Canadian Tire Corporation Report
November 27, 2012 Business 100, AB Investors University of the Fraser Valley SD College Sector 32C, Chandigarh Dear Business 100 – XYZ Investors, We have responded to your request regarding an analysis of the Canadian Tire Corporation and in this report you will find the information about the Company and their recent corporate activity. We have identified various points that will be useful in your decision to invest in this company. We have included information regarding Canadian Tire’s history, the products and services offered by them, and an analysis of the internal and external factors that affect the Corporation’s operations.
We have also assessed the critical issues the company is currently facing along with their major implications. In order to see the direction in which the company is head, we also evaluated their vision, mission and long term objectives and strategies, followed by a sound strategy assessment. We have also analysed the company’s marketing strategy in regards to three of the products that they offer and also an overview of the marketing mix pursued by the company in general. We collected data regarding their financials of the past three fiscal years, and checked their sources of capital.
Lastly, we have provided conclusions and our recommendations about the company keeping in mind the overall shape of the company’s future operations. We hope that this report guides you in your decision to invest in this company. Sincerely, Star Investors 2012 INVESTOR ANALYSIS OF THE CANADIAN TIRE CORPORATION November 27, 2012 Written By: George Peary Star Investors BUS 100 EXECUTIVE SUMMARY
This report stems from the request for an in-depth analysis of the Canadian Tire Corporation. Through research and analysis by Star Investors and by using the internet and University of the Fraser Valley databases, we, have created a report in order to assist your decision regarding an investment in the Canadian Tire Corporation. The Canadian Tire Corporation is one of Canada’s oldest retailers; they recently completed 90 years of service. They have six main product lines, apparel, financing, automotive, fixing, home and living products and sports and playing goods. Canadian Tire is also the country’s largest independent gasoline retailer.
The mission statement of the Canadian Tire is “To be the best at what our customers value most. ” The company has survived many years in the retail industry in Canada; though recently it has begun to face a few internal issues such as an extremely bureaucratic organizational functioning. Entry of US retain giant Target into Canada in 2013 poses a threat to the company as they will certainly steal some sales of the company. However they are trying to cope up with these challenged through rebranding, new advertising policy, retrofitting stores and by making more similar changes within the organization.
The company is well established and its diverse product line has enabled it to become one of the most versatile retailers of the country. The heavy dependence on dealers and lack of a dynamic corporate culture are the biggest weaknesses of the company at this point in time. The company recently acquired The Forzani Group and went on a massive rebranding campaign which has opened new opportunities for the company in future. The corporation has certain long term objectives which include strengthening core retail, aligning all business units to reinforce the core, building a high-performing organization and creating new platforms for growth.
Their organizational structure is departmentalized through product and function lines and that enables the company to complete tasks efficiently in order to get products to the market faster. Their Board of Directors comprises of 16 members. Stephen G Wetmore is the CEO of Canadian Tire Corporation currently. He holds a good reputation for bringing in a variety of revolutionary changes in the operations and executive body of the company, which have been very beneficial. Over 27% of retail sales at Canadian Tire stores are comprised of products marketed under brand names ontrolled by Canadian Tire, which brand names are either owned or licensed by the Company. CTR’s supply chain (“Supply Chain”) is responsible for managing the flow of information and goods among approximately 2,650 sources of supply, 479 Canadian Tire stores and 87 PartSource branded stores across Canada. CTR, in union with the Dealers, also builds customer awareness and traffic in Canadian Tire stores by distributing weekly promotional flyers; electronic “flyers” available over the internet; radio, television, newspaper, magazine and internet advertising; and event sponsorship.
In the past three years the company has grown in revenue by 83. 6%. Their stock price and EPS have also increased. Drastic changes were witnessed in the financial growth of the company in 2011 and 2012, especially after the acquisition of FGL sports. Our forecast expects the Company to grow in revenue, net profit and stock price within the next three years. Based on our analysis of various factors such as a feasible long term strategy, a stable organizational structure, rebranding and massive campaigning to promote the company’s 90 year anniversary etc. ur recommendation to investors would be to either buy shares of Canadian Tire or hold them if they already have them. We also based our forecast on our analysis of stock prices and revenue which are expected to rise in future. TABLE OF CONTENTS 1. Introduction ………………………………………………………………………………… 6 2. Company Overview ………………………………………………………………………. 7 3. Company Situation 3. 1 SWOT Analysis …………………………………………………………………………….. 8 3. 2 Critical Issues ……………………………………………………………………………9 3. 3 Major Implications ………………………………………………………………………11 4. Strategic Direction 4. Mission, Vision, Value Statement …………………………………………………….. 12 4. 2 Long Term Objectives ……………………………………………………………………… 14 4. 3 Key Strategies …………………………………………………………………………. 16 5. Organizational Structure 5. 1 Organization of the Company…………………………………………………….. …… 18 5. 2 Board of Directors ………………………………………………………………………19 5. 3 Meet the CEO –Stephen Wetmore………………………………………………….. 20 5. 4 Compensation Comparison …………………………………………………………. 21 6. Marketing Strategy 6. 1 Overall Marketing Strategy ……………………………………………………………22 Product Analysis ……………………………………………………………………………24 7.
Financial Performance 7. 1 Three Year Trend Analysis ……………………………………………………………. 26 7. 2 Financial Comparison ………………………………………………………………….. 27 7. 3 Sources of Capital ………………………………………………………………………. 28 8. Company Outlook 8. 1 Our Forecast ……………………………………………………………………………. 29 8. 2 Analysts’ Forecast ……………………………………………………………………… 30 9. Recommendation ……………………………………………………………31 10. Appendices 10. 1 Appendix A – SWOT Analysis ………………………………………………………. 32 10. 2 Appendix B – Organizational Chart …………………………………………………. 34 10. 3 Appendix C – Board of Directors …………………………………………………….. 5 10. 4 Appendix D – Marketing Strategy ……………………………………………………. 36 10. 5 Appendix E– Comparative Financial Analysis over 5 Years ………………………. 37 References……………………………………………………………………………………… 38 LIST OF FIGURES Figure 1: SWOT Analysis ………………………………………………………………………8 Figure2: Committees and their functions…………………………………………………….. 19 Figure 3: CEO Compensation Comparison …………………………………………………… 21 Figure 4: Product Analysis ………………………………………………………………………24 Figure 5: Three Year Trend …………………………………………………………………….. 26 Figure 6: Comparative Financial Analysis in 2011 …………………………………………… 7 Figure 7: Market Analysts’ Forecast…………………………………………………………….. 31 INTRODUCTION This report was prepared as a response to the need of a detailed analysis of the Canadian Tire Corporation in order to assist future investors in determining a recommendation regarding investment into the company. Through research done using resources such as the corporation’s website as well as other information found on the internet and from databases supplied through the University of the Fraser Valley, we have taken the collected research and our own knowledge and analysis, to create this report.
