2009 Fourth Quarter and Year-End Financial Results*

Transcription

1 2009 Fourth Quarter and Year-End Financial Results* Conference Call February 11, 2010 * Unaudited

2 Quarterly & Annual Comparisons Unless otherwise indicated, all comparisons of results for the fourth quarter (13 weeks ended January 2, 2010) are against results for the fourth quarter of 2008 (14 weeks ended January 3, 2009) and all comparisons of results for the full year of 2009 (52 weeks ended January 2, 2010) are against results for the full year of 2008 (53 weeks ended January 3, 2009). Where noted, comparisons are also provided on the same calendar week basis to ease comprehension of the results. 2

3 Forward-looking Information This document contains forward-looking statements. These forward-looking statements relate to, among other things, our objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as may, will, could, should, would, suspect, outlook, expect, intend, estimate, anticipate, believe, plan, forecast, objective and continue (or the negative thereof) and words and expressions of similar import, and include statements concerning possible or assumed future results. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Information about material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the body of this document, as well as in the Q Management s Discussion and Analysis ( MD&A ). The forward-looking information contained in this document is presented for the purpose of assisting the Company's security holders and financial analysts in understanding its financial position and results of operations as at and for the periods ended on the dates presented and the Company s strategic priorities and objectives, and may not be appropriate for other purposes. When relying on the forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. The Company does not undertake to update any forward-looking statements, including those statements that are incorporated by reference herein, whether written or oral, that may be made from time to time by or on its behalf, except in accordance with applicable securities laws. 3

4 Stephen Wetmore President and Chief Executive Officer 4

5 Consolidated d Highlights h ($ in millions except per share amounts) Q Q Change FY 2009 FY Change Retail sales 2 2, ,219.6 (7.0)% 10, ,614.4 (5.6)% Gross operating revenue 2, ,587.8 (5.8)% 8, ,121.3 (4.8)% EBITDA 3, (10.1)% (2.0)% EBITDA 3, 4 (excluding Financial Services) (12.4)% (0.8)% Adjusted net earnings 4 (excludes non-operating gains and losses) (19.8)% (12.2)% Basic earnings per share (5.4)% (10.9)% Adjusted basic earnings (20.0)% (12.4)% per share 4 (1) 2008 figures have been restated for the implementation, on a retrospective basis, of CICA HB 3064 Goodwill and Intangible Assets and the amendments to CICA HB 1000 Financial Statement Concepts. (2) Represents retail sales at CTR (which includes PartSource corporate and franchise stores), Mark s corporate and franchise stores and Petroleum s sites. (3) 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, depreciation and amortization. (4) Non-GAAP measure. 5

6 Business Performance Highlights h As reported 2 On a same calendar week basis 3 year-over-year percentage change Q Q CTR Mark s Retail sales 1 (8.3)% (2.8)% (3.1)% (1.1)% Gross operating revenue (8.7)% (2.1)% N/A N/A Net shipments (8.6)% (2.4)% N/A N/A Retail sales 4 (4.1)% (4.8)% 0.7% (3.5)% Petroleum Retail sales (3.0)% (16.8)% N/A N/A Gasoline volume (8.1)% (1.1)% N/A N/A Financial Services Credit card sales 3.4% 2.4% N/A N/A Gross average receivables 1.8% 4.1% N/A N/A (1) Includes sales from Canadian Tire stores, PartSource stores and the labour portion of CTR s auto service sales. (2) Fiscal 2009 sales and earnings figures are based on a 13-week period for the fourth quarter and a 52-week period for the year compared to 14 weeks for the fourth quarter in 2008 and 53 weeks for the year in (3) Selected retail sales figures have been provided on a comparable same calendar week basis for fiscal 2008, to make fiscal 2009 sales more comparable to the prior year. (4) Includes retail sales from Mark s corporate and franchise stores. 6

7 Performance Highlights h Business operating well despite challenging market conditions Consolidated EBITDA, excluding Financial Services, decreased 0.8% for the year CTR year-over-year retail sales decreased by 2.8%, due to unseasonable weather, particularly in Ontario and Quebec, challenging economic conditions and an extra trading week in 2008 Financial Services managing well due to continued focus on credit risk mitigation strategies Mark s ladies wear experienced a 5.5% corporate store sales increase (a 11.4% increase when adjusted for the calendar differences) in the quarter Petroleum gross operating revenue decreased 3.7% in the fourth quarter due to an additional trading week in the 2008 comparative PartSource experienced strong sales growth for the year and increased its emergency auto parts shipments to Dealers 7

