Canadian Tire Corporation Ltd (OTC:CDNTF) Q4 2015 Earnings Conference Call February 18, 2016 1:00 PM ET
Michael Medline - President & CEO
Dean McCann - EVP & CFO
Allan MacDonald - COO, Canadian Tire
Mary Turner - COO, Canadian Tire Financial Services
James Durran - Barclays Capital
Peter Sklar - BMO Capital Markets
Patricia Baker - Scotiabank
Irene Nattel - RBC Capital Markets
Kenric Tyghe - Raymond James & Associates
Mark Petrie - CIBC World Markets
Good afternoon. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Tire Corporation Limited fourth quarter and 2015 year-end results conference call. [Operator Instructions]. Earlier today, Canadian Tire Corporation Limited released their financial results for the fourth quarter of 2015 as well as the full year. A copy of the earnings disclosure is available on their website and includes cautionary language about forward-looking statements, risks and uncertainties which also apply to discussions during today's conference call.
I would now like to turn the call over to Michael Medline, President and CEO. Michael?
Thanks, operator and good afternoon, everyone. I'm really proud of our results for the quarter which once again demonstrate the fundamental underlying strength of our businesses and the high level of execution we're seeing across the board. As well, our efforts to take cost out of our business while at the same time making significant strides to strengthen our new world retail capabilities is clearly evident on the bottom line.
And these results are even more impressive when you consider the magnitude of the factors that we faced, such as the deteriorating value of the Canadian dollar and the unprecedented unseasonable weather across the country in the fourth quarter. For our Canadian Tire and Sport Chek banners to put up positive comp store sales growth and for our retail segment to have positive gross margin performance is simply outstanding, taking into account the weather. And, of course, even more impressive is that this growth is stacked on top of strong comps last year.
Our financial services business also had a strong quarter despite planned lower year-over-year GAAR growth. As well, our success at taking cost out of our business is clearly evident on our bottom line. In fact, throughout last year Canadian Tire retail more than combated the decline of the Canadian dollar through significant, sustainable productivity gains. And we had some big wins this quarter across our retail businesses. At Canadian Tire, we did some things differently this year and they paid off. We geared our marketing campaign toward active families by giving prominence to gift-giving and by building our CANVAS and NOMA brand assortments around Christmas and we saw impressive growth as a result in our toys and seasonal categories.
And our nonseasonal businesses were also strong, a result of us going deeper in our private-label brands, such as Maximum and by bringing in new price points and assortments in key categories such as kitchen. As you would expect, our winter businesses were challenged. This of course includes some key categories in our automotive division, such as wipers, winter tires and batteries. Automotive service, however, was up in the quarter, reflecting the great efforts by our team and our dealers during the quarter.
But FGL Sports -- as you can imagine, we had a tough time selling skis, snowboards and outerwear due to the lack of winter weather in the quarter. But we have learned from past experience and made a conscious decision not to discount nearly as heavily as we might have in the past. And customers continue to shop our Sport Chek stores for nonseasonal goods and apparel which had strong year-over-year growth. In fact, electronics and wearable technology were up high double digits in Q4 and were the biggest growth categories for Chek not only in the quarter but also for the full year.
While the generationally unseasonable weather was a significant factor in FGL's unusually low sales growth in Q4, looking ahead to 2016 we expect to see strong performance and a similar growth trajectory as we have experienced over the last number of years.
Turning to Mark's, the changes Rick White and his team have executed at Mark's this year to bring in a new assortment and to put a bigger focus on casual menswear and footwear are resonating with their target customers and made a significant contribution this quarter with double-digit sales growth in denim and mid-single digit sales growth in casual footwear. While we continued to see a slowdown in sales of industrial-wear products, this was predominantly in Alberta.
I was pleased with Mark's sales outside of Alberta given the weather. It's hard not to reflect on the past year and how fast the economic environment has turned. Only 17 months ago, when we announced our new strategy and financial aspirations at our investor day, the Canadian dollar was at CAD0.90 and the price of oil was around CAD90 per barrel.
The retail marketplace has become much more difficult, but our strategy and execution, especially our productivity gains, have made us stronger overall. And while we do not believe the foreign-exchange environment will become easier in 2016, every one of our businesses is focused on the challenge and is executing plans to mitigate the pressure, as we did in 2015.
