Operator: Good morning. My name is Valarie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Tire Corporation, Limited Fourth Quarter and 2020 Year End 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.

. We ask that you limit your time to one question plus a follow-up question before cycling back into the queue. This morning, Canadian Tire Corporation, Limited released their financial results for the fourth quarter and full year of 2020. A copy of their earnings disclosure is available on their Web site and includes cautionary language about forward-looking statements, risks and uncertainties, which also apply to the discussion during today's conference call.

Greg Hicks: Thank you, operator.

Welcome everyone and thank you for participating in this morning's call. I'm joined today by our CFO, Gregory Craig; as well as TJ Flood, President of Canadian Tire Retail, who will be participating in the Q&A portion of the call. I’ll start by saying that our results in Q4 were nothing short of phenomenal, and overall we had a very strong year despite significant challenges. Before we dive into the specifics, I want to acknowledge our team. In an incredibly challenging environment, our entire team has remained focused on our customers and has looked out for each other.

They have remained hyper-focused on safety, agility and service as they seamlessly adapted to abrupt changes in customer needs and shopping patterns. They had been a calming presence and a friendly face to our customers who are craving normalcy at a time when hardly anything feels normal. And our team members have passionately played an active positive role in our communities during an incredibly turbulent year. Our people stepped up, reinforcing our purpose of being there for life in Canada at a time when Canadians needed us most, but more on the power of our purpose after I touch on our results. Starting with our full year results, 2020 was a year that impacted nearly every aspect of how we do business, and has ultimately made us a stronger and more resilient company.

Our retail sales grew a remarkable 11% on a full year basis, while our eCommerce sales tripled to 1.6 billion, as we continue to enable Canadians to make the most of their time living, working and playing at home. Through our Triangle program, we attracted more than 1.8 million new members and continue to deepen our engagement with our existing customer base. We made significant progress in improving our operating leverage, a longstanding goal at the core of our operational efficiency program, and achieved an impressive 15.7% growth in our normalized retail income before tax. Our full year diluted EPS of $13 came in flat to 2019. And while the first two quarters of the year were significantly impacted by the pandemic, the team drove outstanding results and in the second half with EPS eclipsing 2019’s full year performance and growing 48% year-over-year.

Let's now move to the quarter’s results. Our consolidated comparable sales growth of 9.5% was record breaking, despite increasingly stricter restrictions and store closures impacting our retail businesses. We achieved these results even with a more cautious approach to our Q4 promotional calendar to maintain safe levels of traffic at our stores.

Gregory Craig: Thanks, Greg, and good morning, everyone. As Greg mentioned, our performance in the fourth quarter was exceptional, and we could not be more pleased with the strong finish to a very challenging year.

Before diving into the results, I wanted to point out a few things. Our Q4 results reflect an extra week of operations as 2020 is a 53-week retail year for us. To address this, we have provided a comparable sales and gasoline volume growth figures on a 13 and a 52-week comparable basis. As per our usual practice, we have not provided any further disclosure on the additional week’s impact on our results. Also, our financial results in the quarter include $35 million of operational efficiency charges, which we've normalized in our results.

The charges included a $27 million write down associated with the closure of National Sports, which I'll speak more about in a few minutes. And on a full year basis, our results have been normalized for a total of 57 million in the operational efficiency charges. With those points of clarifications out of the way, let's go through the results. In the quarter, our bottom line came in strong and we reported diluted EPS of $7.97 per share, an increase of 47% versus a very successful performance in Q4 2019. And on a normalized basis, EPS was $8.40, up 52% year-over-year.

I am particularly pleased with our full year performance. We faced our fair share of headwinds in 2020, and our results in the year were negatively impacted by approximately 138 million, or the equivalent of $1.60 in earnings per share of COVID related impacts that excludes any of the effects that the store closures had on revenue in the year.

Greg Hicks: Thanks, Gregory. When I opened the call, I alluded to our purpose, a purpose which has and will continue to serve as our North Star throughout the crisis, a purpose that is about so much more than being there for our customers through the products we sell or services we provide. Our purpose is about being there for our communities and how our local presence helps fuel our brands resilience.

Our team worked and lived in the communities in which we operate. As members of their communities, they are emotionally connected and understand how best to serve and support in times of need. Canada is a vast country comprised of countless communities coast to coast, and by understanding the needs of our communities, we can truly be there for Canadians. That's why in 2020, Canadian Tire Corporation gifted an initial $8 million in funding support that enabled Jumpstart to launch its Sport Relief Fund. And although our charity helped an astounding nearly 700 sport organizations across Canada, we saw there was still significant need for support.

