TSE:CTC Canadian Tire Q4 2023 Earnings Report C$218.50 0.00 (0.00%) As of 04/17/2025 Earnings HistoryForecast Canadian Tire EPS ResultsActual EPSC$3.38Consensus EPS C$4.81Beat/MissMissed by -C$1.43One Year Ago EPSN/ACanadian Tire Revenue ResultsActual Revenue$4.44 billionExpected Revenue$4.84 billionBeat/MissMissed by -$398.00 millionYoY Revenue GrowthN/ACanadian Tire Announcement DetailsQuarterQ4 2023Date2/15/2024TimeN/AConference Call DateThursday, February 15, 2024Conference Call Time8:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckAnnual ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Canadian Tire Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 15, 2024 ShareLink copied to clipboard.There are 12 speakers on the call. Operator00:00:00Thank you for standing by. My name is Daniel, and I will be your conference operator today. Welcome to the Canadian Tire Corporation Earnings Call. All lines have been placed on mute to prevent any background noise. Following today's presentation, there will be a question and answer period. Operator00:00:28Now I will pass along to Karen Keyes, Head of Investor Relations for Canadian Tire Corporation. Karen? Speaker 100:00:36Thank you, Daniel. Good morning, everyone. Welcome to Canadian Tire Corporation's 4th Quarter and 2023 Year End Results Conference Call. With me today are Greg Hicks, President and CEO Gregory Craig, Executive Vice President and CFO T. J. Speaker 100:00:53Flood, Executive Vice President and President of Canadian Tire Retail. Before we begin, I wanted to draw your attention to the earnings disclosure, which is available on the website. It includes cautionary language about forward looking statements, risks and uncertainties, which also apply to the additional material included this quarter to help you better understand the results discussion during the call. After our remarks today, the team will be happy to take your questions. We'll try to get as many questions as possible, but ask that you limit your time to one question plus And we welcome you to contact Investor Relations if we don't get through all the questions today. Speaker 100:01:33I'll now turn the call over to Greg. Greg? Speaker 200:01:36Thank you, Kara, and good morning and welcome everyone. I'll start by saying that our Q4 full year 2023 results fell short of our expectations. Even when normalized for the unusual items that came our way in 2023, Our quarterly and annual EPS ended well below 2022. This past year was challenging, more so than we expected at the outset, Given rising interest rates, stubborn inflation impacting discretionary spend and unfavorable weather, but we believe these headwinds are temporary. We faced unfavorable weather throughout the year, especially in Q4. Speaker 200:02:16We estimate that weather accounted for around half of the comparable sales decline in the quarter. The team once again proved their unrelenting ability to work through and execute against the macroeconomic environment and other headwinds, while also building for the future. I sincerely thank them for living our core values and our brand purpose We are here to make life in Canada better, no matter the circumstances. While we have made progress over the years in weatherproofing our business, We live and operate in Canada, where weather can be unpredictable. That said, we know we need to be well stocked in weather related categories to support our customers' Seasonal needs. Speaker 200:02:58Despite the headwinds we faced in 2023, we remain committed to transforming CTC through our better connected strategy, which will make Canadian Tire an even stronger competitor in the future. Since introducing our strategy in March of 2022, we have invested 1.4 $1,000,000,000 in capital with the vast majority of that spend targeted for growth initiatives, including new and remodeled stores, new and expanded distribution centers with automation and upgrades to our technology infrastructure. We have also significantly improved our operating our customer facing websites, our mobile footprint and our privileged own brands capabilities. Our Triangle Rewards membership remains healthy and engaged and provides us line of sight into the health of the Canadian consumer and their specific needs. Heading into 2024, we are placing heightened attention on our financial flexibility and controlling what we can control while mitigating what we can't. Speaker 200:04:03Our team is critically focused on maximizing leverage, including our operating leverage, our existing assets and investments and our strong relationships we've built through Triangle Rewards. I will provide more color on all three areas, but before I do, I'm going to hand it over to Gregory to unpack our results. Speaker 300:04:25Thanks, Greg, and good morning, everyone. We spoke last quarter about our focus on controlling what we can control, given an uncertain economic backdrop. This continued to be our focus in Q4 and into 2024. Full year normalized EPS was $10.37 with a Q4 EPS contribution of $3.38 normalized for the headcount reduction charge we took in the quarter, which represented an impact of around $22,000,000 or $0.29 of EPS. Overall, our full year financial performance was driven by a lower retail contribution and a more challenging consumer demand environment, While the financial services contribution remains strong, in Q4, lower retail earnings were mainly due to the marked decline in retail revenue, driven by weaker consumer demand and unfavorable weather as well as the timing and magnitude of the MSA. Speaker 300:05:20Let me start by taking you through these three drivers of our Q4 retail revenue performance. The first was the continued softening of consumer demand, which drove weaker sales of discretionary products across our banners. Secondly, weather played a significant role in the retail revenue miss. While weather is often a factor of sales of seasonal product, this quarter the weather impact was more pronounced as December was one of the warmest on record in many parts of the country. This affected all of our banners. Speaker 300:05:50In the context of that weaker consumer demand and the weather, We saw softer dealer demand at CTR as dealers drew down their inventory rather than replenishing it. We were already expecting some of this knowing that we were comping stronger shipments in Q4 last year as we indicated at Q3. As I mentioned a moment ago, The timing and magnitude of the MSA created a significant variance to last year when all of the MSA was recorded in the 4th quarter and the contribution was higher on strong sales performance. As a result of the more marked revenue movement we saw this quarter, The disconnect between CTR and revenue and sales has widened as has happened many times in our history. Retail sales were $5,300,000,000 in the quarter, down 7% as were comparable sales across our retail banners. Speaker 300:06:38Our petroleum business was down 8% in sales due to fewer locations compared to last year, but up on a comparable basis. Now let me unpack some of the detail by segment. At CTR, sales of essentials continued to outpace discretionary. Weather and consumer demand for discretionary products had the biggest impact on seasonal and gardening as well as playing categories in Q4. With customers making fewer trips for these categories, We also saw a knock on impact in our fixing and living divisions even in essential categories. Speaker 300:07:13We did see some trade down in the quarter And similar to last quarter, we saw fewer items in baskets at CTR. We were, however, pleased to see the investments we're making in key categories payoff. Automotive and particularly tires continued to do well despite lower sales of winter driven categories like wipers and batteries. Pet Care also proved to be a highlight within the Living division as customers increased purchasing frequency. And we continue to focus on exposing Canadians to the value we provide in these and other key essential categories through our assortment architecture, promotional activity and our Triangle Rewards program. Speaker 300:07:53Now moving on to our other banners. At Sport Chek, we had lower sales and revenue due to unseasonal weather with the most significant declines in outerwear, skiing, snowboarding and winter accessories. Franchise sales were also down. We were effective at driving traffic to stores in October, but in the last 2 months of the quarter, we're tougher in a highly promotional and competitive environment were headwinds due to weather and customers deprioritizing discretionary spending. Similar to prior quarters, we did see growth in our strategic focus areas. Speaker 300:08:23Team sports, hockey and footwear performed well and we strengthened our position as the leading destination for sport in Canada. Finally, our athletic apparel owned brand Forward With Design hit $30,000,000 of revenue by the end of 2023, up 25% since the end of last year. At Mark's, the comp was tougher than the other banners, which combined with the unseasonable winter weather impact meant sales were down 7% in Q4. Our higher margin industrial wear, boots and casual wear were down compared to last year, but where we've experienced more seasonal weather in January, We have seen some recovery. Winter weather also led to a lower mix of regular price sales this quarter. Speaker 300:09:09We employed pricing to ensure inventories were well managed and Mark finished the year with inventory levels below last year. Finally, Helly Hansen revenue was down 9% with the decrease mainly due to timing of shipments as more fall winter products shipped in Q3 instead of Q4 this year. Full year revenue was up 7%. We did see strong levels of support wholesale replenishment in the quarter and our direct to consumer business continue to deliver strong results with e commerce up 20% versus last year. We continue to build momentum in the United States in line with our longer term strategic objectives. Speaker 300:09:46Growth there was up 10% in the quarter and up double digits for the year as well. Moving on to retail gross margin, a critical area of focus for us continues to be around margin management. In 2022, we spoke about how our aim was to manage headwinds and tailwinds to maintain the margin rate gains we had made on the retail side since 2019, while recognizing the potential for variation on a quarter by quarter basis. This was certainly the case for 2023 and the normal quarterly margin variance was further impacted by the change in the recognition of the MSA. However, Our full year retail margin rate excluding petroleum did land exactly where we expected, essentially flat compared to 2022 at 35.5%. Speaker 300:10:34Q4 margin rate was down compared to last year due to the MSA as well as higher promotional intensity with these headwinds partially offset by improvements in our freight rates. Looking ahead, the capabilities we have developed around margin management become even more important given the uncertain macroeconomic backdrop. Turning now to SG and A. We took action to manage the structural OpEx drivers and as a result retail normalized OpEx was down 4% for the quarter. As we had expected, supply chain costs were down as we reduced inventory and the associated warehousing and storage costs. Speaker 300:11:13Added that were the initial benefits of the headcount reductions and the lower hiring we announced last quarter, as well as lower variable compensation expense, All of which offset but slowing IT investments as we transition to a cloud based infrastructure. This is the Q1 since 2020 that normalized retail SG and A dollars declined and we have a continuing focus on OpEx discipline and prioritization in 2024, which Greg will speak to shortly. Turning to inventory now, we made great progress managing inventory down again despite the revenue decline and unseasonable weather. Inventory at the end of Q4 was down 16% compared to last year. Dealers inventory also remains below where it was the same time last year. Speaker 300:12:00Given softer sales in Q4, We are not expecting dealers to build significant inventory position in discretionary categories right now. We expect continued drawdown in springsummer categories based on current inventory levels unless we see a meaningful improvement in customer demand trends. As a result, we expect the disconnect between revenue and sales may continue. Let's now move on to how the performance of the financial services business went. Full year normalized IMPT of close to $420,000,000 was only $21,000,000 below last year's record result. Speaker 300:12:34While full year revenue increased by 8.5%, this was more than offset by lower margin due to higher funding costs and higher net impairment losses were also a factor. In Q4, IBQ is only slightly below last year. And again, this was due to higher funding costs and net impairment losses offsetting the revenue growth with revenue up 6%. Reflecting the economic environment, Credit card spend slowed for the 2nd consecutive quarter and GAAR was up 4.7%. Average account balances were up by more than 3%. Speaker 300:13:08We also continued to grow active accounts, which were up 1%, but at a slower pace as we took proactive measures to manage acquisition strategies. Credit risk metrics trended up over the course of 2023, in line with our expectations. The PD2 plus rate ended Q4 at 3.6% and the write off rate was at 6.1%, both back to the lower end of historical ranges, but well below long term peak levels. We are watching internal and external key metrics and expect to be able to take additional actions from our risk playbook if we find it necessary. Ending receivables finished the quarter at $7,400,000,000 The allowance rate of 12.5% continues to be within our targeted range of 11.5% to 13.5%, with the allowance up $14,000,000 to $926,000,000 this quarter. Speaker 300:14:01Before I wrap up, I want to touch on capital allocation. During 2023, we invested $615,000,000 in operating capital expenditures, taking the total to $1,400,000,000 since announcing our Better strategy in Q1 of 2022. Close to $400,000,000 of our 2023 operating capital focus on improving the omni channel experience through investments in store and loyalty with a continued focus on how the investments help our competitive positioning. More than 80 stores have now been refreshed since 2022, accounting for over 15% of all Canadian Tire stores or 18% of our overall footprint. Despite a significant weather impact, the stores are continuing to perform well, generating sales and NPS scores well above the benchmark we had for them. Speaker 300:14:54Furthermore, the investments we have made in Triangle and Digital will be integral to how we differentiate with the customer in 2024 and we fully intend to leverage that as Greg will touch on shortly. We have slowed our capital expenditure in response to more uncertain economic conditions. Operating capital expenditures are expected to be in the range of 4.75 to $525,000,000 in 2024, which will include the refresh of a further 40 plus stores and a replacement store in