Good morning. My name is Alana, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Tire Corporation Limited Q3 2020 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press the pound key. We ask that you limit your time to one question, plus a follow-up question, before cycling back into the queue. This morning, Canadian Tire Corporation Limited released their financial results for the third quarter of 2020.
A copy of the earnings disclosure is available on their website and includes cautionary language about forward-looking statements, risks, and uncertainties, which also apply to the discussion during today's conference call. I would now like to turn the call over to Greg Hicks, President and CEO. Greg?
Thank you, operator. Welcome, everyone, and thank you for participating in this morning's call. I'm joined today by our CFO, Gregory Craig. Before we dive into the specifics, I will start by saying that I am extremely pleased with our results, which are, by virtually any measure, exceptional. I'm so proud of the demonstrated resilience of our business, which is truly a testament to our associate dealers and our employees.
I cannot overstate how much I appreciate and am grateful for their countless hours of hard work, ongoing flow of innovative solutions, and unparalleled collaboration across the enterprise. Our teams continue to prove more agile than ever before, enhancing and expanding our retail capabilities and furthering our positive trajectory. You've heard me say that throughout the pandemic, our purpose and North Star has been being there for life in Canada.
I think it's fair to say that this quarter, we once again proved that this is not only simply a tagline, it's who we are and what we do. We continue to be there for our customers and our communities when they need us most, as shown by the very busy quarter had by our corporate charity, Jumpstart. As you may know, in September, Jumpstart launched its Sport Relief Fund. COVID-19 has forced many community organizations to close their doors,
and Jumpstart has stepped up to ensure that kids will have programming to return to as it becomes safe to do so. They will disburse CAD 8 million to nearly 700 community sport organizations across Canada, and yet we know that there's still a significant need for support. In addition to launching the Sport Relief Fund, Jumpstart continued to make impressive progress on its Inclusive Play Project.
In Q3 alone, Jumpstart opened new inclusive playgrounds in Winkler, Manitoba, Edmonton, Alberta, and Poitier, Quebec, bringing the total to 10 inclusive Jumpstart playgrounds across Canada. These types of initiatives aren't easy to pull off at the best of times, not to mention during a pandemic. But that just seems to be our team's MO this year:
do whatever it takes to make sure Canadians have the support that they need, while also doing whatever it takes to ensure Canadians can access the essential products and services to help them navigate COVID-19. With that, let's dive into the results. Our third quarter was exceptional across a number of key performance indicators.
In addition to recording the best comparable sales growth we've ever reported of 18.9%, excluding petroleum, our e-commerce channel year to date has now surpassed CAD 1 billion in sales, up 211% from 2019. Both digitally and in store, our existing Triangle members were key contributors to increases in store transactions and basket size, and the Triangle program acquired approximately 400,000 new members in the quarter. We generated strong operational leverage, enabling us to drop more earnings to the bottom line with a normalized EPS of CAD 4.93, up a remarkable 42.5% versus last year.
I'm pleased with where we stand with our profitability and cash generation, and I'm proud to say that earlier this morning, we announced 11 years of consecutive annual dividend increases, a key pillar in our capital allocation priorities. Now I'll move into the results by banner, starting with CTR. Once again, CTR drove our performance in the quarter, delivering exceptional comparable sales growth of 25.1%. In Q3, more than 90% of CTR's 200 categories grew.
In fact, 80% of categories achieved double-digit growth. Once again, this quarter, and the entire year, for that matter, has proven that home is where the heart is and where Canadians are choosing to invest. As Canadians continue to adapt to spending much more time at home, the top-selling products in Q3 were within our kitchen assortment, supporting the home cook and at-home dining themes.
The DIY home improvement trend has accelerated demand across many home improvement categories, including lawn and garden, tools, paint, and hardware. This trend provides opportunities to strengthen these new customer relationships... As an example, the average paint customer is much more lucrative than the average CTR shopper. Not only do they spend three times more than non-paint customers, they visit the store more frequently.
With ongoing travel restrictions and limited entertainment options in Q3, families came to us to enable their creative summer vacation plans, such as backyard stations, camping, and road trips, and this drove sales across all the seasonally relevant categories. The trend of one-stop shopping continued in Q3, where we maintained solid growth in both average basket size and units per basket. This trend was consistent across all regions, with 84% of our store network seeing increased foot traffic.
So it should come as no surprise that CTR grew Omnishare in all five divisions. Living and playing had the strongest performance, both achieving double-digit year-over-year market share growth. In addition to a strong brick-and-mortar performance, CTR experienced continued growth in our e-commerce channel, up 178% in the quarter.
E-commerce penetration is now double where it was a year ago. Drilling down in the top online category shows a slightly different profile this quarter, including larger, bulky items such as exercise equipment, garage organization, outdoor heating, and both indoor and outdoor furniture. We have long said that last mile fulfillment for bulk assortments is one of our core advantages, and although e-commerce demand has stabilized somewhat, we anticipate it to rise once again in Q4, and when it does, we'll be prepared to execute and deliver an enhanced customer experience.
To support the digital demand, we continue to evolve our deliver-to-home, curbside pickup, and click-and-collect processes, and continue to add more automated pickup lockers across the CTR network. Moving on to revenue. As I mentioned on our Q2 call, given exceptional consumer demand, it was only a matter of time before shipments caught up with sales, and in Q3, they did at record levels. CTR revenue rose 28%, with strong demand across all regions and every division.
