Canadian Tire Profit Falls 30% Even as Sales Gain Despite High Inflation
Canadian Tire Corp. Ltd.’s profits fell by more than 30% in the second quarter even amid increased sales, as the company incurred costs related to an operational efficiency program and to pulling its Helly Hansen business out of Russia. Canadian Tire said that demand for its products remains healthy, even in an inflationary environment. Shoppers have been returning to physical stores in greater numbers as COVID-19 restrictions have eased, and e-commerce sales remain higher than prepandemic levels, according to the company.
However, Canadian Tire is facing higher than usual inventory levels after a late start to warm weather sales combines with early shipments of fall and winter products. The company had an additional $465.6 million in merchandise inventories at the end of its most recent quarter, an increase of about 18% compared with the same period in 2021, due to higher in-transit inventory and more spring and summer goods on hand.
The situation raises concerns that the retail giant could experience similar excess inventory issues and markdowns U.S. retailers have warned about. But Greg Hicks, president and CEO of Canadian Tire Corp., said he’s pleased with the company’s ability to manage inventory levels “especially considering what we’re seeing with large retailers south of the border.”
Higher merchandise inventories at the end of June partially reflected a later start to spring this year, Hicks said. The company recorded “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 the stores’ dealers “are a little heavier in a few spring and summer categories and … probably wish they had fewer bikes and kayaks.” But he said the decline in sales of items like bikes, kayaks and paddleboards was offset by sales in plumbing and auto maintenance.
Canadian Tire reported a lower second-quarter profit compared to a year ago despite double-digit revenue growth. The company, which has retail, financial services and real estate segments, reported its net income attributable to shareholders totalled $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 rose 9.9% and comparable sales, excluding petroleum, gained 5%.
Canadian Tire retail comparable sales growth was up 3.9%. Flood said transactions were up while the average number of items in each transaction were down and the price per item increased.
Irene Nattel, an analyst with RBC Dominion Securities Inc., said Canadian Tire’s “messy quarter” masked the company’s “solid underlying performance.” She said the company’s underlying demand trends remained strong, with the retail banners delivering strong revenue growth despite supply chain headwinds.
To view the full financial results, visit the Canadian Tire website.
Home Depot’s Sales Lifted by Higher Prices, Demand From Builders
Home Depot Inc surpassed estimates for quarterly results as demand from builders and higher prices helped the biggest U.S. home-improvement chain cushion the blow from a drop in store visits. Customers who bought homes during 2021’s housing boom are still driving demand for home-improvement chains even as the explosive growth seen during the peak of the pandemic has cooled.
Home Depot reported bigger-than-expected comparable sales growth of 5.8% in the second quarter, but that was below the average of 14% in the corresponding periods of the past two years. Commerce Department data also showed U.S. homebuilding fell to the lowest level in nearly a year and a half in July due to higher mortgage rates and prices for construction materials.
However, Home Depot has not yet seen an impact on its business from broader pressures in the housing market, buoyed by a healthy project backlog for professionals and steady demand from do-it-yourself customers, chief executive Edward Decker said.
“Well over half the homes in the United States (are) over 40 years old. (That) supports home improvement for some time to come,” Decker said on an earnings call. Per-share earnings of $5.05 for the second quarter topped Refinitiv IBES estimates of $4.94. Home Depot shares rose more than 3% to $324.42.
Home Depot recorded a 3% drop in customer transactions in the reported quarter and maintained its fiscal 2022 forecasts, but still reported record quarterly results on demand from professionals. The division catering to professionals including remodelers, handymen and plumbers brings in more of Home Depot’s sales than for rival Lowe’s Cos Inc.
“During the second quarter, both pro and DIY sales growth was positive, with pro outpacing DIY,” noted Jeff Kinnaird, the executive vice president of merchandising, during the earnings call. Sales per retail square foot grew 5.7% compared to the same quarter last year.
Net income for the quarter rose to $5.17 billion, up 7.6% from the prior year. Net sales grew 6.5% from a year ago, which the company said marked its highest-ever quarterly sales.
To view the full financial results, visit the Home Depot website.
The Home Depot Names Ted Decker Chair of the Board
The Home Depot® has announced that its Board of Directors has elected CEO and President Edward “Ted” Decker as chair of the board, effective Oct. 1, 2022. He will succeed Craig Menear, who will retire as chair effective Sept. 30, 2022.
“During Ted’s tenure as CEO and a member of the board, we have witnessed firsthand his passion for the customer experience and our associates, and we look forward to continuing to work with him as chair,” said Greg Brenneman, the board’s lead director. “On behalf of the Board of Directors, I want to thank Craig for his unwavering commitment to The Home Depot’s values and his visionary leadership, which established a solid foundation for the long-term success of the company.”
Decker, a 22-year veteran of The Home Depot, was named CEO in March 2022. He was named president and chief operating officer in October 2020. Decker joined The Home Depot in 2000 as a director of business valuation and has held numerous strategic positions across the company.
Walmart Sticks With Second-Half Outlook After Earnings Beat Expectations
Walmart announced that sales grew more than 8%, but profits tightened in the fiscal second quarter, as consumers turned to the discounter for groceries and essentials. The retailer’s results surpassed analysts’ expectations, but echoed its profit warning in July, when Walmart said inflation-pinched shoppers were buying less high-margin discretionary merchandise like apparel as they spent more on necessities.
