Executives: Stephen Wetmore - President and Chief Executive Officer Allan MacDonald - President, Canadian Tire Retail Dean McCann - Executive Vice-President and Chief Financial Officer Gregory Craig - President, Canadian Tire Financial Services and Canadian Tire Bank Duncan Fulton - President, FGL Sports Rick White - President, Mark'

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Analysts: Irene Nattel - RBC Capital Markets Peter Sklar - BMO Capital Markets Mark Petrie - CIBC World Markets James Durran - Barclays Capital Markets Derek Dley - Canaccord Genuity Brian Morrison - TD Securities Keith Howlett - Desjardins

Securities
Operator: All participants, please stand by, your conference is ready to begin. Good afternoon. 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 speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Earlier today, Canadian Tire Corporation Limited released their financial results for the first quarter of 2017. A copy of the earnings disclosure is available on their website and includes cautionary language of both 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 Stephen Wetmore, President and CEO. Stephen?

Stephen Wetmore: Thank you, Melanie, and good afternoon, everyone.

I'm going to leave most of the numbers and comments on the quarter to Allan and Dean. But I would like to congratulate the team on another strong quarterly performance. Despite being our smallest retail quarter, our Retail segment generated revenue growth of 8.5% and we had solid IBT growth of 4.3% from our Financial Services business, all contributing to the strong diluted earnings per share growth of 37.8%, which generated - we generated on a year-over-year basis. You may remember my comment last quarter about how when things are going well, we take all the credit, but when the weather is a factor then clearly it's not our fault. So you won't be surprised when I tell you that I view Q1 as a good quarter.

However, there were weather influences that impacted our customers, as their typical activity patterns were disrupted by a warmer January and February, and a colder March across the country. Despite these challenges, we did some - we did show some growth over the prior year at both CTR and Mark's. However, our customers' buying patterns were totally disrupted this quarter at FGL Sports, leading to a decline in comp store sales in the quarter. We were quite conservative in our inventory build going into the quarter, so despite the lack of sales growth, we have ended the quarter in good shape from an inventory point of view. Not having excess inventory also meant that we did not have to chase sales at FGL and we maintained our year-over-year margin performance.

Staying with FGL for a moment, I know you're going to ask if the first quarter performance is indicative of a slowdown in FGL's top line growth. And the short answer is no. We have completed the five-year plan, 200 million square feet real estate expansion during that period. And while we still have a substantial pipeline, it is inevitable that we will see its growth slowing as we go forward. However, many of the operational initiatives put in place at Canadian Tire Retail and now being implemented at FGL, as we move to phase-two of FGL's growth agenda.

FGL completed the rollout of the new point-of-sale system in Q1 and are now live with their distributed order management system. So I believe Duncan and team now has the foundation that the company has needed. Financial Services had a good quarter and I should note that this is Greg Craig's first quarter as President of Canadian Tire Financial Services. So I'm sure that he is relieved that the business performed well. And, of course, I'm very pleased with the precedent he has set for future quarters.

Earlier today, we had our Annual General Meeting and I don't want to cover the same ground with you here. However, we are making very good progress on many fronts in laying the foundation for our future. And we'd be pleased to expand on any area during our Q&A session today. So with that, let me turn the call over to Allan MacDonald and let him share with you some of the progress at Canadian Tire Retail. Allan?

Allan MacDonald: Thanks, Stephen.

Good afternoon, everyone. Earlier today at our AGM, Stephen spoke about our move to operating as one company with one customer and the importance of data and analytics within the business. On today's call, Stephen asked me to add some color to his comments and update you on how this is progressing. Not so long ago, CTR was very siloed, focused purely on product sales. Automotive, for example, focused on its tires customers, Petroleum on its gas customers, even though both are on the car.

The Flyer was simply a shared tool for each business to promote its particular products. The website was operated by IT and CTFS manages its business without any partnership with Retail. We hadn't really contemplated the power of working together. Our customers were identified by their loyalty to a category, not their loyalty CTR. So how we turned it around, despite owning some of these challenges, working collaboratively, focusing on one customer to our share of wallet.

We've also become completely engaged and moving CTR to becoming a data centric company virtually every aspect of our business is engaged in empirical decision making. A few example, CTR and CTFS collaborated to drive credit card acquisition, transactions on the card and OMC share of tendered stores. In the past two quarters, we've acquired 28% more credit accounts then we did in the 2016. Options MasterCard share of tendered CTR group by 11.5% and customer sales easing or in-store financing grew by over 54%. CTR and our consumer brand's division have committed to growing strategic categories through owned brand.