As unprecedented consumer demand continued to put pressure on global supply chains, the team's outstanding collaboration with our dealers helped prioritize the shipping and receiving of key categories. Our throughput capacity in the quarter was stretched as we processed an all-time record of product through our distribution centers. Achieving these results was no small feat. Hats off to TJ Flood and his leadership group for all of their efforts.
With strong collaboration and expertise in our supply chain and merchandising teams, we overcame countless challenges in getting product to stores and customers. We've increased our distribution capacity by leveraging our existing assets, including the reopening of our Airport Road DC facility in September, which is now operational and shipping an average of 175 trailers per week.
This facility has traditionally been used for overflow storage, but we have now enabled it for outbound fulfillment to stores. We continue to look for ways to keep up with demand and improve our supply chain flexibility. We're actively managing product flow more efficiently with direct ship, balancing our inbound across all regional DCs, as well as the ongoing dynamic prioritization of key categories. I'll now move on to Sport Chek's results.
Up against our strongest comparable sales quarter of 2019, comparable sales declined 1.4% in the quarter. Sales momentum in June carried into July, with sales up 17% versus 2019. However, it tapered off with softer demand in back-to-school categories, which led to us dialing down our promotional activity to focus on full price sell-through, which improved our gross margins and optimized our profitability.
This is in contrast to how we managed the second quarter, in which we prioritized top-line sales through cash conversion of on-hand inventory. Virtual schooling, the postponement of hockey, and cancellation of many organized sports and activities lowered demand for kids' footwear, bags, athletic clothing, and hockey equipment. You may also recall that we transferred our bicycle inventory from Sport Chek to CTR in Q2, which net negatively impacted sales in the quarter.
Sales were strong in categories like hiking and camping, as well as golf and fitness. It's also important to note that 55% of our Sport Chek stores operate within malls, which we all know continue to be subject to restricted operating hours and less foot traffic. The headwind is likely to remain. We accelerated Sport Chek's engagement with the Triangle program, with over 5 million customers receiving unique, category-specific offers through the deployment of one-on-one bonus offers sent to Triangle members.
Sport Chek e-commerce sales accelerated further, up 90% in the quarter. Our ending inventory in the business is materially lower, which sets us up well to be fresh next year, and the teams have ramped up their purchasing efforts for Q4. Stephen Brinkley has jumped right into the operations of the business, and I'm quite pleased with Sport Chek's performance in the quarter. Now, moving on to Mark's.
Mark's delivered a great quarter, with comparable sales and e-commerce growth of 5.7% and 166%, respectively. Mark's remains highly relevant for Canadians, with industrial as the growth leader in the quarter and workwear proving to be a highly resilient category. In addition, our Levi's denim program resonated very well with our customers in the quarter, as did our men's and women's casual wear assortments.
Similar to CTR, sales were driven by both higher traffic and a larger basket size. Mark's continued to shift to a more digital approach throughout the quarter, including efforts to shift from traditional print flyers to digital flyers, launching targeted one-on-one offers to the Triangle member base, offering its first-ever exclusive Triangle member offer on Denver Hayes product, and improving the customer experience for curbside pickup.
In addition, Mark's achieved a new milestone, with owned email audiences reaching over 2 million email subscribers, up 20% from last year. It's quite refreshing to hear PJ Czank talk about experimentation efforts designed to create greater engagement with Triangle members and how these digital marketing efforts will drive the business going forward. Moving on to Helly Hansen.
Although external revenue was down 0.9% on a constant currency basis in the quarter, we are seeing encouraging signs of a rebound in key areas of the business. Helly is managing the e-commerce shift effectively, with the business delivering solid results in the direct-to-consumer channel at +26%. E-commerce mix within D2C was up 82% in the quarter. Helly Hansen's workwear category, which represents almost a quarter of their business, continues to be a resilient and strong performer.
The Helly team continues to focus on the future, recently signing partnership agreements to be the official head-to-toe apparel partner for all Canadian Ski Patrol members and the official supplier of the Norwegian National Alpine Ski Team. These deals are a testament to Helly's status as the leading apparel brand for ski professionals and their dedication to the development of high-performance apparel.
Before I hand the call over to Gregory for the financial remarks, I want to highlight the impressive performance of our own brands portfolio. With CAD 1.3 billion in sales at CTC, own brands accounted for an incredible 36% of our retail sales in the quarter, delivering impressive 23% growth over last year. At CTR, own brands grew 28%, thanks to big names such as Mastercraft, MotoMaster, Noma, Woods, and Canvas.
We're also very pleased with strong growth achieved in newer own brands, including Vermont Castings, Type A, and Rally. At Sport Chek, own brands penetration reached 14%, up from 10% a year ago. Leading own brands such as Ripzone, Helly Hansen, and Woods drove those results, which helped sales and led to meaningful gross margin improvement.
Our strong performance in the own brand portfolio will position us well going forward, as we believe that once customers move to trial, that they will be thrilled with our product quality and performance, and hopefully, over time, evolve to coveting and remaining loyal to our own brands. With that, I'll pass it over to Gregory.
Thanks, Greg, and good morning, everyone. As Greg mentioned, we are very pleased with the results in Q3. We converted our exceptional top-line growth into profit while also generating strong operating leverage. On a normalized basis, after adjusting for $8 million of operational efficiency charges in the quarter, diluted earnings per share were $4.93, up 42.5% versus the prior year.
This earnings growth was driven by exceptional performance in our retail business, which drove approximately three-quarters of our IBT in the quarter, with positive results across all of our key retail performance metrics. First, with respect to our retail top line, revenue growth, excluding petroleum, grew 18.6%, and this was closely aligned to the comparable sales trend in the quarter. This performance was driven by significant growth in dealer demand at CTR and at Mark's by strong sales, especially in the industrial category.
