Good morning. My name is Melanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Tire Corporation Limited First Quarter 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, 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 first 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 will now turn the call over to Greg Hicks, President and CEO. Greg?
Thank you, operator, and welcome, everyone. Today marks my first quarterly earnings call as CEO, and I am very pleased to be speaking with you this morning. I'm joined by Gregory Craig, and today is also his first quarter since being appointed as our CFO. Gregory and I have a long history of working together, and as we begin our respective tenures as CFO and CEO, I couldn't ask for a better business partner and colleague. As you all know, we typically have our full management team in the room for these calls. However, given social distancing, it's Gregory and I who will take you through our results and answer your questions. Our intent is to provide you with a good understanding of what is happening in the business today, so our prepared remarks are a little longer than usual.
Before I speak to Q1, I must first address these extraordinary times in which we are living, as COVID-19 has impacted nearly every aspect of our lives, including how we do business. As everyone knows, this crisis is fluid, with provincial and federal announcements and subsequent changes happening almost daily. Just yesterday, we were very pleased with Premier Ford's announcement, permitting CTR stores to reopen beginning on Saturday and curbside pickup for all of our banners with storefront retail. This was a much-anticipated announcement, and I can assure you our dealers are already working hard to safely welcome customers back in their stores. As you know, in March, we closed several of our retail banners to the public, with the exception of Canadian Tire Retail and Gas+ locations.
In our CTR stores, we swiftly implemented a number of heightened safety measures and new processes such as curbside pickup, ensuring Canadians could still get their essentials. We also understood that we had a bigger role to play in this, supporting our communities, especially in times.
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Good morning, it's Greg speaking. We apologize for the inconvenience. We're all doing our best in these times, and we simply lost the line, so I'm going to restart from the beginning. Welcome, everyone. Today marks my first quarterly earnings call as CEO, and I am very pleased to be speaking with you this morning. I'm joined by Gregory Craig, and today is also his first quarter since being appointed as our CFO. Gregory and I have a long history of working together, and as we begin our respective tenures as CFO and CEO, I couldn't ask for a better business partner and colleague. As you all know, we typically have our full management team in the room for these calls. However, given social distancing, it's Gregory and I who will take you through our results and answer your questions.
Our intent is to provide you with a good understanding of what is happening in the business today, so our prepared remarks are a little longer than usual. Before I speak to Q1, I must first address these extraordinary times in which we are living, as COVID-19 has impacted nearly every aspect of our lives, including how we do business. As everyone knows, this crisis is fluid, with provincial and federal announcements and subsequent changes happening almost daily. Just yesterday, we were very pleased with Premier Ford's announcement, permitting CTR stores to reopen beginning on Saturday, and curbside pickup for all of our banners with storefront retail. This was a much-anticipated announcement. I can assure you, our dealers are already working hard to safely welcome customers back in their stores.
As you know, in March, we closed several of our retail banners to the public, with the exception of Canadian Tire Retail and Gas+ locations. In our CTR stores, we swiftly implemented a number of heightened safety measures and new processes, such as curbside pickup, ensuring Canadians could still get their essentials. We also understood that we had a bigger role to play in this. Supporting our communities, especially in times of crisis, is one of our brand's fundamental values, which is why we launched our CAD 5 million Canadian Tire COVID-19 Response Fund on April 9. As you can imagine, a crisis of this magnitude requires simultaneous attention across many priorities.
In addition to protecting the health and safety of employees and customers and supporting our communities, we have prioritized frequent and transparent communication with all our stakeholders, our relationship with Canadian Tire Associate Dealers, as well as focusing on our company's cash position and financial flexibility. While we entered the COVID-19 crisis in a healthy financial position, we felt it prudent to expand the horizon of our liquidity buffer and enter into incremental credit facility agreements by leveraging our trusted relationship with our banking partners. Their confidence in CTC is demonstrated by their willingness to quickly extend these new credit facilities. Financial Services continues to maintain a level of liquidity well in excess of the required regulatory minimums. We have a strong balance sheet and have fortified our capital and liquidity sources, equipping us to stand up to this challenge.
Another significant priority during this crisis has been our e-commerce platform. Going into March, our Mark's and Sport Chek platforms were scalable, which allowed us to continue serving our customers through e-commerce once our stores were closed. This was not the story at CTR. For context, prior to COVID-19, the CTR website was receiving 5,000 orders per day. We were aware of the CTR site limitations and knew that eventually, we would run into issues with scalability. Development work was already underway, with capital allocated for 2020 and 2021 to upgrade our platform. But with so many customers turning to e-commerce, combined with the closure of our CTR stores in Ontario in early April, the eventuality of this issue came much sooner than we expected. The CTR website began to see unprecedented demand overnight, and it was over capacity.
To manage this issue, we reprioritized our capital agenda to deliver on the development work earlier than planned. We had the best possible team who worked around the clock to overcome and solve this challenge with amazing results. Today, our CTR website is now processing more than 80,000 orders daily. We successfully dealt with something that was unmanageable, and now our e-commerce platform has scaled up in a significant way. We are able to compete on a whole new level. While we still have significant work to do on our site and supporting processes, we believe we now have the capacity to process and sustain this monumental shift in demand. We will continue to deploy modifications to sustain the capacity while major development work is ongoing on a new digital platform.
