Hello. Okay, you have me again. Lucky you. My pleasure again to welcome Canadian Tire Darren Myers. About six months into the job.
I think we're almost at eight months.
Eight months. Oh, time flies.
That's what I'm keeping track.
Yeah. No, welcome. Maybe this is a good time, given that you're relatively new. I wanted to give you an opportunity to just share with us, since coming here from Canadian Tire Retail, what has surprised you so far in the business? If you start with that, yeah.
Yeah. Listen, well, let me say thank you, everybody. It's great to be here today. It's great to be at your inaugural Toronto conference. I'm hearing lots of positive feedback, so well done to Desjardins for that. Yeah, for me, and listen, there's a lot in that question. Probably the best thing for me to do, if I just step back and think about before I came into the company, I spent a lot of time with Greg. And we talked about his vision. We talked about True North. And I was obviously excited by it. As I've been in the company for almost eight months now, I'm actually more bullish on the opportunity in front of us. And really, the big reason for that is what we're calling True North. And I'll maybe talk a little bit about how that's coming to life.
But in terms of the, there's really kind of four quadrants or main cornerstones to that. The one we call Retail Forward, and that's about investing in our stores and investing in our e-commerce and digital capability. The next one is Triangle Powered Every Day. So that's our very strong Triangle program, which now has 9.5 million active members, but as well the partnerships. I know we'll probably talk more about that. Customer Insights and Actions is the kind of third cornerstone. And if you think about Canadian Tire, all the assets that we have, this is about taking the data, using AI, and the power of what we have so that we can create more value for our customers and for our stakeholders. And the final one is the cornerstone one team agile and scaled, which I think is where we have tremendous opportunity.
This is changing how we operate. This is the part that I would say I feel more bullish about as a company, because when Greg described that we were going to go from a hold co to an operating co, I didn't quite say, okay, yeah, that sounds good. This is changing how we operate entirely. We've got three new roles. We've got a CCO role, Chief Customer Officer. We've got a COO role, and a Chief Operating Officer, and a Chief Transformation Officer. The people and their teams are now driving a different way of working. We're bringing more discipline in the organization from what we historically had, more accountability. We meet every week for three hours to go through all the transformation initiatives which go into those cornerstones.
And since I started, I've implemented a revamped monthly management performance meeting, which is just holding people to a different account and really focusing on things like forecast accuracy. So I gave you a bit of a long answer there, but all in all, I think there is a great deal of opportunity for us to do more with the dollars we have and to ultimately accelerate our performance as a result of that.
Great. Well, that's a great intro. If we can maybe dive now into the business a little bit, maybe talk a little bit about the consumer demand and market outlook. Q3, obviously, we saw the momentum continue, a bit slowing a little bit, but still very resilient. Can you share with us how are you feeling about Q4 sales so far? And looking ahead to 2026, given all the uncertainties, what do you expect?
Yeah, so from a customer perspective, it's been a good year. So if you look at Q3 year to date, our same store sales is at 4%. So really healthy there. First half was certainly helped by weather and by patriotic purchasing. That is slowing down a little bit. Certainly, it's hard to discern it necessarily. And then, as you said, in Q3, we were impacted a little bit also by Canada Post, kind of the quick strike action that happened there. So we said two things on the call. We said that Q4 will certainly be impacted by weather and stability in Canada Post. October was flat. We talked about that on the call. Generally, we saw flat demand. Things like the early snowstorm that we had in Eastern Canada helps November. So we feel good about that when that happens.
But I would say there's still lots of game to play. So I don't want to kind of predict where our Q4 sales will be.
If you can, I can give you a crystal ball right here. You've used that for yesterday.
You've been using that at home?
Yes.
All right.
Just in case, I'm just saying.
You know what? I might take that with me for after. But I'll use that in our forecast meetings. But the reality is, in terms of the health of the consumer, we still are cautiously optimistic. We still see good signs as we look at our credit card data. Same things we said on the Q3 call. We look at Triangle data. We're not seeing, even in the areas more vulnerable to tariff impacts, we're not seeing any discerning trends there. So our dealers, who are obviously very close with the communities, continue to buy for growth. So we are cautiously optimistic and obviously need to make sure we're looking at all, reading the tea leaves and doing everything. But so far, so good.