The growth was only partially offset by softer revenue at Sport Chek and Helly Hansen, which Greg touched on earlier. The retail gross margin rate, excluding petroleum, while down 137 basis points in Q3, improved relative to where it stood last quarter. There are several factors impacting margin rate in the quarter.
As a reminder, CTR has the lowest margin rate among the retail banners, and similar to Q2, CTR's significantly higher contributions to revenue weighed down the overall retail margin rate. Additionally, within CTR, there was a business mix impact due to the relatively smaller contributions of our higher-margin automotive business. A final dynamic I would want to highlight is related to foreign exchange.
While our currency hedging program typically limits our exposure to the spot rate, the recent significant growth in demand has led us to making more purchases at the spot rate, resulting in a gross margin headwind. Partially offsetting the margin compression in retail was a rate improvement at Sport Chek, attributable to a favorable price impact in what has been a less promotional environment and a more profitable product mix.
In light of the strong revenue growth, our corporate revenue is—our corporate inventory is sitting CAD 106 million lower versus prior year. Strong sell-through at Mark's and lower purchases at Sport Chek in the first half of the year contributed to the reduction in inventory, offsetting this are higher CTR inventory levels in anticipation of our busiest fourth quarter, and we are in a strong position to meet dealer and customer demand.
I am pleased with the progress we have made in the quarter, generating operating leverage. Our consolidated normalized OpEx rate, excluding petroleum, improved by 264 basis points. Double-digit revenue growth, our ongoing efforts to control discretionary spend, and meaningful progress within our operational efficiency program resulted in a considerable improvement to our operational leverage. I also wanna highlight that on a year-to-date basis, our normalized OpEx ratio is 13 basis points better.
While this figure reflects a more muted revenue growth due to the Q2 store closures, it captures our expense control efforts and the operational efficiency benefits we've realized to date. While I'm covering OpEx, I have two COVID-related expense items I'd like to call out. First, we incurred CAD 18 million in costs associated with the enhanced safety protocols at the stores and the special support program for frontline employees.
This is less than we saw in Q2's results, partially due to the fact that the support payment came to an end in August. Second, as was the case in Q2, we saw a benefit in our share-based compensation expense of approximately CAD 16 million due to the continuing recovery of the share price, which, at the end of Q3, had rebounded to its pre-pandemic level.
This was reflected in personnel costs. The combined impact of these two offsetting OpEx items netted out to a CAD 2 million increase in expenses and a $0.07 hit to our diluted EPS. Our balance sheet remains in a healthy position, and we ended the quarter with over CAD 1.7 billion in cash and marketable securities. In addition to our strong cash flow generation, we continued to take actions to prioritize our liquidity and our financial flexibility.
Within retail, we repaid CAD 250 million owing on our medium-term notes issued in 2018 in support of the Helly Hansen transaction and continued our focus on prudent management of our operating and capital expenditures. In Q3, our capital spend of CAD 58 million was essentially cut in half relative to the prior year levels as we deferred non-essential projects while still prioritizing investments in our store network and our digital platform.
Now, I realize this is the time of year we've typically shared our expected range for capital spend and a forward-looking estimate of our tax rate. In light of the ongoing uncertainty related to the pandemic, we are not in a position to provide either at this time.
Also, the pause we took earlier in the year on our share buyback program continues to be in place, and at present, we do not expect to make any further share repurchases other than for anti-dilutive purposes. We were pleased to announce earlier today a 3.3% increase in our annual dividend from CAD 4.55 to CAD 4.70 per share. This represents the eleventh consecutive year that we have increased our dividend. And last but not least, a few comments on our financial services business, which continues to deliver strong operational metrics in a challenging environment.
Consistent with the second quarter and general industry trends, the ongoing impact of the pandemic has led to lower credit card spending, which has translated into receivables being down 7.1% in the quarter.
As a result of this trend, we collected less interest charges and interchange fees in the quarter, and our gross margin dollars declined by CAD 20 million–CAD 21 million versus last year. Our credit card portfolio continued to be operationally strong, ending the quarter with a PD2+ rate of 1.91%, better by 83 basis points compared to Q3 last year, as customer payments trends remained strong.
If we look at our allowance rate, it was 15.32% in the quarter, slightly higher than where it was at Q2 of this year, as we continued to see a decline in receivables in Q3 as compared to Q2. All in all, in the quarter, the business delivered earnings before taxes of CAD 91 million, which was CAD 18 million below the prior year.
And while there's still significant uncertainty looking ahead, we have reasons for cautious optimism. Despite the continuing headwinds, headwinds impacting our receivables, we were encouraged to see credit card spending trends improve throughout the quarter. And in fact, in September, credit card sales were essentially flat to last year.
We are also keeping an eye on some favorable macroeconomic trends related to savings levels and decreasing levels of debt as a percentage of disposable income, both of which may be positive signs as we look forward. Clearly, these are all trends we continue to keep a close eye on, but I do want to remind everyone that we believe our payment trends have been helped by government subsidy programs and mortgage interest deferral plans offered by the banks.
As it relates to liquidity of financial services, we repaid CAD $700 million on our note purchase facility with Scotiabank and also repaid CAD $500 million of Glacier term notes at maturity. We subsequently issued CAD $480 million of Glacier term notes, and we're pleased to see investor demand at the high end of our historical experience oversubscribed on both the senior and subordinated notes.
