Canadian Tire Corporation Ltd

TSX:CTC.A

Earnings Call Transcript 2021-Q3

[Operator]

My name is Valerie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Tire Corporation Limited Third Quarter Results Conference Call. [Operator Instructions] This morning, Canadian Tire Corporation Limited released their financial results for the third quarter of 2021. A copy of the earnings disclosure is available on their website. It includes cautionary language about forward-looking statements, risks and uncertainties, which shall 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?

[Gregory Huber Hicks, CEO, President & Executive Director]

Thank you, operator. Good morning, and welcome, everyone. I'm joined today by our CFO, Gregory Craig; as well as TJ Flood, who will be participating in the Q&A portion of the call. Before we get into the details of our Q3 results, I'm going to start this morning by recognizing the incredible work of our corporate charity Jumpstart. As you heard me say before, Canadian Tire has a long history of supporting the communities where we live and work. Throughout the pandemic, we've proven that our purpose of being there for life in Canada is more than just a tagline. After -- in 20 months in, our commitment has not wavered, as proven by the busy quarter had by Canadian Tire Jumpstart charities. In Q3, JumpStart continued to help build back sport and play in Canada through its CAD 20 million sport relief fund. To date, more than CAD 17 million has been dispersed to help over 1,500 community organizations, keep their doors open.In addition to addressing the challenges created by the pandemic, Jumpstart remains committed to removing financial, accessibility and gender barriers to sport and play. In Q3 alone, the team completed 4 new inclusive playgrounds in Whitehorse, Yellowknife, Montreal and Vernon, BC, as well as inclusive multisport courts in Thompson, Manitoba and Uxbridge, Ontario. Together, these projects represent an additional 100,000 square feet of accessible play, space where all kids of all abilities can play together. Constructing these recreation facilities truly takes a village, it wouldn't be possible without the hard work of our teams, our authentic connection to our communities and the generosity of associate dealers, employees and customers.In addition to being there for kids today, we remain committed to protecting our communities for tomorrow. We recently published our 2020 environmental footprint report, which outlines the energy consumption and emissions that result from our business across the entire value chain, from the processing of raw materials to last mile delivery to customers. In 2017, we set ambitious targets to reduce GHG emissions from buildings and operations by 22% by 2022 and keep emissions from transportation flat, both against the 2011 baseline.As has been the case with many companies, COVID-19 led to growth in volumes, particularly in e-commerce, which impacted our progress on our ambitious transportation targets. We continue to work with our transportation partners to reduce our GHG emissions footprint. More broadly, we continue to work on bringing our environmental work and social initiatives together in an integrated ESG strategy. We recently established an internal executive leadership council that brings many leaders together as well as a brand and corporate responsibility committee at the Board level to oversee our ESG efforts. We know ESG is a process, not a project, and our work continues.With that, let's dive into our third quarter results. Overall, I am very pleased with our results this quarter. We were excited to welcome customers back for in-store shopping as most COVID-related restrictions were lifted in the quarter. In Q3, we delivered strong comp store sales growth in all banners against exceptional third quarters in both 2020 and 2019. Revenue declined, as expected, led by lower shipments to dealers after significant revenue increases in both Q1 and Q2. I'm feeling really good about how our team is working to manage our margins and our OpEx disciplines, which Gregory will speak to in a moment. From a broader customer health standpoint, we are beginning to see several key metrics starting to grow in our bank, including credit card sales being up over 23% in the quarter as well as GAR growth for the first time in several quarters. We continue to ramp up our operating capital spend this quarter, primarily in real estate and IT and continue to drive improvements to our retail ROIC.I intend to spend more time in my prepared remarks this morning discussing 2 critical areas: customer engagement and our supply chain capabilities. There's no question that increased customer engagement with the Triangle awards program has been a key driver of our top-line performance overall and in the quarter. On a rolling 12-month basis, we now have 10.7 million active Triangle members. These members are incredibly valuable, quite simply because they spend more, their average basket size is higher, and they shop across multiple banners and channels. And in Q3, our loyalty members spent 30% more per visit than non-loyalty members, accounting for 57% of our total retail sales in the quarter. Our member base continues to grow with 680,000 joining in Q3 alone. This brings our year-to-date acquisition to 1.7 million new members, putting us on track to exceed the 1.8 million members who joined in 2020. In looking at our 2020 and 2021 cohorts, it's clear that our Triangle program is attracting younger, more digitally engaged customers.I also want to give a quick update on our Triangle Select subscription program. We are currently conducting a beta test, which was designed to help us understand all aspects of the value proposition for the customer. We've been in market for about 6 weeks, and so far, we are very pleased with our progress and results. We have just over 5,000 invite only customers subscribed as part of the beta test. Over 50% of them are skewing younger than our average Triangle member, many have our credit card, and they're spending more across our banners.To date, the program benefits that have been used the most are the 10x in-store CTM earn, which drives more traffic to our stores and the Owned Brands bonus, which further demonstrates their differentiation and popularity. It's still early, but we really like what we're seeing so far. Between now and the end of the year, we're exploring new acquisition channels as we look to ramp up enrollment, and we'll keep you posted on our progress. The Triangle Select