2008 Third Quarter Financial Results. Conference Call November 6, 2008

Transcription

1 2008 Third Quarter Financial Results Conference Call November 6, 2008

2 Forward-looking Information This disclosure contains statements that are forward-looking. Actual results or events may differ materially from those forecasted in this disclosure because of the risks and uncertainties associated with Canadian Tire s business and the general economic environment. Risks and uncertainties are disclosed in other public filings by the Company such as the MD&A and the 2007 Financial Report and include, but are not limited to: changes in interest rates, currency exchange rates and tax rates; the ability of Canadian Tire to attract and retain quality employees, Dealers, Canadian Tire Petroleum (Petroleum) agents and PartSource and Mark s Work Wearhouse (Mark s) store operators and franchisees; and the willingness of customers to shop at our stores or acquire our financial products and services. Risk factors associated with the assumptions that underlie Canadian Tire s forecasted performance in 2008 that have the potential to affect the operating performance and results of the Company s divisions are outlined in Section 11.2 of the MD&A. The Company has developed its 2008 forecast on the assumption that there will not be a material deviation in the risks described in the MD&A compared to the current operating environment. The Company cannot provide assurance that forecasted financial or operational performance will actually be achieved, or if it is, that it will result in an increase in the price of Canadian Tire shares. 2

3 Tom Gauld President and Chief Executive Officer

4 Canadian Tire Corporation Consolidated Highlights ($ in millions) Q Q Change 2008 YTD 2007 YTD Change Gross operating revenue 2, , % 6, , % Retail sales 2 2, , % 7, , % Adjusted net earnings after tax % (1.8)% (1) 2007 figures have been restated for the implementation, on a retrospective basis, of the CICA HB 3031 Inventories. (2) Represents retail sales at CTR (which includes PartSource), Mark s corporate and franchise stores and Petroleum s sites. (3) Non-GAAP measure. 4

5 Canadian Tire Corporation Consolidated Highlights ($ in millions except per share amounts) Q3 08 Q Change YTD 2008 YTD Change Gross operating revenue $ 2,257.5 $ 2, % $ 6,533.5 $ 6, % Net earnings % (2.6)% Gain on disposal of shares Former CEO retirement obligation (4.2) Net effect of securitization (6.2) (4.1) 5.2 (2.5) activities 2 Gain (loss) on disposals of property and equipment (0.9) Adjusted net earnings after tax 3 $ $ % $ $ (1.8)% Basic earnings per share $ 1.33 $ % $ 3.35 $ 3.44 (2.7)% Adjusted basic earnings per share 3 $ 1.42 $ % $ 3.26 $ 3.32 (1.9)% (1) 2007 figures have been restated for the implementation, on a retrospective basis, of the CICA HB 3031 Inventories. (2) Includes initial gain/loss on the sale of loans receivable, amortization of servicing liability, change in securitization reserve and gain/loss on reinvestment. (3) Non-GAAP measure. 5

6 Q3 Consolidated Highlights Gross operating revenue increased by 10.2% due to: increased sales at Petroleum and Mark s a higher volume of CTR shipments to Dealers receivables growth at Financial Services Retail sales were up 7.3% due to pricing and promotional strategies Adjusted net earnings increased by 12.7% despite current economic conditions and reflects the following: Strong adjusted earnings performance at CTR and Financial Services Benefits from a lower effective tax rate Opened, renovated or replaced 33 retail outlets across our businesses Automotive Infrastructure initiative on schedule Continued retail banking pilot 6

7 Consolidated 2008 Outlook Confirm earnings per share for 2008 at $4.75 to $5.05, excluding non-operating items Q4 is the most significant for CTR and Mark s due to the concentration of sales and shipment activity for the holiday season Current economic environment could affect consumer behaviour but Q4 has had a strong start at CTR Financial Services is expecting earnings growth because of the impact of card relaunch earlier in the year and stable aging trends in past due accounts 7

