Thank you for standing by. My name is Paul. I will be your conference operator today. Welcome to the Canadian Tire Corporation earnings call. All lines have been placed on mute to prevent any background noise. If you would like to ask a question, simply press star, then the number one on your telephone keypad. To withdraw your question, press star, then the number two. Now I will pass along to Karen Keyes, head of investor relations for Canadian Tire Corporation. Karen.
Thank you, Paul. Good morning, everyone. Welcome to Canadian Tire Corporation's fourth quarter and 2022 full year results conference call. With me today are Greg Hicks, President and CEO, Gregory Craig, Executive Vice President and CFO, and TJ Flood, President of Canadian Tire Retail. Before we begin, I wanted to draw your attention to the earnings disclosure, which is available on the website. It includes cautionary language about forward-looking statements, risks and uncertainties, which also apply to the discussion during today's conference call. After our remarks today, the team will be happy to take your questions. We'll try to get in as many questions as possible. We do ask that you limit your time to one question plus a follow-up before cycling back into the queue. We welcome you to contact investor relations if we don't get through all the questions today.
I'll now turn the call over to Greg. Greg.
Thank you, Karen. Good morning. Welcome, everyone. I'll start by saying that overall, I'm pleased with our results, which demonstrate we continue to manage well through a dynamic economic environment. I'm going to spend some time this morning discussing what we're seeing in terms of consumer demand. Before I do, I'll give you some color on our Q4 and 2022 results. In Q4, we achieved a record normalized EPS of CAD 9.34, which brought full year EPS to CAD 18.75. A great finish to a remarkable centennial year and barely shy of last year's record. This was despite the fact that in 2022 we experienced elevated supply chain and product costs and higher foreign exchange while investing heavily in the initiatives within our Better Connected strategy.
Comparable sales in the quarter were consistent with last year's exceptional growth, representing a 21% increase on a three-year stacked basis. Revenue was up and stronger retail gross margin led to growth in our retail segment, IBT. Strong earnings at CTFS, driven by higher revenue and lower OpEx, also contributed to our record EPS. We continued to grow and strengthen our connection to Canadians through our Triangle Rewards loyalty program and credit card, with loyalty sales up 8% and loyalty penetration approaching 60% for the year. In 2022, we successfully delivered our stated goal of more than $300 million of operating efficiencies. As I said, I'm pleased with what we achieved, but I'm equally pleased with how we achieved it through our team's diligent management of our business and our unwavering focus on our strategy.
As I imagine we're all reading many of the same headlines, I know I don't need to tell you that we continue to operate against a backdrop of uncertainty. What I will tell you is what we're seeing in terms of consumer demand through our Triangle credit card data and our loyalty program. Our credit card data tells us that we are in a different economy. Credit card spend remains elevated, but growth materially softened on a year-over-year basis starting in late September. Growth in Q4 was 4% compared to 16% on a full year basis. Within our Triangle Rewards loyalty membership specifically, we are seeing different spend patterns emerge based on household income levels. Triangle members in every household income segment grew their spend with us in the quarter and every quarter of 2022.
Higher income Triangle member spend growth softened in the quarter relative to previous quarters. There were two Triangle member segments that accelerated their spend and delivered outsized growth for the quarter. The first segment is lower-income members who traditionally have had lower levels of engagement with CTC. The second segment is middle-income members who have traditionally had higher engagement with us. We think these are bullish indicators of our increased relevance in a tougher economic backdrop. Specifically at CTR, we are seeing evidence of trade down in our best level assortments, especially in essential categories. We are not seeing a meaningful shift in our discount mix, we grew categories we would deem as essentials, offset by a decline in non-essentials.
Given the macro backdrop, combined with what we are seeing in the performance of our business, we are expecting a more constrained demand environment as we look forward, especially in the first six months of this year. We believe it's fair to say that our customers are in a position where they are looking for more value, That's where you can expect us to be laser-focused in 2023. It was just about a year ago that we announced our evolved brand purpose. We're here to make life in Canada better, This commitment includes providing value to Canadians in this dynamic environment. This isn't a new idea for us. It's something we've been doing for more than 100 years, We've seen and overcome our share of challenging times.
What is new, however, is that we are better prepared and a more resilient company than we've ever been. Through our unique capabilities, learnings from the pandemic, and by remaining confident and committed to our Better Connected strategy, we will continue to deliver value to customers because we know that's what they need. We are responding, not reacting, by reorienting our tactics while remaining anchored in our strategy. We're doubling down on our unique enterprise capabilities, including our Triangle Rewards loyalty program, broad and own brand multi-category assortment, improved omnichannel experience and financial services business to deliver more paths to value for our customers in 2023. I'll start with what I believe is our most important path to driving value for our customers, our Triangle Rewards loyalty program.
We welcomed a plethora of new customers during the pandemic, and our determined focus ever since has been to convert these customers into Triangle Rewards loyalty members. This is about more than getting our loyalty cards into the hands of our customers. It's about encouraging them to register their cards, redeem eCTM, shop across multiple banners, engage and connect with our brand on a deeper, more personal level. By converting shoppers into members, we can provide them with more value through eCTM and offers for the products they want and need. In an environment where relevance will be critical, frequency matters and offering the right products to the right customers at the right time is critical. When our customers become registered members, we can do this for them. Triangle is already one of our strongest capabilities for providing value, so we're working off a very powerful platform.