beta test and our entire Triangle loyalty program are in service of learning more about our members. We continue to hone and evolve our personalization efforts and drive more meaningful connections with and real value for our customers.Changing gears, I want to spend some time talking about supply chain, as I know that it's been top of mind for the past few months. In contrast to last year's supply chain challenges, which were related to manufacturing supply, the challenges this quarter were primarily related to ocean freight capacity. While we're not immune to the global supply chain issues, I'll spend the next few minutes outlining how our strong supply chain capabilities and experienced management team, enable us to navigate challenges, including higher commodity prices, factory shutdowns, port closures and shipping container shortages.I'll start with the fact that we're the country's largest retailer of general merchandise and apparel. And while we're very focused on inventory turns, the fact that we are neither a grocer nor a fast fashion retailer means that in times like these, we can be very flexible when it comes to holding inventory from quarter-to-quarter with a significantly lower risk of aging. The nonperishable nature of our products gives us flexibility around lead times and commercial terms and as the owner of significant distribution and storage capacity through our store network, corporate-owned real estate and the REIT, we can easily hold excess inventory in Canada. In addition, more than 1/3 of our revenue comes from our Owned Brands and our direct line to the producers of products such as NOMA Christmas sites, Mastercraft tools and Denver Hayes apparel, means we are in control of when and where goods are produced.We also have line of sight into the shipping from factories and a clear understanding where input shortages may require longer lead times, where cost inflation might lead to higher product costs or in cases of longer-term shortages or inflation, of product redesign. And as one of the largest distributors for national brand products, such as Nespresso and Nike, we are quite confident that among Canadian retailers, we are getting our fair share of the products that we expect to be in high demand this holiday season.Finally, as the largest importer of record in Canada, we have built strong relationships with our vendors and in the shipping and transportation world, particularly on the main routes in and out of Asia and across Canada to our more than 1,700 plus retail locations and distribution centers. We've proven that our supply chain capabilities can stand up to even the most unprecedented of challenges. As we mentioned last quarter, we chartered ships entirely dedicated to carrying CTR products to move our goods amid a global shortage of shipping containers. This strategic decision to charter 4 vessels enabled us to bring in key Christmas and winter categories in time for Q4. We have successfully built inventory to meet anticipated customer demand. We ordered more and earlier in key categories and lengthened lead times in anticipation of shortages of inputs, such as the microchips used in our NOMA products. We also continued to make use of third-party logistic providers to increase our inbound storage capacity, ensuring that we could handle our extra inventory.We've been planning for this quarter since before this time last year. The work, which is led by our Chief Supply Chain Officer, Paul Draffin, has been extremely collaborative with the supply chain teams working closely with our merchant teams across all banners. I'm happy to say that as of today, most of our contracted Q4 product has arrived. If all goes to plan, by the end of this year, we will have shipped an estimated 15% to 20% more offshore containers than in 2020 to satisfy demand in 2021 and the early part of 2022. And we're already working through our volumes and lead times for summer and fall of 2022, placing orders with vendors, looking at our product pipelines, and while not across the board, anticipating an increase in some input costs.While we're pleased with how we've set ourselves up, managing the current supply chain challenges has resulted in incremental operating spend, which is reflected in our financial results in the quarter and year-to-date, and we expect this trend will continue into 2022. We will continue to build flexibility into our contracting around transportation, logistics and storage providers to respond to consumer demand. We will also continue to assess where these pressures can be absorbed or offset with our recently announced additional $100 million commitment to operational efficiency savings, giving us further flexibility. The investments we will continue to make in our supply chain and distribution network will enable us to flex and respond to whatever pressures come our way as we return to a more normal supply chain environment.With respect to the inflationary pressures, I am pleased to say we've been able to offset most of these headwinds in the quarter. We have generated gross margin rate expansion by leveraging data and analytics capabilities related to promo and price management. As stated earlier, I am pleased with our efforts here across all businesses, but I'm particularly pleased with what I'm seeing at both Sport Chek and Mark's. The merchant teams in these 2 businesses are focused on increasing sell-through at regular prices, and we are seeing great progress towards this objective. Looking ahead, we will continue to pull the multiple levers at our disposal to mitigate gross margin and cost pressures, although we recognize these pressures are not insignificant.Finally, I want to touch on our capital allocation plans. Investing in our core retail business is our highest priority. Shortly, Gregory will give you a little more color on our anticipated capital allocation plans, and we intend to take you through more detail around future capital spend at our Investor Day. With that, we are very pleased to be announcing a 10.6% increase in the annual dividend, which marks our 12th consecutive dividend increase and raises the annual dividend to CAD 5.2 per share. And having paused our share repurchase program during the pandemic, we believe now is the time to reinstate the program. We have great confidence in our business and the management team, and we're committing to repurchase up to CAD 400 million in share buybacks by the end of 2022. And with that, I'll hand it over to Gregory to take you through the financial highlights of the quarter.

