Executives: Stephen Wetmore - CEO Dean McCann - CFO Rick White - President of Mark's Mary Turner - CEO Canadian Tire Bank Allan MacDonald - President, Canadian Tire Retail Duncan Fulton - President of FGL

Sports
Analysts: Kenric Tyghe - Raymond James Peter Sklar - BMO Capital Markets Irene Nattel - RBC Capital Markets Jim Durran - Barclays Mark Petrie - CIBC Derek Dley - Canaccord Genuity Vishal Shreedhar - National Bank Patricia Baker - Scotia

Capital
Operator: 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 Third 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 third quarter of 2016. A copy of the earnings disclosure is available on their website and includes cautionary language about forward-looking statements, risks and uncertainties, which also apply to the discussion during today's conference call. I will now turn the call over to Stephen Wetmore, President and CEO. Stephen?

Stephen Wetmore: Thank you, operator.

Good afternoon, everyone. Let me start today by reiterating how encouraged I am by the performance of each of our retail banners this quarter. Our results were generated by great retailing from our team and actions that they took many quarters ago, and product and assortments that are the foundation for our growth. This can be seen in both comp sales and margin growth for this quarter. Our CTR revenue is not quite align with our point of sales growth otherwise bottom-line would have been better and Dean is going to comment on that in a few moments.

However, as we move toward on our journey, we are spending a significant portion of our time looking well beyond the next quarter to build the types of capabilities and programs for the future. CTC is at its strongest when we have a one company approach. Each of our banners has its specific strengths and we’re working through bringing these capabilities together the benefit each banner. Earlier in the quarter, I made a few strategic organizational announcements to promote some of our key talent and to better align existing expertise within the organization. Under Allan MacDonald’s leadership at CTR, we significantly expanded our head merchandisers which is Greg Hick’s responsibilities so that he is oversight over merchandising, automotive and retail experience.

I’m pleased that we again bring automotive closer to our other lines of business and it’s now being led by one of our seasoned auto executives Andrew Davies. In addition we establish a Consumer Brands division headed up by TJ Flood, who was previously Senior Vice President of Marketing for CTR. TJ’s role will not only be focused on our existing private brand portfolio, but also on the identification and acquisition of product brands that have runway for growth and development of new product brands that would be a larger complement or extension to our existing portfolio. I won’t cover anymore of the detail in our announcement other than to say, we also now have one executive view of our digital ecom strategy and one view of our loyalty program and evolution. These areas are critical to our strategy as we move forward.

As I’ve said before, we are product led company, if we don’t have great products and great people and we won’t be able to execute our retail strategies. Our storage provide a national and private brand portfolio that is a unique combination of the good, better, best assortment. As part of our product line review process, when we identify gaps, we’re able to use our capabilities for developing private brand products to add depth and breadth to the assortments. Our private brands account for billions of dollars in sales and provide us with an incredible competitive advantage, made possible with our experience in products, quality management and direct sourcing. Exclusive brands like NOMA, CANVAS, Mastercraft and FRANK will continue to set CTR apart from the competition, whether online or in store.

The development of our private brands also gives us control over the whole process design to manufacturing, which allows for greater visibility to costs, quality and style. This is a tremendous opportunity to make use of our current capabilities bring together the best talent to drive our private brands business forward and strengthen in the Canadian -- entire marketplace. Over the past few months one of my top priorities has been concentrating on and driving our customer experience. Given that the majority of our customers visit our web properties before purchasing. Let me make a few comments on our digital and ecommerce journey.

Digital communication and transacting with our customer requires us to examine the full lifecycle of the customer experience. There are many facets to the solution and we are at different stages across CTC due to the nature of the products we sell and the demands and expectations of our customers across our different banners or channels. Currently, we are focused on delivering highly integrated clicks and brick shopping experiences with the objective of engaging and exceeding our customer’s expectations with every click. We’ve made significant investments in foundation of technology, which allows us to deliver the exceptional customer service our customers expect from us, whether it is investing in the technology and training of our employees with the ability to efficiently to locate products within our stores or engaging with us through the WOW Guide at CTR. A guide that links a physical catalog to the best digital content related to our products.

Each of our retail banners is shop-able 24/7, and we have made the investments to bring them to where they are today, whether it is a new point of sale system we implemented at Mark's and soon to be at FGL. Web-based instant credit or in-store financing at the point of sale for CTR that will also be rollout to Mark's in the near future. At Sport Chek, we have established a deliver-to-home model which we continue to evolve. A few weeks ago we implemented a distributed order management system that will determine the most efficient method of fulfillment to customers and allow for shipments from both store inventory and from our distribution centers. We also have a pilot underway in the GTA for Sport Chek that provides same day delivery for online purchases.

These are important developments for Sport Chek and also for the rest of the company as we will take advantage of the learnings and put them in our other brands. Mark's has a well-established deliver-to-home model and we are also be establishing that distributer-order management system for Sport Chek as well. At Canadian Tire Retail we are exactly where we need to be with our total ecommerce journey based on evolving customer expectations. Today, we have made considerable investments in our customer experience at CTR. We began with launching a new online presence and going through a series of content and site enhancements based on customer feedback and today our canadiantire.ca website is one of the most shopped retail Web sites in Canada.

