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Why Canadian Tire Corporation Limited Is a Great Investment

Canadian Tire Corporation Limited (TSX:CTC.A) is as much a part of our national identity as hockey and the double-double, and most of us have fond memories of driving over to “the Tire” to pick up some sporting equipment or automotive parts.

While that stereotype still holds true, there’s more to Canadian Tire now than ever before, and prospective investors should take a serious look at the company, which could balance any growth- or income-heavy portfolio.

The new Canadian Tire

Few of us realize how much Canadian Tire has changed over the past few years. We’ve all seen firsthand how changing consumer tastes and the onslaught of mobile commerce have redefined retail, and Canadian Tire is among the few legacy retailers that have adapted and thrived.

The adoption of technology into the buying process as well as revamping the legacy weekly circular were key accomplishments for the company, as were the updates to the inventory and sales systems used in stores. Even Canadian Tire “money” found a new digital home and use in Canadian Tire’s app.

But how successful has Canadian Tire been? Let’s look at the recent quarterly results announced this month.

Fourth-quarter results

In the most recent quarter, Canadian Tire reported diluted earnings per share of $4.10, which shattered the $3.46 per share reported in the same quarter last year by an impressive 18.5%. Analysts were expecting earnings to come in at just $3.80 per share.

Same-store sales witnessed an increase of 3.9% across all the company’s brands, and consolidated retail sales saw an uptick of 4.9% in the quarter over the same quarter last year, coming in at $215.8 million.

Can Canadian Tire improve further?

Despite reporting an excellent quarter, Canadian Tire can still improve further, and one area that has proven to be both a revenue gainer as well as a moat against mobile commerce giants is the use of private-label brands.

Store-owned brands provide higher margins over widely distributed national brands, and if they are successful enough, they can become a source of customer loyalty and exclusivity.

Surprisingly, private-label brands account for nearly a third of revenue at Canadian Tire. Canadian Tire already has several in-store brands such as Mastercraft and Noma that demand that sort of loyalty, but the company is looking to expand that portfolio further through a series of acquisitions.

Over the past year, Canadian Tire has acquired several new brands, including Paderno cookware, Golfgreen lawncare products, Sher-Wood athletics corp., and Vermont Castings.

Should you invest in Canadian Tire?

I’m bullish on Canadian Tire for a few reasons. First, this is a company that has shown it can be more innovative than any other retailer in Canada in adopting technology into the buying process. This is a great moat against the storm of online retailers that will sell anything to anyone and deliver the product in two days. After all, there are still some purchasing decisions best left to try in person.

Second, the company’s results speak for themselves. Better-than-expected results mean that investors can expect higher dividends and a greater selection of products in the future. Canadian Tire currently pays a quarterly dividend with a yield of 2.05%, which saw a massive hike last quarter. While this may not put the stock into the realm alongside other great dividend stocks, it is a stable and growing dividend that should continue to grow over the next few years.

In my opinion, Canadian Tire is a great investment for nearly any portfolio.

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

 

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