When you consider where we were five years ago, we knew very little about our members, they were earning and redeeming their eCTM at mostly one banner, Canadian Tire Retail. In a relatively short amount of time, we've built an incredibly strong capability for our business. This year, we're reinforcing this strength in two main areas. The first is continuing to drive registration as that enables customers to see and fully realize the value of Triangle Rewards through redemption. In 2022, growth from our registered members outpaced growth from other loyalty members and drove the CAD 800 million increase in loyalty sales. Registered members have consistently increased spend in both essential and discretionary items at CTR. Although growth rates have declined since earlier in the year, their behavior is significantly different than non-registered and non-members.
This further supports our belief that engagement in Triangle and eCTM is enabling members to retain their spending. Additionally, every time our registered members shop or redeem, we learn more about them, which helps us determine how best to deliver value to them in the future. This continuous cycle creates a flywheel effect in which value begets more value. I'll also add that we issued CAD 350 million of eCTM to our membership in 2022, an increase of 16% compared to 2021. The flywheel is primed for value delivery in 2023. Our second focus area within Triangle is helping customers earn eCTM faster through the use of strategic promo offers and driving cross-shop across our banners. During this call last year, I went fairly deep on Party City performance to demonstrate the power of the Triangle Rewards program.
As a reminder, last year we disclosed the fact that the standalone Party City business was up 26% for the full year, and that we had almost 400,000 Triangle members shop the banner, and that these members over-indexed on our key 30-49-year-old family customer segment. In 2022, we continued to drive customers to Party City through cross-banner engagement. Another 400,000 members shopped the banner for the first time in 2022. Full year comparable sales in our standalone stores were up 18%. On last year's call, I also mentioned we had recently activated Triangle Rewards at Pro Hockey Life. The power of the Triangle has manifested in this business as well, with 127,000 Triangle members shopping the banner and our full year sales up 19%.
In addition to making our banners stronger through cross-shop initiatives, next month we will launch the mass marketing of Triangle Select, our subscription model that includes a number of perks, including eCTM accelerators on products within our own brands portfolio. You'll recall that throughout last year, we ran a beta test of Triangle Select. What we learned is that Select really accentuates our differentiators, our own brands, our physical stores, and Canadian Tire money. Subscribers earn eCTM faster, in large part thanks to the program's eCTM accelerator offers. For example, in our beta test, the average member's annual incremental earnings through Select specific bonuses were more than three times the subscription fee. We also saw that the program drives significantly more spend and cross-shop across our banners. Members that cross-shop spend an average of 3 times more than those who shop at only one banner.
We've been working on this program for quite some time and believe this timing is perfect for adding even more value to our membership. Another critical path for delivering value to customers is our unique multi-category product assortment. We've long been known for the breadth of our assortment, and by continuing to expand our range of good, better, and best products over the last many years, we are in a better position now than ever. The breadth of our assortment, especially in our own brands portfolio, enables us to continue meeting customers' wants and needs while providing much needed value if and when they are looking to trade down. At CTR, we've designed entire categories, such as barbecues, kitchen appliances, bikes, and tents to have good, better, and best product representation. This strategy has enabled the engineering of profit at each quality tier.
For example, within kitchen appliances, we offer MASTER Chef, which is our good tier product, Vida by PADERNO as our better, and PADERNO as our best. At SportChek , we are very pleased with our own brand performance, including Forward With Design and Woods, both of which are positioned within the better tier relative to strong best-level national brands. At Mark's, you've heard us talk about going the other way and rounding out our assortment architecture with best-level national brands such as Carhartt, Skechers, and Levi's to provide upsell alternatives to our own brands and attract new customers. As a high-low retailer across our banners, we have always been able to offer value to customers through our pricing and promo strategies.
Now we have more tools to surface value across all our banners, namely Triangle Rewards and our use of first-party data, through which we can optimize promos and send offers directly to a member as opposed to relying only on mass marketing. As I mentioned earlier, we are starting to see some bifurcation between essential and non-essential products, and this shift is aligned to what we previously planned through our strategic focus on pet, automotive, and fixing as we roll out our refresh Concept Connect CTR stores. Where we can, we are accelerating shifting more of our resources into essential categories. For example, we are well on our way with rolling out our enhanced Petco shop-and-shop experience across our CTR network. Most of our stores have been extremely busy this month implementing the new concept.
We have over 80% of the store network set up, and we'll have 90% complete by this summer. We're also looking at how we focus our inventory purchases and marketing spend into these types of categories. For example, at Mark's, we're looking to expand our industrial workwear assortment, including testing a new Mark's Pro store concept later in the year. Overall, all of these product examples illustrate the resiliency of our offering and our ability to pivot as different consumption patterns emerge. Before I turn it over to Gregory, I wanna spend some time talking about our determined focus on providing a seamless omnichannel customer experience. The experience we offer, both in store and online, is all part of the larger value equation for the customer.
