification. strategy as we go forward here. But as we say, quarter to quarter, it could be choppy.

Tammy, maybe on your last part, which was on FX. So we generally, we hedge the maturity of the dollars within 12 months. So what you're actually still seeing is a little bit of pressure on our average rate, despite the movement in the Canadian dollar. So it takes time for that trend to start hitting us. So we're not getting any tailwinds from that right now.

Okay, thank you. Thank you. Our next question comes from the line of John Zampara with Scotiabank. Your line is now open.

Thank you. Good morning. I wanted to ask about the WestJet partnership, and you shared some metrics on what you've seen from prior deals. I wonder if you can talk about the confidence you have in continuing to achieve incremental sales from incremental partners. Is travel a growing category for Tire, and should we expect additional partnerships still to come?

Yeah, good morning, John. It's Greg. You know, a big part of our True North strategy is, as I said, the embrace of customer data and running our business as a system of businesses, not just banners. And our partnerships are intended to complement the core value of Triangle Rewards and expand the places where Canadian tire money is issued and promoted and I want to keep coming back to the value creation here. When a dollar of issued ECTM comes back into our retail system for redemption, it drives $4 of incremental sales. Ultimately, that's what these partnerships are all about. We're excited about all three of our partnerships, RBC, Petro Canada, WestJet. And they all allow for the acceleration of ECTM issuance and rewards for, you know, linking accounts, in this case, for everyday needs like air travel. And so, you know, these partnerships represent those everyday needs categories that we don't participate in, but our customer does today. And so by linking and establishing these relationships, Triangle shows up to play a more meaningful role in our members' lives and accelerates that issuance, which again, we just turn on all these privilege capabilities around that data and the personalization engine to move them around our system once that initial value has been established for the member. You know, air travel is obviously not a business that we're going to, you know, get ourselves fully into. So to partner in an asset-light way and, again, show up more meaningfully in our members' lives, we think is a great, you know, a great value-creating strategy for us and a great value delivery for our members. Our intent is not to build a massive coalition system. with hundreds of partners like some others have. Our goal for Triangle moving forward is to have a small handful of the highest value signature partners to allow our members to get more value. I think having a small number of the right partners selected by listening to our members really allows us to strategically plan with our partners and jointly market a very clear linking proposition. So that's the way I want you to think about it, John.

Okay, that's great. Thank you for that. And secondly, I wonder if you could expand your comments on the theme of buying Canadian. And to what extent do you think it impacted the quarter? Has it continued or has it changed at all in Q2 today?

It's really tough to tease out, John, especially in Q1. It's our smallest quarter. It's the quarter that's, you know, most impacted by seasonal traffic. So, you know, traffic was up and, you know, from a, I think from a sentiment standpoint, you know, we're seeing our members and we're seeing polls, as I mentioned in my prepared remarks of kind of an intent to shop more, but I, you know, I think it's, I think it's still, it's still relatively early. We've, we've got great data, you know, in our credit card to see what's happening with our competitors. You know, so we'll, we'll be watching that intently. So we, we tried to tease out the impact. We thought that this would be, we thought this would be a question, but we just can't isolate it. Not sure we'll be able to isolate it in Q2 either, but, But Q1 is even harder given the dynamics at play that I just articulated.

Yeah. Okay. Understood. Thank you very much.

Thank you. Our next question comes from the line of Chris Lee with Desjardins. Your line is now open.

Hi. Good morning, everyone. It might be a little bit too early to ask, but I'm just curious. Are you guys noticing any benefits in terms of sourcings from some of your Chinese vendors who might be potentially looking for alternative customers outside of the U.S. because of the tariff impact?

Yeah, maybe I'll take that if TJ may want to weigh in. Again, that's relatively early too. I think, as I explained in my notes, we have a real cross-functional tariff task force at play. I'm really happy with the way the team has come together and galvanized you know, around this, multiple strategies. We bought forward some inventory in Q1. You know, we're negotiating, you know, to try and do everything we can, as I said, to avoid price increases. I think we're being tough but fair, and we are finding opportunities to reduce our COGS and some of the affected categories. I think we're even seeing some some interesting creativity from our vendors coming to the table in terms of different options, different pickup points, etc. I think what's happening in the US with respect to the trade war with China is just really starting to hit factories in China today. And we'll see. We'll see what's happening. We are obviously very active with factories on a regular basis. We're watching what happens in the global supply chain around freight, et cetera. And we'll probably be in a better position to answer a question like that when we come out of Q2.

Great. That's helpful. Maybe a follow-up, just switching gears too. on capital allocation. I'm just curious to see where does M&A rank in terms of your capital allocation priorities? And I'm maybe focusing specifically about a week ago, there were some media reports about the company potentially interested in some of Hudson's Bay's assets. I'm not sure if you can speak to that in particular, but just overall, where does M&A rank in terms of your capital allocation at this moment?