Walmart expects those spending patterns to persist. It reiterated its forecast for the back half of the year, even as it sells through a glut of inventory. It expects same-store sales for Walmart U.S. to grow by about 3%, excluding fuel, for the second half of the year, or about 4% for the full year. It anticipates adjusted earnings per share will decline between 9% and 11% for the full year. “We expect inflation to continue to influence the choices that families make and we’re adjusting to that reality so we can help them more,” CEO Doug McMillon told analysts.
Here’s what Walmart reported for its second quarter ended July 31, compared with Refinitiv consensus estimates:
- Earnings per share: $1.77 adjusted vs. $1.62 expected
- Revenue: $152.86 billion reported vs. $150.81 billion expected
Walmart’s net income for the quarter rose to $5.15 billion, or $1.88 per share, compared with $4.28 billion, or $1.52 per share a year earlier. E-commerce sales rose 12% compared with the year-ago period and 18% on a two-year basis.
More high-income consumers, penny-pinching
Some of Walmart’s sales gains came from inflation, which is driving up prices of food and other items. It also got a boost as families across income levels shopped at its stores and website.
CFO John David Rainey told CNBC the retailer’s reputation as a discounter is attracting more middle- and high-income shoppers. About three-quarters of Walmart’s market share gains in food came from customers with annual household incomes of $100,000 or more. He said Walmart is seeing signs of a budget-strapped consumer who is trading down “in terms of quality and quantity,” too. For example, he said, shoppers are increasingly using credit more than debit, he said. They are opting for smaller packages of food and buying items like canned tuna and beans instead of deli meats and beef.
Walmart’s own brands, which typically cost less, have also gained momentum. Sales of the private-label products are growing two times as fast as in the first quarter, Rainey said.
The company reported low double-digit comparable sales growth in grocery and high single-digit gains in health and wellness. Sales of general merchandise fell mid single digits, due to softness in electronics, apparel and home products, Walmart said. Back-to-school sales are off to a strong start, as parents buy backpacks and other supplies, Rainey said.
Walmart is offsetting profit pressure by chasing new ways to make money, too, like its subscription service Walmart+. It announced that members who belong to the program will get access to Paramount+ for free starting in September.
Selling through excess inventory
Both Walmart and Target issued warnings in recent months that they needed to discount some items to try to get them off of shelves and out of store backrooms before the all-important holiday season, which would hit profits in the near term. Walmart’s inventory levels in the U.S. were up 25.6% in the second quarter compared with a year ago, which the company said was mainly due to inflation and higher levels of general merchandise.
Rainey told CNBC that 40% of the $11 billion of higher inventory reflects increased costs of goods from inflation. About $1.5 billion is the amount that Walmart would like to “wave a magic wand” to make disappear, he said.
Walmart is selling through that excess merchandise with markdowns and has “canceled billions of dollars in order to help align inventory levels with expected demand,” Rainey said on an earnings call. He estimated that about 15% of the company’s inventory growth is above the levels that it wants.
McMillon told analysts on the conference call that Walmart has found ways to cut costs, too. For example, he said Walmart reduced the number of shipping containers in its system by more than half from first-quarter levels to bring them much closer to historical averages, he said.
He said Walmart will have a cleaner inventory position by the time Halloween rolls around. “I expect a strong finish to the back-to-school season and we will quickly transition to the holidays,” he told analysts.
Walmart’s membership-based warehouse club, Sam’s Club, has also attracted new customers amid inflation. Membership hit an all-time high in the quarter. Same-store sales for the club grew 9.5%, excluding fuel, slightly below the 10.1% expected, according to StreetAccount.
To view the full financial results, visit the Walmart website.
Lowe’s Sees Hit to Annual Sales as Inflation Hinders Demand
Lowe’s warned of a hit to 2022 sales as Americans facing high inflation cut back spending on discretionary home goods including patio furniture and grills. During pandemic lockdowns, homebound customers splurged on sprucing up their homes, but a return to old routines with lockdowns easing has strained sales of tools and paints. However, with home prices higher and supply lower, Lowe’s and rival Home Depot expect customers to refrain from buying houses, and instead invest in repairs and other essential home-improvement projects.
Lowe’s Chief Executive Marvin Ellison said that a majority of U.S. houses were aging and required repair and renovation, while middle- and high-income households were sitting on over trillions of dollars of savings, setting the sector up for sales gains. Lowe’s said it expects earnings would be toward the top end of its prior range on strong demand from builders and handymen as well as its cost control measures, sending its shares up 2%.
“It appears Lowe’s is baking in better DIY trends going forward, no doubt encouraged by recent performance cited by Home Depot,” J.P. Morgan analyst Christopher Horvers said.
Lowe’s has rolled out more self-checkout terminals and adopted a payroll model, allowing it to lower labor hours and costs, at a time when retailers are striving to protect their bottomline. In the second quarter, comparable sales declined 0.3%, compared with the average Refinitiv estimate for a 2.4% increase, as a shorter spring led to a decline in spending on outdoor products from its core do-it-yourself (DIY) customers.
Lowe’s expects 2022 sales would be toward the bottom end of its prior range. Home Depot, which brings in a smaller portion of its sales from DIY customers, maintained its forecasts after topping estimates for results.
To view the full financial results, visit the Lowe’s website.