Canadian Tire Sales Flat as Inflation-Weary Consumers Spend on Essentials but Cut Back Elsewhere

Consolidated Results

Fourth Quarter

  • Revenue increased 3.9% over the same period last year to $5,340.4 million; Revenue (excluding Petroleum)1 increased 3.1%, with the Retail and Financial Services segments both contributing to growth
  • Consolidated IBT was $752.2 million, up 4.5% compared to the fourth quarter of 2021, and $771.8 million, up 6.2%, on a normalized1 basis
  • Diluted EPS was $9.09, compared to $8.34 in the prior year; normalized diluted EPS was $9.34, compared to $8.42 in the prior year

Full Year

  • Consolidated retail sales were $19,248.8 million, up $984.2 million, or 5.4% over the prior year. Consolidated retail sales, excluding Petroleum, increased 2.4%
  • Revenue increased 9.3% to $17,810.6 million; Revenue (excluding Petroleum) increased 6.3% over the same period last year, with the Retail and Financial Services segments both contributing to growth
  • Consolidated IBT was $1,583.8 million, down 6.9% compared to 2021, and $1,667.5 million, down 4.3%, on a normalized basis
  • Diluted EPS was $17.60, compared to $18.38 in the prior year; normalized diluted EPS was $18.75, compared to $18.91 in the prior year
  • Retail Return on Invested Capital (ROIC)1 calculated on a trailing twelve-month basis, was 12.5% at the end of the fourth quarter of 2022, compared to 13.6% at the end of the fourth quarter of 2021, mainly due to the increase in Average Retail Invested Capital over the prior period

Canadian Tire Corp. Ltd. capped its centennial year with strong growth in its automotive business as demand for auto parts and service helped offset softer spending on non-essential items, the company said. The standout performance of its auto division underscored a broader consumer focus on essential goods and services across the company’s banners as inflation erodes discretionary incomes in Canada.

Canadian Tire, which includes its namesake Canadian Tire stores, PartSource, Mark’s and SportChek, said its consolidated comparable sales rose slightly in its fourth quarter, up 0.3% compared against hefty gains posted in the same period a year ago.

At its Canadian Tire chain, comparable sales were flat in the quarter compared with the 2022 as a sharp spending pullback on non-essential items like bikes and kayaks was tempered by strong automotive parts sales and service.

Overall, Canadian Tire said it earned net income attributable to shareholders of $531.9 million or $9.09 per diluted share for the 13-week period ended Dec. 31, up from $508.5 million or $8.34 per diluted share in 2022. Revenue totalled $5.34 billion, up from $5.14 billion in the same quarter in 2022.

Across the company’s banners, consumer spending has softened since September and is expected to remain muted for the first six months of 2023, he said. “We are expecting a more constrained demand environment as we look forward,” chief executive Greg Hickstold analysts. At the Canadian Tire retail chain, there is evidence of “trade down” from more expensive products to more affordable items, he said.

Through data collected through its credit card users and Triangle rewards loyalty program, Hicks said spending patterns have changed in some surprising ways. “Higher income Triangle members spending growth softened in the quarter relative to previous quarters,” he said, adding that higher income households participated in more discretionary spending during the pandemic.

But lower- and middle-income earners accelerated spending, Hicks said. “We think these are bullish indicators of our increased relevance in a tougher economic backdrop,” he said. “We can provide value to lower income segments of the market.”

Source: Globe and Mail
Source: The Star
Source: Financial Post
Source: Canadian Tire

Home Depot Misses Revenue Expectations for the First Time Since 2019

Highlights

  • Home Depot missed Wall Street’s revenue expectations for the first time since November 2019.
  • The home improvement retailer provided a muted outlook for fiscal 2023 and expects sales growth to be approximately flat.
  • The company attributed the flat outlook to a tougher consumer backdrop and a pivot away from goods toward services.

Home Depot’s revenue fell short of Wall Street’s estimates in its fiscal fourth-quarter earnings report amid a slowdown in the home improvement category. The company also provided a muted outlook for the next year because of a tough consumer backdrop.

Here’s what Home Depot posted, compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

  • Earnings per share: $3.30 vs. $3.28 expected
  • Revenue: $35.83 billion vs. $35.97 billion expected

In the quarter ended Jan. 29, Home Depot reported $35.83 billion in sales, up 0.3% from the 2022 period, which saw $35.72 billion in revenue. The retailer’s reported net income of $3.36 billion, or $3.30 per share, was also 0.3% higher than the 2022 period, which was $3.35 billion, or $3.21 per share.

Amid record levels of inflation, a shift in consumer behaviour and a housing market slowdown, the home improvement retailer has repeatedly beat the Street’s expectations over the last year but fell a bit short in sales estimates. The company attributed that solely to a drop in lumber costs, which had surged in price due to nationwide shortages in fiscal 2021 but are now down about 50% year over year.

“But for that we would have been right in line with our expectations,” Home Depot CFO Richard McPhail told CNBC. “After two years of high volatility, we’ve seen a little more stability in recent weeks and months, but it’s hard to predict lumber prices.”

Home Depot said it expects sales and comparable sales to be approximately flat for the new fiscal year. It projects an operating margin rate of about 14.5%, which is impacted by a $1 billion investment Home Depot is making in wage growth. 

