Q3 2017 Canadian Tire Corporation Ltd Earnings Call

Nov 09, 2017 AM EST
CTC.A.TO - Canadian Tire Corporation Ltd
Q3 2017 Canadian Tire Corporation Ltd Earnings Call
Nov 09, 2017 / 07:00PM GMT 

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Corporate Participants
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   *  Allan Angus MacDonald
      Canadian Tire Corporation, Limited - Executive Vice-President of Retail
   *  Dean Charles McCann
      Canadian Tire Corporation, Limited - CFO and EVP
   *  Duncan Stanley Allpress Fulton
      Canadian Tire Corporation, Limited - President of FGL Sports Ltd
   *  Greg Hicks
      Canadian Tire Corporation, Limited - President of Canadian Tire Retail
   *  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
   *  James Durran
      Barclays PLC, Research Division - MD, Head of Canadian Equity Research, and Senior Analyst
   *  Jennifer L. Panes
      BMO Capital Markets Equity Research - Associate
   *  Kenric Saen Tyghe
      Raymond James Ltd., Research Division - SVP
   *  Mark Robert Petrie
      CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst
   *  Patricia A. Baker
      Scotiabank Global Banking and Markets, Research Division - 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 Melanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Tire Corporation, Limited Third Quarter Results Conference Call. (Operator Instructions)

 Earlier today, Canadian Tire Corporation, Limited released their financial results for the third quarter of 2017. A copy of the earnings disclosure is available on their website and includes cautionary language about forward-looking statements, risks and uncertainties, which also apply to the discussion during today's conference call.

 I will now 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. I'll keep my comments very brief and let Allan and Dean cover the quarter.

 I am compelled, though, to highlight 2 records. Allan has been reminding me regularly that 4.7% same-store sales growth in Q3 at CTR is the strongest increase in well over a decade, so I have to state that right upfront to give the team the recognition they deserve.

 I also have to single out Greg Craig and the team at CTFS for impressive GAAR growth at 8% at Financial Services, a result of a 19% increase in growth in new account activations. This is a great example of how our strategy of operating as one company is paying off for us, as a significant portion of those new accounts were generated at our retail banners.

 The smooth launch of operations at our new Bolton distribution center was another accomplishment this quarter. Over the last few months, the DC was running at near capacity due to seasonal requirements. But the team was able to handle it, and it was an extraordinary effort.

 The impressive numbers we are seeing at CTR have been years in the making, and I want to give Allan and his team credit for raising the bar at our flagship banner and making it possible to export these learnings in high standards to the rest of our businesses.

 The operational decisions relating to assortment management, sourcing, pricing and promotions at CTR are starting to come to fruition. There's a lot of runway left. The CTR team have a complete understanding of how far and how fast to engage the levers they have at their disposal to operate the business effectively.

 Today, we also released our financial aspirations to 2020, which I hope reveal our optimism towards the company's future and our high expectations of our businesses.

 Looking through our customers' lens. We want to be seen as one company with multiple banners providing the products and convenience for the jobs and joys of life in Canada. Each of our banner Presidents have the responsibility for marketing, merchandising and store operations, focused on our company-wide strategy.

 To ensure a coordinated focus on our customer and to drive the retail excellence achieved at CTR, I'm pleased to inform you that Allan MacDonald will now be responsible for leading all our retail banner Presidents of CTR Mark's and FGL. With these additional responsibilities for Allan, then I'm also pleased to announce that Greg Hicks will lead CTR as President of our largest division; and PJ Czank is our newly appointed President at Mark's. Both Greg and PJ are well respected and successful retail executives and demonstrate the depth of talent that we have been building over the last few years.

 The recent promotions demonstrate how we are building our team for the future. And although, not always evident externally, over the past year, of the 27 current senior executive Vice Presidents, 17 have had their roles materially changed as well as we have hired almost 25% of our senior leaders externally. We are positioning our team for the future, and our success depends on them.

 It's been said before that it's not what you do or how you do it, but who is doing it, and I couldn't agree more. To support this, we are launching the Triangle Learning Academy, which is our investment in our employees, to provide them with the learning and training required to thrive in advance in the future of retail. Our goal is to have a continuous pipeline of talent across the enterprise by having the right people, the right capabilities in the right roles.

 Our agenda is moving forward rapidly, and by our next conference call, I believe I'll be able to share with you some further initiatives and advancements in our One Company, One Customer approach. At that time, I should also be able to share with you our plans for the expansion of our loyalty and credit card offerings.

 We talked to you about FGL over the last couple of quarters, there are aspects of the business we are pleased with and others that require attention. However, everything we look at is providing upside potential. Allan and Duncan have been working together to fully integrate of FGL's 2018 plan into our CTR and Mark's plans, which will be extremely beneficial in executing our initiatives.

 While we still have lots of work to do in areas we can improve, I want to recognize the recent advancements in our detail -- our digital retail capabilities.

 We have made remarkable progress in our online execution at Sport Chek, as the benefit of implementing the distributed order management system is even greater than originally anticipated. This improved ability to execute will be of critical importance as FGL seeks to grow its position as a digital marketing leader. FGL is also our digital lab, and the value this provides is far greater than the banners' financial contributions. With FGL's recent success of [Dom], we are now seeking to reproduce this capability at Mark's, where the rollout of the system is underway.

 Also in early October, we began a home delivery service for our online orders at 10 Canadian Tire stores in Ottawa. We're working closely with the dealers to make sure we can collectively meet and surpass our customers' expectations.

 Having the right technology foundation and investing in the tools required to price, promote and select assortments to drive traffic, combined with management trained in digital retailing, is what we are focused on, and I believe we are making impressive progress. Our complete organization is fully behind our execution strategy, including our associate dealers.

 So with that, I'll turn the call over to Allan.

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 Allan Angus MacDonald,  Canadian Tire Corporation, Limited - Executive Vice-President of Retail   [3]
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 Thanks, Stephen. And I should take a moment to thank you for highlighting that CTR's Q3 same-store sales were indeed, the highest in over a decade.

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 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [4]
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 You're welcome.

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 Allan Angus MacDonald,  Canadian Tire Corporation, Limited - Executive Vice-President of Retail   [5]
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 So we're very proud of these results, obviously. And while it was a great quarter for CTR, as I've said in the past, we're not focused on a single quarter, we're here to deliver sustainable growth for the long term. And that comes from having a great team focused on building momentum in each and every aspect of our business. When we execute well, and some favorable external factors like weather arise, great things happen, like the growth you've seen in Q3.