8 Outlook 2009/2010 Continued network expansion at Mark s and PartSource Roll-out of 2 new CTR store concepts: 4 small market stores will be open by the end of 2008 first 2 Smart stores will open in 2008 Reduction in gross capital expenses from approximately $543 million in 2008 to approximately $400 million in will depend upon success of store pilots and economic environment Improved CTR productivity and earnings growth in 2010 and beyond: Technology renewal benefits Automotive Infrastructure initiative Continued 2007 Dealer agreement benefits Lower funding costs as highly priced debentures are repaid Lower tax rates 8

9 Huw Thomas Executive V.P. & Chief Financial Officer

10 Consolidated Highlights Retail Sales ($ billions) Gross Operating Revenue ($ billions) $7.39 $7.07 $6.53 $ % 10.2% $2.61 $2.43 $2.26 $2.05 Q Q YTD 2008 YTD 2007 Q3 08 Q3 07 YTD 2008 YTD 2007 Net Earnings 1 ($ millions) $273.0 $280.4 Basic Earnings Per Share 1 ($) $3.35 $ % 6.3% $108.6 $102.2 $1.33 $1.25 Q3 08 Q3 07 YTD 08 YTD 07 Q3 08 Q3 07 YTD 08 YTD 07 (1) 2007 figures have been restated for the implementation, on a retrospective basis, of the CICA HB Inventories. 10

11 Financial Ratios As at September 27, 2008 As at September 29, Long-term debt (including current portion) Ratio of long-term debt (including current portion) to total capitalization Interest coverage (on a rolling 12-month basis) Book value per share Return on invested capital (rolling 12- month) $1.38 billion $1.17 billion 25.2% 26.0% 8.1 times 11.5 times $41.45 $ % 10.3% For the 13 weeks ended September 27, 2008 For the 13 weeks ended September 29, 2007 Cash generated from operating activities before changes in other working capital components $140.0 million $148.3 million (1) 2007 figures have been restated for the implementation, on a retrospective basis, of the CICA HB 3031 Inventories, except for return on invested capital as the information to restate quarterly is not readily available. 11

12 Consolidated Balance Sheet Q3 capital expenditures of $131 million: $85 million for real estate projects, including projects associated with the rollout of CTR s new store projects $12 million for the Eastern Canada distribution centre $14 million for information technology $20 million for other purposes The revised 2008 gross capital outlook is comprised of the following, which total $543 million, down by $44 million from the original plan: $385 million for real estate projects, including $244 million associated with the rollout of CTR s store network $77 million for the Eastern Canada distribution centre $61 million for information technology $20 million for other purposes 12

13 Financial Flexibility Primary sources of funding in Q3: $367 million of cash generated from the issuance of commercial paper $214 million of cash generated from the sale and leaseback of properties $140 million of operating cash flow, pre working capital changes $121 million of cash arising from an increase in net deposits Glacier Credit Card Trust (Glacier): 2003 five-year term notes totaling $570 million will mature and be repaid in November from funds on deposit Hedging program: Resulting from our long-standing currency hedging programs, CTR s product purchasing in US funds will be sheltered from the recent weakening of the Canadian dollar well into

14 Working Capital and Taxation CTR inventory still significantly higher than prior year Seasonal carry over Timing of ramp up for Q4 Higher safety stock due to slower shipping times Inventory levels have already begun to trend down Higher on balance sheet credit card receivables due to timing of securitization deal and growth in portfolio Tax rates benefited from deferral of tax due to treatment of sale and leaseback transaction 14

15 Financial Flexibility (continued) Alternative funding sources: Committed bank lines of $1.22 billion $800 million in commercial paper program, which is backed dollar for dollar by the above noted bank lines, in support of both Glacier and the Corporation of which $367 million was outstanding at the end of the quarter $750 million shelf prospectus for MTN Program, of which $300 million has been used Completed 2 sale/leaseback transactions, including a total of 13 CTR properties in locations across the country, for proceeds of $214 million Continued growth in high rate savings and broker deposits as part of Financial Services banking activities Continue to assess addition of further committed bank lines and selected real estate transactions at cost effective rates 15