The new platform, which involves moving to the cloud, will add significant scale and stability, allowing for more personalization and making it easier to add SKUs. The progress we are making on e-commerce is a very important part of understanding our performance in the quarter, which brings me to our Q1 results. As you know, our results in the quarter were impacted by a number of COVID-related impacts, and Gregory will walk us through these in more detail in a few minutes. Q1 is our smallest quarter, and we're often at the mercy of volatile weather. This year, the mild weather paled in comparison to the unprecedented challenges brought on by COVID-19. Our consolidated comparable sales in the quarter were relatively flat to last year, at - 0.3%. CTR recorded comp sales growth of 0.7%.
Despite milder temperatures and a lack of snow early on, the impact of COVID-19 provided a tailwind to our sales in March as customers prepared for orders to stay at home and practice physical distancing. For Sport Chek and Mark's, the comparable sales period ended on March 18, as this marked the last day the banners were fully operational in the quarter. Over that period, Sport Chek was down 1.8%, while Mark's was down 4.5%, as both banners were impacted by steep sales declines early to mid-March, as growing concerns over COVID-19 deterred customer store visits and discretionary purchases. The best way to understand the quarter is to break it into two parts, the period up to March 11, when the pandemic was declared, and then the remainder of March.
On March 11, consolidated comp sales were +1.3%, which we were quite happy with, given we were up against last year's comp growth of 6% and a two-year stack growth of 13% at CTR. CTR was up 0.9% and seeing strong performance in non-seasonal categories such as kitchen, cleaning, and pet, while Sport Chek was up 3.2%, with thriving outerwear and accessories categories, and Mark's was up 0.8% on strong casual and ladies' footwear. Performance was unfolding as expected, leading into the end of the quarter. Beginning March 12, CTR experienced significant demand for health and cleaning-focused categories, and as the month progressed, saw increased demand for what we now call boredom busters, products such as kids' toys and games, exercise equipment, sports and outdoor recreation, as Canadians prepared to spend more time at home.
The increased demand for these categories drove significant traffic to our stores and website. In addition, our own brands, such as Type A, For Living, and FRANK, delivered triple-digit growth rates. CTR's need-it-now assortment has typically been trip-driving categories in automotive, fixing, and seasonal, purchased through bricks and mortar due to the urgency with which customers need the products. COVID-19 has expanded the definition of what need it now means to our customers to include a wider range of products needed to live, work, and play at home, as well as products needed to keep our homes safe, clean, and healthy. In Q1, and the last three weeks of March in particular, these products delivered leading sales growth, clearly demonstrating how relevant Canadian Tire is to its customers.
With physical distancing and government restrictions in place, we were concerned that fewer trips to the store would translate into lower overall demand for our products. That has not been the case. We are seeing customers increasingly rely on Canadian Tire as the one-stop shop for a wider range of essential products, which is driving a significantly higher basket size. We've also been seeing a particularly strong performance with our high-ticket discretionary items, which may seem somewhat counterintuitive, especially during this period of economic uncertainty. However, as Canadians equip themselves to stay and work from home. Some of the top purchases include trampolines, basketball nets, backyard play structures, and treadmills. In light of these family-related purchases, it's not surprising that we drove disproportionate growth among our Active Families customer segment in the quarter.
The one thing holding consistently true is that our customers continue to see CTR as a top destination for their Jobs and Joys, particularly during this unprecedented time. It was a different story at Sport Chek and Mark's following March 12, as they experienced double-digit sales declines, especially following March 19, when the stores were closed across the country. In a matter of three weeks, the momentum the business had gathered through the quarter eroded completely. While we continued to see heightened demand on our e-commerce channels, it did not compensate for the loss of foot traffic in our closed stores. Helly Hansen also lost momentum in the latter weeks of the quarter, as its major European and North American markets became paralyzed by increasingly stricter physical distancing measures.
As a result, Helly Hansen's revenues decreased 7% in the quarter, but were relatively flat on a constant currency basis, growing 0.6% versus prior- year. As with our other banners, the e-commerce channel took on a larger role at Helly Hansen and grew at 36% for the quarter and ahead of our expectations. In the quarter, we were encouraged by the strong POS results of Helly Hansen outerwear categories at Sport Chek and Atmosphere, where sales grew by 80%, and at Mark's, where workwear grew by 24%. At Financial Services, while we saw another strong quarter of receivables growth, with GAR up 4.2%, earnings were impacted by an increase in the estimate for expected credit losses, which Gregory will cover properly in just a few minutes.
I continue to be very pleased with how our Financial Services business has responded in these times. We have an experienced team at CTFS who are more than capable of working with our customers who might be facing financial difficulties right now. We offer a number of relief measures to our customers, and today, we have many customers that are benefiting from these programs. As for our retail business, e-commerce played an increasingly larger role in our performance in the quarter and beyond. It became clear that one of the impacts of COVID-19 was that it accelerated our customers' desire to engage with CTC digitally. Site traffic, conversion rates, and e-commerce sales all increased exponentially, surpassing our previous high watermark set by Cyber Mondays in the past. In March alone, CTR tripled its recent e-commerce sales growth rate, which speaks volumes to what we are seeing.