 So let's talk about the quarter specifically. We saw good growth across all the categories, with automotive, playing and seasonal and gardening lines performing particularly well. The team's work to build stronger assortments for each season resonated very well with our customers.

 And we've been speaking to you a lot lately about data and analytics, productivity and promotional effectiveness. While as you may recall, we had a slow start to the summer with an unusually wet spring, yet our growth came from summer categories and seasonal assortments. That was possible because of our new depth of understanding promotional activities by category and by season. We relied on insights that helped us understand how impactful promotions would be, in which categories and with what timing. Insults like -- insights like this helped us avoid rushing in too soon or repricing sales unnecessarily.

 This quarter, you also would have seen increased support in market for our Tested for Life in Canada platform. This is where we use real Canadians to test our product quality. I'm pleased with our progress here, and our customers' trust in our brand and product quality continued to increase this quarter with tested product sales up 13.5%.

 In Q3, we had great success using our loyalty program to execute promotional events, which contributed substantially to the sales growth. Through our royalty program, we're getting better at understanding our customers. We know our loyalty customers shop us twice as much and spend double the amount compared to those without a card. Building a compelling loyalty program was one of our most important initiatives and will continue to be an area of focus for us in each quarter going forward.

 Our own brand performance gained further momentum in the quarter as well with sales growing at 13%. In September, we launched Paderno to our dealers, and the response was incredible. The team has curated an assortment that's as good as any in the world. The brand creative is very strong, and I think the team has good reason to be proud. I can tell you, dealer support has been as strong as I've ever seen.

 We'll continue to drive initiatives like these across all of our business. In fact, I can announce that in Q3, we acquired the worldwide rights of Vermont Castings, which will become our -- one of our flagship brands in the premium barbecue and accessories categories in 2019.

 On the digital and e-commerce side, our web traffic and e-commerce sales are continuing to grow across all banners. As Stephen already mentioned, I'm pleased with the launch for our delivered home service at CTR, which started in early October. Going into our largest quarter, we expect to get as many valuable insights as we can through our customer interactions as we have made more than 80% of our assortment available for home delivery.

 Also, our data analytics and digital intelligence confirmed that we are now becoming increasingly more relevant as canadiantire.ca is now ranking among the top 3 websites for organic searches in Canada.

 I'd like to offer a few comments about Mark's. With PJ now on board, he and I agree it's a new day for Mark's. We're going to take their tradition of innovation, design and own brand development to a whole new level. The reinvention will start this week with the relaunch of the Mark's brand and our Well-worn Campaign, which hits the market today. This is Step1: going back to our roots and setting a stake in the ground, defining what the Mark's brand is all about. PJ and his team have great enthusiasm for this evolution and have even managed to remerchandise the Eaton Center store in less -- with less than 6 weeks to bring the concept to life.

 Also, I'm excited about my new role and the opportunity for closer collaboration between our 3 banners, which will lay the foundation for our future growth. I'm looking forward to working more closely with Duncan and his team at FGL. As Stephen has said, this business has remarkable potential and plays an important role as a digital marketing leader and innovation lab.

 And finally, I'm really pleased and very proud with the promotion of Greg Hicks, whom I worked with really closely over the last 5 years. Greg is a great asset on the team and has been instrumental at driving results across CTR, building collaborative relationships through the organization and with our dealers.

 Now before I turn it over to Dean, I'd like to briefly comment that we're now in the biggest quarter of the year for our retail businesses. We're up against some world-class competitors and coming off a record-setting quarter in 2016. That said, we have a strong assortment, the full support of our dealers and store staff, and we're making powerful marketing plans to deliver the results our customers and our shareholders expect.

 And with that, I'll turn it over to Dean.

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 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [6]
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 Thanks, Allan.

 As Stephen and Allan indicated, our impressive top line results and increasing momentum operating as one company were the highlights of this quarter.

 Our EPS growth of 5.9% was in line with our plans given we commenced operations of our new Bolton DC. Our results this quarter include increased cost of $12.6 million for startup operational depreciation and financing costs associated with the new DC. We expect this effect will decrease over the next year quarters as we realize the benefits of improved efficiency in our supply chain operations.

 Our retail gross margin rate, excluding Petroleum, held steady in the quarter despite a few timing differences affecting our margin on a year-over-year basis. We are continuing to make impressive progress in our margin management across the board.

 Our inventory is also in very good shape, up $74 million year-over-year, most of that at Canadian Tire Retail to support sales heading into the fall and winter selling seasons. Our inventory position at all of the banners is in an excellent position heading into our biggest quarter.

 Stephen already referenced our performance at Financial Services, where we had another solid quarter with impressive GAAR growth of 8%. This performance was driven both by growth in average balance and very strong new account growth. Income before taxes was over $100 million, up 4.3%. This business continues to reflect the power of using all our retail banners with a meaningful portion of the new account growth generated this quarter coming from Mark's and FGL, supplementing continued strong performance from the CTR acquisition channel.

 Capital expenditures for the third quarter were $40 million lower than in the prior year, primarily due to lower real estate spend on new stores as 2016 spend included the build-out of the target sites acquired for CTR as well as completion of the new DC. Our operating CapEx guidance for 2017 was between $400 million and $425 million. We now expect that spending will come in at the lower end of that range. Although our year-over-year CapEx spend is trending lower, all our major projects we plan to complete this year are on track and on budget.

 As Stephen mentioned, the majority of our senior team has taken on new and expanded responsibilities as we invest in the future of digital retail. Maintaining our current excellence while driving new initiatives always puts a strain on operating expenses. Technology investments create an additional challenge. And now that many of our operational efficiency initiatives have been taken over by the business units, the team is turning its focus to the same efficiency approach as it applies to our operating expenses. This will be a critical contributor to achieving our aspirational performance.

 Looking ahead to 2018, our annual operating capital expenditures are planned to be within the range of $450 million to $500 million. We are investing in growth, and our increased capital spend includes continued investment in our store network as well as initiation of major multi-year technology projects such as loyalty, expanding digital capabilities and upgrading our common enterprise platforms.

 As we get closer to [2008] (sic) [2018], I would like to make a brief mention of the increased disclosure we made relating to the transition to IFRS 9 at Financial Services. While we are still fully assessing the impacts of the financial reporting, I would like to stress that the new accounting does not affect the way we do business or how we view the risk of our credit card portfolio, and we will provide you with disclosure of the effect of the new accounting on the numbers as we move through 2018.

