Retail stocks come in many different shapes and sizes. The most resilient of them, however, have a couple of key defining attributes, a long history and defensiveness.
These days, practically all retail stocks have been hit as interest rates have risen. In this article, I’ll discuss two of them that are worth your attention today.
Canadian Tire: A retail stock with a lot of history
The first retail stock I’d like to go over is Canadian Tire Corporation Ltd. (TSX:CTC.A). Canadian Tire is one of Canada’s most well-known and trusted retailers, with a 100-year history and an exceptional presence.
In fact, Canadian Tire has over 1,700 retail locations, with many different banners such as SportChek, Mark’s, Party City, and Helly Hansen. This assortment of businesses gives Canadian Tire a well-diversified business that targets different segments of the population.
It’s no secret that the consumer has been negatively affected by higher interest rates. This has been evident in Canadian Tire’s recent results. For example, second-quarter same-store sales declined 4.5% while total consolidated revenue declined 2.9% to $4.1 billion. This was driven by a tough macro environment which saw consumers favouring essential spending over discretionary spending.
On the bright side, the company has been working on driving operating leverage by using automation to drive efficiencies. As a result, Canadian Tire’s second quarter posted higher margins and earnings per share of $3.56, 15.6% higher than last year.
In short, it seems highly likely that Canadian Tire will weather the current macro weakness and continue to thrive in the long run. Trading at a mere 13 times this year’s expected earnings, Canadian Tire’s stock appears well-positioned in the retail space.
Alimentation Couche-Tard: A defensive retail stock
Another retail stock to consider in October is Alimentation Couche-Tard Inc. (TSX:ATD). A leader in the convenience store sector, Couche Tard has grown into a global leader, with over 16,000 sites and more than $69 billion in annual revenue.
Like other retailers, Couche-Tard has also been feeling the effects of a difficult macro environment. As such, its most recent quarter (Q1 fiscal 2025) saw its same-store sales decline 1.1% in the US, 2.2% in Europe, and 2.9% in Canada. Like Canadian Tire and countless other retailers, spending on discretionary items took a big hit.
Alimentation Couche-Tard operates in a pretty defensive retail segment – the convenience store/fuel station segment. Given the challenging economic environment that we’re living through today, this appears to be the best retail area to invest in. This segment will likely prove to be the most resilient.
The company’s history is one that has been built on an aggressive acquisition and integration strategy. Today, the environment dictates that the focus shift to enhancing operations and execution rather than growing store count. And this is exactly what management is doing.
Looking at valuation, Alimentation Couche-Tard stock is trading at 24 times this year’s expected earnings.
The bottom line
Both Canadian Tire and Alimentation Couche-Tard have entrenched positions in the retail industry, loyal customers, and an unmatched reach and scale in their markets. The retail environment is difficult right now, which is the best time to look for those retail stocks which are likely to thrive after the macro storm is over.