Kitchener, Ontario. These are strategic investments we are making in the future of the business for when the economy ultimately improves. And we remain committed to the better connected strategy as the right one for the long term. Speaker 300:15:38We have returned nearly $740,000,000 to shareholders buybacks and dividends over the past year. And while we were prudent in the back half of the year as we watched how consumer demand was playing out And after investing to repurchase Scotiabank's 20% share in our CTVS business, we are targeting up to $200,000,000 of additional share buybacks during 24, while continuing to balance the higher short term leverage we have taken on in conjunction with the CTVS repurchase and in protecting our investment grade rating. Since November, we have continued to move forward with an evaluation of the strategic alternatives the Financial Services business. Our discussions are at an early stage, exploring the intention that we had set out last year for an optimal structure, which has us owning Triangle Rewards, our first party data and the relationship with the customer to maximize value creation our Triangle Rewards royalty program and the retail business. In the meantime, we will continue managing the financial services business for maximum benefit to our stakeholders. Speaker 300:16:43Finally, before I wrap up and hand back to Greg, let me touch base briefly on what we've seen so far in Q1. Consumer demand and weather is proving as difficult to predict in 2024 as it was in 2023. With snowy weather in January, Canadians returned to us for their seasonal needs and CTR comparable sales were up mid single digits for the month before giving most of that back in the first half of February with more unseasonal weather. Consolidated retail sales at mid February were down slightly as weather continued to impact sales of outerwear and winter categories at Sport Chek and Mark's. Much will rest on our biggest month of the quarter, March, which is still to come. Speaker 300:17:24In a softening consumer spending environment, we are expecting weaker dealer demand for discretionary springsummer categories to dampen replenishment revenue in Q1. So to conclude, here's what I hope you will take away from today. This business is resilient and one that we continue to prudently pivot to control what we can. In 2023, we maintained retail gross margin for the year, managed inventory down, focused on reducing our Q4 operating expense and delivered a strong financial services performance. All of this was done in the context of a challenging retail demand environment that saw customers shift to value and unseasonal weather patterns that required our banners to react quickly. Speaker 300:18:05We also saw risk metrics trending back to historic levels for the bank to manage and dealt with a major distribution center fire in our supply chain. The fact that we're able to do so was in no small part to the work of many of our teams, including at the bank and at our dealer network. They are focused on delivering in the short term while not losing sight of what is possible in 2024 and over the longer term. With that, I'll hand it over to Greg for his remarks. Speaker 200:18:32Thanks, Gregory. Despite limited macro visibility with respect to monetary policy, We are in a better position to deal with the macro environment and its impact on our financial performance heading into 2024. As Gregory just touched on, we know we will be operating in a challenged demand environment, which will constrain our top line growth. We are therefore placing heightened attention on our financial flexibility and on controlling what we can. We see a number of important tailwinds in 2024 that will drive improvements in our operational performance. Speaker 200:19:09On the theme of leverage, I'll start with our operating leverage. A bright spot from 2023 was our margin management work. We committed to protecting the margin rate gains we accrued through the pandemic years. We have delivered well on that promise and remain committed to driving a stable margin profile. Our team's efforts last year were exceptional on this front, delivering what were essentially flat margins while drawing down over $500,000,000 in inventory. Speaker 200:19:39As we look to 2024, we are aggressively pursuing Industry Tailwind Opportunities in Global Freight Rates and Commodity Deflation. Our supply chain team completed our container procurement before The recent Red Sea inflationary impacts providing us with full year advantage. Our margin nerve center at CTR is Focused on working commodity deflation through our COGS negotiations with our vendor community. We experienced some price relief in Q4 and have good line of sight into additional opportunities. We expect some of these opportunities to protect margin and some to translate into lower consumer pricing, which we know is what Canadians need from us right now. Speaker 200:20:25On the OpEx side, Our personnel reductions heightened focus on disciplined expense management and slowing expense growth in our transition to cloud based IT infrastructure are providing us with enhanced financial operating leverage. Some of this showed up in our Q4 OpEx, as Gregory mentioned. After the prolonged impact of COVID-nineteen, 2024 is the first in many years that we expect to drive leverage in our supply chain OpEx. Exiting 15 third party warehouses and storage facilities over the last year provides hard OpEx savings in 2024. Through our supply chain modernization program as part of our strategy, we have invested $360,000,000 in the transformation of our network. Speaker 200:21:15This includes new automated goods person technology in our Montreal and Calgary DCs, which will drive productivity savings in 2024. With better cycle time and density and DCs closer to stores and customers, we will enable even more efficient product flow, making us very competitive with other players in the market. Last year, we started full operations at our new fully automated GTA DC. This has been a 5 year investment totaling $180,000,000 Housing and distributing product for Sport Chek, Marks, Atmosphere, SportsXperRproHockeyLife marks commercial in Sherwood. This is our 1st multi banner omnichannel fulfillment distribution center. Speaker 200:22:04This 1,350,000 square foot facility is reinforcing the strength, flexibility and scalability of our supply chain while driving efficiencies by bringing multiple banners together under one roof. This DC costs us less money to pick and ship products to our stores and delivers direct to home faster. We've achieved this through a major leap forward in technology and automation. We're also executing our final regionalization components with progress on our Vancouver facility. The base building and equipment are on track to be installed and tested by the end of the year with ramp up and normalization beginning in early 2025. Speaker 200:22:47And finally, we are driving better store fulfillment, customer experience and enabling significant efficiency in domestic freight management through our transportation management system. By implementing new technology that automates manual processes, our Canadian Tire dealers will have better real time visibility of their incoming shipments. We are truly evolving our transportation team to be best in class. Our 1 digital platform is another investment that offers considerable value creation opportunities in 2024. ODP provides us with scalability, enhanced stability an improved customer experience. Speaker 200:23:25In December, we had 0 customer facing disruptions across all our banners, which would not have been possible without ODP. Moreover, ODP enables us to capitalize on the fact that the majority of our customer visits start online. Now with the foundation in place, We can be laser focused on serving customers the products they are looking for, not from one of our banners, but across our group of companies. We continue to hone the ODP user experience, including embedding a generative AI shopping assistant and elevated triangle experiences for our members. Given the modern platform, we can develop and implement customer experience enhancements faster and deploy with agility to all Banner sites. Speaker 200:24:10Additionally, we're implementing automation and AI to streamline our development, testing and deployment functions, allowing us to launch more features at a lower cost. 2023 was a productive year for omnichannel customer experience enhancements and we are placing new disciplined managerial effort toward ensuring full value creation from these investments. In late Q4 of last year, we rolled out express home delivery across all our banners. 85% of the Canadian population can now receive same day delivery within 3 hours. With the rollout complete in 2024, we are turning our attention to increasing awareness and usage to extract the full benefits this offering provides. Speaker 200:25:01And we continue to focus on our mobile footprint with the CTR mobile app, which customers Average monthly active users have grown for 12 straight quarters, increasing to 2,300,000 in Q4, And we have seen significantly increased adoption of new features like in store mode and flashing electronic shelf label discovery. Based on competitive benchmarking and by continuing to embed value in the app, we believe there is significantly more room to grow in Canada than to continue to grow the base of app users through this year. Finally, I want to talk about the leverage we get from Triangle Rewards. Loyalty sales continue to outpace non loyalty sales in 2023 and moving forward, the investments we've made in our Triangle Rewards program will drive further opportunities for value creation. Over the last 2 years, we've increased our total active registered members by almost 1,000,000 And in the last year increased our promotable members by almost 200,000 members. Speaker 200:26:14Having our members registered and promotable is incredibly valuable. Our 1 on 1 program not only drives sales and deepens engagement, but it also generates a wealth of first party customer data for the organization. As Triangle members engage in our digital properties, we learn more about them and the data insights we glean are used to continuously optimize the program, allowing us to provide a more contextual and relevant experience and the most appealing offers for each customers. As we think about the importance of privacy and how data regulations are changing accordingly, having a wealth of first party data as we have is emerging as an even more valuable differentiator for us. As you know, we launched Triangle Select last year and by the end of 2023, program had over 45,000 members. Speaker 200:27:05The program is working as we'd expected. In 2023, select members visited our retail banners more often and spent almost 40% more than similar members who were part of our control group. We know the program is working and we're moving our focus to scaling membership. Finally, with the anticipated launch of our Petro Canada loyalty partnership in a few weeks, We'll be able to offer Canadians the best value for gas with a spend once, earn twice value proposition, which we believe will resonate with Canadians, especially during these challenging economic times. This upcoming launch will be our first opportunity to test loyalty integration and currency conversion on a flexible modern API based platform that we created last year. Speaker 200:27:55We expect to apply this to other programs and partnerships in the future. I'll end my prepared remarks today by reiterating that although we continue to operate in a challenging We are not sitting back and waiting for the storm to pass. The steps we are taking are not simply in service of managing our current reality, but also with a consideration for the long term. We continue to have strong conviction around each of the drivers of our better connected strategy. Our investments are paying off and will continue to do so, ultimately benefiting our stakeholders today and tomorrow. Speaker 200:28:34We're managing our business through these tumultuous times by controlling what we can and mitigating against what we can't against what we can't. And I won't All while making life in Canada better, including for our communities. In 2023, Jumpstart helped more than 440,000 kids participate in sport and recreation and dispersed over 1,000 grants to support community programming. The charity also completed construction on 7 new inclusive play spaces, bringing the total incremental square footage added since 20 17 to more than 550,000 or the equivalent of 32 NHL Hockey Rinks. The investment in our communities is arguably now more important than ever as families navigate tough economic times. Speaker 200:29:23Overall, my confidence in our ability to turn the corner is bolstered by our team's commitment to our purpose no matter what. We faced a lot of hurdles in 2023 and our people stepped up as they do every time they face a challenge. And for that, I'm very proud and grateful. And with that, I'll pass it over to the operator for questions. Operator00:29:48Thank Our first question comes from Irene Nattel with RBC Capital Markets. Your line is now open. Speaker 400:30:30Thanks and good morning everyone. Thank you for all of the information that you provided around your expectations And the outlook. I would like, if possible, please, to dig in a little bit more on the inventory side. Can you talk about The quality of the inventory, both at corporate and at dealer, you mentioned sort of the dealers are heavy on springsummer. What is the magnitude that you expect in terms of the disconnect between consumer sell through and shipments to dealers? Speaker 400:31:05And what in terms of your ordering for 2024, how are you positioned relative to what is the current expected demand? Speaker 500:31:16Hey Irene, it's TJ. Thanks for the question. I'll unpack that. There's a lot in that question. So let me unpack a Speaker 600:31:24couple of Speaker 500:31:25things. As Gregory alluded to, from a corporate perspective, we continue to make really great strides at CTR on reducing our inventories, we actually ended up down north of 20% in inventory at CTR for the year. And keep in mind here that inflation is actually embedded in that. So when you look at it from a cube and units We're actually down slightly more than that and that obviously is what drives costs. So good news from that perspective and And Gregory alluded to the operating leverage that we get associated with that. Speaker 500:32:02And when you look at dealers on the other side of our business, their inventory is also down slightly, a couple of 100 basis points, as they have reacted to the consumer in the market. So when you look at those two things and you look at how we're managing the business as we go forward here, We're adjusting our buys and managing inventory very surgically and pragmatically. We continue to see the trends towards a gap in growth between essential and discretionary categories and we're going to be buying