 Before I turn the call back to the operator, I want to briefly share the rationale behind our new 3-year aspirational targets released this morning. The aspiration for same-store sales has been provided on a consolidated basis. We feel this more accurately reflects how the banners are going to work together as we operate as one company serving one customer. We will continue to report same-store sales by quarter for each of the major banners.

 We've increased our aspirations for both ROIC and EPS as we look to drive improved total shareholder return over the 2018 to '20 period.

 Also, as we said in our release today, the significant increase in our annual dividend and the change in our dividend payout ratio as well as the continuation of our share repurchase program through 2018 are all reflections of the confidence we have in the company's future.

 And with that, I'll now turn it back to the operator for the Q&A. Operator?

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) The first question is from Peter Sklar of BMO Capital Markets.

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 Jennifer L. Panes,  BMO Capital Markets Equity Research - Associate   [2]
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 This is Jennifer filling in for Peter. My first question is just on Sport Chek. So -- and FGL generally. So we've seen continued weaker comps at FGL relative to the other banners. And in the MD&A, you called out that is an area of additional marketing expense this quarter. So I was wondering if you could just sort of elaborate on the performance and where you see it going forward.

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 Duncan Stanley Allpress Fulton,  Canadian Tire Corporation, Limited - President of FGL Sports Ltd   [3]
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 Yes, thanks very much for the question. Marketing is a function of the timing, and the timing will change from year-to-year. In Q3, we executed a very good back-to-school campaign, but it wasn't replicated from the previous year. Our categories -- our core categories in Q3, we think, performed certainly well. There was a -- some areas of the business are affected more by timing and events than others. And if you look at Q3 last year, you had a substantial nationwide enthusiasm around the Jays, in the playoffs. You had an Olympics last Q3. Those are events that didn't happen again, obviously, this Q3. But when you take that out and you look at the core categories you want to perform through the summer months and back to hockey and back-to-school, we're pleased where those are. And certainly, we have bolstered up our marketing talent, and with Susan O'Brien's leadership over marketing. I think you're going to see some more great brand work out of Sport Chek, consistent with what you've seen in previous years.

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 Jennifer L. Panes,  BMO Capital Markets Equity Research - Associate   [4]
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 Okay. And then just on your 3-year financial aspirations. The 10% EPS growth that you're targeting, is that assuming that you're using the full $550 million for the share buyback?

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 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [5]
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 Yes, Jennifer. That 10% is -- it's actually 10%-plus, I guess, is the way we described it. But as you know, what we've announced is a buyback program for the period through to the end of 2018. So the aspiration is around the full 3 years, but the buyback is only a commitment for the period through 2018.

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 Jennifer L. Panes,  BMO Capital Markets Equity Research - Associate   [6]
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 And -- but you're planning to use the full $550 million in 2018 is, I guess, what I'm asking.

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 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [7]
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 That's the plan, yes.

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Operator   [8]
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 The following question is from Irene Nattel of RBC Capital.

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 Irene Ora Nattel,  RBC Capital Markets, LLC, Research Division - MD of Global Equity Research   [9]
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 Just your thinking, taking Allan's and Stephen's comments in conjunction with the financial aspirations. Now that you're putting all of retail under Allan, and you've let -- refreshed the talent pool, how should we see the different retail banners operating differently as we move through this 3-year period? How does that contribute to the same-store sales in the financial objectives? And what's the assumption around e-commerce embedded in the aspiration?

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 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [10]
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 Irene, it's Stephen. The importance of having Allan oversee the banners, and in fact, a number of months ago as Duncan referenced, Susan O'Brien took over actually our marketing efforts for CTC, is to ensure that, one, the data that we're receiving is coordinated, condensed, analyzed based on kind of a one customer approach, if you will, that we understand where we're going, what we're trying to do with our customer across all our banners, and then positioning the banner where we believe it best suited based on the customer experience that we want them to have within our marketplace. So for each of the banners, they're going to play roles that are not dissimilar to -- than what they are today, however, heightened, focused. I think that you'll see crisper branding on -- across the board. And that all can be achieved and coordinated providing we have one view. And so up to this point, we have combined all the back offices. As you know, we combined our supply chain and logistics about a year ago into one. And so now, we have marketing combined into one. Store ops and merchandising are different animals, but Allan now has the ability, along with the banner Presidents and Susan, to kind of focus each of our banners on what we believe the customer needs for a life time in Canada. So that's the concept behind it, the growth of each one of them. We expect great performance out of every one of our banners, and I believe we'll achieve it.

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 Irene Ora Nattel,  RBC Capital Markets, LLC, Research Division - MD of Global Equity Research   [11]
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 And just if you could talk through what your e-commerce assumptions are and how you see the e-commerce offering and presence evolving in the 3 banners.

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 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [12]
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 Yes, sorry, I should have -- obviously, we've -- the bit of the canary in the mineshaft is poor old Duncan at Sport Chek. So we've thrown him in -- at the deep end here. We've tried a lot of things. It's experimental in many ways until you get the right levers in place. We've moved from paper advertising to pure digital advertising to, back putting some paper back in as promotions, different plans, all related to driving traffic in store and understanding the complexities of online offers versus store traffic. And so we expect that with Sport Chek, it will continue to lead the way as far as e-commerce is concerned. We're extremely well positioned and will be in better position when Optus MeTV is fully rolled out at Mark's. And Canadian Tire Retail, as you know, you know where are. We -- from an experience point of view online, I think it's becoming second to none in Canada in terms of our website experience, our click and collect. And we'll continue to work with our dealers on the last piece of the convenience part. So we'll meet our customers' expectations. And I think we've told you before, too, the 190, 192 assortments that Allan and team have, we've go down right to the SKU level, to feel where, to analyze where we believe we have exposure and where we don't. So we're well positioned to know what to expect going forward. And then you break it down by geography, by demographic, et cetera, et cetera. So it's not from lack of analysis, but I think we're well positioned over the next 3 or 4 years for any competition from an online point of view.

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Operator   [13]
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 The following question is from Jim Durran of Barclays.