With oil at its lowest point in 12 years and the industry in a cyclical decline, we know our retail businesses will continue to struggle for sales growth in Alberta. And, obviously, our Marx business is expected to feel the biggest impact and will continue to see slower sales in industrial wear and footwear for the foreseeable future. However, just as I told you last quarter and based on what we have seen throughout 2015, strength in other areas of the country -- primarily in BC, Ontario and Quebec -- is more than offsetting the weakness we're seeing in Alberta.
Like every retailer, we have faced challenges with foreign-exchange pressure this year and we have held off increasing prices across our banners for two reasons. First, in times like these we believe smart companies aim to increase market share. And in many categories across our banners we have been successful in 2015. Second, if you merely increase prices the urgency to get serious about productivity initiatives declines. Now, with our productivity engine underlying our purchasing decisions, we continue to smartly assess margins, economic conditions, vendor pricing and cost inputs and we will selectively look at pricing decisions going forward.
You will have read in our release today our comments on the near term outlook for our financial services business. I feel strongly that we need to be transparent about this so you can fully understand the dynamics within this business. As you probably know, about 15 months ago we pulled back on our lending practices which slowed customer and GAAR growth. But we're now ready to invigorate growth once again as the weakness we saw in the economy appears to be largely restricted to specific regions and not widespread across the country. And as a result, we anticipate making an increased investment in our successful in-store financing programs over the next six months to reinvigorate customer and GAAR growth at financial services and drive sales at our Canadian Tire retail business.
Although financial services took actions in late 2015 to stimulate GAAR growth, we anticipate that the positive effects of these actions may not contribute to customer and GAAR growth until the second half of 2016. These two factors could impact financial services results in the first half of 2016. It should be noted that financial services typically contributes a substantial portion of CTC's consolidated earnings in the first quarter.
Looking ahead, our strategic direction has not changed. While we continue to identify and evaluate potential new-world acquisitions, we will continue on our journey to becoming the most innovative retailer in the world.
In 2016, our transition to new-world retailing will be more evident across our banners and e-commerce will continue to be critical. We will play our own game using a combination of our physical assets, including our foundational technology and e-commerce platforms and our extensive store networks, our world-class loyalty program and our successful flyer programs combined with digital technology to create the best omni-retail experience out there. Our plans are expensive and broad-reaching, but I want to highlight a few key game changers which will lead us forward on our journey in 2016.
We're moving each banner to the new world of digital retail and launching new e-commerce platforms for Mark's, Atmosphere and phase II of SportChek.com. Secondly, more than half of our Sport Chek flyers will be digital or have digital enhancements, continuing our journey to be more responsive, regionally focused and flexible with our advertising.
Third, we're kicking off an exciting new marketing campaign at CTR in the second quarter where innovation and technology will be prominent.
Fourth, at Chek and Mark's we will launch new POS systems that will seamlessly integrate data between stores e-commerce and our customer analysis systems.
Five, the work we have done to assign resources and prioritize data and analytics capabilities will take another step forward.
And six, while investing in our businesses and their evolution to the new world remains our key priority, our thoughts are about future acquisition targets and that's how that's evolving as well as to consider accelerating new-world retailing capabilities.
And finally, the culture of innovation that we're creating across our network has to start with all of us here at CTC. We're igniting employee engagement like never before and are completely rethinking how we work together.
So to kick things off, three weeks ago we became the first Canadian retailer, biggest company in Canada and second largest company in the world to launch Facebook at Work for our employees. It is a true game changer and has created an online space where we can tap into each other's ideas and knowledge and get information faster regardless of location, department or level. And this is just one example of the way we're changing how we interact with each other as we navigate our transition into the new world of retailing. And of course, there's still more to come.
In my closing remarks, I am confident to say that we're executing better than we have ever executed before. We have the right strategy in place and we have the right team to move us forward on our journey into the new world of retail.
And with that, I'll turn things over to Dean.
Thanks, Michael. I'll start with a few things to keep in mind while we're reviewing our results. First, a quick reminder that this is the first quarter since we completed the Scotia Bank transaction that our current and prior-year results reflect -- each reflect our 80% ownership of financial services.
Second, our Q4 2014 comparative results reflect an extra week of operations, owing to 2014 being a 53-week retail year for us. While our retail sales figures are disclosed on a reporting period basis for 13 weeks this year versus 14 weeks in the prior year, our same-store sales figures have been provided on a 13-week comparable basis for each of the retail banners in our Q4 MD&A.
And finally, we normalize prior year's Q4 2014 earnings to exclude the impact of the fair value adjustment related to Scotia Bank's put option. We determined that a fair-value adjustment was not required this year, so only the prior year has been normalized. As per our usual practice, we've highlighted our normalizing items for Q4 on a year-to-date basis in our MD&A which we released earlier today.
