Operator: My name is Paul, and I will be your conference operator today. Welcome to the Canadian Tire Corporation Earnings Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Now, I will pass along to Karen Keyes, Head of Investor Relations for Canadian Tire Corporation. Karen?

Karen Keyes: Thank you, Paul, and good morning, everyone.

Welcome to Canadian Tire Corporation's third quarter 2023 results conference call. With me today are Greg Hicks, President and CEO; Gregory Craig, Executive Vice President and CFO; and TJ Flood, President of Canadian Tire Retail. Before we begin, I wanted to draw your attention to the earnings disclosure, which is available on the website. It includes cautionary language about forward-looking statements, risks, and uncertainties, which also apply to the additional material included this quarter to help you better understand the results discussion during today's conference call. After our remarks today, the team will be happy to take your questions.

We will try to get in as many questions as possible, but ask that you limit your time to one question, plus a follow-up question before cycling back into the queue, and we welcome you to contact Investor Relations if you don't get through all the questions today. I'll now turn the call over to Greg. Greg?

Greg Hicks: Thank you, Karen. Good morning and welcome everyone. Our results this quarter reflect the relevance and trust Canadians have in our brand to create value and be there for communities in uncertain times.

Despite undeniable challenges, we more than held our own in the market this quarter as our multi-category business model proved its metal. Although Triangle credit card spend declined across almost all categories in Q3, our credit card data shows our sales performance outpaced that of the market in the categories in which we compete. Despite the favorable share of spend, however, it is evident that customers are stretched and spending less overall. Consolidated comparable sales were down 1.6% as a result of softening customer demand, especially in Ontario and B.C. and we saw a continued performance bifurcation between essential and discretionary categories.

Essential categories at CTR were up around 4%, led by strength in automotive, while discretionary categories were down to a similar extent. Last quarter, I mentioned that when combining our Triangle membership data with external household data from our real estate modeling, we saw that the discretionary softness is coming from more indebted households, most notably in Ontario and BC. In Q3, we observed similar trends, including at Sport Chek, a banner that has higher reach in Ontario. Debt burden customers decreased spend drove almost 70% of the sales decline in the quarter, especially in the discretionary categories at CTR. Mark's, however, was a different story.

Sales at Mark's increased among debt burden customers suggesting that Mark's attractive price-to-value proposition may be appealing to customers with high debt burdens, especially in the current high interest rate environment. Although retail revenue was down slightly, our retail gross margin was positive, this drove retail segment appreciation with the rate up 77 basis points, excluding the MSA benefit. The team managed our margins well at CTR, where gross margins, excluding the MSA benefit -- as we stayed competitive and experienced lower freight costs compared to last year. We did, however, see margin rate down in our other banners driven in part by competitive intensity in D2C channels. From an inventory management standpoint, we remain focused on drawing our inventory down and have made significant progress, especially in CTR.

These highlights are all evidence of our company's resilience. But I want to be clear, this resilience we so often speak of is neither luck or accident. We are resilient because we control, we can, take action and make the tough decisions about our business. A few weeks back, we listened intently to the Bank of Canada's announcement. Suffice it to say the future is increasingly murky given the Bank of Canada's pause was couched in a hawkish tone around risks of further inflation and the potential of more policy rate moves down the road.

The amount of time the Central Bank will need to be in a holding pattern before decreasing rates will be a key determinant of the impact on consumer spending and the economy. We are operating against a structurally uncertain macro backdrop, which has us laser-focused on controlling what we can control. We are operating with the assumption that there will be continued pressure on discretionary retail and credit metrics going forward. That said, the remainder of my prepared remarks will focus on three key areas; first, our resilience and focus on value in the short-term; second, how we intend to operate and prioritize as we head towards 2024; and third, our progress and plans for our long-term better connected strategy. Starting with the short-term.

We remain confident in our ability to provide our customers with value when they need it most. In the quarter, comp traffic at CTR was down by only 0.5 percentage point, and basket size remained relatively steady. The average e-commerce order value across the retail segment is also relatively flat. Across the consolidated retail business, there are fewer units per basket given the push to essential shopping. We believe these trends are a clear sign of the underlying health of our business and the role we play in the lives of Canadians.

Our Triangle program and the first-party data it generates continued to provide insights for assessing our underlying health. In Q3, we had an almost 100 basis point increase in the percentage of our loyalty sales generated by returning members, with over 90% of total loyalty sales attributable to these members. In previous quarters, I've talked about the importance of promotable members, those who have given us permission to communicate with them directly and in Q3, traffic increased for this critical segment and their sales were up over 4%. Total Triangle member spend associated with our one-on-one offers nearly doubled in the quarter, and our member cross-banner shop rate is accelerating, demonstrating that our one-on-one offers are achieving their objectives. We also continue to focus on our highly strategic and differentiated own brands portfolio, which blend our product margins up while offering customers value in all ladders of the quality architecture.

Across all our banners, our own brands continue to deliver real value for Canadians. In addition to penetration rate growing by 42 basis points, we had almost 50,000 owned brand product reviews in the quarter with an average star rating of 4.2. From a sales perspective, we had strong performance in two of our most profitable owned brands, MotoMaster and Pro Series with sales up 10% and 26%, respectively, in the quarter. Overall, we have highly differentiated programs focused on creating value in the short-term, and we continue to work hard with our vendors to engineer price crashing and provide promotions across our portfolio of retail banners. Moving to my second area of focus.

