CTC- Canadian Tire

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Dec 9th, 2022 9:16 am

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Mar 31st, 2022 6:11 pm

BernBern21 [OP]: Sr. Member; Jan 18, 2022; 630 posts; 1177 upvotes; Ontario

Mar 31st, 2022 6:11 pm

CTC- Canadian Tire

I'd like eveyone's thoughts on CTC in terms of their future growth and sustainability.

I've been looking into them heavily for a while now and I cant seem to get past the feeling that CTC is going to eventually hit a wall in terms of growth. Most of my analysis so far has been non-quantitative, although I have done a bit of that just to cross-reference certain things, but it almost all points in a direction that tells me this company has peaked unless it can find a new market to get into.

CTC has 2 segments: Retail, and Financial Services.
- Retail is their largest in terms of revenue and product offerings; the segment includes their flagship Canadian Tire, but also Mark's, Party City, Parts Source, SportChek.
-Financial Services is newer and comprises of a Triangle Rewards Program which provides credit cards as well as a rewards program system between their retail stores.

Both segments in Canada seem fairly saturated at this point IMO. Other than M&A's, I dont see how CTC can grow at the same rate as before for the next 10+ years. The obvious answer is that they M&A their way internationally, but from my experience CTC has done poorly at any attempt at leaving Canada and I dont think they'll want to risk it again.

Even on their latest investor presentation they outline their growth initiatives:
- Focus on brands & product development
- Advancements in in-store and digital customer experience
- Triangle Rewards insights to drive increased customer engagement
- Focus on operational excellence
- Expansion of Helly Hanson brand

None of that screams "growth" or "expansion" in my mind. It sounds like they are content staying in the Canadian bubble and "improving" things here.

I'm not saying CTC stock is a poor investment. Don't get me wrong, I am invested in them. I still like them. But For a company with a lot of potential, I wish they had more ambition to continue growth the way Dollarama or ATD does with expansions or mergers into international markets.

44 replies

Mar 31st, 2022 7:30 pm

BetCrooks: Sr. Member; Oct 14, 2012; 863 posts; 601 upvotes; Woodstock

Mar 31st, 2022 7:30 pm

You mean like buying Helly Hansen? ; )
https://corp.canadiantire.ca/English/me ... fault.aspx

Mar 31st, 2022 7:51 pm

Chance7652: Deal Addict; Feb 26, 2017; 2632 posts; 3833 upvotes

Mar 31st, 2022 7:51 pm

BernBern21 wrote: ↑ I'd like eveyone's thoughts on CTC in terms of their future growth and sustainability.

I've been looking into them heavily for a while now and I cant seem to get past the feeling that CTC is going to eventually hit a wall in terms of growth. Most of my analysis so far has been non-quantitative, although I have done a bit of that just to cross-reference certain things, but it almost all points in a direction that tells me this company has peaked unless it can find a new market to get into.

CTC has 2 segments: Retail, and Financial Services.
- Retail is their largest in terms of revenue and product offerings; the segment includes their flagship Canadian Tire, but also Mark's, Party City, Parts Source, SportChek.
-Financial Services is newer and comprises of a Triangle Rewards Program which provides credit cards as well as a rewards program system between their retail stores.

Both segments in Canada seem fairly saturated at this point IMO. Other than M&A's, I dont see how CTC can grow at the same rate as before for the next 10+ years. The obvious answer is that they M&A their way internationally, but from my experience CTC has done poorly at any attempt at leaving Canada and I dont think they'll want to risk it again.

Even on their latest investor presentation they outline their growth initiatives:
- Focus on brands & product development
- Advancements in in-store and digital customer experience
- Triangle Rewards insights to drive increased customer engagement
- Focus on operational excellence
- Expansion of Helly Hanson brand

None of that screams "growth" or "expansion" in my mind. It sounds like they are content staying in the Canadian bubble and "improving" things here.

I'm not saying CTC stock is a poor investment. Don't get me wrong, I am invested in them. I still like them. But For a company with a lot of potential, I wish they had more ambition to continue growth the way Dollarama or ATD does with expansions or mergers into international markets.

I'm pretty bullish on Canadian Tire and own full positions in both CTC.A and the CRT.un REIT. I added significantly to CTC.A last week at 187.

Several reasons for that why I think they're a good investment. I think during Covid its finally getting them to take ecommerce seriously which in a couple years will help them a lot going forward and will help them integrate their brands better. They have a lot more stores in remote locations and more reach in small communities than probably any other large retailers in Canada which should also help with Ecommerce. With them already having the Triangle rewards program I think they can leverage this far more with better systems and should have good data on a lot of their customers. Canadian Tire can replace some of their small stores in remote areas with bigger and better locations. I wouldn't discount their private label brands which from memory I think is about 40% of their sales and quite profitable.