We have outlined important facts about the company. The goal of this report is to educate the reader about Canadian Tire and bring attention to the factors that are affecting the company. It first contains information regarding an overview of Canadian Tire, including specific products and services that are produced by them. Second, the report contains information pertaining to the internal and external environment that affects the business, such as trends, competition, major implications and an analysis of how they are trying to overcome these issues.
As well as an analysis of the company’s vision, mission and value statements in addition to a glimpse of their long term objectives and strategies. Finally, we have analysed their organizational structure, marketing strategy and financial performance in order to give a sound investment recommendation. COMPANY OVERVIEW Canadian Tire Corporation is a retailing icon. The company operates more than 1,242 general merchandise and apparel retail stores and gas bars. The company primarily operates in Canada. It is headquartered in Ontario, Canada and employs about 57,000 people.
The company began operation in 1922 when two brothers, Alfred J, and John W Billes, with a combined saving of $1800 bought Hamilton Tire and Garage Ltd. , in Toronto. They opened their first store at Hamilton and gradually expanded their business and began operations in many fields. The Canadian Tire general merchandise stores are run by a network of associate dealers across Canada. Today after 90 years of operations, their stores touch communities coast to coast, offering automotive and hardware products, home decor items, sporting goods, clothes for work or play, convenient gas bars and financial services.
Their tagline “Canada’s store” reflects the fact that the company has survived for a long time in the retail industry in Canada and has been a part of the lives of many generations of Canadians. Canadian Tire services over 10,000 cars a day and the fact that more than 90% of the population lives within 15 minutes of a Canadian Tire store is evidence to its huge presence in the country. Its Canadian Tire Petroleum subsidiary is one of the country’s largest independent gasoline retailers. The company recorded revenues of C$8,980. million ($8,714. 1 million) in the financial year ended December 2010 (FY2010), an increase of 3. 4% over FY2009. The operating profit of the company was C$700. 3 million ($679. 5 million) in FY2010, an increase of 11. 8% over FY2009. The net profit was C$453. 6 million ($440. 1 million) in FY2010, an increase of 35. 4% over FY2009. According to a recent survey by the Canadian Business Network, Canadian Tire ranks no. 6 in the top 10 highly regarded companies in Canada. COMPANY SITUATION STRENGTHS| WEAKNESSES| THREATS| OPPORTUNITIES|
Brand strength and reach | Employee retirement benefit obligations| Lower spending on automotive repairs and maintenance indicating a sluggish aftermarket| Acquisition of Forzani Group| Diversified store base | Legal issues and contingencies| Counterfeit products| Growth in automotive parts and equipment market| Innovative products and services| Product recalls damaging the company’s reputation| Supply chain disruption risk| Growing apparel market in Canada will improve sales at Mark’s | Successful loyalty program| | | Scope for gaining market share in credit cards segment| Robust supply chain management| | | | SWOT Analysis (Sources: Business Source Complete, 2011) We have briefly identified the various internal (organizational) and external (environmental) factors in the SWOT analysis. A complete description of the same has been provided in Appendix A. CRITICAL ISSUES
Canadian Tire is a 90 year old company and has been running operations in the Canadian market for a long time. However, there are various critical issues that the company has faced from time to time in order to keep up with the changing times, customer preferences and demands, etc. The few serious issues that the company is currently facing are: * Lack of dynamism and creativity Despite being a huge and established company for many years now, Canadian tire in the recent years is becoming “out-dated” in many ways. In today’s times where new business are coming up every day and all of them try to bring in something new, in order to establish a unique identity in the market, Canadian tire seems to be lagging behind. The organisation relies eavily on planning and its old departmentalized functioning which is making it lethargic. Compared to the other retailers, there is less initiative and motivation among workers leading to lesser creativity and enthusiasm when it comes to work, hence affecting the performance of the company. * Entry of “Target” stores in Canada in 2013 The company has been facing competition from various American retailers, such as Home Depot, Wal-Mart for a long time now. But 2013 will see the entry of yet another US retail giant in the Canadian market. The “Target” stores, a huge retail chain in America are all set to capture the Canadian market in the following year.
They also plan to go an extensive hiring and recruiting mission and plan to create about 27000 jobs in Canada. This is a serious concern for Canadian tire as it means they will have to struggle more for maintaining their customer base in the coming times. * Re-emergence of auto part depots and dismal store layouts Many auto part depots that had gone out of business many years ago have been re-emerging lately. Customers often prefer them as they get the job done easily on the spot. Whereas someone who comes to Canadian Tire would probably have to wait for days to get the same auto part repaired. The store layouts of Canadian tire are also not impressive and modern.
The tires used to be hung up so high, even during festive times most stores are featuring the same batteries, and stacks of lawn fertilizers! In fact, a survey of many local CT stores reveals many discrepancies in presentation. * Bureaucratic organizational functioning There is an urgent need for the company to review its work culture and organizational methods of doing things. The company’s planning time for any task is way too long and they need to get out of the meeting rooms. A major reason for the company’s sluggish rate of growth is the dealer system on the basis of which the company runs. The system was founded by the Billes brothers in 1934.