Our success with the Glacier deal was a nod to the strength of the business and a clear signal of investor confidence. Before I hand it back over to Greg, a quick reminder that 2020 has 53 weeks, and as a result, we will have 1 additional week in the fourth quarter.
Consistent with our past practices, we will provide you with a comparable same sales metric that is based on a comparable number of weeks in both years, but we will not try to isolate out its impact on earnings. With that, I'd like to hand the call back over to Greg.
Thanks, Gregory. Before I close, I'll say we've got good momentum heading into our busiest selling season, and I'd love to say more, but Gregory won't let me. And although we've chosen to take a more cautious approach with our Q4 promotional calendar in order to maintain safe levels of traffic at our stores, we feel good about our business as we head into Christmas.
Regardless of how COVID-19 progresses, we're confident that Canadians will still find ways to celebrate the seasons, and we expect that decorating the house will be one of our customers' biggest joys this Christmas. Believe it or not, Christmas sales are already quite strong at CTR, and the early snow in the West drove our outerwear business at both Mark's and Sport Chek.
When it comes to digital, we are hardening the CTR site to handle what we know will be increased demand during the quarter. We know that having a broader online assortment is critical and a significant opportunity for us, given heightened demand to our CTR site. We are currently onboarding new online-only vendors as we look to expand our relevance in key categories. New assortments have already been launched.
Baby and furniture are now our top two categories in online-only sales and will serve as a template as we work to accelerate the growth of online-only sales in 2021. As I look ahead, I am pleased with the progress we are making on our one digital platform, and we're on track to roll out in 2021. We're continuing to invest in our store network, having opened three new concept stores during the pandemic.
Our new Liberty Village, Niagara Falls, and Fort St. John stores provide seamless shopping experiences, a focus on a community connection, and offered highly tailored assortments, led by data analytics and a focus on bringing own brands to life in an environment that better enables our customers to shop how they choose.
Between the proven strength and relevancy of our brand and current momentum, I feel confident about our future. We know what we need to do. As much as our business may be complex, our purpose is simple: continue to be there for Canadians. With that, I'll turn it back over to the operator for questions.
Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. We ask that you limit your time to one question plus one follow-up question. We'll pause for just a moment to compile the Q&A roster. The first question is from Patricia Baker with Scotiabank. Please go ahead.
Good morning, everyone. I have one question and then a follow-up. So, in the release and in your comments, Greg, and actually you too, Gregory, you know, you really emphasized the fact that Triangle was a big contributor to your success in Q3, and particularly that you saw a very strong growth with young families, which is target group that you've been talking about for years, that you really wanted to get to with the loyalty program.
And I guess it could be, it'd be fair to say that, you know, I mean, I think COVID provided you with an opportunity to really show what you can deliver, you know, through Triangle with your three banners, but particularly with Canadian Tire.
I'm just curious if you can talk a little bit about what specifically, you know, in the quarter, drove that with respect to your penetration of young families in Canada. Do you still see that there's further room to go? And is there anything specific that you're doing with Triangle for the holiday season this year that will differ from what you might have done last year? In other words, are you, you know, leveraging the strengths of that business and the data analytics further than you might have in the past?
Sure. Thanks, Patricia. I'll try and hit on a few things there. I mean, I think contextually, I would start by just saying, I am so encouraged by the metrics that I'm seeing in terms of customer engagement and I guess just the adoption of a real understanding of how critical the Triangle program is in creating a differentiated value throughout the organization.
In my prepared remarks, I talked about digital acquisition and Mark's as an example. And I think one of the most important things from a metric standpoint is how the program is engaging new members. I quoted 400,000 new customers, but that's not the whole story.
We had just under 200,000 customers reengage with us, meaning they shopped us in the quarter, but have not shopped with us in the last 12 months. So it's 600,000 customers that we now have the chance to build a relationship with going forward. And if you just look at how they spent this quarter, they spent over CAD 125 million with us across the portfolio, which, on an isolated basis, is 3 points of comp, when you compare it to last year. So it's, it's an extremely meaningful opportunity for us. If we look at the number inclusive of Q2 and Q3, it's over 1 million new and reengaged.
customers, and as you point out, it's now up to us to try and build a continued sticky relationship with them, and engage them in our program post-COVID. So yeah, we believe, to answer a couple of things in your question, we really believe that we have room to go. I mean, we just have unbelievable opportunity with these new customers.
They are over-indexing to young adults and active families, which is right in our sweet spot, for CTR and for lifetime value across the portfolio. And in terms of what's different as we head into Q4, I would say the biggest point of difference is our ability to engage Triangle members for Sport Chek and Mark's.
We talked to you a little bit about, you know, the traction that we made and changes we made in with the signing of a new dealer contract, which gives us a little bit more access to the utilization of that customer data for engaging customers.
And my prepared remarks would've suggested that we were off and running on that in Q3, so you can expect that to be very different on a year-over-year basis in Q4. And our analytics, just in terms of recommended offers, next best offer, engines, et cetera, at a personalized basis, are just getting stronger. More work to do to really kind of hone in and make it as efficient as possible.
But our return on ad spend and a lot of the metrics that we look at from an efficiency standpoint for our one-on-one offers are all going in the right direction.
Okay, thank you so much for that. Now, this is a related follow-up, but in your closing remarks, you talked about your investment in the store network, and I was intrigued to hear you talk about that these stores have highly tailored assortments.
Now, presumably, the ability to... I could be wrong, but the ability to have the highly tailored assortments, you know, relies on a lot, I guess, the data that you have from customers and goes back to Triangle and, you know, another use of it. I'm just curious, do you think there's an opportunity to further tailor assortments in your, you know, bring that notion back into your, you know, existing, not new store base over time?