COVID-19 has amplified the value of and need for sport and play. They've never been more vital and more at risk than they are today, which is why last week we committed an additional $12 million to Jumpstart’s Sport Relief Fund to help build back sport and play in Canada. When we finally reach the proverbial other side of the pandemic, our country and communities will need recreational and amateur sport more than ever before, and we will be there to help bring back sport and play. Being there for Canadians also means considering how our decisions of today will impact our world of tomorrow. Canadians concern over the effects of climate change and resource scarcity continues to grow.

As a large corporation, we have a responsibility to ensure our sustainability initiatives are intrinsic to our purpose. That's why we are so proud to have recently been named among the world's 100 Most Sustainable Corporations by Corporate Knights. We were the only North American retailer to make the list which is no small feat, and speaks to how difficult it is to make the cut. Breaking into the top 100 represents our significant progress on an important journey that has no finish line. It's a process, not a project and we're far from done which is exactly why we helped cofound the Canada Plastics Pact.

Launched in late January, the Pact aims to end plastic waste and pollution by bringing together key players from across the value chain to collectively work towards ambitious 2025 targets, targets that I'm confident we can achieve. For nearly a century, we've been there for Canadians. We plan to continue with our purpose for another 100 years and recognize that we have a significant role to play when it comes to making that so. Lastly, and before I close, I'll give you some insight into what we're seeing so far in Q1. As you know, Ontario, Quebec and Manitoba have been subject to significant retail restrictions due to COVID-19, and collectively these three provinces represent over 60% of CTR’s POS.

Quarter-to-date sales at CTR are down low-single digits, driven by the regions impacted by retail restrictions and closures. Sales remained very strong in the provinces without restrictions. Throughout our 98-year history, Canadian Tire has been tested and every time we've come back stronger. The COVID-19 pandemic has been no exception. Being there for life in Canada is not simply a tagline; it's who we are and what we do.

The proof is not only in our results, but in our actions and behaviors. With that, I'll turn it back over to the operator for questions.

Operator: Thank you. . Our first question is for Mark Petrie with CIBC.

Please go ahead.

Mark Petrie: Good morning. I just wanted to ask about, sort of how you're positioning for spring-summer. Obviously lots of moving parts and unknowns between dealer restocking and consumer demand. But I guess how have you approached your buying? Are you keeping the additional distribution capacity you added in the second half of 2020? And then similar to your comments going into Q4, any comment about how you're thinking about your promo balance would be helpful? Thanks.

Greg Hicks: Sure, Mark. I'll take that and maybe go into a little bit more detail. And if there's any follow-up specifically to CTR, I know you mentioned CTR and dealers there, we can hand it over to TJ. I think I'd start by saying, Mark, that in non-restricted areas, what we're seeing in 2021 is similar to what we saw in 2020. We're still seeing big trends like one-stop shopping, so basket size is still elevated.

We see elevated eCommerce levels with pickup in-store being a very strong fulfillment channel, especially for bulkier items at CTR. We're seeing Canadians still looking to keep themselves busy, indoors and out. They’re taking care of themselves and their homes. Customers are still focused on wellness or playing division in CTR is performing well with a business like exercise being a key driver, playing outside with toboggans and sleds and toys. Home DIY is still a critical focus area for families at homes, so our fixing business continues to perform well.

And our kitchen business is still very strong in the living division. Industrial and Mark’s comes to mind as well. Shipments are very strong in spring businesses which we've previously forecasted, given where we ended in terms of retail inventory. But winter demand categories in seasonal and automotive are soft. So, like always with Canadian Tire’s vast multi-category portfolio, there are puts some takes.

But overall, when stores have reopened, demand has been very strong with people wanting to get out and feeling better about making a trip. Early indicators for spring sales in the West have actually already started. Believe it or not, we're seeing pools and bikes and patio furniture start to sell earlier than usual and before real indicators of spring weather. And we're also seeing much stronger browse activity on our Web site for these categories nationally. So there is extremely strong interest in our spring-summer businesses.