They thought that dealers could manage their stores best. But today this system is slowing their growth as the 485 dealers are the owners and for any decision to be taken, every detail must be approved by all. This system has led to a decrease in the initiative that each dealer might want to take as they feel the process will be too long and tiresome leading to no innovation and freshness in the company’s operations. MAJOR IMPLICATIONS The company is trying to come up with various strategies and techniques in order to cope up with the critical issues mentioned above. These include: * Changing ways of working: Getting rid of the dealer system
The company’s dealer system where every proposal and decision to be taken is to be referred to all 485 dealers has a major impact on the smooth functioning of the corporation. They are now trying to get rid of this system or at the very least are trying to update it, by making changes in the agreement that has lasted so long. * Massive rebranding campaign The company has realised that it needs to build a new image in its home market and is embarking on a brand new advertising mission. They are going to change their tagline, shoot new commercials and are planning to increase their spending on mainstream media this year in order to improve sales. * Bracing up the automotive business The company has improved the display of the tires at stores.
They are also trying to improve the quality of tires by increasing rim sizes and introducing a tire selector tool which helps you match your car with the tire it needs. Now, they are even going online and customers can purchase tires online as well. * Altering store layouts They are transforming their stores to “smart” stores. After receiving feedback, they have now decided to make the layout more navigable and customer friendly. There are also many new features in these stores like increased staffing, seasonal displays, customer help buttons etc. They have retrofitted 103 stores and plan to do 60 more this year. These different methods that the company is choosing to adopt to solve the various critical issues it’s facing are appropriate and well strategized.
Most of the changes are going to benefit the company because they aim at change, bringing in a new work environment, better operating systems and a renewed public image. STRATEGIC DIRECTION The mission statement of the Canadian Tire Corporation for all of its businesses is: “To be the best at what our customers value most. ” From this mission statement is derived the Canadian Tire Retail’s vision:” To be the first choice for Canadians in automotive, sports and leisure, and home products, providing total customer value through customer-driven service, focused assortments, and competitive operations. ” The vision statement of the company is quite comprehensive and directional.
It gives a clear indication of what the company wants to achieve, what areas they want to focus on and how they want to conduct business. This particular vision statement is very specific as the organization clearly specifies the goals it wants everyone associated with Canadian Tire to work towards. In terms of its ability to guide managers in making decisions and allocating resources also, it is effective and very practical. The statement guides the managers that in whatever they do, the ultimate aim must be to realize the following three aims, on which they have based their entire functioning strategy: * Total customer value through customer driven service
Customer-driven services intend to place the customer at the centre of the decisions and activities of the enterprise. This implies achieving customer satisfaction and gaining their confidence. The company strives to do the same by providing high quality goods and services at the best possible prices in the market. * Focussed assortment Focused assortments not only define what Canadian Tire stands for in the minds of its customers, but also play a crucial role in determining the size and merchandising presentation of Associate Stores. In order to be able to cater to a large segment of the population, the company tries to provide a wide variety of goods and services.
They deal in various product categories, from sports goods, to home furnishings. * Competitive Operations This is perhaps the most unique goal of the company and the most important one which has made it survive for so long in the Canadian retail company. The corporation states that it will view competition in a positive light, and compete with absolute dedication and focus in order to run operations well and establish an identity in the market. Competitive operations place a continuing emphasis on reducing the costs of supplying goods and services to customers, which permits Canadian Tire to offer more value goods at lower prices along with more services.
These clearly stated goals help managers in organising their work and setting priorities. Their mission statement is well-crafted as it does reflect the vision that the two Ontario brothers had when they began the business 90 years ago and serves as an effective reminder to Canadian Tire today as to what their purpose of being in the market is. The statement is definitely inspiring, engaging and easy to communicate. Nonetheless, in today’s competitive world, an old company like that must ensure that they do not become outdated and that their mission statement reflects their dynamic nature. Canadian Tire has stood the test of time and has been a successful domestic retailer for long.
Hence their mission statement does need to incorporate some dimensions that they acquired over the years so that it remains relevant and updated with the company’s actual operations. LONG TERM OBJECTIVES The Canadian Tire Corporation has certain long term objectives which they have identified must be achieved over a short period of time in order to maintain their market position. The four main areas which the company wants to give priority to in their long term plan are: 1. Strengthen core retail 2. Align all business units to reinforce the core 3. Build a high-performing organization 4. Create new platforms for growth – by making some recent acquisitions to expand their operations into retail, sports and clothing stores.
By strengthening core retail, the company basically means to continue with roll-out of new stores as well as continuing with the execute strategies to deliver an enhanced in-store customer experience at Canadian Tire. The company wants to prioritize their foremost business category i. e. retail through this plan. As a part of its long term strategy, the company wants to do some serious market evaluation and as a follow up implement an enhanced loyalty program, employ customer-centric retailing and integrate with existing marketing program. They also want to expand e-commerce and investigate cross-business integration opportunities in the near future.
In the last few months, many incidents of customers not being completely satisfied with Canadian Tire’s performance have led the company to rethink certain elements of their strategy and hence they have now planned to enhance store networks to drive an enhanced customer experience. With their recent acquisition of the FGL sports company, they have acquired a big opportunity for growth in the retail sector. The corporation also plans to expand their financial services by continuing to offer a range of services. Canadian Tire identifies itself as a Canadian brand and has not explored avenues for growth outside Canada as yet. It plans to discover these avenues for growth and new business developments within the home market only.
The company is looking forward to enhancing their business sustainability and improving their efficiency. COMPANY STRATEGY In order to meet the above listed objectives, the company has drafted various strategies and plans. Some major strategies that the company has adopted are regarding restructuring of the store layouts. Secondly, the actions that the corporation is taking strictly aim at driving sales and enhancing customer satisfaction. For example, they are trying to create a “virtual” presence by going online and are planning to introduce “plastic money” or cards, instead of the paper money (popularly known as Canadian Tire money) which has been responsible for making their customer rewards and loyalty program a highly successful one.
