Canadian Tire Corp. Ltd.

Overview Key strengths Key risks Canada's largest general merchandise retailer, with a strong consumer franchise and diverse product offering through various retail banners Soft economic conditions amid weakening consumer affordability, post-pandemic mix shift(s) could pressure revenue and profitability in 2023, particularly in second-half 2023 Digital and omnichannel marketing strategy anchored around a pervasive store network in Canada offers significant competitive advantage High inflation and supply-chain challenges, coupled with an inventory build-up through second-half 2022, could pose a headwind to profit margins near term A loyalty program with 11.3 million active members comprising about 60% of its retail sales when combined with improved digital merchandising capabilities should support growth and retention Ongoing competition from large broadline retailers such as Walmart Inc.,

...Weaker economic conditions amid build-up of inventory and tougher comps could modestly weigh on 2023 earnings. Canadian Tire Corp. Ltd.'s (CTC) retail sales growth and same store sales decelerated in second-half 2022 as the Canadian economy softened amid rising interest rates aimed at taming persistently high inflation. Specifically, CTC's retail sales growth, excluding CTC's volatile (and low-margin) petroleum segment, eased to 0.2% year over year in the seasonally stronger fourth-quarter 2022 compared with about 5% growth in first-half 2022, with the latter benefiting from strong post-pandemic demand across most of the company's banners making year-over-year comparable (comp) growth difficult to sustain. Management noted softness in certain seasonal, playing, fixing and outerwear--categories that have more discretionary tilt at the retailer and likely reflect the ongoing shift in consumer demand to services from interest-rate sensitive and discretionary products. Lower demand for discretionary...

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