Active Families and young adults led customer acquisition to e-commerce as CTR experienced strong customer count increases in members under 30 years old. We believe that COVID-19 has permanently shifted the shopping behavior of many, heightening the importance of delivering a compelling digital experience to our customers, which will continue to be a key priority for us going forward. I want to switch gears slightly and tell you a little, little about the performance we've seen to date in Q2, to the end of April, as I'm sure you're eager to get a sense of our recent trends. At CTR, despite the closure of 203 Ontario stores, which is 40% of our network, and the website capacity challenges we experienced at the start of the quarter, our national CTR sales are down 1.8% in April.
I am so encouraged to see Canadian Tire faring as well as it has. We are an extremely resilient brand, and when coupled with our strides in omni-channel delivery, we are weathering this storm. At Sport Chek and Mark's, the declines we have been seeing are steeper, which is consistent with the more discretionary nature of our assortment in these banners. On a consolidated basis, retail sales are down 19% on a quarter-to-date basis. While we do not know the future impact COVID-19 will have on our business or when our business will return to full strength, we expect a more significant revenue impact from COVID-19 on our full quarter results in Q2 than it had on our full quarter results in Q1.
Before I hand it over to Greg, Gregory, I want to reiterate our heightened focus on maintaining our liquidity and ensuring a strong cash position. You may be surprised to hear that 70% of our cash is consumed by inventory. This is a key focus area for our merchant teams, who are balancing a fine line between being there for our customers while also keeping our working capital as lean as possible where we don't need it. We have been actively monitoring categories in the business that have seen strong consumer demand to ensure inventory is available for our customers, and that we are setting ourselves up to succeed and grow as the year unfolds. And with that, I'll hand it over to Gregory.
Thanks, Greg, and good morning, everyone. This is my first opportunity to address you in this forum in my new role, and I want to thank you for joining us. Today, I will cover the key financial impacts in the quarter to bring as much clarity as possible in this time of uncertainty. So without further ado, let's get started. Our reported diluted EPS in Q1 was a loss of CAD 0.22, and a loss of CAD 0.13 when we normalized the CAD 7.5 million in operational efficiency charges we recorded in the quarter, compared to a normalized EPS of CAD 1.12 in Q1 last year.
As Greg mentioned, COVID-19 has affected nearly every aspect of our business, disrupting consumer behaviors, equity and foreign exchange markets, and the economy overall, leading to significant impacts on our consolidated earnings and EPS, which I'd like to highlight for you next. First, I'll start with the most obvious one, the loss of revenue at our retail banners. In early March, anxiety over COVID-19 began to take a toll on customer foot traffic at Mark's, at Sport Chek, and at Helly Hansen revenue in Europe and the U.S. The declining trend accelerated further following our announcement that Sport Chek and Mark's stores would close on March 18. Obviously, with the stores closed, our banner's ability to generate revenue at their historic levels was significantly impacted.
To give you further context, we disclosed in our MD&A that Sport Chek, Mark's, and Helly Hansen collectively contribute CAD 140 million in revenue on average during the last two weeks of March 2018 and 2019. Second, at Financial Services, we recorded a CAD 45 million increase in our allowance to reflect the increased probability of a recession and the resulting increase in expected account aging. This impacted EPS by CAD 0.43, and I will provide more color on it in a few moments when I cover off our Financial Services business. Third, and less obvious, is the impact that the almost 40% drop in the value in our share price had in the first quarter, due to the impact the pandemic had on equity markets.
We utilize equity hedge instruments to offset share-based compensation expenses from upward movement in the share price. However, the reverse holds true when the share price declines. As a result, the significant share price depreciation in the quarter led to a CAD 42 million increase in our net share-based compensation expense, translating into an EPS impact of CAD 0.44. Finally, a smaller impact of CAD 7 million, or CAD 0.09 in EPS, related to the non-operational FX loss recorded at Helly Hansen due to the sharp weakening of the NOK relative to the appreciation in the U.S. dollar. I now want to spend some time going over the key performance metrics of our business, and will attempt to do so while removing any COVID-related noise.
And I will let you know that we provided a comprehensive summary of the COVID impacts on the quarter in Section 3.0 of the MD&A. First, while our reported retail revenue, excluding petroleum, was down 1.8% for the quarter, it was trending at about 5% as of March eleventh. Despite a fairly mild winter, CTR was seeing strong dealer demand, with shipments growing across the automotive, fixing, and living categories. And Sport Chek was also on track, with strong performance in outerwear, accessories, and footwear. What had started out as a healthy trend drastically reversed course in a matter of 3 weeks, post-March 11. The store closures at Mark's and at Sport Chek, and the impact at Helly Hansen globally, were the main drivers of this revenue decline.
Partially offsetting this was the continued growth at CTR and the inclusion of Party City's revenue. In an environment as tough as this, I am pleased with the performance of our retail gross margin rate, which, excluding petroleum, was only slightly lower, down 10 basis points compared to last year. The gross margin rate benefited from strong performance at CTR due to a favorable business mix and freight-related savings on the back of lower fuel prices. This was offset by margin pressures at Mark's and Sport Chek due to higher e-commerce contribution to sales. You will also notice that our consolidated OpEx ratio performance, which had been on an improving trend over the past two quarters, increased by 240 basis points.
This performance is directly related to a lower revenue in the last three weeks of the quarter and the sizable OpEx impact in our share-based compensation I spoke about earlier. Adjusting for these impacts, the OpEx ratio would improve by 16 basis points compared to the prior- year, attributable to lower expenses in travel and marketing, as well as the continued momentum with our operational efficiency program. Maintaining a healthy balance sheet is a key priority for us at Canadian Tire. We are well capitalized and have access to multiple sources of liquidity. As of the end of the quarter, we had CAD 1.5 billion of available liquidity within our retail segment, over CAD 300 million at CT REIT, and CAD 2.25 billion at Financial Services. Financial Services continues to maintain a level of liquidity well in excess of the required regulatory minimums.