As we look ahead to 2024, we are taking action to drive structural efficiencies to support our strategy of creating long-term value. I will speak to running our business more efficiently in three ways; supply chain, margin management and our SG&A. Starting with our supply chain, where significant deleverage has occurred relative to pre-pandemic trends. Following a tough operating environment for our supply chain, we feel like we are now in a position to focus on the efficiency of the operation to drive operating leverage. Our team's work on inventory management has enabled us to focus on reducing our reliance on third-party logistics DCs.

We started the year with 15 3PLs and have managed down to three by the end of this quarter, and we expect to be out of all 3PL sites by the end of the year. Our new GTA DC is officially up and running smoothly, and we will be focused on capacity utilization in the state-of-the-art facility. We will be moving our Sport Chek banner into this facility for storage and replenishment in early 2024. In addition to putting the inefficiencies created by the D.C. fire behind us, these actions provide OpEx leverage opportunity heading into the new year.

Moving to margin management. We remain very focused on holding the margin accretion we have created in the business and see product cost opportunities across the retail segment given commodity pricing and freight rates. We have set up a new nerve center, looking at COGS negotiations through to consumer pricing to strike a balance between customer value and margin management. The third way will run our business more efficiently is through our SG&A. As mentioned, our SG&A rate was unfavorable in Q3 as SG&A grew, while revenue remained relatively flat.

We are accelerating efficiency initiatives, prioritizing investments within our better connected strategy, and actively managing our resource allocation. With that in mind, it's with a heavy heart that I say this includes a 3% reduction in our full-time employee base. In addition, the closure of current vacancies will result in a further full-time employee reduction of 3%. This was a tough decision that we did not take lightly. There's no question that the most difficult business decisions are the ones that impact your people.

At the same time, we know this is what's required to continue to execute our strategy and ensure we are equipped to deliver on our commitments to our customers employees and shareholders. As a result of this tough decision, our annualized run rate savings are expected to be $50 million. As we focus on our highest returning investments, we expect our operating capital investments and the related OpEx to support projects in large functions like IT to come down. We expect operating capital in 2024 to be approximately $100 million below 2023 levels. By reducing expenses and prudently managing cash flow we intend to create the capacity to continue investing in our strategic initiatives and delivering strong capital returns.

As you would have seen in our release today, we announced our 14th consecutive year of dividend increases with the annual dividend increasing to $7 for March 2024. We intend to repurchase up to an additional $200 million Class A nonvoting shares in 2024, which Gregory will speak to in more detail. My third and final focus area today is our long-term better connected strategy. We see opportunities to slow the pace of some investments and we'll prioritize our highest returning capital investments to position ourselves for strength when the market returns to stability. Priority investments include continuing to refresh our CTR store network and we expect to have refreshed a total of 45 stores by the end of this year, and we anticipate the pace of our store investments in 2024 will be similar to 2023.

We continue to leverage the investments made in our One Digital platform by continually honing the site experience. For example, this quarter, we launched a new gift registry, improved our site speed by over 35% and made functionality improvements to our product recommendations engine. We also continue to be very focused on leveraging multichannel capabilities. This quarter, we added 25 new stores to our express delivery pilot and further extended digital experiences like automated lockers, mobile app functionality, digital debit payments for the bank, and electronic shelf labels. Our IT modernization also remains a priority, and we're making good progress through our Microsoft partnership, targeting cloud cost savings and co-innovation efforts including those focused on efficiency and AI-enabled shopping experiences.

I spoke earlier about the role personalization is playing in creating value for our membership and we have an ongoing investment road map to build first-class competence in this area. As we made clear earlier this month, we are leaning into loyalty with the repurchase of Scotiabank's 20% stake in our Financial Services business, a strategic transaction that gives us greater control and flexibility in accelerating the growth of Triangle Rewards. The feedback we've received since the announcement has been centered around the price paid and the timing, given what is happening in both the credit and consumer markets. So, why don't I hit those two questions head on? First, on the price. As many of you have pointed out, the price did include a control premium.

Given the fact that there was no call option for us in the agreement, and BNS did not want to exercise the right to put their equity to us. The price paid is a reflection of our view on value and embeds a premium to clean up the structure. With complete control of CTFS, we now have the flexibility to pursue a structure that can maximize value creation in our Triangle Rewards program, a critical driver of value for both CTFS and our retail segment. On the issue of the appropriateness of the timing, as we said in the release, while we have appreciated partnering with Scotiabank over the past decade with both Scotiabank and CTC having received significant strategic and financial benefits in recent years, BNS and CTC have invested in and pursued different loyalty programs. Our respective loyalty programs are now competing for the same customer in both credit cards and in a large percentage of our retail categories.

The consumer loyalty landscape in Canada is moving extremely quickly with partnerships being formed at PACE. We have worked really hard to build a compelling and leading loyalty program in Triangle Rewards, and our intention is to remain a leader. That's why the timing is now. We also announced our intention to evaluate strategic alternatives for our bank. Let me be clear.

