Q2 2017 Canadian Tire Corporation Ltd Earnings Call
Aug 10, 2017 AM CEST
CTC.A.TO - Canadian Tire Corporation Ltd
Q2 2017 Canadian Tire Corporation Ltd Earnings Call
Aug 10, 2017 / 05:00PM GMT
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Corporate Participants
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* Allan Angus MacDonald
Canadian Tire Corporation, Limited - President of Canadian Tire Retail
* Dean Charles McCann
Canadian Tire Corporation, Limited - CFO and EVP
* Eugene Orest Roman
Canadian Tire Corporation, Limited - Executive VP of Digital Excellence & Technology Advisor
* Gregory George Craig
Canadian Tire Corporation, Limited - CEO & President of Canadian Tire Bank and President of Canadian Tire Financial Svcs
* Stephen G. Wetmore
Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director
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Conference Call Participants
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* Irene Ora Nattel
RBC Capital Markets, LLC, Research Division - MD of Global Equity Research
* Keith Howlett
Desjardins Securities Inc., Research Division - VP, Consumer Products & Merchandising Analyst and Retail Analyst
* Kenric Saen Tyghe
Raymond James Ltd., Research Division - SVP
* Mark Robert Petrie
CIBC World Markets Inc., Research Division - Executive Director of Institutional Equity Research & Research Analyst
* Patricia A. Baker
Scotiabank Global Banking and Markets, Research Division - Analyst
* Peter Sklar
BMO Capital Markets Equity Research - Analyst
* Tal Woolley
Eight Capital, Research Division - MD of Equity Research
* Vishal Shreedhar
National Bank Financial, Inc., Research Division - Analyst
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Presentation
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Operator [1]
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Good afternoon. My name is Valery, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Tire Corporation Limited Second Quarter Results Conference Call. (Operator Instructions) Earlier today, Canadian Tire Corporation Limited released their financial results for the second quarter of 2017. A copy of the earnings disclosure is available on their website, and includes the cautionary language about forward-looking statements, risks and uncertainties, which also apply to the discussion during today's conference call.
I would now like to turn the call over to Stephen Wetmore, President and CEO. Stephen?
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [2]
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Thank you, operator and good afternoon, everyone. Let me start off by saying, I'm very pleased with our top line results considering the slow start to the quarter. Thanks to a strong spring and summer offering, our sales recovered very well in June and our bottom line growth of over 14% also met our expectations. All the retail banners made solid contributions to our top line growth and margin expansion. And CTFS delivered GAAR growth in excess of 6% in part driven by the integration with our Retail businesses. We saw improved revenue performance at FGL Sports, with sales growing 2.6% versus last year, which was quite good given the weather we saw in the quarter.
Looking forward, I believe we have great potential for FGL and specifically, Sport Chek, to continue to deliver strong growth and profitability as it now transitions out of a period of expansionary growth to a phase focused on generating higher returns from our existing assets. FGL Sports will continue to play a critical role as our leader in digital marketing and our destination banner for millennials and achievers. As well FGL will look to target a broader customer segment beyond the achievers by focusing on product adjacencies to complement core categories.
Duncan and team will also work on improving performance by implementing many of the operational efficiency initiatives we have successfully applied in other parts of the company. The operational efficiency initiatives across CTC are progressing well. The next phase of the program will look to improve the efficiency and workflow supported by our technology investments. We will work to decommission old systems, streamline reporting and eliminate laborious cost structures to make way for our new initiatives. This will be a key area of focus for Rex Lee as he takes over the leadership of the CTC IT team as Senior Vice president and CIO from Eugene Roman. I've asked Eugene take on the new role of Executive Vice President of Digital Excellence to push the limits of our digital capabilities in our back office in-store and online.
In terms of technology, this past quarter saw major breakthroughs with our machine learning and artificial intelligence investments, including the launch of our new search engine at CTR that we believe significantly increases the customer experience through its unique ability to find what our customers are looking for.
In addition, our Sport Chek point-of-sale system had its first quarter of operations and has fully met our expectations. And our Bolton distribution center's digital systems were successfully turned on to daily production in early July.
At our Annual General Meeting, I outlined a number of initiatives aimed at building the strength of our connection with Canadians and the efficiency with which we operate our business. I'm pleased to tell you we are making good progress on all fronts. As we speak, the retail banners are working collaboratively in developing operational plans that include cross-banner initiatives like operational efficiency, joint promotions, as in the case of CTFS with its in-store financing, and the inclusion of Mark's and PHL assortments at CTR. We've also recently invested in talent, focused on the integration of our physical and digital assets and strengthened our expertise in finance and supply chain. We welcomed a few senior executives to our team, Kerry Munro to the role of Senior Vice President in Connected Retail and E-com Initiatives at CTR, Tom McCready and Deb Craven to Senior Vice President roles within Finance and [Ian Kennedy] as Senior Vice President who will lead the enterprise supply chain function. All our executives have extensive career backgrounds, and I'm pleased to welcome all of them.