In the quarter, its operating margin was about 33.3%, and executives said they saw “increased pressure from shrink during the back half of the year.”

Home Depot expects a mid-single-digit percent decline in diluted earnings per share. If lumber prices remain at current levels for the remainder of the next fiscal year, the company expects 1% “of pressure to comp sales and an insignificant impact to earnings,” McPhail said.

The retailer issued the muted outlook because it expects some pressure in the goods sector and flat consumer spending, McPhail said. “So we work from kind of a fundamental assumption that consumer spending will be flat. We know that our market has seen a gradual shift that reflects the broader shift in the economy, in consumer spending from goods to services,” he said.

“During Covid, we saw a shift into goods. Over the last really almost two years, we’ve seen a gradual shift back away from goods into services and we think our market has reflected that and we think that that dynamic could put some pressure on our market.”

These days, shoppers are using their discretionary dollars toward experiences and travel as many burn through their savings amid consistent inflation. If that shift continues, the company expects the home improvement market to be down low single digits, McPhail told investors. Still, the company insisted investments Home Depot has made positions it to “take share in any environment” and its confident it’ll overcome any market pressures.

Total customer transactions dropped 6% in the quarter compared with the 2022 period but the average ticket cost – $90.05 – was up 5.8%. The growth in ticket price was largely driven by inflation across categories and demand for new products, Jeff Kinnaird, the company’s executive vice president of merchandising, said.

“After a year of defying gravity, the slowing economy and pressures on consumers have finally caught up with Home Depot,” Neil Saunders, managing director of GlobalData, said in a statement. “To be fair, the final quarter results are not terrible – especially as they come off the back of a long period of extremely good growth – but they nevertheless represent a material slowdown and are the worst quarterly performance in two years.”

Saunders said Home Depot’s earnings reflect a slowdown in the housing market, which is a key driver of spend for the home improvement sector. “Our data show that the number of improvement projects done by consumers fell over the prior year as people conserved cash for other activities over the holiday period.”

Still, despite a relatively stagnant housing market following a red-hot 2021, the retailer thinks high mortgage rates could prove beneficial for its results. “As mortgage rates increase, we see a kind of an interesting dynamic in homeowners who are happy with their fixed-rate mortgage and then decided to improve in place,” said McPhail.

In the quarter, the company saw positive comps in building materials, plumbing, hardware, tools, outdoor and paint and said big ticket transactions were up 3.8% compared to the 2022 period. The company saw strength across categories like portable power, and pipe and fittings, but reported softness in laundry, soft flooring and roofing.

Pro sales outpaced DIY revenue in the quarter, executives said. While its pro backlog for pending projects remained elevated, it’s off its peak from last year.

Overall, the company saw $157.4 billion in sales in fiscal 2022, up 4.1% from fiscal 2021, and $17.1 billion in profit, a small jump from $16.4 billion.

Source: CNBC
Source: Yahoo Finance
Source: ABC News
Source: Home Depot

Walmart Gives Soft Outlook for the Year After Posting Strong Holiday Quarter

Highlights

  • Walmart topped holiday-quarter earnings expectations.
  • Profit for the fourth quarter that surged 76% compared to 2022.
  • The big-box retailer gave a weaker-than-expected outlook for the year ahead.
  • Walmart’s CFO said shoppers are still buying fewer discretionary items, as grocery prices remain elevated.

Walmart topped holiday quarter earnings expectations, as the discounter said it drew budget-conscious shoppers searching for food, gifts and household items at a lower price.

Shares closed up slightly on February 21 after the big-box retailer gave a weaker-than-expected outlook for the year ahead. The company said it expects same-store sales for Walmart U.S. to rise between 2% and 2.5% excluding fuel, in the fiscal year ahead. 

Walmart CFO John David Rainey told CNBC shoppers are still buying fewer discretionary items, as grocery prices remain elevated. He said that factored into Walmart’s predictions for the year ahead. “The consumer is still very pressured,” he said. “And if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods. And so that’s why we take a pretty cautious outlook on the rest of the year.”

Here’s what Walmart reported for the fiscal fourth quarter that ended Jan. 31, according to Refinitiv consensus estimates:

  • Earnings per share: $1.71, adjusted, vs. $1.51 expected
  • Revenue: $164.05 billion vs. $159.72 billion expected

Walmart reported net income of $6.28 billion, or $2.32, up from $3.56 billion, or $1.28, a year earlier. Revenue of $164 billion marked a 7.3% year-over-year increase.

Same-store sales for Walmart U.S. rose 8.3%, excluding fuel. The key industry metric that includes sales from stores and clubs open for at least a year. E-commerce sales jumped by 17% year over year for Walmart U.S. At Sam’s Club, same-store sales rose 12.2%, excluding fuel.

The company is not only the largest retailer in the U.S. but it’s also a grocery powerhouse. That’s a factor that has steadied sales and driven foot traffic as Americans watch the budget because of high inflation. In the holiday quarter, Walmart’s share gains also came from lower- and middle-income shoppers.

Walmart has made progress with a headache that has plagued many retailers: A glut of unsold goods that piled up in store backrooms and wound up on clearance racks. Inventory is roughly flat with a year ago, Rainey said, and is down 3% for Walmart U.S.

Source: CNBC
Source: Markets Insider
Source: Walmart