Turning to our Q4 results, I'll reiterate Michael's comments about how pleased we were with how well the business has operated in the quarter despite an unprecedented weather pattern. As we present the results, the 53rd week of 2014 affects most of the P&L numbers, starting with revenue which was down 7.5%; down 5.8% excluding petroleum.
There are probably two themes of note in evaluating those numbers in addition to the 53rd-week effect. Michael touched on both the weather impact on the businesses and, particularly in the case of Mark's and FGL, the decision by the businesses to resist deep discounting in the face of unseasonable weather. This decision is a major contributor to our gross margin rate strength in the quarter which on a consolidated basis was up 119 basis points excluding petroleum -- including petroleum.
The retail segment was up 97 basis points excluding petroleum, reflecting the discipline of the businesses to not panic on pricing in the quarter and continued great work, particularly in the case of Canadian Tire retail, on productivity initiatives that have successfully offset negative impact to date of the rise in foreign-exchange cost.
We also had the benefit in the quarter of an uplift in margin associated with improved dealer earnings that positively impacted the Company's cost and margin-sharing arrangement with dealers. FGL margins held up well in the quarter, but they did continue to be a drag on our margins on Mark's for the reasons we have discussed over the last few quarters. Those being higher exchange costs, lower sales in industrial wear and the slowdown in the Alberta economy. The impact on this quarter as a portion of the overall margin, however, was less pronounced than we experienced earlier in the year.
Our OpEx ratio, excluding depreciation and amortization in petroleum, has continued to improve; better by 58 basis points in the quarter compared to the prior year and better by 46 basis points for the full year. I would note that we have continued to absorb higher depreciation and amortization costs as our investment plans, particularly in technology to support our digital and e-commerce strategies, remain a key part of our capital plan. And these investments carry much shorter amortization periods than our traditional bricks-and-mortar investments.
Given our CapEx plan for 2016 which we discussed on our Q3 2015 call, we anticipate seeing a year-over-year increase in depreciation and amortization similar to what we saw in 2015. We continue to be focused on driving down our OpEx ratio and driving up our EBITDA ratio through our productivity initiatives. And as I just mentioned, we made great progress in 2015 with our OpEx ratio and a consolidated EBITDA ratio rising -- rose to 12.4% this year, up 133 basis points over last year.
We have much more to do in 2016 with respect to productivity and the importance of that work since we announced it in October 2014 has never been more important, particularly given the challenges posed by FX cost and the Alberta economy.
Our financial services business posted solid results despite expected lower GAAR growth of 0.5% in the quarter. And Michael covered the anticipated impact of this in the first half of 2016 in terms -- as well as the planned investments to drive new customer and GAAR growth throughout the year.
Our diluted earnings per share was up CAD3.01 -- was CAD3.01 in the quarter, up 13.6% after normalizing for the fair-market value adjustment on the Scotia Bank put option that we booked in 2014. For the year, diluted EPS was CAD8.61, up 13.5% and up 8.4% on a normalized basis.
Inventories are healthy across the retail businesses, up roughly 9% year over year. Given the weather, we're heavier in winter-related products than we had planned at the end of the year. But we made a conscious decision not to panic when the weather didn't cooperate. And given the cold weather seems to have finally arrived across most of the country, we're confident that we will sell through the majority of it by the end of the season and be in a clean and managed position in terms of carryover for next year.
Dealer inventory in-store is also in very good shape in the winter categories and we expect little impact of carryover on future order behavior. Mark's and FGL have the biggest carryover positions in terms of inventory, but we will wind these down by the end of Q1 and we will simply adjust our buys for next year on any carryover items.
ROIC was 8.09% for the quarter, up 2 basis points over Q4 last year and down 17 basis points in Q3 2015. ROIC remains a stubborn metric to move up and the progress gets impeded as really good work on productivity, particularly in a gross margin area, is being consumed by increased cost for foreign exchange. While we're still committed to getting to our aspirations, the challenge has increased from when we originally communicated our financial aspirations in October last year given FX, the Alberta economy and reduced outlook for economic growth. That said, we remain focused and we'll have to double down on our productivity efforts to ultimately get to our 9% aspiration.
Our operating capital expenditures came in a bit lower than our full-year guidance, largely due to some real estate projects where costs originally planned for 2015 were shifted into 2016. Despite this, we're not adjusting our guidance for 2016 and we'll manage to the original target range for operating CapEx of CAD625 million to CAD650 million.