Kitchen is a brand driven category, and our 8% penetration of owned brands in kitchen pales in comparison to the 88% we have in Christmas. So we're excited this week to announce the acquisition of Paderno, it will be a big part of our effort to grow Canada's kitchen store. In terms of analytics, until recently our data was plentiful but multiple data warehouses made it inaccessible and disorganized at best. But a very difficult nut to crack, it wasn't until we built new tools to access the data, and start looking for insights, and started asking good questions that a light appeared at the end of the tunnel. Now the floodgates have opened, and here I have to thank Mahes Wickramasinghe.

He has been a huge help a pioneer in the driving force behind this cultural shift. Since the beginning of 2016, we've made excellent progress. Our team's analysis of product purchases concluded traffic driving products are not always obvious, historically we used transactions as a proxy for traffic. But now we have statistical models that show how categories behave. Not all traditional traffic drivers are as valuables we once thought.

Imagine the day when someone told you lost leaders aren't actually important to your most valuable customers. This empirical analysis is being applied to our assortment planning and merchandising, and played a major role in our promotional productivity. We're also using data analytics in our marketing, thanks to new capabilities to match loyalty data and online traffic. We can better understand how online search influences in-store traffic, all at a person, product, and store level. We've uncovered important drivers of online engagement like speed, search patterns, and how to effectively format product and category information.

Hundreds of improvements to the site have led to us were exit rates for example decreased by as much as 60 percentage points. We've improved products search speed by 75% delivering search results faster and more accurately. Today, we announce some new initiatives that will continue our progress with CTC business units working together, building stronger relationships with a common customer and cooperation - cooperating on operational best practices. I'm really excited about introducing Pro Hockey Life to Canadian Tire stores and canadiantire.ca. I think this allows us to really create the best hockey assortment and format for each community again thinking about the customer and bringing our best Canadian Tire to them.

We also announced will be testing Mark's products on Canadian Tire, this one for me is an obvious one. We both sell footwear and apparel and while Canadian Tire has the traffic, Mark's owned brands that are among the most innovative and highest quality in the world, so it's a natural collaboration. And last, but certainly not least Chek Kids, a great complement to the Canadian Tire retailer Canada's kid store strategy. We've acknowledged that kids and families are a big part of our one company - one customer strategy are now Sport Chek and CTR teaming up to build even stronger relationships with Canadian family. Without going too far in terms of our plans, I think, it's safe to say you should expect to see the Consumer Brands division also playing a role in this space most likely in kids apparel and outerwear.

While this is excellent progress we still have work to do. We mentioned our deliver to home trial be in market leader this year or 2018. This is obviously a big project and important step for Canadian Tire, as we work with dealers to evolve our customer experience. And recognition the importance of our credit card business will be continuing our collaboration with CTFS and CTR will play an important role in the marketing and launch of Crimson next year. We've made progress in owned brands and launch of Premier paint was a great next step for us in this very important category.

Our productivity initiatives are not complete and the teams continuing to drive operational improvements across the business. And as you know, we've been working hard to weatherproof CTR wherever possible. But we had successes in our - while we've had successes, our weather businesses still grew quite well in 2016, meaning we have to continue our efforts. These initiatives have all been created and executed by a leadership team that believes in the power of cooperation amongst the banners and with their dealer partners. They're committed to a new vision of our customers and are very optimistic about the next chapter of our evolution.

So I could go on all afternoon, but I'll stop here. Suffice to say we have lot going on. But we're incredibly excited about the opportunities ahead. With that, I'll pass it over to Dean.

Dean McCann: Thanks, Allan, and good afternoon, everyone.

As Q1 is a very small retail quarter for us, I will keep my comments brief today and focus on a few key areas. Overall, it was a solid quarter for us with diluted earnings per share of $1.24, up 37.8% over the first quarter of 2016. We generated strong top line results from our Retail segment. Much of the revenue growth can be attributed to the underlying strength in our CTR banner, as dealers bought into our spring merchandising programs and replenished inventory coming off a very strong Q4 2016 sales performance. I can't help saying in hindsight, it could probably have waited to buy spring assortments a little bit longer given the late break to spring, but our stores are certainly ready for business once the seasonal weather shows up across the country.