Our investments in customer acquisition search, content and performance are critical to effectively manage our customer's experience. We then build, tested and rolled out our ecommerce platform for order online and pickup in store. This was our preferred platform due to the advantages of our dealer model which capitalizes on the $2 billion of forward bought inventory that is disbursed across the country in our 500 store locations, a definite competitive advantage. Our previous investments in real time inventory availability and in store fast line for trip assurance were prerequisites to our launch. Next, we tested and rolled out online promotions, clearance products and cyber events, all of which are available to customers across the country and all of which gave us tremendous insights into how our customer want to shop.

And we know that preserving and enhancing the in-store customer experience as we shift to online capabilities is incredibly important. So we are continuing to protect our pre-shop or the Phase 1 capabilities which may lead to further enhancements such as expected delivery. The experiences learned from each stage of the journey enabled us to create better customer experiences and evolve our models. Our enterprise, the corporation and our Canadian Tire dealers is always committed to meeting our customer's demands and you should know that since I joined Canadian Tire in 2009, we have together overcome every hurdle and arrived at solutions that are the best for our customers and our enterprise. Jerry Dias, the new President of the Canadian Tire Dealer Association and his Board are leaders, expert retailers and our working relationship has never been better.

Now to move on, earlier today we announced an increase to our dividend of 13% and we renewed our share purchase program for 2017. And as you have also seen while we have reduced our capital guidance for both this year and the upcoming year, investing in the business remains our top priority in term of capital allocation. Over the past five years we have made significant capital investments of over $3 billion in our stores and supply chain networks, our digital infrastructure and our online capabilities and web properties. As I referenced earlier, I believe that we have the right investments in terms of putting in the foundational platform to support our ecommerce and digital technology. That recently we've done deep dive in reviewed virtually every one of our capital projects to ensure that we are focusing our attention on the appropriate projects, in effect, realigning our capital spending.

While our capital spend is come down we will continue to priorities capital for technology and digital initiatives while remaining committed to investing in our in store networks. However, we will be more strategic with our real-estate decisions. With an eye to making our existing assets more efficient while insuring that we keep our network current. We continue to believe that our balanced approach to overall capital allocation benefits both our shareholders and our organization. Now before I hand up to Dean I just want to comment on our financial services business which is executing on their strategy as we had planned and its performance is now embedded in the operations of our CTR retail business.

It's exciting to see the operators of both businesses working together and much of that success should be attributed to Mary Turner who has worked tirelessly over the last few years to execute on this strategy of collaboration. Nothing can accelerate their growth more than working with retail and being an integral part of our retail offerings. And speaking of Mary, it is with mixed emotions that I'll tell you that today's earnings call is her last call as she has made the difficult, but exciting decision to retire at the end of the year. Mary has been with Canadian Tire for 25 years and all many of you may know her best as the President and CEO Canadian Tier Bank. For exemplary career at CTC spanned roles in finance, operations, risk management, customer service and IT.

For good reason, Mary has not ask me for any advice on how do enjoy for retirement. While Mary may be retiring at the end of the year, her successor Greg Craig is more than qualified to continue leading the business as he has both the background in retail as well as in financial services and he’s been working closely with Mary over the last year in anticipation of this transition. And Greg is certainly pleased to know that we are committed to reinvesting in financial services in 2017 to build our financial services brand and invest an increase -- to increase its connection with CTCs retail businesses to drive growth. And with that, I will now turn the call over to Dean.

Dean McCann: Thank you, Stephen, and good afternoon everyone.

I will keep my comments brief this quarter and focus on a few key items. To start, I will remind you that last year we recorded a onetime real-estate gain of roughly $29 million or $0.33 per share which is included in our prior year earnings comparatives. There are also a few unusual items that impacted our operating expense this quarter. But when you tie them all up, they net to zero, so we opted not to normalize our results for them this quarter. I will also reiterate our announcement earlier today that based on the strength of our results to date and our outlook for the future we increased our annual dividends by 13% to $2.60 per share.

Along with this, we also announced the intension to repurchase an additional $550 million of our Class A on voting shares through to the end of 2017. Which will take effect once we've completed our current share repurchase commitment for fiscal 2016. Turning now to the quarterly results, as Stephen indicated our top line and margins results were also solid this quarter with a positive contribution from all three key retail banners. At CTR, all major categories were up year-over-year which is especially impressive given that you’re comping against some very strong results from each category last year. Automotive as expected was challenged in front tires due to the higher inventory position carried over the last year.

There was still a positive contributor to the quarter overall. As you will see there have been some timing issues where our retail revenue growth lagged our retail sales growth in the quarter. This was due to a couple of reasons, namely lower shipments to FDL franchisee as they have more winter inventory on hand coming out in Q1 this year, and as sometimes it happens at CTR, our intransient shipment volumes to dealers resulted in lower year-over-year revenue being recorded in Q3. This is business timing and on a year-to-date basis retail sales and revenue growth are more in sync, up 4% for retail sales and up 3% the revenue and in line with what we expected going into Q4. Weather aside heading into Q4, CTR has put in place great assortments for our biggest season, supported by the most recent version of the WOW Guide.

