TORONTO — Canadian Tire Corp. Ltd. executives are seeing early signs that consumers could soon ease up on the careful shopping habits they adopted to cope with inflation, but their outlook on the economy is still far from rosy.
"Our customer data tells us that the impact of (cuts to) interest rates has yet to translate into significantly different spending behaviour," said chief financial officer Gregory Craig on a Thursday call with analysts.
"Although trends did improve a little quarter-over-quarter, Canadians are still generally making fewer trips and putting fewer items in their baskets than a few years ago with more of their spend going to essentials."
His observations were echoed by the retailer's chief executive Greg Hicks who has noticed the cost of living and rising unemployment are straining consumers so much that the confidence with which they're spending their money is the lowest he's seen in a long time.
That lack of confidence, he added, is not unique to a specific shopper cohort or household income range because over the past five quarters, spending has declined across every segment.
However, he sees a recent succession of interest rate cuts as "a potential catalyst" to get Canadians to open their wallets again. The cuts have already narrowed the gap between essential and discretionary spending and could be interpreted as "a gradual unlock of consumer restraint."
"But even with the recently announced rate cuts, we still think there's lots to be concerned about in the economy right now," he warned.
"The mortgage renewal cycle is real today and will continue to be real for a couple more years, at least."
The unemployment rate is his biggest worry. Job growth just isn't keeping pace with population growth, he said, "so even with the rate cuts, there's still a wide swath of Canadians that are really struggling right now and it's going to take some time for the easing cycle to affect consumption."
Though consumers are having a hard time, Canadian Tire still managed to record a profit in its third quarter and announced Thursday that it would now pay a quarterly dividend of $1.775 per share, up from $1.75 per share.
The Toronto-based company, which also owns Mark's, SportChek and Pro Hockey Life, achieved a net income attributable to shareholders of $200.6 million, or $3.59 per diluted share in the period ended Sept. 28.
The third-quarter result compared with a loss attributable to shareholders of $66.4 million or $1.19 per diluted share in the same quarter last year, when it recorded a charge related to its deal to buy back the 20 per cent stake in Canadian Tire Financial Services that was owned by Scotiabank.
On a normalized basis, Canadian Tire said it earned $3.59 per diluted share for the period ended Sept. 28 compared with a normalized profit of $2.96 per diluted share a year earlier.
Revenue for the quarter totalled $4.19 billion, down from $4.25 billion in the same quarter last year.
Consolidated comparable sales were down 1.5 per cent compared with a year earlier. Comparable sales at its Canadian Tire stores fell 2.2 per cent, while SportChek comparable sales rose 2.9 per cent. Mark's comparable sales dropped 2.3 per cent.
The results were released as Canadian Tire and its banners are headed into the key winter season where shoppers are not only drawn to stores for holiday gifts but also for cold weather supplies like winter tires, hockey equipment, parkas and other heavy apparel.
However, both holiday and winter shopping are facing challenges this year because weather has been warmer in many corners of the country and the span between Black Friday and Christmas Eve is five days shorter than usual.
Canadian Tire said the shaved-down shopping season could bring more promotional intensity, but it also sees the period as a bellwether.
"We're looking forward to the Christmas season to get a good barometer on whether there's going to be a more fulsome bounce back in discretionary (spending)," said TJ Flood, president of Canadian Tire retail, on the same call as Hicks and Craig.
Beyond the holiday season, the company said it is closely watching foreign exchange and global freight rates.
"This year, we had a little bit of foreign exchange headwind but it's more pronounced next year, so we need to be working through those things in 2025," Hicks said.
This report by The Canadian Press was first published Nov. 7, 2024.
Companies in this story: (TSX:CTC.A)
Tara Deschamps, The Canadian Press