As we indicated in the last quarter, some costs originally planned as 2015 distribution capacity CapEx were deferred into 2016. But I would note that these have already been incorporated in our 2016 guidance range of CAD150 million to CAD175 million that we provided in Q3. And we're still on track to open the new DC as planned in 2017.
We ended 2015 with a very strong balance sheet and maintained our balanced approach to capital allocation. Over the course of 2015 we repurchased CAD426.3 million of class A nonvoting shares, of which CAD110 million related to our most recent buyback program commitment of 550 million class A nonvoting shares from November 2015 to the end of 2016.
As disclosed last quarter, we implemented an automatic share purchase plan under which we purchased 55 million of our class A nonvoting shares during our blackout period from the end of 2015 to date. And finally, during 2015 we also increased our dividend to CAD2.30 and paid down CAD300 million in corporate debt.
As I look ahead to 2016 there are two things you should keep in mind as you assess our performance. Clearly, we're going to face ongoing challenges posed by the economy, particularly in Alberta, as well as the effects of the decline of the Canadian dollar. That said, I'm confident about our ongoing efforts to make our operations more productive and that those will continue and we will find a sustainable way to offset the pressures we're facing.
Before I wrap up, I want to mention that today we launched our 2015 year-in-review digital summary that showcases the great accomplishments of the businesses through video and text and gives site viewers a chance to hear directly from our senior leaders and employees. It went live this morning and can be accessed at 2015.CanadianTireCorporation.CA.
And with that, I'll turn it back to the operator for the Q&A session. Operator?
[Operator Instructions]. Our first question comes from the line of James Durran of Barclays. Your line is now open.
I was just wondering if you could tell us what changes you've seen in Ontario and Quebec in terms of consumer spending. I know Ontario has been strong. Is it remaining just as strong in Quebec? You are one of the few retailers that's been pointing to Quebec as a strong point. Can you give us some ideas as to why you think you're doing so well there?
We said it last quarter and it even showed up more strongly than BC and Ontario -- we've seen for our business, for our products, we've seen them be strong. And Quebec is not quite as strong as those other two regions for us. But we've seen good strength there that we haven't seen in quite a while either. So we're seeing some strength in the West Coast and central Canada and it happened all through 2015. And it's accelerated because it was really good in Q3, but it continues to be strong.
And how much of a role do you think that not passing on the majority of the FX has had in terms of your strong top-line performance?
I think in terms of -- as Michael has said -- I think we've been capturing shares. So I think it's probably had an impact, if you will, being very selective as to what we pass on with respect to price. But I think in general, just the work that the business has been doing, particularly [indiscernible] I'll call out in terms of the mix of product, the type of product -- I think that's been appealing to customers. And I think everything through the marketing and so on, I think those are the real drivers, I think, rather than anything we've done particularly on pricing.
You can see with our margins we weren't exactly discounting or chasing.
No, absolutely. On your productivity initiatives, can you just help us understand what some of the bigger buckets are that are contributing to your improved performance in that arena?
Jim, I always put it in the three categories, the sort of non-merch categories which that shows up -- can show up in margins to some extent, but it shows up in the G&A area. There's been continued good progress on that as we've gone through the year. Nice momentum there. On the overhead front, that shows up in some of the OpEx ratio improvements that we've seen.
But the third category is really where the big money is and the big opportunity is. And I'll look at Alan here and say CTR has totally embraced this. And I think, as Michael pointed out, resisting kind of taking the easy route of just raising prices and passing things on gives a real motivation to work to implement some of these strategies to drive improved, if you will, cost for goods that we can protect and, in the case of CTR, actually improve margins, as we did this quarter.
The kind of thing that is going back to suppliers in terms of negotiating because FX, as we've always said, is just one component of the cost of the goods that we've purchased and resell. But then being smarter about how we do that and having much more, if you will, analytics associated with how those discussions take place -- and I can use my kettle example or something, but we have -- Allan is going to laugh at me but we have --
If we have five--
Yes, exactly. If we have five kettles on the shelf -- and we used to buy them from four different suppliers -- and you do the analytics to figure out which of those five kettles make you the most money, rank-order them and then make the decision to say, okay, well maybe we don't need to sell five kettles from four different suppliers. Maybe we can sell four kettles from two different suppliers. It's a whole different conversation. And you arm the business with the analytics and business kind of drivers in terms of maximizing margin to go and have those discussions with suppliers. And it's amazing what can happen out of that. But that's the kind of thing -- and there's many more things like that that Allan and the team have just totally embraced in terms of upping the game with respect to improving our margin.