The retail gross margin rate is excluding petroleum was strong this quarter, up a 114 basis point over the prior year. To date, the team has exceeded expectations with respect to margin performance, given the ongoing headwinds related to FX which as we told you last quarter continues to be a significant challenge. The improvement is coming from the work done at CTR to improve product assortments including expansion of brands unique to CTR, increased use of data to make pricing and promotion decisions and a redesigned approach to purchase negotiations including the use of more data and upfront analysis. Both marks and FGL margins also improved in the quarter and they each have launched operational efficiency initiatives drawing on the learning from the work done by CTR. Now, turning to our consolidated operating expenses excluding the depreciation and amortization and excluding petroleum, we were up 49 basis points over the prior year due to a number of puts and takes in the OpEx during the quarter.

These included an increase in personal cost due severance charges made this quarter and as we indicated last quarter, we increased our marketing and advertising expenses to support the Olympics as well as the World Cup of Hockey. Offsetting these cost was a higher than normal property tax refund that we wouldn’t expect to repeat in the future. The Q3 OpEx ratio was also impacted by lower revenue growth in the quarter as discussed earlier and overall on a year-to-date basis, we’re only up 17 basis points heading into a largest quarter of the year. Our ROIC metric for Q3 was 8.15% which is down 11 basis points over the prior year. As the metric is calculated on a rolling 12 months basis, the decrease is largely due to prior year real estate gains dropping out of the calculation.

And while the progress towards our 9% ROIC aspiration still seems low, we are making progress, considering the significant headwinds that we’ve been facing in terms of FX pressure. And the impact that this has had on our retail earnings. Our focus on remains on increasing the underlying retail earnings which is the biggest driver for ROIC improvement as well as being selective in terms of our capital investment. Turning to our inventory position, we are up $69 million year-over-year most of that at FGL is planned and related to a number of new store openings. As expected since Q1, where were up about $100 million in inventory given the lack of winter weather last year.

Various business have adjusted their buying to bring inventory back in line. And as a result, we are in very good shape going into this quarter. Turning to the results of our financial services business, we have seen continued momentum in terms of GAAR growth, which is up 2% this quarter. We believe the investments we are making over the past few quarters are a formula for long-term growth for both financial services business and retail businesses. And as Stephen mentioned, we plan to continue to invest to realize the benefits that the financial services business offers to retail banners.

This should overtime result in long-term growth of financial services. Capital expenditures for the third quarter were down $40.5 million over the prior year. Primarily due to reduction and real estate spending and as a result of lower number of store project this quarter compared to the prior year. Lower investments and third-party acquisitions for CT REIT and lower capital spending on IT initiatives. Our operating CapEx guidance for 2016 was 625 million to 650 million.

Our current view is approximately $150 million lower to a range of 475 million to 500 million. The $150 million reduction in our 2016 estimate is a function of fewer real estate opportunities than we anticipated any an inclusion of a reserve for productivity, in our original guidance that is not been needed. Our estimate for technology CapEx in 2016 has not changed and all projects are on track and on budget. We have also reduced our 2016 estimate for DC capital spend from 150 million to 175 million to a range of 100 million to 125 million with the portion of that spend moving to 2017 to support bringing the new Bolton DC online. Looking ahead to 2017, we expect annual capital expenditures to be within the range of 400 to [technical difficulty].

This range excludes DC capacity and any third-party acquisitions. And this also does not account for funding that we have ear marked to address opportunities to invest in operational efficiency initiatives that we may identify throughout course of the year. We will update you on those as they arrives rather than including them in our operating capital events. As well for fiscal 2017, the company expects capital expenditures required for DC capacity to be within the range of 25 million to 50 million. This amount includes capital expenditures required to bring the Bolton DC into active service.

And finally our effective tax rate in 2016 is expected to come in a bit lower than we had originally plan and now looks to be trending at around 26.5%. Looking ahead, the effective tax rate for 2017, we expect will come in at roughly 27% on a full year basis. So in summary an extremely solid quarter and encouraging indicators as we finished our year. As well as a quarter that has allowed us to continue with our share buyback commitment and increased our dividend. Our 2017 business plans have been finalized and as you saw this quarter, our program to drive operational efficiencies is on track, as we complete 2016 and head into another exciting fiscal year.

And with that, I’ll turn it back over to the operator for the Q&A.

Operator: Thank you. [Operator Instructions]. First question is from Kenric Tyghe of Raymond James. Please go ahead.

Kenric Tyghe: Just a question with respect to Mark's essential sales performance, clearly given the backdrop, you have to be doing something right, there have to been some changes with respect to how you’re approaching that market, certainly it would not appear to be the macro backdrop that’s supporting a performance. Could you speak to some of the decisions you’ll be making that drove the performance in the quarter?

Rick White: Certainly thanks for the question, its Rick White here. We have been trying a couple of different things, focused on casual clothing led by Denim which has been very good for us, both in men's and women's, and the introduction of casual footwear in men's and women's to compliment that Denim assortment, that coupled with some outer wear has really given us an offset to what has been happening in the oil patch and by virtue of that what's happening in the industrial apparel and footwear business. So it's really and offset is not that we picked up business in the industrial area.