So our expectation, Mark, is that the categories that were strong in 2020 will again be drivers this year. As it relates to supply chain, I think you've heard us talk about re-commissioning our Airport Road facility, so that is up and running with more and more doors and more and more portions of the building being ready and operational in Q1. We're also repurposing some of our Brampton distribution center. So we don't have all of the three POS up and running that we had in Q4. And as our existing facilities ramp up, we’ll start to ramp down the three POS facilities.

Mark Petrie: Okay, that's really helpful. Thank you. And then I guess just a follow up. We're hearing increased discussion and seeing evidence of higher production costs, particularly out of Asia and certainly higher freight costs. So as you think about your assortment and sort of planned promos and marketing, how does this factor in? And I guess by what part of the year do you think this is actually going to be substantially flowing or materially impacting your business?

TJ Flood: Hi, Mark.

It's TJ. Thanks for the question. Yes, we’re seeing the same type of thing you're describing, inflation on a couple of fronts. One is in categories and on the product side where demand has just outpaced supply categories like fitness and bikes and things like that. We're starting to see product cost inflation.

And then as you pointed out, there's a lot of dynamics industry wide going on right now on the freight side with container shortages and a consolidation of production in China, which is causing some freight pressure. So yes, we are seeing some inflationary pressure. As we've described on numerous calls over the last couple of years, for us margin management and pricing management is now scientific and it's part of what are kind of -- we call it respiratory here at Canadian Tire. Teams are very well versed in managing that. We're obviously going to have to balance some of these cost pressures that we're facing against our promotional activity.

But we have to be competitive as well. We're not going to give an inch from a competitive standpoint on pricing. So we're going to pick our spots and engineer margin as best we can as we go forward. And we've demonstrated that over the last six or seven years. Gosh with the FX exposure we experienced a couple of years ago, we had to swallow probably $400 million in pressure by managing margin.

So we're good at that and we're going to continue to do it as we go forward.

Mark Petrie: All right. I appreciate all the comments. All the best.

Greg Hicks: Thanks, Mark.

Operator: Thank you. Our next question is from Irene Nattel with RBC Capital Markets. Please go ahead.

Irene Nattel: Thanks and good morning, everyone. Just building on the answer to that last question, what are you seeing in terms of competitive activity? Walmart in their report this morning, they noted food and eCommerce did not note general merchandize or anything as being seasonally strong.

So wondering what you're seeing there?

Greg Hicks: Sure. Thanks, Irene. It's Greg. I'll take that. I'd say the market is as competitive as it's always been.

I think you've heard us talk about the fact that we measured a competitive price index and our index relative to the competition improved in each of the last few quarters relative to last year. So we do feel confident in our competitive position right now. I think everyone needed to dial back the intensity to manage safety and traffic during the crisis at various times throughout 2020. We've seen some evidence of more dynamic pricing in the market, particularly with digital peer plays as they've been promoting shorter supply lines when inventory becomes available, which is probably a little more intense than it has been in the past. But then you have marketplace offerings showing more availability, and in many of these cases price isn't the driver as our pricing is significantly better.

In these situations, third parties have inventory availability and they seem to be trying to make some money. So it hasn't been overly disruptive. I think as you've heard us talk, trip consolidation and being in stock for customers has been a bigger driver for our sales. Non-discounted sales experienced a real positive trend throughout the last few quarters, which has helped our margin on both units and average retail. So overall, I wouldn't say -- you put all that together, I wouldn't say you've seen an increased competitive landscape or felt the need to invest to drive sales.

And as TJ just said, across all of our businesses, we've got windows into that competitive activity and we'll continue to react as dynamically as we need to in season as we move forward here this year.

Irene Nattel: That's really helpful. Thank you. And I was wondering if you could just spend a minute or two talking about the ways in which -- sort of I guess the evolving ways in which you're using your increasingly large database from Triangle to really influence your promotional activity, your pricing, your assortment, and how far knocked down this road of really being able to customize individual store assortments we may be getting?

Greg Hicks: Yes, there's a lot in that question. And we kind of anticipated that that would be something that you might want to know about.

So why don't I try and dive into that a little bit for you, because I feel like we need a good amount of time providing you all more context on how Triangle is changing the way we're intending to run our business as a first step before we start working backwards in terms of the role the loyalty program played in driving our results in any particular quarter. Although it's worthy of a larger unpack, I think the big thing I want to leave you with is the fact that we're starting to look at the health of our business in a fundamentally different way. Our Triangle program and the data it provides is giving us the ability to look at the underlying health of our customer base and take action to better manage the engagement with these customers based on the lifetime value of each customer segment. And our Medallia implementation that we talked about in 2020 allows us to go beyond what customers are buying to understand how they're feeling about our experience. So it's the summation of the what and the how that's coming together in our data with NPS measurements at each stage of their journey with us.