Yeah, maybe I'll take that. I mean, it's an important... It's obviously a critical time in Canadian retail. I think it's been tough for Canadian retailers for many years. And what we're seeing in the first few months of this year is really tough to watch with Canadian retailers that have been around you know, for a long, long time in the categories in which we compete. I think on HBC specifically, you know, you'll notice that the news reports, you know, are based on unnamed sources. So as a practice, we don't comment on rumors and speculation like this, but given the amount of coverage, you know, I think we do feel the need to clarify One thing, and that is our focus, as you heard from us today, is about executing our True North strategy. And so we are therefore not contemplating a wholesale acquisition of HBC's operations. That's just not a good fit for us right now, given all the things that we have going on. As it relates to inorganic plans going forward, You know, on that same vein, we've got a lot of work to do on the core business to ensure that we can sustainably grow the top line and earnings. That's what True North is all about. So our focus now is the development and integration of this broader Canadian retail ecosystem that brings our customers to us on an everyday needs basis. But we have always considered attractive tuck-ins and brands. And this time period is no different on that front.

Great. That makes a lot of sense. Thank you and all the best.

Thank you. Our next question comes from the line of Brian Morrison with TD Cohen. Your line is now open.

Oh, thanks very much. I have a couple of clarification questions while we're on that topic. When we say Q2 retail trends are tracking as expected, does that mean similar to what we just saw in Q1? And does discretionary remain positive at this time? And then also, when we talk about $100 million in OPEX savings for 2026 because of the restructuring and severance and atmosphere, would we be thinking about the operating margin as a percentage of sales remaining constant, less $100 million? Like, is it a true $100 million savings?

Let me try to take those. And, yeah, we're not going to give the, you know, the growth levels for April. Where I made that comment is just relative to our internal plans. Things are, you know, they picked up in the last couple weeks and they were soft at the beginning of the quarter. And, of course, you know, we don't want to get too ahead of our skis. The environment is changing out there. You know, there's lots of green shoots, lots of things to be, you know, happy about. But, of course, we're mindful of looking at the environment and what's going on around us. On your second question, in terms of the $100 million, absolutely, from a True North perspective, those are the savings. I don't want people just to – we haven't given a guidance out there for an operating margin. Of course, we're still going to be investing in the business. We're going to be – we may have inflation in areas of the business. There's a lot to unpack in that, but we do want to get – efficiency so that we can invest back, you know, things like digital, you know, things like omni-channel. There's a lot of areas. So, you know, this is the critical thing to get the company to be more efficient, to be more agile, to be able to move faster and have financial benefits so that we can put back some of that to the business. So more to come, as Greg said later, you know, at the right time, we'll give more color on that, but now it's just not the right time.

Okay. Okay. And then my follow-up question is probably for you as well, Darren. The allowance rate, or excuse me, the allowance rate, the provision within CTFS, it's really remained unchanged or consistent ever since the Trump administration's come into power, and it's a different world with tariffs. I'm wondering if, you know, with this uncertain economy, you've typically been very conservative with your provision, and I'm wondering what the economic outlook is baked into your outlook, into your your economic outlook that's baked into your provision at this point in time?

Yeah, listen, so as you know, I've only been here just over four weeks. The team, as I've gone through with them, does a very comprehensive job of managing this portfolio and the risk. And the way I would describe it right now is things are stable. So when you look at all the key metrics, they remain stable with a very close watchful eye on the future of the business. And I think the other thing to look at just in the benchmarking and what the company did, when COVID, you know, after COVID kind of passed, the company did not go and release a large part of the provisions. So you've got to look at these things in time. You know, I know some of the banks are, you know, providing more, but if you go look at some of their history, you will have seen they would have released more. As things got better, the company stayed conservative. So, you know, that's part of it. But all in all, when you look across the metrics today, everything remains okay. And, you know, the team's got a lot of tactics to manage risk. But, of course, if things change, unemployment rate picks up. If things change, then, of course, there will be some impact on the allowance.

Thank you.

Thank you. Our next question comes from the line of Irene Mattel with RBC Markets. Your line is now open.

Hello again. Just a couple of follow-up questions to some of your answers to the last couple of questions. So first of all, on the credit card data, you said that it gives you visibility on spend elsewhere. How would you categorize or describe your performance in Q1 relative to what you're seeing in the card data?

Listen, I would say that our performance looked good. I mean, we saw growth in spend outside, which gives you the point about the customer is being resilient. And we stacked up well against the spend that we're seeing with others.

Okay, thank you. Helpful. And then coming back to the question about M&A, you've had a lot of success in the past. in buying specific brands. And certainly an iconic retailer like HBC has iconic brands that would be a very natural fit. Should we be thinking that that is the kind of thing you might be interested in? Or even as you look and focus on True North, you might be more reluctant at this time?

Yeah, I think the way to think about it, Irene, is We are always on the lookout for brands that can complement our own brand's portfolio and play a role in a category at an architecture level or play a role in many categories, maybe even cross-banner. We look at many brands on an inorganic basis every year. I don't, I can't really comment on the HBC process per se, but know that, you know, brand acquisition, I think we have very good playbooks for creating value. I think we've demonstrated that with, you know, brands that, you know, we're buying in the, you know, three to $5 million range that are now over a hundred million dollars. And so, so we, we, we do have a value creation playbook there and, You shouldn't think that that would be untoward if you saw us make an acquisition for anything that you thought would fit within our retail system.

Thank you.

Thank you. This concludes the question and answer session. I would now like to turn it back to Greg for closing remarks.

Thanks, Lauren, and thanks, everybody, for your questions and for joining us today. We look forward to speaking with you when we announce our Q2 results in August. Bye for now.

This will conclude today's call. You may now disconnect.