accordingly. And the teams have made significant progress on our inventory levels and continue to try to surgically right size these as we go forward. And I talked a little bit already about the leverage we get from that. Speaker 500:32:51As we look at dealers, I think a couple of things I'll point out. We still have a little bit of game to play yet in this quarter in terms of finishing off our winter business. So we'll be able to give you a better handle on how we land the season on winter related inventory as we get out of as we get into our Q1 call. Feeling quite good about dealer inventory levels with respect to Christmas. We mentioned on a call earlier this year that we were they were heavy starting this year and they have done a really good job of working that down. Speaker 500:33:24That was one area that we invested from a consumer standpoint to try to clear some inventory. So they're in a much better position as they come out of the Christmas categories. And I think one thing I'd like to highlight is given the consumer sentiment and softer Q4 sales, As we go forward here, we're not expecting dealers to build significant inventory and discretionary and we do expect them to continue to draw down on spring summer inventory unless we see meaningful change in the consumer demand side of things. So as a result, and I think Gregory alluded to this, We expect the disconnect between revenue and sales may continue particularly in Q1 and Q2. Speaker 400:34:08That's really helpful. Can you quantify what the magnitude of that disconnect? Speaker 300:34:17Irene, it's Greg Rhee. Sorry, I have to keep adding Neil Rhee there for a second. It's I think we tend not to give as you know kind of guidance in that regard. I think what I would say is just go back to kind of TJ's comments is and the other thing you have to remember in March of last year, we had the DC fire as well, right? So That impacted shipments a little bit. Speaker 300:34:39So it's not as kind of easy to give you kind of where we are now in trending given kind of some of complexity as well. I would just say, I expect it would continue in the short term as TJ said. And then In the long term, these trends always come back in a line as you know. But and again, I would recall that Q1 is pretty much our smallest quarter as well. So keep that in mind. Speaker 300:35:01But I think the real question and the focus area for TJ and the team remains kind of that longer term through to Q4 And what are the economic conditions and sales conditions like at that point in time as we look ahead. So I would say it'll be Probably a little noisy in Q1. Now you have to remember in Q4 as we talked about, Q4 of this year had the issue of the MSA. Speaker 200:35:27We're not Speaker 300:35:27going to have that to continue with when you're looking at kind of a disconnect between revenue and sales. Like that won't be nearly as significant as it would have been in Q4. So I just should say that as well. Speaker 400:35:40Thank you. Operator00:35:44Thank you. Our next question comes from George Doumet with Scotiabank. Your line is now open. Speaker 700:36:01Yes. Hi, good morning. I just want to talk about the OpEx line, obviously some pretty good control there. Does that number over the quarter kind of fully capture The initiatives we outlined last quarter, I'm just trying to get a sense of how sustainable that is. And second part of that question is, If you do end up getting a more difficult macro environment, like is there more room to cut that OpEx line even further? Speaker 700:36:23Thanks. Speaker 200:36:25George, it's Greg here. I would think about just the wraparound effect associated with Some of the moves that we made late last year. So, it doesn't have full year benefit. But When you think about the announcement of workforce transition in the kind of November timeframe that wrap around in 2024 provides for 10 months of benefit. The 3PL costs in terms of our reduction from 15 to 0 happened throughout the year, But at the end of the year, we ended with 0. Speaker 200:37:01So there's good benefit to be had there on a 2024 basis. As Gregory said, I mean, and then in general, if you think about leverage, this is the first time since 2019 normalized retail SG and A dollars have declined year over year. And as Gregory said, We're expecting further savings as we plan to drive that structural efficiency. To reiterate, we see opportunities presenting themselves both at the margin and the OpEx level. I unpack the drivers of our focus on both line items. Speaker 200:37:40We made I think this year we made solid or 2023 we made solid progress with respect to our free cash flow yield, which is an area of focus this year as well. So listen, we're executing a full court press on driving operating leverage And that's why we placed the focus on it, we did in our prepared remarks. But we're still operating with minimal economic visibility. So the top of the P and L is tough to forecast. And I guess the only thing I would reiterate having said all that is, as Gregory said, we're still firmly committed To our better connected strategy, we strongly believe that a new cycle will emerge. Speaker 200:38:19There always is and we'll continue to invest in front of it and be well positioned when discretionary demand returns. Speaker 700:38:25Okay. Thanks for that. And Just a clarification on the Q1 data you guys provided in the indication. Speaker 300:38:32If I Speaker 700:38:32heard correctly, mid single digits in January and then we gave it back in February. So does that suggest that we're trending kind of in line? And how big is March? And just to quantify, how big is March compared to, I guess, the 1st 2 months of the quarter? Speaker 300:38:49I think to answer your second part first, I think you're probably in the neighborhood of probably 45% to 50% of the quarter still to come with March. And the reason we pointed out this information the way we did was kind of when the weather came to us back in January, George, when we had that more kind of normalized condition, We were up kind of as I said that mid single digit despite kind of some of these economic the economic pressures haven't gone away either by the way. So when I say that we've kind of Given that lead back that would infer we're kind of at this point midway through the cycle flat to CTR, but down overall for all the other banners. Really pleased on the performance so far, but again, we've got a big month to go in terms of what our results are. So and again, as I mentioned a few minutes ago, you have to Paul, you've got some dealer uncertainty about ordering and you've got the fire impact of the DC a year ago and weather. Speaker 300:39:46I mean, I really hope we're seeing what I saw last Friday when I saw people in shorts, bicycling. That would be a very good thing in March for us. But that's what I would say. But I come back to Greg's point, which I think is really, really important to reiterate is we're trying to build as much protection and safety and kind of in margin and operating expense against that backdrop of kind of uncertain revenue expectations. That's what I would say with what we're managing through. Speaker 700:40:14Okay, thanks. Last line. Operator00:40:18Thank you. One moment for our next question. Our next question comes from Mark Petrie with CIBC. Your line is now open. Speaker 600:40:37Hey, good morning. I wanted to just ask about the competitive environment. Last quarter, you called out that you'd seen a pickup in promotional intensity. And then I think what you said, TJ, earlier was that you guys had stepped up your promotional investment in Q4 and I think that was part of the plan. Can you just update us on how that sort of played out through holiday? Speaker 600:41:01And then what your views are so far in 2024? Speaker 500:41:07Yes, Mark, it's TJ here. If you think about the competitive context that we're kind of experiencing right now and we certainly did in Q4, the competitive intensity has stepped up. I mean, consumers Speaker 300:41:19are definitely feeling the Speaker 500:41:19pinch of the economy. Has stepped up. I mean consumers are definitely feeling the pinch of the economy and what we found in Q4 was that Retailers started to invest earlier. So Black Friday kind of started quite early this year. And we in particular Started to make more investments in discretionary categories. Speaker 500:41:41Christmas is a great example. Christmas decor, It doesn't get much more discretionary than Christmas and so we had to make some investments there. But I think what we've been able to do and really when you talk about competitive intensity, you always have to link it back to how we're managing our margin rates. And I feel very good about how we've managed our margin rates throughout 2023. I mean, we've As Greg talked about earlier, we really want to hold those margin rates and we're able to do that this year. Speaker 500:42:14And as we look forward, Couple of things going on there. We do expect to have some relief from a commodity standpoint, certainly some relief from a freight standpoint, But offset a little bit by FX and what we expect to be a requirement for continued consumer investment. We need to pass on some of that, some of the savings that we have to consumers, both in our regular pricing as well as our promotional pricing. So We do expect the intensity to continue here, but we feel very good about our ability to manage margins with all of the capabilities we've built with Elasticity modeling, what Greg described as our margin nerve center and of course our Triangle Rewards and own brands portfolio. Speaker 200:43:02And Mark, I would maybe just it's Greg. I'll just elevate a little bit for the rest of the banners. Similar themes, For sure, absolutely promotional intensity intensified through the Q4. Aggregate top of house all banners average unit retails are coming down. So again, I think this supports the objective for restrictive monetary policy. Speaker 200:43:26To TJ's point on elasticity, I'd say for the company, there's more forecast error in our elasticity models as The historical equations for price investment driving incremental unit demand just aren't holding to performance and many discretionary categories even with significantly deeper discounts, we aren't seeing incremental demand materialize. So the good news is as we move to kind of operating posture for 2024, we have more use cases in our models now than we did starting last year or starting when we in June when we really started to see a drop off last year. So we certainly hope to be more efficient. But I'd say that the apparel sector for sure is intensifying. In our credit card data, we can see spend impact for apparel as a merchant category and specifically at Canadian apparel retailers and what I can tell you empirically is that apparel focus retailers are having a real challenge on the top line and we're therefore seeing the intensity ramp quite a bit. Speaker 200:44:31So both Sport Chek and Mark's are feeling it, but we feel Like our capabilities provides for benefit and the new DC as I called it in my prepared remarks provides a new tailwind for us on a cost per unit basis, especially in any e commerce and fulfillment around e commerce. Speaker 600:44:55Okay. Those are helpful, very helpful comments. Thanks for that. And if I could just follow-up, could you give us a sense of Sort of the balance of discretionary versus essential items for springsummer versus fallwinter, would it be pretty balanced or would there be Would it skew one way or the other? Speaker 500:45:14Yes, it's not too dissimilar. It's probably in and around 60% of our business is what we would classify as discretionary in the spring, maybe kind of low 60s, I'd say. So it's not materially different between those two quarters. Speaker 600:45:33Okay, perfect. All the best. Thanks, Mark. Operator00:45:38Thank you. One moment for our next question. Our next question comes from Luke Cannon with Canaccord Genuity. Your line is now open. Speaker 800:45:55Thanks. Good morning. I just wanted to start with where I guess the dealers are standing as of today. Can you give us a rough idea of where their overall financial health or their profitability stands versus maybe a year ago or even pre pandemic? Speaker 500:46:13Sure. Hey, Luke, it's TJ. I can take that one. Couple of things with the dealer network, obviously, huge components of our secret sauce and how we run our business, 500 passionate entrepreneurs, they care deeply about our brand and they continue to transform and evolve for our customers. And no one knows their business and their communities like they do. Speaker 500:46:39So, they play a huge role in connection with our local communities. We work with them really, really closely, from best practices on how to operate their stores to our better connected agenda. And I think if you look at it from a financial health perspective, while I can't get into specifics about kind of individual dealers, They come into this period of economic uncertainty from a position of strength. We've had a lot of benefit over the last couple of years. And although they're coming in with a position from a position of strength. Speaker 500:47:16They're obviously from a P and L standpoint, feeling it from a Q4 standpoint with sales and volume. They are experiencing some headwinds on OpEx, particularly in things like interest rates, labor rates are starting to snap back to pre pandemic levels And they're even experiencing some headwind with respect to minimum wage and things like that. So they manage their businesses really, really tightly. And I think you can expect that they will continue to do so and try to do whatever they can to generate sales They're entrepreneurs who try to do everything they can to serve their customers and generate revenue. But think that's how I would answer it. Speaker 300:48:01And it's Gregory here. I just wanted it's another one I want to TJ touched on it, but I do want to double down on a little bit. Think about the tenure and the experience we have in that network of dealers. This is not their first rodeo. This is not the first time they've gone through a cycle, a business cycle. Speaker 300:48:17And to TJ's point, I look at just sales as a barometer. So go to pre pandemic levels and see where we are now in terms of sales. Yes, there are some things that they're managing through, but to TJ's point, they're great at managing their businesses. And I think it's actually a real plus kind of in these conditions. And we've got a dealer network that frankly kind of been there, done that, seen it before. Speaker 300:48:39So anyway, that's all I would add, Luke, is just I think you should take some comfort in the fact we've got such experience in that network that kind of understands how to react to local conditions as well, be there a difference in the rural versus an urban type of setting. So anyway, I just wanted to kind of say that as well, because I think it's an important point. Speaker 800:48:59I appreciate that. Thank you. My next question here is just on the