Hence, to achieve these intended objectives, Canadian Tire Corporation plans to take the following steps: * Open 90 Smart store retrofits and 10 Smart store replacement or expansions * Open three new Small Market stores and two Small Market replacement stores * Deliver training for continuous learning and development of front-line staff * Continue to roll-out a comprehensive merchandising and marketing strategy in the Living category * Design an integrated online/digital experience across various retail banners * Expand Marks (Retail Clothing store) renewal concept for a total of 101 converted locations nationwide by the end of 2012 * 20 new, replaced or rebranded Petroleum gas bars * Deliver $25 million in synergies by year end Embed merchandise productivity key capabilities (technology and process) to sustain benefits into the future * Implement key initiatives within the CTR Change Program * Continue to integrate sustainability into business operations, increasing both cost avoidance and revenue from business sustainability initiatives * Capital investments focused on leveraging current assets; maintain capital expenditures in line with 2011 levels * Continue to identify and evaluate opportunities to enhance our growth and profitability STRATEGY ASSESSMENT After seeing the various strategies and plans that the Canadian Tire is implementing, Star Consultants has developed a strategy assessment for the company.
One of the most important observations about Canadian Tire is that it has identified the flaws and problems that it’s facing very accurately and is also well aware of its own strengths and weaknesses which have helped them form quite an effective long term strategy. The company was able to meet most of its listed objectives in the previous year, which included acquisition of the FGL sports company, expansion of their petroleum network, and launched the “Bring it on” media campaign, which was a very big success. For their new long term objectives, the company plans to achieve similar success. Firstly, their decision to go through massive store retrofitting and layout changing is going to be extremely beneficial.
Already the stores that have undergone change have shown a dramatic improvement in sales. Secondly, as mentioned earlier, the company is trying very hard to retain its customers now, not only because of increased domestic competitors but also because they are facing the threat of many new international retailers, for example Target. The company has even tried to diversify their product line in order to cater to a larger proportion of the population truly stand up to being the ultimate “supplier of Canadian Dreams”. Their other strategies to go online and set up an elaborate customer rewards and loyalty are also smart and are likely to have a positive effect on their sales.
Therefore the conclusion drawn by us after a thorough assessment of Canadian Tire’s strategy is that it is a very well drafted and achievable strategy. Besides, it covers all the crucial areas that the company needs to work on improving and which will help them survive competition thereby, they will be able to sustain themselves in the Canadian market as a successful retailer. ORGANIZATIONAL STRUCTURE Organizational Chart The Canadian Tire Corporation is organized through functional departmentalization and product departmentalization. The Company is headed by the directors and the CEO, Stephen Wetmore and then is organized according to product departmentalization and functional departmentalization. For a full organizational chart, refer to Appendix B.
The rationale of the structure relates well to the massiveness of the company. This form of departmentalization is helpful since Canadian Tire has to accommodate a huge range of products. Besides that, departmentalization helps in forming a more interconnected organization and a consistent performance. Being an old and trusted company, Canadian Tire wants its employees to grow with it. In addition to formal training, they provide many career development opportunities include a company learning calendar, project work, volunteer work, continuing education, mentoring relationships and committee participation. Their work environment is fast-paced, rewarding, friendly and team-oriented.
Flex-Ability is the name of the company’s flexible benefit program that provides their employees with a strong foundation of core benefit coverage and also enables the freedom to customize their benefit coverage as per their individual needs. As an employee, they can select varying levels of medical, dental, life insurance, accidental death and dismemberment, and long-term disability coverage. This program also offers the option to employees to purchase vacation days or spend benefit credits on approved services through a health care spending account. In addition to competitive compensation, employees are also offered the following programs: Deferred profit sharing plan, Stock purchase plan, Store employee discount, etc.
Board of directors The Canadian Tire’s Board of Directors comprises of sixteen members which have been listed in Appendix C. All the members on the Board have a highly impressive background and job titles. Most of them have had long association with the Canadian Tire. Members include various Corporate Directors from asset management companies, financial advisory firms, private equity firms and real estate companies. This provides the Board a mix of people with varied experiences and wide ranging skills. This is an asset to the Canadian Tire Corporation because when making decisions, as all members on the board can contribute well and give effective solutions.
However, while investigating about the Board of directors, we came to a conclusion that the members on the BOD are concentrated only in a few areas and that limits the scope of the corporation to make all decisions on their own. For instance, the Board seems to have many financial advisories and does not have any marketing analysts or research and development experts. This implies that the Board is unable to make effective decisions when it comes to certain matters. Therefore, the Board is independent in certain areas but is not completely self-reliant as they might be relying on outside support for decisions in which the members do not share much experience or possess any skills.
COMMITTEES AND FUNCTIONS Management Resource and Compensation Committee Assists the Board of Directors in its oversight role with respect to the corporation’s human resources strategy, policies and programs. They also deal with issues relating to the appropriate utilization of human resources within the Company, with special focus on management succession, development and compensation of employees, including the President and Chief Executive Officer. | Audit Committee Responsible for the Company’s financial reporting. They look after the company’s risk management and compliance practices; the independent auditor’s performance qualifications and independence; the performance of the Company’s internal audit function; and the Company’s compliance with legal and regulatory requirements. Social Responsibility Committee Assists the Board in its oversight of the Company’s policies and practices involving the environment, workplace conditions and employment practices. They also engage in activities to ensure that the Corporation is actively involved in community affairs. | Governance Committee Assesses the board’s current composition and identifying missing qualities and characteristics draft recruitment plans and continuously searches for opportunities to cultivate new prospects for the company. | CEO PROFILE The CEO of the Canadian Tire Corporation is Stephen G. Wetmore. Mr. Wetmore has been the President and Chief Executive Officer at Canadian Tire Corporation since 2009.
However, he has been an Independent Director of Canadian Tire Corp. Ltd. since 2003. Previously, Mr. Wetmore was the President and Chief Executive Officer at Bell Aliant Regional Communications Income Fund. His experience and skills are unmatched and a true asset for the company. He has had a fairly long association with the company and that adds to his ability to run the company successfully. Ever since Wetmore was appointed as CEO, he has bought in some revolutionary changes in the company, taken some tough decisions and led the company to success. In the past decade, the Tire had branched out into so many businesses that its customers were uncertain what it stood for.
