Canadian Tire Corp. Ltd. is the latest retailer to warn of softening consumer demand as high costs of living continue to rein in spending.
"The increased cost of living combined with higher interest rates has created a period of hesitation among Canadian consumers," president and CEO Greg Hicks told analysts during a conference call Thursday.
"This has had an obvious impact on our operations," he added.
The retailer, which also owns SportChek, Mark's, Party City and Pro Hockey Life, reported Thursday its first-quarter profit rose compared with a year ago as its revenue fell about five per cent.
Its net income attributable to shareholders totalled $76.8 million or $1.38 per diluted share for the quarter ended March 30, up from a profit of $7.8 million or 13 cents per diluted share in the same quarter last year when it was hit by costs related to a warehouse fire.
Revenue for the quarter totalled $3.52 billion, down from $3.71 billion in the same period last year.
Softer demand in the last few quarters led store dealers to pull back on inventory, especially on non-essential items.
"We saw dealers continue to manage the health of the inventory by drawing inventory down," said TJ Flood, executive vice president of Canadian Tire Retail.
That's why the company saw a gap between sales and revenue in the first quarter, he said, following similar trends from the 2023 fourth quarter.
"We expect dealers to buy spring-summer categories more in reaction to the consumption patterns that they see versus how they've been doing it over the past couple of years — which is, they bought early and built inventory," Flood told analysts on the call.
Comparable sales declined across all banners by 1.6 per cent, with fewer people shopping amid an economic slowdown.
Same-store sales at Canadian Tire retail were down 0.6 per cent, compared to 4.8 per cent decline at the same time last year. The Toronto-based retailer said its essential category retail stores were up two per cent, mainly driven by auto services.
Seasonal gardening sales went up three per cent after being down for five consecutive quarters, Canadian Tire CFO Gregory Craig said. Sales for backyard amusement and outdoor cooking also picked up early.
Other retail banners Mark's and SportChek also saw same-store sales fall 1.2 per cent and 6.5. per cent, respectively.
Canadian Tire said loyalty incentives brought more shoppers to Mark's, but a decline in sales of industrial and workwear offset those gains. At SportChek, sales declined because of softer demand in skiing, snowboarding and outerwear.
Flood said the retailer plans to focus on essentials and create value for customers through promotions to ignite sales.
"We know the customer is craving value right now," said Flood. "We're very focused on all the elements that we provide from (that) perspective, whether that be leaning into inventory and marketing on our own brands."
Inconsistent demand has put pressure on sales for discretionary items, making the quarter more volatile compared to the last year, Hicks told analysts.
Canadian markets are expecting Bank of Canada rate cuts as early as June, which will also mark the end of the second quarter. Other companies, including Shopify Inc. and Spin Master Corp., recently indicated similar economic pressures from higher interest rates and weakening sales in their quarterly results.
The central bank has been closely watching economic data including consumer spending ahead of its upcoming June 5 announcement.
Hicks said potential interest rate cuts "could foster stability, easing uncertainties in our business operations."
This report by The Canadian Press was first published May 9, 2024.