We remain confident and committed to these important investments as they will further our competitive posture and drive operational efficiency over the long term. You'll recall from our Investor Day that experience is one of the top five pillars within our Better Connected strategy. In 2022, we made good progress against these initiatives, and I'll give you a few of the highlights. To help our CTR stores operate more efficiently and improve their in-stock position, we've implemented a new assortment management platform we call Tetris, which empowers stores to build customized assortments and inventory depth at the item level. We've been building this platform for two years with the help of a committee of associate dealers and a partnership with Montreal-based IVADO Labs, who are world-class leaders in AI, machine learning, and optimization.
The AI technology has been rolled out to over a third of the network, with the remainder scheduled to be completed this quarter. On the customer-facing side, we continue to roll out in-store automations at CTR. 80% of stores now have pickup lockers, and more than half have electronic shelf labels. Since we launched our new online automotive service appointment system in late September, over 80,000 customers have booked using the system in more than 80% of our stores. This year, we expect the number of stores offering online booking to reach 90% and represent over 10% of our total service visits. In terms of our e-commerce experience, we've moved closer to having a single integrated website through the launch of our One Digital Platform at CTR in 2022.
Party City migrated to the new platform a couple of weeks ago, and our Mark's and Sport Chek banners will migrate this spring. Additionally, we continue to enhance the ways in which customers can shop with us by expanding our ship-to-home options, including through our partnership with DoorDash. As discussed in our Q2 call last year, through this partnership, we rolled out two-hour same-day delivery across our Sport Chek network. We have been very pleased with the results, and the customer experience scores have been extremely positive. Earlier this week, we launched an express same-day delivery pilot with DoorDash at 10 CTR stores in Ottawa. If the program scales positive experiences the same way it has for Sport Chek, our intention will be to roll out this program nationally.
In terms of our supply chain, we continue to use 3PLs as needed while expanding our capacity through our new distribution center in the Greater Toronto Area, which will improve e-commerce fulfillment rates for Mark's and Sport Chek. Overall, our ongoing investments and focus areas demonstrate how we're providing more value to our customer and enhancing their shopping experience. With that, I'll pass it over to Gregory.
Thanks, Greg. Good morning, everyone. Overall, our strong operational performance through the year and the strong finish to the fourth quarter against exceptional comps helped us achieve an outstanding result in a dynamic economic environment. We were very pleased to report full-year normalized EPS of CAD 18.75, within 1% of last year's record EPS, despite the headwinds we continued to face throughout the year, which included higher freight and supply chain costs and a stronger US dollar, to name a few. For the quarter, normalized diluted EPS was up 11% to CAD 9.34 after CAD 20 million of normalization costs related to the operational efficiency program, which represented around CAD 0.25 on a per share basis.
Q4 revenue was up in both retail and Financial Services, that, along with an improvement in the retail gross margin rate, translated into higher gross margin dollars. We manage operating expenses carefully as we continue to invest in the business and operate with elevated supply chain costs. IBT came in at 6% higher for the quarter, which when combined with the impact of share repurchases in 2022, drove the 11% increase in EPS. Let me now take you through the performance of the business on a segment basis, starting with Retail. Retail sales were up just over 1% to $5.7 billion in the quarter. In our petroleum business, higher prices at the pumps once again offset flat volumes, driving a 10% increase in sales and contributing positively to retail sales growth. Turning to Retail's comparable sales, which exclude petroleum.
Comparable sales were in line with an exceptional Q4 last year when they were up 11.3%. On a three-year stacked basis, comparable sales were up 21%. Mark's and Helly Hansen were the standouts from a growth perspective. Mark's comp sales were up 4% against a 15% comp last year, and Helly Hansen revenue was up 21% on top of strong growth in 2021. Let's now look at the highlights for each of the banners, starting with Canadian Tire. At Canadian Tire Retail, we continued to meet the changing needs of Canadians through the breadth of our assortment, allowing us to hold comparable sales flat against a 9.8% comp. The automotive division once again posted strong growth, as it has done for 10 consecutive quarters now.
Automotive was up 5%, and auto maintenance and light auto parts did particularly well, both at Canadian Tire and PartSource. Seasonal and gardening was in line with last year, a great result considering the decline we saw in Christmas categories against the significant growth over the last 3 years, with categories like Christmas lights and decor up 15% on a compound annual growth rate basis since 2019. The living division was also up slightly on last year, with solid performance in kitchen and growth in essential pet and home categories. Party City also saw strong growth, both within Canadian Tire and at the standalone stores, with sales up 30% and 10%, respectively.
Our fixing and playing divisions were down in the quarter compared to last year, with playing seeing a decline in exercise categories, which grew well during the pandemic, as we started to cycle the return to hockey and winter sports last year. Investment in our Canadian Tire store network remains a key component of our strategy to grow the top line. 36 Canadian Tire stores were refreshed, expanded, or replaced in 2022, we were pleased with the results, which continue to track ahead of our expectations. Another 23 projects are expected to come on stream in the first half of 2023. As I've done previously, I want to sum up where we ended the year in terms of the relationship between sales and revenue growth.