8 2010 Strategic Priorities i i Optimize the significant investments made in store and supply ppy chain infrastructure and drive sustainable, long-term earnings growth Build the strength of the core Canadian Tire Retail business and brand Improve overall customer service Leverage industry-leading core assets in automotive business Position each business unit to actively support and drive consumers to the core Canadian Tire Retail business 8

9 2010 Initiatives i i Key areas of focus in 2010 will build on the momentum of programs and initiatives begun in 2009: Continue roll-out of capital-light CTR Smart stores Evolution of key productivity initiatives Development of redesigned and enhanced loyalty program Staffing and process changes within CTR Marketing, Merchandising and Store Operations to improve core processes Refocus and align core automotive assets with single focus for growing market share Centralize key support functions to improve operating efficiencies Reduce operating expenses, lower CAPEX and lower inventory levels at CTR Enhance supply chain and operations capabilities at Mark s Ongoing focus on credit risk management at Financial Services Enhance financial i performance across the organization and improve operating and strategic planning process 9

10 2010 Investor Conference 2010 Investor Conference Date: Wednesday, April 7, 2010 Webcast: available on our website Contact: for more information, contact 10

11 Marco Marrone Chief Financial Officer & Executive V.P., Finance 11

12 Consolidated d Highlights h Retail Sales ($ billions) Gross Operating Revenue ($ billions) $10.02 $10.61 $8.69 $9.12 (7.0)% (5.8)% $2.99 $3.22 $2.44 $2.59 Q4 09 Q4 08 FY 09 FY 08 Q4 09 Q4 08 FY 09 FY 08 Net Earnings 1 ($ millions) $335.0 $375.4 Basic Earnings Per Share 1 ($) $4.10 $4.60 (5.2)% (5.4)% $96.2 $101.5 $1.18 $1.24 Q4 09 Q4 08 FY 09 FY 08 Q4 09 Q4 08 FY 09 FY 08 (1) The 2008 earnings figures have been restated for implementation, on a retrospective basis, of the CICA HB 3034 Goodwill and Intangible Assets and the amendments to CICA HB 1000 Financial Statement Concepts. 12

13 Consolidated d Highlights h ($ in millions except per share amounts) Q4 09 Q Change FY 09 FY 08 1 Change Earnings before income taxes (5.6)% (11.8)% Less pre-tax adjustment for: Executive retirement obligations (6.2) 0.5 (5.1) Redemption of debentures 2 (7.7) - (6.1) - Net effect of securitization activities 3 (1.0) (10.6) (7.8) (2.9) Delayed-start interest rate swap 2 - (28.7) - (28.7) Costs associated with sale of mortgage g (5.3) - (5.3) - portfolio 4 Gain (loss) on disposal of property and (0.4) 5.4 equipment Adjusted earnings before income taxes (20.2)% (13.2)% Basic earnings per share (5.4)% (10.9)% Adjusted basic earnings per share (20.0)% (12.4)% (1) The 2008 earnings figures have been restated for the implementation, on a retrospective basis, of CICA HB 3064 Goodwill and Intangible Assets and the amendments to CICA HB 1000 Financial Statement Concepts. (2) The former executive retirement obligation, the redemption of debentures and the delayed-start interest swap has been recorded in CTR. (3) Includes initial gain/loss on the sale of loans receivable, amortization of servicing liability, change in securitization reserve and gain/loss on reinvestment. (4) The costs associated with the sale of the mortgage portfolio have been recorded in Financial Services. (5) Non-GAAP measure. 13

14 Financial i Ratios Long-term debt (including current portion of LTD and long-term deposits) January 2, 2010 As at As at January 3, $2.6 billion $2.0 billion Book value per share $45.19 $43.69 Return on invested capital (on a rolling % 8.9% month basis) 2 For the 13 weeks ended January 2, 2010 For the 14 weeks ended January 3, 2009 Cash generated from operating activities before changes in other working capital components $214.9 million $201.4 million (1) 2008 results have been restated for the implementation, on a retrospective basis, of CICA HB 3064 Goodwill and Intangible Assets and the amendments to CICA HB 1000 Financial Statement Concepts. (2) Return on invested capital has been calculated using an earnings number that has been adjusted for non-operating items. 14