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 James Durran,  Barclays PLC, Research Division - MD, Head of Canadian Equity Research, and Senior Analyst   [14]
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 I just wanted to follow up on the e-com discussion. So I saw the latest WOW Guide, obviously very impressive. With respect to CT retail, where are you in terms of number of SKUs out of a total store experience that are online? Any indications on how successful this year's WOW Guide is versus last year would be helpful. And then finally, on the home deliveries side. Do you see yourselves going to just a standard home delivery? Or do you see yourselves trying to emulate who seems the leader of the pack that does 2-hour delivery commitment windows?

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 Allan Angus MacDonald,  Canadian Tire Corporation, Limited - Executive Vice-President of Retail   [15]
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 Jim, let me offer a comment on the home delivery and then hand things over to Greg to talk about the WOW Guide. We're evolving the home delivery platform across all of our banners, as Stephen mentioned, using Sport Chek as that leading edge. We're learning a lot. And the fact of the matter is, we're building flexibility into our evolution so we could what's right for our customers and make sure that our e-commerce offering is always served up as a complement to our bricks-and-mortar business, so that they're one and the same. And to get to the point where we're already -- we're not at the point where we're going to decide what the end state is going to be. We're going to continue to evolve it, going to continue to stay in touch with our customers and go where they take us. So it'd be premature to say that we've pegged ourselves against any other sort of competitors or this is really a strategy that we're evolving across our family of companies and with our customers in mind.

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 Greg Hicks,  Canadian Tire Corporation, Limited - President of Canadian Tire Retail   [16]
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 Yes, let me -- it's Greg speaking. Let me speak to the deliver to home and the magnitude of availability in terms of the assortment. As was mentioned the rollover to deliver-to-home service started in 10 stores in Ottawa during the first week of October. We're phasing our deployment here first, and then we'll look to extend regionally and, eventually, nationally. Our focus right now is on parcel delivery, which, Jim, is over 100,000 SKUs, which represents about 80% of our assortment. When we're through the height of our Q4 season, we'll look to add bulk products, which will add another 20,000 to 25,000 SKUs. Many of those SKUs, you'll see in the WOW Guide. Right now, we're very focused on learning about the customer experience, customer demand and feedback, in-store processes and technology, working with carriers, understanding service levels and understanding the incrementality of demand. We're seeing solid customer response, including an average order value that's much larger than we see in bricks. We're seeing strong regular priced merchandise moving through. We're seeing many new e-com customers, meaning customers who are in the loyalty program but not using us for the click and collect channel. But it's still really early in terms of the number of orders, but we've had orders for all of our division. I'd say living and playing right are now punching a little bit above their weight. Again, it's a small base, but delivery time is in the 35- to 40-hour range, which is within our commitment right now of 1 to 2 days. Our stores are managing it just fine. And internally, we're just right now working through how to market the offering, a little heavier in the region. So all in all, we're feeling good. We're certainly learning, which is key, and we're going to roll out in our pace. I'm sure that we get it right for the customer and for the overall business. And I think it's important, and it does link to other mediums like the WOW Guide. This is part of a much larger e-commerce and digital strategy for us. We continue to work towards ensuring our strategies are connected. So this really isn't about building a discreet e-commerce channel. It's -- it has to do -- it has to work together for the customer and, financially, for our core business. So our click and collect business was strong in the quarter as well. But digitally, we're learning a great deal in harnessing our digital properties as weapons to grow sales in the store, in areas like organic search, and we're gleaning a great deal of insight about our loyalty customers' path to purchase, how they engage with us on site before they come in to our stores. So this really is, for lack of better term, kind of an ecosystem, and there's much more here for us than just e-commerce. So it's a really exciting time.

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 James Durran,  Barclays PLC, Research Division - MD, Head of Canadian Equity Research, and Senior Analyst   [17]
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 And so just 2 things. One, WOW Guide impact this year versus last year, are you seeing really strong takeaway and maybe a lift year-over-year on that initiative?

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 Greg Hicks,  Canadian Tire Corporation, Limited - President of Canadian Tire Retail   [18]
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 Yes, it just distributed last week, so it is really early to tell. We feel really good about the creative. We feel like every drop, the team takes it to another level. But we're -- we really don't have any kind of results on a year-over-year basis yet to share with you.

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 James Durran,  Barclays PLC, Research Division - MD, Head of Canadian Equity Research, and Senior Analyst   [19]
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 And last, just it sounds like from the FGL experimentation that good old Canada we're still, as consumers, very flyer-dependent unlike -- maybe even the U.S. consumer. In your mind, is the WOW Guide and digital play a similar complementary role for CT retail?

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 Greg Hicks,  Canadian Tire Corporation, Limited - President of Canadian Tire Retail   [20]
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 Yes. I think the biggest role that we've gleaned from that WOW Guide is just the presentation of our assortments coming to life in a much more effective manner. If we go back to the origins of the WOW Guide, it was really about the representation of our strategy in our Edmonton Showcase store and really kind of, I guess, being head over to head, so to speak, with the fact that the assortments have come so far. And yet, in some of our in-store environments, we feel like that the assortment, really, wasn't getting the breathing room to really create inspiration for the customers. So that really continues to be the role of the WOW Guide. And again, I think the team has just done a fantastic job showcasing our product development, style and design. And the assortments are coming to life exactly the way we'd want them to in a perfect situation. So that really, for us, continues to be the purpose of the WOW Guide, is just to demonstrate our commitment to quality and how our strategy really comes to life through products in a creative and inspiring way.

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Operator   [21]
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 The following question is from Patricia Baker of Scotiabank.

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 Patricia A. Baker,  Scotiabank Global Banking and Markets, Research Division - Analyst   [22]
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 I have 3 questions. And I guess, Stephen, the first one for you. And maybe it's me, and I missed it. But Allan's got these new responsibilities now. Does he have a new title?

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 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [23]
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 Oh, I'm -- yes, he does. I was going to say...

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 Patricia A. Baker,  Scotiabank Global Banking and Markets, Research Division - Analyst   [24]
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 Does he like it?

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 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [25]
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 Well, I said he was Head of HR, and he didn't like that. So he -- yes, Allan was actually Executive Vice President, and then his day job was President of CTR. So now he's Executive Vice President of Retail, so he oversees the banners. So sorry, I should have said that.

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 Patricia A. Baker,  Scotiabank Global Banking and Markets, Research Division - Analyst   [26]
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 No, it's good. I just wanted to clarify that. And then one other sort of personnel thing. Is PJ heading up Mark's? Can you just provide us with a couple of sentences on PJ? Because maybe not for everybody else, but it's a new name for me.