Absolutely. We're, we've engaged externally, from an artificial intelligence standpoint, with some real expertise to completely turn our business processes for planogramming stores, upside down, to have it very store specific, to utilize big data, to really, cater and curate assortments at an individual level. So the, the intent and/or the kind of the North Star of the work effort is for us to be able to sit down or,
or for the dealer to be able to self-serve it on their own, and really, optimize assortment in an aisle, by a business, by a division, the overall store, et cetera. And, and quite frankly, if we, if we, if we get the capability to where we, where we would like, we think there's lots of ability in the rest of the retail portfolio as well.
So, lots of great analytical work going on in our network performance division, and the great news is the dealers are just eating it up. We can't go fast enough. So we think it's a tremendous opportunity going out to the entire network, Patricia.
Okay, thank you so much. I'll get back in the queue.
Thank you. The next question is from Peter Sklar with BMO Capital Markets. Please go ahead. Mr. Sklar, your line is now open. Please proceed.
Thanks. I'm just wondering if you could give some flavor on, you know, how things were looking at the end of the quarter and as you exit the quarter, you know, in terms of the core Canadian Tire banner and, and the comp. You indicated that there was some commentary that you're gonna be less promotional in, in the fourth quarter, but you are seeing- but you have said you're seeing strength pretty well across all categories.
It's just not the obvious summer seasonal categories. So, a bit of a mixed message there. I'm just wondering if you could talk a little bit about what you're seeing as you exit the quarter and as you get into the, the fourth quarter. And obviously, there were some weather effects as well. You talked about, you know, the weather you've seen out west.
We're getting some warm weather in Ontario now. There's a lot of moving parts here, Greg. Is there anything you can kind of fill us in on?
Sure. I'll start. Gregory may keep me honest here. Yeah, you know, as I mentioned, you know, over 90% of CTR's categories grew in Q3, which just, I think, continues to speak to the relevance of this multi-category assortment. We believe that the macro trend with respect to one-stop shop is here to stay, at least over the winter, and while the pandemic is ongoing,
and this certainly is a big tailwind for CTR, so you can expect that to continue right into Q4. In terms of what will be different in Q4, you know, we do think that our Christmas categories will be top of mind for customers. We already saw a similar trend play out with our Halloween decor categories in late October.
Additionally, we have tremendous, ongoing strength in core, very large, non-seasonal businesses. The kitchen business, the tools business, the cleaning business are all performing exceptionally well, and are top drivers of the overall portfolio, so we don't expect any changes associated with that as the weather turns here.
As the cold weather arrives, you know, customers are certainly shifting to restoring the comfort of their home, and, and wellbeing. So we're seeing fixing projects continue to be critical and maybe even dial up a little bit in businesses like painting, setting up workspaces for a number of family members.... And then, you know, wellness is just so top of mind, you know, across CTR and Sport Chek.
So we're seeing continued demand for exercise equipment, and then wellness of the mind, I guess, with indoor games. I mean, the search result differences on a year-over-year basis for searches like games rooms, ping pong tables, pool tables, et cetera, winter cycling for indoors and outdoors. It's really amazing when you think about the breadth of the categories that we offer, you know, just different categories end up being in the mindsets of Canadians at different times, and we've got solutions.
And I think you heard us talk about the demand for outerwear and other banners, as people you get ready for the cold weather. But I also believe that's a nice tailwind just in terms of people wanting to continue to get out of their house, people in walking routines, et cetera.
You got to put different gear on as we move to a different season. So, you know, October was strong, but as you know, November and December are huge months. But we feel like the teams are doing everything they, everything they can, as are the dealers, and we're certainly better prepared than we were early in the crisis, that's for sure.
Why did you make the commentary then that you're scaling back on your promotional intensity for Q4? Is it just because the sales are there, you don't have the inventory? What's your strategy there?
No, it's completely from a consumer safety standpoint, and I don't expect you're gonna see anything different from our competition. I mean, when we've heard us talk about just how much of the business in Q4 travels through the last five weeks of the year, and specifically, those four or five days at the end of November, Red Thursday through to Cyber Monday, you know, we can't handle the traffic patterns into the store effectively and safely, even at kind of last year's numbers, you know, without contemplating any growth that will layer on that, the lineups would be completely out the door.
So I think you can expect us to be highly competitive, and very focused on, you know, sharpening our pencil, creating value, extremely relevant for gift giving and all those things that are important in the last six weeks of the year. But I think you'll see our big demand events just stretched out over longer periods of time.
Okay. And then just lastly, on the financial services business, do you have any thinking on when consumers are gonna start... When your MasterCard consumers are gonna start, you know, borrowing again on the credit card and when you hope to see growth in Guard? Do you have any feeling about that? Because as you point out, you know, consumers have been busy paying down their balances through COVID.
Yeah, Peter, it's Gregory here. Thanks for the question. I think, you know, we tried to highlight some of the comments in my commentary, but I'll elaborate a little more. You know, in the month of September, where we saw credit card sales essentially be flat to where it was a year ago, you know, we hadn't seen that since March. So it's the first month out of the last six or so where we actually saw sales trends kind of get us back to where they would have been a year ago.
I will say, the team over the last 6 months have really been focused on building out kind of digital acquisition tools and methodologies and just building that strength, because you can imagine when stores are shut, I mean, you know, you're not acquiring, you know, card members in stores. So I think the team's done a really good job kind of really reshaping and rethinking that digital experience.