The optimal structure for us has us owning Triangle Rewards, our first-party data and ultimately, the relationship that we have with our customers. We understand that the merits of this transaction will be clear upon the conclusion of our strategic review. We believe that this was the appropriate decision, and we will keep you updated as we move forward on the next steps. Overall, our strategic priorities are focused on improving our customer experience, leveraging the large investments we have already made, and building out our differentiated capabilities. We put the requisite focus on prioritization across the business and we are actively managing for disciplined expense management while targeting our investments to where we have the best opportunities to support our customers and deliver sustainable growth.

And with that, I'll pass it over to Gregory.

Gregory Craig: Thanks, Greg. Good morning everyone. There's a lot to unpack this quarter. But before I jump in, I just want to take a moment to acknowledge how hard our teams continue to work through the current macroeconomic challenges and thank them for their continued efforts.

Now, let's get into the quarterly results, starting with the two large items that flowed through Q3 diluted EPS. The first was $131 million net insurance recovery for the D.C. fire costs, which was recorded in the retail segment and represented a contribution of $1.73 at the EPS line. That was offset by the second item, a $328 million change in the fair value related to Scotiabank's put option, which, as we disclosed last week, represented a charge of $5.88 in the consolidated accounts. The charge was required to account for the difference between what we had previously been recorded on the balance sheet and the negotiated purchase price at the end of the quarter.

The combination of these two items took diluted EPS to a loss of $1.19 for the quarter. Normalizing for these two items, EPS was $2.96, down $0.38 compared to last year, driven by lower retail and financial services earnings. When we look at retail, revenue was broadly in line with last year and the favorable impact of gross margin was offset by higher SG&A and net finance costs. While at financial services, revenue was strong, but gross margin was unfavorable as net write-off rates continue to return to more historic levels. Now, I'll take you through the detailed results by segment.

Retail sales were $4.6 billion in the quarter, with comparable sales down 1.6% compared to a slight increase of 0.7% last year. This decline was due to the continued softening of consumer demand, particularly in Ontario and BC and in the discretionary categories, which is consistent with what we saw last quarter. At CTR, comparable sales were down 0.6%, and we are pleased to see that traffic was down only modestly compared with last year. However, we have continued to see a shift in what consumers are buying. Customers are shifting away from higher ticket discretionary items and also reducing the number of items in their basket with an increase in single unit baskets and promo-only baskets.

When we take a look at sales on a divisional basis in our larger divisions, automotive continued its positive streak up 5% as essential automotive categories such as maintenance, and auto parts grew across all regions driven by demand for oil and batteries. Softness in home projects drove a decline in fixing while higher sales of pet and household cleaning were the drivers behind a modest increase in living. Despite benefiting from earlier fall/winter shipments than last year, revenue in the quarter ended flat after adjusting for the MSA benefit. Softer demand has dealer focused on sell-through of their existing inventory, offset the advance of Q4 shipments into Q3. Now, moving on to Sport Chek.

Comparable sales were down 7.4% as we saw declines in higher ticket and discretionary categories such as cycling, which had strong growth last year as well as key back-to-school categories like athletic footwear and clothing. As we mentioned last quarter, a key focus area for Sport Chek is building out team sports, and we delivered strong growth in all sports across regions this category -- this quarter. Our team sports assortment is an important component of store refreshes we currently have underway in a number of markets. To drive store traffic, the team is also leveraging exclusive in-store events including Triangle member shopping events and product launches such as the recent Air Jordan shoe drop. Additionally, given the mild temperatures in September, we delayed a major marketing event to early October.

This impacted Q3 performance but has contributed to improved sales performance over the first few weeks of Q4. Mark's once again delivered comparable sales slightly ahead of last year, up 0.2% against a 3.6% comp. Women's casual wear and casual footwear sales were up offsetting the decline in industrial wear and men's casual where compared to last year. Growth was strong in the Atlantic provinces and Alberta, where Mark's has had a long-standing presence and that offset softness in Ontario and the other Western provinces. Turning now to Helly Hansen, where Q3 revenue was up 28%, driven by strong sports wholesale shipments due to early deliveries of fall/winter product in Q3 versus Q4 last year.

We continue to strengthen our D2C offering and delivered double-digit growth in e-commerce across a number of markets, with the majority of growth in the US. Our retail stores also delivered double-digit growth. And in August, we opened our new Helly Hansen outlet store just outside of Toronto and Halton Hills, which contribute to an increase in Canadian retail sales. Once again, we were really pleased with the retail gross margin rate we achieved this quarter. Excluding MSA, retail gross margin rate was up 77 basis points, driven by CTR product margin, up more than 200 basis points.

This was offset by a lower margin at Mark's and Chek due to increased promotional activity. The CTR team continued to demonstrate an ability to manage the levers within our control and bank the significant tailwind from freight savings. Margin was also helped by $33 million of benefit from our margin sharing arrangement with our dealers, representing 66 basis points of margin uplift compared to last year, taking the total increase in retail gross margin rate, excluding Petroleum, up 143 basis points compared to last year. There were two factors that drove our normalized retail SG&A growth of 9% in the quarter. The first was our ongoing investment in our better connected strategy as we transition to cloud-based infrastructure and invest in the retail store network, while the second was higher share-based variable compensation.

