TORONTO — Canadian Tire Corp.’s (TSX:CTC.A) second-quarter profit rose 6.1 per cent even though sales sank amid a miserable economic climate for retailers, a performance attributed to a clamp on expenses and jealous guarding of profit margins.
The Toronto-based company, which sells a broad range of automotive parts and services, tools, housewares, electronics, sporting goods, clothing and gasoline, said its earnings amounted to $1.27 per share, up from $1.20 in the prior-year period.
Stripping out the impact of one-time items, Canadian Tire said it earned $103 million or $1.27 per share in the April-June period, up 8.8 per cent from $94.7 million or $1.20 per share, as retail sales fell 5.4 per cent to $2.79 billion.
“Our focus on maintaining our gross margins and managing our operating expenses has allowed us to deliver modest growth in earnings this quarter compared to 2008 despite a challenging retail environment,” president and CEO Stephen Wetmore said.
“However, a significant amount of our annual earnings are achieved in the third and fourth quarters and our performance for the balance of the year will be very much influenced by the economy and, of course, seasonal weather patterns.”
Sales at its gasoline pumps fell more than 20 per cent due to lower retail gasoline prices, though volumes improved.
Convenience store sales, were “very strong” due to an increase in traffic.
The company said sales at its retail outlets decreased one per cent, with unseasonably cool, wet weather hurting some seasonal items and the recession biting into sales of such things as tools and electronics. The timing of the Easter and Canada Day holidays bit into sales by about 0.6 per cent.
Sales at its gasoline pumps fell more than 20 per cent due to significantly lower retail gasoline prices, though volumes improved.
Convenience store sales, were “very strong” due to an increase in traffic.
In its Mark’s Work Wearhouse division, pre-tax earnings amounted to $7.1 million, down from $7.3 million, helped by gross margin improvements. Total retail sales slid 9.8 per cent to $210.2 million as sales weakened across the entire country.
Canadian Tire’s financial services division reported gross operating revenue of $232.9 million, an increase of 15.6 per cent from $201.5 million. Pre-tax earnings were down 4.7 per cent to $42.3 million.
The total managed portfolio of loans receiveable increased 4.7 per cent to $4.1 billion.
Research Capital Corp. analyst Robert Cavallo said the results exceeded his expectations, mostly because of better margins.
“They are getting some benefit from better product costs and better overall operating expense control throughout the entire organization,” he said in an interview.
Cavallo added that while consumers are still going to spend cautiously, Canadian Tire has pulled through with relatively few bruises, and signs are pointing towards that trend continuing this year.
“Tire’s put together three consecutive quarters in a very tough environment and they’ve shown they have the wherewith all to overcome it,” he said.
“I think this is just another quarter that should give us confidence going forward.”
Shares in the company were up $1.97 to $57.85 in afternoon trading on the Toronto Stock Exchange.