Canadian Tire lowers forecasts as profit slides

Thu Aug 7, 2008 6:34pm EDT
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By Leah Schnurr

TORONTO (Reuters) - Canadian Tire Corp Ltd reported a lower second-quarter profit as it was hurt by tough economic conditions and unseasonable cold weather, prompting it to cut its earnings forecast and sending its shares sharply lower.

The country's largest auto parts and household goods retailer said its net earnings fell to C$97.7 million ($93 million), or C$1.20 a basic share, from C$122.5 million, or C$1.50 a share, a year earlier.

The company said it expects earnings per share for 2008 will be in the range of C$4.75 to C$5.05, falling below earlier estimates of C$5.15 to C$5.40.

Shares of Canadian Tire, which also operates gasoline bars and sells financial services, slumped more than 7 percent on the Toronto Stock Exchange, making it among the day's biggest net decliners.

The company said the cut to its forecast was due to the lower quarterly earnings, an inventory adjustment at clothier Mark's Work Wearhouse, and higher retail inventory at the end of the second quarter.

"The issue is that these guys when they came out with the first quarter, they kind of had that hockey stick expectation for the back half that things would improve, and I think now it's more realistic," said Brian Yarbrough, an analyst with Edward Jones.

"If consumer spending in Canada slows even more then I think, obviously there's a risk to those numbers, but right now when I go through my model ... I think it's realistic -- but, once again, that depends on the environment staying like it is and not getting any worse."

Adjusted earnings fell to C$94.7 million from C$109.8 million, hurt by a C$6.4 million after-tax investment to relaunch the Options MasterCard, as well as the inventory adjustment at Mark's.   Continued...

<p>Canadian Tire President and CEO Tom Gauld speaks at the annual general meeting in Toronto, May 8, 2008. REUTERS/Peter Jones</p>