Before I hand it off to Allan, I would like to recognize Rick White for his exceptional leadership to Mark's and FGL over the years. Rick and I discussed his intention to retire, and we agreed that it would -- he would step down as President of Mark's at the end of September. Rick's extensive experience and knowledge as a retailer are far too valuable for us to let him leave us completely. So while we have accepted his decision to retire, Rick has agreed to continue his relationship with Canadian Tire, assisting us with our consumer brands and providing his experience and insights as we look at new growth opportunities. Upon Rick's retirement, Mark's will report to Allan MacDonald, who has been working closely with Rick over the past few months to ensure a smooth transition. This transition will be another step in creating closer ties between our business units, as we migrate towards One Company focused on One Customer, bringing resources and capabilities closer together enables us to strengthen all of CTC and our relevance to Canadians.
With that, I'll turn it over to Allan who'll provide more color on the progress we are making on our One Company journey. Allan?
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Allan Angus MacDonald, Canadian Tire Corporation, Limited - President of Canadian Tire Retail [3]
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Thanks, Stephen. Good afternoon, everyone. Overall, I'm very pleased with our performance this quarter, and it's largely the result of fundamental changes we've made to the business like assortments, analytics and embracing digital and closer collaboration across our business units. Retail sales grew 3% in Q2, 2.5% when you exclude Petroleum. Despite record rain in April and May, delaying spring and summer purchases, our performance was very solid. Our efforts to insulate the business from disruptive weather patterns are paying off. We've worked to build a sales plan for Q2 that more effectively balanced seasonal and nonseasonal categories. But make no mistake, we're thrilled when mother nature cooperates, as it did in early June. But our reliance on weather alone is not what it once was. In addition to the more diversified assortments, our operational performance has also strengthened by investments in building a strong loyalty program and advanced analytical capabilities. This quarter, retail analytics were used to plan flyer and promotional events enabling us to drive the top line while maintaining margins. Analytics helped us act more deliberately in response to the lack of spring in April and May. In the past, we may have responded too swiftly or relied on intuition when the quarter started softly but today, we have a better understanding of consumer and category sensitivities in response to outside influences like weather. We have a lot to learn, but our analytics teams are making progress every day, helping us take deliberate action with confidence.
As we look to CTR's performance this quarter, the Automotive division contributed more than half of the sales growth. Auto remains a critical strategic asset for Canadian Tire and we're very pleased with the performance in the quarter. Our nearly 5,500 service bays served over 1 million costumers in Q2, thanks, in part to the power of our loyalty program and analytical tools.
Last quarter, personalized offers targeting select winter tire customers for spring changeover successfully drove sales growth in service labor, tires and parts and had a large halo effect on sales in the rest of the store. This program also drove new Options MasterCard activations and transactions on existing cards as customers took advantage of our in-store financing offers, a win for both retail and financial services. The in-store financing program has performed well for CTR and this quarter we also successfully tested the program at Mark's and FGL. The test drove higher sales and new customer acquisitions, which is critical to building growth for our Financial Services business. We see potential opportunity for FGL and Mark's to become important acquisition channels for CTFS going forward.
The continued focus on private brands within our assortment is also paying off and we see encouraging results in own brand penetration rates. Consumers are responding well, sales of own brands in the quarter growing by almost 8% year-over-year. In the second half of '17, you'll see us launch Gravity jeans for back to school at Sport Chek, and the start of the Paderno cookware transition at CTR. With more moves in the pipeline, and you can expect to see similar announcements in the key categories of lawn and garden care, outdoor tools and barbecues later this quarter.
Finally, I wanted to highlight our momentum in building digital and e-commerce capabilities across the company. Our digital interactions with customers increased across all banners with web traffic and e-commerce sales continuing to grow rapidly. We're on track with the deliver to home test at CTR and have implemented the distributed order management program at FGL where we've seen some very encouraging results in top line growth of the participating stores.
Additionally, in an online world where search means everything, we've made quantum gains in search effectiveness through an internal project code-named Atlas. This first major foray into artificial intelligence and machine learning has dramatically improved this critical function and it's being used in approximately 50% of our web traffic today. A full rollout of Atlas across all banners is planned for the back half of the year.
And finally, I wanted to say I'm excited to be working more closely with the team at Mark's. Mark's is an excellent company, a loyal customer base and a very impressive stable of own brands. It has an important role to play in our One Customer, One Company strategy. And as you can see, the One Company shift is starting to take shape where we're all showing all the signs of meaningful progress
So with that, I'll hand things over to Dean to walk you through the financial highlights.
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Dean Charles McCann, Canadian Tire Corporation, Limited - CFO and EVP [4]
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Thanks, Allan, and good afternoon, everyone. I'll be the third of us to say it was a great quarter for Canadian Tire. I will hit a few areas that may help in interpreting our results as well as some things to keep in mind as we head into the back half of the year.