The consolidated Retail segment margin, excluding Petroleum, was essentially flat, down 7 basis points. FX continue to be a negative influence on margin and while it will continue to be somewhat of a headwind for us over the course of the year, our hedges had been maturing and that impact will begin to moderate somewhat year over year. As we've mentioned over the last few quarters, there have been a number of margin levers that the Retail teams, particularly at CTR, have successfully used to offset negative FX impacts. Those really fall into three

broad categories: pricing, which captures the use of science to set regular and promotional pricing; second is sourcing, which captures the cost and composition of product input as well as vendor selection using robust data analysis to support the negotiation; and third, product mix, which considers the composition of our assortments, understanding the relative share of private versus national brand product; and as well as other factors such as freight costs and dealer margin sharing arrangement. And while we have, as discussed many times, that making headway and doing a much better job managing all these factors, there are a lot of moving parts.

And while some inputs may begin to move in a positive direction like FX, as we continue to do a more comparable level of year-over-year FX cost, others like commodity prices for example can move in the opposite direction. But the greatest benefit of our operational efficiency program is how the teams have embraced the new tools and gained access to data to make margin related decisions to retail business. There was a substantial improvement in our OpEx ratio, excluding depreciation and amortization and Petroleum this quarter, which was better by 91 basis points compared to the prior year. As you may recall, last year's OpEx included several onetime items that had impacted our performance such as higher-than-normal variable compensation and our support of ongoing operational initiatives. In addition, our strong revenue growth at CTR I discussed earlier drove down the OpEx ratio in the quarter.

Of course, I'm pleased with the trend. But this is a small quarter and we are committed to investing in the initiatives that will drive long-term growth like building expertise in product development and data analytics, which will occur over the course of the year. So rather than read too much into a single quarter metric, I continue to be focused on the same goal expressed in prior quarters of expanding EBITDA as a percentage of revenue over the course of the year. The Financial Services business posted solid results with GAAR growth at 5.8% in the quarter, reflecting the investments made to drive new customer accounts and GAAR growth throughout the prior year. In addition, we are seeing the benefits in both our retail and financial services businesses from the integration initiatives that we have been implementing.

Despite a slow start to the spring selling season, inventories are in healthy and clean - are healthy and clean across all the retail businesses, with the extended colder weather across the country, resulting in good sell-through winter inventory, particularly in January and February across all the Retail banners. Although, FGL experienced slower sales in the quarter inventory levels improved year over year due to adjustments the team made in terms of its buy coming into the winter season. We continue to make progress on ROIC. It was 8.58% for the quarter, up 48 basis points over Q1 of last year and up 24 basis points from Q4 2016. Strong Retail segment earnings and improved working capital investment were the primary drivers of the improvement.

As I said - as I have said many times, this is our toughest aspiration to achieve, particularly in light of FX and Alberta pressures of the last couple years. But the improvement in the quarter is encouraging. Our operating capital expenditures were approximately $68 million reflecting a lower year-over-year spend on real estate and the information technology projects. Our distribution capacity spending was also down year-over-year, due to an expected lower level of investment as construction of the Bolton DC is now complete and going through the process of coming online. And with that, I'll turn the call back over to the operator for the Q&A session.

Operator?

Operator: Thank you. [Operator Instructions] The first question is from Irene Nattel of RBC Capital Markets. Please go ahead.

Irene Nattel: Thanks and good afternoon, everyone. I was wondering if we could please start with a discussion about CTFS.

Obviously, there's a great deal going on right now within the whole Financial Services space. If you could walk us through how you see CTFS, how comfortable you are with your portfolio and the risk profile as well as your sources of funding?

Gregory Craig: Hi, Irene. It's Greg here. I'll start maybe with the risk profile and maybe Dean can speak a bit more to the funding side of things. Very comfortable with the risk of portfolio.

If you think back to the actions we took a few years ago, given an uncertain economic condition out in Alberta, I think what you've seen - and also just other changes made to collection strategies and credit risk strategies for the past few years, you've really seen an improvement in our aging rate. It was 50 basis points at the end of Q1, lower than where it was last year. And that was lower in every province across Canada, which is the first time we've seen that in a few quarters. The write-off rate improvements have also been very strong, so from a credit risk perspective, really pleased with what we've seen over the past few years. And it started about two years ago and it's just - we just continue that journey.