Sales growth slowed at CTR in the second half of the year as we started to comp quarters without any of the impacts of pandemic restrictions and with a softening consumer demand environment towards the end of the year. Turning to revenue for CTR, we saw a similar pattern. Revenue was very strong in the first half of the year, up 7% on 2021, but decelerated for the last six months, with Q4 up 1%. However, on a full year basis, revenue growth outpaced sales growth by close to 300 basis points. As we have mentioned previously, given our dealer model, revenue and sales growth can be out of sync in any given quarter. Therefore, we would expect the growth patterns for revenue and sales to converge over the course of the coming quarters, as they typically do.
I will speak more about this in a moment when we get to inventory. Moving over to Sport Chek. Comparable sales grew in 2022, up almost 2%, driven by 4% growth in the first half of the year. Q4 comparable sales were down 2% against a 16% comp last year when we had the benefit from the post-COVID resumption of team sports. A highlight in Q4 was fanware, our new name for licensed apparel, with growth driven by World Cup-related demand. We also had better national brand product availability as supply chain started to normalize. The softening consumer demand environment and milder weather resulted in lower sales in category like outerwear, skiing, and snowboarding.
From a Triangle Rewards perspective, Sport Chek continues to attract new to CTC members, and personalized Triangle member offers continue to drive engagement for the banner, with more than 1 million customers activating one-to-one offers. Moving now to Mark's. We recorded our 10th consecutive quarter of positive performance, with comp sales up 4% and closed the year up a significant 10%. In the quarter, sales of casual and industrial footwear were key performers, with casual footwear sales up 10%, driven by the innovative ICEFX technology, which is embedded in many of our own brand boot products. We sold over 150,000 pairs of ICEFX boots in Q4, up an impressive 50% over Q4 of last year.
We continue to drive towards a healthy mix of national and own brand sales at Mark's and are very happy with the outcomes the strategy is delivering. Impressively, sales of own brands at Mark's hit $1 billion for the first time in 2022, partially driven by the strength of casual and industrial brands Denver Hayes and Dakota Pro. Mark's also continues to focus on growing national brand sales as a customer acquisition vehicle, and brands like Carhartt were up 27% for the year. Our strategic initiatives have also helped Mark's continue to attract new customers to our Triangle program. In 2022, we continue to see an increase in active Triangle members in the under 30 segment at Mark's. On to Helly Hansen. Revenue was up 21% with strong sell-through of both sportswear and workwear across wholesale and e-commerce channels.
We had double-digit revenue growth across most markets, including North America and Europe. In the U.S., a continued focus on e-commerce, direct-to-consumer, and retail channels drove exceptional growth. We also continue to build our sales through CTC banners in Canada, and on a full-year basis, sales to CTC banners were up 8%. Moving to margin now. You will recall that Q4 has historically been the strongest margin quarter for the retail segment, but this year was our highest yet. Retail gross margin rate, excluding petroleum, increased 40 basis points in the quarter to 39.9%, with the full-year retail gross margin rate slightly behind last year at 35.6%.
At Investor Day last March, we said we were aiming to retain the gross margin expansion we had achieved through the pandemic. We were really pleased with the great job the team did managing through product cost and freight headwinds to get us within range of last year's margin rate. As expected and as discussed in the previous calls, although still elevated, we started to see some easing this quarter on both freight and product cost inflation. We were able to set these costs with higher product margins at CTR. Banner Mix also helped with the contribution from Mark's and Helly Hansen, which was partially offset by a higher promotional intensity at Sport Chek. Looking forward, we feel good about our negotiated freight contracts for the year and expect to see commodity deflation work its way through our negotiations as we move throughout the year.
Our goal continues to be to hold and protect our retail margin rates over the longer term while striking the right balance between demand creation and being price competitive as needed to ensure we are driving value for our customers. Let's now move on to how financial services performed in 2022. The financial services business had its strongest year on record, generating CAD 442 million of IBT. Receivables also exceeded CAD 7 billion for the first time. Q4 IBT was up 38% to CAD 87 million, as higher receivables and higher spend contributed to higher revenue and improved margins, and reduced acquisitions drove lower marketing expense. Cardholder engagement remained strong. Active accounts and average account balances were both up by around 6%.
Gross average accounts receivable was up by 12.4% in Q4, lagged the full-year growth of 13.2% as we slowed acquisition and saw slowing card sales. While card sales grew 4% for the quarter, spend growth has slowed considerably from the 21% growth in card sales we were seeing on a Q3 year-to-date basis. Risk metrics are continuing to trend up as we expected. The PD 2+ rate was back to historical levels at 2.9%. While write-off rates are still well below historic norms at 4.9%, they did increase in the quarter. Looking ahead, we expect write-offs to continue returning to more historic levels as the increased investment in new accounts, a key strategic initiative that we outlined at Investor Day, works its way through the portfolio and mature account performance stabilizes.
