Canadian Tire faces higher inventory levels after late spring

Canadian Tire Corp. ltd. faces higher than usual inventory levels after a late warm weather sales start combined with early shipments of fall and winter product

Canadian Tire Corp. ltd. faces higher than usual inventory levels after a late warm weather sales start combined with early shipments of fall and winter product.

The company had additional merchandise inventory of $465.6 million at the end of its most recent quarter, an increase of approximately 18% over the same period last year, due to inventory in transit higher and more spring and summer merchandise available.

The situation raises fears that the retail giant could experience similar excess inventory problems and markdowns that US retailers have warned of.

But Greg Hicks, president and CEO of Canadian Tire Corp., said he was pleased with the company’s ability to manage inventory levels “especially given what we’re seeing with large retailers south of the border”.

“We are happy with our inventory levels and see no significant margin risk or additional markdown requirements to liquidate inventory,” he said Thursday during a call to discuss the company’s second-quarter results. the society.

The rise in merchandise inventories at the end of June partly reflects a later start to spring this year, Hicks said. The company saw “good movement on these products in July once the warmer weather finally arrived,” he said.

Inventory levels also reflect more than $260 million of goods in transit for fall and winter categories, which the company ordered early to ensure minimal supply chain disruptions, Hicks said.

Still, TJ Flood, president of Canadian Tire Retail, said store dealers “are a bit heavier in a few spring and summer categories and…probably wish they had fewer bikes and kayaks.”

But he said lower sales of items like bikes, kayaks and paddle boards were offset by sales of plumbing and auto maintenance.

Canadian Tire reported lower second-quarter profit than a year ago despite double-digit revenue growth.

The company, which has retail, financial services and real estate segments, said its net income attributable to shareholders was $145.2 million or $2.43 per diluted share for the quarter. , down from $223.6 million or $3.64 per diluted share a year earlier.

Revenue for the three months ended July 2 was $4.4 billion, up 12.4% from $3.9 million in the same quarter of 2021.

Overall retail sales increased 9.9% and comparable sales excluding oil increased 5%.

Canadian Tire’s comparable retail sales growth increased by 3.9%. Flood said transactions were up while the average number of items in each transaction was down and the price per item was up.

Same-store sales for the Mark’s banner rose 20.9% after increasing 43.2% in the same period last year.

Hicks said the store’s brands, such as Levi’s, Carhartt and Timberland, help attract customers under 30 — an important demographic in retail.

Canadian Tire Financial Services revenue increased 15%, driven by growth in accounts receivable and growth in credit card sales, due to increased customer activity and new account acquisition.

The company recorded a one-time expense of $36.5 million in the quarter after officially closing its Helly Hansen operations in Russia and exiting the market.

Irene Nattel, an analyst at RBC Dominion Securities Inc., said Canadian Tire’s “messy quarter” masked the company’s “strong underlying performance.”

She said underlying business demand trends remained strong, with retail banners delivering strong revenue growth despite supply chain headwinds.

This report from The Canadian Press was first published on August 11, 2022.

Companies in this story: (TSX:CTC.A)

Brett Bundale, The Canadian Press