Variable compensation increased partly due to the decline in the share price in Q2, which resulted in a $20 million year-over-year unfavorable variance in the mark-to-market adjustment of our equity hedges and related share-based compensation awards, which drove higher expense than we had expected. Excluding the unfavorable impact of the equity hedges, Q3 SG&A was up 6%. Operational discipline remains a key focus for us, and we will continue to take action to implement efficiencies that will help protect profitability while minimizing the long-term impact on our business. Now, let's move on to inventory, where we made great progress managing down inventory levels without eroding product margin. Compared to a 6% increase in Q2, inventory was down 2% in Q3.

Lower CTR inventory was somewhat offset by inventory build ahead of the important selling season in Q4 at other banners. On the dealer side, inventory units are down and dealers feel well positioned with all things Christmas as we enter the holiday season. I'll now move on to Financial Services, where portfolio performance metrics have trended back to the bottom end of historic ranges in line with our expectations. Card spend was down 2% in the quarter, marking a second consecutive decline. Average account balances were up by approximately 4%, while active accounts were below -- while active account growth was below 3% on the back of the proactive measures we implemented to manage acquisition strategies.

Despite the slowing in key account metrics, GAR was up 6.4% and ending receivables finished the quarter unchanged on Q2 at $7.2 billion. The ECL allowance was flat to last quarter at $912 million, which left the allowance rate at 12.6% within our target range of 11.5% to 13.5%. Revenue continued to be strong, up 9% over last year, while gross margin was down 3%, reflecting higher write-offs and higher funding costs given the interest rate environment. Our higher SG&A contributed to a $13.9 million decline in IBT. Given the current environment, we are watching on employment rates and payment behavior metrics carefully.

To manage potential exposure, we are taking proactive measures to reduce lending for higher-risk segments. Risk metrics, although up compared to last year were in line with our expectations. The PD2+ rate and the write-off rate were both up 30 basis points compared to last quarter and the PD2+ rate at 3.3% and the write-off rate at 5.9%. We expect the write-off rate to continue to increase as newer accounts work their way through the portfolio and mature account performance stabilizes. Before I finish on capital allocation, I wanted to touch base on our plans and expectations for Q4.

As we sit here in early November, the retail trends we are seeing are consistent with Q3, but there remains a lot of game left to be played in the quarter. And as you know, weather can be an important driver of seasonal performance in Q4 and in Q1. In fall/winter categories, the combination of higher inventory from last year and the majority of product shipping in Q3 this year compared to Q4 last year means our CTR dealers are very well-stocked heading into our biggest selling season, and we expect to ship little fall/winter product in Q4 unless consumer demand proved stronger than expected. Not surprisingly, the incentive for dealers to hold extra inventory in other categories is also being dampened by higher interest rates. These factors will make for a tough revenue comp going into Q4 compared to a year ago when retail revenue, excluding Petroleum, was up 2% as dealers were still building Christmas and winter inventory.

Q4 last year also included the benefit of a full year of MSA. I thought it would be helpful to also touch base on the retail gross margin rate and OpEx. In Q3, the MSA boosted margin by $33 million, contributing to a 143 basis point uplift in reported retail gross margin rate. The MSA recorded in Q3 was significantly below our four-year historical average of $80 million based on the softening consumer demand we saw impacting dealers' results in Q2 and based on the expected impact on Q3, which lowered our accrual for revenue and for margin. Our aim is to continue to manage margin levers to hold margins over the longer term.

and there will always be quarter-to-quarter variances driven by business performance. Importantly, as we look at 2023 on a full year basis, we currently expect our retail gross margin rate to come in slightly below last year, mostly driven by a lower MSA. As Greg has mentioned, we have taken action on OpEx since the end of Q3 through targeted headcount reductions that will reduce headcount by 3%. The elimination of open vacancies in the business is also expected to take our headcount down by a further 3% compared to last year. As a result of these actions, we will take a charge of between $20 million and $25 million in Q4, which we expect to normalize for and will generate full rate -- run rate savings of approximately $50 million.

These reductions will also provide some Q4 benefit, along with lower, lower supply chain costs as we exit 3PLs, we expect this to lead to a deceleration in SG&A growth in Q4. Before I wrap up, I want to touch on capital allocation. Since announcing our Better Connected strategy in Q1 of 2022, we have invested $1.1 billion in the business, paid close to $600 million in dividends to shareholders, and returned close to $800 million to shareholders by way of buybacks. We have also taken the short-term step of investing to repurchase Scotiabank's 20% stake in our CTFS business with a view to evaluating strategic alternatives for that business. As you know, we continue to believe that balanced and consistent capital allocation, and a strong anchored on investing in our business for the longer term is the best approach.

And that will continue to be our guiding principle in 2024. We will continue to make room for operating capital investment while balancing the higher short-term leverage we have taken on in conjunction with the CTFS repurchase and protecting our investment grade rating. We expect to continue to spend above our long-term historical run rate with operating capital expenditures expected to be in a range of $550 million to $600 million in 2024. Additionally, we are pleased to be announcing our 14th consecutive year of dividend increases with the annual dividend to increase $2.7 per share with our March dividend, as well as our intention to repurchase up to an additional 200 million in shares during 2024, adding to the 470 million of share repurchases over the last year. I want to thank our teams and our dealer network for continuing to focus on our customer needs while in addition, holding sales and protecting gross margin.

