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Why Canadian Tire Corporation Limited Is a Great Investment

Canadian Tire Corporation Limited (TSX:CTC.A) is one of the best retail investments in the market today, and for good reason too. Besides owning some of the biggest retail brands in the country, Canadian Tire has continued to impress during earnings season as well as with respect to innovation within the company.

In the most recent quarter, Canadian Tire posted better than expected quarterly profit that was fueled by increased sales of sporting goods and apparel. The Mark’s brand saw retail sales increase 3.3% to $238.1 million, and FGL Sports saw an increase of 2.8% to $606.1 million.

Across all brands, Canadian Tire saw total retail sales grow by 3.4%, closing out at $3.52 billion for the quarter. That figure includes petroleum sales, which dropped by approximately 10% for the quarter. Excluding those petroleum sales, the company had total retail sales growth of 5.5%.

Canadian Tire also announced a dividend bump of 13%, bringing the annual dividend to $2.60 per share for a yield of 1.89%

How did Canadian Tire get to this point?

Canadian Tire wasn’t always perceived as a king of retail. Just a few short years ago, the company was in a very different predicament and badly in need of rebranding.

Customers visiting a Canadian Tire store typcally pick up parts for the car, or grab some sporting equipment gear or garden furniture. Those hardly sound like scenarios that would benefit from the use of technology in the sales process or even warrant a significant online presence, but that’s exactly what Canadian Tire set out to change, and it has excelled at it.

Imagine a driving simulator that lets you try out new tires in different weather conditions before your purchase the tires. How about donning a VR headset to see how that new patio furniture will look in your backyard? Or maybe it’s taking a quick run on a treadmill that recommends the best-fitting shoe for you. Canadian Tire has done all of this and more.

By integrating technology directly into the sales process, Canadian Tire has set the standard for other traditional retailers to follow. Other retailers haven’t changed their business model to account for technology and online storefronts, still opting for large physical showrooms and a minimal online presence.

Canadian Tire’s hybrid model of using technology as part of the sales process helps buyers and bridges both the digital and physical retail models, leading the company to identify itself as a “phygital” retailer.

Has this gamification of retail helped Canadian Tire? Without a doubt. Traditionalists may view the inclusion of driving simulators, VR headsets, and smart treadmills as nothing more than gimmicks to attract buyers, but the truth of the matter is that technology is helping to answer the questions in the minds of the prospective buyers.

Branded lines are strong too

Canadian Tire’s better than expected results for the most recent quarter were primarily fueled by higher sales of the company’s branded lines of apparel and sporting gear. Those branded lines, which include MotoMaster, Woods, Denver Hayes, and WindRiver, are becoming differentiating factors for the company outperforming some online retailers.

Private-label brands come with higher upfront costs, but those costs quickly make way for stronger margins, and if those products are good enough, a competitive advantage over others will continue to bring customers back for more.

This is the strategy that Canadian Tire has employed, and it has been met with success so far. Canadian Tire is also working on expanding the strategy further through online ordering and the “click and collect” service.

In my opinion, Canadian Tire remains a great investment option for investors looking to diversify their portfolios with a retail stock.

Canadian Tire’s innovation is setting an example for other retailers and attracting significant attention from customers; this should keep revenue and growth prospects strong.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

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