loyalty partnerships. It's exciting to see what you guys are doing with Petro Canada. What else would you view as, we'll call it, complementary partnerships to what you feel Triangle Rewards offers What other areas now that Speaker 300:49:16you have the flexibility to Speaker 800:49:17be able to explore this where freely, do you see as the best opportunities? Speaker 200:49:24Luke, it's Greg. We if you think about our system of retail banners today, It's general merchandise and apparel focused. And so as we think about the role that partnerships can play for us. We think about an evolution from the state we're at today to more of an everyday needs state playing more relevant role in the lives of our members through partnerships. And the aim is pretty simple, Luke, it's to accelerate the issuance of ECTM and look for opportunities to expand the reach of the program to a bigger network of Canadians, which will just help to provide more opportunities for members to earn ECTM in these everyday needs categories. Speaker 200:50:16So our long term growth strategy is centered around how we accelerate a customer spend flywheel in our network of retail banners and Partnerships will help drive ECTM issuance, which in turn drives spend in one of our retail banners, which drives first party data And then our personalization capabilities get to work on driving further spend and cross shop across the system. So ultimately, that's what the partnership system is all about and that's what you can expect from us. Speaker 800:50:46Okay. Thank you very much. Speaker 900:50:48Thank you. Operator00:50:51Thank you. One moment for our next question. Our next question comes from Chris Lee with Desjardins, your line is now open. Speaker 900:51:10Good morning, everyone. I guess my first question is, I know you guys don't provide any precise guidance and visibility on sales remains very low at the moment. But I'm just wondering, just directionally speaking, given that it sounds like you do have some pretty powerful levers to to offset some of these pressure, is it reasonable to assume that we can get some earnings growth this year? Speaker 200:51:35Hi, Chris. It's Greg. I mean, listen, as I talked about, we are still operating Through structure, what I would call structural uncertainty. We don't have visibility in terms of what the kind of mom's monetary policy is going to look like and we have very minimal growth in the economy and pretty significantly negative growth on a per capita basis. I think we tried to provide a view to our operating posture in our prepared remarks. Speaker 200:52:07As I said, we just continue to operate in a structurally uncertain environment. You can read 2 articles on the same day in the same paper suggesting that the rates will go up and they will go down. And so the facts are that we have persistent and stubborn inflation being driven in large part by shelter costs and I don't see a path for them subsiding soon. So if the what I would say if the intent of restrictive monetary policy was to curb Consumer demand and slow the consumer economy, we would certainly say the policy strategy is working. So we aren't Planning for any real growth in the economy certainly in tight here the next 6 months. Speaker 200:52:48We've adjusted all of our operational playbooks For meaningful performance separation between essential and discretionary businesses, we've had more time to plan, source, buy, move and think through value delivery for these essential businesses. So we're in a better position as we start this year than we were reacting to it mid Speaker 900:53:13Okay. Thanks for that. And then my other question is just maybe on the potential finding a partner for the Credit card business, I know you mentioned earlier that you're still kind of in the early stages of discussion. I was wondering internally, do you guys have a timeline to say when you will try to find someone or is this sort of an ongoing thing where you just take your time until you actually find the right partner. Just wondering, you know, from a disruption perspective, is there a risk that you could kind of make this sort of definite that could create some internal disruption to the business. Speaker 900:53:46Thank you. Speaker 300:53:49Sorry, I missed the second half of the question. I'll take the first half for sure on kind of timelines. What I would say is it's consistent with the release we kind of had last year around we kicked off our process. We are on track. I think I would call the process robust, but it's going to take we said we're going to review our options during the year and we're on track to that timeline of that agenda. Speaker 300:54:14In terms of operating the business, I think we are as I said in my remarks, again, we're operating the business the interest of our shareholders and stakeholders at this time. So we're operating in an environment where the risk metrics have returned to historical levels. So we have been a bit more restrictive on new account growth, but that's consistent with our strategy from last year. But The bank is such an integral part of our rewards program and how we get kind of that flywheel effect and continue to have money in our customers' hands. Like The more account growth we can put in there, frankly, the better for all of us over the long term, but we have to balance kind of those shorter term economic pressures. Speaker 300:54:50So think if that's the second half of your question, that's how it answered and we remain comfortable Speaker 200:54:55in terms of where we are in the overall process. I think the second Chris, it's Craig. The second half I think was just about disruption to the business from a timing standpoint. And for sure, I guess what I would comment for sure the economy has gotten worse on us, and our core business has suffered. But as Gregory said, the decision to buy back the bank To have control, the control we need and determine the best way to create value was a decision for the long term health of our business. Speaker 200:55:24And The change in the economic cycle and any potential disruption that provides, isn't it kind of takes a back seat to really thinking about long term value creation. Speaker 900:55:37Great. Okay. Thanks a lot guys. Operator00:55:40Thank you. One moment for our next question. Our next question comes from Vishal Shreedhar with National Bank. Your line is now open. Speaker 1000:55:59Hi, thanks for squeezing me in here. And on the initiatives that Tyre has looking into 2024, A lot of potentially meaningful cost reduction and efficiency initiatives kicking in, in 2024. I was hoping you could I was hoping you could quantify them for me. And if not, then maybe you can rank order some of the bigger initiatives that you expect to benefit Recognizing on the other side, there's economic uncertainty as you've commented, but just for our own purposes help us understand the magnitude of some of these initiatives you're talking about. Speaker 200:56:39Hey, Vishal, it's Greg, we'll probably stop short of quantifying. I'll do a lot of push out. Yes. But listen, I think you've heard me say before, if any leverage in our P and L has to travel through the supply chain. We've been running here now for 3 or 4 years with a very inefficient supply chain and a lot of those inefficiencies were driven by COVID and a very strong demand side global environment and the whole system buckled on us. Speaker 200:57:17And What we see is a global supply chain that is now pretty close to a normalized state. We look at the lead times that we have built into our purchase orders and We're down 35%, 40% versus the height of the pandemic in terms of lead time in days. We think about vendor service levels. We've gone from the 30%, 40% range, both in our own brand factories and national brands. And now we're kind of There's a few exceptions here or there, but we're pretty much pre pandemic state. Speaker 200:57:57We're normalizing the amount of inventory we have in the system. We're getting rid of the 3PLs, all while implementing new technology that drive the variable cost down. So, I think the order of magnitude for us would certainly start with the supply chain. And like I said, it's the first time, I guess, since I've been CEO that I feel optimism around our ability to drive leverage and we are working at it. We're not letting that just come to us. Speaker 200:58:24And The global freight rates, I mean, we're a fraction of what we were In the middle of the pandemic, spot rates, the height of the spot rate market in the pandemic was around $30,000 per can. And now we're under $3,000 So there's material freight benefit. And then There are some on the commodity grid, there's still some commodities that are working against us. But for the most part, the dashboard Look, it tilts to kind of favor for us and we're seeing that really come through our manufacturer quotations. I mean, There are a lot of these buildings, these manufacturing facilities are operating at half mass. Speaker 200:59:12So they're eager to cover overhead and maneuver some of this deflation into the COGS basin. We're going to go after every single element of it. And like I said, some of it's going to have to go to the customer. So it's tough to determine how much of that drops to the bottom line. But I think that's probably the way I'd think about the order of magnitude. Speaker 1000:59:32Okay. Thank you. And from the consumer standpoint, You feel quarter after quarter it's getting tougher. Is that a fair way to characterize what management has said? Speaker 200:59:49We feel like the discretionary Our discretionary business was in tougher in Q4 than it was in Q3. And we've got I think we've got some pretty good data modeling capabilities. It's tough to tease out the seasonal weather impact entirely Because what was different in Q4 versus previous quarters is a fairly material traffic decline. And that traffic decline is a direct result of that seasonal business being down. But we would say that Q4 was more intense from standpoint, I wouldn't say material because you have that weather impact, but we do feel like, it intensified, if that answers your question. Speaker 1001:00:36Yes. Thank you for your answers. Speaker 201:00:41Thanks, Vishal. Operator01:00:43Thank you. One moment for our next question. Speaker 901:00:51Our Operator01:00:54next question comes from Brian Morrison with TD. Your line is now open. Speaker 1101:01:00Thanks very much. I want to follow-up on the Financial Services' financial monetization. Now that you have this control, Greg, is it fair to say that your plan is build out or build out meaningfully your coalition partners in advance of a transaction or is this not a necessary prerequisite? Speaker 201:01:17We don't see it as a necessary prerequisite, Brian. I mean, we're engaged in conversations. There's many different ways you can approach a coalition. You can go broad and wide or you can go deep and narrow. And so We're thinking through the right approach for us right now. Speaker 201:01:38Our primary focus, Brian, is the Suncor, Petro Point's relationship right now. We're very excited about the value that that can bring for Canadians. We've invested last year in developing the platform to be able to do the currency exchange as we talked about. And The ability to kind of link to get double the benefit, we've really worked hard to make sure that that experience is as frictionless as possible. So now we can turn on all of our 1 on 1 personalization capabilities And let people know with about 10 seconds of their time, they can link programs and get double the benefit on on something that's really causing harm in the average household today. Speaker 201:02:27So we want to approach each partnership from the standpoint of understanding the value it will create. And much like my commentary in my prepared remarks, When we establish when we build an asset, now we want to focus on getting the right value out of it. When we establish a partnership, we want to All hands on deck on making sure we do get value for us and for the customer before we move on to the next one. And so we see these Depending on who you're talking to on the bank side of things, it can get intertwined. But I think to answer your question, it's not a prerequisite. Speaker 1101:03:07Okay. And then if I can sneak in 1 on the retail side and maybe it's for TJ here, but I appreciate all your color on the gross margin. I will say it's Your operating margin performance in a tough backdrop is pretty impressive. But where do we stand on Speaker 901:03:20the private label shift? This was going to be Speaker 1101:03:21a driver of the gross margin and Appreciate it's holding in there, but I think you are targeting it going to 38% to 46% and it looks like it's flattish to the end of 2021. I just wonder what the variance is to your goal there? Speaker 501:03:35Yes, it's TJ, Brian. Yes, at CTR, we definitely are, as you're alluding to, trying to get on a Where our own brands kind of outpace the growth of national brands, we got we saw in Q4, we were up about 8 basis points in terms of our penetration rate. And it continues to be a major strategic thrust for us, right. Having a stable of owned brands that Consumers covet and stay loyal to over time is really important to us. We've put a lot of energy behind product development and we continue to try to drive Forward with penetration increases. Speaker 501:04:11What you find is quarter to quarter, it can be tough just based on seasonality in the way the weather hits us, sometimes there's businesses that are highly penetrated, that just don't do well and that kind of Stunt your growth a little bit and that's probably what we saw in Q4. We still kind of plowed through that and we're up a little bit. But certainly to your point, our goal in terms of only helping us strategically with the customer having a great one two punch of national brands and owned brands, but also from a margin perspective, it's Speaker 201:04:53Well, thank you for your questions and for joining us today. We look forward to speaking with you when we announce our results on May 9. Bye for now. Operator01:05:04Thank you. This will conclude today's call. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallCanadian Tire Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckAnnual report Canadian Tire Earnings HeadlinesHow the Senators will protect home-ice advantage against TorontoApril 17 at 2:13 PM | msn.com2 Impressive Dividend Stocks With Towering YieldsMarch 27, 2025 | msn.comHow War with China Could Start in 128 DaysThe clock is ticking. Those who aren't prepared could lose everything. I've identified 43 investments we believe are in immediate danger.April 20, 2025 | Behind the Markets (Ad)RBC and Canadian Tire Corporation announce strategic loyalty partnership, expanding rewards and enhancing value for millions of CanadiansMarch 27, 2025 | finance.yahoo.comBuy the Dip: This Top TSX Dividend Stock Just Became a Must-OwnMarch 23, 2025 | msn.comCanadian Tire to Close Stores as It Restructures to Focus on GrowthMarch 18, 2025 | baystreet.caSee More Canadian Tire Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Canadian Tire? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Canadian Tire and other key companies, straight to your email. Email Address About Canadian TireCanadian Tire (TSE:CTC), (TSX: CTC.A) (TSX: CTC) or 'CTC', is a group of companies that includes a Retail segment, a Financial Services division and CT REIT. Our retail business is led by Canadian Tire, which was founded in 1922 and provides Canadians with products for life in Canada across its Living, Playing, Fixing, Automotive and Seasonal & Gardening divisions. Party City, PartSource and Gas+ are key parts of the Canadian Tire network. The Retail segment also includes Mark's, a leading source for casual and industrial wear; Pro Hockey Life, a hockey specialty store catering to elite players; and SportChek, Hockey Experts, Sports Experts and Atmosphere, which offer the best active wear brands. The Company's 1,700 retail and gasoline outlets are supported and strengthened by CTC's Financial Services division and the tens of thousands of people employed across Canada and around the world by CTC and its local dealers, franchisees and petroleum retailers.View Canadian Tire ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Archer Aviation Unveils NYC Network Ahead of Key Earnings Report3 Reasons to Like the Look of Amazon Ahead of EarningsTesla Stock Eyes Breakout With Earnings on DeckJohnson & Johnson Earnings Were More Good Than Bad—Time to Buy? 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There are 12 speakers on the call. Operator00:00:00Thank you for standing by. My name is Daniel, and I will be your conference operator today. Welcome to the Canadian Tire Corporation Earnings Call. All lines have been placed on mute to prevent any background noise. Following today's presentation, there will be a question and answer period. Operator00:00:28Now I will pass along to Karen Keyes, Head of Investor Relations for Canadian Tire Corporation. Karen? Speaker 100:00:36Thank you, Daniel. Good morning, everyone. Welcome to Canadian Tire Corporation's 4th Quarter and 2023 Year End Results Conference Call. With me today are Greg Hicks, President and CEO Gregory Craig, Executive Vice President and CFO T. J. Speaker 100:00:53Flood, Executive Vice President and President of Canadian Tire Retail. Before we begin, I wanted to draw your attention to the earnings disclosure, which is available on the website. It includes cautionary language about forward looking statements, risks and uncertainties, which also apply to the additional material included this quarter to help you better understand the results discussion during the call. After our remarks today, the team will be happy to take your questions. We'll try to get as many questions as possible, but ask that you limit your time to one question plus And we welcome you to contact Investor Relations if we don't get through all the questions today. Speaker 100:01:33I'll now turn the call over to Greg. Greg? Speaker 200:01:36Thank you, Kara, and good morning and welcome everyone. I'll start by saying that our Q4 full year 2023 results fell short of our expectations. Even when normalized for the unusual items that came our way in 2023, Our quarterly and annual EPS ended well below 2022. This past year was challenging, more so than we expected at the outset, Given rising interest rates, stubborn inflation impacting discretionary spend and unfavorable weather, but we believe these headwinds are temporary. We faced unfavorable weather throughout the year, especially in Q4. Speaker 200:02:16We estimate that weather accounted for around half of the comparable sales decline in the quarter. The team once again proved their unrelenting ability to work through and execute against the macroeconomic environment and other headwinds, while also building for the future. I sincerely thank them for living our core values and our brand purpose We are here to make life in Canada better, no matter the circumstances. While we have made progress over the years in weatherproofing our business, We live and operate in Canada, where weather can be unpredictable. That said, we know we need to be well stocked in weather related categories to support our customers' Seasonal needs. Speaker 200:02:58Despite the headwinds we faced in 2023, we remain committed to transforming CTC through our better connected strategy, which will make Canadian Tire an even stronger competitor in the future. Since introducing our strategy in March of 2022, we have invested 1.4 $1,000,000,000 in capital with the vast majority of that spend targeted for growth initiatives, including new and remodeled stores, new and expanded distribution centers with automation and upgrades to our technology infrastructure. We have also significantly improved our operating our customer facing websites, our mobile footprint and our privileged own brands capabilities. Our Triangle Rewards membership remains healthy and engaged and provides us line of sight into the health of the Canadian consumer and their specific needs. Heading into 2024, we are placing heightened attention on our financial flexibility and controlling what we can control while mitigating what we can't. Speaker 200:04:03Our team is critically focused on maximizing leverage, including our operating leverage, our existing assets and investments and our strong relationships we've built through Triangle Rewards. I will provide more color on all three areas, but before I do, I'm going to hand it over to Gregory to unpack our results. Speaker 300:04:25Thanks, Greg, and good morning, everyone. We spoke last quarter about our focus on controlling what we can control, given an uncertain economic backdrop. This continued to be our focus in Q4 and into 2024. Full year normalized EPS was $10.37 with a Q4 EPS contribution of $3.38 normalized for the headcount reduction charge we took in the quarter, which represented an impact of around $22,000,000 or $0.29 of EPS. Overall, our full year financial performance was driven by a lower retail contribution and a more challenging consumer demand environment, While the financial services contribution remains strong, in Q4, lower retail earnings were mainly due to the marked decline in retail revenue, driven by weaker consumer demand and unfavorable weather as well as the timing and magnitude of the MSA. Speaker 300:05:20Let me start by taking you through these three drivers of our Q4 retail revenue performance. The first was the continued softening of consumer demand, which drove weaker sales of discretionary products across our banners. Secondly, weather played a significant role in the retail revenue miss. While weather is often a factor of sales of seasonal product, this quarter the weather impact was more pronounced as December was one of the warmest on record in many parts of the country. This affected all of our banners. Speaker 300:05:50In the context of that weaker consumer demand and the weather, We saw softer dealer demand at CTR as dealers drew down their inventory rather than replenishing it. We were already expecting some of this knowing that we were comping stronger shipments in Q4 last year as we indicated at Q3. As I mentioned a moment ago, The timing and magnitude of the MSA created a significant variance to last year when all of the MSA was recorded in the 4th quarter and the contribution was higher on strong sales performance. As a result of the more marked revenue movement we saw this quarter, The disconnect between CTR and revenue and sales has widened as has happened many times in our history. Retail sales were $5,300,000,000 in the quarter, down 7% as were comparable sales across our retail banners. Speaker 300:06:38Our petroleum business was down 8% in sales due to fewer locations compared to last year, but up on a comparable basis. Now let me unpack some of the detail by segment. At CTR, sales of essentials continued to outpace discretionary. Weather and consumer demand for discretionary products had the biggest impact on seasonal and gardening as well as playing categories in Q4. With customers making fewer trips for these categories, We also saw a knock on impact in our fixing and living divisions even in essential categories. Speaker 300:07:13We did see some trade down in the quarter And similar to last quarter, we saw fewer items in baskets at CTR. We were, however, pleased to see the investments we're making in key categories payoff. Automotive and particularly tires continued to do well despite lower sales of winter driven categories like wipers and batteries. Pet Care also proved to be a highlight within the Living division as customers increased purchasing frequency. And we continue to focus on exposing Canadians to the value we provide in these and other key essential categories through our assortment architecture, promotional activity and our Triangle Rewards program. Speaker 300:07:53Now moving on to our other banners. At Sport Chek, we had lower sales and revenue due to unseasonal weather with the most significant declines in outerwear, skiing, snowboarding and winter accessories. Franchise sales were also down. We were effective at driving traffic to stores in October, but in the last 2 months of the quarter, we're tougher in a highly promotional and competitive environment were headwinds due to weather and customers deprioritizing discretionary spending. Similar to prior quarters, we did see growth in our strategic focus areas. Speaker 300:08:23Team sports, hockey and footwear performed well and we strengthened our position as the leading destination for sport in Canada. Finally, our athletic apparel owned brand Forward With Design hit $30,000,000 of revenue by the end of 2023, up 25% since the end of last year. At Mark's, the comp was tougher than the other banners, which combined with the unseasonable winter weather impact meant sales were down 7% in Q4. Our higher margin industrial wear, boots and casual wear were down compared to last year, but where we've experienced more seasonal weather in January, We have seen some recovery. Winter weather also led to a lower mix of regular price sales this quarter. Speaker 300:09:09We employed pricing to ensure inventories were well managed and Mark finished the year with inventory levels below last year. Finally, Helly Hansen revenue was down 9% with the decrease mainly due to timing of shipments as more fall winter products shipped in Q3 instead of Q4 this year. Full year revenue was up 7%. We did see strong levels of support wholesale replenishment in the quarter and our direct to consumer business continue to deliver strong results with e commerce up 20% versus last year. We continue to build momentum in the United States in line with our longer term strategic objectives. Speaker 300:09:46Growth there was up 10% in the quarter and up double digits for the year as well. Moving on to retail gross margin, a critical area of focus for us continues to be around margin management. In 2022, we spoke about how our aim was to manage headwinds and tailwinds to maintain the margin rate gains we had made on the retail side since 2019, while recognizing the potential for variation on a quarter by quarter basis. This was certainly the case for 2023 and the normal quarterly margin variance was further impacted by the change in the recognition of the MSA. However, Our full year retail margin rate excluding petroleum did land exactly where we expected, essentially flat compared to 2022 at 35.5%. Speaker 300:10:34Q4 margin rate was down compared to last year due to the MSA as well as higher promotional intensity with these headwinds partially offset by improvements in our freight rates. Looking ahead, the capabilities we have developed around margin management become even more important given the uncertain macroeconomic backdrop. Turning now to SG and A. We took action to manage the structural OpEx drivers and as a result retail normalized OpEx was down 4% for the quarter. As we had expected, supply chain costs were down as we reduced inventory and the associated warehousing and storage costs. Speaker 300:11:13Added that were the initial benefits of the headcount reductions and the lower hiring we announced last quarter, as well as lower variable compensation expense, All of which offset but slowing IT investments as we transition to a cloud based infrastructure. This is the Q1 since 2020 that normalized retail SG and A dollars declined and we have a continuing focus on OpEx discipline and prioritization in 2024, which Greg will speak to shortly. Turning to inventory now, we made great progress managing inventory down again despite the revenue decline and unseasonable weather. Inventory at the end of Q4 was down 16% compared to last year. Dealers inventory also remains below where it was the same time last year. Speaker 300:12:00Given softer sales in Q4, We are not expecting dealers to build significant inventory position in discretionary categories right now. We expect continued drawdown in springsummer categories based on current inventory levels unless we see a meaningful improvement in customer demand trends. As a result, we expect the disconnect between revenue and sales may continue. Let's now move on to how the performance of the financial services business went. Full year normalized IMPT of close to $420,000,000 was only $21,000,000 below last year's record result. Speaker 300:12:34While full year revenue increased by 8.5%, this was more than offset by lower margin due to higher funding costs and higher net impairment losses were also a factor. In Q4, IBQ is only slightly below last year. And again, this was due to higher funding costs and net impairment losses offsetting the revenue growth with revenue up 6%. Reflecting the economic environment, Credit card spend slowed for the 2nd consecutive quarter and GAAR was up 4.7%. Average account balances were up by more than 3%. Speaker 300:13:08We also continued to grow active accounts, which were up 1%, but at a slower pace as we took proactive measures to manage acquisition strategies. Credit risk metrics trended up over the course of 2023, in line with our expectations. The PD2 plus rate ended Q4 at 3.6% and the write off rate was at 6.1%, both back to the lower end of historical ranges, but well below long term peak levels. We are watching internal and external key metrics and expect to be able to take additional actions from our risk playbook if we find it necessary. Ending receivables finished the quarter at $7,400,000,000 The allowance rate of 12.5% continues to be within our targeted range of 11.5% to 13.5%, with the allowance up $14,000,000 to $926,000,000 this quarter. Speaker 300:14:01Before I wrap up, I want to touch on capital allocation. During 2023, we invested $615,000,000 in operating capital expenditures, taking the total to $1,400,000,000 since announcing our Better strategy in Q1 of 2022. Close to $400,000,000 of our 2023 operating capital focus on improving the omni channel experience through investments in store and loyalty with a continued