In addition to the existing funding channels, CTC recently entered into a one-year committed bank credit facility for CAD 650 million with four Canadian financial institutions. These financial institutions were quick to respond to us, reflecting a high degree of confidence in CTC. We are taking action to protect our cash position and financial flexibility. As Greg mentioned, we continue to manage our cash prudently by managing our working capital and have taken steps to reduce discretionary costs at home office and our corporate stores. We have also announced we have taken a pause on our share buyback program, and we are carefully prioritizing capital projects and spending for the year.
While we are confident in the long-term outlook for our business, we are suspending the previously communicated annual operating capital range, which we indicated was going to be between CAD 450 million and CAD 500 million. We will still execute on critical projects, especially those relating to strengthening our digital platform, operational efficiency initiatives, and a new dealer ordering system and we will defer expenditures on non-essential projects. We are also suspending our previously disclosed annual tax guidance of 26%. Now, before I hand the call back to Greg for closing comments, I want to address the performance of our financial services business, which continues to be strong and healthy, and is uniquely positioned to navigate through this challenging economic environment. As discussed earlier, our earnings in the quarter reflect a CAD 45 million dollar COVID-related hit to allowance, incorporating the increased risk of future credit losses.
Under the expected credit loss model, we are required to record expected losses upfront on a forward-looking basis, incorporating changes in both economic conditions and customer behaviors. As the probability of an economic downturn increased due to COVID-19, we recorded CAD 30 million in incremental allowance and another CAD 15 million as a result of expected increases in credit card aging. Excluding the CAD 45 million in allowance, Financial Services IBT would have been up 2.4% in the quarter. As a result of this adjustment, our allowance rate increased to 13.64%, slightly outside of the previously communicated range of 11.5%-13.5%. Given the continuing uncertainty of the economic conditions, there is always a possibility for further changes to the expected credit loss model as we look ahead in the year.
With respect to receivables, over the last 15 quarters, we've been seeing continued receivables growth, and this quarter was no exception, with GAR up 4.2%. It's fair to assume that receivable growth will flatten over the next few quarters, as the continuing economic downturn is likely to translate into reduced discretionary spending and lower card and lower sales on the card. With respect to aging metrics reported in our quarterly results, I would comment that at the end of March, it would still be too early to see any significant movement in our past due receivables or net write-off rates. Our PD2+ rate at the end of the quarter was 3.07%, and that was only 24 basis points worse than prior- year.
Our net write-off rate was 6.35%, was still firmly within our planned range and comfort zone. We are continuing to keep a close eye on aging metrics, payment rates, and spending, and are working closely with our customers who are experiencing financial hardship by providing them with a number of options to ease their burden. I also want to caution that while in the past, the unemployment rate had been an important indicator for our performance, in light of the extensive subsidies announced by the government, unemployment rate alone may not be as strong of an indicator this time around. Finally, I want to remind you that the extensive collections and risk management capabilities we have developed at Financial Services over the years position us well to successfully navigate through this downturn and come out of it stronger.
We shared with you today that we are withdrawing our disclosed three-year financial aspirations. I want to reinforce that as a management team, we are committed to deliver long-term sustainable growth. However, given the significant uncertainty around the impact of COVID-19 on the economy and on consumer demand, we believe the best course of action is to withdraw our financial aspirations at this time. Though the current environment is challenging, Canadian Tire has been able to successfully navigate through difficult times over the years and adapt to changing environments. I am confident that our strong business model, financial flexibility, and resilience will continue to position us well for long-term success as we emerge from the COVID-19 crisis. With that, I'll hand the call back to Greg.
Thank you, Gregory. As a company, we are resilient. We have a 97-year track record to prove it. During Q1, we demonstrated that adversity truly breeds innovation. As we work through our second quarter, I'm encouraged by the results that I'm seeing. Between the work that has been done behind the scenes and new or accelerated processes as a result of COVID-19, we are well equipped to win today and tomorrow. When it comes to our previously stated operational efficiency plans, we remain committed to our CAD 200 million goal in annualized savings by the end of 2022, and teams have continued to execute on initiatives to drive benefit this year. Although COVID-19 forced us to reprioritize some resources to crisis management, it also gave us the opportunity to put many of our future productivity and operational effectiveness tactics in place today.
For example, we have thousands of corporate employees who are currently working from home successfully. It has been an unbelievable opportunity to quantum leap our processes from a productivity standpoint. COVID-19 has truly been a catalyst for change. As I mentioned, one of my main priorities over the past 8 weeks has been our relationship with our Canadian Tire Associate Dealers. I continue to be impressed, but not surprised, by their hard work, innovation, and dedication to their customers during this challenge. In addition to implementing countless safety measures and new processes across their stores, dealers have independently donated countless products, including 450,000 masks and 25,000 liters of hand sanitizer to local hospitals, nursing homes, and community organizations in need. Our dealers' actions throughout the COVID-19 crisis have only reinforced the vital role that they play in our company and their communities.