The other part is its a well run company that has grown its earnings by 11% a year since 2002 and until they show me otherwise I have to believe in their management to continue to find ways to grow.

I'm happy with them continuing to focus mostly on Canada as they've already failed once trying to expand to the US. Without looking at valuation even with reduced 8% growth a 2.7% dividend and some buybacks I think it could offer some pretty good returns. Then you also have to factor in the valuation as they're also trading at a 10 PE. I think this is far lower than it should be so and a 15+ PE seems reasonable. This should give a market beating return from the current share price.

+3

Mar 31st, 2022 8:29 pm

BernBern21 [OP]: Sr. Member; Jan 18, 2022; 630 posts; 1177 upvotes; Ontario

Mar 31st, 2022 8:29 pm

@Chance7652 All of their fundamentals look solid for sure. Like you said, their PE looks solid, and their growth history has been great.

But that's where I feel less bullish. Can it be sustained for another 10+ years, especially by focusing only in Canada? They might. I'm certainly no CEO so who knows what tricks they have up their sleeve, but I have a hard time seeing strong future growth in a geographic market that they've already become so deeply ingrained in. How much more of Canada can they squeeze out?

+1

Mar 31st, 2022 8:45 pm

Chance7652: Deal Addict; Feb 26, 2017; 2632 posts; 3833 upvotes

Mar 31st, 2022 8:45 pm

BernBern21 wrote: ↑ @Chance7652 All of their fundamentals look solid for sure. Like you said, their PE looks solid, and their growth history has been great.

But that's where I feel less bullish. Can it be sustained for another 10+ years, especially by focusing only in Canada? They might. I'm certainly no CEO so who knows what tricks they have up their sleeve, but I have a hard time seeing strong future growth in a geographic market that they've already become so deeply ingrained in. How much more of Canada can they squeeze out?

I don't think you need to figure out exactly how they can get that growth as that's on their management

.

There is also the cost side as well. In general I think bigger companies with better supply chains, pricing/purchasing power and better IT systems and apps will be better able to compete against smaller competitors.

Mar 31st, 2022 8:52 pm

BernBern21 [OP]: Sr. Member; Jan 18, 2022; 630 posts; 1177 upvotes; Ontario

Mar 31st, 2022 8:52 pm

BetCrooks wrote: ↑ You mean like buying Helly Hansen? ; )
https://corp.canadiantire.ca/English/me ... fault.aspx

I mentioned that in the OP and yes that helps. But it's not organic growth. It's M&A, and companies shouldn't rely on Merging and Acquisitioning their income statements as a viable, sustainable way of maintaining growth.

Mar 31st, 2022 8:56 pm

mikebc: Deal Addict; May 22, 2015; 2787 posts; 3104 upvotes; Burnaby

Mar 31st, 2022 8:56 pm

The major drawback of CTC (not Sportchek or Marks, which fall under their umbrella also) is the severe lack of shipping even on small products. They have so much chinese crap they could be a mini-amazon yet you're forced to go into stores to participate in sales. Sportchek has shown growth pre- and mid-pandemic while Marks seems to have stagnated (not DD, just my quick view of profits) despite COVID pushing everyone online to shop. Online retailers should have been able to pivot and come out ahead but CT seems to want to cling to brick and mortar.

CTC almost feels like The Bay, a giant that is (and always has been) poised to leap forward into the online era, yet refuses to take those last few steps to elect a forward thinking boardroom.

+2

Mar 31st, 2022 9:06 pm

BernBern21 [OP]: Sr. Member; Jan 18, 2022; 630 posts; 1177 upvotes; Ontario

Mar 31st, 2022 9:06 pm

mikebc wrote: ↑ The major drawback of CTC (not Sportchek or Marks, which fall under their umbrella also) is the severe lack of shipping even on small products. They have so much chinese crap they could be a mini-amazon yet you're forced to go into stores to participate in sales. Sportchek has shown growth pre- and mid-pandemic while Marks seems to have stagnated (not DD, just my quick view of profits) despite COVID pushing everyone online to shop. Online retailers should have been able to pivot and come out ahead but CT seems to want to cling to brick and mortar.

CTC almost feels like The Bay, a giant that is (and always has been) poised to leap forward into the online era, yet refuses to elect a forward thinking boardroom.

That's a good point. Since the pandemic, I've only purchased like 2 items from them online and both times the process was clunky. It was during a time when the stores were closed so I had to do "curbside" pickup or home delivery.