Kenric Tyghe: Thank you.

If I could just a quick one for Mary from me on the CTFS, GAAR growth is obviously encouraging and nice to see that trend continuing, what I’m intrigued by and would like to understand a little better as is the share of wallet how is that trending? What you are seeing with respect to share of wallet, with respect to new client acquisition obviously good, new account acquisition obviously positive, but could you speak to how you’re seeing that sort of ramp on that near count acquisition. The share of wallet, the adoption by way of new financing product through the base, just a little more color around the health of new product adoption and the cycling of that new account as you enroll forward?

Mary Turner: Thanks Kenric, its Mary. So I would say -- I think for us this is -- it's been a big quarter for us because it feels like we’ve turned quarter or the corner on growth on our business. And I think there is a number of things that are going on that are helping that. For sure the retail integration is really starting to payoff in benefits.

So we are starting to see new account acquisition really climb as a result of the better understanding of our products both better integration inside the store and much stronger presence in all the marketing channels particularly at CTR, but also at Mark's as well, it's been a great ride there for as well. So what we are trying to see though because our value proposition gives entire money to customers who shop in any of our banners, we are actually seeing double digit sales increases on our card in all our banners. So I think that tells us there is even more to come, because we still haven't really got this nail. We’ve been working hard at it and it's getting a lot better, but I think there is lots of runway, so certainly our in store financing program has been a big hit with our certainly helps them buy higher ticket items, helps them decide to shop at Canadian Tier as oppose to somebody else. But what it's doing for us as well on the financial services side, is it lets us grow our business with -- to some extent with a little bit more up market customers, so we can build our balances higher and we can manage to grow without having to really take on additional credit risk.

So, that's a big part of the growth story, and I think the other thing I do want to point out is as we always work very hard as one of the strength of our business is our how strong we are in credit risk management and in customers service and how we deal with our customers, so we continue to evolve using analytics and data and just operational practices always improving so that we can take on more business without increasing risk. So it’s a combination of those two things, the second one I talked about is we've got what we've always done and the first one is what we've been very much focusing on the last few years and it's been exciting to see it really start to come to fruition.

Kenric Tyghe: Thank you and all the very best.

Mary Turner: Thank you.

Operator: Thank you.

The following question is from Peter Sklar of BMO Capital Markets. Please go ahead.

Peter Sklar: Thank you. Stephen there are seems to be a subtle change in focus in terms of how you view free cash flow generation and returns to shareholders. So for example, this quarter the CapEx outlook for both this year and next year has been move down quite considerably and I would say you're dividends and increased the scope of the dividends was unanticipated.

So my questions is there any change in view or philosophy that you're or the board have in terms of cash flow and return to shareholders?

Stephen Wetmore: Hi Peter. No, short answer. I mean the balance approach we put in place quite sometimes ago and I think it's served us extremely well during that period of time though over the last three or four years, we continue to increased our dividends as it makes extent and as our confidence in the future increases And we have continued just about every year to ratchet up our share buyback as the strength of our cash flows continue. That has served us extremely well. Our view on CapEx is really as more align with how Dean explained it in terms of the availability of some of our real-estate investments, firstly.

But secondly, we put in a fairly big reserve that could have been drawn on and we wanted to put it in because we like to do our cash flows in that way and our metrics in that way. That could have been drawn on should we have been able to see productivity initiatives that required in injection of capital in order to really kind of to automate new processes and I am not saying that in the future will be there. And when we look at '17 we will take a similar view in terms of ensuring that we have adequate capital set aside for any productivity initiatives. And our, while I did say I went through all the capital projects, that's really just to ensure that we're driving the right things in the right time lines and changes if you will, so. That I am quite confident with and our investment in '17 is still very, very high in terms of investing in the future.

So, there is no fundamental change what so ever, but we are very pleased to be able to increase the dividends at a slightly higher rate than we have over the last few years.

Peter Sklar: Okay and I also wanted to ask you just something specifically on your ecommerce strategy something you spoke about at lands in your introductory comments. Canadian Tire has certain categories that particularly lend itself to competition from online rivals and the categories I’m thinking of would be auto parts and accessories tools, kitchen wares, small kitchen appliances. Just wondering, this Canadian Tire are you feeling the online competition in those categories and what do you think is the appropriate response for the Canadian Tire in the categories that particularly lend themselves to competition from online rivals?

Stephen Wetmore: Yeah. I’ll make couple a couple of comments and I know Allan can fill in some real detailed blanks behind what I comment on.

But, the one of the -- firstly, obviously everybody is losing some sales to online and I’m going to say that the reasons category that obviously people are buying online. What I found to be extremely encouraging in this quarter is just about every one of our categories is for outpacing the market. So, for outpacing the market that’s a very good sign that and those categories are not growing at the percentages that we are achieving in our business. So, congrats to the retailers and that’s really how I opened my comments, by saying it’s a very good retailing. Much of it is supported by new product introductions.

