Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
What We Thought of Canadian Tire Corporation’s Earnings
Canadian Tire CTC.A posted first-quarter revenue growth of 4.0%, underpinned by a 4.7% uptick in comparable sales. Adjusted EBITDA also improved 11% to C$422 million (12.2% margin) due to favorable cost leverage in the retail segment.
Why it matters: Mid-single-digit revenue growth is a welcoming sign given Canadian Tire’s top line has been consistently pressured for two years due to economic uncertainty and overstocked inventory levels at its dealer partners. Still, we foresee a choppy demand environment for the rest of the year.
Dealer inventory levels declined 2% but appear healthy as comparable sales growth closely aligned with an uptick in retail sales during the quarter. We expect comp growth to largely match retail sales performance in coming quarters.Encouragingly, management cited a slight uptick in discretionary sales and an 8% increase in sales across essential categories. While demand was strong, management noted that top-line trends began to slow in the second quarter, offering uncertainty for the remainder of the year.
Key Morningstar Metrics for Canadian Tire Corporation
The bottom line: We plan to raise our C$165 fair value estimate on no-moat Canadian Tire by a low-to-mid-single-digit percentage, as the firm’s results exceeded our expectations. With the stock up about 4% after the earnings release, shares trade in range we consider fairly valued.
We plan to raise our forecast for fiscal 2025 comparable sales to about 3% from 2% to account for the strong top-line performance (we forecast comp growth of 2% in the first quarter). Still, we see no reason to change our long-term outlook, which calls for 2.0%-2.5% comp growth.We think Canadian Tire’s direct exposure to tariffs is minimal, as management cited just 15% of its cost of goods stem from US items. However, the firm could be indirectly affected if tariff uncertainty drives a deterioration in consumer confidence.
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