Okay. Last question, just transportation. Has transportation been a net savings for you this year?
I would say so. I think the distribution teams have done a great job of recognizing that obviously the cost of transportation of our goods into our warehouses and out of our warehouses should be coming down based on prices of fuel and so on. And there's some great work that's been done in terms of negotiations around those types of contracts and that work actually is continuing.
Our next question comes from the line of Peter Sklar of BMO Capital Markets. Your line is now open.
I'm still on the gross margin improvement. I'm just wondering if you can talk more specifically about any changes you have made to your merchandising philosophy or tactics that led to the results that -- I'm sure there's more than going from five to four kettles.
Maybe I will, if you are going to chirp at my example, Peter, then I'm going to turn it over to Allan to give you some different, better examples.
So picture toasters, Peter. The productivity initiative is obviously a big part of what we're doing in order to try and drive costs wherever we can. It's not just about negotiating different vendor rates, although we've been doing a lot of that. It's also just about -- to Dean's point -- looking at how we're bringing products to market. The efficacy of the frequency of promotion, productivity in the store, you name it.
From an assortment standpoint, I think -- I've been saying to you guys over the last couple of years -- and it's always hard to be specific, but it's 1,000 little things, not two big things. And we've been focused very squarely on increasing our appeal to active families all across Canada. And you're starting to see evidence of a lot of that work really become material in our public -- the face of Canadian Tire. And I would argue, quite honestly, that the CTR of today is very, very different than the CTR of a couple of years ago in a lot of respects.
When you look at going into Christmas and the launch of the campus line for Christmas and the NOMA line we did I think we made a real statement about CTR's ability to play in an arena where style and design is really, really important. It really resonated with Canadians and I think part of the success you saw in the quarter is our -- is a lot of work that we've done in the past to get growth in categories that are outside of weather-dependent categories.
Having said all that, that also opens us up to the ability to broaden our assortment so that we've got better representation in OPP and better and best. So you're seeing a combination of a lot of things, but another one would be that quite honestly we've improved our assortment dramatically. And I think we have a better balance of good, better and best than perhaps we had a couple of years ago.
And you alluded that there were improved dealer earnings that also contributed to the margin. Has there been a change on how you share earnings with your dealers? I thought that the arrangement you had is kind of a 50-50 split on the gross margin. Has that changed?
Peter, as we talked about when the negotiations were going on with respect to the dealer contract -- is that we did have discussions about improved NAT arrangement and we were successful in doing that. And as the dealers benefit in terms of their improved performance, then the corporation benefits in terms of improved performance as well.
So that's what we called out in the fourth quarter. It's been a factor basically since the new dealer contract went into place, quite frankly, in terms of the adjustments, if you will, made in terms of the margin arrangements. But as we've always said when it has an impact in the quarter that we think it warrants mention -- and it wasn't the largest impact by any stretch of the imagination on the overall margin. It was the things that Allan talked about and we talked about previously in terms of productivity that were the primary things. But this was a factor that we thought we should call it in the fourth quarter as impacting. But it's not a one-and-done thing. It's something that's a function of the successful working together with dealers. And as their import performance has improved. It's inured to us in terms of our performance.
Right. Okay. And then lastly, Dean, just on the financial services business, you've been talking on the call about the incremental investment you'll be making in Q1 and Q2 related to customer acquisition. Is there any way you can box that in for us as to what the magnitude of that investment is going to be?
No, Peter. We don't -- what we provided in terms of, if you will, forward-looking information -- we really thought long and hard about that. It's not something we typically do, quite frankly. But we thought it was prudent. And, quite frankly, coming out -- the decisions that Mary and team made, rightfully so, probably 15 months ago to tighten down on credit -- those have been challenges throughout the year and you saw that with 0.5% GAAR growth in Q4.
So we just felt, given the efforts that Mary and team are going to make to try and drive growth and reignite growth coming into 2016 -- which, quite frankly, some of which are already underway and will continue -- we thought it was prudent just to give some sense that those things may have an impact on the first half of the year, particularly given the significance in Q1 of financial services in terms of the overall business.
Our next question comes from the line of Patricia Baker of Scotiabank. Your line is now open.