[Gregory George Craig, CFO & Executive VP]

Thanks, Greg, and good morning, everyone. As usual, I'll walk you through the financial highlights in the quarter and then take a few moments to speak to our capital allocation and capital expenditure plans. First, on the financials. We are very pleased with the results this quarter. Diluted earnings per share were CAD 4.20 on a normalized basis after adjusting for CAD 19 million of costs related to our operational efficiency program, and this was down 15% from 2020, but up 21% compared to 2019. The year-over-year decline in EPS was primarily driven by lower shipments at CTR in the quarter, and I will speak more about this shortly. Our strong retail earnings performance over the last 4 quarters drove retail ROIC to an impressive 13.2%.Now let me walk you through the key drivers, starting with sales. As we commented on our Q2 call, consolidated retail sales in Q3 started up flat to the prior year. In the latter part of the quarter, they picked up momentum as customers were able to return to shopping in store. We finished the quarter with comparable sales up 3.3% and up 21% compared to 2019. E-commerce penetration of 6.5% was down in the quarter, with more visits to our bricks-and-mortar stores, but double what it was in 2019. Comparable sales growth at CTR was 1.4% in the quarter and up 25% compared to Q3 2019. CTR's performance was helped by growth in Owned Brands such as CANVAS, MASTER Chef, Raleigh and Sherwood, having better control over the old brand sourcing process amid the ongoing global supply chain challenges, continues to be a real advantage to us. Our seasonal, living, and automotive divisions had the strongest performance in the quarter. Garden, Backyard Living, Cleaning and Car Care were among CTR's top-performing categories, and our access to inventory was a key contributor to their performance.Our hockey business was another high point for us, up double digits compared to both 2020 and 2019, more than making up for lost ground a year ago when organized sports were canceled. Overall, we saw 55% of categories grow relative to the prior year, with 26% of them growing double digits. Versus 2019, 3/4 of the category saw double-digit growth. The return to hockey and organized sports also benefited our Sport Chek business, where comparable sales for the quarter increased 11% and 7% compared to 2019, and growth was fueled by athletic footwear, athletic clothing as well as hockey. We also saw a strong comeback in our back-to-school categories, which grew 20% in the quarter.Mark's also delivered impressive results with comparable sales up 8% in the quarter and 13% compared to 2019. Men's casual wear, footwear and industrial pair were among the key drivers of growth. As was the case in the past few quarters, our focus was on attracting younger customers through premium brands such as Levi's and Timberland Pro, driving a 21% sales increase in national brand sales, while Owned Brands were up 2%. And on the Owned Brands front, sell-through over Helly Hansen workwear was highlighted at Mark's, up 13% in the quarter. And briefly on Helly Hansen results, the business had a good quarter, with external revenue up 1.5% and 3% on a constant currency basis. With strong growth from Continental Europe and the U.S. From a category perspective, workwear and direct-to-consumer had the largest increases, up 21% and 17%, respectively.Now let's switch gears and dive into the key drivers of our revenue performance. Retail revenue, excluding Petroleum, was down 6% compared to the prior year, primarily due to an 11% decrease in CTR's revenue in the quarter. As you know, given our dealer model, sales and revenue can be out of sync in any given quarter, but it has been our historical experience that over time, the 2 metrics tend to move together. At the end of Q2, on a year-to-date basis, CTR revenue was up 23%, with sales increasing by 8%. We saw this relationship become more in line in the third quarter, which led to the decline in revenue at CTR in Q3. Inventory at the end of the quarter was up CAD 370 million relative to last year, reflecting our increased investment in product at Canadian Tire to meet potential demand.Retail gross margin rate, excluding petroleum, was up 155 basis points compared to prior year, driven by increases across our retail banners. The rate improvement at CTR was attributable to a favorable pricing mix despite freight cost headwinds building in the quarter. We are pleased with how the team continues to manage overall margin rates. And margin rates at Mark's and Sport Chek benefited from higher sales contributions from our bricks-and-mortar channel and lower promotional activity in the quarter.Now turning to financial services. The business continued to perform well in the third quarter, as demonstrated by historically low aging and net write-off rates. We also saw encouraging trends around credit card sales and receivables growth. Revenue in the quarter was up CAD 6 million as card sales grew 23% and gross average accounts receivable recorded their first quarter of growth since the onset of the pandemic. Gross margin improved by CAD 32 million, primarily due to lower net impairment losses of CAD 28 million, reflecting the continued stability in the delinquency and net write-off rates.Consistent with this performance, allowance for loans receivable remained at CAD 812 million, flat to the previous quarter, while the allowance rate declined to 13.4% from 13.9% last quarter. The team continues to assess the level of allowance on our books, evaluating uncertainty related to card holder behavior and potential impact of government relief programs coming to an end, among other indicators of economic health. We also saw a CAD 7 million increase in operating spend in the quarter, mostly as a result of an increase in our customer acquisition efforts. So all in all, financial services IBT in the quarter increased CAD 27 million or 30%. And while this earnings performance was mainly driven by lower net impairment losses, we are pleased with the growth in customer metrics this quarter.Now let's get back to some of our key performance indicators at the consolidated level. Our normalized consolidated OpEx ratio as a percentage of revenue came in at 24.6%, unfavorable by 367 basis points compared to 2020. The decrease in revenue in the quarter as well as an increase in year-over-year OpEx contributed to the decline in the OpEx ratio. The absolute dollar increase came from a few areas. The drop in share price since the beginning of the quarter resulted in a mark-to-market loss on our equity hedges related to share-based compensation. This compared to a mark-to-market gain in Q3 a year ago. The remainder of the increase was primarily due to higher marketing and higher supply chain costs as we navigated a more challenging supply chain environment. And as Greg said, we anticipate an elevated level of supply chain expenses into 2022, while the supply chain backdrop normalizes. As it relates to marketing, there were some costs related to Tokyo Olympics, combined with the return to a more historic level of promotional and marketing activity. And partially setting -- offsetting these increases were savings achieved under our operational efficiency program.Earlier today, we announced the achievement of our previously committed target of CAD200 million plus in run rate savings ahead of schedule. As a reminder, the intent of our Operational Efficiency Program has been twofold: to take costs out of the business and to transform and change the way we work to prepare us for the future. Since launching the program in the fall of 2019, we have completed more than 150 initiatives. Our focus has been on eliminating redundancies, simplifying processes and capturing enterprise-wide efficiencies. Some of the key achievements include the elimination of non-value add process at our store and the development of artificial intelligence to optimize our e-commerce freight costs and reduce delivery time.We also announced today a further CAD 100 million increase in our run rate savings target to be achieved by the end of 2022. We have a significant number of initiatives well underway. Among them, the implementation of a new transportation management system that will reduce transportation costs across the banners and the introduction of robotic automation for picking product at our distribution centers.Finally, let me turn to capital allocation. As Greg said earlier, we are pleased to be announcing our 12th consecutive annual dividend increase, up 10.6%, along with the reinstatement of our share repurchase program, targeting to buy back up to CAD 400 million in shares by the end of 2022. In the quarter, we also increased our capital spending, primarily at CTR for real estate projects. Operating capital expenditures were CAD 70 million higher than last year, when capital spend was down from pre-pandemic levels, and we expect this to continue into Q4 with operating capital expenditure for the full year expected to land in the range of CAD 650 million to CAD 700 million.Looking forward to 2022, we expect to continue with a balanced capital allocation approach, investing in our core retail business and our digital and supply chain capabilities continues to be a key priority. Building on the momentum of the business and the longer-term strategic priorities, we expect to set out more detail at our Investor Day early in the new year.In summary, we are pleased with our financial performance and our key customer metrics, and we believe we are well positioned as we head into what is typically our busiest season. And with that, let me hand the call back to Greg.