We are pleased with the returns we've delivered to shareholders and the strategic investments we've made for the future of the business and for when the economy ultimately improves. We look forward to updating you on where we are with our CTFS process and the value we can build on our Triangle Rewards Program as well as how we performed in our biggest selling season when we come back in February. With that, I'll hand over to Greg for his closing remarks.

Greg Hicks: I'll end my prepared remarks today by reiterating that as we navigate these ongoing challenges and continued uncertainty, we are focused on controlling what we can control. And that includes taking decisive action to reinforce our resilience.

In Q3, our teams continued to demonstrate their commitment and conviction for our better connected strategy, which will unlock our ability to deliver accelerated growth when the market stabilizes. I too want to thank all our team members who remain dedicated to making life in Canada better for our customers, communities and shareholders in the face of what feels like relentless uncertainty and challenges. With that, I'll pass it over to the operator for questions.

Operator: Thank you. [Operator Instructions] The first question is from Brian Morrison from TD Securities.

Please go ahead. Your line is open.

Brian Morrison: Thanks very much. Good morning. I have one question on retail, one question on financial services, please.

So, gross margin, maybe the first question is for TJ. The gross margin, very strong Q3 performance not sure I got all the details, but it looks like you're trying to sustain that, maybe slightly lower XCMSA in Q4. Can you maybe just address the ability to do that when it's clear that the holiday season is going to be later than typical with promotions starting earlier in the year?

TJ Flood: Yeah, hey Brian, it's TJ. Thanks for the question. As you know, at CTR, we've grown our margin rate since the beginning of the pandemic.

And our intent is to hold those margin rates at these elevated levels as we go forward. So that's clearly our intent. And we feel very good about how we've managed our margin rates in the quarter with rates tracking up versus well above Q3 last year. And there were a lot of moving parts in there. We benefited from increases in our own brand penetration rates.

We had a significant amount of freight savings year-over-year, which contributed greatly to our improvement versus last year. And we had some tailwind in category mix with higher shipments and automotive. And I think if you aggregate those three things, they helped offset some headwind that we had in FX in the quarter. As you know, and we've talked about it a few times on calls here, we feel like we have strong capabilities such as elasticity modeling and obviously our own brands capabilities and offering and as well as triangle, our triangle rewards program, which really helps us manage that balance of driving demand and managing our margins. But what I do want to articulate, and you're kind of touching on it here, is margin can be very choppy quarter to quarter.

So it's really important to look at our margin performance over a longer term view, particularly over a full year. And as Gregory mentioned, we are expecting full year margin rates at CTC to be slightly lower than a year ago. But I can tell you that within that, we are expecting full year margin rates at CTR to be slightly ahead of last year. And this is despite, and I think you mentioned it, what is going to be a tougher Q4 for us in CTR, given the margin dynamics associated with MSA that Gregory touched on in his opening remarks. But our goal is always to make sure, as I said, that we run the right balance between demand creation and margin management.

And as you articulated there, we do expect it to be a competitively intense market. But we also feel very good about our capabilities in terms of how we manage that balance between demand creation and margin management as we go forward here.

Brian Morrison: Okay. Thank you for that, color. Maybe turning to Gregory, CTFS, you talked about the stretched consumer, the weakening economic outlook.

Those are two allowance drivers, and yet your allowance provision is maintained. So maybe reconcile those comments, and then I realize it's early in the process, Is there a scenario with the portfolio where you own the data but not have majority ownership, or should we expect a similar deal to CTFS with another partner?
Gregory Craig : I'll start with the first one and maybe take the second one as well, or if Greg wants to jump in, I'm sure he will. So in terms of, I think your first question around kind of you know, as we look at the allowance rates and thinking about kind of softening conditions, et cetera, et cetera. I mean, I think part of this is a consideration of your booking lifetime losses as you think about the allowance, Brian. So I think that's kind of still what I start with first and foremost.

And then you have to look at the individual trends. So even though I acknowledge the unemployment rate crept up a little bit to 5.7% in the most recent data available, that's still pretty much in line with kind of historical trends on what the unemployment rate would be. Go back to 2009 and look at what happened to unemployment rates in those early months, and I think you see a bit of a different picture. I think the allowance is doing what it should do, which is it's taking the risk factors into a case. It's taking payment rates into effect.

It's taking into account things like economic conditions. At this point, it's saying we think the lifetime loss is that $912 million that I referred to. So I think that's how you square it off is, I think you have to keep a look at the current data and take into account what that is saying. Because our payment rates still are remaining quite strong is what I would tell you. That's the first piece.

I'll keep going on the second piece. I think we've been very open in this. We are looking to a second step in the transaction and that's probably the best I can tell you at this time. We are going to be engaging with a number of different potential partners on this and would like to explore what other options might be available. It's really too early at this point to commit to anything other than the potential.

