May 8, 2008 / 2:18 PM / in 10 years

Canadian Tire net profit rises but sales soft

OTTAWA (Reuters) - Net profit at Canadian Tire CTCa.TO rose nearly 20 percent in the first quarter, but the country’s biggest auto parts and household goods retailer said on Thursday that adjusted earnings fell about 5 percent as retail sales weakened.

Canadian Tire, which also runs gasoline bars and offers financial services, said retail was particularly “soft” in Ontario and Quebec as customers reacted to slowing economic growth and higher gas prices.

Sluggish conditions will continue into the second quarter, when earnings are seen lagging 2007, but profit in the last two quarters will be “significantly stronger” than in the previous year, the company said.

Canadian Tire said it remains confident in its long-term strategies and repeated its forecast for 2008 operating earnings per share in the range of C$5.15 to C$5.40.

“Our operating earnings forecast for 2008...reflects a more modest rate of growth,” Chief Executive Tom Gauld told shareholders at an annual meeting in Toronto. “Given the economic headwinds, we expect 2008 to be a more challenging year, but we are very confident in our plans.”

First quarter net earnings rose to C$66.7 million ($66 million), or 82 Canadian cents a share, from C$55.7 million, or 68 Canadian cents a share, in the year-before period.

Adjusted to exclude nonoperating gains and losses, profit fell to C$55.2 million, or 68 Canadian cents a share, from C$58.1 million, or 71 Canadian cents a share. On average, analysts expected a profit of 82 Canadian cents a share before exceptions, according to Reuters Estimates.

Profit was “well below expectations due to weak retail sales environment,” said BMO analyst Adam Clark in a note.

Earnings were also hurt by technology investments and a bigger allowance on the loan portfolio at its financial services unit. That was partly offset by stronger petroleum profits.

Shares in the Toronto-based company dropped 3 percent after the results were issued, losing C$2.10 on the Toronto Stock Exchange to C$63.90.

Canadian Tire, which also sells sporting goods and clothes, said quarterly revenue rose by 5 percent to C$1.83 billion.

Consolidated retail sales rose 1.9 percent in the quarter, but same-store sales at its core Canadian Tire and PartSource stores fell 4 percent.

“Despite the relatively soft first quarter, April was a bit better,” Gauld told a news conference after the annual meeting. Expectations are that the economy will improve in the second half of the year, he added.

The company hopes that two retail concepts it plans to test this year will help spark growth. It will open four “small market” stores this year and 64 over the course of a five-year plan, while testing a new “smart store” concept focused on higher-profit products with improved store organization and display.

First-quarter sales at Canadian Tire stores fell 1.9 percent to C$1.2 billion, but adjusted profit gained about 4 percent to C$39 million. Mark’s Work Wearhouse revenue fell 3 percent and the business swung to a C$3.4 million loss.

Financial services’ operating revenue climbed 18.5 percent, but profit fell 16 percent to C$40.7 million. Petroleum sales rose 16.5 percent as adjusted profit jumped 84.5 percent to C$5.2 million.

($1=$1.01 Canadian)

Additional reporting by Leah Schnurr in Toronto; editing by Peter Galloway

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