I believe that in short and long-term that we’ll best positions where we can look at our good, better, best assortments both in terms of what we have today and national brands and Philly and with those brands a real strategy that draws on our own expertise of building our own private label and private brands. And some of the categories that you referenced are our private brands penetration is not where our any of us would like to see so therefore TJ does have marching orders in some of these apparently right out of the gate in order to assist us. That protects us I think in the future much more securely than simply carrying brands that everybody does, and I think they have to be unique. I think they also offer us an ability as I mentioned to control the whole process here. So, but in none of those categories are we -- our categories are very unique even in the ones that you mentioned that are referenced.

So, you have to take even automotive and break it down into its component products of those “do it for me” and “do it yourself” and what parts they’re trying to buy and what for wet cars wanted systems that you need in order to actually get the accessory or part that you want. So, and enough on that, Allan you want to make any further comment on that?

Allan MacDonald: That’s really it. I mean we’re receiving outpacing the market and seeing good growth across category and margin continues to perform. So, leading the competition it’s a challenge every day and it comes in bunch of different forms. We’ve also put a lot of effort into our digital engagements, the drop of the WOW Guide last week for example or watching the interact and they’re actually digital guide.

On a day-to-day basis and the implication that’s having for sales, and I would say that our strategy of focusing on having the best products, best assortment and making sure that we’re able to offer as much of a unique proposition as any retailers surface really well going to continuing to focus on. I should have said probably that the ability to have trip assurance especially when you reference things like auto parts or accessories, it’s something that you want, you don’t want to wait many days for, you want to be able to go to store, pick it up, get some advice and leave. So I think our ability now literally within minutes to keep our inventory in store up to date, so that the customer knows that the product is there when they show up and to be able to click and pick it up in stores is critically important to what you just asked.

Peter Sklar: Okay. Thanks very much.

Allan MacDonald: Okay.

Operator: Thank you. The following question is from Irene Nattel of RBC Capital Markets. Please go ahead.

Irene Nattel: Looking at your year-to-date performance, you’re doing a really good job of driving or same-store sales growth of delivering the growth margins and focusing at the same time on productivity.

So I guess, I’m wondering, first of all, what the key drivers of each of those are presumably they attractive one other. But also as we look ahead, how much do you think still left in the tank or do you think that you’re delivering -- you get in it earlier than you expected, but the magnitude is going to be similar?

Stephen Wetmore: All right. Great question Irene, some similar questions that I had actually when I --. So let me tell you what I’ve been told and then [multiple speakers]. And then Allan do you may want to kick in here.

You’re right, they are intertwined and you’re seeing the efficiency come through in both top-line and through margins. So much of it has been a concentration on our products, our revenue, our mix promo kind of optimization, what to promo when, what products to put on, what are the drivers. That we include in our operational efficiencies/productivity, I also referenced it as great retailing. But combine with that is some real hardcore initiatives to drop our pricing to get better products may do with higher quality at lower prices by literally ripping the products apart and putting it back together again and excellent sourcing. There is a lot of those initiatives and the money is really in obviously in your cost of goods and in your revenue.

So that’s where your billions of dollars flow through into CTR. Those types of programs and expertise that the CTR folks have gone through the learning here in the last 12 to 18 months and many of the initiatives they wanted to take on, is now rolling across all our banners. So very, very beneficial across the board. The focus on being able to go after the correct mix of product by season, by month, by category along with the best pricing and promo activities never ends. We discount as you well know off our rent prices, hundreds of millions of dollars.

And so therefore, if you can get that right, it goes on for a long period of time. And by Allan and team at CTR introducing the private brands that I spoke out and I did reference the fact that now we can control them from manufacturing to shelf, allows us to have control books in terms of costs, but quality across the board as well. So it effects your returns because you are doing -- you know tested in Canada, you are putting those labels on it, your quality is there, you’re saving money right across the Board. There is better inventory management et cetera, et cetera. So this goes on for a quite some time and I think Allan would say that this is a few of the many views that he has of Canadian Tire Retail in order to make both topline grow and margin grow with it with a higher customer satisfaction.

That’s my take, I am not sure, it's just a few things and Allan can fill in, it's a great question by the way.

Allan MacDonald: And he did -- I mean ask us the same question. When you think about -- I’ll give you one small example, grab the WOW Guide launch last week, have a thumb through it and look at the great array of kids fun that we’ve introduced. Think about the marketing campaign we did this year, and we said we were going to focus on categories that are important to our target customers and active families, obviously kids are important. The breadth of assortment we brought to life is nothing short of impressive that’s clearly resonating with our customers.

If you look at NOMA and what we have done with Christmas like this year, unbelievable investment in quality and great innovation. That’s a private brand that we own that’s performing really well. If you look at the Christmas decor under CANVAS, it's inspiring. It's got the colors of the season, it's got great style and design, that’s supported by great marketing. The WOW Guide itself is doing the really, really well.

I think it represents Canadian Tire a way that we haven't shown before. The tested for life in Canada moniker and the badge of the approval of quality, really helps us reiterate to our customer our reinforced focused on quality. And we’ve been engaging with our dealers to make sure that the stores have lots of inventory. Greg and the team have done an amazing job and engaging deals early in a process, so they know what’s coming down the pike with the WOW Guide, they know what the Hero products are, and their rake business. So on design, right execution with our customers in mind, I think we put a new face on.

