TORONTO - Canadian Tire Corp. (TSX:CTC.A) reported a more than 20 per cent drop in second-quarter profit compared with a year ago and lowered its earnings forecast Thursday as the retailer said it was hit by poor weather and a slowing economy.
The seller of hardware and household goods said it now expects earnings per share in 2008 between $4.75 and $5.05 per share.
It had earlier forecast earnings between $5.15 and $5.40 per share.
The lower guidance came as Canadian Tire reported a second-quarter profit of $97.7 million, down from $122.5 million a year ago, on $15.1-million worth of charges related to a relaunch of its branded Options MasterCard and inventory writedowns at its Mark's Work Warehouse clothing stores.
Canadian Tire said its earnings for the second quarter amounted to $1.20 per share, versus earnings of $1.50 per share in the year-earlier period.
Gross operating revenue was $2.45 billion, up from $2.31 billion.
Investors reacted negatively to the second-quarter numbers, sending the stock down nearly eight per cent to close at $48.40, down $4.02.
Despite the lower guidance, chief executive Tom Gauld expected results to improve in the second half of the year.
"Retail sales at both Canadian Tire, which were up five per cent in July, and Marks Work Warehouse, which were up eight per cent in July, have improved noticeably in the last few weeks," Gauld told a conference call with analysts.
Gauld said the company's earnings forecast "does not include any expectation of significant economic recovery in the second half of the year."
Canadian Tire is looking for "healthy earnings growth of 20 per cent at financial services due to the benefits from the (card) relaunch and lower loan loss provisioning and operating costs in the second half," he said
Adjusted net earnings, stripping out non-operating gains and losses, were $94.7 million, $1.16 per share, compared with $109.8 million, $1.35 per share, in the same period of 2007.
Same-store sales at Canadian Tire Retail declined 0.5 per cent. Better weather in July improved the company's sales performance, with overall retail sales up 5.1 per cent and same stores sales up 3.1 per cent for the month.
Mark's Work Wearhouse sales were up 5.3 per cent to $233.1 million as same-store sales grew 0.9 per cent.
Gross capital expenditures will decrease from about $600 million in 2008 to about $400 million in 2009 and beyond, helping the company's bottom line, said Gauld.
Brian Yarbrough, an analyst with the Edward Jones brokerage in St. Louis said the lower guidance came as no surprise.
"Same-store sales at Canadian Tire retail stores were down slightly which is an improvement from the first quarter," said Yarbrough, who rated the stock a "buy."
At Marks Work Warehouse, he said, "same store sales were actually positive which is better than the first quarter."
"It is always a little concerning if they write down some inventory," he said. "There may be additional inventory issues at Marks."
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