One of the first changes Wetmore made was refocus the company to what it actually did. Secondly, the skill set necessary to alternatively motivate, cheerlead, cajole and persuade is a must for a CEO of a company such as Canadian Tire, which has a complex organizational structure i. e. 400-plus independent dealers who actually own and run the retail stores. These dealers, who are more of business partners than employees must be convinced to make necessary changes rather than be told or ordered. Wetmore has successfully been able to establish a strong relation with all dealers. But improving relations with dealers is just one of the many projects he has undertaken at the mass-merchandise giant.
Wetmore has spent the past three years renovating the Tire, with a dramatic reveal in 2011 in the form of record earnings. After stumbling in 2009, profits were just $335 million and earnings per share hit their lowest level in four years, the company recorded an annual profit of $467 million in 2011, its highest ever and 5% higher than the prior year, as sales jumped more than 12% to $11. 6 billion. His biggest strength is his participative leadership style and the ability to “look at the financials through the leadership lens and challenge his team to look behind the numbers. ” (Roman, 2012). The CA in him often dominates his leadership style but that has proven to be a big strength for the Canadian Tire Corporation.
CEO COMPENSATION: Stephen Wetmore, CEO, Canadian Tire Corporation | Base Salary| Bonus| Sub-Total| % Change| All Other Compensation| Share-Based Awards| Option-Based Awards| $1,250,000| $1,314,562| $2,564,562| -13%| $306,032| $1,249,989| $2,499,989| | | | | | | | | | | | | | | | | | | | | | | | | | | | ————————————————- CEO COMPENSATION: Calvin McDonald, CEO, SEARS, CANADA Annual Compensation* Salary| C$487,879| Total Annual Compensation| C$487,879| Stock Options* All Other Compensation| C$5,037| Total Compensation* Total Annual Cash Compensation| C$942,916| Total Short Term Compensation| C$487,879| Other Long Term Compensation| C$5,037| Total Calculated Compensation| C$942,916| ————————————————-
After comparing the annual compensations of Mr Wetmore with that of CEO of Sears, which is again a big Canadian retail store, we found Wetmore’s compensation very high. In the year 2011, he was listed no. 39 on the list of the best paid executives by The Globe and Mail. He is definitely corporate Canada’s better paid CEO’s. However in the last fiscal year, the company showed a tremendous rise in its profits and sales and his compensation seems to be fairly reasonable, keeping in mind the gigantic corporation that the Tire is. The other CEO also has compensation in the same bracket because of the similarity in the products offered and the expanse of these retailers. Therefore Mr. Wetmore is well compensated and the company is doing well under him. MARKETING STRATEGY AND MARKETING MIX
The Canadian Tire has an elaborate marketing strategy, because of its diverse product range. The marketing functions of CTR include planning and coordination of the presentation and offering of products to the consuming public. The marketing department of CTR is engaged in a broad range of activities that includes advertising and promotional programs; customer loyalty programs; market research; and various marketing support services. The products sold at Canadian Tire stores are primarily those of nationally known manufacturers or suppliers. Over 27% of retail sales at Canadian Tire stores are comprised of products marketed under brand names controlled by Canadian Tire, which brand names are either owned or licensed by the Company.
CTR’s supply chain (“Supply Chain”) is responsible for managing the flow of information and goods among approximately 2,650 sources of supply, 479 Canadian Tire stores and 87 PartSource branded stores across Canada. CTR proposes to launch additional products under such brand names in selected product categories in the coming years. The Company’s www. canadiantire. ca is a significant source for consumers for product information, providing broad access to information about the CTR assortment, including up-to-date product features, benefits and pricing. CTR, in union with the Dealers, also builds customer awareness and traffic in Canadian Tire stores by distributing weekly promotional flyers; electronic “flyers” available over the internet; radio, television, newspaper, magazine and internet advertising; and event sponsorship.
The weekly Canadian Tire flyer is one of the Company’s most significant sales drivers and is one of Canada’s most highly read flyers, with delivery to over 11 million households each week. A unique feature of Canadian Tire’s marketing program is the issuance of its well-known Canadian Tire ‘Money’® awards, which are given to customers paying by cash, cheque, debit card, travellers cheque, Canadian Tire gift card or Canadian Tire ‘Money’ award at Petroleum outlets and Canadian Tire stores. Canadian Tire ‘Money’ on the Card entitles the holders to redeem the ‘Money’ awards on future purchases of merchandise and services at any store. Hence, the company has a fairly well distributed marketing scheme. Their prices, as in the consumer retail industry are highly competitive. They have low prices nd the concept of weekly discounts and bulk buying incentives has helped them increase sales. For certain services like roadside assistance and tires, they pay great attention to customization for customers. Customers can actually select car parts and tires as per their preferences. They try to promote features of their products in different ways. For example they generally come up with catchy taglines for the company keeping in mind the changes taking place in the external environment. In 2011, when American retailers were flooding the Canadian market, they changed their slogan to “Bring it on” to reinforce that they were as much a part of the market as any other company.
With their extensive distribution mechanisms, this part of their marketing mix is well organised. The A. J. Billes Distribution Centre is a 1. 2 million square foot facility located in Brampton (Ontario). The facility includes a computer-controlled pick-to-conveyor sortation system using bar code identification; a computer-driven, facility-wide in-floor towline system with radio frequency identification and tracking of carts; and an automated storage and retrieval system. The Brampton Distribution Centre has interrelated processing areas for efficient flow of pallet loads and bulk product through receiving, picking and shipping functions. In January 2009, CTR opened the Montreal Distribution Centre for supporting future sales growth.
To facilitate the prompt distribution of its products, CTR owns or leases approximately 2,326 trailers, 3,955 frameworks and 5,476 intermodal containers. CTR uses various modes of transportation, including common carriers and railway transit, to facilitate inbound and outbound deliveries on a timely basis. For further emphasis on the marketing strategy that pertains to each segment of Canadian Tire, see Appendix D. LIST OF PRODUCTS All the segments of the Canadian Tire use the power of the dealer system all over the country. A contractual arrangement between the Company and individual dealers permits Dealers to own and operate the retail business of Canadian Tire stores under the Canadian Tire name.