Dean McCann: And on the funding side, Irene, we've always prided ourself with operating very conservatively from a funding perspective with respect to CTFS and quite frankly with respect to CTC in general. Our strategy includes having multiple sources of funding for CTFS which covers the broker deposit channel, the securitization channel, HIS [ph]. All of which is backstopped and with our $2.25 billion line that we put in place when we did our Scotia deal. And all of those sources of funding are laddered out, so we are very cognizant of ensuring that we don't have big chunks of funding coming due at - in any given year and we laddered out, typically out over kind of a five-year period. So as I said fundamental is operating very conservatively with respect to managing the balance sheet of bank and certainly the corporation.

Irene Nattel: And as far as the broker deposits go, Dean, have you seen any changes in the last few weeks?

Gregory Craig: No, no. It's Greg. No, there hasn't been a change in our ability to raise and even at the rates we've been able to attract new deposits at. So, no, there hasn't been any change in broker deposits nor has it been any change in our in our high street savings volumes.

Irene Nattel: That's great, and just one other question if I may ask.

Would it be possible to expand a little bit more on the one-company initiative? Where you would like to see Canadian Tire, for example, three years versus today and what steps you have to take to get from here to there, and of course, how much is it going to cost?

Stephen Wetmore: Hi, Irene. It's Stephen. Well, as far as we've made - we've made some great progress to this point in time. And I think the - as I said this morning, that we built our brands to a point now where they're very strong. I think not having a system pretty much at all within the Sport Chek's environment, FGL's environment to capture customer data, which is changing somewhat with their point of sale system.

And I think also being able to take our credit card across the banners, which we intend to do during - much more during the earlier part of 2018, again will be an exceptional way to capture more data across our organization. And then building - because we have all the data like the enormous amount of data that's coming through Canadian Tire Retail and also through Canadian Tire Financial Services. So to build that data pool we, thanks to Eugene and team, now have a warehousing system that is actually accessible. We have built the tools to access our enterprise data warehouses. We've trained our staff now to a great degree, which I also referenced this morning in terms of using data analytics to go along with some of the real core data analytics teams that already operate within our organization, including Financial Services.

So I think the groundwork is there. And we've also already done a fair amount in terms of trying to look at one customer view in lot of our data segmentation work that we're doing. So we've made excellent progress. I think over the next couple of years it's going to be us experimenting, getting our data together, understanding the marketing efforts that have to go behind it from a digital marketing point of view and a ownership of the customer point of view. We restructured CTR so that we have kind of one person that is in fact in charge of the customer experience across the spectrum.

We as you know through the years have combined our back offices so that we actually are operating as one company from that aspect of it. And we are now sort of fully completing the combining of our supply chain and fulfillment operations under one view. Certainly, our own brand strategy is with one view, concentrating initially obviously to help Canadian Tire Retail. But that is moving quite rapidly. So I think we'll make very good progress.

But it's going to be us being able to collect enough data, understanding our customers across the spectrum. That will really move the yardstick over the next two to three years.

Irene Nattel: That's great. Thank you.

Stephen Wetmore: Okay.

Operator: Thank you. The following question is from Peter Sklar of BMO Capital Markets. Please go ahead.

Peter Sklar: Thanks. Just one question on this data collection.

When you collect data through your point of sale system and you're collecting other data through your credit card, are you able to figure out that it's the same customer? Or like are you able to merge the data for the same individual, but you're getting from different sources?

Gregory Craig: Hi, Peter, it's Greg here. Yes, so with the introduction of our loyalty program, MyCM [ph] a few years ago, we have the ability to kind of link in that information to the credit card information to get kind of a more kind of holistic view of one customer. So, yes, we have that ability if you're a MyCM [ph] customer with a credit card, we can link that information and get a view of your transactions across our banners.

Peter Sklar: So the key is though, that have to belong to your loyalty program.

Gregory Craig: Correct, if they don't belong to loyalty program, I don't know who you are, right, so.

Peter Sklar: Right, okay. I had a question on the inventory position. You said that all banners are pretty clean in terms of your inventory positions. I would have though with the sell-through you had in terms of winter categories, I could see you are very clean. But with the late break for spring, I thought you might be a little bit chunky in terms of your spring categories.

And you can just comment on why you're in good shape in terms of spring categories.

Gregory Craig: Yes, I mean, I'll do it on an overall basis, Peter. And then let the operators kind of if they want to chip in. But in terms of corporate inventory, obviously my comments were that we came out of the quarter exceptionally clean so. And I would highlight FGL particularly came out clean despite being a little softer and from a sales point of view.