Our Retail segment revenue, excluding Petroleum, increased 0.8%, while POS in the quarter, also excluding Petroleum, increased 2.5% compared to the prior year. Those of you who follow us regularly know that these types of swings between POS and revenue growth are not uncommon from quarter-to-quarter. Q1 saw this imbalance go the other way as dealers stocked up after a very strong Q4. What helps is to look at this on a year-to-date basis, primarily for CTR. Revenue and sales are more in line with each other with POS up 2.1% and revenue up 3.6%.
The strength we've been delivering in Retail gross margin continued in Q2, up 83 basis points, the result of the expansion of the private brand programs, power of analytics being applied to pricing, assortment, promotion and buying decisions and a moderation in the degree of year-over-year FX headwinds on our margins as our hedging portfolio has matured. Our consolidated EBITDA ratio as a percentage of revenue, excluding Petroleum, expanded 80 basis points in the quarter. This captures both the gross margin and OpEx controlled benefits of our operational efficiency programs. Our operating expenses remained well controlled in the quarter with our OpEx ratio, excluding depreciation, amortization and Petroleum, coming in flat prior to -- to the prior year. We continue to focus on increasing EBITDA as a percentage of revenue.
Financial Services had another solid quarter with GAAR growth of 6.7% and an increase in IBT of 12.3% to over $101 million. This performance reflects the power of using all our retail banners, as Allan described, to drive new accounts and average balance. The return to growth at CTFS is what we had hoped for -- we hope -- what we had hoped would come from our efforts over the almost 2 -- last almost 2 years. With that growth, we expect to see some growth in our allowance requirements reflected in the CTF earnings -- CTFS earnings in the back half of the year. This is natural, part of a gradual return of the business to more normal levels of growth and ROR.
Corporate inventory at the end of the quarter was 2% or $40 million higher than in 2016, primarily related to in-transit inventory for Canadian Tire's fall, winter season. Both Mark's and FGL inventory was actually down year-over-year. And overall, despite the slow start to Q2 season, our inventory is in great shape and we have been positioned extremely well to catch the seasonal weather as summer finally arrived across most of the country.
We continue to make good progress toward our retail ROIC aspiration. It was 8.73% in Q2, up 41 basis points compared to last year and up 15 basis points over the first quarter of '17. Improving profitability, managing our working capital investments and controlling our capital spending is delivering meaningful improvement.
Our operating CapEx was approximately $71 million during the quarter, down $56 million over the prior year. Last year's CapEx included higher spending related to the conversion of 5 former Target locations to Canadian Tire and the accelerated build program for FGL. Total CapEx was down approximately $167 million due to the decrease in operating CapEx I just mentioned and CT REIT's third-party acquisition of the Sears DC during the second quarter last year. Distribution capacity CapEx was slightly below last year as the Bolton DC construction was completed. With the Bolton DC now fully operational, there will be a transition period during which we will be operating out of both the original Brampton DC and new Bolton facility. We expect this dual operation of DCs to be a bit of an earnings drag over the balance of the year given some incremental operating costs and the commencement of depreciation on the new facility.
And then finally, a quick comment on the recent announcements regarding minimum wage changes for Ontario and Alberta that come into effect in 2018. We can expect them to be a headwind for our corporate stores, primarily Mark's and FGL and for our dealers. That said, as we have stressed over the last 3 years, our business has proven to be very resilient against much more significant challenges like FX and has identified operational efficiency that have allowed us to continue to grow.
And with that, I'll turn things back to the operator for the Q&A session. Operator?
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Questions and Answers
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Operator [1]
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(Operator Instructions) Our first question is from Patricia Baker with Scotiabank.
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Patricia A. Baker, Scotiabank Global Banking and Markets, Research Division - Analyst [2]
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I have one simple question, Allan. It was interesting and quite welcome to hear in your remarks you discussed that you're on track with respect to having Canadian Tire retail delivered to home with a true online proposition. Are you able to share with us the time line and when we might see that launch? And what some of your key learnings were with the test?
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Allan Angus MacDonald, Canadian Tire Corporation, Limited - President of Canadian Tire Retail [3]
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Well, we're seeing -- we're on track to execute the test that we -- proof of concept, I guess, that we originally announced at the AGM for either late Q4 or early in the new year, and it's looking at this point to be late Q4 -- or sorry, late in the year, which would be early Q4. We've got a number of things that we're looking to test. Our ability in terms of delivering from store, how we're going to work the inventory, the impact on the dealer model, and so on. So I would expect you'll see that go through the year and into next year and from there we'll be able to come out with more of our plans in terms of a full rollout.