I have three questions and maybe it's a question for each of you. I'll start with you, Dean. And for once I'm not going to ask you about the productivity initiatives and progress there because it was pretty evident in Q4. And congratulations to everybody on that. You indicated in the remarks -- and I guess we do know this that it's coming from CTR retail and the efforts that Allan and his team are undertaking. Where is as Allan mandated with continuing to do this and do more? And then secondarily, are there lessons to be learned from what happened with all of these little things that have been done to improve the business to take to market [indiscernible]?
I think mandated would be the wrong word. I think that the great thing about this initiative is -- honestly, the great thing about this initiative is how it's been embraced by the business and Allan and his leadership team kind of grabbing this and seeing the opportunity that it creates. And not to mention the fact that foreign-exchange pressures clarify the mind with respect to having to overcome those challenges. But I think the teams have taken this on and really embraced it. So I think mandated would be the wrong word.
On the Mark's and FGL fronts, I think there are learnings that we can take -- as I call it, take on the road. And I think that is something that we're going to see happen in 2016 and we're quite excited about it.
Also in corporate overhead, as well, we're making some big progress in terms of some things Dean talked about earlier. And CTR is leading the way. And then I think the corporate groups and a lot of the work that some of our best people have done to really renegotiate large contracts and take a look at how we're doing business is paying off and now we're taking it on the road. But we've got to keep going on the other aspects, too; it's not done.
And I have a question for you. And we tend to come back to this discussion a lot and it's M&A. In your description of the things you are focused on for 2016, you named six or seven different priorities and one of them was acquisition targets. It tends to be we're constantly being asked questions about Canadian Tire and what they are looking at. And people seem to be very eager to marry you off with any old asset that's out there. And, frankly, I'm really glad that Rona's now been taken over by Lowe's -- that would explain that one away.
But I'm wondering if -- without putting words in your mouth, you've been pretty consistent. But there's no sense of urgency. It needs to be something strategic. Would it also be fair to say that from your perspective your Canadian Tire going forward -- not particularly interested in picking up an asset that might be broken and you are not interested in doing a fixer-upper but definitely interested in doing something that enhances your capability from the platform that you already have?
I think that's absolutely right. I think the other thing to add in there is that we're leaning toward digital things that we would look at just because that's where the world is going and that's where we want to augment our capabilities. But I think people have to keep in mind that we have a very, very healthy Company where we have a huge agenda to wring productivity out of our businesses. But at the same time we think there's a mammoth opportunity for some of the best retail brands in the world here, that we've got here, to approach the digital world itself. And with our innovation agenda, we can see another stage 4 Canadian Tire in the coming years. We get associated with everything -- almost everything is completely wrong.
We're so picky because we have the luxury to be picky and we've only made two major acquisitions. Objectively, they weren't too bad. But I think if you see us do anything, it will be more probably on the digital side probably or new world or something that we could use there. But we're not in any hurry there.
Now, my next question might be a little off the wall, but it occurred to me when I was sort of looking at the results. And this goes probably either to you, Michael or to Allan. But I'm looking at Canadian Tire -- on the third quarter conference call, you called out strength in the Woods brand and the Outbound brand and then hearing a lot about the NOMA brand. Can you talk about that strategy of actually acquiring brands and licenses that have been established previously? Is there -- and that enhances kind of your exclusivity or private label. Is there more opportunity to do more things like that at Canadian Tire for retail?
It's funny, but Canadian Tire -- it's a strategy that we're applying that's really based in our heritage. Canadian Tire has got a great heritage of bringing products to market that are sourced right from the factory and under a whole stable of brands. Some of them have been around for a long, long time and date back -- Motormaster, I think, is almost as old as the Company.
And when we looked at a lot of the 190 categories we're in and our level of competitiveness, we saw a lot of opportunity for us to have brands to play a bigger role. And then you evaluate, well, should we go in for more national brands? Should we go more private label? And with our history of sourcing, private-label brand development seemed like a natural fit. Especially when you think about the success we've had from a marketing standpoint over the last couple of years.
So we really put a shoulder to the wheel. NOMA and Woods were a combination of acquiring sort of trademarks and then working really hard to bring the right product catalog to bear. CANVAS was something we started from scratch along with the FRANK brand. And in some categories, brands like that make a real difference. So I think what you're going to see over the course of the next few years is us continuing to leverage that great strength and that great success. There are categories where it doesn't make sense and you won't see us make investments there. And others where if we see a gap and a national brand is a more expedient route in terms of acquiring it than building it in-house, then, yes, I think it's fair to say we would probably look at that.
Our next question comes from the line of Irene Nattel of RBC Capital Markets. Your line is now open.
