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Canadian Tire Q2 profit drops on higher spending
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The Canadian Press- Canadian Tire Corp. (TSX: CTC.A) says profits dropped 13.9 per cent in the second quarter as it spent more on advertising, costs associated with its purchase of Forzani Group, and felt the pinch of bad weather on sales.
The Toronto-based retailer reported profits of $105.8 million in the quarter, compared to $122.8 million.
The company spent nearly $30 million more in quarterly expenses, as it dealt with costs associated with buying Forzani, the parent of SportChek and Athletes World. But Canadian Tire also spent more to beef up automotive infrastructure. The company has been in the process of ramping up the offerings and installing interactive kiosks in its automotive department.
“Sales and revenue were strong this quarter and we are continuing to meet our expectations in key areas, such as automotive, kitchen and backyard living,” president and CEO Stephen Wetmore said in a statement.
Canadian Tire, which sells everything from sporting equipment, to hardware, to patio furniture, said its retail sales grew 5.1 per cent to $3.01 billion, due to strong sales in its backyard living, kitchen, and household cleaning departments.
But the company said this growth was partially offset by lower sales in some of its departments, due to the cool, wet weather at the beginning of the quarter.
“In weather-related categories such as outdoor tools and gardening, we had a weak start to the quarter but finished with a strong June and with positive momentum continuing into July,” Wetmore said.
Canadian Tire said retail sales at its gas bars grew 22.8 per cent due to higher gas prices, and the opening of new gas stations along major Ontario highways.
Canadian Tire’s financial services unit took a big hit, with earnings before interest, taxes, depreciation and amortization (EBITDA) dropping 13.4 per cent to $65.8 million.
Revenue in the division decreased 2.9 per cent to $234.8 million, mainly due to the fact that auto club services revenue was reported in the retail division’s results, where it had been included in financial services last year.
Stripping out the effect of that change, Canadian Tire said financial services revenue declined slightly on a small drop in average credit card receivables.
The second quarter earnings were equal to $1.29 per share, compared to $1.50 per share a year earlier. Analysts polled by Thomson Reuters had predicted earnings per share of $1.48 this year.
Canadian Tire said overall revenue at the company increased 4.1 per cent to $2.57 billion from $2.47 billion.
The company has offered $771-million to buy the Forzani Group Ltd. (TSX: FGL), which operates some 500 stores in malls under various banners, including Sport Chek and Athletes World, but also more niche brands like Nevada Bob’s Golf and Hockey Experts.
Canadian Tire has long sold basic sporting equipment such as skates and bikes, but the Forzani purchase will allow it to cater to 18-to-35-year-olds who tend to shop in malls for more specific equipment and trendier brands.
The transaction will make Canadian Tire owner of the No. 1 and No. 2 sporting goods retail chains in the country.
This month, the retailer said it has received clearance from the Competition Bureau for its takeover of Forzani (TSX: FGL).
Canadian Tire is diversifying its offerings as it begins to sell large appliances such as stoves or dishwashers by the end of next year and increases its product assortment at its living aisles — which include kitchens, storage, home decor, and cleaning.
The move will put Canadian Tire in competition with retailers such as home-improvement retailers Home Depot, Lowes, and Rona (TSX: RON), The Bay and Sears department stores and furniture stores owned by The Brick (TSX: BRK) and Leon’s (TSX: LNF).
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