Canadian Tire Corporation, Limited (CTC-A.TO) Earnings Call Transcript & Summary

Yes, obviously, depending on where revenue -- what the environment looks like, what the consumer looks like and the discretionary environment. But yes, with some good revenue with revenue growth, we would expect some leverage there.

And can I ask -- so maybe in that base case scenario, what type of revenue growth do you need to actually achieve -- to achieve operating leverage?

Yes, I would love to answer that, but probably not going to do that one today.

Okay. That's okay. And then on the bank side, yes, you've been quite clear that you're stepping up investments there. I think you also may be planning to accelerate account acquisition as well. Is that kind of part of the, I guess, the 27% SG&A rate that you have been guiding us for next year?

Yes, I don't think -- we haven't guided on a rate next year. We did say it will be elevated. And if you just step back and say, okay, what's happening at the bank for us, we went through a lengthy strategic review at the bank, and we decided at the end of that, I think it took 1.5 years, but I'm not exactly sure on the timing. We decided at the end of that, that we were the rightful owner and that we believe we can create more value for our retail business than we have historically with the bank. And as a result of that in the 18 months and where you are when you're going through a strategic review, we did not make the level of investments that in hindsight, we should have made at the bank. So we're doing some catch-up at the bank. We're making operational investments like migrating IT platforms to the cloud. We're making -- doing enhancements and improving our retail deposit platform. We're making investments just to keep up with the regulatory requirements, and we're activating accounts because we really have not been growing the account base. So we see lots of opportunity there. The other part that I think is very interesting is on the bank side is how can it help retail. And so an example in the True North thinking, which is to be much more integrated. We looked at a number of accounts on the bank side that are good credit customers that are close to their credit limits, and we increased the credit limits. And as a result of that, we saw meaningful and material increase in the sales, something that at the aggregate level was material. And this was a pilot that we did that before True North and before integrating the bank in our management system, we would not have done that. Because the bank -- I mean, the bank is not really benefiting from that. But as a company, we are. So we think there will be more opportunity like that for us to do to grow retail while making sure that we've got a robust bank supporting that as well.

And that is good because that was sort of my next question was how do you integrate the bank to help support your retail strategy as part of your True North initiative. So that was a good example that you gave. From a financial perspective, if you think about that example, like how do we -- how should we think about building that into our financial projections?

Yes. Listen, I mean, one of the things that we're playing around with so I should have said before when I talked about why I think there's a lot of opportunity. I'm spending a lot of time internally and the rest of the executive team because when you're doing this level of change, you've got to always be out there and describing to people why are we changing? So the case for change -- we actually survey our -- a large part of the population every month, and we ask them questions around True North. And one of them, the case for change is very high. So they're all like, yes, we need to make this change. And one of the things -- so I'm spending a lot of time and the rest of the senior team on describing where we're going, why we're going there. Internally, I am building the muscle around forecasting, forecast accuracy, being accountable to that, but also showing everybody what good looks like. And so what does good look like? That looks like a financial framework where you're hitting X to Y on revenue, you're getting continuous improvement and leverage to drive your operating profit higher and ultimately, with your buybacks and you're investing in the business, you're getting a nice return for shareholders. We're spending more time internally on that. We're contemplating at this point. I see Karen staring at me, whether we would go external with that at some point just as here is our long-term financial framework. But I think more importantly is we're internalizing that so people understand what are their targets going to look like. They know now what their targets should look like for '27 because I'm telling them. And we're trying to get that muscle of continuous improvement as part of our culture. So the bank would fit into that, because the way that works is what we've said with True North, we've told everybody, we're spending this money. We're changing how we operate to accelerate our performance from historical levels. Now I wouldn't look at revenue levels from the COVID years because as we all know, there was a lot of buying then. But you would expect our revenue to be higher than we would have had over those years -- over the typical years as a result.

Okay. That's helpful. And in the beginning, you mentioned about your loyalty ecosystem. It's obviously expanding. You announced the partnership with Tims recently in addition to RBC, Petro-Canada and WestJet. Can you just talk a little bit about what are the strategic goals of these partnerships?