In order to provide controls on the quality, range and price of products and services offered at Canadian Tire stores, each dealer agrees to purchase merchandise primarily from the Company and to offer merchandise for sale at prices not exceeding those set by the Company. Each dealer agrees to exert his or her best efforts personally to ensure the operation of his or her Canadian Tire store at its maximum capacity and efficiency and that he or she will comply with the policies, marketing plans and operating standards prescribed by CTR. This allows them to possess a developed and cohesive structure as well as a strategic approach to how the different stores are managed and drive higher returns for the company. PRODUCT ANALYSIS Automotive Sector| Home and Living Products| Sports and Playing goods| TARGET MARKET| Everyone-men, women, particularly loyalty card holders | Adults, special focus on female consumers| Children, sports enthusiasts, hockey players(CT supports hockey in a big way)| VALUE PACKAGE| Features: range of new elements, new service reception area with digital menu boards, an auto safety/baby area, in-aisle digital product look-up technology and digital signage. Redesigned tire wall, merchandise placed at eye-level, tire look-up terminals new sound booth area Benefits: Customers who have been coming to CT for decades are aware of its quality. With the new changes, they can now continue to enjoy the association with the brand while at the same time get modern, update services. | Features: home decor, home maintenance and repair, outdoor living. Benefits: This category of their products is what actually makes them connect with the Canadians so much.
With items like barbeque parts and accessories, snow shovels, they are able to build an image that they truly know what life in Canada is about and how they can deliver what people living there need most. | Features: Playing products include sporting goods, fitness, camping, fishing and hunting. Their Jumpstart program is also popular because it helps kids across the country participate in sports and recreation. Benefits: Canadian Tire believes that sports and recreation are a part of everyday life in Canada. They want to encourage sports, particularly hockey. Through jumpstart and their sponsorship agreements with hockey teams, they try to connect with younger age groups and sports enthusiasts. People do identify with them as “Canada’s Hockey Home”. PROMOTIONAL MIX| Advertising: The company advertises using its weekly fliers, and offers multiple pages on Facebook. Public Relations: The mix of services and after sales service allows customers to build a long term relation. Customer service varies from store to store. | Advertising: TV, radio, magazine articles and social media are used as the main tools. Fliers are used to inform people, as per the area in which they reside to offer them the best possible rebates, promotional offers. Public Relations: For many years, Canadian Tire advertised home products through their “Canadian Couple” ads, which made people identify with them strongly. Advertising: They advertise most of their products through regular commercials and rely on viral marketing. Public Relations: They have had success as far as their sports equipment sales are concerned, because they have been able to be associated with the Jumpstart program, and also are the sponsors of the National Hockey League. | PRICING OBJECTIVE| Price products near the market price in order to stay competitive. However, they have recently reduced prices drastically, offer discounts and saving strategy for consumers on different products from time to time. | With new stores such as Target, and other American retailers entering the Canadian retail market, the company is no longer a price leader in this segment.
However, they can focus on other areas like service and quality instead of trying to compete on home goods on the basis of price. | Their sporting equipment is priced reasonably. They have created a niche for themselves by offering the best of sporting, camping, and fitness equipment. | DISTRIBUTION | Distribute products through the independent associate dealer system across the country. The majority of stores operate in distinct categories of automotive parts, automotive service, tools and hardware, sporting goods, and housewares. They have now begun retrofitting their store layouts so as to make the Canadian Tire experience more satisfactory. POSITIONING| Product specific store formats, new tagline “Canada’s Store” have helped them to place themselves again as a strong retailer. | Used various slogans and identifiable images like the “canadian tire guy” to create and build brand equity. | Acquiring FGL sports has enabled them to re-position themselves in the market. | Product Analysis (Sources: Canadian Tire Corporation, Limited. (n. d) FINANCIAL PERFORMANCE Three year trend | 2009| 2010| 2011| Revenue| $8686. 5Million| $9213. 1Million| $10387. 1Million| Stock price| $57. 50| $68. 19 | $65. 90 | Net profit| $335. 0 Million| $ 467. 0 Million| $ 444. 2 Million| Earnings Per share(EPS)| $45. 19| $49. 17| $54. 14| Return on equity| 9. %| 9. 52%| 10. 07%| Current ratio| 1. 96:1| 2. 01:1| 1. 67:1 | Debt Equity ratio| $0. 54| $0. 58| $0. 53| Profit margin ratio| 3. 88%| 5. 07%| 4. 28%| Sources: Financial Comparison (Globe Investor, 2011; Canadian Tire Investors Annual Financial Report, 2011). COMPARITIVE FINANCIAL ANALYSIS IN 2011 | CANADIAN TIRE| WALMART CANADA| | 2011| 2011| Revenue| $10387. 1Million| $418,952 Million| Stock price| $65. 90 | $55. 05| Net profit| $ 444. 2 Million| $16,389 Million| Earnings Per share(EPS)| $54. 14| $ 47. 71| Return on equity| 10. 07%| 23%| Current ratio| 1. 67:1 | 1. 65:1| Debt Equity ratio| $0. 53| $0. 57| Profit margin ratio| 4. 28%| 3. 9%|
Sources: Comparative Financial Analysis in 2010 (Wal-Mart Canada Annual Report, 2010; Canadian Tire Corporation Annual Report, 2010; Yahoo Finance, 2011) Looking at the financial charts of both the companies, it can be easily seen that both of them are operating well. However given the pricing policy and gargantuan size of Wal-Mart, their massive revenue is not surprising. Canadian Tire, on the other hand is showing an increase as compared to its own financial status two years ago. But remains with less revenue than Wal-Mart. As far as the Earning per share are concerned, CT is definitely offering more to its shareholders than Wal-Mart, even though the difference is small.