And more recently, I know they've been back in the stores testing, you know, acquisition in store that is safe for both the employees and obviously safe for the customers. And I think they've found a methodology and an approach that they think is now scalable. But, I mean, it's gonna just take a little bit of time. You know, you can't turn that...
It's not like a light switch where you can turn it kind of on and off that quickly. So it's gonna take a little bit more time to go back into the stores. Again, Greg talked about safety. It's just top of our mind, right? And so, you know, I think that's what we'll just keep an eye on is kind of the sales trends. And I mentioned about those macroeconomic trends as well,
that those are making us feel a little bit better than certainly we would have been three or four months ago. So, you know, I think we feel very good about financial services. I still think there's a great opportunity to improve integration within retail, to add kind of longer term value as well.
But I just think we want to be careful over these next little while to just not, similar to Greg's point, we don't want to drive kind of promotional activity and, and want to keep everybody safe, would be how I would answer.
Okay. Thank you.
Thank you. The next question is from Irene Nattel with RBC Capital Markets. Please go ahead.
Thanks, Ella, and good morning, everyone. Just a couple of questions, if I might. You did a great job of talking about the performance of the seasonal and the core categories during Q3, Q3, rather. One of the questions I'm getting asked a lot is how much of that might be pulled forward versus incremental demand? And I know that may be hard to tease through, but kind of wondering what your data is showing you and, you know, your relative share of consumer wallet and that kind of thing.
Yeah, Irene, it's Greg. It is very difficult to, to ascertain. I mean, we - in our spring, summer businesses, when you think about, you know, businesses like outdoor furniture, outdoor grilling, bicycles, et cetera, I mean, it, it's, it's extremely difficult to find any -...
Inventory across the land. We will certainly need to replenish store inventory, and that's the big question for the teams, is how we forecast consumer demand heading into last year. We certainly believe, through our analytics, that we left a lot of business on the table. As happy as we are with the tremendous performance, we could have sold a lot more if we had inventory, and it was not a Canadian Tire unique situation for some of the categories that I just talked about. But you know, the strength is, as I indicated, is not just seasonal. It is it's non-seasonal as well.
So, you know, we know, you know, through the research that we conduct externally, that we are taking share significantly, both bricks and mortar and e-com. I think I stated that with all of the divisions in which we compete. It's really crystal ball time in terms of how we think through what was pulled forward versus not. I wish I had a better kind of fact-based answer for you, but it's really difficult to figure out what was pulled forward.
Yeah, understood. Thank you. And just, I wanted to ask a follow-up. I have one other question, two other questions or one and a follow-up. So, the other question is, thinking about automotive in Q4 and Q1, with travel being sharply reduced, there's probably, you know, a lot of snowbirds who normally would decamp to warmer climes are now, at least for the time being, effectively stuck here and likely to be for a little while. So how are you thinking about that, for automotive in addition to seasonal?
Yeah, I mean, we called out automotive impacting our overall gross margins because it's not growing at the same rate as the rest of the portfolio, but it's still growing extremely healthy. I think the number was 16% in the quarter. So, you know, a much higher clip than we have been accustomed to over the years. And you have to keep in mind, you know, from a travel standpoint, tires drive so much of the overall automotive service and core kind of front-end suspension, et cetera, businesses. And, you know, we only have a 15% market share in tires, you know, so 85% of Canadians buy their tires somewhere else.
So when we think about, you know, 1 million new Canadians engaging with the program, when you think about the existing loyalty base and now our ability to engage with them, you know, with offers, I think about tires. And early season here, our tire business is extremely strong. So some of this, some of the actual facts defy the subjective odds or logic.
But we're feeling very good about our automotive business. It's just, you know, it's just not keeping pace with how great the business is in categories like living and playing. But again, our core businesses in automotive are showing up the way we want them to.
That's great. And then just, the follow-up question that I had, and it's a follow-up to the conversation you were having with Patricia. How long do you think it will take to kind of tailor the assortments on a store-by-store basis, which could drive, you know, some interesting upside to sales?
I mean, every store we open, we get some incremental benefit. But data and the capability just gets, you know, stronger and stronger, especially as we're starting to engage with much more sophistication from an AI standpoint. So it'll never be a light switch. I don't think you'll ever kind of wake up one day and have the most sophisticated modeling tools and be able overnight, you know, to deploy it to 500 stores unilaterally. Because, you know, you gotta get the...
There's a whole kind of back office that needs to support the delivery of that in front of the customer in terms of the supply chain and stocking levels and changing ordering algorithms, both on our end and working with our vendor forecasts and store forecasts, et cetera.
But we're getting benefit now, Irene. I mean, we may just not have been talking about it much, but you know, our network performance team, sorry, could show you every intervention where they played a data and analytics role with store, a pre- and post-benefit relative to a control set. So that testing capability that we have in the organization that we've talked about before is alive and well, and in this area, and it's one of our most important priorities going forward. And like I said, it's nice when our priorities are 100% and completely aligned with the dealers, which this one is.
That's really helpful. Thank you.
Thank you. The next question is from Mark Petrie with CIBC. Please go ahead.
Yeah, good morning. I also wanted to ask about assortment, but maybe a little bit different, different kind of angle, and I guess focusing on CTR, but also curious about, any comments with regards to the other banners as well. But just sort of going through the pandemic and seeing how consumers are shopping your banners, how does that affect how you think about your assortment?
You know, categories that you, that you offer, but also depth and breadth of the assortment. And I guess, you know, obviously, own brands is a, is a key part of this. You know, you noted the strength that you're seeing there, and I know it's been a long-term focus, but just also interested specifically how all of this fits in with your own brand strategy?
