Canadian Tire Corporation, Limited reported
2001 first quarter consolidated net earnings of $28.7 million, compared to the
$24.2 million recorded in the first quarter of 2000, an 18.9 per cent
increase. First quarter consolidated net earnings per share were $0.37, up
18.2 per cent compared to $0.31 per share recorded in the first quarter of
“We are pleased with our ability to deliver double digit earnings growth
in a difficult operating environment,” said Wayne C. Sales, president and
chief executive officer, Canadian Tire Corporation, Limited. “We had strong
sales performance in hardware, housewares and home improvement; however, the
timing of the start of the Spring selling season can cause variation in our
seasonal business. In March, we experienced a significant impact in our
seasonal business compared to 2000. April consumer spending on seasonal goods
reversed this trend and increased nicely,” added Sales.
The increase in earnings was primarily due to strong contributions from
Financial Services — including a total positive earnings impact of $8 million
from the divestiture of Hamilton Discount Corporation Limited and a third-
party portfolio of receivables — and from Petroleum. During the first quarter
the Corporation’s retail business was negatively impacted by the shift of
consumer spending in the Spring selling season into the second quarter, and by
incremental expenses compared to the same quarter last year associated with
the continued development of growth initiatives including PartSource and the
Corporation’s consumer online business. As a result, Canadian Tire Retail
total and comparable store sales, and earnings contributions, were impacted.
Consolidated gross operating revenue for the first quarter of 2001 was
$1,135.3 million, up 2.8 per cent from the $1,104.3 million recorded in the
first quarter of 2001. The increase in gross operating revenue was due to
growth in all three business units, led by an increase of 14.6 per cent in
Financial Services. Petroleum experienced a 3.7 per cent increase in gross
operating revenue in spite of an industry volume decline during the quarter,
while Canadian Tire Retail gross operating revenues were up only 1.5 per cent
from the same quarter last year, due to the unseasonable weather conditions
FIRST QUARTER OPERATIONAL HIGHLIGHTS
– Four new-format stores were opened, bringing to 237 the total number of
new-format stores that have been opened since the rebuilding program
was initiated in 1994.
– “Next Generation” merchandising, offering improved sightlines,
navigation and expanded assortments, was introduced in those four new-
format stores and retrofitted in 16 existing stores.
– For the first time in the Corporation’s history, direct shopping via
phone or online from the annual catalogue was introduced.
– The product assortment available to shoppers visiting
www.canadiantire.ca was expanded to 12,000
products, including 4,000
available from the catalogue.
– PartSource, the Corporation’s standalone specialty automotive parts
chain, opened one new store bringing the total to 29. PartSource also
progressed significantly in completing the conversion of recently
acquired Auto Village/Drivers stores to the PartSource format.
– Financial Services continued its strategic progress in simplifying its
business structure including the divestiture of Hamilton Discount
Corporation Limited, while increasing performance from its continued
investments in Canadian Tire-branded products and services.
“Our focus on building shareholder value and in investing in our future
growth and leadership remains unchanged. I am pleased with our progress on our
strategic agenda and have great confidence in our ability to drive our
organization to a new level of performance,” added Sales.
The Corporation reaffirms its outlook for an increase in consolidated net
earnings in the range of seven to nine per cent in 2001 and to increase gross
operating revenues in the range of six to eight per cent.
On March 1, 2001 the Board of Directors declared a dividend of $0.10 per
share on each Common and Class A Non-Voting share. The dividend is payable on
June 1, 2001 to shareholders of record on April 30, 2001.