I think this is also one of their biggest opportunities, especially if they begin marketing themselves globally and use the CAD exchange rate to their advantage which will give Americans, Brits, EU a solid ~20% discount if they were to make a credit card purchase in CAD, the same way I have had to make a credit card purchase in USD when buying something from US-only retailers - I paid a hefty 22% premium to buy Rogue gym equipment last year.

Apr 1st, 2022 11:07 am

Capt.: Deal Addict; Sep 2, 2004; 2846 posts; 1651 upvotes

Apr 1st, 2022 11:07 am

I think @Chance7652's analysis is pretty spot on. I am an investor as well as a Triangle Mastercard holder and pretty happy with both sides of the coin right now. I think their rewards program is very good, with solid bonus days that keep bringing customers back, including 30x (12%) today.

Then you also have to factor in the valuation as they're also trading at a 10 PE. I think this is far lower than it should be so and a 15+ PE seems reasonable.

One question I would have is can they sustain the customer demand going forward? On a macro level there's been a huge demand for goods over the past 2 years. That should taper as we return to some kind of pre-covid norm. When it does their stores should see reduced buying, although they are trying to counter that with the online and in-store improvements. On that note I can see the market's justification for the lower PE. Not saying 10 is the right number exactly, just that I can understand the conservativeness with this name right now.

+2

Apr 1st, 2022 11:32 am

MrMom: Deal Fanatic; Aug 17, 2008; 9286 posts; 10720 upvotes

Apr 1st, 2022 11:32 am

@Capt. I did a series on CTC's CC program starting on Apr 26th, 2020 6:49 pm and ending on Aug 4th, 2020 10:28 pm in the "shorting Canadian Banks" thread. I'm not going to restart my analysis, but anyone can replicate what I did. CTC's website is informative if an investor is willing to do some sleuthing in it to get the information they need. They would have to infer some information of course. The MC's can be used anywhere now, while their original "red cards" could only be used at CTC initially, so the ability to see internal CTC sales was easier before.

Apr 1st, 2022 1:01 pm

BernBern21 [OP]: Sr. Member; Jan 18, 2022; 630 posts; 1177 upvotes; Ontario

Apr 1st, 2022 1:01 pm

Capt. wrote: ↑ One question I would have is can they sustain the customer demand going forward?

This is exactly the point of my post. In my opinion it'll be very difficult to do especially if they insist in remaining only in the Canadian geographic market. I feel like they've squeezed as much juice as they'll get and going forward it'll be very difficult to sustain considering they'll be up against multinationals competing within Canada.

Apr 1st, 2022 1:34 pm

badmus: Deal Fanatic; Jul 12, 2008; 5563 posts; 1817 upvotes; GTA

Apr 1st, 2022 1:34 pm

Chance7652 wrote: ↑ I'm pretty bullish on Canadian Tire and own full positions in both CTC.A and the CRT.un REIT. I added significantly to CTC.A last week at 187.

Several reasons for that why I think they're a good investment. I think during Covid its finally getting them to take ecommerce seriously which in a couple years will help them a lot going forward and will help them integrate their brands better. They have a lot more stores in remote locations and more reach in small communities than probably any other large retailers in Canada which should also help with Ecommerce. With them already having the Triangle rewards program I think they can leverage this far more with better systems and should have good data on a lot of their customers. Canadian Tire can replace some of their small stores in remote areas with bigger and better locations. I wouldn't discount their private label brands which from memory I think is about 40% of their sales and quite profitable.

The other part is its a well run company that has grown its earnings by 11% a year since 2002 and until they show me otherwise I have to believe in their management to continue to find ways to grow.

I'm happy with them continuing to focus mostly on Canada as they've already failed once trying to expand to the US. Without looking at valuation even with reduced 8% growth a 2.7% dividend and some buybacks I think it could offer some pretty good returns. Then you also have to factor in the valuation as they're also trading at a 10 PE. I think this is far lower than it should be so and a 15+ PE seems reasonable. This should give a market beating return from the current share price.

Your analysis, it’s value nature and the history of growing dividends are the main reasons why I still own Canadian Tire.

I made out like a bandit though buying it under $100 2 years ago when the pandemic hit.

+2

Apr 1st, 2022 8:24 pm

Biff88: Deal Addict; Mar 10, 2011; 2519 posts; 706 upvotes; Toronto

Apr 1st, 2022 8:24 pm

Canadian Tire is one of my solid, dependable dividend producing stocks with decent growth. It’s been around for close to 100 years and it lets me sleep at night. Originally bought it more than a decade and a half ago at around $60, only regret is that I didn’t buy more of it at the time.