Just trying to think about how to answer that, Mark. It, we have, as you know, it's almost 200 categories, under the roof of a Canadian Tire, already. So, you know, it's one of the reasons that I, you know, felt the need to just call out in prepared remarks, this notion of how we extend the relevance of our assortments with online only.
We've seen how Canadians have come to, I guess, the front door of all of our stores, which is the website, and our traffic is up exponentially. I mean, tens and tens of millions of incremental visits, every quarter. So how do we capitalize on that, knowing that we have, you know, a kind of fixed space, et cetera, inside the stores?
And so when you think about a business like baby and a business like, what was that? Furniture, big cube require a lot of space to, you know, deliver an experience online, and it seems to be working. The take-up rate and sales on those new programs are fantastic. So I think that's one way, Mark, is we're really thinking about an online-only assortment.
I think we'd like to think about it right now as an extension to the categories in which we compete today, as opposed to net new categories. But that certainly would be, you know, an option, an option for us as well. I think the teams are really focused on... Gets back to an earlier question.
They're really focused on trying to forecast, you know, consumer demand for 2021, as opposed to thinking through. That's keeping them pretty busy, as opposed to thinking through net new assortments. So it, it is that, that depth. You know, we're still finding a way, even through work from home, to do, you know, as, as many line reviews and what have you.
So, you know, we always do breadth and depth reviews as part of that kind of normal process. But I think it's just focused on making sure the businesses that we're in, that we're ready for the demand next year, sprinkling in, you know, sprinkling in the online only. And, and, you know, Party City is a, is a whole new category that the team has been quite focused on in the party assortment.
And we've done a lot of work in Q3 that will kind of manifest in late Q1 and early Q2 next year, which has us rejigging, you know, some of the retail floor and the categories, et cetera, and had us onboarding about 50,000 SKUs to our assortment. So it's really about focus, I think, Mark, across the portfolio and keeping the teams, you know, focused on executing on that Party City extension to the-
Yeah.
I mean, yeah, I mean, we, you know, what's going on from an own brand standpoint, not only in Canadian Tire, but in Sport Chek, I think that's a meaningful penetration increase that I alluded to in Sport Chek. So you've heard us talk about, you know, our targets for our own portfolio. I've just continued, I continue to be amazed at, you know, how the teams are thinking about driving relevance in those brands.
I'll hit a couple of highlights. You know, the Rally brand in the bike category and CTR, we had a soft launch this year where we shipped out about 5,000 units, and we had a 95% sell-through. You know, these bikes are higher price point.
If you look on the website, you'll see, you know, the littered with five-star reviews. So teams have been working really hard. In the spring, you're gonna see a more fulsome assortment of bikes and bike accessories. And then they've got a 2022 platform and a 2023 platform. So it's this multiyear platforming capability that the teams have been building. Even smaller brand investments, like our acquisition of Muskol, where this year, we grew the brand by 200. Those sales have paid for over 50% of the acquisition in less than a year. So, No Fly Zone and Mark's, just lots of stuff going on.
So that, obviously, is a capability we've been building over the last 2 or 3 years and is a very important part of how we view breadth, depth, architecture, price laddering, all that good stuff of assortment planning.
Okay, thanks. Then just quick, in terms of a follow-up, you touched on online only. Obviously, that is gonna play an increasing role. I'm just curious how material that is today, and how does the financial model work for that business? Thanks a lot.
Yeah. It's small today. Like I said, it's just a few categories here or there, but we think a nice complement. And the model works exactly the way the model works with-
Okay, thanks a lot. All the best.
Thank you. The next question is from Vishal Shreedhar with National Bank Financial. Please go ahead.
Hi, thanks for taking my questions. Just on Triangle, obviously seeming like that Triangle's gaining momentum quarter by quarter, and you're gathering a lot of success with that program. Wondering where Canadian Tire is with Triangle with respect to what it envisioned the program could be when it launched about. For example, are you squeezing? Is it early days for this program, or are there opportunities to maybe sell data to your vendors? Is there an opportunity to get more retailers on board with that? Give me some thoughts on that. Thanks.
... Yeah, so I'll take that. Gregory may wanna pile on. Vishal, I think we're still early days. I mean, if you think about it in terms of its focus, just kind of building, you know, our business that we have today and the engagement that we have with customers.
You know, we feel like we're just getting started. In Mark's and Sport Chek, we're building capabilities to really use data and analytics to determine what the next best offer for Vishal might be. That could be anything from a product in Sport Chek to a division you may not have shopped in, in Canadian Tire, like my tires example, or it could be giving you a credit limit increase in the bank.
So all of those kind of capabilities with respect to next best offer, we're just getting started. You know, you talk to monetization opportunities. Sure, I mean, lots of retailers are doing that. You've heard me talk about our belief that we have very rich digital customer platforms. So, you know, I certainly wouldn't be surprised if that's part of our strategy going forward.
Then the last piece is, you've seen us through the bank with the value proposition on the credit card, engage with partners to kind of increase our value proposition, stickier relationships. You've seen us extend that into a relationship with Budget Car Rental and Husky Gas, et cetera.
So partnerships in the loyalty ecosystem, we believe is a big opportunity for us, and we're just getting started. So that's a quick summary of where we think we are.
Okay. Yeah, thanks for that. And just to changing topics, another quick one here. Obviously, you know, very strong same store sales growth across retail, and presumably, and you've already indicated this, you're getting new customers coming in, walking into the store and also via Triangle. Wondering to what extent these new customers in trial if you have any ability to know what % of these new customers are sticky, and you're able to keep into the system? And what initiative that Tire has ongoing to identify those customers and keep them in the system, particularly those outside of Triangle? Thanks.