In terms of CTR in-store, the dealers are obviously prepared for the selling season. So they bought into if you will the programs that Allan and team have put in place, and you saw that in the fourth quarter and/or ready obviously for spring to show up. So they're - as I say very clean because they're with inventory that is ready for the season with some exciting stuff to offer. And I would reiterate that for both Mark's and FGL. But I'll let the guys that want to offer anything else with respect to…

Stephen Wetmore: Yes.

I mean, no, it's well said, I mean, we are feeling pretty comfortable in terms of being ready to winter - for the spring, sorry.

Peter Sklar: Right. Okay, and then my last question is Sport Chek seems to have lost its way a little bit in terms of sales momentum, it just doesn't put up spectacular comp study used too. And I'm just wondering, what management thinks, the issues are there and what steps you're taking to rejuvenate the momentum at Sport Chek?

Stephen Wetmore: Yes, Duncan.

Duncan Fulton: I think, I'd disagree with the characterization.

We feel very, very good about the business, obviously, not about the top line performance in Q1. But every time that - we exist to provide the things for the jobs and joys of Canadians. Stephen have said that a number of times. Our core categories operated extremely well. You look at January when plus 12 degrees, we had decisions to make in Q1 about whether want to discount winter boots and discount winter jackets against warm weather.

You look at all of the other core categories inside Sport Chek, and if you take Q1 as an example. The rest of the top 10 categories were all up, athletic was up, hockey was up, accessories was up, license was up, ski and snowboard were up with the extended kind of winter that went through Q1. What was down was winter jackets and winter boots, as you got into March compared to last year when everyone was buying by early and the spring running gear and spring running shoes, you just didn't trigger as quickly. Undoubtedly, and we said this last quarter the business has been built to serve those jobs and joys as certain weather patterns trigger in times of, you're triggering those categories perform. So we need to do a better job of making the business less purely weather dependent there's always going to be a seasonal component to what we do.

Some of the efforts, you're willing to see us make in kids, women, lifestyle categories that are more year round categories. Those are specifically designed to smooth out some of those values, which none of us like to see. But I have no doubt at all, and we've seen it consistently that at those key times of year, and at those key weather triggers, we are the leading market share in Canada and all of those categories of Sport Chek plays, and people come to us consistently, and we please them consistently. So I am not worried about where we're heading here.

Peter Sklar: Okay.

Thank you very much.

Stephen Wetmore: Thank you.

Operator: Thank you. The following question is from Mark Petrie of CIBC. Please go ahead.

Mark Petrie: Hey, good afternoon. Actually just wonder if you could talk a little bit about your relationships on the manufacturing side particularly as you grow your own brands, how you're thinking about that capability and what's your view on being able to grow capacity as those brands become bigger and bigger?

Allan MacDonald: Hey, Mark. It's Allan. In terms of manufacturing, I think probably a good indication from the Paderno deal, and I'm not sure to get a chance to see the details, but we've made an agreement with Meyer to operate the manufacturing facility. Our inclination is, we want to grow and expand our capacity to source good products with really good design and innovation so much more on the research and design front.

Further sort of expanding from that in the manufacturing, I think is outside of our bailiwick, and not really what we want to turn the company into. So when it's a necessity to get the right brand and access the right technology or markets, and something that they were going to have to face. In the case of Meyer, we thought it was a really good opportunity with Paderno. To take one of our partners in, and the three of us kind of partner together to let them do what they do best and let us manage the brand. So I wouldn't expect that you should see Canadian Tire looking to diversify further in the manufacturing, if anything, it's really upside of what we're focused on.

Mark Petrie: Sure. I appreciate that. I guess, maybe just more specifically like on something like NOMA, where it's been a big success for you guys, but probably just given the penetration limited ability to grow that within CTR. How do you think about growth for a brand like that over the next few years?

Stephen Wetmore: In terms of the brand independently, you mean?

Mark Petrie: Right.

Stephen Wetmore: Well, I mean for us there's a couple things that are on the table.

One is obviously growth outside of Canada, not the type of brand that we typically look at growing inside of Canada and other retailers. So that there's an expansion of the wholesale market, which is an opportunity, and the other is expanding the brands into adjacent categories. So if you think about where NOMA could travel after lights it, would work very well in the home lighting category, perhaps the home air filtration category. And as we continue to build the family of products from NOMA, you had on top of that new product innovation. So last year's version of Christmas or outside decor that was NOMA brand and it's going to look different of years to come.

So between geographic expansion to different markets, broadening of the brand in the new categories, and pretty deep and product innovation I see a lot of opportunity for those brands.

