Canadian Tire Posts Strong Q4 Earnings: Is the Stock a Buy?

Retail giant Canadian Tire (TSX:CTC.A) reported its fourth-quarter earnings on Thursday. Here are the key numbers for investors:

• $4.51 billion – Revenue up 1.6% from $4.44 billion.
• $411.5 million – Net income, up from $172.5 million.
• $7.37 – Diluted EPS, more than double the $3.09 from a year earlier.
• 1.1% – Increase in consolidated retail sales.

Comparable Sales Growth

• 1.8% – Mark’s comparable sales growth.
• 1.1% – Canadian Tire store comparable sales increase.
• 0.4% – SportChek comparable sales growth.

Analyzing the numbers

The quarterly numbers from Canadian Tire were encouraging in Q4, as the company generated comparable sales growth across its major brands. And this isn’t a particularly easy time to do that, with economic conditions not looking terribly strong.

The earnings growth looked impressive but the numbers were boosted by a gain on the sale of a Brampton industrial property, which Canadian Tire completed in December. When stripping that along with other items out, the company’s normalized net income was much lighter at $247.5 million. That’s still a 16% increase from the previous year when it reported $213.1 million, but it’s a much more modest increase overall.

For investors, however, the big concern is what lies ahead for retail. The threat of tariffs in the U.S. and reciprocal ones in Canada are weighing on many Canadian businesses, especially retailers. In the past 12 months, the stock has been a lackluster buy, rising by less than 3%. Here’s what bearish and bullish positions might look like for the stock right now.

The bearish take

U.S. President Donald Trump looks to be relying on tariffs to generate growth in the U.S. and that appears to be a big part of his strategy for his presidential term. And if that’s the case, you can expect a tough path ahead for retailers such as Canadian Tire. Even if consumers ‘Buy Canadian’ the problem is that rising costs could put a dent in Canadian Tire’s profits. They could also diminish the purchasing power for consumers, so overall spending may be down anyway. The end result is worsening financials for Canadian Tire, potentially for as long as Trump is in office.

The stock hasn’t been a good buy; even over a five-year stretch its gains are almost flat. There may not be a whole lot of hope that the stock can rebound anytime soon. And while it looks cheap, trading at a forward price-to-earnings multiple of 12, that may not be a compelling enough reason to buy the stock — there’s still plenty of risk ahead.

The bullish take

The near term looks troubling for Canadian Tire but if you’re a long-term investor, even a four-year period may not be all that long in the grand scheme of things. And Trump is all about making deals and bluffing. He postponed tariffs which were set to start earlier this month and it’s anyone’s guess whether he’ll put them in place next month, or how long they will last. Investors shouldn’t concern themselves with government policies because they can change and can be impossible to predict.

What matters is the business, and its fundamentals. And Canadian Tire, being a top consumer brand with many loyal customers, can be an excellent long-term buy. Buying it at a cheap price also means that investors get a good margin of safety with the stock should things go south. And there’s also that dividend, which yields 4.5%. That gives you plenty of incentive to just buy and hold.

Should you buy Canadian Tire stock?

If my priority was dividend income, then Canadian Tire is a stock I’d buy. It’s a good payout and the payout ratio is fairly modest at around 60% — it’s in no danger of a cut anytime soon, even if the company’s financials worsen.

However, besides dividend income, there isn’t a compelling reason to buy shares of Canadian Tire. The company’s growth prospects don’t look great, with or without tariffs. There’s loads of competition, especially from online retailers these days. And there are much better growth stocks to consider out there. Canadian Tire may not be a bad buy, especially if the tariff threat doesn’t turn out as badly as many fear it will be, but it’s not a stock that I can see taking off, either.