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 Allan Angus MacDonald,  Canadian Tire Corporation, Limited - Executive Vice-President of Retail   [27]
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 Hey, Patricia, it's Allan. Thanks for the clarification on the title. I was interested to hear what he is going to say.

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 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [28]
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 You should ask about his previous.

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 Allan Angus MacDonald,  Canadian Tire Corporation, Limited - Executive Vice-President of Retail   [29]
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 I read the script last night. I was afraid to ask. PJ has been with us now for, geez, around about 18 years seems like. 10 years?

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 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [30]
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 10 years. He looks like 18.

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 Allan Angus MacDonald,  Canadian Tire Corporation, Limited - Executive Vice-President of Retail   [31]
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 And he was running our INA business, which is our wholesaling design and procurement business that was largely supporting FGL and then Mark's and had really been central in TJ Floods #2 in terms of bringing a lot of the assortments to life that we built in the consumer brands division. Having worked before that, leading the merchandising role in Mark's. And I got to tell you, in early days, PJ has been an incredible cheerleader and advocate for driving change at Mark's, recognizing that they have unbelievable untapped potential in their ability to build brands, bring new assortments to life and really grow the private label business covering out a very unique niche. And he and I both agree that our return to those roots and really revamping and bringing that whole capability back to life, that innovation enclosed at work, wrapped in a bit of a new brand message is going to turn this thing into a real growth engine. So I think PJ and I are both really, really excited about it, and we couldn't have somebody better leading it.

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 Patricia A. Baker,  Scotiabank Global Banking and Markets, Research Division - Analyst   [32]
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 Okay. And Allan, since I've got you on the line, you've had a little -- you've had your hands in that Mark's pie a little bit -- you now have all of retail. But you've tied your hand on the Mark pie for a little while now. Am I wrong there?

------------------------------
 Allan Angus MacDonald,  Canadian Tire Corporation, Limited - Executive Vice-President of Retail   [33]
------------------------------
 No. PJ and I have been closely collaborating, and I was working with Rick before that, but not dissimilar to the conversations Duncan and I have been having and have always had really. And any of the business units want to achieve success in their own right, and they also want to make a big contribution to the greater good. And when you have CTR as an asset, most especially within the business, the sheer scope of the business unit means we have capabilities that we've developed that aren't always made available to business units, a little bit smaller. So we've been able to share some of the work we've done on productivity and share some resources. And they, in turn, having a lot more flexibility and ability to be nimble, having been giving us a lot of insights, I think about the digital marketing work Duncan has done, our e-commerce. So we've always had a really close working relationship, quite honestly, and we're trying to be better by virtue of our collaboration. And I think this move really just puts -- really, just underscores that.

------------------------------
 Patricia A. Baker,  Scotiabank Global Banking and Markets, Research Division - Analyst   [34]
------------------------------
 Okay. It's a great clarification. Can I ask Greg a question?

------------------------------
 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [35]
------------------------------
 Sure. Which one? We have 2.

------------------------------
 Patricia A. Baker,  Scotiabank Global Banking and Markets, Research Division - Analyst   [36]
------------------------------
 Oh, sorry. Greg Hicks, please. Greg, you just -- in answer to, I think, Jim Durran's question, you talked about how the WOW Guide permits you to display the merchandise in a way that gives better inspiration for the customers than you can do in-store. Does that suggest to you that maybe you've got to do a little better somehow if there's a way to do it if showing off the merchandise in-store as well?

------------------------------
 Greg Hicks,  Canadian Tire Corporation, Limited - President of Canadian Tire Retail   [37]
------------------------------
 Yes. I think the WOW Guide -- so the store environment in Edmonton inspired us to do the WOW Guide. The WOW Guide is inspiring the dealers to showcase merchandising in a completely different way. So we find ourselves working with the dealers very differently because they, too, are really starting to see the customers gravitate to the WOW Guide, walk into the store with the WOW Guide, point to the number of an item on a page and go to the shelf. So I think as you start to see our programming come to life, which is starting to come to life in-store right now for Q4, our seasonal decor businesses, our dining and entertaining businesses, our storage and organization, an indoor decor business with the canvas brand, you're going to start to see more and more stores treating some of the retail floor as showrooms. We're starting to develop new technologies to make kind of customer pickup much more -- a much better customer experience. Allan and I, we're in a couple of stores, new stores, last week where we're testing a couple of different concepts there for really show rooming these assortments in a much more effective way. So yes is the long answer to your question, Patricia.

------------------------------
Operator   [38]
------------------------------
 The following question is from Kenric Tyghe of Raymond James.

------------------------------
 Kenric Saen Tyghe,  Raymond James Ltd., Research Division - SVP   [39]
------------------------------
 Dean, I want to spend a minute on the gross margin performance in quarter. We've heard a lot of positives with respect to increased private label penetration, increased promotional efficiency. What I'd like to try and reconcile outside of the timing issues in quarter against that backdrop is the flat retail gross margins. Could you perhaps sort of help us drill down a little on the gross margin performance in quarter and perhaps some of the drag on gross margin or where the offsets work to the increased promotional efficiency and the increased private label penetration?

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [40]
------------------------------
 Yes, Kenric, the -- I mean, overall, I guess what I would try to message here is that we continue to be impressed with how the business units are managing margin, particularly at the CTR level, and that goes to the great work that's been done over the last number of years by the teams on the types of initiatives that you referenced and that we've been talking about over the last, frankly, probably a couple of years, solid now. And the reality is, in the quarter, we did have some timing things that went the wrong way, and I can't express it any more clearly than that. We continue to have FX wins. Those -- FX headwinds. Those headwinds, as we've been talking about, are declining over time. But they're still a negative quarter-over-quarter for us, just not as big a negative as they've been. And that's been continuing kind of -- if you will, decline over the course of the year, should continue to decline as we get this sort of more of an equilibrium here. But no worries about, if you will, the continued kind of benefits showing through on our margin. And really, it was just kind of a few timing things that impacted us in Q3. And the other businesses, Mark's, very, very solid in the quarter. Even FGL, I think they put a little bit of investment in the margin with respect to top line, but nothing of any kind of major significance. It was more a function of, as I said, those timing differences. I don't know if that helps you or not, but that's kind of the reality there.