16 Mike Arnett President, Canadian Tire Retail 16

17 CTR Retail & Same Store Sales CTR total retail and same store sales (% change over prior year period) Q3 08 Q3 07 YTD 08 YTD 07 Total retail sales 1 4.1% (0.7)% 1.6% 2.0% Same store sales 2 2.0% (2.7)% (0.5)% 0.0% (1) Includes sales from Canadian Tire and PartSource stores, sales from CTR s online web store and the labour portion of CTR s auto service sales. (2) Includes sales from Canadian Tire and PartSource stores, but excludes sales from CTR s online web store and the labour portion of CTR s auto service sales. 17

18 CTR Performance Highlights Retail Sales ($ billions) Gross Operating Revenue ($ billions) $5.25 $5.17 $4.03 $ % 7.3% $1.86 $1.79 $1.40 $1.30 Q3 08 Q3 07 YTD 08 YTD 07 Q3 08 Q3 07 YTD 08 YTD 07 Net Shipments 1 (year-over-year percentage change) EBITDA 2 ($ millions) $398.0 $ % $152.8 $ Q3 08 Q3 07 YTD 08 YTD 07 Q3 08 Q3 07 YTD 08 YTD 07 (1) Shipments represent gross value of merchandise shipped, less discounts, returns and other items. (2) EBITDA does not have a standardized meaning under Canadian GAAP. We consider EBITDA to be an effective measure of the contribution of our businesses to our profitability on an operational basis before allocating the cost of interest, income taxes and capital. 18

19 CTR Earnings Highlights 210 Pre-tax Earnings 1 ($ millions) $222.6 $221.4 Opened 3 replacement stores: 2 new small market format; and 1 CTR-Mark s 20/20 combination store (1.0)% $94.0 $94.9 CTR will open 2 Smart stores in Q4 4.1% increase in retail sales across all three lines of business 20% increase in fall/winter seasonal categories 6.9% increase in adjusted earnings before taxes due mainly to growth in shipments 30 0 Adjustments Adjusted Earnings 2 Q3 08 $0.1 $94.1 Q3 07 $(6.8) $88.1 YTD 08 YTD 07 $(4.8) $217.8 $(3.8) $217.6 Higher merchandise inventories due to an increase in the amount of globally sourced product, which has longer lead times, and seasonal carry over Inventory will be managed back to planned levels over the next several quarters (1) 2007 figures have been restated for the implementation, on a retrospective basis, of the CICA HB 3031 Inventories. (2) Non-GAAP measure. 19

20 Smart Store Next wave of renewal for Canadian Tire Retail stores Leverage investments already made in square footage Mark s Work Wearhouse within each store where feasible Capital-light retrofits: $0.6 - $1 million per store Opening 2 Smart stores in mid-november Welland and Orleans, Ontario Will test expansion into selected food products, including some frozen and refrigerated goods 20

21 Mike Medline President, Dealer Relations & Diversified Businesses 21 21

22 PartSource Q3 Update Sales increases driven mainly by strong commercial sales Shipments to Dealers continue to increase as key components of the Automotive Infrastructure project are rolled out Opened 1 new hub store, relocated/retrofitted 2 existing stores into hub stores and converted 1 franchise store to a corporate store Acquired 6 new corporate stores, 2 of which were rebranded to the PartSource banner by the end of Q3 bringing the network total to 82 22

23 Petroleum Performance Highlights Gasoline Volume (millions of litres) Gross Operating Revenue ($ millions) 1, ,287.0 $1,456.9 $1,232.4 (4.6)% 22.5% $519.3 $424.0 Q3 08 Q3 07 YTD 08 YTD 07 Q3 08 Q3 07 YTD 08 YTD 07 EBITDA 1 ($ millions) $32.8 $29.1 (3.4)% $11.7 $12.1 Q3 08 Q3 07 YTD 08 YTD 07 (1) Non-GAAP measure. 23