Canadian Tire also has a higher current ratio which implies that the company has greater current assets in comparison to current liabilities. However their ratio is lower than the ideal 2:1 which shows that the company is not in debt but that they don’t have quite the same amount of liquid assets that can be used to pay off any dues that come their way. On the other hand this could be a signal of financial strength. Because the corporation generates so much revenue, they may be comfortable operating with a lower current ratio. Both the companies seem to be fiercely competitive as the financials vary by small margins only. For a five year comparison of both company’s trends, please refer to Appendix F. SOURCES OF CAPITAL
The Company intends to continue to fund its growth through a combination of financing sources including internal cash generation; GICs offered through deposit brokers; retail deposits including high interest savings accounts and GICs (both of which can be held in tax free savings accounts); securitization of credit card receivables; and accessing the public and private financial markets, as appropriate. As of December 31, 2011, the Company had $1. 37 billion in committed bank lines of credit, $1 billion of which is available under a two-year syndicated credit facility. The syndicated facility is available to the Company until June 2013 and can be extended for an additional 364-day period in June 2012. For long term sources of capital, CT utilizes long term debt, common stock, preferred stock and retained earnings. Their main form of debt financing is borrowing capital from the bank.
In regards to equity financing, the corporation accumulates capital from common stock, preferred stock and retained earnings. The debt equity ratio of the company has reduced from 0. 58 to 0. 53 from the 2010 fiscal year to 2011 (Canadian Tire Annual Report, 2010). The debt to equity ratio is a measure of the company’s total long-term debt divided by shareholder’s equity. In 2011, cash reserves at Canadian Tire Corporation Ltd fell by $249. 90m. However, the company earned 1. 41bn from its operations for a Cash Flow Margin of 13. 53%. In addition the company used 1. 16bn on investing activities and also paid $493. 70m in financing cash flows.
Also both dividends per share and earnings per share excluding extraordinary items growth increased 24. 31% and 5. 26%, respectively. The positive trend in dividend payments is noteworthy since very few companies in the Auto & Truck Parts industry pay a reasonable dividend. COMPANY OUTLOOK OUR FORECAST In April 2010, CT outlined a five-year plan and financial aspirations that they are working towards achieving through this period. They expect a 4. 5% to 5% return on receivables in their financial services, 3% to 5% retail sales annual growth, 8% to 10% consolidated EPS annual growth 10% to 12% total return to shareholders (including dividends) 10%+ RETAIL ROIC.
Factors that we have considered while preparing our forecast are, their acquisition of FGL sports in 2011, rebranding campaign introduced in 2012 with a plan to increase advertising campaign and finally entry of Target stores in Canada in 2013. Firstly, the company acquired FGL sports last year. (FGL) is the largest national sporting goods retailer in Canada, selling a vast assortment of sports-related products, including athletic footwear, athletic / leisure apparel, and the equipment required for playing a favourite sport. FGL’s multiple banners, including Sport Chek and Sports Experts, feature both brand name products and a large selection of private-branded products.
It has been their most solid acquisition in the last 10 years and is greatly adding to their revenue generation. Secondly, the company plans to increase their spending on advertisements in mainstream media this year as it celebrates its 90 year anniversary. Finally, the company is gearing itself for the entry of the massive US retail giant Target into Canada in 2013, which may take away their sales. However, they are trying to bring in many changes to cope up with the increasing competition and retain sales, for example rollout of the new “smart stores” and launching new loyalty program. The retailer has earned $133. 7 million in the second quarter of 2012, up from $105. 8 million . Revenue grew to $2. 99 billion, up from $2. 57 billion.
The average analyst estimate had been for a profit of $1. 52 per share and revenue of $3 billion, according to Thomson Reuters. Canadian Tire also announced in May that it plans to close Sport Mart, Athletes World and Nevada Bob’s Golf stores, while adding more than 100 Sport Chek and Atmosphere locations over the next five years. Seeing their drastic increase in revenue from first quarter of 2012, to second quarter of 2012, stock prices are bound to increase, and more people are likely to buy CT stocks. ANALYSTS FORECASTS We checked two other market analysts’ opinions in order to see whether our assumptions matched theirs or not. Firstly, we checked The Globe and Mail market analysis.
They strongly recommend buying shares of the company given that the earnings per share are going to increase in the second quarter of this financial year. Secondly, we assessed Thomson Reuter’s analysts which also recommended that stocks should either be held or bought. They expect the company to outperform in the coming months, with the EPS having gone up from 0. 87 to 1. 81, from 1st quarter of 2012 to the 2nd. (Thomson Reuters, 2011). These two analysts’ recommendations are very similar to ours in regards to as both of them predict that the stock price and the earnings per share will increase over the next quarter as well as in the coming year. (Source: Financial Times, 2012) RECOMMENDATION
After factoring in all aspects of the Corporation’s growth, its financials and based on our research, Star investors recommends investing in the Canadian Tire. The corporation has shown dramatic improvement since last year after acquisition of the Forzani Group. This year, with its new marketing tactics set in place because of its 90th anniversary, the company is bound to see a rise in sales. Their store retrofitting, brand new commercials, and Canadian Tire money will definitely impact the profits of the company. The fact that the company deals in six major product lines and is the country’s largest independent gasoline retailer implies that their growth in the coming months will be stable. In the fiscal year of 2010, the company generated revenue of $9213. million and this was followed by an increase in 2011 when the revenue went up to $10387. 1million. As part of their long term strategy, they want to expand e-commerce and investigate cross-business integration opportunities. The current ratio of the company in 2011 was 1. 67:1, which is lower than the recommended 2:1 explaining that the company only has enough assets to cover liabilities with no additional assets to support the company if such a situation arises. The organizational structure of the company is stable and is based on product and function lines. This has helped the company to efficiently manage its wide consumer base and range of products.
The corporation has managed to retain its importance and audience over the years even though Canada has seen the influx of many American retailers in the past few years. Currently, the stock price is 79. 08$, though the figure varies daily. However, for the past four weeks, stock prices and market analysts have suggested buying or holding shares of the company. Our research has also brought us to the same conclusion that buying or holding Canadian Tire shares at the moment is the most appropriate decision for an investor. Also, market forecasts suggest that the company will continue to show improvement and its 2012 quarterly financials are a proof to that.