[Gregory Huber Hicks, CEO, President & Executive Director]

Thanks, Gregory. Before I close, I want to give you some insight into what we're seeing so far in Q4. Quarter-to-date, we continue to see healthy demand signals from the customer in both our retail business, which continues to be up against strong comps and our bank in terms of credit card spend. I am confident with our readiness for the rest of the quarter. We'll continue to prioritize our supply chain and maximize the value of investments made in both Triangle and digital. We look forward to giving you more insight into our strategy, including how we will continue to allocate capital as we invest in the health of our store network and modernize our business model at our Investor Day. With that, I'll pass it over to the operator to open it up for questions.

[Operator]

[Operator Instructions] Our first question is from Mark Petrie with CIBC.

[Mark Robert Petrie]

You delivered another strong quarter on retail gross margin. And obviously, there's a lot of moving parts there, but I want to ask about your views on the go-forward margin levels, just given the increased prominence of loyalty as well as the continued payoff of all your work on price and promo efficiency. So how do you think retail gross margin will compare over time versus pre-pandemic levels?

[Gregory George Craig, CFO & Executive VP]

Thanks for the question, Mark. Maybe we're just looking to see who is going to answer it. Maybe we'll turn it over to TJ. I think probably CTR is most relevant for you?

[Thomas J. Flood, President of Canadian Tire Retail]

Yes, Mark, thanks for the question. From a CTR perspective, as I spoke to in the last earnings call, we've built a lot of strong capabilities and analytical models to help us navigate through the inflation that we're seeing. We have analytical modeling to manage discount levels given our high-low pricing model, and we've been honing our elasticity curves to strike the balance between demand creation and managing margin. And our Owned Brands continue to be a key focus for us, providing several differentiated advantage in one of which being healthy margin premium over national brands. And then the other piece of work we've been doing over the last couple of years is just managing our assortments and from an architecture and breadth standpoint.And because we play across a good, better, best price point level, in each of our categories, we're able to provide our customers with a lot of flexibility to make decisions that meet their needs. So, we actually believe we're really well positioned with all the capabilities we have and the data we have at our disposals through Triangle to manage our margins pretty tightly as we go forward here. And I think it's important, I wanted to leave you that when -- with -- armed with all of these capabilities and the knowledge that we've gained through our Triangle membership, we've never been in a better position to provide value to our customers. And we're always going to continue to ensure our customers are exposed to this value through our products, our promotions and end experience. And I think that's what's going to help us run that balance of managing margin and demand creating as we go forward here.

[Mark Robert Petrie]

That's very helpful. And I guess just a follow-up on -- specifically on Triangle. As you lap some of the big growth from last year, just in terms of retail sales, what's the loyalty data telling you about how the customers that reengaged with Canadian Tire during the pandemic are behaving today as some of those pandemic behaviors fade a little bit?

[Gregory Huber Hicks, CEO, President & Executive Director]

Yes. Great question, Mark. I mean, as you have heard us talk, we've talked about tracking and managing the 1.8 million new Triangle members in a hawk-like way, and we continue to be very pleased with the results here today, and we do mine all of their activity. I'd say, as a reminder, the cohort has a much higher percentage of younger members than previous years than our total loyalty base overall, which certainly makes us pleased that we've introduced a new generation of shoppers to our banners. That's continued in 2021, as I said in my prepared remarks. And these members continue to prove that they're more engaged, more likely to shop cross-banner and spend more per visit to date in comparison to the 2019 cohort. It -- we believe really showcases the strength of the ecosystem.Let me give you some stats here. Over 74% of the members in the 2020 cohort were acquired through CTR, and about 25% of them crossed over to also shop at Sport Chek and Mark's, which obviously helps their overall spend at the CTC level. And it works both ways, between 60% to 70% of the members acquired in other banners in 2020, have also been active at CTR over the past 12 months, and they've spent significant amount of money at the banner. So we like what we're seeing here in terms of engagement. You probably heard me say this before that these outcomes, they just don't happen on their own. We've been very intentional about driving these outcomes, acquiring the analytical visibility to manage customers in this type of way. Having clarity on our objectives and fostering this test-and-learn fact-based environment is really what's driving value. And I guess I'd finish by saying, I think you may have heard me say this before that this is all about scaling more capabilities and businesses and designing them to work together in a mutually reinforcing way with Triangle. And we feel confident that we're moving with even more speed and aggressiveness on this front.

