When Canadian Tire announced Thursday morning that it had sold a 20 per cent stake in its financial services division to Scotiabank, CEO Stephen Wetmore explained that the $500 million deal would do more than simply strengthen Canadian Tire’s bottom line.
While he said the company would use the cash to pay down debt and boost shareholder dividends — by 14 per cent to 50 cents a share — he also stressed that the partnership between two giant Canadian companies has broader benefits.
Wetmore said after Canadian Tire’s annual general meeting that the two companies can market joint products to both customer bases
The agreement also give Scotiabank the option of buying another 29 per cent of the Canadian Tire’s financial services arm over the next decade. Canadian Tire’s 1.8 million credit card accounts and $4.4 billion in receivables make it the country’s eighth-largest issuer of credit cards. Financial services account for about a third of Canadian Tire’s earnings, Wetmore said.
The company also released first-quarter financial results Thursday, reporting that overall revenue had increased to $2.6 billion, up 3.8 per cent from the same period last year.
Net income also rose 3.6 per cent to $75.6 million thanks to strong retail sales, the company reported.
Canadian Tire stock closed yesterday at $141.00 up $1.50. A steady rise in the company’s stock price over the past year coincided with a series of high-profile deals that have made the company both bigger and more visible.
In August 2013, Canadian Tire bought specialty retailer Pro Hockey Life. A month later it finalized a partnership with Maple Leaf Sports and entertainment that saw Leaf and Raptor-centric boutiques sprout in Canadian Tire and Sport Chek stores, and will include a Sport Chek flagship store at Maple Leaf Square this year.
In February, the company reported strong earnings in the fourth quarter of 2013, partly because weather catastrophes spurred increased sales at Canadian Tire stores.
As it announced first-quarter earnings Thursday morning, the company also cited the 2014 Winter Olympics and its ad campaigns around it as factors driving sales at Canadian Tire-owned Sport Chek stores.
“What a great year to be a shareholder,” said Canadian Tire board chair Maureen Sabia as she addressed the meeting. “(Sport) has proven to be a rallying cry (for the company’s employees).”
Sport also figures into the Scotiabank deal.
While Canadian Tire companies invest heavily in Olympic athletes, Scotiabank sponsors the Maple Leafs and minor hockey. And while the Ottawa Senators spent seven seasons playing at Scotiabank Place, Canadian Tire acquired naming rights to the arena last summer.
“Sports plays a huge role and hockey is even bigger still,” Wetmore said. “That only enhances the (partnership).”
Canadian Tire also used the meeting to detail its plans to expand social media advertising while steadily scaling back its use of paper flyers. A two-week pilot program in March saw sales at Sport Chek jump 12 per cent compared to this time last year, and a 31 per cent spike in sales of products advertised on Facebook timelines.
“The results of the first live test made us very happy and they made Facebook very happy,” said Duncan Fulton, chief marketing officer at FGL Sports. “In terms of making millions and millions of flyers – that’s not the future of (Sport) Chek. You can target better online.”