We're open to kind of having dialogues and discussion to see what different structures and arrangements may be available that can help us. I circle back to remember what Greg just talked about, how do we move our loyalty agenda I think is the first and foremost on this and then as part and parcel of that we'll consider kind of the banking side of things as well. That's all I would say.

Brian Morrison: Okay. Thank you very much.

Good luck going into the holiday season.

Operator: Thank you. The next question is from Irene Nattel from RBC Capital Markets. Please go ahead. Your line is open

Irene Nattel: Good morning, everyone.

Thank you for that for that sort of for the detail that you provided in your in your pair of remarks. As we look ahead to 2024, and if we think about, you know, where the Bank of Canada sits right now, and where the economic forecast right now. If we do not see any relief on rates before the back half of 2024. How do you see yourself as positioned in terms of, you're committed offering for spring 2024, for your inventory levels, and for, I guess, the mix in store?

Greg Hicks: So, morning, Irene, it's Greg. Maybe I'll take that.

I mean, I would, as we said in our prepared remarks, we're expecting continued softness going forward. It's tough to interpret the signals right now in terms of what monetary policy could look like in the future. And we're taking that hawkish tone into decisive action, like I like I suggested through it, my prepared remarks. And so, what we have behind us now is a quarter and a bit of continued softening demand where we can really see what's important to the customer and as we've talked about many times. We've got tremendous operating cadence and discipline in terms of how we plan seasons, we've talked about a seven season calendar, being kind of our operating rhythm.

So we've been able to incorporate the last quarter and a bit here in terms of how we posture ourselves for 2024. And so you can expect us, as I said, to be extremely focused on value, value through triangle, value through promotions, value through our own brands portfolio, and very focused on getting every single dollar that we can out of essential categories that continue to be really important to Canadians. And so we feel really good about the fact that we've gotten a little bit more visibility here as we move towards 2024 to plan for this continued softening environment. Maybe -- well, not maybe to a larger, much larger degree than we had with the precipitous demand fall off starting in June this year. So we feel much better heading into 2024 than we did.

Irene Nattel: That's very helpful, thank you. So presumably, in terms of good, better, best, or sort of repair and maintenance versus new, we should be thinking about mix that is more toward value offering, or are you still keeping the same basic offering, just thinking about offering the value component of it through triangle or promotion?

Greg Hicks: Yeah, it's more, Irene, how we kind of lean into components of the accordion. It is -- it's really about those essential categories. As I mentioned, essential businesses up 4% traveling through automotive. So we're leaning heavy into all sorts of tactics in our automotive business, be that inventory, be that price, be that merchandising in store on the site.

How we're thinking about digital capabilities, deployment around our service business, which continues to be really, really strong. And what we are still seeing the opportunity to drive demand and discretionary categories is just to TJ's point, it's being disciplined around that -- that investment in price to incremental sales equation. And so again, I just, I keep coming back to, we've got more planning lead time here for the machine to kick in around creating value and operating in the short term with all the arrows that we have in our quiver. And so it's, that's why we feel much better heading into 2024 in terms of really, you know, how to deal with -- with what we're seeing from a consumer demand standpoint. It'll all be about delivering on that resiliency.

Irene Nattel: That's great, thank you. And just one housekeeping question. You noted in the prepared remarks, somebody noted in the prepared remarks that there was a shipment in timing, oh, sorry, there was a shift in timing on some of the shipments from Q4 into Q3 at both MARCs and CTR. Is there a way for you to quantify that for us?
Gregory Craig : Yeah, it's Gregory here. I think on the CTR side, we were just trying to give, as you're thinking about kind of your own models, we're trying to lay out kind of the components of revenue to consider.

So, I think there was three things we've said, and you give me a chance, Irene, so I'm going to take them anyway. Like, just remember that last year we had the full year for the MSA versus this year. We've got one quarter of the MSA. So, we're looking at kind of revenue and margin numbers. Let's just make sure we capture that.

The other two points we tried to raise around revenue and shipments at CTR specifically was there was some shift into Q3 around product, but the dealers also, as we talked about in Q1 and Q2, were a bit heavy ending the season on Christmas. We don't see as much opportunity in Q4 to ship that product going forward, because it's already either in the store from Q3 or from, frankly, end of season. As I said in my prepared remarks, let's -- unless consumer demand picks up, that's the current outlook or picture we would say at this point. I said on Sport Chek, not really on Marks, there was a timing shift of a fairly significant marketing campaign that moved sales from September into October. The 7.4 is not a fair way to think of an exit comp rate.

So anyway, we just wanted to clarify that.

Irene Nattel: Thank you.

Operator: Thank you. The next question is from George Doumet from Scotiabank. Please go ahead.

Your line is open. George Doumet : Hi, good morning everybody. It looks like the comp performance at CTR improved each quarter, I guess, given the outlook that you guys provided last quarter. Is that the case? And just to clarify, Gregory's comments, I guess Q4 being consistent with Q3, should we read into that, that the comps are currently running in kind of the flattish range? Thanks. TJ Flood : Yes, I mean when you unpack CTR, sorry George, it's TJ here.