Canadian Tire Corporation, Limited (TSE CTR.A, CTR) — the country’s
most shopped retailer — offers a unique mix of products and services through
three distinct, yet inter-related businesses. Canadian Tire Retail and the
Associate Dealers together form one of Canada’s best-known and most successful
retailers, offering customers the convenience and leadership of three
specialty stores under one roof — Automotive, Sports and Leisure, and Home
Products. Since the launch of its webstore at
www.canadiantire.ca and phone
order at 1-866-SHOP-CTR, Canadian Tire has become one of a few retailers in
Canada to offer customers an integrated shopping experience using all of the
key shopping channels available today, including stores, online, by phone and
from the catalogue. Canadian Tire Financial Services manages related financial
products and services for retail and petroleum customers, and also markets
other value-added products to our customers. Canadian Tire Petroleum is one of
the country’s largest independent retailers of gasoline, with 207 outlets.
With 443 Canadian Tire Associate Stores serving communities nationwide,
Canadian Tire Corporation, Limited and the Associate Dealers together employ
more than 38,000 Canadians.
2001 First Quarter Report to Shareholders
Dear Fellow Shareholder,
The business and operating environment we entered in the first quarter of
2001 had a high degree of uncertainty about both economic growth and the
impact of anticipated weather patterns on seasonal retail businesses.
Within this environment, we are pleased to deliver consolidated net
earnings of $28.7 million, an improvement of 18.9 per cent in the first
quarter compared to the same period last year. Earnings per share were $0.37
per share in the first quarter, up 18.2 per cent from $0.31 per share in the
first quarter of 2000. Our earnings improvement was driven primarily by
contributions from our Petroleum and Financial Services businesses, including
a gain on the divestiture of Hamilton Discount Corporation Limited.
Gains in these two businesses more than compensated for reduced earnings
and modest revenue growth in our Canadian Tire Retail business. We are pleased
with our sales performance in hardware, housewares and home improvement;
however, the timing of the start of the Spring selling season can cause
variation in our seasonal business. In March, we experienced a significant
impact in our retail business compared to 2000. April consumer spending on
seasonal goods reversed this trend and increased nicely. Earnings in our
retail business were also impacted by incremental expenses compared to the
first quarter in 2000 associated with the continued development of growth
initiatives including PartSource and our consumer online business.
While we are pleased with our continued progress in delivering net
earnings improvement, our results also clearly demonstrate the need to
continue our focus of driving higher levels of performance and growth in our
core retail business.
As you will read in the following pages, Canadian Tire is making solid
progress on our strategic agenda. We are working on two distinct initiatives
(i) delivering superior operating performance while driving down costs in the
short-term, and (ii) designing our strategic growth roadmap for the future.
Your management team is committed to success on both fronts. Canadian Tire
will continue to be an organization that shapes the landscape in North
Wayne C. Sales
President & Chief Executive Officer
Management’s Discussion and Analysis
Canadian Tire Corporation, Limited (“Canadian Tire” or the “Corporation”)
comprises three business units Canadian Tire Retail (“CTR”), Canadian Tire
Petroleum (“Petroleum”) and Canadian Tire Financial Services (“Financial
The 2.8 per cent increase in consolidated gross operating revenue during
the quarter was due to growth in all three of the business units, led by a
14.6 per cent increase in Financial Service’s gross operating revenue.
Consolidated net earnings year-over-year increased by 18.9 per cent as a
result of strong earnings contributions by Financial Services and Petroleum
that more than offset the decline in operating earnings recorded by CTR. On a
per share basis, the rise in consolidated net earnings was only slightly less
at 18.2 per cent as the weighted average number of shares outstanding
increased to 78.6 million from 78.2 million a year earlier.
Review of Operations
This discussion of the Corporation’s business units reviews their
operational and financial performance in the first quarter of 2001 compared to
the same period of 2000.
Canadian Tire Associate Dealers reported first quarter retail sales that
were relatively flat compared to the same period last year. This performance
derives from a 5.2 per cent reduction in comparable store sales, offset by
sales increases attributable to new stores. Comparable store sales were
impacted by the shift in consumer seasonal spending into the second quarter
because of unseasonable weather.