15 Consolidated Cash Flow Q4 primary sources of funding: $215 million of cash generated from operating activities before other changes in working capital; $162 million of cash arising from the sale of the mortgage portfolio; and $130 million of cash arising from the maturity of short-term investments During the quarter, we used cash primarily for: $265 million for the repayment of deposits; $152 million for the repayment of long-term debt; $52 million for additions to property and equipment; $19 million for additions to intangible assets, primarily computer software; and $17 million in dividends paid 15

16 2009 Capital Expenditures $81 million Q4 CAPEX: $46 million for real estate projects; $18 million for information technology; $5 million for CTR distribution centres; $5 million for Automotive ti Infrastructure; t $1 million for Eastern Distribution Centre $6 million for other purposes $273 million 2009 CAPEX: $161 million for real estate projects; $55 million for information technology; $13 million for CTR distribution centres; $13 million for Automotive Infrastructure; $5 million for Eastern Distribution Centre; and $26 million for other purposes 16

17 Financing i Sources Financing Source Amount Available Description Committed bank lines of credit $ billion Provided by 10 domestic and international financial institutions Supports the $800 million commercial paper program No amounts were drawn on the bank lines as at January 2, 2010 Commercial paper program $800 million Canadian Tire had no commercial paper outstanding as at January 2, 2010 Medium Term Notes (MTN) program $750 million New Shelf Prospectus completed as of April 8, 2009, providing for access up to $750 million $200 million was drawn upon as an MTN issuance in June 2009 Securitization of receivables Transaction specific Handled through Glacier Credit Card Trust Financial Services securitized $100 million of credit card receivables in 2009 Broker GIC deposits No specified limit Funds are available through broker networks $1.5 billion in broker GIC deposits as at January 2, 2010 Retail deposits No specified limit Retail deposits consist of High Interest Savings Accounts, Tax-Free Savings Accounts and retail GIC deposits Financial Services held $545 million in retail deposits at the end of January 2, 2010 Sale/leaseback transactions Transaction specific Strategic transactions involving Company owned properties 17

18 Oh Other Items 2010 headwinds: $8-10 million impact on earnings due to new financial services regulations $8 million cost for chip card launch $5 million cost for sales tax harmonization and other sales tax changes at Financial Services $10 million increased year-over-year costs for supporting key strategic initiatives iti principally i at CTR 2010 statutory tax rate will be approximately 31%, reflecting federal income tax rate changes Quarterly dividend id d of $0.21 declared d for fourth quarter, unchanged from the previous quarter 2010 Capex in the range of $280 million to $300 million 18

19 Mike Arnett President, Canadian Tire Retail 19

20 CTR Retail & Same Store Sales As reported 3 On a same calendar week basis 4 year-over-year percentage change Q Q CTR Retail sales 1 (8.3)% (2.8)% (3.1)% (1.1)% Same store sales 2 (9.4)% (4.2)% (4.1)% (2.6)% (1) Includes sales from Canadian Tire stores, PartSource stores and the labour portion of CTR s auto service sales. (2) Includes sales from Canadian Tire and PartSource stores, but excludes sales from the labour portion of CTR s auto service sales. (3) Fiscal 2009 sales and earnings figures are based on a 13-week period for the fourth quarter and a 52-week period for the year compared to 14 weeks for the fourth quarter in 2008 and 53 weeks for the year in (4) Selected retail sales figures have been provided on a comparable same calendar week basis for fiscal 2008, to make fiscal 2009 sales more comparable to the prior year. 20

21 CTR Performance Highlights h Retail Sales ($ billions) $7.41 $7.62 Gross Operating Revenue ($ billions) $5.55 $5.67 (8.3)% (8.7)% $2.17 $2.36 $1.49 $1.64 Q4 09 Q4 08 FY 09 FY 08 Q4 09 Q4 08 FY 09 FY 08 Net Shipments 1 (year-over-year percentage change) EBITDA 2, 3 ($ millions) $535.7 $527.0 (2.4) (11.1)% (8.6) $114.6 $129.1 Q4 09 Q4 08 FY 09 FY 08 Q4 09 Q4 08 FY 09 FY 08 (1) Net shipments represent gross value of merchandise shipped less discounts, returns and other such items. (2) Non-GAAP measure. (3) 2008 figures have been restated for the implementation, on a retrospective basis, of CICA HB 3064 Goodwill and Intangible Assets and the amendments to CICA HB 1000 Financial Statement Concepts. 21