focus on how the investments help our competitive positioning. More than 80 stores have now been refreshed since 2022, accounting for over 15% of all Canadian Tire stores or 18% of our overall footprint. Despite a significant weather impact, the stores are continuing to perform well, generating sales and NPS scores well above the benchmark we had for them. Speaker 300:14:54Furthermore, the investments we have made in Triangle and Digital will be integral to how we differentiate with the customer in 2024 and we fully intend to leverage that as Greg will touch on shortly. We have slowed our capital expenditure in response to more uncertain economic conditions. Operating capital expenditures are expected to be in the range of 4.75 to $525,000,000 in 2024, which will include the refresh of a further 40 plus stores and a replacement store in Kitchener, Ontario. These are strategic investments we are making in the future of the business for when the economy ultimately improves. And we remain committed to the better connected strategy as the right one for the long term. Speaker 300:15:38We have returned nearly $740,000,000 to shareholders buybacks and dividends over the past year. And while we were prudent in the back half of the year as we watched how consumer demand was playing out And after investing to repurchase Scotiabank's 20% share in our CTVS business, we are targeting up to $200,000,000 of additional share buybacks during 24, while continuing to balance the higher short term leverage we have taken on in conjunction with the CTVS repurchase and in protecting our investment grade rating. Since November, we have continued to move forward with an evaluation of the strategic alternatives the Financial Services business. Our discussions are at an early stage, exploring the intention that we had set out last year for an optimal structure, which has us owning Triangle Rewards, our first party data and the relationship with the customer to maximize value creation our Triangle Rewards royalty program and the retail business. In the meantime, we will continue managing the financial services business for maximum benefit to our stakeholders. Speaker 300:16:43Finally, before I wrap up and hand back to Greg, let me touch base briefly on what we've seen so far in Q1. Consumer demand and weather is proving as difficult to predict in 2024 as it was in 2023. With snowy weather in January, Canadians returned to us for their seasonal needs and CTR comparable sales were up mid single digits for the month before giving most of that back in the first half of February with more unseasonal weather. Consolidated retail sales at mid February were down slightly as weather continued to impact sales of outerwear and winter categories at Sport Chek and Mark's. Much will rest on our biggest month of the quarter, March, which is still to come. Speaker 300:17:24In a softening consumer spending environment, we are expecting weaker dealer demand for discretionary springsummer categories to dampen replenishment revenue in Q1. So to conclude, here's what I hope you will take away from today. This business is resilient and one that we continue to prudently pivot to control what we can. In 2023, we maintained retail gross margin for the year, managed inventory down, focused on reducing our Q4 operating expense and delivered a strong financial services performance. All of this was done in the context of a challenging retail demand environment that saw customers shift to value and unseasonal weather patterns that required our banners to react quickly. Speaker 300:18:05We also saw risk metrics trending back to historic levels for the bank to manage and dealt with a major distribution center fire in our supply chain. The fact that we're able to do so was in no small part to the work of many of our teams, including at the bank and at our dealer network. They are focused on delivering in the short term while not losing sight of what is possible in 2024 and over the longer term. With that, I'll hand it over to Greg for his remarks. Speaker 200:18:32Thanks, Gregory. Despite limited macro visibility with respect to monetary policy, We are in a better position to deal with the macro environment and its impact on our financial performance heading into 2024. As Gregory just touched on, we know we will be operating in a challenged demand environment, which will constrain our top line growth. We are therefore placing heightened attention on our financial flexibility and on controlling what we can. We see a number of important tailwinds in 2024 that will drive improvements in our operational performance. Speaker 200:19:09On the theme of leverage, I'll start with our operating leverage. A bright spot from 2023 was our margin management work. We committed to protecting the margin rate gains we accrued through the pandemic years. We have delivered well on that promise and remain committed to driving a stable margin profile. Our team's efforts last year were exceptional on this front, delivering what were essentially flat margins while drawing down over $500,000,000 in inventory. Speaker 200:19:39As we look to 2024, we are aggressively pursuing Industry Tailwind Opportunities in Global Freight Rates and Commodity Deflation. Our supply chain team completed our container procurement before The recent Red Sea inflationary impacts providing us with full year advantage. Our margin nerve center at CTR is Focused on working commodity deflation through our COGS negotiations with our vendor community. We experienced some price relief in Q4 and have good line of sight into additional opportunities. We expect some of these opportunities to protect margin and some to translate into lower consumer pricing, which we know is what Canadians need from us right now. Speaker 200:20:25On the OpEx side, Our personnel reductions heightened focus on disciplined expense management and slowing expense growth in our transition to cloud based IT infrastructure are providing us with enhanced financial operating leverage. Some of this showed up in our Q4 OpEx, as Gregory mentioned. After the prolonged impact of COVID-nineteen, 2024 is the first in many years that we expect to drive leverage in our supply chain OpEx. Exiting 15 third party warehouses and storage facilities over the last year provides hard OpEx savings in 2024. Through our supply chain modernization program as part of our strategy, we have invested $360,000,000 in the transformation of our network. Speaker 200:21:15This includes new automated goods person technology in our Montreal and Calgary DCs, which will drive productivity savings in 2024. With better cycle time and density and DCs closer to stores and customers, we will enable even more efficient product flow, making us very competitive with other players in the market. Last year, we started full operations at our new fully automated GTA DC. This has been a 5 year investment totaling $180,000,000 Housing and distributing product for Sport Chek, Marks, Atmosphere, SportsXperRproHockeyLife marks commercial in Sherwood. This is our 1st multi banner omnichannel fulfillment distribution center. Speaker 200:22:04This 1,350,000 square foot facility is reinforcing the strength, flexibility and scalability of our supply chain while driving efficiencies by bringing multiple banners together under one roof. This DC costs us less money to pick and ship products to our stores and delivers direct to home faster. We've achieved this through a major leap forward in technology and automation. We're also executing our final regionalization components with progress on our Vancouver facility. The base building and equipment are on track to be installed and tested by the end of the year with ramp up and normalization beginning in early 2025. Speaker 200:22:47And finally, we are driving better store fulfillment, customer experience and enabling significant efficiency in domestic freight management through our transportation management system. By implementing new technology that automates manual processes, our Canadian Tire dealers will have better real time visibility of their incoming shipments. We are truly evolving our transportation team to be best in class. Our 1 digital platform is another investment that offers considerable value creation opportunities in 2024. ODP provides us with scalability, enhanced stability an improved customer experience. Speaker 200:23:25In December, we had 0 customer facing disruptions across all our banners, which would not have been possible without ODP. Moreover, ODP enables us to capitalize on the fact that the majority of our customer visits start online. Now with the foundation in place, We can be laser focused on serving customers the products they are looking for, not from one of our banners, but across our group of companies. We continue to hone the ODP user experience, including embedding a generative AI shopping assistant and elevated triangle experiences for our members. Given the modern platform, we can develop and implement customer experience enhancements faster and deploy with agility to all Banner sites. Speaker 200:24:10Additionally, we're implementing automation and AI to streamline our development, testing and deployment functions, allowing us to launch more features at a lower cost. 2023 was a productive year for omnichannel customer experience enhancements and we are placing new disciplined managerial effort toward ensuring full value creation from these investments. In late Q4 of last year, we rolled out express home delivery across all our banners. 85% of the Canadian population can now receive same day delivery within 3 hours. With the rollout complete in 2024, we are turning our attention to increasing awareness and usage to extract the full benefits this offering provides. Speaker 200:25:01And we continue to focus on our mobile footprint with the CTR mobile app, which customers Average monthly active users have grown for 12 straight quarters, increasing to 2,300,000 in Q4, And we have seen significantly increased adoption of new features like in store mode and flashing electronic shelf label discovery. Based on competitive benchmarking and by continuing to embed value in the app, we believe there is significantly more room to grow in Canada than to continue to grow the base of app users through this year. Finally, I want to talk about the leverage we get from Triangle Rewards. Loyalty sales continue to outpace non loyalty sales in 2023 and moving forward, the investments we've made in our Triangle Rewards program will drive further opportunities for value creation. Over the last 2 years, we've increased our total active registered members by almost 1,000,000 And in the last year increased our promotable members by almost 200,000 members. Speaker 200:26:14Having our members registered and promotable is incredibly valuable. Our 1 on 1 program not only drives sales and deepens engagement, but it also generates a wealth of first party customer data for the organization. As Triangle members engage in our digital properties, we learn more about them and the data insights we glean are used to continuously optimize the program, allowing us to provide a more contextual and relevant experience and the most appealing offers for each customers. As we think about the importance of privacy and how data regulations are changing accordingly, having a wealth of first party data as we have is emerging as an even more valuable differentiator for us. As you know, we launched Triangle Select last year and by the end of 2023, program had over 45,000 members. Speaker 200:27:05The program is working as we'd expected. In 2023, select members visited our retail banners more often and spent almost 40% more than similar members who were part of our control group. We know the program is working and we're moving our focus to scaling membership. Finally, with the anticipated launch of our Petro Canada loyalty partnership in a few weeks, We'll be able to offer Canadians the best value for gas with a spend once, earn twice value proposition, which we believe will resonate with Canadians, especially during these challenging economic times. This upcoming launch will be our first opportunity to test loyalty integration and currency conversion on a flexible modern API based platform that we created last year. Speaker 200:27:55We expect to apply this to other programs and partnerships in the future. I'll end my prepared remarks today by reiterating that although we continue to operate in a challenging We are not sitting back and waiting for the storm to pass. The steps we are taking are not simply in service of managing our current reality, but also with a consideration for the long term. We continue to have strong conviction around each of the drivers of our better connected strategy. Our investments are paying off and will continue to do so, ultimately benefiting our stakeholders today and tomorrow. Speaker 200:28:34We're managing our business through these tumultuous times by controlling what we can and mitigating against what we can't against what we can't. And I won't All while making life in Canada better, including for our communities. In 2023, Jumpstart helped more than 440,000 kids participate in sport and recreation and dispersed over 1,000 grants to support community programming. The charity also completed construction on 7 new inclusive play spaces, bringing the total incremental square footage added since 20 17 to more than 550,000 or the equivalent of 32 NHL Hockey Rinks. The investment in our communities is arguably now more important than ever as families navigate tough economic times. Speaker 200:29:23Overall, my confidence in our ability to turn the corner is bolstered by our team's commitment to our purpose no matter what. We faced a lot of hurdles in 2023 and our people stepped up as they do every time they face a challenge. And for that, I'm very proud and grateful. And with that, I'll pass it over to the operator for questions. Operator00:29:48Thank Our first question comes from Irene Nattel with RBC Capital Markets. Your line is now open. Speaker 400:30:30Thanks and good morning everyone. Thank you for all of the information that you provided around your expectations And the outlook. I would like, if possible, please, to dig in a little bit more on the inventory side. Can you talk about The quality of the inventory, both at corporate and at dealer, you mentioned sort of the dealers are heavy on springsummer. What is the magnitude that you expect in terms of the disconnect between consumer sell through and shipments to dealers? Speaker 400:31:05And what in terms of your ordering for 2024, how are you positioned relative to what is the current expected demand? Speaker 500:31:16Hey Irene, it's TJ. Thanks for the question. I'll unpack that. There's a lot in that question. So let me unpack a Speaker 600:31:24couple of Speaker 500:31:25things. As Gregory alluded to, from a corporate perspective, we continue to make really great strides at CTR on reducing our inventories, we actually ended up down north of 20% in inventory at CTR for