Sure. Yes. Listen, the loyalty is just -- it's a fun area right now. It's exciting. We are doing a lot of great things. So you start with -- it's all about the flywheel. And Triangle program for us, as I said, it's 9.5 million active registered members and the program is getting better and better. I'm getting more and more people talking to me about the app and how they're using it and how they're using it with the in-store experience. What we're building in our loyalty program is more of a federated loyalty. So we're not trying to create a coalition, we are picking marquee companies that have deep verticals. And the way I think about it is we're going to grow in those verticals or we're going to get more awareness. We're going to get more mind share in those verticals in an asset-light way. We're not going and spending a whole bunch of money to go into those verticals, but the customers in those verticals will come and shop with us and see Canadian Tire more often. It's like marketing in those verticals. So if you think about it, Tim Hortons is a great example. So Tim Hortons -- not Tim Hortons, sorry, Petro -- Petro-Canada, we went to market in 2024. We now have over 500,000 linked accounts, and we talked about it on our last call that this year, our incremental sales from Petro alone is $100 million. So we're gaining share. We're gaining revenue. We know Petro is as well. They're very pleased with the partnership. And so that's what I mean by a federated program where we're both winning. But it's not about we're sitting here with one loyalty program and we're trying to share the points and do it that way. So now when you look at what we've done, we've obviously announced with RBC, WestJet, we're going to have those completed by the first half of '26. RBC now, if you actually try to do it, we are in soft launch. So anyone in this room, you can go and link your Avion card now. So we're well on our way, and then we will get to Tims later. But by the end of next year, we will have major verticals of petroleum, financial services, travel and quick service restaurants. So -- I mean, that's an amazing feat in a short period of time. And we just think, again, it's going to bring more awareness and it's going to give more to our Triangle program and ultimately grow our revenue as a result.

Yes. I was going to ask you like over the longer term, as you execute on those partnerships, how would that impact your P&L statement?

Yes. So there's a couple of parts it does. So certainly, it is all geared towards growing our top line. And from there, there's obviously cost of points. But when you're thinking about going to the market, you've got reg pricing, you've got promo, you've got the cost of your merchandise that you're buying from, you've got loyalty points. So we've got to put all that into the machine and stay true to our North Star margin target. So we've done lots of work on that. We see great incrementality from the partnerships we have. So -- but they're really to drive sales and awareness to us.

And there are more opportunities you guys are looking at in terms of expanding more?

Yes, we're not trying to be everywhere. If you think about how much we've already got covered, maybe there's one more, maybe there's two more, but there's not a dozen more. We need to digest what we have right now, and we're doing a lot of work on that with our partners.

Got it. Okay. And then maybe last area of question I want to touch on is obviously on M&A. You guys have a history of making good tuck-in acquisitions and then really accelerating the brand awareness and growing it. You bought the patents to HBC early this year. Can you talk a little bit about sort of what is that strategy and what we can expect to see?

Yes. So from a capital allocation strategy, I believe and the company had this philosophy as well, I believe in balanced capital allocation. For me, what's important is you keep your investment-grade balance sheet, you invest in the business, you give back to shareholders through dividends and through buybacks. The acquisitions right now, we are so focused on changing how we operate and our True North. So we're not proactively looking for any large acquisitions. HBC is a great example of a tuck-in brand acquisition, something that we've done really well over the years. You look at brands, I mean, we are really good at developing a brand, innovating a brand, growing it and as well, the benefit of the brands is they have a premium margin to national brands. So I'll do those all day long opportunistically because, again, we've got enough on our plate. But HBC itself, if you spend a few minutes talking about how we're going to market on HBC is -- we think it's such an exciting thing to add to the CTC family. We got so much fanfare for buying HBC in the stripes. The good news, if you haven't seen it already, we're coming out with our holiday capsule edition on December 5 in stores, and it's going to be -- it's just 26 items. So it's going to be a limited curated selection, all the original suppliers because we're very, very focused on the quality and the craftsmanship that comes with HBC and the stripes. And so we're going to be bringing that to stores December 5. I think it's going to be hard to hold on the shelves. So get out to our CTR stores for December 5.

Well, picture is a thousand words. So this is a great segue maybe I think we have a small video. We can show you exactly what you were talking about. [Presentation]

Very short video, limited supply, short video to match it.

Well, we have a couple of minutes left there. I mean, is there anything else you wanted just to share with us, with investors?

No, listen, I mean, hopefully, you can hear it in me. I'm excited. I love being back in retail and Canadian Tire is just fantastic. I think we've got lots of opportunity. Clearly, the market out there has to be supportive of that. So far, we're seeing resilient consumer. If we can ever get some tailwinds, it would be nice. But we're working through that, and there's a lot to be excited for in the company. I think with change is tough, but we're off to a really good start through True North. So we're quite excited.

Yes. Well, with that, I just want to thank you again, and welcome back. Looking forward to working with you.

Likewise, Chris. Thank you, everybody.

Thank you.