22 CTR Earnings Highlights h Pre-tax Earnings 1 ($ millions) 42.4% $38.0 $26.7 $261.6 $249.4 Q4 09 Q4 08 FY 09 FY 08 Unseasonable weather in Q4 negatively impacted categories such as winter tires, snow removal products and light automotive parts such as car batteries and wiper blades Growth areas showing sales increases: Household cleaning 16.7% Pet care 1.3% In Q4 2009, replaced 1 traditional store with a Smart store, opened 25 Smart store retrofits and opened 3 incremental Small Market stores with 2 of them offering a full size Mark s, bringing the total number of stores in the network to 479 Adjustments $(5.5) $(31.2) $(3.8) $(26.4) Adjusted $43.5 $57.9 $265.4 $275.8 Earnings 2 (1) The 2008 earnings figures have been restated for the implementation, on a retrospective basis, of CICA HB 3064 Goodwill and Intangible Assets and the amendments to CICA HB 1000 Financial Statement Concepts. (2) Non-GAAP measure. 22

23 Michael Medline President, Automotive and Dealer Relations 23

24 Automotive Strategy Automotive is core to our business and a key differentiator from our competitors No other company has our assets and national reach Will grow the business in a holistic way, with a focus on: Expanding market share Improving the strength and consistency of the customer experience 24

25 PartSource Performance Highlights h Q4 sales down, mostly related to weather; strong growth for the full year Shipments to Canadian Tire Retail stores continue to increase as key components of the Automotive Infrastructure program are rolled out In 2009, PartSource built 3 new stores including one hub store, retrofitted one existing store to a hub store, converted 7 franchise stores to corporate stores and closed 2 stores, bringing network total to 87 stores at the end of the year, including 10 hub stores 25

26 Petroleum Performance Highlights h Gasoline Volume 1 (millions of litres) Gross Operating Revenue ($ millions) 1, ,727.0 $1,871.2 $1,515.1 (8.1)% (3.7)% $398.8 $414.3 Q4 09 Q4 08 FY 09 FY 08 Q4 09 Q4 08 FY 09 FY 08 EBITDA 2 ($ millions) $42.2 $43.8 (40.5)% $6.6 $11.0 Q4 09 Q4 08 FY 09 FY 08 (1) Gasoline volume normalized for 13 weeks versus 13 weeks is (1.8)%; 52 weeks versus 52 weeks is 0.7%. (2) Non-GAAP measure. 26

27 Petroleum Earnings Highlights h Pre-tax Earnings ($ millions) $26.6 $24.2 (69.1)% $6.1 $1.9 Q4 09 Q4 08 FY 09 FY 08 Adjustments $(0.3) $(0.2) $(0.7) $(0.5) Q4 gross operating revenue declined 3.7% due to the additional reporting week in 2008 Enhanced interrelatedness through: executing cross-marketing national contest at gas bars driving traffic to CTR and Mark s stores and Financial Services Options MasterCard issuing multiplier coupons that increase the Canadian Tire Money offered on gas purchases paid for in cash or by Canadian Tire Options MasterCard In Q4 2009, Petroleum built 1 new site and refurbished 6 sites, to enhance the customer experience and better reflect the Canadian Tire brand Adjusted $2.2 $6.3 $24.9 $27.1 Earnings 1 (1) Non-GAAP measure. 27

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

29 Financial i Services Performance Highlights h Gross Average Receivables ($ billions) Operating Expenses 1,2 (as a percentage of gross average receivables) 18% 1.8% $4.10 $4.02 $4.07 $ % 7.36% 7.84% Q4 09 Q4 08 FY 09 FY 08 Net Write-Off Rate 1 (as a percentage of gross average receivables) Return on Average Total Managed Portfolio 1,2,3,4 (as a percentage of gross average receivables) 7.58% 6.34% 5.76% 3.57% 5.00% 5.15% (1) Figures are calculated on a rolling 12-month basis and comprise the total managed portfolio of loans receivable. (2) 2007 and 2008 figures have been restated for the implementation, on a retrospective basis, of CICA HB 3064 Goodwill and Intangible Assets and the amendments to CICA HB1000 Financial Statement Concepts. (3) Excludes the net effect of securitization activities, costs associated with sale of the mortgage portfolio, gain/loss on disposal of assets and gain on disposal/redemption of investment. (4) Return is calculated as adjusted earnings before taxes as a percentage of GAR. 29