CTR’s gross operating revenue increased 1.5 per cent reflecting quarterly
shipments that were 1.9 per cent higher than in the first quarter of last
Operating earnings were 24.0 per cent lower in the quarter than in the
same quarter of 2000 as a result of higher expenses associated with the
continued investment in CTR’s growth initiatives, which are designed to
enhance future earnings. Increased expenses associated with these growth
initiatives comprise $7 million associated with the 2001 expansion of CTR’s e-
commerce offering and $4 million for PartSource, including the amortization of
previously capitalized expenses and higher operating costs that reflect the
large number of new stores.
During the first quarter, CTR opened four additional new-format stores,
bringing to 237 the total number of new-format stores that have been opened
since the rebuilding program was initiated in 1994. The total store network
increased to 443 stores at the end of the first quarter.
“Next Generation” merchandising, which offers customers improved sight
lines, easier navigation and expanded assortments in hardware, home
improvement, housewares and tires, was incorporated in the four stores opened
to date in 2001 and retrofitted in 15 existing new-format stores. Since the
launch of this program, 108 stores have incorporated the Next Generation
CTR offers customers an integrated shopping experience using all the key
shopping channels available today, including stores, online, phone and, for
the first time in the Corporation’s history, national direct shopping via
phone or online from the annual catalogue. The e-commerce offering on
www.canadiantire.ca has been expanded to 12,000
products and now includes
4,000 products from the catalogue.
PartSource, the Corporation’s stand-alone automotive parts retail chain,
also opened one new store in the first quarter, bringing the total to 29 of
these specialty stores in operation. Complete conversion of the six acquired
Auto Village/Drivers stores to the PartSource format is expected by mid-2001.
Petroleum’s quarterly gross operating revenue rose by 3.7 per cent as
gasoline prices across the industry were on average higher over last year,
reflecting the higher cost of crude oil. Industry gasoline litre sales volume
declined by 3 per cent in the quarter, while Petroleum’s volume sales were
down 0.9 per cent, indicating a further gain in market share.
Operating earnings increased 14.1 per cent as expenses continued to be
Financial Services’ gross operating revenue increased primarily due to
growth in credit charge receivables balances during 1999 and 2000 attributable
to portfolio conversions of Canadian Tire retail cards to the Options
MasterCard, a higher number of new accounts and the introduction of Canadian
Tire ‘Money’ on the Card. Also, the larger base of cardholders created in 2000
allowed for significant growth in revenues from the sale of insurance products
to credit card holders in the first quarter.
Operating earnings increased 65.0 per cent in the first quarter. A major
factor contributing to this performance was a total positive impact of $8.0
million from the sale of $135.0 million in non-securitized third-party credit
portfolios, including the sale of Hamilton Discount, a stand alone subsidiary
dedicated to the third-party credit business. These sales reflect Financial
Services’ continued initiative to simplify its business structure and
processes to reduce operating expenses and focus its resources on building its
Canadian Tire branded credit card and MasterCard portfolios. First quarter
operating earnings also benefited from earlier investments in the re-launch of
Canadian Tire branded credit cards under the new Canadian Tire ‘Money’ on the
card loyalty program. First quarter operating earnings, before the benefit of
the sale of non-securitized third-party credit portfolios, were strong, up
$3.6 million or 20.1 per cent.
In the quarter, Canadian Tire continued its comprehensive strategic
review of the Corporation’s businesses and the opportunities for long-term
growth. While the strategic priorities and the timetable for their
implementation are being developed, management is committed to improving near-
term earnings by continuing to invest in existing programs designed to
increase total and comparable store sales and to significantly drive down
costs. The strategic review will result in the development of a long-term
strategic plan, which will include the identification of new business
opportunities. The review will also ensure that the Corporation has the
capital structure and competencies to realize appropriate returns from any
A primary objective of Canadian Tire is to maintain consistently strong
earnings and cash flows, as well as a strong capital structure. This is
essential to ensure that the Corporation maintains its ability to fund future
growth at competitive rates and to build long-term shareholder value.