Yeah, maybe Vishal, Gregory here. I'll start off, and I'm sure Greg will have a few comments as well. I, you know, I would give an example of kind of a new credit card customer, and the programs that the teams have developed as in terms of, you know, there's customer acquisition, there's customer engagement, there's customer retention, all of which are, you know, strengths,
I think, that we're building across the organization, or as Greg said, capabilities. So, I mean, the good news, frankly, is we, you know, the 400,000 number, I think, is a great start around attraction. But to your point and to Greg's point, we wanna get those, you know, loyal Canadian Tire customers.
So Susan O'Brien and the team are very much engaged at kind of using all the information we have to understand more about Vishal as a customer and what he may value. So you know I go back to Greg's last comment. I think we're in the early innings of the game on this still. I think we've got a great asset to build from.
We've built a bunch of capabilities in my mind, and now I think it's time to really start to talk more and to take advantage of this. So I really think you're gonna see more. So you know the specifics around those customers you've identified, I think the question to me will be: Where are we with them in a year from now?
So how many of them were one and done, and how do we reengage them? So I think... And that's, that's kind of top of mind, I think, for all of us here on the management team, is how do we continue to maintain a relationship with these customers over time? So I think it's a, it's a great question, and, and, I think we've got a lot of strengths that we can start to leverage and use now to kind of really build that out even more.
Thanks, guys. Congrats.
Thank you. The last question will be from Brian Morrison with TD Securities. Please go ahead.
Hey, good morning. Just a couple follow-up questions, Greg. First one on loyalty, the 400,000 new members. What's the total members now? Can you just clarify, really, what drove that increase? Is it your portfolio of a one-stop shop? And then, what's the average spend of a loyalty member versus a non-loyalty member per purchase?
We may have to get back to you on those stats, Brian. The actual, you know, total, we call them active members. We've got, you know, we've quoted 10 million total members before, 9 million active members. You know, if that was the cutoff line prior to Q3, we would have, you know, probably 9.6 million active members with the 600,000 I talked about. There could have been some churn in the, in the 9 million, but yeah, I don't have it off the top of my head. And in general, it really depends on the segment, in terms of spend. But you know, it's roughly double the spend of a non-loyalty member on average.
And certain segments, like active families, which is why we're so attractive to them, would index much more in terms from a spend standpoint.
Okay, and the increase, is that really just your one-stop shop across the board?
I'll start because I got, you know, it's Gregory here. I think that's a piece of it, but it, Brian, I think it's broader than just the fact of one-stop shop. I think, I really think it's the value prop that Greg mentioned around, you know, customers getting an understanding. I think it's product assortment.
As you, as you bring customers back to the store to realize, you know, it's, it's maybe a bit of a different Canadian Tire than they remembered or, or, you know, kind of the other banners to, you know, Sport Chek and Mark's as well. So I, I think that's a big piece of it, is the one-stop shop, but I wouldn't discount the other pieces of that, is all I'm suggesting. There's...
There's more to that puzzle in my mind than just the fact that it's one-stop shop. I think, you know, it's all the things that they're working on. It's the own brand strategies. All these things, to me, that we've been working on over the past few years are putting them all together, to be honest with you.
Yeah, I would agree. I think it may start with the one-stop shop, given the vastness of the portfolio, but if you take the 400,000 new members as an example, a large percentage of them engaged with us online. And so what's great about that is in order to engage with us online, you authenticate almost immediately from an email, contactable standpoint, information, et cetera, and now we can segment them.
And so we, you know, think our online capabilities as well are a big driver of this. And to the degree that we get to know these customers, it just sharpens our ability to engage with them and keep them around. So I'd agree with Greg.
It's more than one-stop shop, but I think the premise of your question, I think there's a lot there, given just how many categories we participate and how many jobs and joys we cover off for life in Canada.
Okay, and then follow up for Gregory quickly. Just confirm, it sounds like your outlook on the, on the card portfolio for Q4 in 2021, it sounds like a focus on aging with some measured growth. You took a pretty prudent provision in Q2, and I'm wondering, you know, there's some uncertainty in the market with COVID right now, but what would be a key indicator we should be looking for, for a potential release of that provision?
Yeah, I think you maybe jumped to an answer versus a question, Brian. To me, I think there's a number of metrics we look at. I think the one that is public we share the most is the aging of the portfolio. As I mentioned, I think there's some macroeconomic trends that we keep an eye on, but, you know, I think once some of these mortgage deferral programs and the CERB transitions to the new government program, I think we'll have a clearer kind of line of sight as to where things are.
But, you know, I will tell you, we feel pretty strongly that our payment behavior to date has been helped by some of these programs, and I just think it's prudent to kind of watch these programs roll off or transfer into whatever they're gonna transfer into before we kind of jump ahead. So, you know, the way I think of it is, we're comfortable to predict on the balance sheet as of this date.
If you look on a historical basis, we roughly have, roughly, about 2.5 years' worth of write-offs in the current allowance. And as you know, the current accounting rules, we'll look at that every quarter and take into considerations the trends we see, and that'll help shape what we think we need to book in the next quarter.
So I just wanna be careful we don't get, like, we're really excited about the trends around aging and all the operational metrics, but I still think there's some more data we need to see before we start thinking about releasing at this stage. Would be my thoughts.
All right. That's helpful. Thank you both.
Thank you.
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