Canadian Tire Reports Loss as Pandemic Closures Offset Gains Online and at Flagship Stores
Despite strong sales growth online and at its flagship Canadian Tire stores, retailer Canadian Tire Corp. Ltd. reported a loss in its second quarter, as the impact of store closings during COVID-19 affected performance. The Toronto-based retailer reported a net loss attributable to shareholders of $20-million, or 33 cents a share, in the second quarter ended June 27, compared with earnings of $177.4-million, or $2.87 a share, in the same period last year.
Like many retailers, the company was forced to close its SportChek, Mark’s and Helly Hansen stores as a result of public-health measures during the pandemic. Canadian Tire stores in Ontario were also closed for most of April, representing 40% of the company’s store footprint.
Retail sales over all grew by 1.7% in the quarter to nearly $4.4-billion, led by 20.3% growth at the flagship stores, and dragged down by sales declines of 24.9% at SportCheck, 36.4% declines at Mark’s and 46.4% declines at Gas+ locations. Excluding declines in petroleum sales, overall retail sales grew 9.3%.
In April, demand for cleaning products and for “boredom busters” such as toys and games helped to drive growth at Canadian Tire stores. Demand for products to keep families entertained at home expanded in the warmer months to include inflatable pools, bicycles and products for gardening and barbecuing. Shopping behaviour also shifted, as customers bought more items each visit: average basket size rose by 34%.
“Customers are now more than ever looking for a one-stop shopping experience,” chief executive Greg Hicks said on a conference call to discuss the earnings on August 6, citing the “multicategory” product assortment as an advantage for the stores. “We have an extremely relevant assortment around anything to do with the home,” Mr. Hicks said. “We continue to be surprised with the demand in some categories.”
However, the company’s revenue lagged retail sales, partly because its store franchisees cut back on product orders in response to the uncertainty created by the pandemic. Some categories saw sales demand in a single quarter that would typically be expected in an entire year, Mr. Hicks said, and the company’s shipments are still catching up. The company also faced disruptions in the global supply chain that made it difficult to meet demand for some items, which affected revenue as well.
While retail sales at stores grew, Canadian Tire’s revenue for the quarter fell by 14.2% to approximately $3.2-billion. The company said revenue began to recover once stores were fully reopen, growing 24% in June.
Store closings led many shoppers to turn to e-commerce channels. The company’s online sales grew 400% to approximately $600-million, surpassing in one quarter Canadian Tire’s e-commerce sales for all of last year. The pandemic has accelerated the development of e-commerce by two to three years ahead of the company’s expectations, Mr. Hicks said.
The company is now working on improvements at the store level to cope with new shopping habits. Like many other retailers during store shutdowns, Canadian Tire stores quickly introduced curbside pickup. Roughly 60 stores have now introduced an option for customers to notify the store by text message when they arrive for a pickup, a service that is expanding. The company is also building more lockers in stores for faster pickups, as physical distancing in stores is expected to continue but customers may be less willing to wait in lineups for entry during the colder months.
The second quarter “certainly presented some considerable challenges,” said Mr. Hicks. “It was, after all, our first full quarter operating in the eye of the pandemic.” The company’s expenses rose because of COVID-19, with $41.2-million in costs related to pay bonuses for front-line employees and increased safety measures.
Amazon Announces Second Quarter Results
On July 30, Amazon.com, Inc. announced financial results for its second quarter ended June 30, 2020.
- Operating cash flow increased 42% to $51.2 billion for the trailing twelve months, compared with $36.0 billion for the trailing twelve months ended June 30, 2019.
- Free cash flow increased to $31.9 billion for the trailing twelve months, compared with $25.0 billion for the trailing twelve months ended June 30, 2019.
- Free cash flow less principal repayments of finance leases and financing obligations increased to $21.3 billion for the trailing twelve months, compared with $16.1 billion for the trailing twelve months ended June 30, 2019.
- Free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations increased to $19.4 billion for the trailing twelve months, compared with $13.0 billion for the trailing twelve months ended June 30, 2019.
- Common shares outstanding plus shares underlying stock-based awards totaled 517 million on June 30, 2020, compared with 510 million one year ago.
- Net sales increased 40% to $88.9 billion in the second quarter, compared with $63.4 billion in second quarter 2019. Excluding the $582 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 41% compared with second quarter 2019.
- Operating income increased to $5.8 billion in the second quarter, compared with operating income of $3.1 billion in second quarter 2019.
- Net income increased to $5.2 billion in the second quarter, or $10.30 per diluted share, compared with net income of $2.6 billion, or $5.22 per diluted share, in second quarter 2019.