In the near future, company will show significant rise in sales and profits which means that stock prices are likely to go up and stock will perform slightly better than the market return. ________________________________________________________________ APPENDIX A: SWOT ANALYSIS Strengths * Canadian Tire has a wide reach in Canadian market which has enabled it to establish a strong brand image and market position. * Canadian Tire stores are conveniently located to serve more than 90% of the population. * The company’s different businesses allow it to cater to the needs of a wide range of consumers and the company is the leading Canadian retailer with 98% brand recognition. They are one of the largest independent gasoline retailers in the country and the top Canadian automotive aftermarket company. * Their financial service, CTSFL has more than four million Canadian Tire Options MasterCards in circulation making it one of the largest Mastercard franchises in the country. * Canadian Tire follows an innovative merchandise selection that customers need and want to satisfy various customer needs. It continuously introduces new products, programs and services. The company’s unique mix of automotive, home and leisure products is something not sold by any other retailer in this combination. * The company has in place one of the most successful loyalty programs in the country.
Canadian Tire Money loyalty program is one of Canada’s most popular loyalty programs, with a 90% redemption rate. This loyalty program encourages increased customer loyalty and cross-shopping between divisions. Weaknesses * The company provides certain health care, dental care, life insurance and other benefits for certain retired employees pursuant to its policy. * Significant increase in the amounts of these obligations impacts the company’s profitability. * The company has been recalling certain of its products in the recent past due to technical problems, including their products like Simoniz Foam Tire Care, 1000lb Swivel Jack due to potential safety concerns etc. Opportunities Canadian Tire is expanding its business portfolio through acquisitions and joint ventures. For instance, in August 2011, the company acquired Forzani Group (FGL). FGL is Canada’s * The company’s strong presence in automotive parts and equipment market provides a significant opportunity for the company to boost its growth. * Mark’s is one of Canada’s leading clothing and footwear retailers that offer men’s wear, women’s wear and industrial wear. The growing apparel market and Mark’s strong presence in the private label segment can increase Canadian Tire’s sales from apparel. * The untapped potential in the credit card segment can increase customer base for financial services segment.
Canadian households have on average two credit cards, compared to six in the US. Threats * Canadians are spending significantly less on vehicle maintenance over the past few years as they put their faith in more reliable vehicles to help them save money. The growth plans of the company can be impaired if there is significantly low spending on repairs and maintenance by customers. * The increasing penetration of counterfeit products in the automotive parts and accessories retail market poses a threat to the company. With counterfeiters becoming increasingly sophisticated, automotive manufacturers and the regulatory authorities are struggling to identify counterfeits and curb the problem. Canadian Tire is exposed to potential supply chain disruptions due to foreign supplier failures, geopolitical risk, labour disruption or insufficient capacity at ports, and risks of delays or loss of inventory in transit. APPENDIX B: ORGANIZATIONAL CHART, CANADIAN TIRE Chairman of the BoardCFO Marks Work Wearhouse Maureen SabiaMarco Marrone HT DirectorCanadian Tire Bank Assistant Treasure Frank PotterMT CM DirectorCustomer Experience & Automotive Martha BillesGB DirectorSupply chain & Technology
Graham SavagePS DirectorMark’s Work Wearhouse James RileyPW DirectorFinancial Services Timothy PriceDM DirectorCanadian Tire Retail Garfield EmersonMA DirectorThe Forzani Group Owen BilesMM DirectorCIO James GoodfellowKF DirectorTreasure Alan RossySP DirectorHuman Resources Claude L’HeureuxDN DirectorLegal George VallanceRC DirectorStrategy & real estate Iain AitchisonKS Director Peter Saunders Director John Furlong APPENDIX C: BOARD OF DIRECTORS * Maureen J. Sabia (since 2007) Non-Executive Chairman of the Board, Canadian Tire Corporation, Limited and President of Maureen Sabia International, a consulting firm, and Corporate Director * Stephen G.
Wetmore (since 2009) President and CEO, Canadian Tire Corporation, Limited * Iain C. Aitchison (since 2009) Corporate Director * Martha G. Billes (since 1980) President and a Director of Albikin Management Inc. , an investment holding company * Owen G. Billes (since 2004) President, Sandy McTyre Retail Ltd. , which operates a Canadian Tire store * H. Garfield Emerson (since 2007) Principal, Emerson Advisory, an independent business and financial advisory firm, and Corporate Director * John A. F. Furlong Corporate Director * James L. Goodfellow (since 2010) Corporate Director * Claude L’Heureux President of Gestion Claude L’Heureux Inc. Frank Potter (since 1998) Corporate Director * Timothy R. Price (since 2007) Chairman, Brookfield Funds, Brookfield Asset Management Inc. , an asset management company * James A. Riley (since 2006) Managing Director and Chief Operating Officer of The Catalyst Capital Group Inc. , a private equity investment firm * Alan P. Rossy President and CEO of Copley Investments Inc. , a real estate, leasing and development company * Peter B. Saunders (since 2009) Corporate Director * Graham W. Savage (since 1998) Corporate Director * George A. Vallance President, G. A. Vallance Holdings Limited, which operates a Canadian Tire store APPENDIX D: MARKETING STRATEGY
For the automotive sector, in many ways, 2011 was the “year of the tire. ” The company received new inventory almost every day, launched an intuitive ecommerce site that simplifies purchasing tires online and introduced one of the first “all-weather” tires: the Hankook Optimo 4S, exclusive to Canadian Tire stores. They opened a new “hub” store in the Ottawa area and expanded assortments in Toronto-area stores to ensure parts delivery was not only quick, but efficient and profitable. In addition, Canadian Tire Gas+ captured more market share, as our strategy to invest in infrastructure and upgraded sites along the 400-series highway drove increases in fuel volumes in a volatile market.
To develop stronger relationships with Canadian auto enthusiasts, the company also plans on expanding its grassroots marketing efforts by sponsoring various local events. They have also planned to engage in massive online sales for tires and wheels. In their Living department, they have now an expanded portfolio of national brands that appeal to homeowners, aspiring chefs and everyone in betwe