Despite ongoing economic uncertainty, key indicators like employment remain robust. Our portfolio remains healthy and continues to perform well. We continue to keep a close watch on macroeconomic data and are ready to enact our playbook for additional measures to manage risk as needed. Finally, the allowance rate at 12.6% continues to be within our targeted range of 11.5%-13.5%. Now, I'll move on to operating expense.
This quarter marked the culmination of our three-year operational efficiency program. I wanna take a minute to thank the teams internally that have worked so hard to implement around 250 initiatives across the business that have delivered more than CAD 300 million in annualized run rate savings, ranging from the heavy lifts of our Workday implementation to the smaller day-to-day process optimization projects across the business that mean we are operating far more efficiently. While at this time, we don't expect to put a new program in place, we will continue to bring the operational discipline we have developed to how we run our business. Improving efficiency continues to be an important focus for us as we move forward.
The OE savings we achieved, combined with lower variable compensation expense, contributed to full-year normalized consolidated OpEx as a percentage of revenue of 25%, up only slightly versus last year. The increase was mainly driven by normalized retail OpEx, which continued to run slightly above revenue growth, driven by higher IT investments as we transition to a cloud-based infrastructure and higher supply chain costs. Moving on to inventory. Corporate inventory levels were 30% higher this time last year, and that compares to a 20% increase at Q3. Our year-end inventory build was primarily due to three factors. First, as we discussed last quarter, lower than expected planned sales in Q2 and Q3 were responsible for some of the build, particularly in the spring-summer inventory at CTR.
The second factor was early receipts of merchandise, primarily at Helly Hansen, where inventory levels were lower last year and as we built inventory in support of direct consumer and strong wholesale demand. Unit cost inflation remained an important contributor to the increase in corporate inventory. A key focus for us remains managing through the higher level of corporate inventory. Overall, we are managing our receipts and expect corporate inventory levels to normalize over the course of the year. We believe a strong in-stock position across all of our banners remains important to drive sales in a competitive environment. Dealer end-ending inventory is up a more modest 10% relative to last year.
A mild December means dealers are now sitting on some carryover winter inventories. We still have some selling window left for these businesses, and we'll give you some perspective on where we land in our Q1 call. We also talked last quarter about the dealers ending heavier in spring-summer inventory. We are expecting this to impact spring-summer sell-through to dealers by around CAD 150 million, which will drive softer revenue at CTR in the first half of the year. We expect the largest impact of this to be in the first quarter. Turning now to operating capital. In 2022, operating capital expenditures for the year were in line with our Q3 expectations at just under CAD 750 million as we continue to invest in the store network, our supply chain, and the capital element of our IT transformation.
Total capital expenditures, that's CAD 850 million. We expect next year's operating capital expenditures to fall in a similar range of between CAD 750 million to CAD 800 million as we continue to invest in our Better Connected strategy. Finally, turning to capital allocation. We continue to manage our cash, after capital expenditures, we've generated significant available retail cash flow over the last two years. This has allowed us to fund strong returns to our shareholders with CAD 750 million paid out to shareholders in 2022, of which CAD 325 million was paid out in dividends. We also continue to be active in buying back our shares, targeting a total of between CAD 500 million and CAD 700 million in share repurchases by the end of 2023.
In summary, the operating environment has changed around us as we've come through 2022, and it remains a little uncertain as we enter 2023. We delivered a strong set of results with the hard work of many teams across the business. Strong comps in early 2022 and the spring-summer inventory carryover that we have discussed will provide some headwinds on both sales and revenue, which will impact quarterly phasing in 2023. We continue to believe we are better positioned than we have ever been to operate with agility, and as Greg discussed, deliver value to our customers. We remain convinced that our strategic direction is the right one, and we'll continue to deliver strong returns to shareholders over the longer term as we build an even better business. With that, I'll hand it over to Greg for his closing remarks.
Thanks, Gregory. I'll end my prepared remarks today by reiterating that we are fully equipped to navigate this dynamic economic environment. Our business model is resilient, our management team is strong, and we are a much better retailer today than we've ever been because of our unique capabilities that we continue to strengthen through our Better Connected strategy. We are, of course, watching, listening, and learning from what's happening right now and keeping a keen eye on where our customer is going. But we're running this business for the long term. Our collective ambition to execute the initiatives within our Better Connected strategy has not changed, and this is where my leadership team and I will remain focused.
One year ago, we made a commitment to our customers, employees, communities, and shareholders that we are here to make life in Canada better, and that is what we intend to do, from providing customers with value through our products, services, and shopping experiences, to stepping up with support for our communities. I mentioned this on last quarter's call, but I believe it bears repeating. As Canadian families find themselves increasingly stretched, Canadian Tire Jumpstart Charities can and will be there to ensure that no matter what happens, kids can continue to participate in sport and recreation. I'll end my prepared remarks this morning by thanking our frontline team, our associate dealers, our corporate team members, and our board of directors for their commitment and dedication in making 2022, our centennial year, so memorable.
Although 2023 looks to be a little more uncertain, we're moving forward with clarity and confidence in our strategy and with a clear focus on providing value to our customers. With that, I'll pass it over to the operator for questions.