I'm pleased to tell you that we've signed a 5-year extension to our dealer contract, which was originally set to expire in December 2024. We are thrilled with this development, which is a testament to the stability and strength of our relationship with the dealers. Our collaboration has never been better. Although COVID-19 is not something anyone could have planned for, our previous investments in customer data and analytics, as well as our launch of Triangle Rewards in 2018, set us up for success during this crisis and for the systemic shifts in consumer behavior that will continue over the longer- term, driven substantially by activity over the last several weeks. We've added just under 1 million unique users to our app and email subscription year- to- date.
Triangle Rewards now boasts more than 9 million active members, and we are in a better position now, more than ever before, to personally and relevantly engage with our customers across multiple channels. This will continue to serve us as e-commerce and digital marketing keep playing an even bigger role moving forward. In addition, our Triangle Credit Card further continues to drive cross-banner engagement across our family of companies. Overall, Triangle Rewards truly connects our banners together as one company. Now more than ever, our customers are relying on our entire family of companies for the essential products they need for their new normal life in Canada. We've built an ecosystem of brands, products and services, and partners that are working together to provide locally relevant and personalized solutions for our customers, allowing them to get more done faster and easily, with greater trust and rewards.
By aligning our assets and capabilities, our one company is proving essential to life in Canada. We know that customer behavior is shifting rapidly and permanently. Companies that have invested, as we have, in truly understanding their customer, can act on and adapt to these systematic behavior shifts. Between our investment in data analytics and our established history of always being there for life in Canada, we are well positioned to continue winning with our customers. Although Q1 brought unexpected challenges, it also had its share of unexpected opportunities, opportunities that will continue to foster benefits as we move forward. By leaning into our values and core purpose, supporting life in Canada, regardless of what life may look like, we have set ourselves up for future success.
Before we take your questions, I want to acknowledge and thank our leadership group and their extended teams for their support, determination, and commitment to teamwork. I might have had an unusual start in this role, but I am so very fortunate to have been supported by such a strong and talented leadership team. And speaking of our leadership team, I'm pleased to share with you that TJ Flood has been appointed as President of Canadian Tire Retail, effective immediately. As you know, TJ has been the President of Sport Chek for the past two years and has done an exceptional job. He's had a very successful career at Canadian Tire, spending time as a merchant and leading our award-winning marketing team. He was named Marketer of the Year in 2014.
TJ has a terrific understanding of and respect for our dealer model, and we're thrilled to have him lead CTR. Congratulations, TJ. I also give a tremendous thanks to our remarkable associate dealers and our brave frontline workers in our stores, call centers, and distribution centers, all of whom are working under extraordinary circumstances to serve our customers. I'll conclude by saying that my commitment to communication is not unique to the current COVID-19 crisis and extends to our investment community. Trust that quarterly earnings calls will not be the only time that you hear from me. Thank you for joining us, and I hope that you will tune into our first-ever virtual AGM at 10:00 A.M. this morning. 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 please pick up the handset or step close to your speakerphone system when asking your question, and to 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 Peter Sklar of BMO Capital Markets. Please go ahead.
Hi, it's Emily Foo for Peter. We just have a question on the allowance, the CAD 45 million that you took in total. You said CAD 30 million was to adjust for the macroeconomics, and CAD 15 million was for the probability of default. Well, what's the difference between the two numbers, and are they both related to COVID, but how are they linked to each other?
Thanks, Emily. It's Gregory here, and I should clarify for the call that to make it simpler, I'm going by Gregory for now, and our CEO is going by Greg, just so I can set the record straight now. Yeah, I would say both those absolutely are related to COVID. What we try to do is to break them into components. One of the calculations that we have is within the actual detailed model itself, is there's what's called an overlay for probability of an economic downturn or a recession. So that's an assumption change around what that is gonna look like. Specifically, the other is more kind of what you're actually seeing, kind of an aging behavior.
Ultimately, you're right, both will show up as a loss or as a write-off down the road, but we have kind of, from a modeling perspective, they're two distinct pieces, and both are absolutely related to COVID-related impacts.
I see. And then just as a follow-up, for the portfolio size of more than CAD 6 billion, we're just surprised that.
CAD 45 million seems small as an adjustment that you would need for something as large as COVID is at this moment.
Yeah, it's Gregory.
Yeah.
Yeah, thanks, Emily. It's Gregory again. I think what you have to realize is the way that the accounting works behind this is you're basically booking at the current quarter, at the quarter close, what your expectations are based on the best information you have at that time. And I think as I've talked about previously with kind of the IFRS 9 and our allowance, every month-end, every quarter-end, we are going to have to revalue that allowance, if you will. So this, that CAD 45 million is based on the trends that we've seen. That could go up, that could stay the same, that could go down, depending on the behavior that we kind of see going forward. So it's never really a static number, if you will.
It's always going to be changing based on kind of, your latest drivers and your latest projection of where you see things going forward.
Yeah, and maybe I'll just add, I'm for sure been on a CEO crash course my first eight weeks on the job, and especially getting up to speed in the bank business. The team has entertained my curiosity, which I appreciate, but here's the way I think about it. I'm confident that we have the experience in our financial service business to respond appropriately during these times, and we have a number of relief measures, as Greg talked about and Gregory talked about in his prepared remarks, for deployment to our customers who need financial assistance during this time. So all that relates to how we manage through this on a day-to-day basis, which is critical.