And in terms of runway, that process if you get it right provides huge amount of opportunity, we are in a 192 different categories and they are changing constantly. So we have as many opportunities as we have hours in the day and we’re really excited about the progress it’s making so far.

Irene Nattel: That’s really helpful. And just to come back to the WOW Guide, clearly to your point, it really is a different way of presenting Canadian Tire, when you look at the sale through from the WOW Guide, are you seeing the beneficial impact on mix and what learnings did you take from the first WOW Guide to incorporate in the one you just drop last week?

Allan MacDonald: Yes, I mean it certainly helping with our margin story, it's helpful to our brand story. I seeing a learnings come from knowing how to lay it out, the product density is a little different in this front, how we engaged our stores is a little bit different, how we chose to integrate the WOW Guide in terms of the assortment message by category and then how it ties to our promo and advertising plans we have adjusted.

So overall, I mean the first one we did is always a starting point, and you continue to refine it. I don’t think we had as many big operational gaps as one would reasonably expect from a new venture like this. So I was really, really pleased with the success of the first. The second one seems to be seven days in, a huge complement to the business I’m very, very pleased.

Irene Nattel: That's great.

Thank you.

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

Jim Durran: Yes just want to first step back and talk about the consumer a little bit.

Have you seen any further deterioration on Alberta and then outside across the country if possible by problem. How strong or weakening as the consumer spending interest?

Stephen Wetmore: Okay I'll take a short at it. I am sure each vendor has a slightly different take on this. But from Alberta, has a few stories in it. I think from the Canadian entire reach our point of view, but none the less we want to look at it as our complete province.

It has, if you will, bottomed out I believe, starting to grow. Our dealers are extremely good, this is why I always give them huge credit in being able to adapt to the environment. In terms of how they promote and carry. I would think Alberta still from marks points of view and sport checks point of view would say about the same except you have to isolate industrial a bit. It's difficult when its 18 degrees in Calgary to tell you how Alberta is actually doing, when we have companies here that are our quite reliant on outerwear.

But the but in general I think that would be our comment that we see some strengthening and keep our fingers crossed a bit. Some of it seems to have spilled over to British Columbia because we see British Columbia doing quite well. I don’t think they have picking of all of Rick’s industrial market, but is a little bit stronger than it was. So there is something positive happening there. And I don’t think really when you go across the country that there is a substantial difference that we're seeing in consumer confidence that hasn’t existed for a number of months.

It's continue our numbers of quarters actually. So I won't go through every province, but I think the trending within the country appears to be about right and our gasoline and petroleum sales are continuing along the same sort of line. So, in general -- and I don’t think our credit card business is seeing anything unusual either, it's performing pretty consistently across the country.

Jim Durran: Okay and just on follow-up how much EX pass through was there into the retail pricing in this quarter?

Dean McCann: Jim we don’t go specifically into that, that we’re willing to say that Mark’s probably moved selectively some prices right and [technical difficulty] but very selective. So that's probably where most of that occurred.

Quite frankly the impact of inflation if you will on our business side wise as I look the kind of POS and comps it’s negligible. It's really just particularly in the cases of CTR where we look at it a lot, the guy is really focused on it. It's completely negligible. It's the type of activates that Allan was refereeing to right in terms of next product that you're selling but and then some of the comments Stephen gave, around the better, best. All those great initiatives that based are appealing to customers right and driving top lines for us.

It’s just not -- it’s not focus on price, although as I’ve said before FX has been in a way of mixed blessing right and the blessing part being if you view the focus that it created in terms of bringing platform or driving a lot of types of great initiatives that the guys have been pursuing.

Jim Durran: Great. Thanks, Dean. Appreciate it.

Operator: Thank you.

The following question is from Mark Petrie of CIBC. Please go ahead.

Mark Petrie: Hi. Good afternoon. I actually just wanted to ask about FGL, wondering if you could just give a bit perspective on the network today maybe the performance and also the opportunity for future growth from here across flagship stores, hero stores and then in your format.

Duncan Fulton: You bet. Thanks Mark, its Duncan. Obviously the last five years has been a big focus on expanding of the network and we’ve put out per take 2 million square feet of additional stores space. So, I think we have actually excellent coverage across the country right now. We have some different formats in play obviously, we have the flagship stores that you all know about in play.

We’ve taken lessons from those flagship stores and renovated a few other stores that we’ve called hero stores that have more space and elevated assortment, more digital in them. We’ve done straight renovations to existing stores out the digital pieces and to expand space for assortments there. So, as a starting point I would say because of the work that’s been done for five years, I think we have excellent network coverage. So the focus going forward there is still a handful of doors that we need to feel in here and there. I think if you back out the flagship stores and the hero doors, we still have a substantial number of general fleet doors that we see opportunity to be able to renovate and expand and in certain cases, especially in some key markets is going to give a better shopping experience for the kind of customer that we want.

So, there is still -- certainly interest to more, but I don’t think you’re going to see the same level of new door opening as you did before. But I think you’ll continue to see network improvement door-by-door.

Mark Petrie: And then I guess related to that. How does the cost and the same-store sales boost? I mean obviously not looking for -- looking, but you won’t give specific. But broadly speaking the cost and the same-store sales boost vary between a hero store and just a regular renovation?