Thank you. We will now take questions from the telephone lines. For the question session, we ask that you keep it to one question and one follow-up. If you have a question, please press star 1 on the device's keypad. You can cancel anytime by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause while the participants register. We thank you for your patience. The first question is from Brian Morrison from TD Securities. Please go ahead. Your line is now open.
All right. Good morning. Thanks very much. Gregory, maybe two questions here. Maybe we can dive into the gross margin in retail. I think last quarter you thought that ex petroleum, you were gonna see some reprieve from freight and surcharges relative to Q3. Rather than having, you know, a margin decline of 100-200 basis points, you were up kind of 50 basis points year-over-year. Can you just go through, maybe break down surcharge and freight? I think it was a headwind, the contribution from mix at CTR and Mark's, maybe pricing and leverage. Just give us some idea relative to last year, that 50 basis point breakdown, please.
Sure, Brian. It's Gregory here. I'll start. I think what I'll do is I'll pass it over to TJ to talk a bit more specifics around some of the product margin work within CTR. Here's what I'd like to anchor everybody in. We've said this, Brian, for... God, I feel like a broken record. We've said it so often. You know, I wanna bring everybody back to what we said at Investor Day, which was we grew our retail gross margin rate, excluding petroleum, by around, I think it was 140 basis points between 2019 to the end of 2021.
What we said at that point was our long-term target, our North Star, is we wanna keep those gains that we achieved over that window and recognize that any quarter is gonna have noise in it and some bumpiness around a kind of, you know, what can happen given our banners and our mix of businesses, et cetera. I think what we saw last year just reinforces that point that we wanted to get everybody to. To me, the most important thing that I hope you can take from this call in my mind is we are committed. That is still our target to basically maintain that gross margin rate that we talked about at Investor Day, that full year achievement. In any quarter, there's gonna be some bumpiness.
Let me just say a little bit about Q4, and then I will get TJ to unpack it a little bit more. You're right to acknowledge, and we said in the third quarter, there were some headwinds that we saw starting to dissipate into the, into the fourth quarter. Fuel surcharge is the one that I would draw your attention to. I know we had this exact discussion on it was a more meaningful impact in Q3, and we felt it was gonna be less meaningful in Q4. That would be a piece of the equation. Product margins at CTR, a big part of the equation that I'll get TJ to speak to in a second. Even just business mix, like, you know, Mark's Work Wearhouse continued to kind of punch above its weight around results.
That actually helped drive our overall margin rates as well. Maybe I'll let TJ give it a little bit more flavor on the great work his team did in delivering what I think are just, you know, across all of our businesses, but I specifically wanna give TJ a window to talk about the CTR.
Hey, Brian. Maybe I'll just add a little bit of color here, just building on some of the things Gregory talked about. I mean, obviously, when you're dealing with the inputs and the variables associated with margin rate, there's a lot of complexity to it, right? We're dealing with FX, we're dealing with product costs, and we're dealing with freight. All of those headwinds hit us at varying intervals throughout the year, and particularly when you think about comping those variables year-over-year. When we set pricing strategy, we do so over a little bit of a longer term time horizon. You may see some variability in how we comp our margins quarter to quarter to quarter.
The team has done an amazing job in managing some significant headwinds on product cost, on freight, and even e-FX as we went through the year. When you think about our promotional elasticity models, how we look at reg pricing, how we look at our own brands portfolio, and how we utilize our triangle ecosystem to be much more targeted in our promotional activity, I'm very proud about how the team has performed in managing margins, and you saw that come to life in Q4. As we go forward, everything gets, it continues to be volatile and there's a lot of different headwinds and tailwinds in front of us. You mentioned freight earlier.
We do expect some freight relief next year, we also expect competitive intensity to dial up a little bit, particularly in the discretionary category. We are committed, as Gregory said, to our long-term goal of maintaining our margin rates that we built over the last couple of years in the pandemic. That's how we see it as we go forward here.
Okay. Thank you. Maybe I can follow up with one more question with respect to you're seeing this easing in supply chain. When do you expect inventory to start to see some a decline year-over-year or moderate year-over-year? I guess on that front, when should the 3PL and IT costs start to dissipate within SG&A and then drive some leverage? Should IT be in the second half of the year, what about 3PL?
Yeah, Brian, it's Greg. Maybe I'll take that. You know, I think Gregory spent a fair bit of time going through our inventory position in his prepared remarks, and I think it provided a pretty good unpack. I think the key is managing the lead time down in our average purchase orders. I talked about this coming out of Q3, and it's still about 25-30 days higher, which even when we're running really efficiently impacts turns pretty significantly. It is in the domestic supply chain here in Canada. We're definitely focused on bringing our inventory down, which will help with our cost efficiency, and it'll roll through gradually throughout the year.
To the extent that we can, you know, deliver that drawdown as we move forward, tighten up the lead times, we hope to see the variable cost in the supply chain, you know, start to decrease as well. I think the key, as I think about it and how we're talking about our teams is in any inventory rebalancing, I think the key is ensuring that we're being surgical and not overreacting with global policies and shotgun approaches. We need to feed essential businesses and work to wind down non-essential where the demand signals are weaker. You know, the teams have been focused on inventory since day one of the pandemic.