Mark Petrie: Okay, thanks. And then, I guess, shifting gears a little bit, you talked of the home delivery test happening for CTR later this year or early next year. And appreciating that it's a long way off. Would be interested to hear a little bit more just in terms of how that will work fulfillment from stores or how that will look.

And then how that cost arrangement will work with the dealers?

Stephen Wetmore: Well, it's early days for us right now, and as you can appreciate very complex trials, because we're dealing with hundred different categories and geographies and that range from Metro Toronto to Northern communities. So while it's very much in the planning stages, we're not quite there. We know, we want to do, but I'd suggest it's probably worthy of an update in one of our upcoming calls, to give you a little bit more details in terms of how we're going to start position there in terms when we'll roll it out and deliver from node versus deliver from store and how we're going to handle that. So what I'd suggest is, we'll get you up to speed but there's probably not the best day to do it.

Mark Petrie: Okay.

Thanks very much thanks.

Stephen Wetmore: Thank you.

Operator: Thank you. The following question is from Jim Durran of Barclays. Please go ahead.

James Durran: Good afternoon. I guess, my first question is probably toward Allan. So on the last quarter, I guess you were mildly disappointed that strong winter weather showed up in December. And took away the opportunity to show how well the business could do without the winter assist. So I'm interested in hearing your thoughts about what's different this quarter where - obviously we didn't get conducive weather.

And the comp came in much weaker than the previous quarter. But weaker on a sort of two year stack basis as well. How did the non-weather related stuff do it CT Retail.

Allan MacDonald: No, Jimmy, I'm not supposed to remember what I said the previous quarters call.

James Durran: Yes, I know, it's a sinful thing to do.

Stephen Wetmore: It's funny, we were talking about this not too long ago, actually. And it's part of it is the dynamics of the different quarters, so Q1 versus Q4. Q4 offer some very good non-weather related opportunities, and it's a very big one. Q1, very much less so when you take out the weather related categories, other than Valentine's Day there really isn't a lost that you can do there. And unfortunately that that the hangover from Christmas in January, February means that a great week in January is a good day in March.

So it's really hard to insulate yourself against the weather in Q1. There's just fewer opportunities so that's kind of part. The other part has been the success we've had over the last couple of years of being entire retail in terms of raising our game in non-weather related categories has been one of those tides that lifts all ships. So along with that our weather-related categories have also grown, not up the pace of the non-weather. But they've created year-over-year challenges for us, because we're now conflict even more success in weather related category.

So we have some more work to do. The timing of March is in my mind really problematic. So we're going to see…

James Durran: Kind of March.

Stephen Wetmore: Yes. We can just have a quarter that's started in March and ends in June have been easier.

But so it just it really boils down to we capitalized on the big opportunities first of course Christmas is probably the shining star in that. And we just have to get our way down to the micro season. So we got a lot of work to do there.

James Durran: And I don't know, if you can comment on this, but as we're now in second quarter. Historically, how does spring behave like I'm assuming that bad weather just the first pent-up demand, but depending upon when we do miraculously get warmer weather.

Do we end up sacrificing some margin as we race to the finish line of the short spring season?

Allan MacDonald: Well, I can offer you those thoughts in CTR, I hate the weather. It's certainly not helpful, but I've noticed in the past, while Q2 is that does pent-up unlike some other season. So we remain optimistic. And in terms of margin, we are going to have to wait.

James Durran: Yes.

Okay. Last question, just SG&A. So I'm sure there was 91 basis points improvement, but Dean pointed out strong revenue growth in a small quarter gives you a big bang on the SG&A line? Do we think that 2.8% increase in SG&A year-over-year is a sustainable run rate for the rest of this year, or are there dynamics that are going to change as we move through in things like DC start up costs et cetera?

Dean McCann: Jim, maybe, I'll offer a couple comments there. We've telegraphed before that we will in the third quarter have some start-up related to DC, and probably a bit of that in the second quarter, but we will have a depreciation kicking in as the DC comes online, as an example. So that's one kind of if you will notable factor, and we'll highlight that for you when we got out.

In terms of the OpEx ratio in the absolute dollars year-over-year, as they said in my comments, and certainly it was reiterated in the kinds of things that Allan and Stephen talked about it. There are investments that we want to be making for the long-term, and as we look at the business comps around data analytics and the brand development strategies that that the team is doing. We want to do more and more of that. So we're not going to curtail investment in the business, that said I'll just go back to the standard pattern with respect to what we're trying to achieve here, which is drive up our EBITDA percentage as a percentage of revenue over the course of the year and that's what we want to do in a sustainable way. I will tell you that what we experience in the first quarter's encouraging, but again just remind everybody not to get overly excited about our smallest quarter relative to a very strong memory.