Their business is unique, heavy in auto parts, accessories and auto service, but also tools, small household appliances, kitchen, lighting, sporting goods, outdoor and garden stuff, cleaning supplies etc. As mentioned they also have their hand in financial services and Marks as well. So who is their main competition? Walmart, Home Depot, Active Tire, Costco? Nobody is quite sure since they have so many bases covered and have thrived in an era when the traditional Canadian department stores and other retailers have been decimated.

I guess you can see that I am a fan and am not worried about their future.

Apr 2nd, 2022 2:33 am

Stryker: Deal Addict; Jul 23, 2007; 4766 posts; 3860 upvotes

Apr 2nd, 2022 2:33 am

I've only owned Canadian Tire shares since 2019, and so it's a bit of a newbie stock for me and represents only 2.43% of our non-registered portfolio. It's done ok since then and now up just over 20% in the market, so nothing special. The dividend has been up near 9% compounded over the last three years, with an announced dividend increase of 10.6% just last November.

What Canadian Tire does moving forward, I've absolutely no idea, but as long as management can continue growing their dividend, I'll be a holder.

Only problem is unless there's a large drop in the share price, I doubt I'll be adding more shares for a while. A couple of other Canadian companies we own shares in the consumer discretionary sector are hated even more, with not as consistent or growing dividends, but higher dividend yields which I have my eye set on. There's always competition in our own portfolio as to which company gets fed any extra cash from dividends and any savings.

I shop in Canadian Tire maybe once or twice a year, and I'm in Mark's perhaps once a year, so not a big customer, but then again I'm not much for hardware/automotive/sporting goods stores.

+1

Apr 3rd, 2022 4:55 pm

automation: Member; Oct 5, 2009; 339 posts; 223 upvotes

Apr 3rd, 2022 4:55 pm

mikebc wrote: ↑ The major drawback of CTC (not Sportchek or Marks, which fall under their umbrella also) is the severe lack of shipping even on small products. They have so much chinese crap they could be a mini-amazon yet you're forced to go into stores to participate in sales. Sportchek has shown growth pre- and mid-pandemic while Marks seems to have stagnated (not DD, just my quick view of profits) despite COVID pushing everyone online to shop. Online retailers should have been able to pivot and come out ahead but CT seems to want to cling to brick and mortar.

CTC almost feels like The Bay, a giant that is (and always has been) poised to leap forward into the online era, yet refuses to take those last few steps to elect a forward thinking boardroom.

Maybe your underwear is Chinese crap too!

Apr 3rd, 2022 5:36 pm

mikebc: Deal Addict; May 22, 2015; 2787 posts; 3104 upvotes; Burnaby

Apr 3rd, 2022 5:36 pm

Cheaper the better, this RFD after all!

Apr 3rd, 2022 5:47 pm

automation: Member; Oct 5, 2009; 339 posts; 223 upvotes

Apr 3rd, 2022 5:47 pm

mikebc wrote: ↑ Cheaper the better, this RFD after all!

You deserve, you know?

Apr 3rd, 2022 9:40 pm

Capt.: Deal Addict; Sep 2, 2004; 2846 posts; 1651 upvotes

Apr 3rd, 2022 9:40 pm

to the ⬆, wtf are you even talking about? Not helpful to the thread.

@MrMom, I recall your deep dive into the CTC CC program. Solid stuff, would be top notch for the majority of posters but standard fare for you. I'm sure CTC is enjoying the fact that the cards can be used anywhere and therefore they are providing richer customer spending data and insights.

+2

May 12th, 2022 7:00 am

Stryker: Deal Addict; Jul 23, 2007; 4766 posts; 3860 upvotes

May 12th, 2022 7:00 am

With a 10.6% increase in Canadian Tire's dividend announced back in November to be paid this year, and now another 25% increase announced this morning, I must say I'm impressed.

https://forums.redflagdeals.com/2021-ca ... #p35232371

https://forums.redflagdeals.com/2022-ca ... #p36058570

+5

May 12th, 2022 7:44 am

Chance7652: Deal Addict; Feb 26, 2017; 2632 posts; 3833 upvotes

May 12th, 2022 7:44 am

Stryker wrote: ↑ With a 10.6% increase in Canadian Tire's dividend announced back in November to be paid this year, and now another 25% increase announced this morning, I must say I'm impressed.

https://forums.redflagdeals.com/2021-ca ... #p35232371

https://forums.redflagdeals.com/2022-ca ... #p36058570

That raise was unexpected but a nice surprise! My stocks have been going down with the market but I've had 3 increases in the past 2 weeks (tse:t, tse:crt.un and ctc.a) which will give me 300 in extra dividend income.

+4

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