30 Financial i Services Earnings Highlights h 140 Pre-tax Earnings 1 ($ millions) Gross operating revenue for the quarter increased by 11.9% due to an increase in yield 200 and growth in gross average receivable balance 180 $ write-off rate increased to 7.58% - ongoing 160 actions taken to manage credit risk exposure, including: (16.0)% $38.4 $45.8 $131.9 Q4 09 Q4 08 FY 09 FY 08 Adjustments $(5.9) $(10.6) $(13.4) $(3.5) Adjusted $44.3 $56.4 $145.3 $195.5 Earnings 2 Reducing credit limits for selective cardholders Enhancing predictive scorecards to identify high risk customer behaviour Further enhancing collection strategies In 2008 and 2009, the overall growth rate in Canadian bankruptcies was higher than the rate of growth experienced by Financial Services; the number of Canadian consumer bankruptcies increased 31.2% in 2009 OPEX rate, as a percentage of gross average receivables, down 44 bps, reflecting tight expense management and improved productivity (1) The 2008 earnings figures have been restated for the implementation, on a retrospective basis, of CICA HB 3064 Goodwill and Intangible Assets and the amendments to CICA HB 1000 Financial Statement Concepts. (2) Non-GAAP measure. 30

31 Managing Portfolio Profitability The Financial Services Business Model: (Approximate Percentages of 2009 Average Receivables) Gross yield including insurance 25.1% Provision cost -8.3% Funding cost -4.1% Loyalty and other -2.2% Operating expenses -6.9% = 3.6% ROR During normal operating conditions, we manage the level of operating expenses to drive a consistent 4.5% to 5% return on receivables 31

32 Paul Wilson President, Mark s Work Wearhouse 32

33 Mark s Performance Highlights h Retail Sales 1,2 ($ millions) $960.0 $1,008.5 Same Store Sales 3 (year-over-year percentage growth) (4.1)% 0.3 $391.7 $408.4 (4.9) (6.0) Q4 09 Q4 08 FY 09 FY 08 Q4 09 Q4 08 FY 09 FY 08 EBITDA 4,5 ($ millions) (10.5)% $70.5 $78.8 $90.5 $102.9 Q4 09 Q4 08 FY 09 FY 08 (1) Includes retail sales from corporate and franchise stores. (2) Retail sales figures on a same week calendar basis for 13 weeks versus 13 weeks is 0.7%; 52 weeks versus 52 weeks is (3.5)%. (3) Mark s same store sales exclude new stores, those not open for the full period in each year and store closures. (4) Non-GAAP measure. (5) 2008 figures have been restated for the implementation, on a retrospective basis, of CICA HB 3064 Goodwill and Intangible Assets and the amendments to CICA HB 1000 Financial Statement Concepts. 33

34 Mark s Earnings Highlights h Pre-tax Earnings 1 Comparing 13 weeks in 2009 to 14 weeks in 2008 and not adjusting to a same calendar week ($ millions) basis, Mark s ladies wear experienced growth in 80 Q4 with healthy growth in corporate store sales $75.0 in the following categories: (11.4)% $63.1 $71.2 $61.5 Q4 09 Q4 08 FY 09 FY 08 Adjustments $(0.4) $(0.5) $(1.2) $(0.9) Adjusted $63.5 $71.7 $62.7 $75.9 Earnings 2 Ladies accessories up 14.4% Ladies sweaters up 6.1% Ladies knitwear up 5.9% Comparing 13 weeks in 2009 to 14 weeks in 2008 and not adjusting to a same calendar week basis, men s wear and industrial wear corporate store sales down 4.5% and 8.7% in Q4, with industrial wear particularly reflective of weakness in labour market conditions in resource-based provinces of Alberta and BC In Q4 2009, Mark's opened 5 new stores (3 of which were CTR/Mark s combo stores), expanded 1 corporate store and 1 franchise store, relocated 1 franchise store and closed 1 corporate store bringing g the total network to 378 stores (1) The 2008 earnings figures have been restated for the implementation, on a retrospective basis, of CICA HB 3064 Goodwill and Intangible Assets and the amendments to CICA HB 1000 Financial Statement Concepts. (2) Non-GAAP measure. 34

35 Questions and Answers 35