“This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe,” said Jeff Bezos, Amazon founder and CEO. “As expected, we spent over $4 billion on incremental COVID-19-related costs in the quarter to help keep employees safe and deliver products to customers in this time of high demand—purchasing personal protective equipment, increasing cleaning of our facilities, following new safety process paths, adding new backup family care benefits, and paying a special thank you bonus of over $500 million to front-line employees and delivery partners. We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions. And third-party sales again grew faster this quarter than Amazon’s first-party sales. Lastly, even in this unpredictable time, we injected significant money into the economy this quarter, investing over $9 billion in capital projects, including fulfillment, transportation, and AWS.”
Highlights from the quarter:
- Amazon provided a one-time Thank You bonus totalling over $500 million to all front-line employees and partners who were with the company throughout the month of June.
- Amazon introduced Distance Assistant to help keep employees safe by providing them with live feedback on their social distancing via a 50-inch monitor. Amazon made the software and AI behind this innovation available via open source so that anyone can create their own Distance Assistant at no cost and get up and running with just a monitor, computer, and camera.
- Verizon, Infosys, Reckitt Benckiser, and Oak View Group signed The Climate Pledge, the commitment co-founded by Amazon and Global Optimism to achieve net-zero carbon by 2040, a decade ahead of the Paris Agreement.
- Amazon announced it is on a path to run on 100% renewable energy by 2025, five years ahead of schedule. As part of The Climate Pledge, Amazon had previously committed to reach 80% renewable energy by 2024 and 100% renewable energy by 2030.
- Amazon released its 2020 Small and Medium-Sized Business (SMB) Impact Report, highlighting how SMBs selling in its U.S. store have sold more than 3.4 billion products in the past year and created an estimated 1.1 million jobs.
- Amazon Web Service and Slack announced a multi-year agreement to deliver solutions for enhanced enterprise workforce collaboration. Slack will migrate its Slack Calls capability for all voice and video calling to Amazon Chime, AWS’s communications service that lets users meet, chat, and place business calls. Slack is also leveraging AWS’s global infrastructure to support enterprise customers’ rapid adoption of its platform and to offer them data residency – the ability to choose which country or region their data is stored at rest in while fulfilling compliance requirements.
Lord & Taylor, Oldest U.S. Department Store, Goes Bankrupt
Lord & Taylor, known for its upscale fashions and extravagant holiday window displays, sought bankruptcy protection from creditors after a turnaround effort faltered amid the coronavirus pandemic. The oldest U.S. department store filed for Chapter 11 protection in Richmond, Virginia, on August 2 and will submit a reorganization plan with the court. The company, founded in Manhattan by two English immigrants in 1826, said it had about US$137.9 million of debt obligations.
Lord & Taylor’s owner, fashion start-up Le Tote Inc., filed for Chapter 11 along with the retail chain. Le Tote bought the rights to the company’s stores, brand and e-commerce site from Saks Fifth Avenue owner Hudson’s Bay Co. for US$71 million last year. The company, with 38 stores and 651 employees as of the filing, joins a burgeoning list of department-store casualties tied to the virus, which turned malls into ghost towns. Former fashion stalwarts like J. Crew Group Inc. and Neiman Marcus Inc. already filed for bankruptcy protection this year.
Lord & Taylor closed all of its stores temporarily in March as governors ordered residents to shelter in place to combat the spreading virus. In court filings, company officials said they are slowly starting to reopen some stores and have recalled 400 employees.
San Francisco-based Le Tote offers fashion-apparel rentals. Executives at the company have planned to cut the number of Lord & Taylor stores and target younger women with luxury try-on studios, beauty subscriptions and rental drop-off points. Under the deal with Hudson’s Bay, the seller agreed to cover Lord & Taylor’s rent for three years, saving Le Tote US$58 million annually. Le Tote said in a court filing Sunday that its companies reported revenue of about US$253.5 million in 2019.
The economic body blows wrought by the COVID-19 pandemic pushed Le Tote into putting Lord & Taylor into Chapter 11, Ed Kremer, the company’s chief restructuring officer, said August 3 in court filings. Le Tote officials were grappling with “carrying the increased expenses associated with the acquisition, as well as the brick-and-mortar assets which were unusable for a substantial period of time,” Kremer said in the filings. “These unprecedented market developments, compounded by lower-than-expected financial results, adversely impacted liquidity” and left the retailer drowning in debt, he added. Le Total officials cut a deal with lenders to allow them access to cash to fund an effort to sell the company and “maximize value for all stakeholders,” Kremer added.
Source: Financial Post