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Patricia A. Baker, Scotiabank Global Banking and Markets, Research Division - Analyst [4]
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Okay. So just on -- as a follow-up then, so you'll start a test early Q4 and it's likely to be a -- would it be likely to be a minimum 1 year test that you go through all the seasons?
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Allan Angus MacDonald, Canadian Tire Corporation, Limited - President of Canadian Tire Retail [5]
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I hope not. I hope we're able to do -- to land on a conclusive plan much sooner than that.
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Operator [6]
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Our next question is from Irene Nattel with RBC Capital Markets.
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Irene Ora Nattel, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research [7]
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As I was listening to the commentary on the call, it really struck me that this was the most I have heard you guys talk about things like data analytics, machine learning, artificial intelligence and how you're using all of those and related items to really improve the offer, the mix and the customer experience. So I was wondering if you could give us some more detail around that, some more color and maybe a few tangible examples.
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [8]
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It's Stephen. I'll give you a few comments here, Eugene is in the room, so is Rex so they can comment as they want. I think the -- one of the most important parts of all this is that what's very difficult to do in terms of machine learning, artificial intelligence, all the things that we're referencing to you, is that without having invested heavily in the infrastructure to get to where we are today, we couldn't do it. And so companies that don't reference it, they probably aren't at the same stage we are in being able to actually implement this. So that has taken us and I think, if Eugene looks back at the years that he spent, the 5 years here at Canadian Tire, I think he'd probably say that his greatest accomplishment was taking us from where we were to giving us an infrastructure that is capable of handling today's requirements in e-retailing. So the intelligence that is being used across businesses in the retail market varies and it depends on their focus, et cetera. We are using it in probably 4 different ways, I guess, primarily. But it's going to add to our ability to take, and I probably shouldn't tell you this but every big company has the same issue we have. We generate 20,000 reports a night at Canadian Tire. And I don't even know how many of them are read. So those reports generate a lot of data, accessed from a lot of systems and a lot of processes and put a lot of people to work. We don't even know, in some cases, probably if some of the reports are accessing data that shouldn't even be on our system anymore. Rex is going to focus on that tremendously. So as he starts to take a look at the system and how we can operate better then intelligence to operate the system is going to go through the roof here in terms of its application from a costing point of view. Intelligence will also be used, and has been used, in Allan's organization already, his references to better flyers and better assessment of when to discount, et cetera, is based on one, analytics. Then, in turn, turning all of those processes into something that a machine can do for us and get the kind of links between the pieces of data that are necessary in order to come to the conclusions rather than manual processes. So it's much, much quicker, I think, and for example, in the finance system that we've been investing in for the last 2 or 3 years, Eugene and Rex and team have allowed the testing of it, for Dean, in some cases that used to take up to 3 hours, it's down to a couple of minutes in order to be able to test the system and tell whether it's operating the way that they would like it. That's spectacular progress. And I think it's one, great credit to Eugene to have invested in the individuals and the talent that we need in order to be able to implement this, for us to understand it and for us to start developing our own bots to do many and many jobs that are currently manually processed slower and may not come to the conclusion that we want. So we'll use it in cost reduction, we'll use it in revenue generation, we'll deal with it in efficiency of making decisions. So we're making kind of leaps and bounds progress and, I guess, it's a biggest customer -- behind all this, the customer doesn't see a thing. It's just relates to the customer's experience with us and so Allan's reference to Atlas, again, is an internally developed because of our ability to have invested in the folks that have this intelligence to be able to design something that our customers truly will appreciate in their experience on our website. So it's very technical behind it. But you can't get there without having invested over the last number of years. So that's enough for me. If Eugene and Rex want to probably correct half of what I just said, go ahead.
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Eugene Orest Roman, Canadian Tire Corporation, Limited - Executive VP of Digital Excellence & Technology Advisor [9]
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Well, thank you, Stephen. It's Eugene speaking. I just wanted to maybe make 2 quick comments. The work that both Stephen and Allan talked to help us improve the path to purchase. It's our most important factor. We talk about customer experience, we talk about product availability, we talk about seasons and if we can create a better path to purchase for our customers, we connect the dots for the customers, and you know the results of that. Revenue goes up, customer satisfaction goes up and we serve Canadians better the jobs and joys that we target. So that's the summary of the work. And I very much appreciate how much effort the complete leadership team has put into supporting this because this is -- these are game changers for the future, and they're not easy. So I think we are on a good track here.
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Irene Ora Nattel, RBC Capital Markets, LLC, Research Division - MD of Global Equity Research [10]
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If I could ask just one follow-up question because there's this -- you guys talked about a lot of stuff. If this is a baseball game, and we put aside we -- okay, the hard work is behind us, now we're sort of looking forward, what inning are we in?