[Operator]

Our next question is from Chris Li with Desjardins.

[Christopher Li, Research Analyst]

Maybe just a couple of questions on the outlook for the auto services business. The first question is, is the supply chain disruption having any significant impact on the business? And then following that, are you seeing any sort of favorable factors in terms of higher miles driven and also increasing used car ownership? And how does that factor into outlook for the next year or so on the auto services business?

[Thomas J. Flood, President of Canadian Tire Retail]

Chris, it's TJ. Thanks for the question. It's an interesting one. Our automotive business has been very resilient despite the headwinds the industry has encountered during the pandemic. And in Q3, we grew 2% versus last year, which is 16% above 2019. And as you pointed out from our petroleum business, we know that we're still lagging 2019 levels of driving year-to-date based on our leaders pump. However, we saw that gap close significantly in Q3 relative to the first 2 quarters of the year. But despite these headwinds, our automotive business has grown for 5 consecutive quarters, and our growth continues to be fueled through what we call our wash driven categories, for example, Car Care accessories and outdoor automotive adventure.And we also saw a resurgence in Q3 on several of our -- what I would describe as need-based categories, like tires, filters and auto fluids. And auto service, to your point, we've actually just seen 2 consecutive quarters of growth in auto service. And we haven't gotten back to 2019 levels, but we certainly have been seeing some momentum in that business. And what fueled our growth in Q3 was understanding customer trends early and investing in inventory to meet that demand, and we're going to continue to take that approach as we go forward. And we actually think, as you think about inventory, we're actually advantaged relative to the industry. Because we're a diversified company and have the financial means we can take positions in categories like tires, despite some of the headwinds in the industries that other nondiversified competitors might be able to take. So, in combination with the trends that we see in our financial wherewithal and our supply chain capabilities, we feel very good about our inventory levels going into Q4 and the prospects of fulfilling what consumer demand is going to be there.

[Christopher Li, Research Analyst]

That's very helpful. And maybe just a quick follow-up on capital allocation. Where does acquisitions fit within your capital allocation priorities? Or are there any attractive areas of opportunities that you might be looking at?

[Gregory Huber Hicks, CEO, President & Executive Director]

Yes. No changes from the commentary I would have provided last quarter or the quarter before. As you heard both myself and Gregory talk about today, our primary capital priority is the investment in our core retail business. We continue to be on the lookout for brands that could tuck-in in any or all of the family of companies. I think you've heard me say that, that will -- there's no finish line there. We'll continue to look for owned brands that we can plug-in and product develop and create value for the customer. And I think the only nuance that may have been net new, and my commentary on this last time we talked about it is, just thinking about where we could potentially partner for capability, and our investment -- equity investment in the Ashcroft Terminal that we announced would be a classic example of that. And when you think about core capabilities that allow us to have a more competitive posture going forward, I think you'll continue to hear more or we'll be active on that front to understand where we can improve our capabilities and partner for strength and scale.

[Operator]

Our next question is from Irene Nattel with RBC Capital markets.

[Irene Ora Nattel]

I would like to spend, if you don't mind, a couple of minutes just talking about CTR. Because I think if we go back 2 years, if we had said, yes, over a 2- year basis, revenues are going to be up 25.3%, I don't think anyone would have believed that. So can you talk about -- right? So can you talk about where that strength is coming from, the role of Triangle, the categories and how you can sustain that level of revenue over the -- as things normalize as it were?

[Gregory Huber Hicks, CEO, President & Executive Director]

Well, thanks, Irene. I'll start, and TJ has obviously got a really good handle on the business with his team and how he's thinking about the business going forward. I start always here from the conversation we just had about the customer. We just have such an unbelievably net -- what I believe to be net new capability to look at the prospects for the future around how each customer engages with us in that banner. Yes, you hear us talk about moving customers around banner to banner, but to TJ's point around being multi-category and answering his question around the tire and auto service business, there's lots of opportunity to do that. And we are doing that just within our family of businesses under the same roof of CTR. There's all sorts of headroom in terms of how we either bring a customer over that we've acquired at Sport Chek and get them to, believe it or not, be introduced to Canadian Tire is some of the stats that I provided to Mark's question.But also in a business like auto service that we just talked about, where a very, very small percentage of our active and even high-value customers in CTR are using that service. So I tend to look at the business now, very focused at the customer level and the engagement and the frequency and spend per customer. And the more and more we grow our total a percentage of sales on loyalty in CTR or at the aggregate consolidated level, the more first-party data we have, the more the flywheel personalizes. So I think I just wanted -- before we got into categories and market opportunities and market share and what have you, which I'm quite certain, TJ will go. I just think grounding ourselves in spend per member, given that is our focus strategically is just a good place to start. But why don't I hand it over to TJ here.

