Canadian Tire profit rises to $155M; lower integration costs offset flat sales

TORONTO – Canadian Tire Corp. (TSX:CTC) said Thursday it earned $154.9 million in its second quarter and announced plans to seek a financial partner for its credit card business.

The retailer provided few details on its plan, but said it would reduce the financing risk of funding its credit card assets.

“In recent years, we have been working to better integrate financial services with our retail operations,” Canadian Tire president Stephen Wetmore said in a statement.

“As a result of that work, we are now well-positioned to explore an arrangement that would allow us to increase our financial flexibility while continuing to enjoy the substantial contributions of our financial services business.”

The Canadian Tire financial services business ended the second quarter with about $4.31 billion of accounts receivable — money owed by cardholders — up 6.6 per cent from $4.04 billion at the same time last year.

It said the net credit card write-off rate in the second quarter was 5.86 per cent, an improvement from 7.16 per cent last year, and return on receivables improved to 7.19 per cent from 6.47 per cent in the second quarter of 2012.

For the quarter, Canadian Tire said its overall profit amounted to $1.91 per diluted share, up from $133.7 million, or $1.63 per diluted share in the second-quarter of last year when the retailer had a number of expenses related to its acquisition of FGL Sports, which operates under the Sports Chek and other banners.

On a normalized basis to exclude one-time costs at FGL, Canadian Tire said its most recent quarter’s earnings per share was up 4.4 per cent from a year before.

Overall revenue was $3.02 billion, up one per cent from $2.99 billion in the second quarter of 2012, while retail sales from both corporate and franchised stores totalled $3.56 billion, up 2.1 per cent from $3.48 billion.

The company’s retail segment accounted for most of Canadian Tire’s revenue but its financial services business accounted for $254.2 million of revenue, up 4.8 per cent from $242.5 million in the second quarter of 2012.

Canadian Tire announced plans earlier this year to create a $3.5-billion real estate investment trust to help unlock the value of its property holdings.

The proposed new REIT would acquire a majority of the company’s real estate, including some 250 properties comprised largely of Canadian Tire Retail stores, Canadian Tire anchored retail developments and one distribution centre.

The retailer would retain a significant ownership interest of 80 to 90 per cent of the REIT with the remainder of the REIT’s units offered to the public via an initial public offering anticipated in the fall.

Canadian Tire has over 1,700 retail and gasoline outlets across the country including Canadian Tire stores as well as Mark’s and various corporate and franchised banners under FGL sports, including Sport Chek, Hockey Experts, Sports Experts, National Sports, Intersport and Atmosphere.