But I've also been, you know, trying to understand, as, as you're asking about, to understand the provision. And where I've found comfort in my understanding is to think about this as a forward-looking estimate on expected credit losses. The provision just simply takes immediate recognition of these expected losses. So we increased the allowance by about 80 basis points, I think it was 83 basis points to 13.64% of our receivables, as Gregory said. And so then when I asked the team about how this compares to 2008, 2009, they remind me that we had a provision of 2% of receivables at that time. Now, I understand that we are operating under a different accounting standard, but it's still an important point to consider about our level of allowance in 2020.
That certainly doesn't mean we won't ever have to increase our allowance going forward, depending on how the economic situation evolves. But our starting point is an allowance of almost CAD 850 million. So I'm not sure if that's helpful, but it anchors me.
Yes, that's very helpful. Thank you very much.
Thank you. The following question is from Mark Petrie of CIBC. Please go ahead.
Hey, good morning. Greg, you covered it with some helpful commentary, but I wanted to ask about the e-commerce business, specifically at CTR. And obviously, all businesses had to cope with unprecedented demand, but there were clearly some execution issues, both online and in terms of inventory, visibility, and fulfillment. So do you think that those issues have put you at risk of losing customers? And I'm hoping you can be a bit more specific about sort of how you address that, both from an execution standpoint, but also, you know, with regards to the customer relationship.
Yeah, I mean, we did our best, Mark, to be transparent with respect to online in our prepared remarks and what we're dealing with. You know, we're dealing with a surge of 25-30 times demand virtually overnight. So we certainly knew that we were gonna run into capacity issues with our site, but thought that we could grow our business 2-3 times before it was an issue, beyond surge days like Cyber Monday and big, big promotions.
So, you know, we'd identified a major transformational project that we may have talked about before as part of operational efficiency called ODP or One Digital Platform, and it's a multiyear replatform initiative across all of our banners and has us moving all of our banners onto the same platform, you know, with modern technology, cloud-based platforms, et cetera. So that's, I guess, just context in terms of what we, you know, what we were dealing with. For a period of about 10-12 days, we were managing multiple deployments every night to the site that would surge up our ability to take on more demand. At the same time, you know, we were doing our best to manage the expectations of customers.
We developed a browse site, so that allowed some of the demand to offset, so people could still look through our catalog, you know, get access to store inventory, etc . So we did the absolute best we could to manage the customer experience. You know, we track NPS scores on all elements of the e-commerce, in-store pickup, ship-to-home, curbside, et cetera, and I would say it's dipped for sure. Since we have the capacity, it's only, you know, literally only a couple of weeks that we've really been able to process here at anywhere between 80 and 110,000 orders a day. It looks like our experience scores are coming right back up.
But, you know, one of the things that I'm really forward-looking forward to sharing with you is we just implemented Medallia, which is a voice-of-the-customer listening tool. And it's gonna provide us unbelievable granularity on each one of our customer experience services. And so we'll be able to identify going forward, you know, how we think about that with real objective measures.
Okay, thanks. That's helpful. I guess, you know, anything sort of, anything sort of specifically planned with regards to, sort of customer relationships and proactively reaching out to customers sort of on this topic? And then, I guess, just as a follow-up, you've highlighted that you've accelerated some investment in, in your systems, but how do you expect this to affect operating costs?
Yeah, I mean, it's a little early. Let me deal with the first, the operating cost piece. It certainly is a little early. We're just doing our best to make sure we're taking care of customers right now, and we're not, you know, really mindful of that. I can tell you, you know, it's expensive to run a 100% curbside operation. I mean, you know, the dealers will tell you, they're off their feet with every single product being concierged. I would suggest to you that they're probably operating with about 150% of the labor cost for, you know, not as much sales. So part of that is just the nature of the service, and part of that is friction in the technology.
So we, we absolutely intend to interrogate not only the customer-facing side of this, but the in-store process. It's a little clumsy right now, and so we think there's opportunities for us to drive efficiency, eliminate friction, take some steps out of the process, but no doubt, you know, it's more expensive than you know, whatever percentage of your business is self-serve. On the customer experience front, we've sent at least a few customer letters, and we've been very transparent to our Triangle membership about the issues that we're dealing with our site. We have real-time messaging, looking for patience with respect to demand.
And our, you know, dealers engage on a day in and day out basis with orders that are, you know, trending longer in terms of a service level standpoint. So I feel pretty good about how we're covering that, Mark. But like I say, you know, I think real objective measures around how customers are feeling about our service after this, and only time is gonna tell on that front.
All right. Appreciate all the comments. All the best.
Thanks, Mark.
Thank you. The following question is from Vishal Shreedhar of National Bank. Please go ahead.
Hi, thanks for taking my questions. Just on the extra costs associated with some of these COVID-19 measures, sanitization, extra labor, who bears that cost? Is that the CTC corporate, or is that the dealer, or is there a split?
Vishal, it's Greg. We're really having trouble hearing you. I think, let me just, I'll tell you what I think we heard. I think you were wondering, on the CTR side, who pays for this incremental customer experience cost associated with e-com?
Yeah, e-com, yeah, sanitization. You're right. Things like that.
Oh, sanitization. You know, for obviously, in corporate stores, that's our cost. In associate dealer stores, it's their cost. But, you know, we're in this together, you know, Vishal, for anything that we're incurring here with the dealers. We've got a really good relationship, but we're not gonna let traditional contractual measures, you know, impact how we, you know, what side of the ledger that is definitively gonna be beyond. But I can tell you, in the grand scheme of things, it's not material.