[Thomas J. Flood, President of Canadian Tire Retail]

Yes, Irene, just to build on that a little bit at the category level. I think the strength of our business model has really come to the floor since the beginning of the pandemic and the diversity of the categories in which we compete are so relevant to Canadians, and Q3 was no exception. There some of the trends we saw, just we continue to be impressed by how much consumer demand there is and things like backyard living. So as the summer months went by, Canadians just wanted to explode outside and they continued the consumption on spring/summer businesses and that growth extended into September as well. And they're also investing -- continuing to invest in their homes.We saw strong growth in categories like kitchen and cleaning and home organization as well. And then there was a big bounce back in return to sports as the country reopened, and Gregory mentioned in his opening remarks, hockey has bounced back. I can attest to that. My 10-year-old needed brand-new skates and new sticks and almost everything head-to-toe because he's been off for so long. So, I think just the relevance of our assortment, coupled with our capabilities from a supply chain standpoint. Greg talked a lot about it in his upfront. Having inventory has been -- given us such a leg up and has really allowed us to capitalize on the relevance of our assortment and allowed us to gain market share relative to 2019. So we think that there's still momentum in this business, and we're going to continue to leverage that relevant assortment as we go forward here.

[Irene Ora Nattel]

That's really helpful. So if I could just have a follow-up because, obviously, one of the debates among investors is the degree to which some -- the increase in revenues at CTR is, let's call it, onetime versus sustainable. But it sounds like from what you're saying, by having this focus on the customer and using the Triangle data, you can take what may have been a onetime purchase, let's call it patio furniture and drive forward sustainable sales of other related categories? Is that sort of the way to think about it?

[Gregory Huber Hicks, CEO, President & Executive Director]

Yes. And just using that relevance to just increase spend in the categories in which they're shopping already. I think the real -- when we started the pandemic, I think the posture and the mindset potentially in the organization, Irene, would have started around this, okay, there's significant tailwind. There's lots of reasons for incremental consumer demand around the home, the garage, the yard, et cetera, and we're going to try and capitalize on that as much as we possibly can. And now we're coming through 2021 and that mindset, I'm here to tell you is changing. And we don't intend to give any of this back, Irene. We're going on offense. We're legging up from here. And again, the capabilities and the relevance that we have talked about here, gives us a lot of confidence in this business going forward. So if that helps, that's the mindset of the organization and our associate dealers at CTR.

[Operator]

Our next question is from Vishal Shreedhar with National Bank.

[Vishal Shreedhar, Analyst]

Given the scale and the frequency in use of Triangle, wondering what management's comments are on monetizing the data via selling insights to suppliers and/or advertising on your digital platforms. Is that an avenue that Tire has explored or will explore? And could that be a meaningful driver in the future?

[Gregory Huber Hicks, CEO, President & Executive Director]

I think it's reasonable -- it's a reasonable question to think about for the future, Vishal. Whether it's meaningful to us or not, I wouldn't be able to answer that question as of yet. We're just very focused on our family of companies right now. So you would have seen us just adding Pro Hockey life as an example into the ecosystem, either late last quarter or early this quarter. Party City has been plugged right in and just really building the data capabilities, the automation, the machines, getting opt-in for one-on-one communications and our own audience, et cetera. We -- going back to Irene's question, we just believe we've got a plethora of things to do to drive our own business and keep us focused on the core. But make no mistake, we are building very strong capabilities here. So, as we look forward, that could potentially be a part of our go-forward strategic plans. But as of right now, it's not a material component of our drawing board and nor do we expect it to be a material component of our financial results in the short term.

[Vishal Shreedhar, Analyst]

Given even pervasive concern about supply chain pressure -- and I know Canadian Tires addressed their own inventory and your own capabilities. But wondering how the dealers are starting to think about that? And do they -- are you seeing them perhaps think about holding excess inventory, should this -- should these pressures persist longer than some may proceed?

[Thomas J. Flood, President of Canadian Tire Retail]

Vishal, it's TJ. Yes, you raised a really interesting question here. And what I would say is, the strategy we've under -- we've been deploying since the beginning of the pandemic, and this is true of the corporation as well as dealers is, we've been investing in inventory. And when you look at what happened in 2020 and we grew 5 years' worth of growth in 1 year, we -- on both sides of that equation, we both had the right size in an upward direction, our inventory levels. And the dealers continue to invest in inventory. And to your point, they do have to start to look for ways of how to store that and throughput that inventory. But the -- this group of entrepreneurs, it is our secret sauce and our strategic advantage. They know that inventory is something that they have to invest in. It's what's been fueling our growth, and they're going to continue to do that as we go forward here. So we're -- it's something that they'll be working on within their P&Ls, but they work it at the local level and do what's right for their business to deploy and get the right amount of inventory to buoy their business.

[Vishal Shreedhar, Analyst]

Okay. And with respect to promotional activity, are you finding your peers are passing on inflation in general in the industry? Or are they holding the line at a time when the comps get tougher year-over-year?

[Thomas J. Flood, President of Canadian Tire Retail]

Yes. It's a great question. And there's been a lot of media attention around the global supply chain issues, and there's been numerous prognostications with respect to promotional intensity and what we're seeing in inflation. And what I can tell you is that we at Canadian Tire, always strive to provide value to our customers, and we'll continue to do that. We're always running the balance of managing supply availability and demand creation and looking at our pricing and promotional activity. And given the customer data that we have, we've -- as I said earlier, we've never been in a better position to create value that customers crave and to expose them to that value. Whether it be through our traditional flyer or discounting strategy or through mobilization of our Triangle rewards, we're going to be very competitive in the marketplace. So we're watching that closely in terms of how our competitive set are looking at pricing and inflation. But I can tell you, we're really well positioned as we head into our busiest selling season.