Duncan Fulton: We’re testing -- it’s funny we were talking about it this morning.

We’re testing that, we’re testing that now, I mean you have to -- if you look at the capital that’s required to do a general fleet renovation where you’re just giving it some more space and better fixtures in order to put better assortments in there. First is a more substantial capital investment to do a hero store with a number of digital elements versus a significant investment to do a flagship, there is commensurate sales increases that go with some of those sizes of stores as well and there is no doubt that the sales that your flagship stores generate are significant compared to the rest of the fleet. So, we’re actually -- we’re taking the time now to see certainly between a general fleet renovation versus a hero store renovation and what’s a better return for us and better customer experience at the same time.

Mark Petrie: Okay. Thank you very much.

Duncan Fulton: Okay.

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

Derek Dley: Hi there. Just question and you guy’s capital programs though.

So you reduce the CapEx kind of on a run rate by about $200 million. Is there any particular that you guys out of real estate, are you looking to differ, I mean should we expect some of this to come back and what sort of metrics that you guys look at when evaluating a capital expenditure and capital project?

Stephen Wetmore: Hi, it’s Stephen. The big reduction in CapEx just in case I haven’t made it clear, was really, what we wanted to reserve in case we had real opportunities for productivity. Investment of productivity capital though nine times out of 10 has an extremely good payback. So even if it does occur, in fact, I want it to occur, because you get an extremely good payback.

So that’s really the largest reduction in our CapEx both ’16 and the deal that we can giving you for 2017. You are vary from year-to-year in terms of what your real estate opportunities are, obviously we had some this year with targets than we estimate and how much, we can pick-up at those stores and truly at the beginning you’re estimating now for what will occur in 14, 15 months ahead. So some of them are accurate, some of them were slightly off. Real estate tends to even itself out overtime. It’s just us trying to do it on a year-by-year basis, sometime it fluctuates a bit.

It also depends on where your network is. So I think really some of the things that Duncan is talking to you about is, where is the best place for him to put this capital in terms of re-merger or new stores and things like that. So I don’t -- there is really no deferment, I wouldn’t say that there is one thing that I have gone through that we have put the deferred label next to it and we have not cancelled any of our technology investments, we’re focusing ahead. And many of them as you well know you start them this year, they take sometimes two to three years to complete. So it’s full steam ahead.

We certainly didn’t want you or to surprise anybody by us coming along and saying, we’re investing a whole bunch of money in operational efficiency or productivity initiatives, without giving you heads up that we were looking at it and we continue to look at it. So it’s best that we incorporate a bid in and with you and us doing our cash flows and free cash, have that balance set aside.

Derek Dley: Okay, great. That’s helpful. And just one more quick one, if I can.

Just on, it seems like sort of the mix between the promotional pricing that you guys had in place last quarter and top-line was a little bit more balance. Was there anything different that you get there from a gross margin perspective or were you guys looking to retain some more margins this quarter and obviously still grow the top-line?

Duncan Fulton: Certainly one of the objectives for the last few quarters and looking into next year is to try to get continued margin rate improvement as we go along in the business. As you look category-by-category, we’ve historically done things, I think to maintain traffic. But there is no point in discounting Hockey at the exact moment that people need to go buy Hockey, you have to use the tools at the right time of the year. So we have certainly be more mindful category-by-category where it makes sense to do promotions to maintain the traffic and the momentum that you would want.

But we’re also not a brand that’s known as being heavily promotive shop either. So it's -- you are right in saying that we’ve been more mindful as we’ve gone at it, and I think we are going to continue to see that going into 2017.

Derek Dley: Great, thank you very much.

Operator: Thank you. The following question is from Vishal Shreedhar of National Bank.

Please go ahead.

Vishal Shreedhar: Just on the occupancy cost, they were down about 25 million quarter-over-quarter, is that due to the property tax refund?

Stephen Wetmore: Yes Vishal, yes.

Vishal Shreedhar: Okay, great. And you mentioned at the beginning of your remarks there are few items in the SG&A that canceled one another, I was just hoping you can give us maybe more color on that, maybe the magnitudes?

Stephen Wetmore: Yes, the reality is there were really three big items Vishal, the first was the property tax that you just mentioned and second was some severance cost incurred [multiple speakers], yes how could I forget that. And sort of an uptick in as we told you at the end of Q2 with respect to marketing and associated with Olympic and the world cup of hockey, so really you bag the three of those up and you’re effectively offset and that’s what I mentioned earlier, about not normalizing results.

Vishal Shreedhar: Was that marketing expense that you highlighted which canceled the order -- which helped to cancel the other two items, is that just the incremental market expense associated with those events, or is that incrementally year-over-year?

Stephen Wetmore: Incremental year-over-year, but associated with those events primarily. And it's not perfect match, the shows never going to be a perfect match because some of that would have been probably spent on the guys continue to drive the brand but you can get a double whammy for it, right. If you are promoting the Olympics, you are promoting the businesses. But essentially yes.

Vishal Shreedhar: Okay that’s it from me.

Thanks.

Operator: Thank you. Our final question is from Patricia Baker of Scotia Capital. Please go ahead.

Patricia Baker: I just want to come back to the CapEx, and I do appreciate the commentary that both you, Stephen and Dean made in the introductory remarks and then the following.