Canadian Tire’s objectives in selecting appropriate funding alternatives
includes managing its capital structure in such a way as to diversify its
funding sources, minimize its funding costs and risk and optimize its credit
rating. Canadian Tire continues to have ready access to debt markets at
competitive interest rates.
Equity – The book value of Common and Class A Non-Voting Shares at the
end of the quarter was $18.98 per share compared to $17.58 at the end of the
first quarter of 2000.
During the first quarter of 2001, the Corporation issued 286,852 Class A
Non-Voting Shares under various corporate and Dealer employee profit-sharing
programs as well as under the Corporation’s stock-purchase, stock-option and
dividend-reinvestment plans. In 2000, 1.8 million shares were issued under
The issuance of Class A Non-Voting Shares during the quarter was offset
by the purchase of 200,000 of these shares under the Corporation’s Normal
Course Issuer Bid Program (“Issuer Bid Program”) on the Toronto Stock
During 2001, the Corporation proposes to purchase up to 2.7 million Class
A Non-Voting Shares through its Issuer Bid Program to offset the expected
dilutive effect on earnings per share of various programs. A further 3.4
million of these shares may be purchased through the Issuer Bid Program if the
purchases can be made on terms that serve the best interests of the
Corporation and its shareholders.
Shares Outstanding – At March 31, 2001 there were 75,216,186 Class A Non-
Voting Shares and 3,423,366 Common Shares outstanding; this compares to
75,129,333 Class A Non- Voting Shares and 3,423,366 Common Shares outstanding
at December 30, 2000.
Dividends – Dividends declared on Common and Class A Non-Voting Shares
were $8 million in the quarter, unchanged from the same period of 2000.
Short-term Debt – The Corporation has a Commercial Paper program with an
$800 million authorized limit. At the end of the quarter, $412.7 million of
commercial paper was outstanding. No commercial paper was outstanding at
December 30, 2000.
Credit ratings for the Corporation’s commercial paper at the end of the
quarter were “R-1(low)” from Dominion Bond Rating Service Limited (“DBRS”) and
“A-1(low)” from Standard & Poor’s harmonized Canadian national scale
commercial paper rating.
The Corporation also has committed lines of credit that are equal to or
greater than the maximum projected amount of outstanding commercial paper
balances; none of these lines has been drawn upon. Undrawn committed lines of
credit were $800 million as at March 31, 2001.
Long-term Debt – In order to gain access to debt markets in a timely
manner as required, Canadian Tire has filed a shelf prospectus with provincial
securities commissions for the issuance of $500 million of Medium Term Notes.
This program is evaluated every two years. The last renewal was completed in
December 2000. Long-term debt, including the current portion, was $1,115
million at March 31, 2001, unchanged from December 30, 2000.
The Corporation’s long-term debt is currently rated “A(low)” from DBRS
and “BBB+” under Standard & Poor’s harmonized corporate debt rating program.
Like most issuers, Canadian Tire has provided covenants to certain of its
lenders. All of the covenants were complied with during 2001 and 2000.
The Corporation’s capital expenditures, working capital needs, dividend
payments and other financing needs, such as debt repayments and share
purchases under the Issuer Bid Program, are funded from a combination of
sources. In the first quarter of 2001, funding was comprised of $413 million
from the issuance of commercial paper, $80 million of cash generated from
operations, and $135 million from the sale of Hamilton Discount Corporation
Limited (HDCL), of which $75 million was used to extinguish HDCL’s debt to the
2001 Capital Program
Canadian Tire’s 2001 capital requirements, which are determined on a
consolidated basis, are still expected to total just over $422 million.
Of the $70 million of capital invested in the first quarter of 2001, $56
million was spent on Real Estate projects associated with the roll-out of new-
format stores and $8 million was spent on CustomerLink.
Sources of Liquidity
The Corporation has access to funding well in excess of its 2001
In 2001 it intends to fund its capital program through a combination of
cash flow from operations, improvements in working capital, the use of both
commercial paper (up to $800 million available) and medium-term note ($500
million available) programs and additional credit card receivable
securitization. The Corporation is also exploring the potential for a real
estate based financing transaction.