Okay, and so are you seeing any sort of differences by geography, by region, through your business or your credit card portfolio?
No. I mean, obviously, where you get into regional differences would be probably more weather related. But from an economic point of view, like I say, the areas that are impacted more by tariffs, we're not seeing any major differences in those areas either.
Okay. That's great. Another sort of positive surprise from Q3 results was gross margin was surprisingly strong. And there were a lot of discussions around this AI pricing model called David. And I'll offer the audience, if anyone knows what David stands for, I'll give you CAD 20. Does anyone know? No? Okay.
Karen knows.
Karen, except Karen. Karen does not play. But David stands for Data, AI, Value, Incrementality Drivers.
I'm glad you weren't going to ask me. I thought you were going to ask me.
There was a lot of discussion around that. It seems like there's a lot of tailwinds. Can you just share with us how much of a runway is there?
Yeah, listen, I mean, let's just step back for a second. Where I go to, again, the power of the data this company has. David is a platform that we've been developing for over two years. We've spent a lot of resources and financial and human resources to create it. It is part of what we call our margin nerve center. What it's allowing us to do, and it's rolled out at CTR, it's allowing us to take vast amount of information, stuff that we humanly could not do, looking at competitor action, looking at price elasticity, and solving for what should reg price be at, what should promotion price be at. As well, you're able to put other things, other ingredients in there. Are you trying to solve for traffic? Are you trying to solve for margin? Are you trying to solve for revenue?
So we are now using it very well and will continue to refine it at CTR. We will roll it out to SportChek and Mark's next year and just keep building those capabilities. And again, that's an example of True North by not operating as silos. It's more looking at things holistically. If I look at the margin profile, Q3 year to date, we're at 35.5%. We always talk about a North Star of 35%. And obviously, people want to know, are we going to do better? I think from Q4, if you look at how it's traditionally done, we're well on our way to beating the 35% this year. I wouldn't want people to take that to the bank for the future. Because the one thing with these types of tools is you can do everything.
You can have all these good intentions, but you're not playing the game by yourself. So you've got to keep looking at the economy. You've got to keep looking at where consumers are. You've got to keep looking at where competition is. So there's a lot in that. So I wouldn't be prepared today to say we're raising the True North from 35%, but we really feel good about the capabilities we're building and what that can mean for the business.
So it does sound like it's pretty early day so far in terms of David and some of the others.
Definitely. Definitely. Yeah. Which I think is really good for when you think about, if you think about, I mean, really where we stand out as a company, I think, is our assets, but our first-party data is incredible. So as AI and as technology will allow us to do smarter things with that, I think we'll just be able to keep performing better as a result.
Yeah. And as part of True North, you guys this year have made some investment, I think, about CAD 60 million in furthering that initiative. You do expect to, I think, achieve about CAD 100 million in savings starting in Q4. I know there's a lot of moving parts, but putting all those together as you generate the savings, when do you expect to see some operating leverage out of those investments? Is it next year or just?
Can I be your?
Yeah, please.
Okay.
I don't know what he's saying. I'm sorry.
If you think about, so where are we? We did the heavy part of the restructuring over the summer months. In Q3, we would have had some benefit from restructuring. We also had a little bit from higher vacancies. Obviously, when you're going through a restructuring like this, you're not hiring to the same extent. We expect to have the kind of run rate benefit in Q4. And then we talked about CAD 100 million of savings next year as a result of that. I think the way to think about our SG&A is we're still going to have the elevated spending on projects. So that's going to be relatively, I'm not saying it's going to be flat necessarily, but it's going to be in the same ballpark. But the SG&A benefits offsetting that will be inflation and the investments that we're making at the bank.
So the way I think about retail is just with a healthy level of growth, we will have operating leverage. And on the other side at the bank, we would expect to have some SG&A pressure as we make investments at the bank.
Got it. Okay. And so if I hear you right, so on the retail segment, you do expect some operating leverage next year.
Yeah, obviously, depending on where revenue, what the environment looks like, what the consumer looks like, and the discretionary environment. But yeah, with some good revenue, with revenue growth, we would expect some leverage there.
Can I ask, so maybe in that base case scenario, what type of revenue growth do you need to actually achieve to achieve operating leverage?
Yeah, I would love to answer that, but probably not going to do that one today, if that's okay.