But I think it's important that we really get some good clarity here, because 150 million change is quite a big one. So Stephen, I think you just indicated that the biggest reduction comes from the elimination of certain productivity initiatives that you might have reserved for and that of real estate opportunities --- during fewer real estate opportunities would involve less of a reduction than the productivity initiatives, am I right?

Stephen Wetmore: Yes, and don’t forget, we did some extra this year Patricia, in terms of target stores right. And we had estimated we would actually do a few more of those and our origination estimates for '16. So they didn’t come to fruition along with the reserves that we had for productivity, those are really what make up far and by the lion’s share of --.

Patricia Baker: Okay.

You are probably not willing to tell us of the 150 how that would break out?

Stephen Wetmore: Two thirds and one third.

Patricia Baker: Okay, perfect thank you. And then if -- sorry go ahead.

Stephen Wetmore: No but I didn’t said which two thirds and one third.

Patricia Baker: I am not that stupid.

You already said one of them is large than the other.

Stephen Wetmore: All right, all right, okay.

Patricia Baker: That simple math I can do. Dean, you also mentioned that DC CapEx would be150 to 170 would be lower than original and that a -- why is that?

Dean McCann: It’s' simply Patricia just the spill over into '17 as they I complete the DC, we just didn’t get the timing perfect.

Patricia Baker: Okay so the DC still going to cost --?

Dean McCann: DC is still going to cost the same, it's completely on track and on budget, but it just as some of the stuff will just spill into finalizing material handling and tidying up parking lot and those.

Right. It’s not a change in the overall colors.

Patricia Baker: So then let's go to the CapEx for '17 and I guess the CapEx for the '16 and what you are what you are spending is the biggest chunk of change in your CapEx on your infrastructure, on your IT, digital I mean?

Stephen Wetmore: Yes.

Patricia Baker: Okay and that for both '16 and '17?

Dean McCann: Well '17 had a lot of real-estate in and if you put Bolton into it, I don’t know it may well [indiscernible] '16 would assume I guess what you capture there, but it would be closer to [indiscernible].

Patricia Baker: Okay.

Stephen Wetmore: And one way to do it Patricia, the IT spend year-over-year is essentially the same. It might be down a little bit because we did marks POS this year, we don’t have that next year, but essentially we are relatively flat with respect to the investment in IT, which is where the investments in -- you know, backend for supporting ecom and digital and all those times of things. Right so, that's still a focus. And year-over-year if you just looking at it ex- if you will the reserve we had for productivity and for additional target stores we’d come down a bit because we don’t have the big bump with respect to the 12 target locations that we did do. So, if you just stand back and look out it it's actually really not much of a difference from what we've actually spent in '16 versus '17.

Patricia Baker: No, I just want to make sure that you're spending against what will potentially be growth and better positioning for you in the long term. If we come back to the productivity though, did you have specific initiatives that would address that one-third of that 150, I guess $50 million. Where there specific things attached to that?

Dean McCann: The answer is no. so this is my fault. We wanted to have a reserve right and Patricia we’re going into this, we've been learning as we go through productivity and Stephens you know and frankly the team we would love to find the initiatives that are capital intensive that's not to say we haven’t spent some capital on productivity initiatives, we have.

It's just has been much more modest I think than any of us thoughts and the types of initiatives that have been generating the great results. The teams have been doing are more about arms and legs, and advice, and help outside -- and frankly the team's themselves, through data analysis going at things in a much different way and changing process. But today there has been a lot of technology or hard core capital investment required. I hope as Stephen hopes, all us hope, as we go forward that we’ll be able to identify those kinds of things because the paybacks on them are terrific. And the only, if you will, if I had to do over again I would have done it the way we're proposing to do for '17 and say, okay you know what, if we have -- will reserve some internally, a bucket, for those types of initiatives, so I've got, if we will, cash and the financial flexibility to do it.

But not put it in my sort of pear operating capital guidance and share it with you, as those are opportunities come along and tell you the story along with them.

Patricia Baker: Okay. Is there any specific plan to be extra $150 million in cash?

Dean McCann: As you saw we took our dividends up more than we typically do. Number one.

Patricia Baker: Okay.

Dean McCann: We also -- if you actually look fiscally at what we’re doing in buyback, if you look at for 2016 what in the calendar year would have been repurchase is going to be in order to magnitude of just over 400, like 440 million. For 2017 it will be 550 million.

Patricia Baker: Okay. Fair.

Dean McCann: Because of the way we announced it last year from the period of -- this time last year right through the end of '16, at this point we’re going to complete the 550 program that we announced a year ago.

And then we’re going to add a 550 program that will be completed by the end of '17. So, net-net it’s actually an increase in fiscal 2017 of $110 million.

Patricia Baker: Thank you. Appreciate that. And all the best to Mary.

Mary Turner: Oh, thank you, Patricia.

Stephen Wetmore: Operator, I think that should conclude our session for today. And also like to thank everybody for joining us and for the excellent questions. And I’ll hand it back to you operator.

Operator: Thank you.

This would 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 or any member of the IR team if there are follow-up questions regarding today’s call or the materials provided. You may now disconnect.