Okay, including the curbside delivery, extra labor, all that, that there may be.
That was more the cleaning. Yeah, that was more the cleaning. I mean, certainly, the most material cost in a dealer's business is their labor. So if you're increasing that in a substantial way, I would suggest to you that, that, you know, that is, that is, that is more material. And so we'll sit down with the dealers when this is all, you know, all, all done, and we'll, you know, we'll think about how to, how to work through that with them.
Okay. And just on the, on the Ontario store closures, obviously unexpected. Wondering if there's any way for, for investors to think about the health of, of your dealer network, the financial health I'm talking about?
Sorry, again, Vishal, I'm having a hard time. Was it, the last part, was the financial health of the dealers? Is that what you asked?
That's right. Sorry. Hopefully, I'm more clear now.
No. Yeah, you know, I think if I talk about, we take, as Greg said, we're very close with the dealers, working hand in hand as part of this crisis. You know, we've looked at our liquidity, we've looked at dealer liquidity, and both positions are very strong across the network. I wanna go back to the data point that Greg gave around what you've seen in terms of sales across the network.
And granted, they're, it's different, you know, province by province, but on an overall basis, you know, given that stores in Ontario were closed for, you know, two-thirds, let's say, of April, and only having kind of curbside, for the overall network sales only be down, what Greg talked to us about 1.8% is incredibly promising. So I would tell you that liquidity, both at the corporation and dealer network in aggregate, is very strong.
Okay, and just one last one here. The press release for Canadian Tire, hopefully, you can hear me. The press release for your quarter said CAD 200 million of efficiency benefits, but I think in prior commentaries, it was CAD 200 million plus. So has anything changed?
No, I don't think that's changed, Vishal. I think, I think Greg said CAD 200 million plus in his commentary. We probably. That's a good catch. We should have included that in the press release. So it's, n o, we haven't cut that down on you, Vishal. It's still CAD 200 million plus. Greg wouldn't let us off the hook like that, don't worry.
Thank you.
Thank you. The following question is from Irene Nattel of RBC Capital Markets. Please go ahead.
Thanks, and good morning, everyone. Just following up on the performance in April, would you be able to give us an idea of what you were seeing, let's say, you know, in the 60% of the network that was operating versus Ontario, and generally, the cadence of performance as you move through Q2, as we come up to, I guess, the key gardening season starting soon, she says, with the polar vortex hitting this weekend?
Yeah, we're hoping soon, too. Yeah, it's pretty dynamic, Irene. In April, we had the weather break, the spring weather break, in BC, in the early part of April, which was a significant tailwind to the overall sales in the network. So, you know, I think I referred to the category, new term of boredom busting. So, it was still yard related, but became much more gardening focused. So, kind of all things outdoor, spring, et c, with our gardening business, watering business, essentially extremely strong. And then we moved into probably the second week of April, and that weather maneuvered its way into Alberta. The last couple of weeks of Alberta sales have been unbelievably strong.
Now we're seeing that kind of move into the prairies. And so the same themes with respect to, you know, our seasonal business. Our playing business has been, you know, really, really strong because of some of those boredom-busting categories that I talked about, bikes and exercise and trampolines and all those types of things. But now you're seeing our real seasonal business, barbecues, patio furniture, and gardening, you know, really start to take hold in the West. And we hope here, once we get past this little vortex over the next couple of days in Ontario, that as our stores open, that good fortune comes to Ontario.
That's great. Thank you. And go back to you, by the way. In terms of just thinking about how you operate overall in sort of the current environment, if we look at, you know, your distribution centers, your entire supply chain needs to adapt to social distancing. So how do we think about the evolution of your OpEx as we move sort of through this period?
Yeah, Irene, it's Gregory here. I mean, clearly, we're experiencing that to date in terms of what we're moving through the distribution centers and call centers as examples of. Those are still kind of up and running. Obviously, we get product and to service our customers over the phone. So I mean, it's you know, clearly, as Greg alluded to, it's one of our key priorities is making sure about employee safety. I think it's one thing that we're continuing to work on. I think we're really happy with the throughput we're seeing at all the DCs and the service levels of the call center. I don't think it's had a significant impact on our costs to date.
Clearly, we'll keep an eye on it, but again, what's paramount to us is gonna be keeping our employees safe throughout this. So there might be some slight cost pressure on that going forward, but here's what I've always realized in my career at Canadian Tire, specifically in supply chain, if you give the supply chain guys a challenge, they kind of react very well to it. So I'm comfortable that over time, we'll find efficiencies through operational efficiencies and initiatives or the like, that would offset any kind of increases that we'd be forced to kind of bear in the medium long- term.
That's great. Thank you. And just one more, if I might, and that's about inventory. How do you think about current levels of inventory in the dealer network, in your network, and really, how do you plan for sort of as we move through the next few months and into the fall, and how are you thinking about buying and as we move into recession and all the rest?
Yep. Irene, it's Greg. That, too, is a very dynamic situation. You know, as you can appreciate, when the pandemic or the crisis starts and the organization kicks into crisis mode, and you're thinking about, you know, managing liquidity and shoring things up, and I think I gave you the statement that 70% of our cash use is in inventory. That's the first place you want to go, and you want to model stress test scenarios, which we've done lots of, and then you've got to react to what's actually happening, because all of those scenarios are hypothetical, even if you feel good about, you know, how you've covered the risk from a liquidity standpoint.
