It was a weird reaction from the market when Canadian Tire Corporation (TSX:CTC.A) reported its earnings for the quarter. The company reported a loss during its earnings report, and yet still raised the dividend. This caused shares to fall but only by a slight 2% as of writing.
Let’s look at earnings and see what investors can take away from the quarterly report.
Earnings miss
Canadian Tire stock missed earnings estimates for the quarter, if only slightly when reporting this week. Yet the company made some major moves to make up for the loss. Sales were down 1.6%, as consumers continued to look for essentials. However, within this category essential sales were up 4% compared to the same time last year.
Its other retail locations of SportChek, Mark’s and other owned brands saw some movement as well. SportChek in fact saw sales drop 7.4% as discretionary spending dropped. However, Mark’s sales were up slightly by 0.2%. Diluted earnings per share (EPS) fell by 11.4% as a result of lower income.
“Against softening consumer demand, our Q3 [third quarter] results show the continued resilience, relevance, and underlying strength of our business as we leveraged loyalty and prioritized essential categories within our multi-category assortment,” said Greg Hicks, president and chief executive officer of Canadian Tire. “We remain focused on driving value for our customers as we head into the important fourth quarter.”
Cuts on cuts
To make up for some of the losses, the company made a few announcements. Operating capital expenditures dropped to $155.1 million compared to $203.2 million, marking the ability to make cuts in the third quarter. Further, total capital expenditures hit just $176.4 million, compared to $231.7 million the year before.
The company also announced that it would be letting go of about 3% of its full-time workforce. This targeted headcount reduction should impact the next quarter, and improve the annualized run rate. This should now be about $50 million, according to earnings. Further, Canadian Tire stock expects
Is the dividend safe?
Canadian Tire announced that it would be increasing its dividend for the 14th year in a row. This would jump to $7 per share from $6.90 per share on an annual basis, marking a 1.5% increase since last year. These dividends would be paid quarterly, with the first due out on March 1, 2024, for those invested in the company by the end of January.
The question is, is that dividend going to remain safe? And honestly, I believe so. The company has clearly made huge decisions to cut back on costs, including letting staff go. While this is certainly not a scenario anyone wants to deal with, it should be in the short term as the company decreases costs and sees an increase in sales once more.
Furthermore, Canadian Tire stock stated it would continue to keep operating costs down. 2023 operating capital expenditures are now expected to be between $650 and $700 million, down from between $750 and $800 million disclosed earlier. Plus, 2024 should bring them down even further to between $550 and $600 million. More savings could mean a quick turnaround very soon.
For now, shares trade at just 9.98 times earnings and are down 2.3% in the last year. You can also still grab that 4.83% dividend yield and look forward to more dividend income in the future.