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [11]
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Yes, I would really like to be able to characterize retail having an in to it, like the ninth inning. The issue with it is that it seems to be a game, Irene, that the rules are changing as you're in the third inning, and the rules have changed. And so you have to have invested -- I won't continue with the sports analogy, but you must have invested enough to have the flexibility to move in the direction that your customer requires you to move in. And everybody else is moving at light speed, and so our biggest issue I think, in many ways was making sure that the intelligence that you can hire in, whether it's what Eugene would call neuroscientists to work on things, or deep-data mining, you can't do it if you haven't made the investment. I just think we're at the stage now that we're actually being able to see what the benefits can be. So when just with our search engine, statistically, when we track our customers going through our search engine, and we have kept the -- our existing search engine alive so we can actually compete, the statistical significance between the 2 is material. So our conversion rates are material, sales increases are material. So it's the future of retail, it's just going to continue to evolve. So I don't know where we are, but I certainly don't think we're at -- we're well beyond second base here. I don't know where everybody else would be but...
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Operator [12]
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Our next question is from Mark Petrie with CIBC.
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Mark Robert Petrie, CIBC World Markets Inc., Research Division - Executive Director of Institutional Equity Research & Research Analyst [13]
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I want to ask about the owned brand strategy. Obviously, the success here is more about a different approach to the execution than simply selling private label goods, which you guys have done for many, many years and, I guess, my question relates more to Mark's and FGL, which have also had their own labels for years. That's pushed maybe more into national brands more recently. So I guess how does this strategy of owned brands extend into FGL and Mark's? And do the categories that they sell make it easier or more challenging?
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [14]
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Okay, let me get you just a quick overview. Duncan and Rick are both here. So as you know, historically, Mark's has been a owned brand company. And Rick has moved it from a customer perspective, not from a national brand, owned brand perspective. So he felt strongly that a mix of about 70%, 30%, 30% being national brands, would meet our customers' demands better. So he adjusted it accordingly. But it is really a company driven by its own branding and positioning and ownership of the brands. FGL was a totally different focus for us, and it was our ability to be able to take internationally successful brands as our leads and build a sports apparel and footwear and hard goods offering across Canada just didn't exist at the time that we did it in the format and in the kind of, presentation that we did it. I think the future for Sport Chek is to be able to build on growth brands that Duncan feels are adjacencies and complementary and it can grow based on analyzing his customer. If you do across Canadian Tire Corporation, if you look at the Net Promoter Scores across all our brands, the Net Promoter Score that Sport Chek has achieved with the Achiever category, it's the highest in the corporation. So they have done extremely well. It's a smaller base, that's all. It's a targeted base. And so he has lots of opportunity to expand beyond that. And if there is an opportunity in that to buy organizations, companies, brands that he can put in to be complementary, then that's our strategy. So Allan, I think and TJ Flood have expressed well the strategy for owned brands within Canadian Tire Retail, but that gives you some feel for the other 2. If I missed something guys, go right ahead.
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Mark Robert Petrie, CIBC World Markets Inc., Research Division - Executive Director of Institutional Equity Research & Research Analyst [15]
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Yes. So I guess just in terms of Mark's then, do you feel, I mean, I'm fully appreciating the legacy and the strategy to this point. Do you feel the execution on the owned brands that Mark's is effectively at the sort of level that you've improved to at Canadian Tire, I guess? Yes.
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [16]
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I think it's the other way around. Canadian Tire is trying to aspire to Mark's. They have done an unbelievable job. And so Allan and team, I think in many ways took it to the lead from Mark's in saying look how successful this actually is. And now Rick has taken it to new levels at Mark's and I think Allan and team would love to have the same ratio of owned brands to national. But they -- and it's a different -- it's totally within CTR. It's trying to focus on areas where owned brands can actually play a very important role for the -- for good, better, best categories and things like that. It's a different animal. But anyway, I don't know what I was going to say. I'll stop talking here.
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Operator [17]
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Our next question is from Peter Sklar with BMO Capital Markets.
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Peter Sklar, BMO Capital Markets Equity Research - Analyst [18]
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I wanted to ask a question about the Financial Services business. So you've had this big growth during the quarter in your receivable balances. Can you give some specific examples of the in-store programs and promotions that are driving this growth?
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Gregory George Craig, Canadian Tire Corporation, Limited - CEO & President of Canadian Tire Bank and President of Canadian Tire Financial Svcs [19]
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Sure, Peter. It's Greg here. I think Allan alluded to some of them, so I'll just spend 1 minute or 2 talking about in-store financing. In-store financing has been a very big lever for us both from an acquisition, a tracking customer perspective and a balanced building perspective because the average transaction that we've seen, frankly, at -- the first transaction both at CTR, at Mark's and at FGL is a significant increase over a normal transaction we see on a credit card so that's a big contributor of what you see in terms of growth, in terms of balance. And then I think it's -- part of it's just been frankly, a lot of blocking and tackling as well in the last year around value proposition. The value proposition in-store, the 4% award really wasn't as well understood. So the collective team's done a really good job the last 12 months or so really getting clarity of that message and we're seeing the awareness of that value prop get better. It's still not where it should be. We've got lots of opportunity to increase it more. But if I had to point to 2 things, I'd point in-store financing, what that's done to the initial transaction and then enable us to get more customers and frankly just the overall awareness of our value proposition, both of which I think have really help grow our average balances pretty significantly.