24 Petroleum Earnings Highlights $20.0 $18.0 $16.0 $14.0 $12.0 $10.0 Pre-tax Earnings ($ millions) (5.5)% $20.5 $16.8 Decrease of 4.6% in gasoline sales volumes due to higher fuel prices 22.5% increase in gross operating revenue due to a significant increase in pump prices and a 10.7% growth in convenience store sales Opened 2 new gas bars and rebranded 2 gas bars, refurbished 7 sites and rebuilt 1 site $8.0 $6.0 $4.0 $2.0 $0.0 $7.5 Q3 08 $7.9 Q3 07 YTD 08 YTD 07 Enhanced interrelatedness through: issuing Canadian Tire Money offered on gas purchases paid for in cash or by Canadian Tire Options MasterCard Adjustments Adjusted Earnings $7.6 $0.7 $8.6 $0.3 $20.8 $2.0 $18.8 offering discount coupons on Canadian Tire merchandise with the purchase of gas (1) Non-GAAP measure. 24

25 Paul Wilson President, Mark s Work Wearhouse 25

26 Mark s Performance Highlights Retail Sales 1 ($ millions) Same Store Sales 2 (year-over-year percentage growth) $600.1 $ % $194.5 $189.5 Q3 08 Q3 07 YTD 08 YTD Q3 08 Q3 07 YTD 08 YTD 07 EBITDA 3,4 ($ millions) $46.4 (41.6)% $6.7 $11.7 $24.4 Q3 08 Q3 07 YTD 08 YTD 07 (1) Includes retail sales from corporate and franchise stores. (2) Mark s same store sales exclude new stores, those not open for the full period in each year and store closures. (3) Non-GAAP measure. (4) The 2007 figures have been restated for the implementation, on a retrospective basis, of the CICA HB 3031 Inventories. 26

27 Mark s Earnings Highlights Pre-tax Earnings 1 ($ millions) (104.1)% -$0.3 Q3 08 $31.0 $6.2 $4.2 Q3 07 YTD 08 YTD 07 Increase of 2.6% in retail sales Industrial wear led corporate sales growth with a 10.1% increase over last year Adjusted earnings impacted by cost of promotions to clear seasonal merchandise and continued investments in longer term growth and productivity initiatives Mark's opened 3 new stores, expanded 1 store, bought back 4 franchise stores, and relocated 7 existing stores Adjustments $0.3 $0.2 $0.4 $0.8 Adjusted Earnings 2 $0.0 $6.4 $4.6 $31.8 (1) 2007 figures have been restated for the implementation, on a retrospective basis, of the CICA HB 3031 Inventories. (2) Non-GAAP measure. 27

28 Marco Marco Marrone Marrone President, Canadian President, Canadian Tire Financial Services Tire Financial Services 28

29 Financial Services Performance Highlights Gross Average Receivables ($ billions) Operating Expenses 1,2 (as a percentage of gross average receivables) 6.5% 7.73% 7.77% 7.98% $3.95 $3.70 $3.88 $3.61 Q3 08 Q3 07 YTD 08 YTD 07 Net Write-Off Rate 1 (as a percentage of gross average receivables) Q3 08 Q3 07 Q3 06 Return on Average Total Managed Portfolio 1,2,3,4 (as a percentage of gross average receivables) 6.04% 5.87% 5.94% 4.69% 5.43% 5.08% Q3 08 Q3 07 Q3 06 (1) Figures are calculated on a rolling 12-month basis and comprise the total managed portfolio of loans receivable. (2) Excludes the impact of the modification to the stock option agreements in the fourth quarter of (3) Excludes the net effect of securitization activities and gain on disposal / redemption of investment. (4) Return is calculated as adjusted earnings before taxes as a percentage of GAR. Q3 08 Q3 07 Q

30 Financial Services Earnings Highlights Adjustments Adjusted Earnings 1 0 Pre-tax Earnings ($ millions) 7.4% $47.0 $43.7 Q3 08 $9.7 $56.7 Q $6.4 $50.1 $157.7 $144.4 YTD 08 YTD 07 $(7.1) $(14.3) $137.3 $143.4 Increase in adjusted pre-tax earnings of 13.0% due to higher receivable volumes and operating expense control Continued investment in retail banking pilot More than $128 million in high rate savings and approximately $90 million (net of liquidity reserves) in CTB broker deposits $102 million in mortgages Taking action to manage future credit risk exposure, including: Reducing credit limits for cardholders Enhancing predictive scorecards to identify high risk customer behaviour Further enhancing collection strategies (1) Non-GAAP measure. 30

31 Questions and Answers 31