Canadian household and consumer debt continues to be a sticking point for policy makers. Bank of Canada deputy governor Carolyn Wilkins recently expressed confidence that the Canadian household debt-to-income ratio would decrease in the coming years. The latest figure shows the ratio standing at 170.4% compared to the 90% reported in 1990.
Statistics Canada released March 2018 CPI numbers on April 20. CPI rose 2.3% in March, which represented the largest year-over-year increase since October 2014. The price of services rose 2.7% year over year, which included a 1.4% jump in vehicle insurance premiums from the same period in 2017.
A recent MNP survey revealed that 51% of respondents fear that rising interest rates will affect their ability to repay debts. A troubling 29% said that they have no financial breathing room after paying monthly bills. This pressure could put a dent in consumer discretionary stocks going forward. Let’s take a look at three companies today that could feel the pinch with consumers.
Richelieu Hardware Ltd. (TSX: RCH)
Richelieu Hardware is a Montreal-based company that deals in hardware and complementary products. Shares of Richelieu have dropped 18.3% in 2018 as of close on April 25.
Canadians have ramped up spending on home improvement in recent years with rising home prices. However, new regulations and rising rates have weighed heavily on housing in late 2017 and early 2018. Bank of Montreal released a report that projected a period of prolonged stagnation for Canada housing, which could hurt stores that rely on home improvement.
The company saw sales to manufacturers rise 11% in 2017 to $799.9 million. Consolidated sales were up 11.6% from 2016 to $942.5 million, as sales to manufacturers and hardware retailers showed impressive gains in Canada. The board also approved a quarterly dividend of $0.06 per share, representing a 0.8% dividend yield.
Leon’s Furniture Ltd. (TSX: LNF)
Leon’s is a home furnishings retailer based in Toronto. In addition to Leon’s, the company also owns The Brick retail banners. Shares of Leon’s have dropped 7.8% in 2018 so far and have been flat year over year. The home furnishing industry has been historically vulnerable in down economic periods.
In 2017, Leon’s reported another stellar year. Total system-wide sales increased 4.2% to $2.63 billion, and adjusted net income rose 14.1% to $99 million. The stock also offers a quarterly dividend of $0.12 per share, representing a 2.8% dividend yield.
AutoCanada Inc. (TSX: ACQ)
AutoCanada is an Edmonton-based company that is engaged in the operation of franchised automobile dealerships. Shares of AutoCanada rose 7.84% on April 25. AutoCanada stock is still down 3.3% in 2018 so far.
Statistics Canada released February retail sales on April 20. Retail sales were bolstered in February by a 1.8% rise in new vehicle sales and a 3% rise in activity for used car dealers. January and February were record months for auto sales, but sales dipped in March. Analysts expect that this slide will continue and are projecting that total sales will move down from the record number posted in 2017.
AutoCanada benefited from this surge in 2017, as revenue hit a record $3.1 billion, and sales of new vehicles rose 9.3% from 2016. In spite of these solid results, the stock has dropped 6.6% year over year. A continued slowdown in year-over-year sales in the spring and summer will likely apply further downward pressure.