Just continuing the whole subject of the opportunities in the, let's call it, non-bricks-and-mortar world. Can you talk a little bit about your partnership? Where do you see taking Canadian Tire over the next three to five years? And as you think about potential acquisitions, what kind of digital types of plays might be of the most interest to you?
It's Michael and I'll let anybody else pile in afterwards. Obviously, we've set a path for ourselves to be a leader in e-commerce in Canada and that's where we're heading. But we really started this journey when Eugene Roman, our CTO, started putting in place a lot of the infrastructure he knew we would need. But it's only been in the last 15 months -- 16 months that we have really gotten serious as a Company about tackling e-commerce. We were serious about digital, as you can see from digital advertising in our stores -- some of which are the best in the world.
But e-commerce, we were starting at a pretty low level. We have now improved that. But what's going to be happening over the next few years is the transformation of our e-commerce business. And as we get better and better, we're seeing different opportunities to use our assets. And [indiscernible] this can be a great business for us.
In terms of acquisitions, it would be digital assets that were attractive in the retail space which we thought had room to grow just like I thought Mark's did and Forzani did. It's not that different. You go to kind of where the growth is and where the customers are and you look for assets that are not fixer-uppers, but with our incredible assets and our ability to integrate companies that we could make better. And we'll also look for companies, most of which would be small in this case, to look for capabilities that we need as we figure out our digital roadmap. So that's how we go about looking at it.
At the same time, we've got a lot of work here in all of our businesses and tying our businesses together more than we ever have before in terms of conquering the new world. I think we're doing a great job in our old world assets which are going to be a huge part of our business for the foreseeable future. We're now going to transform ourselves and dominate in e-comm. But I think it's fair to say that if we hadn't done what we've been doing in terms of digital and the beginnings of e-comm, we wouldn't be seeing the bricks and mortar and the old world results that we're seeing today.
They don't necessarily always show up in e-comm sales, but the underlying strength of the CTR to put up new comps -- they are very, very poor weather and it was great execution. And at the same time with great execution in terms of becoming more of a digital destination even though we're not where we need to be. So that gives us a lot of -- that really encourages us. And I think the returns on our investment are undervalued because they will show up in all aspects of our business and that's across all of our four big business units.
So from what you are saying, Michael, I think it's fair to say that we should all expect that you will continue to invest a fair amount of money in these strategies over the year to come.
Yes, we have to do that, but we have to also prioritize our spending. I think some retailers are making mistakes in not reinvesting in their bricks and mortar and the stores are spending a little worn down and that's not a good idea. You can't just go all the way over to digital and lose that bricks and mortar. We want to be the best omnichannel retailer in the world. And at the same time we've got some big nuts -- like the Bolton DC and a lot of the that we've been putting into technology that will calm itself as we proceed more into spending on customer-facing technology and digital solutions. So in some cases, we'll be ratcheting up our capital. But overall I think that there's some areas where we cannot spend as much.
And just one final question -- clearly, you guys did a fabulous job in terms of driving your OpEx last year. Headwinds from FX, we all know, are going to become even stronger this year. Do you feel like you have enough left in the tank to continue to offset the pressure?
That's a lot of work for a lot of people in the room, by the way.
Easy for me to say. But, yes, there's been lot of things underway. We'd like a little higher dollar, we'd like a little better weather, but we will take what comes.
Our next question comes from the line of Kenric Tyghe of Raymond James. Your line is now open.
I wonder if we can spend a little more time on the financial services -- specifically these financial services initiatives or growth-driving initiatives -- clearly, you are not going to revisit credit criteria in this market. I'm curious if we get a little bit more color around the levers that you can or are able to pull to try and drive the attach rates within CTR and the growth more generally.
I'm sorry, Kenric, but we had a pause when you were speaking. Could you please repeat your question?
Sure. Apologies. So just on the financial services growth and growth initiatives, clearly not going to reflect a loosening of credit criteria or other. So I'm wondering if you could provide a little bit more color on the levers that you can pull to drive higher attach within Canadian retail and growth more generally in the context of the markets.
It's Mary and I'm very happy to answer that question. We have been -- I've talked about this a number of times over the last few years about our efforts at financial services to more effectively integrate with all the retail banners and to work more effectively with our dealer partners. This has been an ongoing journey for us but one that has been very successful.
There are a number of things that we did in the past to drive growth. One of them specifically is balance transfers that we no longer see as an effective way to drive growth. We're finding some great results from integrated marketing and great operational focus with our retail partners on in-store financing.
