Canadian Tire Earnings: Weak Spending Environment Remains Pervasive, but Margins Prove Resilient

We do not plan to significantly alter our CAD 150 fair value estimate in light of no-moat Canadian Tire’s fiscal 2024 first-quarter earnings report as weaker-than-expected revenue was compensated for by resilient retail margins. Comparable retail sales declined 1.6% (below our forecast for flat comp growth) amid a weak spending environment, with softer sales proving pervasive across each of Canadian Tire’s retail banners. As we expected, management cited weakness across its discretionary product categories but noted a slight uptick in essentials, led by automotive. Consistent with recent quarters, the firm also continued to grapple with inventory destocking from its dealer partners as revenue declined 6% compared with a 2% drop in retail sales at affiliated banners. Management struck a cautious tone when discussing dealer restocking and expects the pace of ordering to remain prudent and reactionary to underlying consumer demand in the coming quarters, which we agree with. We do not anticipate a quick amelioration in the Canadian economy and expect Canadian Tire’s top line to remain constrained in the near term, though we suspect the firm has already faced the brunt of its destocking headwinds and thus expect the firm’s revenue to align with retail sales more closely.