And it's the combination of these two that's a powerful way to understand our business and ready it for the future. Ultimately, Irene, we're moving from a transactional view to an engagement view at the customer level. I think this understanding really enables us to manage customer relationships in a much more sophisticated way. In order to do this effectively, we need to identify customer metrics in aggregate that give us an indication of the health of the business. And so what do I mean by that? Well, you're starting to see some of these customer metrics work their way into how we describe the performance of our business.

And over time, we intend to drive full understanding of our most critical metrics. For instance, we talked today about 1.8 million new customers in today's release as an example. These customers are new to us and have signed up and joined the bass loyalty credit card program for the first time. But we're tracking much more than new members. We have to get a handle on overall churn and lifecycle management.

So you're going to hear us talk about other customer metrics, metrics like reengaged customers. These are members in the program that didn't shop with us for 12 months but have come back to shop with us; and the opposite being inactive members, those being members that shopped with us but then lapsed for 12 months. And for sure, measuring returning members, and meaning those members who returned to shop with us year-over-year, will be critically important. So Triangle is going to be a massive driver to our results going forward, good or bad, depending on how well we manage these segments. And while the concept of churn management is well understood and very valuable in sectors like financial services, and our financial business where customer data has been readily available for many years, very few retailers have the data available to look at their customer base this way, and even fewer have the capability to manage that churn through their digital and personalization platform.

So we now have the data on the what customers are buying and how they're feeling about their experience. We're building the platforms for automated engagement and therefore feel very well equipped to understand the root cause of why a customer churned or may churn and solve the problem not just for one customer, but for a whole cohort. So I probably gave you way more than what you were looking for there. But I think the context and the vision is important here, and it's pretty central to how we intend to run the business.

Irene Nattel: That's really fascinating.

So just one quick follow up. Is your data showing you customers are viewing Canadian Tire more favorably and they're increasing slightly their share of wallet spend at Canadian Tire?

Greg Hicks: Yes, it depends on the segment. We slice it and dice it across, I think we've got 37 segments, we've got three or four critical segments. We are absolutely gaining traction from a spend standpoint in the categories that are most important to us. So spend per customer and active families has been a big driver of our growth in all of 2020.

I think you heard me talk about what's happening from a young customer segment profile and the acquisition that Mark’s is providing for us, especially with some of the national brands that they have put for us. So you'll hear us talk about spend per customer and that's the kind of -- at the end of the day, what we're after is that outcome. And you'll also hear us talk about our NPS and our NPS around the things that matter in our business. And that's mostly around experiences. How was the checkout experience? How was the browse experience? How was the click and collect experience? How was the automotive experience? So juxtaposing that NPS measurement by customer segment and spend, we can really start to be able to triage and engage with customers on a relationship basis.

And we're feeling really, really good about the traction we made with our core customer cohorts in 2020. We think it's a tremendous opportunity for us going forward in addition to having this whole new 1.8 million cohort of new customers that we can engage with or we can reach out and build a relationship to try and drive that engagement and spend, and we're going to be tracking that new cohort like hawks in 2021.

Irene Nattel: That’s great. Thank you.

Operator: Thank you.

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

Peter Sklar: Good morning. Really I think it's a question for TJ. When you look at the gross margin that the company reported, up 150 -- just over 150 basis points, that's a real reversal of the trend of the previous quarters where you had negative pressure in terms of your gross margin.

So I'm wondering if you could talk a little bit about what's going on in the stores. I don't – we’ve caught kind of like little snippets here and there on the call, but TJ can you maybe drill down a little bit? What is driving this very strong gross margin performance in the stores? Is it mix? Are you getting a good weighting and seasonal categories like Christmas that carry higher margins, or what are the factors that are at play here?

TJ Flood: Hi, Peter. When we think about the breakdown of margin in Q4, there's probably three key areas that I would talk about and the first is what you just touched on, which is category mix. We saw a lot of growth in high margin categories like seasonal décor, Christmas lights, winter recreation, exercise, accessories, auto, travel and storage and paint, all of these categories kind of punch above their weight in terms of margin rate, and we got favorable mix from that perspective. So definitely business mix is helping us on a margin rate perspective.