[Operator]

Our next question is from Peter Sklar with BMO Capital Markets.

[Peter Sklar, Analyst]

I wanted to ask you about the strong categories that you've mentioned today. I mean, some of them that have come up are outdoor, garden, cleaning supplies, home organization. Do you -- like the strong sales you're seeing, are they -- is it because those categories just generally are strong, consumers are buying those categories? Or do you have good measures of what your market share is in Canada by category among your competitive set? So can you just talk a little bit about the strength of the category versus your market share gains or losses in those categories?

[Thomas J. Flood, President of Canadian Tire Retail]

Yes. Peter, it's TJ again here. At the category level, I think you've hit on both elements, right? So, we definitely have seen industry growth since the -- in categories like backyard living and kitchen and cleaning and even in our fixing categories as well. So there has been industry growth. But if you look at how the landscape has laid out from a market share standpoint, we have various data points that we draw on for market share. It's certainly not an exact science by any stretch, but all indications are from the data points that we have. But not only are we benefiting from industry growth, we are gaining market share relative to 2019. A little bit of noise in that from 2021 relative to 2020 because you're really kind of going through an environment where not everybody was open to full capacity in 2020 and Q3 relative to 2021. But over time, from 2019 onward, we certainly believe we've been gaining market share in those categories.

[Gregory Huber Hicks, CEO, President & Executive Director]

And I would just add, Peter, that big, big category in the country, casual wear, obviously hit pretty hard structurally during the pandemic, maybe even leading up to the pandemic. And there's a category as an example where Mark's participates that we are absolutely taking share. And we believe that there is a meaningful opportunity to continue that trend well past the pandemic. That'd be inclusive of both men's and women's jeans as well, where we're seeing lots of gains. So, I'd just point that out because it is a big category where we have relatively low share, where there has been some structural challenges in the marketplace. And you can expect us to continue to be aggressive to grow our share in that category in the Canadian market.

[Peter Sklar, Analyst]

Okay. The other topic I wanted to ask you about is the significant operational improvement projects that you have, which is -- you're saying you've realized the CAD 200 million and you expect to achieve CAD 100 million run rate by the end of 2022. I mean, how should we think about where those dollars go? Do they drop to the bottom line? I don't -- does that mean your 2023 earnings are going to be CAD 100 million higher than they would otherwise be? Or do they find their way into other parts of the business where you reinvest those savings? If you could just talk a little bit about that.

[Gregory Huber Hicks, CEO, President & Executive Director]

Sure. I mean, it's the same as the way we would have positioned it, when we announced the CAD 200 million plus, we keep saying plus, commitment. It -- as evidenced by what we're experiencing now post the introduction of the program in 2019, we can't foresee the type of transitory inflation that may come our way. But if we were to shut down the business tonight and reopen it at the end of 2022, and nothing else happened, you'd see the CAD 100 million to the bottom line. And one of the things that I'm really focused on is really how do I get a sense that the cost really is coming out of the business, Peter. And I'm really happy with the fact that we are seeing very strong operating leverage in our retail segment. And that's net of the inflation that we're seeing. So when you look at pre-pandemic relative to today, it is very clear in the retail segment empirically, that we're getting leverage in the business. And we're doing that, like I say, net of some pretty significant inflationary pressures that the industry is dealing with the supply chain. So, I think that's the way that you should be thinking about it in terms of CAD 100 million and is the way that we'll be looking at it internally to make sure that we're getting the progress that we're committing to here.

[Operator]

Our next question is from Patricia Baker with Scotiabank.

[Patricia A. Baker, Analyst]

Greg, I want to turn back to Triangle, and thank you for providing us with the metrics that you did on the subscription program. I know it's just a beta testing, only 6 weeks in. But can you just share with us a little bit about the thinking behind this program, the mechanics and strategic rationale for this?

[Gregory Huber Hicks, CEO, President & Executive Director]

Sure. Thanks, Patricia. Yes. I mean it's really a program to pull kind of an enterprise value proposition together to drive incremental spend at the customer level. I guess, a reminder, I mean, this is -- it is a new -- it's new for us. It's a paid loyalty subscription program. And we've designed the value proposition and the benefits right now to focus on where we differentiate. So elements, it's not a new B2 program. This is a program designed specifically to accentuate the differentiators of Canadian Tire, elements like Owned Brands, shopping in-store and ECTM primarily. Yes, it involves added value with free shipping and a 1-year crave subscription, bonus multipliers across all the banners, and it is about providing value at the customer level. And our efforts right now are making sure that we have the right benefit proposition.Give you a little bit more granularity than I provided in my prepared remarks, I mean we did just launch the program in August 9. But having said that, it is yielding some significant learnings, although when you're doing pre- and post spend activity, keep in mind, you're talking 6, 8 weeks. And we haven't really been in a rush to use mass channels to acquire new subscribers. As I said, 5,000 registered Triangle Select members right now over-indexing with our target customer segment, 30 to 49 years old. A lot of active families, we're over-indexing on high-value customers and credit card customers compared to our base loyalty customers. The feedback on the registration process has been very strong empirically with CSI, NPS scores.Our monthly dashboards, whereby we provide a select member, a view at their level -- a dashboard as to the value they're getting relative to the subscription price is getting rave reviews. And our intent is to continue to remain connected to customers throughout the test, gathering feedback and fine-tuning the value prop. And it is really about, to go to your overall strategic question is, it's about providing value for the member their way, providing the best value for them at any time they want to shop as opposed to presupposing that putting a product on sale, this Friday to next Friday is the ideal timing for them to come to our store or our website, et cetera. And so, this everyday value and really connecting with them with a personalized understanding and using our entire family of companies to engage with them to spend more across the family. So I don't think it's anymore -- I don't think I wax poetic any more than that. It's -- we really do believe it has the opportunity to change the way we provide value to customers, but it's early. It's early. But like I said, we're quite happy with the spend trends pre and post, and the type of customer that we're acquiring here.