------------------------------
 Kenric Saen Tyghe,  Raymond James Ltd., Research Division - SVP   [41]
------------------------------
 That's great. And if I could just switch to FGL for a second. Is there any way that -- or does your data allow you to sort of, to break out or handicap where there's been any change in the way customers are shopping for sporting goods? And what I'm referencing here specifically is looking at it by demographic and by age demographic, a change in customer behavior when shopping habits and how customers are shopping sporting goods or have shopped sporting goods in the year versus last year and to the extent you're able to give any color on that.

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [42]
------------------------------
 Yes, happy to. I think if you look broadly in the retail industry, if you were to take your 2 digits, a, I think you would expect an 18-year-old today to do a substantial amount of shopping online. And I think you would expect my 75-year-old mother to do a substantial amount of in-store shopping, and here's a gradation kind of as you go through those 2 different generations. I think we, CTC, and we, FGL, have taken a view success is winning in both and being where your customer wants you to be. So unlike pure plays online, we have the benefit of a wonderful store network, 1,700 locations across the country. Some of the banners including the investments you see and check in the last 5 years is actually even a newer store network than other competitors that let us do very exciting things from the in-store assortment, and you've seen what PJ and Allan have just done with Mark's in Eaton Centre. And you couple that with a highly competitive online marketplace, and increasingly, looking at that marketplace across the family of companies. And there's probably not that many people out there that can do both extremely well. So when you see us talking about one channel or the other, I think in our minds, it's a question of regardless of where the customer wants to shop, we have the products they want, and we have to make it easy for them to get them.

------------------------------
Operator   [43]
------------------------------
 The following question is from Vishal Shreedhar of National Bank.

------------------------------
 Vishal Shreedhar,  National Bank Financial, Inc., Research Division - Analyst   [44]
------------------------------
 Just in terms of the Brampton DC and -- is that land and building, is that in CT REIT? Or is that Canadian Tire Corporation?

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [45]
------------------------------
 Vishal, yes, we moved that property into the REIT, I guess, at the beginning of the year. I think it was the first quarter probably we did it. Or actually, with did it last year, sorry. I think it was third quarter last year.

------------------------------
 Vishal Shreedhar,  National Bank Financial, Inc., Research Division - Analyst   [46]
------------------------------
 Okay. So there's no -- there'll be no -- so any ROIC benefit associated with those assets leasing is already achieved?

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [47]
------------------------------
 Yes, that was achieved last year, yes. But we capitalized -- we -- for the purposes of calculating the ROIC, there'll be a lease cost associated with the retail business because of leasing it back from the REIT.

------------------------------
 Vishal Shreedhar,  National Bank Financial, Inc., Research Division - Analyst   [48]
------------------------------
 Yes, fair enough, fair enough. So that 10% that you hope to achieve, that's just going to be old-fashioned earnings growth and asset efficiency?

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [49]
------------------------------
 Yes, those are the best ways to get it, yes.

------------------------------
 Vishal Shreedhar,  National Bank Financial, Inc., Research Division - Analyst   [50]
------------------------------
 Okay. Fair enough. And for the 3-year target that you're just finishing up, you're close to the 9. I guess, it's 1 quarter, and it doesn't really matter. But do you anticipate that 9 will be achieved?

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [51]
------------------------------
 You're tantalizingly close, is what I keep saying, so I'll let you know in February.

------------------------------
 Vishal Shreedhar,  National Bank Financial, Inc., Research Division - Analyst   [52]
------------------------------
 Okay. Just switching gears here. On the Sears closures, just wondering how the closures have happened so far, the 59 stores or so, how that impacted tier and if you're seeing any impacts from their liquidation and how you anticipate that might impact Canadian Tire going forward.

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [53]
------------------------------
 Well, I'll -- do you want me -- anyway, I -- I'll -- I shouldn't be answering this probably, but I don't think the guys have seen any impact. And quite frankly, we've been through this a number of times, Zellers, Target and so on. And it seems to be pretty much the same story each time. Now nobody around here is doing current cartwheels about, if you will, kind of iconic retailer going down. There's people with jobs that are lost and all those kind of things. But at the end of the day, if you're just talking about the impact on our business, as I said, we've been through this a number of times. And over the longer term, obviously, there's business to be captured, and we'll be there to serve the customers that still need the stuff that they were selling.

------------------------------
 Vishal Shreedhar,  National Bank Financial, Inc., Research Division - Analyst   [54]
------------------------------
 Okay. Fair enough. Maybe I'll just try to sneak one more in here. And, Dean, I presume you'll take this. But on the e-commerce pilot, have you guys sorted out how those economics work with the dealer? And does the Corp. bear the delivery cost or just the dealer bear it, and how does that labor work for all the picking? Any color there would be helpful.

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [55]
------------------------------
 I mean, yes, all that's been -- that's the easy part, Vishal, to be quite honest with you I think is what the guys would say. There is -- all the emphasis is on the customer experience and basically perfecting that. In terms of the math, I mean, it basically falls under the methodology that we used for the contract, and there's no real magic to it. We're still margin-sharing as we always have, and the cost associated with distribution that are in store are essentially the dealer's cost. But it's just part of the overall, if you will, mix. And there is no real significant, if you will, shift in kind of the balance of margin sharing in this model versus any other way of serving customers.

------------------------------
 Vishal Shreedhar,  National Bank Financial, Inc., Research Division - Analyst   [56]
------------------------------
 Oh so you're agnostic if something is sold in store. I'm talking about the corp, agnostic of something sold in-store versus delivered?

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [57]
------------------------------
 Yes, pretty much, pretty much, yes. From my perspective, I don't know if the guys...

------------------------------
 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [58]
------------------------------
 We're charging for deliveries.

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [59]
------------------------------
 Yes, and we're charging for delivery at this point, so yes.

------------------------------
 Vishal Shreedhar,  National Bank Financial, Inc., Research Division - Analyst   [60]
------------------------------
 Okay. And in terms of building the delivery network, the CapEx associated with the vehicles, is that the way you're going to do it? Or are you going to use third party? And who takes that?

------------------------------
 Greg Hicks,  Canadian Tire Corporation, Limited - President of Canadian Tire Retail   [61]
------------------------------
 Yes. It's Greg speaking. It's all carrier-delivered right now.

------------------------------
 Vishal Shreedhar,  National Bank Financial, Inc., Research Division - Analyst   [62]
------------------------------
 All carrier-delivered?