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Peter Sklar, BMO Capital Markets Equity Research - Analyst [20]
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Right, okay. And then the other thing I noticed, Greg, like, although you have this very high growth rate in growing your receivable balances, like the growth rate in revenue did not keep up. So if you look at that relationship, the growth rate in revenue was not as high as the growth rate in receivable. So what's the dynamics underlying that?
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Gregory George Craig, Canadian Tire Corporation, Limited - CEO & President of Canadian Tire Bank and President of Canadian Tire Financial Svcs [21]
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Yes, I tend to -- there's a couple of things there. One will be in-store financing to be honest, around it. It will not attract obviously, a yield of credit card -- a revenue recognition from that. I tend to -- I try to draw your attention more to margin though, because for the reason that we wouldn't have credit charges or interest income, we won't have write-offs for the same example. So I think the better thing to look at to be honest, Peter, is more of our gross margin performance versus just looking at revenue in isolation. But another part of the answer as well is we're able to attract more sales in-store, revenue gets recorded, loyalty gets recorded as an offset against revenue. So I think that's part of the equation on this as well is we're seeing -- we have grown our share of tender across all of our internal banners quite significantly so that's also been impacting our revenue growth somewhat. So I'd point to those 2, but I'd really encourage to kind of look more at the margin and net off kind of the revenue, less kind of the variable operating expenses as well because they're all part and parcel of the same equation.
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Operator [22]
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Our next question is from Kenric Tyghe with Raymond James.
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Kenric Saen Tyghe, Raymond James Ltd., Research Division - SVP [23]
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Wonder if we could circle back to the owned brands and specifically the impact on gross margins in quarter. Could you provide some color on your -- the own brand sell-through or the relative sell-through of own brand and the impact on mix and margins in the quarter?
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Allan Angus MacDonald, Canadian Tire Corporation, Limited - President of Canadian Tire Retail [24]
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Kenric, it's Allan. Yes, we see the own brands performance is partially due to some investments we made in the past and continued success in some new lines that we've been introducing. So with -- coincident with that, we're looking at ways to improve the margin performance. So typically speaking, I think it'd be fair to say that as you see margin performance improve over the overall sales of the organization -- sorry, as a private brand sales outpace consolidated sales for the organization, the margins in the private brand portfolio would be complementary and incrementally slightly higher than our average.
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Kenric Saen Tyghe, Raymond James Ltd., Research Division - SVP [25]
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Fair characterization. And if that was the case in quarter and could you perhaps speak to then as a follow-up, where there were surprises or where the surprises have been in terms of the uptick on the owned brands to date, Allan?
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Allan Angus MacDonald, Canadian Tire Corporation, Limited - President of Canadian Tire Retail [26]
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In the quarter, they performed well. I'd say it's very consistent. In terms of surprises, nothing out of the ordinary. We didn't -- we made a lot of investment in categories like outdoor living with the CANVAS, complete redesign of the category, new launch around, last year, around outdoor furniture for example, new focus on color and style and really building out the CANVAS brand and making more of a statement at Canadian Tire. So all of those sort of planned-product introductions and new category statements performed really well for us. And so it was less of a surprise and more of a maturing of the strategy that we implemented last year. So quite pleased overall.
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Operator [27]
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Our next question is from Vishal Shreedhar with National Bank Financial.
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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [28]
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Just on the data analytics. I was hoping you could give us some examples on specific examples on how that's used to try make it real for us? I understand that in tire retail in particular, so many of the categories are infrequently purchased, that the are analytics are tougher to apply. So any help there.