I have confidence that we can use our capabilities and strong vendor relationships to manage the situation effectively.
Okay, thanks very much. Congratulations.
Thanks. Thanks, Brian.
Thank you. The next question is from George Doumet from Scotiabank. Please go ahead. Your line is open.
Yeah, thanks. Good morning. Congrats on a good quarter. Thank you for the margin breakdown. Maybe talk a little bit about the outlook of the sustainability on the gains that we made on the retail gross margin next few, and maybe how early can we see the benefits of commodity deflation? How should we think of that?
Yeah, maybe I'll start with that. It's Gregory here, and if Greg or TJ wanna pile on as well, I'm sure they will. Look, I wanna take you back to what I just said to Brian's question, which is, you know, and I think TJ said it well around, you know, how difficult it kinda is to manage this on a quarter-by-quarter basis. Like, there's. We are, you know, we remain committed towards that target outlook range of having our retail gross margin rate be flat to what were the gains we achieved up to 2021. At any given quarter, there could be some variation within there. Now, you've pointed out something specifically around, you know, commodity, which is a great question.
You know, what happens is that's gonna come to us differently depending on the business line negotiates their purchases for the year. You know, I think that's gonna flow throughout 2023, to be frank. As TJ mentioned, for every, you know, debit, there's a credit, right? There's some FX pressure on a year-over-year basis. Again, what I, what I'd want you to take from this is that we are, we are targeting over a long-term basis to maintain those gains we had pre-pandemic and be, you know, be in that kind of range we were at in 2021.
Great. Thanks. Just my follow-up on: If you could just talk a little bit about the strength in auto. Has it held throughout the quarter? Are you seeing maybe a deferral of perhaps some discretionary products? Can you talk a little bit about how this segment usually behaves in past economic slowdowns?
Hey, George. It's TJ. Maybe I'll take that one. Just wanted to kind of provide a bit of context. Our automotive business has been very resilient over the last few years, despite the headwinds the industry has been facing during the pandemic. We've demonstrated consistent growth in this in this division, with Q4 representing our 10th consecutive quarter of growth. We're seeing higher engagement and performance across many of our repair and maintenance categories, like oil and fluids, as well as in auto service. We're really liking the trajectory of the business. As we talked a lot about at Investor Day back in March, we're continuing to invest in our automotive division in a myriad of ways across our assortment, our capabilities, and our customer experience.
We're on a journey to modernize the auto service experience for our customers through a suite of things that we call Auto Care, which is updated technology and capabilities, like the ability for our store staff to engage with customers directly with SMS, new auto service tablets which drive efficiency for our techs and our communication with our customers, and new online appointments. When you think about what this business and the industry has experienced, we believe that there's a lot of runway here for us for growth. When you think about the average age of the fleet in Canada, it's getting older because of the shortage of new cars, and that really provides a lot of tailwind for us.
That and the combination with the market share opportunities in front of us, we're very bullish about automotive as we go forward here.
Great. Thanks for your answers.
Thank you. The next question is from Luke Hannan from Canaccord Genuity. Please go ahead. Your line is open.
Thanks. Good morning, everyone. Greg, I wanted to go back to something that you mentioned at the beginning of your prepared remarks, the dynamics that you're seeing across the different household income cohorts. Thought that was interesting because it sort of differs to what intuitively we would think, where the higher income household would be a little bit more resilient than those middle and lower income cohorts. You mentioned that you're seeing strength in those non-essential, or rather strength in essential categories, less so in non-essential categories. Can you give us a little bit more color as to what you're seeing in those higher income households' baskets beyond just those essential/non-essential mix? How does that compare for, you know, the cardholder data that you see for spend beyond just with that CTC banners?
Yeah, I mean, in general, you know, Luke, if you think about income, the representation of sales or the mix of sales at various income levels, if you take under CAD 75,000 households, and then over CAD 125,000 households, historically, those groups represent about 30% of our sales mix on a consolidated basis across all of our banners. What we saw, and I just think this just speaks to the power of the data kind of analytics that we have here, and it did surprise us, was a real shift, especially in the fourth quarter, where, you know.
On the year, higher income went from 30% to 20%, in the fourth quarter, it was even lower than that. The opposite was true for under CAD 75,000 households, where the percentage of mix for those income segments went up to 45% in Q4.
You know, we think these are, you know, some bullish indicators of the resiliency of our model and that we can add value and provide value to lower income, you know, segments of the market. Generally, when you get to your question with respect to discretionary and non-discretionary, through the pandemic, higher income households have participated more in discretionary categories. It would stand to reason that as that starts to pull back across all Canadian families, that we would see that in our higher income households. We're just, you know, extremely fortunate here with our Triangle Rewards, you know, program that we can rifle in to other segments to compensate for the softening we're seeing in higher income households.
That's probably the way, you know, you should think about it, Luke.
