* Q3 EPS C$1.27 vs C$1.04
* Same-store sales up 1.4 percent
* Increases dividend by 31 percent
* Shares up 7 pct at C$63.11, hit 2-year high (Adds analysts' comments, details)
By Solarina Ho
TORONTO, Nov 11 (Reuters) - Canadian Tire (CTC.TO) (CTCa.TO) reported a 21 percent jump in net earnings on Thursday, led by a strong performance at its financial services division, and announced its first dividend increase in three years.
The forecast-topping results lifted Canadian Tire's A shares more than 9 percent to their highest level since May, 2008 before they retreated slightly to C$63.11, a gain of 7 percent on the Toronto Stock Exchange.
Canada's biggest household goods and automotive supply chain reported net income of C$103.2 million, or C$1.27 a share for the third quarter. That was up from C$85.4 million, or C$1.04 a share, a year earlier.
Adjusted earnings were C$119.1 million, or C$1.46 per basic share, up 31 percent from C$91 million, or C$1.11 per basic share. Analysts had expected earnings of C$1.21 a share, according to Thomson Reuters I/B/E/S.
Adjusted pre-tax net earnings for its financial services division jumped 104 percent to C$57.4 million as it cited fewer loan writeoffs and an increase in interest earned from balances on consumer credit cards.
"The financial service is a great business, but it's a double edged sword," said Edward Jones analyst Brian Yarbrough.
"It's great in good times, but in bad times, it can just be horrible. Things are starting to improve there ... so that's a real positive," he said.
The company, which operates 479 Canadian Tire stores across the country as well as gasoline bars and the Mark's Work Wearhouse clothing chain, also raised its dividend by 31 percent, the first increase in three years. The annual dividend for 2011 will be C$1.10.
It also modified its dividend policy to pay 20 to 25 percent of the prior year's normalized basic net earnings per share, after considerations.
"The story went from a stable dividend to a more of a rising future dividend, just because if you expect earnings growth, which we do expect -- ten percent-plus earnings growth -- you'd expect dividends to grow in line with that," said Yarbrough.
Sales at stores open a year or longer, a key performance measure for retailers, rose 1.4 percent, though it said shipments were flat compared with the year-ago quarter.
Consolidated retail sales climbed 2.6 percent to C$2.5 billion, helped by growth in categories such as backyard, cleaning, exercise and outdoor recreation.
The core automotive division remained weak, with slower sales in heavy auto maintenance parts, auto fluids and tires offsetting growth in its light auto maintenance parts.
Gross operating revenue was up 1.6 percent at C$2.20 billion.
Canadian Tire underwent a management shuffle this past fall to help streamline operations. The change came months after it announced a refocus on core business, including retail and automotive, instead of credit cards and apparel.
"I think that we need to see better momentum coming out of retail before I get too excited about the story," said Mackie Research Capital analyst Robert Cavallo.
$1=$1 Canadian Additional reporting by Bhaswati Mukhopadhyay; editing by Jeffrey Hodgson