------------------------------
 Greg Hicks,  Canadian Tire Corporation, Limited - President of Canadian Tire Retail   [63]
------------------------------
 External third-party carriers right now.

------------------------------
Operator   [64]
------------------------------
 The following question is from Tal Woolley of Eight Capital.

------------------------------
 Tal Woolley,  Eight Capital, Research Division - MD of Equity Research   [65]
------------------------------
 I just wanted to ask quickly about FGL Sports. You've got some core brands like Nike, Under Armour, BAUER under -- all undergoing various degrees of retooling. I'm just wondering if you look at sort of the next 18 to 24 months with those brands undergoing that kind of work, what's the merchandising solution for you? And then longer term, what is your -- what are your thoughts about the direct-to-consumer risks for some of those brands with respect to FGL?

------------------------------
 Duncan Stanley Allpress Fulton,  Canadian Tire Corporation, Limited - President of FGL Sports Ltd   [66]
------------------------------
 Thanks for the question. I mean, look, undoubtedly, kind of the big 3 athletic brands are major partners of ours, and they continue to be. I would say that our relationship with those vendors is better today than it has been at any time since we made the FGL acquisition. And that's evidenced by having access to a wider section of their product, having access to more digital marketing materials online. And they have certainly taken the view with us that if a customer is in any of our channels and are looking for their brand, they want to win with that customer through us. Longer term, they will, of course, remain an important partner to us. You've heard Allan and Stephen talk about our wholly owned brand strategy. We think there's a lot of runway given the premium shelf space we have and the premium position we play with the customer online in Canada that we can take wholly owned brands and treat them strategically, by which I mean, some brands could serve an opening price point purpose, other brands can compete with the very, very best premium brands available in the market. And I think you're going to see evidence of that even starting next week as we launch the new Woods premium collection in 20 Sport Chek doors between Toronto and Vancouver. And I think when you put that product up against the very, very best outerwear in the market, you're going to be very impressed. So we have a journey here, and certainly, our expectations of where we'll be in 2020 versus today with our own brands is high. But I think it's a combination of both, if that helps.

------------------------------
 Tal Woolley,  Eight Capital, Research Division - MD of Equity Research   [67]
------------------------------
 Okay. And then, I guess, perhaps, we're 3 years on from the last dealer agreement. And there are obviously some features that you're turning at the time. And 3 years later, we're seeing some markedly improved performance in Canadian Tire retail. Can you speak a bit maybe to -- in hindsight looking back? Like what were some of the key differences that were made 3 years ago that really have made the biggest difference in the performance 3 years hence?

------------------------------
 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [68]
------------------------------
 It's Stephen. I -- it's hard to believe it's actually 3 years into the new contract. The-- I guess, what we were trying to do at the time was to ensure that the corporation and our associate dealers looked at life the same way. The closer we can look at the future in the same way, then we're kind of capable of working towards initiatives that prior to that wouldn't have been possible. So we cleaned up a lot of the agreement. We cleaned up a lot of the issues that had arisen over the prior many, many years. Actually, that made the calculation of our margins splitting, et cetera, et cetera, extremely complex. So we simplified it, and in many ways, looked at some of the initiatives that were ahead of us and tried to figure out how we could actually go about it in a way that would allow us to, in some cases, share a little bit differently. But it certainly put our strategies in line. So that has allowed us to do a lot of things to this point in time that before that, I think were looked at as 2 single issues, where the dealers would be looking after their interest, and the corporation would be looking after theirs. Now we're looking at it collectively, and it's allowing us to move forward, and most likely, in most cases actually challenge many of the status quo kind of assumptions that we've made in our agreements and look for new solutions based on customer preferences. So I think it's been an extremely valuable exercise. We also realize the time when we signed it in '14 that we probably should start renegotiating it because the retail world is changing so, so rapidly, and we recognize that. In fact, the point team that was appointed at that point in time to negotiate with us from the dealer’s side has effectively remained intact. So that's how we get things through, it's how we deal with complicated issues, many of them arising all at once; and profit sharing, and cost sharing in different projects, et cetera. So the -- as Allan has said a few times here today and Greg Hicks reiterated it, the solution we're both hunting for we're both kind of looking at the world in the same way. So we don't mind taking on some tough issues. So I think that's where it's adding up to more than anything else actually.

------------------------------
 Tal Woolley,  Eight Capital, Research Division - MD of Equity Research   [69]
------------------------------
 And is it fair to say that the speed of decision-making has improved within the organization, too, as well like the same people are staying in the same places?

------------------------------
 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [70]
------------------------------
 Absolutely. If the corporation has a good view of the strategy ahead of it and can sit down with our associate dealers and the point teams and all the committees that we have and articulate that view, then we start working at it. And we have steering committees that keep us on track. We have -- I mean, truly highly educated dealers here that are working with us. And they'll take the time to dive into, whether it's loyalty programs or the evolution of e-com websites, et cetera, et cetera. So we have a variety of different teams, and we are currently actually in the process of assessing whether all those teams and committee structures are the best ones for the future. So we're just kind of evolving the relationship. What happens now is that, occasionally, you have to move faster than perhaps you can renegotiate a bunch of contract terms. And our relationship is good enough that we're able to jump in and solve it afterwards. So it hasn't been holding us back, and we expect kind of great things going forward.

------------------------------
Operator   [71]
------------------------------
 The following question is from Mark Petrie of CIBC.

------------------------------
 Mark Robert Petrie,  CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst   [72]
------------------------------
 So I just want to follow up on FGL again. And obviously, you guys recognized the challenges in that channel pretty early on and invested in more experiential stores and better ability to connect with the customer and the community. But at this point, how would you feel like you've progressed with that strategy? And looking back, how would you summarize the returns for those investments for this point?