Got it. Very helpful. As my follow-up, it was mentioned in the MD&A that there was a higher than last year level of promotional intensity at Sport Chek. I'm curious to know where does that rank sort of relative to pre-pandemic levels if you think about the average sort of level of promotional intensity that you would usually get through the holiday period?
Maybe I'll take that. It's Greg again. I think the promotional intensity that we saw in Sport Chek really magnified in the fourth quarter. The magnification stemmed from activity from big brands in the D2C channel. We saw more aggressive movement in terms of the depth of the discount, and the timing was much earlier than we would have expected. I think the teams did a really good job, you know, managing in the environment. Again, it just speaks to, you know, how the competitive environment, you know, can change on a dime, and you just have to be able to read, react, and pivot. In general, I don't think I would say it was any more intense than kind of pre-pandemic periods.
It just came from a different place. You know, when Nike or an adidas D2C store marks down the same inventory that we're carrying in our stores, it becomes pretty difficult for us not to react. A little bit of a nuance relative to 2019 where we wouldn't have seen that type of aggressive activity. I think with minimal snow, you know, here in the fourth quarter in outerwear businesses, I think the trigger got pulled just a little bit quicker than previous years.
Got it. Thank you very much.
Yeah.
Thank you. The next question is from Mark Petrie from CIBC. Please go ahead. Your line is open.
Thanks. Good morning. I wanted to ask just about this sort of shift from non-essentials to essentials as a bigger part of your business. How would you characterize the impact of that on top line? I would assume it's somewhat deflationary, but if you could just talk about that, and then also if there is an impact on margin rate. Thanks.
Hey, Mark. It's TJ. Thanks for the question. When we talk about essential and non-essential, it's actually amazing how our business and our assortment is set up to flex with the needs of consumers and Canadians as they evolve. If you look at some of the discretionary categories that we had big growth in during the pandemic, so you think about we put together a basket of like bikes and outdoor kayaks and recreational type products with exercise and things like that, big discretionary kind of portfolio of goods. We declined about $175 million in those businesses this year. In two categories that are more essential based, like in automotive, we had parts and auto maintenance.
Those two categories alone were more than able to offset a huge chunk of decline in discretionary goods. Overall, as we go forward, discretionary is a big component of our assortment, as is non-discretionary, so we have to balance it. We do believe that we're well-positioned with our good, better, best architecture to compete in essential categories. When you think about the dynamics we have and the growth opportunity we have in front of us with automotive, all of the work we're putting around pet, which we believe is more essential or non-discretionary, these are the areas that we think are gonna pay dividends for us. We're able to manage the margins relatively well. It's kind of a mixed bag within essential and non-essential.
I mean, obviously automotive is very strong margin rates, so we like the profile there. But we do feel like we're gonna have to be a little bit more, have a little bit more promotional intensity on the non-discretionary stuff in 2023. As we said earlier, we feel very good about our ability to manage through all the margins and our capabilities, our and our assortment architecture really lends itself well to the evolving needs of Canadians.
Appreciate the comments. I'll pass the line. Thanks.
Thanks, Mark.
Thank you. The next question is from Peter Sklar from BMO Capital Markets. Please go ahead. Your line is open.
Good morning. This issue of the carryover of the spring/summer inventory, it sounds like it's at the store level. Are you also seeing that in your DCs and inventories? Do you have carryover on the corporate side?
Yeah, Peter, it's Gregory here. I'll take that. I think when I talked about kind of the factors of inventory carryover on the corporate level, leave aside the dealers, as you've said, there was three factors we identified. One was inflation. The second we talked about was kind of some of the pre-order activity at Helly. You know, as they had to increase their inventories, given that their model is changing towards kind of, you know, direct to consumer a little bit. The third was exactly what you just said, that spring/summer carryover predominantly, you know, and we mentioned that in Q3 as well. We're both a little heavy, us and the dealers. The way we manage this, and I've already seen TJ's receipt plan for 2023, is basically we manage kind of our volume purchases down.
That's why I say I think, you know, by the end of the year, I think I see us kind of getting back to that more normalized level of inventory. Now, what I will say is we're always gonna have this inflation increase, so let's be clear on that, even on a year-over-year basis, and we are supporting a higher level of sales. I think the right way to think of this is kind of on a turns basis from an inventory perspective. We see ourselves kind of managing that way, and I would suspect by the end of the year, we're gonna get to where we wanna get to from our... That's our objective.
In a situation like this, like, do you do markdowns, and should we expect markdowns? Do dealers have the discretion to do markdowns, or that has to come from the direction of corporate?
Hey, Peter, it's TJ. We work very closely with our dealer partners on managing kind of inventory and seasonal markdowns and things like that. They do have some discretion within their stores if they are heavy in certain pockets. You may see in-store specials from different dealers from time to time. We manage that very closely with them and think we can manage down any of the pockets of inventory that we feel we're heavy in.
Okay, thank you.
Thank you. There are no further questions registered at this time. I will turn the call back to Greg Hicks.
Well, thank you for your questions and for joining us today. We look forward to speaking with you when we announce our Q1 results on May eleventh. Bye for now.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.