So we have programs where we help sales, particularly in CTR. And not only does that drive GAAR growth for me, but it also brings me in new customers. So that is a proven program now. We've had enough time working through it and we can see the benefits of this new way of growing our business. But we have been in a bit of transition, so we're ratcheting down on some of our old ways of growing GAAR -- balance transfer program, in particular -- while we ramp up in-store financing.
So I'm very confident that that is going to help us reinvigorate customer growth going forward and it's going to help us grow GAAR as well. And it will be -- I actually think it's also going to help us on the credit risk front. So I'm very, very happy about this move, but transitions take a bit of time and we're just working through the impact on our arithmetic. So as you pull down one lever and ratchet up the other, I think that's what we're trying to signal to you, that that's going to cause a little bit of disruption in our quarterly results for the next few quarters.
And if I could just follow up as well just with respect to your ability to drive higher attach rate within CTR retail, is that also a function of the resonance, the loyalty currency and being able to better use that as a tool to drive that purchase incident on a Canadian Tire branded card with the loyalty attachment? Is that sort of another lever that can or will perhaps be used in the next year as a lot of people do to drive growth in their card portfolio, just using the currency perhaps more effectively than it has been possible in the past? Or are we sort of at that point now that that's another option for you?
That is definitely an option. And you may remember we relaunched our value proposition on our card about 15 months ago. We moved to a 10 times Canadian tire money on all our retail banners. It's really resonating with our customers. We're getting great customer engagement results from that. It's driving incremental sales in all the banners and that's helping us get much better support from the dealers and from all the retailers in promoting our programs. So I think what you're going to see is better presence for our part of the business going forward in the flyer, in the catalog and different venues and that's also part of our growth reintegration story as well.
Our next question comes from the line of Mark Petrie of CIBC. Your line is now open.
I just want to come back to the comments around the benefits from improved dealer earnings and your cost and margin sharing arrangement with them. And not so much specific to Q4, but are there broader implications for that alignment between corporation and the dealers? And how should we think about that going forward? And I guess particularly related to e-commerce and omnichannel?
Mark, I'm not sure about the broader implications other than I go back to my overriding comment that out of the dealer contract one of the objectives was, as dealers and the dealer system does better -- so does better the Corporation. And that was one of the principles I think that was used when we went into the contract. Obviously, the performance of the network has continued to improve.
The productivity type of initiatives that we're talking about here at the Corporation -- those also inure the benefit of the dealers as well which is sort of a virtuous circle, I guess would be the best way to describe it. And we're all actively trying to improve the overall profitability of this system as a team. And I think you will see -- we're hoping to see and we expect to see more and more of that as we go on through these productivity initiatives. Because the work that Allan and team have embraced with respect to productivity -- those benefits not only inure to the Corporation, but inure to the dealers as well. So I think that's the legacy here and is beneficial to both parties. I don't know if that answers your question or not, but I would say that would be kind of a base outcome of it.
I guess the follow-up would be are there parts of the benefits that the Corporation would retain a greater percentage of? Or does it all flow through in the same relative sharing arrangement?
It flows through on the basis of the sharing arrangement that was negotiated as part of the dealer contract. Yes.
Okay. My other question is you guys have been pretty selective just in terms of your disclosures around sales mix and sales percentages. But it might be helpful, particularly given the disparity of same-store sales results across the different retail banners, if you could give us a sense of what percentage of your sales or revenues come from weather-driven seasonal sales across the different banners.
This is Michael, and then I will throw it to Dean. That's something we look at all the time. And it's more of a differentiation than you think in Q4 and we're working on that differentiation. So keep in mind this is our definition of winter related would be in Q4. I think you are going to get into Q4, right?
Yes, Mark, roughly speaking, because we look at this when we were thinking about inventory and as we kind of monitor if you will the various businesses through the quarter -- but roughly speaking, about a quarter of our sales in the quarter are related to winter-related merchandise as we describe it. And what's interesting about it is that Mark's is actually the most exposed to winter. And then second place would be FGL. And frankly in kind of a distant third is CTR and that kind of speaks to what Allan mentioned earlier about the work that that team has done to somewhat weatherproof the business certainly more than it's ever been. But, roughly speaking, about a quarter of it.
Thank you. This will conclude today's call. A webcast of the conference call will be archived on Canadian Tire Corporation Limited investor relations website for 12 months. Please contact Lisa Greartix or any member of the IR team if there are any follow-up questions regarding today's call or materials provided. You may now disconnect. Everyone, have a great day.
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