Canadian Tire seeks to cut more than $200M in annualized costs, raises dividend

TORONTO — Canadian Tire Corp. shares rose Thursday as the company announced it plans to cut more than $200 million in annual costs by 2022.

The more commonly traded class-A shares in the company rose $5.10, or 3.53 per cent, to $149.29 in early afternoon trading on the Toronto Stock Exchange.

The rise came as the company released its third-quarter financial earnings and announced an operational efficiency program that targets more than $200 million in annualized savings by 2022.

“We expect the market will adopt a ‘wait and see’ attitude before incorporating (the cost-savings initiative) into earnings forecasts,” wrote Irene Nattel, an RBC Dominion Securities Inc. analyst, in a note.

However, with “solid” third-quarter financial results and plans for future growth, RBC views Canadian Tire’s valuation “as ripe for re-rating,” she said, with key catalysts being solid same-store sales and revenue performance, as well as the realization of cost reductions.

The cost-cutting program’s focus areas include eliminating duplicate systems and processes, decommissioning legacy infrastructure and continuing to reduce internal and external expenses.

Management expects to record one-time costs for items like severance, retraining and real estate related closure costs, the company said.

In the third quarter, it recorded $19.8 million for severance, store closure and other related expenses, it said, while on a year to date basis it has recorded $27.9 million.

The cost-cutting measures were announced as the company also said it would raise its quarterly dividend for the eleventh time in a decade.

Canadian Tire will now pay a quarterly dividend of $1.1375 per share, an increase of 10 cents.

The retailer reported a profit attributable to shareholders of $197.2 million or $3.20 per diluted share for its third quarter. That compared with a profit attributable to shareholders of $203.8 million or $3.15 per diluted share in the same quarter last year when the company had more shares outstanding.

Canadian Tire’s normalized earnings per share amounted to $3.46 per diluted share for the quarter, down from $3.47 per diluted share a year ago, due to an accounting changes at its financial services business.

Revenue totalled $3.64 billion, up from $3.63 billion a year ago.

Comparable sales at Canadian Tire stores were up 2.4 per cent, while SportChek comparable sales were up 4.6 per cent. Mark’s comparable sales increased 1.2 per cent.

“Our business is performing well and as one of Canada’s largest ecommerce retailers … we are exceptionally well-positioned as we head into our customers’ biggest spending season,” said CEO Stephen Wetmore in a statement.

This report by The Canadian Press was first published Nov. 7, 2019.

Companies in this story: (TSX:CTC.A)

The Canadian Press