James Durran: Great. Thanks, Dean.

Operator: Thank you. The following question is from Derek Dley of Canaccord Genuity. Please go ahead.

Derek Dley: Yes. Hi, guys. Just wondering, if you could quantify the FX headwind and in terms of basis points on the margin this quarter?

Stephen Wetmore: No, Derek. We don't typically do that, well we've never done that to be honest. So what I would say is the delta year-over-year, glide path is coming in for a bit of a landing, we will still have negative headwinds as we go through the balance of the year.

But the order of magnitude is quite a bit less. So I'd say kind of a third of the impact that we've experienced, and kind of effective rate to effective rate. And that I would give you a sense that said, I'd remind you that nothing happens in isolation. So that's why, I made some comments about kind of all the various drivers and the teams have done a really good job of managing all those. But commodity prices those kinds of things can go the wrong way as well, right, and - when market force kind of come into play.

So they're all factors, but just pure FX, yes, we'll see year-over-year basis less of an impact as we're going through the balance of the year. But there will be some other forces that play too.

Derek Dley: Okay. That's fair. And then, I'm just switching to CTFS, you guys have something strong GAAR growth this quarter along with a still slightly elevated investment in driving that GAAR.

So we expect sort of a similar cadence over the balance of the year, or are those investments starting to wind down a little bit?

Dean McCann: I think, we've said before, we've made a lot of progress in the last year with CTR around integration, and that really has helped drive that receivable number to where it was for the quarter. We think there's still a lot to runway in CTR to grow this out even further and then extend that into the other banners like Mark's and then FGL. So Mark's for example, we just started testing in-store acquisition of the fourth quarter, and we're looking to actually just start to testing at a few stores in Sport Chek as well. So I think, we'll continue that that journey because we think there's a lot of runway left still to continue to grow this business.

Derek Dley: Okay.

Thank you very much.

Operator: Thank you. The following question is from Brian Morrison with TD Securities. Please go ahead.

Brian Morrison: Hi, good afternoon.

I wonder, if you can just circle back to the private label commentary, as it appears the own brands there are increasingly important from a strategic standpoint it sounds like product mix appears to be mentioned each quarter in your margin performance now. So I'm wondering, if you're able to discuss the penetration levels, perhaps, by banner, I presume, its highest at Mark's. I wonder, if you can confirm, it sounds like a very - fairly early days with respect to the opportunity for maybe portfolio expansion relative to where you currently are. And maybe just from a high level - how meaningful an impact this has on your results, presumably it's much higher margin business?

Stephen Wetmore: You're taking it? Okay. Do CTR and then we'll just move on.

Allan MacDonald: Yes. When it comes to it, we're looking at continuing to expand. And when we think about the penetration of private brands it's really important to anchor in why we're doing it, and it's about connecting with their customer is looking for ways to introduce new innovations and roll our relationship with Canadian. So we're doing in strategic categories, so our private brand penetration overall is not nearly as important as categorically. So as I was saying earlier in kitchen that's a category, where brand is a very, very importance of brand driven category, it's one where we only had 80% penetration in private brand.

And we want to be able to have our you know maintain our unique assortment and our unique value proposition for Canadian. So we knew getting a good, or better, or best level brand that had national recognition that kitchen was going to be incredibly important for us. So I made [indiscernible]. So we're going to continue to look at, first of all, introducing brands in areas where we know it's going to be important and where there's opportunity, because we're under penetrated and then growing them as - as helpfully as we can. That doesn't necessarily mean that we're shifting demand from national brands to own brand, in case of the introduction of woods and camping, we saw woods deliver tremendous growth, and accretion at the margin level, but the national brands grow at the same time.

So we're not looking to get incremental margins simply by a shift, we're looking to reduce new brands and strengthen the category make an incremental contribution, because they should be more profitable, because direct nature of the brand. But much more strategic in terms of our position with our customers. And then layer and top of that that will be one of the primary mechanism through which we introduce innovation and sort of exciting new products to our customers. So again I wouldn't look at it more categorically look at it, in terms of each individual –overall with in terms of each individual category.

Brian Morrison: What's an adequate penetration rates of some of your key categories, you say 8% is under penetrated.