Working Capital – The Corporation’s commitment to better manage working
capital resulted in a reduction in net working capital of $150 million in
2000. In the first quarter of 2001, as usually happens in the first quarter of
each year, seasonal patterns in Canadian Tire’s business resulted in an
increase in net working capital. In this quarter, while over $72 million in
cash was generated from operations, net working capital increased by $500
million and, as a result, $428 million of cash was used to fund net operating
activities. The first-quarter change in working capital included a $340
million ($227 million in 2000) reduction in accounts payable, an $85 million
($60 million in 2000) increase in accounts receivable and a $56 million ($2
million in 2000) increase in inventory as the Spring selling season was
delayed due to weather.
Cash and Short-term Investments – As at March 31, 2001 Canadian Tire’s
cash and short-term investments totaled $236 million, an 80 per cent increase
from the $131 million held at December 30, 2000. Short-term investments held
at the end of the quarter included Canadian and United States’ government-
guaranteed securities and high-quality commercial paper.
During the first quarter of 2001, cash generated from operations totalled
$72 million the same level as in the first quarter of 2000. First quarter cash
flow from operations in both years was $0.92 per share.
Canadian Tire Financial Services Receivables – The objective of the
Corporation’s credit charge receivables securitization program is to provide
Financial Services, and the Corporation, with a cost-effective, alternative
source of funding. The securitization of credit charge receivables is an
integral part of the program for funding growth.
In the first quarter of 2001, gross credit charge receivables were 17.1
per cent lower than at December 30, 2000 reflecting the sale of the third-
party credit portfolios during the quarter. Financial Services owned $265
million of the net credit charge receivables at the end of the quarter. The
balance of the credit charge receivables is securitized through the sale of
ownership interests in the credit charge receivables to the Canadian Tire
Receivables Trust(R) (the “Trust”). During 2001, the Corporation expects its
gross credit charge receivables to grow by approximately $200 million. The
majority of this growth will be funded from the sale of additional receivables
and from the sale of HDCL.
The success of these programs is due primarily to the Trust’s ability to
obtain funds by issuing debt instruments of the highest credit rating. As of
December 30, 2000 the Trust’s asset-backed Commercial Paper program had a
rating of “A-1 (high)” from CBRS and “R-1(high)” from DBRS. The Senior Notes
received a rating of “AAA” from CBRS and “AAA” from DBRS. In all cases, these
are the rating services’ highest categories. The Subordinated Notes have a
rating of “AA” from CBRS and “A(high)” from DBRS. The harmonized ratings on
these debt instruments from the combined operations of Standard & Poor’s and
CBRS has yet to be announced.
Canadian Tire continues to have a strong balance sheet and financial
ratios. These allow the Corporation relatively easy access to funding from
financial markets. It is the Corporation’s long-standing policy that the ratio
of long-term debt to total capitalization not exceed 50 per cent. Long-term
debt as a percentage of total capital decreased to 36.8 per cent from 42.9 per
cent at the end of 2000.
The current ratio at the end of the quarter was 1.31 compared to 1.41
at December 30, 2000. At the end of the quarter interest coverage on a cash-
flow basis, after adjusting earnings from operations for depreciation and
amortization, was 5.1 times compared to 4.5 times a year earlier.
Canadian Accounting Guideline 12
In the second half of 2001, Canadian issuers will adopt Canadian
Accounting Guideline 12, which establishes new conditions applicable to
accounting for securitized credit charge receivables. Canadian Tire is
reviewing the impact of the provisions of Canadian Accounting Guideline 12 and
expects to continue to account for its securitizations as sales of
receivables. Accordingly, gains would have to be recognized on the sale of new
securitizations. As the Corporation has already established an allowance for
uncollectible accounts related to the entire credit charge receivables
portfolio, management expects no material impact on earnings in 2001 from the
adoption of this new accounting standard.