Credit card business powers Canadian Tire's quarterly profit beat

(Reuters) - Canadian Tire Corp Ltd CTCa.TO topped estimates for holiday-quarter profit on Thursday as the diversified retailer benefited from its high-margin credit card business, sending its shares higher by more than 6%.

The company’s financial services unit, which operates its credit card business and offers cashback at its stores such as apparel retailer Mark’s and gas stations, accounts for about a third of the company’s profit.

“Financial services segment performance was outstanding ... The credit metrics is still definitely strong. We’re not seeing an indication of a slowdown in the economy,” Chief Financial Officer Dean McCann told Reuters.

Canadian Tire’s results come at a time when economists polled by Reuters hint at a revival in the domestic economy after it shrunk for the first time in eight months in October before posting a surprise growth in November.

Income before income taxes from the financial services unit rose to C$109.5 million ($82.67 million) in the fourth quarter ended Dec. 28, from C$92.1 million a year earlier.

The company has been investing to expand its portfolio through acquisitions, including Party City's PRTY.N Canadian operations, and boost its digital presence to fight competition from AMZN.O and Walmart WMT.N.

Revenue from its core retail unit, which sells products ranging from shovels to parkas, rose 4.5% to nearly C$4 billion, with same-store sales excluding petroleum increasing 3.9%.

Net income rose 31.5% to C$365.9 million, or C$5.42 per share.

Excluding items, the retailer earned C$5.53 per share, beating the average analyst estimate of C$5.40, marking its first beat in a year.

Revenue increased 4.5% to C$4.32 billion but missed analysts’ estimate of C$4.41 billion, according to IBES data from Refinitiv.

Canadian Tire shrugged off near-term impact from the coronavirus outbreak in China, saying it was well-stocked and that it would watch the situation in the coming weeks.

The novel flu-like virus has claimed more than 1,300 lives so far and forced retailers across the globe to warn of a hit to their earnings.

Shares of the 98-year-old company were up 2% at C$147.72.

Reporting by Praveen Paramasivam and Aditi Sebastian in Bengaluru; Editing by Subhranshu Sahu