That's okay. And then on the bank side, yes, you've been quite clear that you're stepping up investments there. I think you're also maybe planning to accelerate account acquisition as well. Is that kind of part of the, I guess, the 27% SG&A rate that you have been guiding us for next year?
Yeah, I don't think we haven't guided on a rate next year. We did say it'll be elevated, and if you just step back and say, okay, what's happening at the bank for us? We went through a lengthy strategic review at the bank, and we decided at the end of that. I think it took a year and a half, but I'm not exactly sure on the timing. We decided at the end of that that we were the rightful owner and that we believe we can create more value for our retail business than we have historically with the bank, and as a result of that, in the 18 months and where you are when you're going through a strategic review, we did not make the level of investments that, in hindsight, we should have made at the bank, so we're doing some catch-up at the bank.
We're making operational investments like migrating IT platforms to the cloud. We're doing enhancements and improving our retail deposit platform. We're making investments just to keep up with the regulatory requirements. And we're activating accounts because we really have not been growing the account base. So we see lots of opportunity there. The other part that I think is very interesting on the bank side is how can it help retail? And so an example in the True North thinking, which is to be much more integrated, we looked at a number of accounts on the bank side that are good credit customers that are close to their credit limits, and we increased their credit limits. And as a result of that, we saw meaningful and material increase in the sales, something that at the aggregate level was material.
This was a pilot that we did that before True North and before integrating the bank in our management system, we would not have done that. Because the bank, I mean, the bank's not really benefiting from that, but as a company, we are. We think there will be more opportunity like that for us to do to grow retail while making sure that we've got a robust bank supporting that as well.
And this is good because that was sort of my next question was how do you integrate the bank to help support your retail strategy as part of your True North initiative? So that was a good example that you gave. From a financial perspective, you would think about that example. How should we think about building that into our financial projections?
Yeah, listen. I mean, one of the things that we're playing around with, so I should have said before when I talked about why I think there's a lot of opportunity. I'm spending a lot of time internally and the rest of the executive team. Because when you're doing this level of change, you've got to always be out there and describing to people, why are we changing? So the case for change, we actually survey a large part of the population every month, and we ask them questions around True North. And one of them, the case for change is very high. So they're all like, yeah, we need to make this change. And one of the things, so I'm spending a lot of time and the rest of the senior team on describing where we're going, why we're going there.
Internally, I am building the muscle around forecasting, forecast accuracy, being accountable to that, but also showing everybody what good looks like. And so what does good look like? That looks like a financial framework where you're hitting X to Y on revenue. You're getting continuous improvement and leverage to drive your operating profit higher. And ultimately, with your buybacks and your investing in the business, you're getting a nice return for shareholders. We're spending more time internally on that. We're contemplating at this point. I see Karen staring at me, whether we would go external with that at some point just as here is our long-term financial framework. But I think more importantly is we're internalizing that so people understand what are their targets going to look like. They know now what their targets should look like for 2027 because I'm telling them.
We're trying to get that muscle of continuous improvement as part of our culture. The bank would fit into that because the way that works is what we've said with True North. We've told everybody we're spending this money. We're changing how we operate to accelerate our performance from historical levels. Now, I wouldn't look at revenue levels from the COVID years because as we all know, there was a lot of buying then. You would expect our revenue to be higher than we would have had over those years, over the typical years as a result.
Okay. That's helpful. And in the beginning, you mentioned about your loyalty ecosystem. It's obviously expanding. You announced the partnership with Tim Hortons recently in addition to RBC, Petro-Canada, and WestJet. Can you just talk a little bit about what are the strategic goals of these partnerships?
Yeah, listen, the loyalty space is just a fun area right now. It's exciting. We are doing a lot of great things. So you start with, it's all about the flywheel and Triangle program for us, as I said. It's 9.5 million active registered members. And the program's getting better and better. I'm getting more and more people talking to me about the app and how they're using it and how they're using it with the in-store experience. What we're building in our loyalty program is more of a federated loyalty program. So we're not trying to create a coalition. We are picking marquee companies that have deep verticals. And the way I think about it is we're going to grow in those verticals or we're going to get more awareness. We're going to get more mind share in those verticals in an asset-light way.