When you unpack the quarter for Q3 We were actually relative to what was going on in the marketplace. We were actually quite pleased with the performance. And we did to your point start to outpace What was a pretty soft June? So from a Q3 perspective, I think we felt pretty good with how we landed our charts If you look at a couple metrics, the fact that we only modestly declined in traffic and modestly declined in basket size, that really speaks to kind of the resilience of our business, given the economic backdrop. So that's how I would characterize Q3. I think what Gregory's comments, and I'll let him jump in here about Q4, is we are starting to see early days similar performance in Q4 as what we saw in Q3, but I can't stress enough, and Gregory said it in his opening remarks, we have a lot of game to play.

November and December are huge. So you can't call the ball game after October, but that's how we're seeing it right now. George Doumet : Okay. That's helpful. And just one last one for me.

Looking at the 20 purchase of financial services, you mentioned that it expedites the key elements of our Triangle Rewards Strategy. I was wondering if you could talk a little bit more to that and maybe give us some examples. Thanks. Greg Hicks : Yes, it's Greg here, George. Look, I talked about value and timing in my prepared remarks.

I talked about what's critical for us. Our ownership of Triangle Rewards is non-negotiable. The Triangle Rewards loyalty program is now at the core of our business model. So when you think about that, and just step back contextually, we have a network of retail banners. Triangle connects them all with very privileged first-party data.

And we use that data to create value for the customer and drive spend across those businesses. So it's a flywheel where our retail segment is a system that works together. The bank is an accelerator of the flywheel because it issues the vast majority of Canadian tire money, the currency that drives that retail spend and engagement with our members. When you think again contextually about when we signed the deal with Scotiabank in 2014, Triangle Rewards wasn't even in existence. So the marketing rights within the deal for B&S were fairly restrictive in terms of where we now want to go with B&S with Triangle.

So I'll probably stop short of giving you an idea of the things that we're really looking for in a partner, but suffice it to say, it is all about that acceleration of the flywheel. it's more credit cards, it's more valued partnerships, it's new financial products, it's potentially helping us scale, accelerator products like triangle select. It's an active partner really helping to drive our core business strategy. So why don't I stop there, George?

George Doumet: That's great, thanks for the comments.

Greg Hicks: Yes.

Operator: Thank you. The next question is from Mark Petrie from CIBC. Please go ahead. Your line is open. Mark Petrie : Thanks.

Good morning. CapEx is expected to be lower for 2023 than you'd previously messaged, and 2024 lower again. I know it's sort of above, I think, what you were calling out as the long-term runway, but below what you had forecast previously. So, obviously, you remain committed to better connected, but can you just talk about the type of spend that has been trended and how that will affect the rollout of better connected, if at all?
Gregory Craig : Yes, it's Gregory here. I think we've tried to be as careful as possible to have this minimal impact on that are connected.

But, I mean, I think what I would say is it has caused, be some lags in some places. So, fully committed to the strategy. I think we've tried as much as possible to kind of protect the continued investment in real estate. I think Greg and his prepared remarks gave you a sense of where we were in 2023 and where we're going to be in 2024. And I really think, this year is about taking advantage of frankly, a lot of the capabilities we've been building for the last year and a half under Better Connected.

So, this is just a slight slowdown or, in the delivery of all that we're still fully committed and still are frankly excited about the capabilities we're building. We just think it's a more appropriate response, given kind of the economic conditions, to slow this down just a little bit as we enter 2024.

Mark Petrie: Okay. Thanks for that. And then I also wanted to ask just at CTR specifically about promotional penetration, if that's shifted at all.

You talked about it a little bit, but any further color would be helpful. And then also if you've seen behavior shift, by the flyer or through other vehicles like the app? Thanks.

TJ Flood: Yes, hey Mark, it's TJ. Maybe I'll take that one. Look, our goal is always to make sure we have the right balance, as I said earlier, between demand creation, being price competitive and managing our margins.

And we have seen the competitive landscape kind of dial up a little bit in the intensity here. But we really believe in our strong elasticity modeling. And a couple examples we used in Q3, we leaned heavily into improved discount or increased discounts in areas like home organization and really were able to move the needle from a sales perspective. And then other categories in Q3, we tried and just didn't get the sales response. Things like kayaks and things like that, we kind of course corrected halfway through the quarter and kind of started to veer towards other things.

So we're always kind of running that balance of demand creation. Our flyer activity or promotional activity was relatively flat in Q3. As we go into Q4, we do expect some more intensity here. I'm not going to tip my hand too much to the competition on this call about what we're going to do, but I feel very confident that we have a lot of tricks up our sleeve in terms of providing value to customers as we go forward here. And when you think about all the weapons in our arsenal now with the Triangle Rewards Program, our own brands portfolio, our good, better, best range architecture, we provide a lot of choice for consumers.

And we're going to continue to try to expose them to the great value that we provide them as we go forward here.

Mark Petrie: Okay. That's very helpful. And all the best for your holiday.

Greg Hicks: Thanks, Mark.

TJ Flood: Thanks, Mark.

Operator: Thank you. The next question is from Tamy Chen from BMO Capital Markets. Please go ahead. Your line is open.

Tamy Chen : Good morning. Thanks for the questions. I have two on the financial services segment. First is, I'm just wondering if you have this even ballpark figure in terms of your in-store sales. Would you know how much of that is on credit, on credit cards?

Gregory Craig: Yes, it's Gregory here.

