Profit air goes out of Canadian Tire
Canada's unseasonably wet summer and a slumping economy rained on Canadian Tire Inc.'s second quarter profit.
Weaker sales of the retailer's leisure equipment cut earnings to $97.7 million in the April to June period of 2008. That compared to a profit of $122.5 million for this time last year.
On a per-share basis, Canadian Tire earned $1.20 in the most recent quarter versus $1.50 in the second quarter of 2007.
Sales across the company inched up four per cent, reaching $2.95 billion in the period compared to $2.84 billion the same time last year.
"Retail sales, while positive during the quarter, were impacted by the unseasonable spring weather and continuing economic headwinds," said Tom Gauld, Canadian Tire's president and chief executive officer.
"Earnings are expected to improve in the second half of the year as investments in the credit card relaunch and various productivity initiatives begin to positively impact results."
As a result, Canadian Tire cut its profit guidance for 2008, down to a range of $4.75 to $5.05 earnings per share. The new outlook represented a drop from earlier corporate forecasts of a profit of $5.15 to $5.40 a share.
Canadian Tire's retail division derives approximately 40 per cent of its revenue from leisure. And that area, everything from sports equipment to pool toys, saw sales slip by two per cent.
Automotive gear and home supplies account for the remaining 60 per cent for the division's $2.1 billion sales. This section posted sales that increased 3.7 per cent in the three-month period.
In the quarter, Canadian Tire took one-time charges which removed more than $15 million from its earnings line.
Three-month stock chart for Canadian Tire.The company said it cost $6.4 million after-tax to relaunch its Options MasterCard. Canadian Tire gets approximately 10 per cent of its quarterly revenue from its financial arm.
In addition, Canadian Tire took an $8 million inventory writedown at its Mark's Work Wearhouse subsidiary.
Retailers often get caught with excessive inventory due to bad weather since they need to submit orders to manufacturers far in advance.
Shares of Canadian Tire were down more than seven per cent in Thursday's trading, off $4.02, to close at $48.40.
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