Canadian Tire: Winter's Last Blast Should Boost Q1 Earnings

Most of us suffered through one of the snowiest winters in a long time, but Canadian Tire Corp. (CDNTF.PK) - one of the “go to” places for shovels and snow blowers - was likely among the few retailers basking in the warmth of higher sales and profits that came with the cold, says RBC Capital Markets Analyst Irene Nattel.

The first quarter,is typically the smallest period of the fiscal year for Canadian Tire, typically generating about 16% of annual earnings, Ms Nattel says in a note to clients. She adds that while this year’s winter weather had a negative impact on traffic and spending at most retailers,

Canadian Tire’s core retail business may turn out to be one of the few exceptions, as sales of winter-related merchandise were undoubtedly robust.

The sporting goods and hardware retailer is expected to report Q1 results today, when it holds its Annual General Meeting. Ms. Nattel is predicting modest earnings growth at The Tire, with a 2% rise in earnings estimates to C$0.84 a share, C$0.02 higher than consensus. She is also forecasting EBITDA to grow by 7% to C$178.5 million. She said:

Investors will be looking primarily for any colour management can provide around consumer spending trendds and in particular, consumer response to the early spring weather in central Canada.

Ms. Nattel also applauds Canadian Tire’s recent measures to improve profitability and productivity. “These initiatives should enable Canadian Tire to generate solid earnings growth despite the challenging environment.” While overall margins are likely to be flat for 2008, she expects margin growth to return in 2009 and accelerate in 1010.

Ms. Nattel also points out that Canadian Tire shares, at about C$65 is trading at the low-end of its historical trading rang, and “we view this current share price as an attractive entry point.” She has a target price of C$83, using a multiple of 15 times 2009 earnings.