Shares of discretionary retailer Canadian Tire (TSX: CTC.A) have really not done much in the past decade, gaining just 35%, while experiencing more than its fair share of bear markets. Undoubtedly, the retailer has been experiencing numerous challenges amid the inflation spike a few years ago, and now, tariffs. Despite the unforeseen headwinds and pressure on the Canadian consumer, I still like the direction the long-time retailer is headed, especially as it looks further to differentiate itself via the strategic acquisition of cherished brands or other enticing partnerships.
Just last week, news broke that Canadian Tire would form a loyalty program alongside Tim Hortons. I won’t be the first to admit that it’s a collab that I didn’t see coming. What would a coffee and donuts chain want to do with a retailer? Though the partnership may seem somewhat random on the surface, I think it screams Canadian at a time when patriotism may be at a bit of a high point as a result of tariffs and the rise of the “buy Canadian” mindset.
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A very Canadian company to buy and hold
Though time will tell how much longer Canadians will keep preferring domestic goods, I think that the important thing is that consumers get a solid value. Indeed, whether it’s a domestic good or not, I think it’s more about balancing quality for the price paid. While inflation has come down, food and shelter inflation are still weighing on consumer budgets. With the Bank of Canada recently cutting interest rates again, it’s unclear where inflation heads from here.
Hopefully, inflation on necessities drops to or below the headline number. Either way, I think discretionary retail won’t kick into high gear until the consumer doesn’t feel the weighted barbell of inflation on their shoulders every time they head to the grocery store. If inflation, in particular, cools further while employment looks to catch a lift, perhaps on the back of more rate cuts, we might get that jolt of consumer confidence.
In any case, I think discretionary retailers that go for rock-bottom valuations are where investors will want to be as we move into a lower-rate environment. Lower rates and (hopefully) the continued taming of inflation could be conducive to much higher consumer spending. And I don’t think the set stage for a potential consumer spending bounce is priced into shares of Canadian Tire right now. Not while CTC.A stock trades at a reasonable 11.2 times trailing price to earnings (P/E). In any case, I’m sure management will make the most of lower rates as it seeks to keep investing in its strengths.
Whether we’re talking about modernized storefronts across its banners or a deeper lineup of high-quality brands, Canadian Tire will be ready for the next significant uptick in consumer spending. If the stock market continues surging into 2026, as rates continue to fall, perhaps that environment might not be all too far off.
Canadian Tire’s doing a lot of things right
Either way, expect management to do its best to enhance efficiencies (even if it means embracing artificial intelligence) and improve the overall customer experience. Arguably, Canadian Tire has already done a great job of beefing up its online and in-store presence. Now, all the firm needs is for the Canadian consumer to feel a bit better about splurging on that fancy patio set or those big-ticket kitchen appliances.
In any case, Canadian Tire stock looks like a sleeping giant that might not be too far from waking up. With a 4.3% dividend yield, its own Hudson’s Bay merchandise on the way, and a very Canadian strategic partnership with Tim Hortons, I’m excited about the retailer’s path forward.