We look at, we call it share of tender. It varies by banner from marks and check and petroleum. I mean, I've always used kind of as a rough rule of thumb and that was probably about 12% or so would be what I would say on the overall average. And then it does vary a little bit by, petroleum's a higher share of tender and I think support check might be a little bit on the lower side, but that's what I would, that's a pretty good ballpark to use.

Tamy Chen: Got it.

Okay. And my second question is, you talked about how the risk metrics for the financial services segment are coming back to historical levels. I think your net write-off is now within the historical range, and you talked about that. But just wanted to ask, as you look at the pool and behavior within it, is there anything that you would flag that you're watching closely, that maybe you're a bit concerned about, that you're keeping an eye on. Thanks.

Gregory Craig : I don't think there's anything, look, we keep a close eye on this portfolio month-to-month, week-to-week, day-to-day. I don't think, I think the team has taken some more action over the past six months as I mentioned on some of my remarks around higher risk segments. It's -- we're being a little bit more careful around adding additional exposure, credit exposure to those groups. But again, the group looks at payment behaviors. They were looking at unemployment.

We look at it on a regional basis. We look at it on a national basis. And so, I think the team has taken some more action time on books. It really continues to be the addition of the new accounts the team's brought on the last little while that's put more upward pressure on this. But we are -- given what the current outlooks are, we are being a bit more cautious around lending.

If we feel the need to act further, i.e. credit limit reductions, that's a step the team will absolutely take. I think we're pretty comfortable with where the portfolio is right now and I as a team are kind of allover making sure that it kind of fits within kind of our long-term risk acceptance levels

Tamy Chen: Okay, thank you.

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

Please go ahead. Your line is open. Vishal Shreedhar : Hi. Thanks for taking my questions. Just on the MSA and the Delta versus the figure that you suggested earlier using the averages, is it correct to say that that suggests that the dealers are less profitable and should we think of that MSA being a continued headwind on a year-over-year basis into 2024?
Gregory Craig : It's Gregory here, let me start with that.

Vishal, I think I've said this a number of times and I know TJ has as well. There are a number of mechanisms where we share revenues, we share costs, we share capital expenditures with our dealer network. This is one of them. And in terms of, as we talked about, just this one measure in isolation, not the kind of combined sharing of our kind of billions of dollars of margin and revenues and costs, this one element was impacted relative to what we saw in the second quarter, around kind of consumer demand softening. So I think that's what I would point to.

And you want to look at it overall, take a look at CTR overall, and as CTR overall does, there's going to be a relationship probably for the dealers as well. So I wouldn't try to be that specific to point to one element as a reason for up, down, left, or right. I mean, it's part of an overall contractual relationship, but I think it's fair to say as CTR goes, so will the dealer network. So that's probably the best way I can frankly answer that question. Vishal Shreedhar : Okay.

Maybe my other question is on, just given the slowing that you've noted, how do you feel about the health of your dealer network? I'm talking about the financial health, and are there any metrics that you can point to or provide to us that help us better understand their ability to withstand any sort of slowdown?

TJ Flood: Hey, Vishal, it's TJ. Maybe I'll take that one. And I wanted to start a little bit with some context. So I've been at Canadian Tire for almost 20 years, and I've never seen the strategic intent and aspirations of the corporation and dealers more congruent than they are right now. So we'll start there, that our relationship with the dealers is transparent, collaborative, and really, really strong.

And they take a long-term view to the business and are all in on our better connected retail strategy. And as we look ahead, and you pointed out a couple of things here, but I think it's important to note that dealers are coming into this period of economic uncertainty from a position of strength, given the extraordinary performance that we've seen over the past couple of years. And they really support and embrace our investments. They understand the value of the triangle ecosystem, which Greg just talked about. And credit card as well.

And they believe in the power of customer data to help drive our growth. They're big believers in our own brands and are committed to work with us to nurture and grow them. And they're committed to improving our omni-channel experience and are strong supporters of our investments in our digital assets. And as you can imagine, they're thrilled with the investments in our enhanced concept connect stores. So they continue to invest in their own business by co-investing with us in store projects and through new technology like Tetris that helps them with assortment planning, electronic shelf labels, and customer enhancements like pickup lockers.

It's true what you say that we'll be facing a bit of uncertainty here in the short-term, and some of the new dealers might be facing more interest rate pressures when they think about buying inventory and things like that, and some of them across the country in pockets may be dealing with some store labor kind of issues, but I truly believe the health of the dealer network is very, very strong. And their performance as we go forward is going to mirror the performance of Canadian Tire Retail. And they take a long-term view. They're in it for the long haul. They are very, very passionate entrepreneurs.

They run their businesses very, very tightly. And they're going to be a big driver and contributor to our strategic agenda here as we go forward. So I think that's how I would characterize how we're feeling about the dealer network right now. Vishal Shreedhar : Thank you for that color.

Operator: Thank you.

That's all the time we had today. I'll now turn the call back to Greg Hicks. Greg?

Greg Hicks: Well, thank you operator and thanks everybody for joining us and for your questions today. We look forward to speaking with you and we announce our Q4 and 2023 full year results on February 15th. Bye for now.

Operator: Thank you. This will conclude today's call. You may now disconnect.