the year. And keep in mind here that inflation is actually embedded in that. So when you look at it from a cube and units We're actually down slightly more than that and that obviously is what drives costs. So good news from that perspective and And Gregory alluded to the operating leverage that we get associated with that. Speaker 500:32:02And when you look at dealers on the other side of our business, their inventory is also down slightly, a couple of 100 basis points, as they have reacted to the consumer in the market. So when you look at those two things and you look at how we're managing the business as we go forward here, We're adjusting our buys and managing inventory very surgically and pragmatically. We continue to see the trends towards a gap in growth between essential and discretionary categories and we're going to be buying accordingly. And the teams have made significant progress on our inventory levels and continue to try to surgically right size these as we go forward. And I talked a little bit already about the leverage we get from that. Speaker 500:32:51As we look at dealers, I think a couple of things I'll point out. We still have a little bit of game to play yet in this quarter in terms of finishing off our winter business. So we'll be able to give you a better handle on how we land the season on winter related inventory as we get out of as we get into our Q1 call. Feeling quite good about dealer inventory levels with respect to Christmas. We mentioned on a call earlier this year that we were they were heavy starting this year and they have done a really good job of working that down. Speaker 500:33:24That was one area that we invested from a consumer standpoint to try to clear some inventory. So they're in a much better position as they come out of the Christmas categories. And I think one thing I'd like to highlight is given the consumer sentiment and softer Q4 sales, As we go forward here, we're not expecting dealers to build significant inventory and discretionary and we do expect them to continue to draw down on spring summer inventory unless we see meaningful change in the consumer demand side of things. So as a result, and I think Gregory alluded to this, We expect the disconnect between revenue and sales may continue particularly in Q1 and Q2. Speaker 400:34:08That's really helpful. Can you quantify what the magnitude of that disconnect? Speaker 300:34:17Irene, it's Greg Rhee. Sorry, I have to keep adding Neil Rhee there for a second. It's I think we tend not to give as you know kind of guidance in that regard. I think what I would say is just go back to kind of TJ's comments is and the other thing you have to remember in March of last year, we had the DC fire as well, right? So That impacted shipments a little bit. Speaker 300:34:39So it's not as kind of easy to give you kind of where we are now in trending given kind of some of complexity as well. I would just say, I expect it would continue in the short term as TJ said. And then In the long term, these trends always come back in a line as you know. But and again, I would recall that Q1 is pretty much our smallest quarter as well. So keep that in mind. Speaker 300:35:01But I think the real question and the focus area for TJ and the team remains kind of that longer term through to Q4 And what are the economic conditions and sales conditions like at that point in time as we look ahead. So I would say it'll be Probably a little noisy in Q1. Now you have to remember in Q4 as we talked about, Q4 of this year had the issue of the MSA. Speaker 200:35:27We're not Speaker 300:35:27going to have that to continue with when you're looking at kind of a disconnect between revenue and sales. Like that won't be nearly as significant as it would have been in Q4. So I just should say that as well. Speaker 400:35:40Thank you. Operator00:35:44Thank you. Our next question comes from George Doumet with Scotiabank. Your line is now open. Speaker 700:36:01Yes. Hi, good morning. I just want to talk about the OpEx line, obviously some pretty good control there. Does that number over the quarter kind of fully capture The initiatives we outlined last quarter, I'm just trying to get a sense of how sustainable that is. And second part of that question is, If you do end up getting a more difficult macro environment, like is there more room to cut that OpEx line even further? Speaker 700:36:23Thanks. Speaker 200:36:25George, it's Greg here. I would think about just the wraparound effect associated with Some of the moves that we made late last year. So, it doesn't have full year benefit. But When you think about the announcement of workforce transition in the kind of November timeframe that wrap around in 2024 provides for 10 months of benefit. The 3PL costs in terms of our reduction from 15 to 0 happened throughout the year, But at the end of the year, we ended with 0. Speaker 200:37:01So there's good benefit to be had there on a 2024 basis. As Gregory said, I mean, and then in general, if you think about leverage, this is the first time since 2019 normalized retail SG and A dollars have declined year over year. And as Gregory said, We're expecting further savings as we plan to drive that structural efficiency. To reiterate, we see opportunities presenting themselves both at the margin and the OpEx level. I unpack the drivers of our focus on both line items. Speaker 200:37:40We made I think this year we made solid or 2023 we made solid progress with respect to our free cash flow yield, which is an area of focus this year as well. So listen, we're executing a full court press on driving operating leverage And that's why we placed the focus on it, we did in our prepared remarks. But we're still operating with minimal economic visibility. So the top of the P and L is tough to forecast. And I guess the only thing I would reiterate having said all that is, as Gregory said, we're still firmly committed To our better connected strategy, we strongly believe that a new cycle will emerge. Speaker 200:38:19There always is and we'll continue to invest in front of it and be well positioned when discretionary demand returns. Speaker 700:38:25Okay. Thanks for that. And Just a clarification on the Q1 data you guys provided in the indication. Speaker 300:38:32If I Speaker 700:38:32heard correctly, mid single digits in January and then we gave it back in February. So does that suggest that we're trending kind of in line? And how big is March? And just to quantify, how big is March compared to, I guess, the 1st 2 months of the quarter? Speaker 300:38:49I think to answer your second part first, I think you're probably in the neighborhood of probably 45% to 50% of the quarter still to come with March. And the reason we pointed out this information the way we did was kind of when the weather came to us back in January, George, when we had that more kind of normalized condition, We were up kind of as I said that mid single digit despite kind of some of these economic the economic pressures haven't gone away either by the way. So when I say that we've kind of Given that lead back that would infer we're kind of at this point midway through the cycle flat to CTR, but down overall for all the other banners. Really pleased on the performance so far, but again, we've got a big month to go in terms of what our results are. So and again, as I mentioned a few minutes ago, you have to Paul, you've got some dealer uncertainty about ordering and you've got the fire impact of the DC a year ago and weather. Speaker 300:39:46I mean, I really hope we're seeing what I saw last Friday when I saw people in shorts, bicycling. That would be a very good thing in March for us. But that's what I would say. But I come back to Greg's point, which I think is really, really important to reiterate is we're trying to build as much protection and safety and kind of in margin and operating expense against that backdrop of kind of uncertain revenue expectations. That's what I would say with what we're managing through. Speaker 700:40:14Okay, thanks. Last line. Operator00:40:18Thank you. One moment for our next question. Our next question comes from Mark Petrie with CIBC. Your line is now open. Speaker 600:40:37Hey, good morning. I wanted to just ask about the competitive environment. Last quarter, you called out that you'd seen a pickup in promotional intensity. And then I think what you said, TJ, earlier was that you guys had stepped up your promotional investment in Q4 and I think that was part of the plan. Can you just update us on how that sort of played out through holiday? Speaker 600:41:01And then what your views are so far in 2024? Speaker 500:41:07Yes, Mark, it's TJ here. If you think about the competitive context that we're kind of experiencing right now and we certainly did in Q4, the competitive intensity has stepped up. I mean, consumers Speaker 300:41:19are definitely feeling the Speaker 500:41:19pinch of the economy. Has stepped up. I mean consumers are definitely feeling the pinch of the economy and what we found in Q4 was that Retailers started to invest earlier. So Black Friday kind of started quite early this year. And we in particular Started to make more investments in discretionary categories. Speaker 500:41:41Christmas is a great example. Christmas decor, It doesn't get much more discretionary than Christmas and so we had to make some investments there. But I think what we've been able to do and really when you talk about competitive intensity, you always have to link it back to how we're managing our margin rates. And I feel very good about how we've managed our margin rates throughout 2023. I mean, we've As Greg talked about earlier, we really want to hold those margin rates and we're able to do that this year. Speaker 500:42:14And as we look forward, Couple of things going on there. We do expect to have some relief from a commodity standpoint, certainly some relief from a freight standpoint, But offset a little bit by FX and what we expect to be a requirement for continued consumer investment. We need to pass on some of that, some of the savings that we have to consumers, both in our regular pricing as well as our promotional pricing. So We do expect the intensity to continue here, but we feel very good about our ability to manage margins with all of the capabilities we've built with Elasticity modeling, what Greg described as our margin nerve center and of course our Triangle Rewards and own brands portfolio. Speaker 200:43:02And Mark, I would maybe just it's Greg. I'll just elevate a little bit for the rest of the banners. Similar themes, For sure, absolutely promotional intensity intensified through the Q4. Aggregate top of house all banners average unit retails are coming down. So again, I think this supports the objective for restrictive monetary policy. Speaker 200:43:26To TJ's point on elasticity, I'd say for the company, there's more forecast error in our elasticity models as The historical equations for price investment driving incremental unit demand just aren't holding to performance and many discretionary categories even with significantly deeper discounts, we aren't seeing incremental demand materialize. So the good news is as we move to kind of operating posture for 2024, we have more use cases in our models now than we did starting last year or starting when we in June when we really started to see a drop off last year. So we certainly hope to be more efficient. But I'd say that the apparel sector for sure is intensifying. In our credit card data, we can see spend impact for apparel as a merchant category and specifically at Canadian apparel retailers and what I can tell you empirically is that apparel focus retailers are having a real challenge on the top line and we're therefore seeing the intensity ramp quite a bit. Speaker 200:44:31So both Sport Chek and Mark's are feeling it, but we feel Like our capabilities provides for benefit and the new DC as I called it in my prepared remarks provides a new tailwind for us on a cost per unit basis, especially in any e commerce and fulfillment around e commerce. Speaker 600:44:55Okay. Those are helpful, very helpful comments. Thanks for that. And if I could just follow-up, could you give us a sense of Sort of the balance of discretionary versus essential items for springsummer versus fallwinter, would it be pretty balanced or would there be Would it skew one way or the other? Speaker 500:45:14Yes, it's not too dissimilar. It's probably in and around 60% of our business is what we would classify as discretionary in the spring, maybe kind of low 60s, I'd say. So it's not materially different between those two quarters. Speaker 600:45:33Okay, perfect. All the best. Thanks, Mark. Operator00:45:38Thank you. One moment for our next question. Our next question comes from Luke Cannon with Canaccord Genuity. Your line is now open. Speaker 800:45:55Thanks. Good morning. I just wanted to start with where I guess the dealers are standing as of today. Can you give us a rough idea of where their overall financial health or their profitability stands versus maybe a year ago or even pre pandemic? Speaker 500:46:13Sure. Hey, Luke, it's TJ. I can take that one. Couple of things with the dealer network, obviously, huge components of our secret sauce and how we run our business, 500 passionate entrepreneurs, they care deeply about our brand and they continue to transform and evolve for our customers. And no one knows their business and their communities like they do. Speaker 500:46:39So, they play a huge role in connection with our local communities. We work with them really, really closely, from best practices on how to operate their stores to our better connected agenda. And I think if you look at it from a financial health perspective, while I can't get into specifics about kind of individual dealers, They come into this period of economic uncertainty from a position of strength. We've had a lot of benefit over the last couple of years. And although they're coming in with a position from a position of strength. Speaker 500:47:16They're obviously from a P and L standpoint, feeling it from a Q4 standpoint with sales and volume. They are experiencing some headwinds on OpEx, particularly in things like interest rates, labor rates are starting to snap back to pre pandemic levels And they're even experiencing some headwind with respect to minimum wage and things like that. So they manage their businesses really, really tightly. And I think you can expect that they will continue to do so and try to do whatever they can to generate sales They're entrepreneurs who try to do everything they can to serve their customers and generate revenue. But think that's how I would answer it. Speaker 300:48:01And it's Gregory here. I just wanted it's another one I want to TJ touched on it, but I do want to double down on a little bit. Think about the tenure and the experience we have in that network of dealers. This is not their first rodeo. This is not the first time they've gone through a cycle, a business cycle. Speaker 300:48:17And to TJ's point, I