[Patricia A. Baker, Analyst]

And particularly, I appreciated your point about letting the customer shop the way, when and how they want to shop, and that is -- would be truly differentiated. I have a follow-up question on capital allocation. And thanks for providing us with that detail again. Now you did note Gregory that investing in the retail network is the most important and the largest piece of the capital allocation, and you gave us the CapEx for the current year, but not for next year. Do we -- will we -- is it going to be in that similar range of CAD 650 million to CAD 700 million? Or is that something we're going to have to wait for the Investor Day to get the amount and the specific projects?

[Gregory George Craig, CFO & Executive VP]

Yes. Thank you, Patricia. It's Gregory here. We had a long discussion on this, frankly, getting ready for the quarter. And our thought was the more appropriate process was to kind of share where we were strategically. We know what we needed to do to get through this year, and we thought it was more appropriate for us to handle that as part of our Investor Day. So that was how we're thinking about things. And we're looking forward to having this discussion. It's unfortunate the timing happened the way that it did on the federal election.But having said that, I know the team is excited and looking forward to sharing all the strategies. And part of that, of course, will be where we're seeing our capital spend the next few years. But again, I'll just reinforce, I think Greg said it. I think I've said it as well that core retail continues to be our focus around where we're going to continue to invest capital as we're moving forward. We're not stopping waiting for investor. Let me assure you that, that is not the case.

[Patricia A. Baker, Analyst]

Okay. And you did indicate that the Investor Day would be early in 2022. When do you anticipate you're going to release the Investor Day date?

[Gregory George Craig, CFO & Executive VP]

I think probably -- I think we've got a date. We're working to internally. I'll -- I think when we're sure we've got the location and the logistics nailed before I give the date, and then I don't have to backup. Suffice to say it'd be shortly after our Q1 -- Q4 release, excuse me. It's just -- I want to make sure that we have all the logistics. We are hoping that we're going to be able to do this in person and see everybody, again, is one of the things we're hoping to able to do. So we have some logistics, we're still working out, but we'll be able to share that, I think, fairly soon.

[Operator]

And our last question is from Graeme Kreindler with Eight Capital.

[Graeme Kreindler, Principal]

I wanted to follow-up with respect to the financial Services business. Some strong positive trends in the quarter here with GAR as well as credit card spend. I'm wondering if you could touch on for a moment, what sort of metrics or continued metrics you would need to see in order for that business to reclaim its pre-pandemic levels here, particularly as in-store shopping becomes more prevalent here?

[Gregory George Craig, CFO & Executive VP]

Thanks, Graeme, it's Gregory. It's interesting. What I would say is twofold. First and foremost, the good news is, the narrative we've been giving for the last 6 quarters, 5 quarters on financial services hasn't changed. What I mean by that is the risk metrics, customer payments, our loss experience, all are incredibly strong relative to historic levels. That's continuing. What Greg said in his remarks and what I've said in my remarks, stands true is, there's now an emerging narrative in my mind that you're seeing that business turning the corner. We're seeing growth in customer metrics. We're seeing growth in usage. And as we've talked about previously, this is not a light switch.Like this isn't a situation where the business is going to return back to the CAD 6.5 billion in receivables that we were at kind of at the end of 2019. It's going to come through acquisition. It's going to come through building relationships with customers with Triangle, as Greg talked about. And it's -- but what I would say, the positive sign is, I know acquisition of new accounts is up fairly significantly versus last year, still probably behind where we were in 2019. But I think what's more important is, again, the type of customer, the behavior we're seeing is different as we acquire digitally. It's a different type of customer profile.So I think we're all very excited about what the team is doing and how they're investing and acquiring accounts. But it's going to take a little time before we get back up to where we would have been kind of in that end of 2019 time frame, Graeme. And what do we look at? Acquisition, attrition rates, engagement, all the metrics, I think you've heard us talk about before are just more important now. And early indicators like Triangle, how are they engaging with all of the banners would be another one that I would point out. So lots of things that we're keeping a close eye on. But I think I'll speak for Greg. I think we're both pretty pleased with what we're seeing in that financial services.

[Operator]

That is all the time we have for your questions today. I would now like to turn the meeting over to Mr. Hicks.

[Gregory Huber Hicks, CEO, President & Executive Director]

Thank you, operator. Before we sign off, in honor of Remembrance Day, we at Canadian Tire would like to recognize those who've served and continue to serve Canada during times of war, conflict and peace. Thank you again for joining us today. Enjoy the upcoming season and continue to stay safe.

[Operator]

Thank you. This concludes today's conference. You may now disconnect.