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [29]
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I'll let Allan -- I think, I'm just trying to think of a most realistic example. What you're -- let me just give you a little bit of an overview here and then Allan can give an example, if you want or we can haul it from another part of the organization. But obviously, data analytics has been used for decades at Financial Services. So that one, I think you could take for granted as to the complexity and sophistication. What we wanted to be able to do, now that we had, and I mentioned earlier, now that Eugene and Rex and team have got us to point where the data is actually capable of being mined in a relatively easy fashion, I think we still have a ways to go. But the -- is to have taken the team and shown everybody across every discipline, both operations and shared services, the importance of questioning everything that they do and then asking themselves, can I analyze some data that may get me to a different position in some of the assumptions that I've been making for years and years and years, that's number one. So for example, we put over 50 Mark's stores inside Canadian Tire stores years ago. And comparing that today to what we would do using data analytics, based on, and comparing it to the data analytics that we used at the time, it would be night and day. We'd probably look like children based on the data that we used at the time. So now, let's go back and reassess all that. Have we put them in the right stores? What -- have we made the correct decisions? Would it be better to move them and increase the CTR linear, et cetera? That can all be decided upon using data, and we are. So we're going back and analyzing it. If you want -- so that's a small example. We have got hundreds and hundreds of them going on at a very, very high level in terms of their impact on the organization. And I don't know if I mentioned it to you, but our top 80 or 90 execs in the company have all attended a very intensive course on the use of data analytics in order to be able to take away the fear of using data and understanding the questions that should be asked and that could be solved. We've coordinated all our data analytics areas of excellence within the company. We've got them -- and they're becoming as centralized as possible so that we have an expertise in being able to crunch out answers that people would ask. In most cases, what happens is you don't know what questions to ask, and so you put our analytics teams to great work and not knowing what you really wanted to solve. I think we've got that out of the way in terms of our teams and that the areas that we have made the biggest impact are within Canadian Tire Retail and what Allan and Greg Hicks and TJ Flood and team have tried to tackle in terms of the flyer and pricing and promo. So if you want to give an example of the flyer, or whatever you want to...
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Allan Angus MacDonald, Canadian Tire Corporation, Limited - President of Canadian Tire Retail [30]
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Yes, I certainly can. So we talked in previous calls over the last couple of years about our productivity program and promo optimization as a data point. We've talked a lot about rolling out our loyalty program and the importance of data and analytics and having an engaged and frequently used loyalty program and when you take those 2 examples, your mind doesn't immediately leap to analytic capability but they are incredibly important starting points and foundational tools, and there are thousands of them literally, along with issues about how we structure data and the skill set we have. But all that to say that those moves in the past have made it possible today for us to have a much better understanding of the elasticity of demand as it relates to promo and a lot of our product categories right down to the SKU level. So when you understand how promo stimulates demand and then add variable elements like weather, it enables you to be much more purposeful and much more deliberate in understanding that when weather is against you, are you able to stimulate demand using promo? Or are you just sacrificing margin and demand remains constant? Greg and the merchants have done an amazing job going back literally more than 5 years to map baseline [speeds] to understand demand stimulation and variable conditions and it's given us much more insight into the effectiveness of our promo. Lots of examples like that, and we have a lot of opportunity in front of us in terms of new ways to use data to make better decisions, that would be a specific example.
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [31]
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Can I -- I'll just kick in one other thing very, very quickly. Our references to data and our references to artificial intelligence and the uses and that. I just want -- I guess, the overall messaging we're trying to get across, it goes back to Irene's question too, is that the performance of the team in a quarter that had the weather that it did in April and May and then to come out of the quarter with what we did, all we're trying to get across is that it's not a matter of pure luck here, and it's not a matter of us doing it on gut feel as much as we used to, as retail used to be done. It's deep, deep kind of analytics that are enabling the teams to become much better at what they do. And I think they would all say that it's -- they feel much more confident about their ability to achieve things now because of the way they go about making decisions. And it's not just good fortune that you happen to come across something that increased sales in the quarter. I guess, that's more of what I'm trying to get across with our references.
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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [32]
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Okay. And, I guess, a question, data-on-data. How do you know that the spend that you're -- the spend and the effort that you're allocating to these data initiatives are delivering the required benefits that you anticipate? Is it more of a journey and you kind of feel that out, or is there any way to say, "You know what, this is the right spend"? The only reason I ask is because technology changes so quickly and there's so many competing technologies, it seems difficult from afar to understand where to spend and how to allocate efforts.
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [33]
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Yes, the data component of what we're referencing is not as expensive as you may think. A way back in the time tunnel here when we didn't even have a proper place to store our data, it seemed like, and Eugene set up a complete data center in Winnipeg for us and all that, so it seemed like a long journey. But we now are there. We now have our data, and it's tagged and we can search it and the next probably level that we can take it to is, what Financial Services has done for years and that is virtually every piece of data that comes into Financial Services, some executive owns it. So therefore, it's captured correctly. And the data architecture is something that you can search properly. We are now getting to there. But that's more a technical skill than it is a capital investment skill. And so...
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Allan Angus MacDonald, Canadian Tire Corporation, Limited - President of Canadian Tire Retail [34]
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Vishal, this is the area that there's just hands down, no doubt in our minds that this is an area to invest in because it's driving real meaningful value, like the gains the guys are getting in margin are largely associated with this type of approach to the use of data and analytics. And frankly, it's the wave of the future. So the investment is not the issue. It's more, as Stephen says, the talent, the people, the focus and changing frankly, the mindset around how you approach retail, that is going to drive the value and keep us quite frankly, competitive going forward. So I don't sweat the cost side of capital investment and those kinds of things. That, we want to do more of, right? And as we talked about before, it's a transition from the old world to the new world and we want to invest in the new world and do more of that going forward, so we can keep driving these benefits and keep in the game. So add a little color there.
