Consumer spending on essentials like groceries, gasoline and services remains strong, but demand for non-essentials is showing signs of slowing, the head of Canadian Tire Corp said.
The insight, gleaned from purchases made with the company’s credit cards and sales at its network of stores, suggests Canadians are beginning to shift spending as inflation drives up the cost of living, said Greg Hicks, president and CEO of the retail and financial services giants. said during a earnings call on Thursday.
“Overall, spending remains strong. What we’re seeing is a mix shift in these spends,” he said. “Spending appears to be softening in non-grocery sales and remains strong in food, gas and services.”
Across the company’s numerous banners, including eponymous retail businesses, Mark’s and SportChek, overall consumer demand was “volatile” last quarter, Hicks said.
“Demand was strong at the beginning of the quarter, softened in the middle and then finished strong in the last few weeks of September,” he said of the company’s third-quarter results.
Consolidated retail sales for the quarter ended October 1 increased 2.8 percent compared to the same period last year but slowed from the prior quarter.
At the company’s Canadian Tire retail stores, some buyers seemed increasingly price conscious.
Canadian Tire retail customers who aren’t part of the Triangle Rewards program were looking for discounted value, Hicks said.
“Our percentage of shopping carts where all items in the shopping cart are discounted is increasing,” he said.
There was also evidence of greater “performance separation” for essential and non-essential categories, Hicks said.
Spending on tires and automotive products, plumbing supplies and pet needs rose while spending on exercise equipment, electronics and furniture fell, he said.
One of the biggest declines was in the non-essential “bore-buster” category, said Canadian Tire’s retail president, TJ Flood.
Sales of items like bicycles, backyard entertainment games and home entertainment products — which have been in high demand during the pandemic lockdowns — fell about 30 percent in the quarter, he said.
But sales of “boredom-buster” items were still up 16 percent compared to 2019, while growth in categories like auto offset the decline, Flood said.
Meanwhile, ongoing supply issues appear to be influencing some of the changes in sales mix.
“Our housing, repair and play businesses were down in the quarter year-over-year due to supply issues in areas like vacuum cleaners and portable power tools,” Canadian Tire’s chief financial officer, Gregory Craig, said during the earnings call.
“Demand for some household items and exercise equipment has also slowed,” he said. “This was partially offset by areas of growth, particularly in camping and livery.”
Higher fuel costs, ocean freight rates and inflation were the company’s biggest headwinds in the third quarter, Craig said.
However, those headwinds are expected to ease in the fourth quarter, he said.
“Based on what we’re seeing in the market, spot prices at sea are significantly lower than last year, fuel prices are falling and product costs appear to be stabilizing,” Craig said.
Canadian Tire increased its dividend as third-quarter profit fell year over year.
The company said it will now pay a quarterly dividend of $1.725 per share, up from $1.625 per share.
The increased payment to stockholders came as Canadian Tire announced that net income attributable to stockholders for the quarter was $184.9 million, or $3.14 per diluted share, compared to earnings of $243, $7 million, or $3.97 per diluted share, in the same quarter last year.
Revenue was $4.23 billion compared to $3.91 billion in the third quarter last year.
Canadian Tire announced that it made $3.34 per diluted share on a normalized basis for the most recent quarter, compared to normalized earnings of $4.20 per diluted share a year ago.
Analysts, on average, had expected earnings of $3.92 per share and $4.23 billion in revenue, according to estimates from financial markets data firm Refinitiv.
RBC Dominion Securities Inc. analyst Irene Nattel called the company’s third-quarter results “messy.”
In a note to clients, she said the company is on a bumpy road as weaker-than-expected results show headwinds on costs are taking their toll.