------------------------------
 Duncan Stanley Allpress Fulton,  Canadian Tire Corporation, Limited - President of FGL Sports Ltd   [73]
------------------------------
 Let me maybe split the answer between the store experience and the online experience. So as you know, we undertook a journey more than 4 years, 5 years investing in a variety of customer experience elements in store. Many of them, digital. And I think we learned a lot as an entire organization from that. And there were some pieces that we put in, and we would learn that a plane shoe table versus a shoe table with a digital screen on it versus a digital screen on the wall had a differing impact on how certain shoes would sell through. We learned that some of the point and experience, digital stuff didn't play as well as we thought it would with the customer. It was because we kind of, store-by-store, tested and learned. We have a much better view today of which in-store elements add value through the customers' eyes and add value in terms of a return for us. And other elements we've tried over the last few years, I don't think we would try again. That's part of the journey. Online, I think we're very pleased with where Chek (inaudible) online. Quite a robust road map still ahead of us through A/B testing and kind of best-in-class upgrades. Mahes Wickramasinghe's digital team and the FGL and CTC digital teams are -- all have a hand on that journey. We certainly have a point of view on what it takes to compete with the very best in the world online. I think we're very competitive now, and we have a clear road map for how to be more competitive even a year from now. The rollout of distributive order management, I think was one of the single biggest advancements in our online piece. And that just went back to the theory that if we have store leases and we have thousands of store employees and we have 90% of our inventory deployed to store, let's use those assets in order to offer the customer the entire breadth of our product offering, not just a selection. And now again, like on -- like in-store, there's a ton of learning that comes from that. And that learning includes how many times you want to split an order, what's the right SLA to deliver to a customer, best delivery partners staffing levels, system flows in the back room, there are some SKUs that evidently should be optimized out of a distribution center, others are better done out of a store. So I think the continuous learning, both in-store and online, I think is being valuable for FGL. And now increasingly as we operate as one company, that learning accrues to the dealers and CTR and Mark's as we continue to do that.

------------------------------
 Mark Robert Petrie,  CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst   [74]
------------------------------
 Okay. I guess following up on each of those elements, first on the in-store. How far along are you in rolling out sort of what you have found to be the successful elements into the rest of the network beyond the flagships?

------------------------------
 Duncan Stanley Allpress Fulton,  Canadian Tire Corporation, Limited - President of FGL Sports Ltd   [75]
------------------------------
 We're doing well. Fortunately, the cheapest digital installations also tend to be the most effective digital installations. So it makes it a little bit easier to take certain digital elements, and over the course of '18 and '19, embed them in more stores, where we know they're going to have the best impact on the customer and our sales. So the capital we have assigned in 2018 is where we'd want it to be, and we have a very clear view on which pieces will have the best return for us.

------------------------------
 Mark Robert Petrie,  CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst   [76]
------------------------------
 And are those returns playing out as you would expect? Like are they relatively consistent as you move through the network and then to smaller -- presumably smaller markets?

------------------------------
 Duncan Stanley Allpress Fulton,  Canadian Tire Corporation, Limited - President of FGL Sports Ltd   [77]
------------------------------
 I think they are. I still think we have lessons to learn from it. I mean, we've deployed some of that in our biggest best flagship stores. We have deployed some in hero stores. We have tested 1 or 2 in smaller stores. You may see us test something in Wilhelm as a smaller community to see if it has the same impact as downtown Shirley in Toronto. So I it's -- I think you're just going to see a never ending evolution of testing inside the Sport Chek.

------------------------------
 Mark Robert Petrie,  CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst   [78]
------------------------------
 Okay. And then back on the e-commerce side of it, I mean, the comment was that at the Canadian Tire banner, you're indifferent from an economic perspective as to how a product is delivered or given to the consumer. Is that the same at Sport Chek or at FGL?

------------------------------
 Duncan Stanley Allpress Fulton,  Canadian Tire Corporation, Limited - President of FGL Sports Ltd   [79]
------------------------------
 Sorry, just to clear -- in different term -- in terms of online or in-store?

------------------------------
 Mark Robert Petrie,  CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst   [80]
------------------------------
 Yes, online or in-store, are the economics the same for you guys? Or how do those compare?

------------------------------
 Stephen G. Wetmore,  Canadian Tire Corporation, Limited - CEO, President and Non-Independent Director   [81]
------------------------------
 The economics will be slightly different. It's Stephen. I mean, you do have to do some -- obviously, you have to do some packing, et cetera, et cetera, that would be to our cost. So extra staffing that would be hired this time of the year, for example, because the increased online orders would be to our account. What you try to do, obviously, with your shipping cost is related reasonably, and you try to figure out the avenue that will effectively break the delivery cost even in terms of your charge-out rates and size and distance and speed and all these sort of things. But the secret always is, is that you're trying to use a different channel and make the economics as similar as to your current economics. But recognize that you can't jeopardize the customer experience because of economics. So you've got to do what the customer wants and then after that, perfect it. And I don't think there's an online company in the world, which is why most of them aren't making any money, is because they haven't perfected the economics yet. So they've got a lot of customers and not making any money. And so we'll make sure our customers are satisfied, and then we'll figure out the economics.

------------------------------
 Mark Robert Petrie,  CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst   [82]
------------------------------
 Okay. And then if I can just circle back on the cost side from a corporate perspective. Obviously, you guys did an excellent job navigating cost inflation when the Canadian dollar was weakening. But could you just talk about the impact of minimum wage across your businesses?

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [83]
------------------------------
 Yes, Mark, it Dean. I think the reality is that it will have some impact. There's no question about it, and there's been lots written about that and so on. That said, this is where I have great confidence in all the folks involved in the retail business, now all under Allan, that there will be continued efforts to derive increased productivity out of the retail operations as we go forward, similar to the way exchange was a catalyst, if you will, for our operational efficiency. I think there's still a lot of opportunity, and Greg is doing a ton of work around linear productivity in stores, and those kinds of things. So -- and that's across -- all of the banners, I think, have opportunities in terms of how they handle their in-store productivity that will be all factors, if you will, handling any incremental costs associated with minimum wage. And I think it's just going to come down to increased efficiency as we go forward. So it's certainly a factor that everybody is aware of, but something that we will manage.

------------------------------
 Mark Robert Petrie,  CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Research Analyst   [84]
------------------------------
 And how does the dealer network sort of impact that? Because, obviously, when FX impacted you guys, it was sort of a corporate effort. But here, it's involving the dealers who bear the store labor costs. How does that sort of impact how this plays out?

------------------------------
 Dean Charles McCann,  Canadian Tire Corporation, Limited - CFO and EVP   [85]
------------------------------
 I think, as I said, it's something that's top of mind for, I think, all retail businesses to improve their efficiency. And I don't think dealers are any different than anybody else.

------------------------------
Operator   [86]
------------------------------
 Thank you. This will conclude today's call. If you did not have a chance to ask your question, there will be a follow-up after the call. A webcast of the conference call will be archived on Canadian Tire Corporation, Limited Investor Relations 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 provided. You may now disconnect.




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