Canadian Tire Corp. Ltd. is experiencing higher than usual inventory levels following the late start of warm weather sales combined with early shipments of fall and winter products
Canadian Tire Corp. Ltd. is facing higher-than-usual inventory levels after a late start to warm-weather sales combined with early shipments of fall and winter products.
The company had an additional $465.6 million in merchandise inventory at the end of its most recent quarter, an increase of about 18 percent compared to the same period last year, due to higher transit inventory and more spring and summer merchandise available.
The situation has raised concerns that the retail giant could experience similar problems with overstocking and markdowns that US retailers have warned of.
But Greg Hicks, president and CEO of Canadian Tire Corp., said he was pleased with the company’s ability to manage inventory levels, “especially given what we’re seeing with major retailers south of the border.” .
“We feel good about our inventory levels and we don’t see significant margin risk or additional markdown requirements to clear inventory,” he said Thursday on a call to discuss the company’s second-quarter results.
Higher commodity inventories at the end of June partly reflect the later start of spring this year, Hicks said. The company saw “good movement of these products in July as the warmer weather finally arrived,” he said.
Inventory levels also reflect more than $260 million in transit merchandise for fall and winter categories that the company ordered early to ensure minimal supply chain disruptions, Hicks said.
Still, TJ Flood, president of Canadian Tire retail, said store dealers “are a little heavier in a few spring and summer categories and … probably wish they had less bikes and kayaks.”
But he said the decline in sales of items such as bicycles, kayaks and paddleboards was offset by sales of plumbing and car maintenance.
Canadian Tire reported a lower second-quarter profit than a year earlier despite double-digit revenue growth.
The company, which has retail, financial services and real estate segments, reported net income attributable to shareholders of $145.2 million, or $2.43 per share, for the quarter, down from $223.6 million or $3.64 per share a year earlier.
Revenue for the three months ended July 2 was $4.4 billion, up 12.4 percent from $3.9 million in the same quarter of 2021.
Total retail sales rose 9.9 percent, and comparable sales excluding oil rose five percent.
Canadian tire retail sales growth was up 3.9 percent. Flood said transactions have increased while the average number of items in each transaction has decreased and the price per item has increased.
Same-store sales at the company’s Mark’s banner rose 20.9% after registering a 43.2% increase in the same period last year.
Hicks said the store’s brands, such as Levi’s, Carhartt and Timberland, help attract customers under 30, an important demographic in retail.
Canadian Tire’s financial services revenue rose 15 percent, led by growth in receivables and growth in credit card sales due to increased customer activity and new account acquisitions.
The company recorded a $36.5 million one-time charge in the quarter after it officially closed its Helly Hansen operations in Russia and exited the market.
Irene Nattel, an analyst at RBC Dominion Securities Inc., said Canadian Tire’s “confused quarter” masked the company’s “solid underlying performance.”
She said the company’s underlying demand trends remain strong, with retail banners delivering strong revenue growth despite supply chain headwinds.
This report by The Canadian Press was first published on August 11, 2022.
Companies in this story: (TSX:CTC.A)
Brett Bundale, The Canadian Press
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