look at just sales as a barometer. So go to pre pandemic levels and see where we are now in terms of sales. Yes, there are some things that they're managing through, but to TJ's point, they're great at managing their businesses. And I think it's actually a real plus kind of in these conditions. And we've got a dealer network that frankly kind of been there, done that, seen it before. Speaker 300:48:39So anyway, that's all I would add, Luke, is just I think you should take some comfort in the fact we've got such experience in that network that kind of understands how to react to local conditions as well, be there a difference in the rural versus an urban type of setting. So anyway, I just wanted to kind of say that as well, because I think it's an important point. Speaker 800:48:59I appreciate that. Thank you. My next question here is just on the loyalty partnerships. It's exciting to see what you guys are doing with Petro Canada. What else would you view as, we'll call it, complementary partnerships to what you feel Triangle Rewards offers What other areas now that Speaker 300:49:16you have the flexibility to Speaker 800:49:17be able to explore this where freely, do you see as the best opportunities? Speaker 200:49:24Luke, it's Greg. We if you think about our system of retail banners today, It's general merchandise and apparel focused. And so as we think about the role that partnerships can play for us. We think about an evolution from the state we're at today to more of an everyday needs state playing more relevant role in the lives of our members through partnerships. And the aim is pretty simple, Luke, it's to accelerate the issuance of ECTM and look for opportunities to expand the reach of the program to a bigger network of Canadians, which will just help to provide more opportunities for members to earn ECTM in these everyday needs categories. Speaker 200:50:16So our long term growth strategy is centered around how we accelerate a customer spend flywheel in our network of retail banners and Partnerships will help drive ECTM issuance, which in turn drives spend in one of our retail banners, which drives first party data And then our personalization capabilities get to work on driving further spend and cross shop across the system. So ultimately, that's what the partnership system is all about and that's what you can expect from us. Speaker 800:50:46Okay. Thank you very much. Speaker 900:50:48Thank you. Operator00:50:51Thank you. One moment for our next question. Our next question comes from Chris Lee with Desjardins, your line is now open. Speaker 900:51:10Good morning, everyone. I guess my first question is, I know you guys don't provide any precise guidance and visibility on sales remains very low at the moment. But I'm just wondering, just directionally speaking, given that it sounds like you do have some pretty powerful levers to to offset some of these pressure, is it reasonable to assume that we can get some earnings growth this year? Speaker 200:51:35Hi, Chris. It's Greg. I mean, listen, as I talked about, we are still operating Through structure, what I would call structural uncertainty. We don't have visibility in terms of what the kind of mom's monetary policy is going to look like and we have very minimal growth in the economy and pretty significantly negative growth on a per capita basis. I think we tried to provide a view to our operating posture in our prepared remarks. Speaker 200:52:07As I said, we just continue to operate in a structurally uncertain environment. You can read 2 articles on the same day in the same paper suggesting that the rates will go up and they will go down. And so the facts are that we have persistent and stubborn inflation being driven in large part by shelter costs and I don't see a path for them subsiding soon. So if the what I would say if the intent of restrictive monetary policy was to curb Consumer demand and slow the consumer economy, we would certainly say the policy strategy is working. So we aren't Planning for any real growth in the economy certainly in tight here the next 6 months. Speaker 200:52:48We've adjusted all of our operational playbooks For meaningful performance separation between essential and discretionary businesses, we've had more time to plan, source, buy, move and think through value delivery for these essential businesses. So we're in a better position as we start this year than we were reacting to it mid Speaker 900:53:13Okay. Thanks for that. And then my other question is just maybe on the potential finding a partner for the Credit card business, I know you mentioned earlier that you're still kind of in the early stages of discussion. I was wondering internally, do you guys have a timeline to say when you will try to find someone or is this sort of an ongoing thing where you just take your time until you actually find the right partner. Just wondering, you know, from a disruption perspective, is there a risk that you could kind of make this sort of definite that could create some internal disruption to the business. Speaker 900:53:46Thank you. Speaker 300:53:49Sorry, I missed the second half of the question. I'll take the first half for sure on kind of timelines. What I would say is it's consistent with the release we kind of had last year around we kicked off our process. We are on track. I think I would call the process robust, but it's going to take we said we're going to review our options during the year and we're on track to that timeline of that agenda. Speaker 300:54:14In terms of operating the business, I think we are as I said in my remarks, again, we're operating the business the interest of our shareholders and stakeholders at this time. So we're operating in an environment where the risk metrics have returned to historical levels. So we have been a bit more restrictive on new account growth, but that's consistent with our strategy from last year. But The bank is such an integral part of our rewards program and how we get kind of that flywheel effect and continue to have money in our customers' hands. Like The more account growth we can put in there, frankly, the better for all of us over the long term, but we have to balance kind of those shorter term economic pressures. Speaker 300:54:50So think if that's the second half of your question, that's how it answered and we remain comfortable Speaker 200:54:55in terms of where we are in the overall process. I think the second Chris, it's Craig. The second half I think was just about disruption to the business from a timing standpoint. And for sure, I guess what I would comment for sure the economy has gotten worse on us, and our core business has suffered. But as Gregory said, the decision to buy back the bank To have control, the control we need and determine the best way to create value was a decision for the long term health of our business. Speaker 200:55:24And The change in the economic cycle and any potential disruption that provides, isn't it kind of takes a back seat to really thinking about long term value creation. Speaker 900:55:37Great. Okay. Thanks a lot guys. Operator00:55:40Thank you. One moment for our next question. Our next question comes from Vishal Shreedhar with National Bank. Your line is now open. Speaker 1000:55:59Hi, thanks for squeezing me in here. And on the initiatives that Tyre has looking into 2024, A lot of potentially meaningful cost reduction and efficiency initiatives kicking in, in 2024. I was hoping you could I was hoping you could quantify them for me. And if not, then maybe you can rank order some of the bigger initiatives that you expect to benefit Recognizing on the other side, there's economic uncertainty as you've commented, but just for our own purposes help us understand the magnitude of some of these initiatives you're talking about. Speaker 200:56:39Hey, Vishal, it's Greg, we'll probably stop short of quantifying. I'll do a lot of push out. Yes. But listen, I think you've heard me say before, if any leverage in our P and L has to travel through the supply chain. We've been running here now for 3 or 4 years with a very inefficient supply chain and a lot of those inefficiencies were driven by COVID and a very strong demand side global environment and the whole system buckled on us. Speaker 200:57:17And What we see is a global supply chain that is now pretty close to a normalized state. We look at the lead times that we have built into our purchase orders and We're down 35%, 40% versus the height of the pandemic in terms of lead time in days. We think about vendor service levels. We've gone from the 30%, 40% range, both in our own brand factories and national brands. And now we're kind of There's a few exceptions here or there, but we're pretty much pre pandemic state. Speaker 200:57:57We're normalizing the amount of inventory we have in the system. We're getting rid of the 3PLs, all while implementing new technology that drive the variable cost down. So, I think the order of magnitude for us would certainly start with the supply chain. And like I said, it's the first time, I guess, since I've been CEO that I feel optimism around our ability to drive leverage and we are working at it. We're not letting that just come to us. Speaker 200:58:24And The global freight rates, I mean, we're a fraction of what we were In the middle of the pandemic, spot rates, the height of the spot rate market in the pandemic was around $30,000 per can. And now we're under $3,000 So there's material freight benefit. And then There are some on the commodity grid, there's still some commodities that are working against us. But for the most part, the dashboard Look, it tilts to kind of favor for us and we're seeing that really come through our manufacturer quotations. I mean, There are a lot of these buildings, these manufacturing facilities are operating at half mass. Speaker 200:59:12So they're eager to cover overhead and maneuver some of this deflation into the COGS basin. We're going to go after every single element of it. And like I said, some of it's going to have to go to the customer. So it's tough to determine how much of that drops to the bottom line. But I think that's probably the way I'd think about the order of magnitude. Speaker 1000:59:32Okay. Thank you. And from the consumer standpoint, You feel quarter after quarter it's getting tougher. Is that a fair way to characterize what management has said? Speaker 200:59:49We feel like the discretionary Our discretionary business was in tougher in Q4 than it was in Q3. And we've got I think we've got some pretty good data modeling capabilities. It's tough to tease out the seasonal weather impact entirely Because what was different in Q4 versus previous quarters is a fairly material traffic decline. And that traffic decline is a direct result of that seasonal business being down. But we would say that Q4 was more intense from standpoint, I wouldn't say material because you have that weather impact, but we do feel like, it intensified, if that answers your question. Speaker 1001:00:36Yes. Thank you for your answers. Speaker 201:00:41Thanks, Vishal. Operator01:00:43Thank you. One moment for our next question. Speaker 901:00:51Our Operator01:00:54next question comes from Brian Morrison with TD. Your line is now open. Speaker 1101:01:00Thanks very much. I want to follow-up on the Financial Services' financial monetization. Now that you have this control, Greg, is it fair to say that your plan is build out or build out meaningfully your coalition partners in advance of a transaction or is this not a necessary prerequisite? Speaker 201:01:17We don't see it as a necessary prerequisite, Brian. I mean, we're engaged in conversations. There's many different ways you can approach a coalition. You can go broad and wide or you can go deep and narrow. And so We're thinking through the right approach for us right now. Speaker 201:01:38Our primary focus, Brian, is the Suncor, Petro Point's relationship right now. We're very excited about the value that that can bring for Canadians. We've invested last year in developing the platform to be able to do the currency exchange as we talked about. And The ability to kind of link to get double the benefit, we've really worked hard to make sure that that experience is as frictionless as possible. So now we can turn on all of our 1 on 1 personalization capabilities And let people know with about 10 seconds of their time, they can link programs and get double the benefit on on something that's really causing harm in the average household today. Speaker 201:02:27So we want to approach each partnership from the standpoint of understanding the value it will create. And much like my commentary in my prepared remarks, When we establish when we build an asset, now we want to focus on getting the right value out of it. When we establish a partnership, we want to All hands on deck on making sure we do get value for us and for the customer before we move on to the next one. And so we see these Depending on who you're talking to on the bank side of things, it can get intertwined. But I think to answer your question, it's not a prerequisite. Speaker 1101:03:07Okay. And then if I can sneak in 1 on the retail side and maybe it's for TJ here, but I appreciate all your color on the gross margin. I will say it's Your operating margin performance in a tough backdrop is pretty impressive. But where do we stand on Speaker 901:03:20the private label shift? This was going to be Speaker 1101:03:21a driver of the gross margin and Appreciate it's holding in there, but I think you are targeting it going to 38% to 46% and it looks like it's flattish to the end of 2021. I just wonder what the variance is to your goal there? Speaker 501:03:35Yes, it's TJ, Brian. Yes, at CTR, we definitely are, as you're alluding to, trying to get on a Where our own brands kind of outpace the growth of national brands, we got we saw in Q4, we were up about 8 basis points in terms of our penetration rate. And it continues to be a major strategic thrust for us, right. Having a stable of owned brands that Consumers covet and stay loyal to over time is really important to us. We've put a lot of energy behind product development and we continue to try to drive Forward with penetration increases. Speaker 501:04:11What you find is quarter to quarter, it can be tough just based on seasonality in the way the weather hits us, sometimes there's businesses that are highly penetrated, that just don't do well and that kind of Stunt your growth a little bit and that's probably what we saw in Q4. We still kind of plowed through that and we're up a little bit. But certainly to your point, our goal in terms of only helping us strategically with the customer having a great one two punch of national brands and owned brands, but also from a margin perspective, it's Speaker 201:04:53Well, thank you for your questions and for joining us today. We look forward to speaking with you when we announce our results on May 9. Bye for now. Operator01:05:04Thank you. This will conclude today's call. You may now disconnect.Read morePowered by