What would be some of the higher penetration rates in key categories?

Allan MacDonald: That's a great question, I mean, we're about a third overall, and there's lots of noise in that those categories that are all private brand, some they're not. Christmas would be at the high-end north of 80%. And kitchen, quite frankly, for a brand-driven category was at the very low end, which is one of the reasons why I made a big priority to get on it right away. So I don't think that - I would be shooting more for the average, sort of your 30% I think is a really good place to be. But again, it's category specific.

Brian Morrison: And is there opportunity within Mark's for further expansion, private label, or are you sort of at a ceiling in that business now?

Rick White: Yes, it's Rick here.

Brian Morrison: Hey.

Rick White: Really what is at Mark's, it's a question of balance right now. There is opportunity to grow our private label in certain categories. And in other categories, we're actually, believe it or not growing our national brands.

To give an example, that in footwear, national brands are growing. Our overall footwear business is growing especially in the casual area. But we're experiencing greater growth in the national brands, because that's what consumers are looking for. Yet another category such as industrial, we're growing our private label business. So it's really category-specific and it's about balance.

So we're tweaking each of the respective categories, where we feel that - it best meets the consumer's need. That's really about segmentation. And it's about giving us the ability in the private label area to introduce new technologies and to drive innovation, to make that point of difference for us and to set us apart from our competition, whether it'd be online or in store.

Brian Morrison: And, sorry, just on FGL is there any opportunity there or is just too dominated by national brands?

Stephen Wetmore: I think there's actually tremendous opportunity at FGL. We have a very - today, we have a very low mix of private label owned brands inside of the FGL family, because we are a leading destination for Canadians and all things active living.

When you look at an outdoor category and athletic category, kids' category, lifestyle, the ability to introduce fully owned labels creates some brand heat around those. Differentiate products - Mark's have done an exceptional job at building brand love for products that are highly differentiated from other things you can find in the market. I think there's an opportunity to do the same thing at FGL. So I think there is even more opportunity with us, you can see more.

Brian Morrison: Thanks for your comments.

Operator: Thank you. The following question is from Keith Howlett with Desjardins Securities. Please go ahead.

Keith Howlett: Yes, just going back to FGL Sports, I think when you bought Forzani, they had a lot of private brands, McKinley Firefly, all sorts of - I think they were bought through their international sourcing. And I think if I'm not mistaken the store is shifted more to national brands.

So I'm just wondering was that because you didn't have that much confidence in the differentiation of the ones that you inherited or just sort of how you're thinking about that?

Dean McCann: I think that - I don't think there's been a shift since acquisition. And you've seen McKinley, Diadora, Firefly, Nakamura [ph] in the stores. Admittedly, we've never put a major brand focus behind those brands. Typically, when you see advertisement from Sport Chek, we're advertising our top vendor partners who are great partners to us. And even though, customers want those brands as they create brand heat in Canada and around the world.

Frankly, Sport Chek has never even tried to create brand heat around those kinds of brands, that'll be either licensed or owned. And I think we've more of a focus on us. Now, understanding exactly where we want to differentiate and whether differentiating on a product attribute or a price, which category you want to do it in, kids' or outdoor or lifestyle, and deciding which brands you want to get behind. I think there's nothing but opportunity there. But I would say there's been no shift away from it.

There just hasn't been a - hasn't been the same focus on it that you've seen at CTR and Mark's.

Keith Howlett: Thank you. And on the move to one company, in terms of store formats are there any formats that aren't going to be part of the one company one customer? I'm just wondering about the future atmosphere or the small market Canadian Tire stores or parts stores or is everybody part of the go-forward?

Stephen Wetmore: Yes, Keith, we haven't - we didn't kind of do with that concept in mind if you will. It wouldn't surprise me through the years if something like that actually perhaps occurred. But it's not part of the one company strategy per se.

Keith Howlett: And then if I might because I'm not sure Patricia is on the line - can you can you speak about basket versus traffic?

Stephen Wetmore: CTR specific you want or what?

Keith Howlett: No, I was wondering across the three major groupings there.

Stephen Wetmore: We don't…

Dean McCann: Keith, we don't - as you know, we don't do traffic and basket and separate those out. So for us sales are sales so we haven't historically hide that stuff out, so…

Keith Howlett: Great. Thanks.

Stephen Wetmore: Thank you.

Operator: 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 Lisa Greatrix for any member of the IR team, if there are follow up questions regarding today's call or the materials provided. You may now disconnect.