We're not going and spending a whole bunch of money to go into those verticals, but the customers in those verticals will come and shop with us and see Canadian Tire more often. It's like marketing in those verticals. So if you think about it, Tim Hortons is a great example. So Tim Horton, not Tim Hortons, sorry, Petro. Petro-Canada, we went to market in 2024. We now have over 500,000 linked accounts. And we talked about it on our last call that this year, our incremental sales from Petro alone is CAD 100 million. So we're gaining share. We're gaining revenue. We know Petro is as well. They're very pleased with the partnership. And so that's what I mean by a federated program where we're both winning. But it's not about we're sitting here with one loyalty program where we're trying to share the points and do it that way.
So now when you look at what we've done, we've obviously announced with RBC, WestJet, we're going to have those completed by the first half of 2026. RBC now, if you actually try to do it, we are in soft launch. So anyone in this room, you can go and link your Avion card now. So we're well on our way. And then we will get to Tim Hortons later. But by the end of next year, we will have major verticals of petroleum, financial services, travel, and quick service restaurants. So I mean, that's an amazing feat in a short period of time. And we just think, again, it's going to bring more awareness and it's going to give more to our Triangle program and ultimately grow our revenue as a result.
Yeah, I was going to ask you, over the longer term, as you execute on those partnerships, how would that impact your P&L statement?
Yeah, so there's a couple of parts it does. So certainly, it is all geared towards growing our top line. And from there, there's obviously cost of points. But when you're thinking about going to the market, you've got reg pricing, you've got promo, you've got the cost of your merchandise that you're buying from, you've got loyalty points. So we've got to put all that into the machine and stay true to our True North margin target. So we've done lots of work on that. We see great incrementality from the partnerships we have. But they're really to drive sales and awareness to us.
There are more opportunities you guys are looking at in terms of expanding more?
Yeah, we're not trying to be everywhere. If you think about how much we've already got covered, maybe there's one more, maybe there's two more, but there's not a dozen more. We need to digest what we have right now, and we're doing a lot of work on that with our partners.
Got it. Okay. And then maybe last area of question I want to touch on is obviously on M&A. You guys have a history of making good tuck-in acquisitions and then really accelerating the brand awareness and growing it. You bought the assets of HBC early this year. Can you talk a little bit about sort of what is that strategy and what we can expect to see?
Yeah, so from a capital allocation strategy, I believe, and the company had this philosophy as well. I believe in balanced capital allocation. For me, what's important is you keep your investment-grade balance sheet, you invest in the business, you give back to shareholders through dividends and through buybacks. The acquisitions right now, we are so focused on changing how we operate and our True North. So we're not proactively looking for any large acquisitions. HBC is a great example of a tuck-in brand acquisition, something that we've done really well over the years. You look at brands, I mean, we are really good at developing a brand, innovating a brand, growing it. And as well, the benefit of the brands is they have a premium margin to national brands. So I'll do those all day long, opportunistically, because again, we've got enough on our plate.
But HBC itself, if you spend a few minutes talking about how we're going to market on HBC, we think it's such an exciting thing to add to the CTC family. We got so much fanfare for buying HBC and the Stripes. The good news, if you haven't seen it already, we're coming out with our holiday capsule edition in December 5th in stores. And it's going to be just 26 items. So it's going to be a limited curated selection, all the original suppliers, because we're very, very focused on the quality and the craftsmanship that comes with HBC and the Stripes. And so we're going to be bringing it to stores December 5th. I think it's going to be hard to hold on the shelves. So get out to our CTR stores for December 5th.
A picture is worth a thousand words. This is a great segue, maybe. I think we have a small video.
Small video.
We can show you exactly what you were talking about.
Very short video, limited supply. Short video to match it.
Good. Well, we have a couple of minutes left there. I mean, is there anything else you want to just share with us, with investors?
No, listen, I mean, hopefully you can hear it in me. I'm excited. I love being back in retail, and Canadian Tire is just fantastic. I think we've got lots of opportunity. Clearly, the market out there has to be supportive of that. So far, we're seeing a resilient consumer. If we can ever get some tailwinds, it would be nice, but we're working through that, and there's a lot to be excited for in the company. I think with change is tough, but we're off to a really good start through True North, so we're quite excited.
Yeah. Well, with that, I just want to thank you again and welcome back.
Great.
Looking forward to working with you. Yeah.
Likewise, Chris.
Thank you.
Thank you, everybody.
Thank you.