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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [35]
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And a quick one for you, Dean, here. Occupancy costs went down year-over-year, just any color there?
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Dean Charles McCann, Canadian Tire Corporation, Limited - CFO and EVP [36]
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Why don't we take that one offline, Vishal. We can do that one offline. So we are continuing to watch our occupancy cost, right, the usual stuff. But we had some benefit from the realty tax revisions that we've had, some of those kinds of things. So we should probably take that one offline, and we should be looking at that one more as a percentage of revenue anyway.
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Operator [37]
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Our next question is from Keith Howlett, Desjardins Securities.
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Keith Howlett, Desjardins Securities Inc., Research Division - VP, Consumer Products & Merchandising Analyst and Retail Analyst [38]
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Yes, just wondering on the One Company, One Consumer theme. Just where the progress is on the unified loyalty and unified credit program?
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [39]
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Keith, it's Stephen. Firstly, the One Company is a tactic, if you will, it's part of the strategy of becoming focused on One Customer for the Canadian Tire family. So in terms of the One Company, we -- what the recent announcement that Susan O'Brien is heading up Canadian Tire Corporation's marketing efforts, with the exception of merchandising and store ops, we have 1 executive in charge of every discipline, both through shared services, through supply chain, et cetera. Therefore, we are very quickly becoming One Company from our viewpoint. So through the years, what Susan O'Brien is now going to have to do is collect the data and put the data together and look through the lens of one customer shopping within our family of companies. And that's the complexity and the advancements that she is grabbing a hold of now and so that we can extend more products and more offerings based on where we think we can go with the customer and share of wallet. We are working through within Canadian Tire Retail, our ability to extend our loyalty program throughout the family. And it's a big part of what Greg Craig is talking about in terms of value proposition. So the 2 of them are tied together, or working in concert. Susan and team and along with Greg are doing a lot of test marketing in-market to see what the best value props are and we're making great progress towards it. Again, the loyalty program is a tactic, that allows you to push your strategy and One Company is a tactic.
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Keith Howlett, Desjardins Securities Inc., Research Division - VP, Consumer Products & Merchandising Analyst and Retail Analyst [40]
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Maybe I could ask a follow-up to that, the One Company, One Customer seems to be through the lens of the company. I'm trying to understand how from the lens of the consumer you are going to make them think of you the way you are trying to think of you?
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [41]
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What happens with customers, I guess, the lens that we're trying to look at it through in simple terms that a customer would actually see the complete offering that our group of companies have on the table, to satisfy their jobs and joys. And so they should be looking at us through the lens of us being able through our various banners and products and services, to be able to satisfy their needs within our marketplace. And that's the -- that's what generates our own brand strategy, it's what generates some of the offerings that we're doing. So in terms of being able to move some of Pro Hockey Life inside a Canadian Tire store, or putting some of the assortment of Mark's within a Canadian Tire store, that's all so our customers will see us as one organization with multiple offerings to them at different times in their life. So that's the lens they will see us, and through our websites, et cetera. They will have a 1 lens into Canadian Tire.
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Operator [42]
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Our next question is from Tal Woolley with Eight Capital.
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Tal Woolley, Eight Capital, Research Division - MD of Equity Research [43]
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I just wanted to ask, I've been looking at your private label strategy and your effort to potentially embark on more aggressive sales to third parties. I notice there's been some -- the MAXIMUM tools and some of the NOMA stuff showing up on Amazon here in Canada, is that part of a pilot that you're running? Are those unauthorized sales right now and can you talk a little bit more about the strategy to build that business over time?
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Stephen G. Wetmore, Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director [44]
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Want to go ahead there?
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Allan Angus MacDonald, Canadian Tire Corporation, Limited - President of Canadian Tire Retail [45]
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Stephen's looking at me, hoping they are unauthorized. They're absolutely unauthorized. Our first priority with our private label strategy is Canadian consumers and getting the products and brands -- the brands we own today and to a place where we're really proud of them. And that the assortments they represent are really appealing to Canadians. From there, filling in the gaps to say what else are we missing, where we think there are opportunities, and TJ and his team have done an incredible job with the brands we have in market now like your CANVAS and NOMA and MAXIMUM, and I'm really, really pleased with the work we've done on some new brands like -- and the launch of Paderno which is coming up. From there, it's very early days and we're really evaluating what the right strategy might be for expansion beyond Canada of our private label, understanding what markets exist, are they attractive to us and what options we have in terms of pursuing those whether we do them directly or with other partners. So it's really early days in that respect. But if we get it right in Canada, every opportunity will be available for us.
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Operator [46]
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Thank you. This will conclude today's call. A webcast of the conference call will be archived on Canadian Tire Corporation, Limited Investors Relation website for 12 months. Please contact Lisa Greatrix or any member of the IR team if there are follow-up questions regarding today's call or the materials we have provided. You may now disconnect.
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