So that's what the teams, that's exactly what the teams have been doing over the course of the last two or three weeks here. Just an extreme focus. The answer is different by banner, too. Obviously, with most of Sport Chek and Mark's closed until some of the relief that we've got here, over the course of the last couple of days. The scenarios that we're planning for in terms of buying inventory and Sport Chek and Mark's right now have been pretty easy. You know, we haven't. We've been buying very little. We've been burning through our existing inventory. So, you know, I think you would have seen our inventory is up CAD 200 million.
A good chunk of that is in Sport Chek, about, I think, two-thirds of it, and that was part of a conscious decision to buy in 2019, so it was part of carryover, and we've whittled away at that. So in the Sport Chek banner, you know, we're sitting about CAD 60 million at the end of the quarter, higher than we were last year, and we're continuing to draw that down. In the Canadian Tire Retail banner, our corporate inventory is right now a little bit lower than last year. The run that we've had in our spring, summer categories has, you know, has been steep in the last few days.
So we're gonna, you know, we're putting a more aggressive buy plan into the CTR business. We've done a tremendous amount of granular modeling with a view to purchase order lead times and visibility et c to understand, you know, what indicators we would have if things started to kind of go sideways on us. So we've got lots of the year that we can continue to impact on that. And so every banner has a little bit of a story, but hopefully that gives you a little bit of color in terms of how we're thinking through it.
It does. Thank you very much.
Thank you. The following question is from Patricia Baker of Scotiabank. Please go ahead.
Oh, thank you. Good morning, everyone. Greg, thanks for all the content you gave us on what you're doing for CTR e-commerce capability, because, you know, for quite a while, your capability there has been a concern for investors. Now, you indicated that there's still further development work going on, and you anticipate that you will be moving to the cloud. Can you tell us when that will happen?
Yeah. Patricia, as a result of this, as you can appreciate, we're gonna pour gas on that initiative from an execution standpoint. We're gonna change our phasing. We originally planned on phasing the Sport Chek and Mark's banners to the new platform. Now, we're gonna move with CTR first. So we would expect our new Hybris platform to be in the cloud towards the end of this year, in the fourth quarter in CTR. And any customer experience benefit that would come associated with that, we would move into early 2021, and then the other banners would follow in 2021.
So we would expect to have some material scaling benefit as we head to the all-important fourth quarter here, which will allow us to surge even well beyond some of the order capacities that I walked you through, which is a huge increase to where we were.
Okay, thank you. Good luck with that. And my next question is for Gregory. Your cash flow in the quarter benefited from the fact that you're deferring your tax in installments. When do you anticipate that you will have to pay those installments?
It's later in the year, I believe. I think it's kind of Q4, I think, is the timeline, Patricia, that we defer them until.
Okay, thank you, and congratulations to you both. Also congratulations on TJ's appointment and the dealer contract.
Thanks.
Thank you.
Thank you. The last question is from Brian Morrison of TD Securities. Please go ahead.
Hi, good morning. Just a question on the credit card portfolio, because I think there's a lot of focus on CTFS and, and the allowance provision. So can you maybe just update us about the collections or payments through maybe the month of April?
Thanks, Brian. It's Gregory. Sorry, I'm even getting used to this. Anyway, yeah, so what we'll start off maybe talking about our receivable position and then talking to the collections and payments and sales into April. So we ended receivables at up 2.6% is the ending number. Average was a bit higher, as Greg alluded to in the quarter, but the ending was 2.6%, up. What we've seen in the month of April is kind of two things. First and foremost, we've seen a fairly significant decline in spending on the card. Categories like travel, that you would expect, is basically, you know, not there anymore, at least in April.
But what we have seen on collections, or what I would call customer payments, is the absolute dollars in payments is relatively been flat, April 2020 versus April 2019. So even though customers are spending less, we really haven't seen kind of pressure yet on the, on the payments in the month of April. Now, as we all know, one month does not make a trend. But, what I think is also gonna be interesting, and this is gonna be the impact that the government subsidies have had. As you would have remembered, kind of the CERB payment kind of came out around April 11. So I think that's also helped payment activity. So clearly, a metric we keep a very close eye on.
We're pleased with what we've seen in April, but as I said in my remarks, I still think there's, you know, there's still a few more months to go, I think, before we kind of feel comfortable calling a trend on this.
Okay, thank you. And then two housekeeping items, if I can. Can you just, Gregory, explain the rationale behind the Class C units in enrolling those to 2025 rather than other options that you may have had? And then, can you just repeat the liquidity at CTR? On the retail side, I missed that relative to the REIT and CTFS.
So yeah, so let me do the second part first. If I thought about available liquidity at quarter- end, the retail segment had about CAD 1.5 billion of available credit. The REIT had about CAD 300 million, and the Financial Services division was CAD 2.25 billion. But then as I said, after the quarter, though, for the retail side, we did acquire CAD 650 million more in lines. And I'm gonna suggest on the REIT question, Brian, maybe we can follow up with you offline on that one, if you don't mind.
Sure. Thanks very much. Appreciate it.
Thank you. This will conclude today's call. A webcast of the conference call will be archived on Canadian Tire Corporation Limited Investor Relations website for 12 months. Please contact Investor Relations if there are follow-up questions regarding today's call or the materials provided. You may now disconnect your line.