The other piece is around reg promo mix. With us, honestly, in Q4 and throughout 2020, we were chasing just unprecedented demand and trying to keep up with supply. So that really, really helped us and drove our reg mix a little bit higher than it would have been previous year. Certainly in terms of the business' owned brands continue to grow and outpace our national brands. And obviously, our owned brand margin profile is higher.

And then lastly, what I would say that Greg touched on I think a bit earlier was around our margin sharing agreement with dealers. They also participated in a lot of the benefit that I just described from category mix as well as reg promo mix. And with our margin sharing arrangement with them, we simply were able to book more margin relative to last year. So those are kind of the four components of how I would unpack our margin rate performance.

Peter Sklar: Yes.

And TJ, in terms of the margin sharing, was there -- like you kind of accrued through the course of the year? Was there any favorable catch up, or is the margin, like the retail margin that the corporation booked in the fourth quarter, that's what the dealers actually realized in the fourth quarter?

Gregory Craig: It's Gregory, Peter. Let me give TJ a break on that one or you can ask a tough accounting question next, but let me take that one for him. The way I would answer the question is we -- the booking kind of -- when the dealer year end kind of matters is kind of the first point. But I think the simplest way to think about this to be frank, we had such strong performance in the last half of the year. When you got to the year end, you understood kind of that there was a need to book more margin.

As you know, we do this every year, but it was much more pronounced this year, given the incredible performance that we saw frankly in the last half of the year. So there's more complexity there around dealer year ends, et cetera, et cetera. But if I really tried to simplify it, I would just really point to the significant, the fantastic performance in the last half of the year at CTR.

Peter Sklar: Okay. And TJ, I didn't quite understand your point that you were making about the promotional mix.

TJ Flood: Well, what I would say is given the demand that we saw, there was definitely a migration toward regularly priced goods relative to promotion. And in certain instances, we couldn't keep up with the demand with supplies. So when you're in that situation, it puts you in a position where you can't promote as much as you traditionally would have. So those two factors would have contributed to our kind of reg mix being a little bit higher than our promotional mix.

Peter Sklar: Right.

Okay. And then the last question I had is for Greg. Just in terms of the outlook for Q1, you talked about -- I believe you said quarter-to-date, your sales are down low-single digits. Are you talking about retail sales or warehouse sales? And are you attributing all of that to the government restrictions or are there other factors at play as well?

Greg Hicks: Yes, so the remark that I made with respect to low-single digits would be comp store sales in the CTR banner. And I think I also made a comment about the fact that shipments in CTR, so revenue continues to be very strong in Q1.

So those -- that would be the clarification I think to my remarks.

Peter Sklar: Okay. And are you attributing that slowdown from Q4 levels all to the lockdowns and other retail restrictions or are there any other factors at play that you would want to point to?

Greg Hicks: Again, I tried to provide a little bit of color in terms of what we're seeing in stores that aren't impacted by restrictions. And without giving it too much forward visibility, there is a market difference between performance in stores that are operating in restricted regions and stores that are operating in non-restricted regions. I think Gregory is chiming to get in here, so --

Gregory Craig: It was like a jump ball, so anyway.

I just want to emphasize what Greg just said around – look, as you know, Peter, there's still lots of game to be played in the quarter and March was -- not all these months in the quarter are all created equal. I just wanted to reinforce that point. But yes, I think we're in the low-single digits and look at the weather outside up until recently. So I think that has also been part of the puzzle of this as well as kind of what the weather trends have been like, but I think Greg's remarks kind of outlined it well around kind of stores that were closed and stores that weren’t and the behavior we're seeing. But just to be clear, there's still some big months left in the quarter, so that’s all.

Peter Sklar: All right. Okay. Thank you for your comments.

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

Please go ahead.

Vishal Shreedhar: Hi. Thanks for taking my questions. On the operational efficiency program, management called that out as a contributor to fourth quarter. There are so many things going in on the various line items this quarter.

I was hoping you can give me a little bit more context on the extent to which it contributed, and maybe where you are in the program? Is it early days, 20% done, so on and so forth?

Greg Hicks: Yes, I can start and if there's specifics that Gregory wants to jump in on, he can. The team continued to prioritize execution of initiatives in 2020 with 2021 and 2022 benefit, and real high impact strategic priorities throughout 2020. Despite the headwinds and COVID, we feel like we've achieved all of the objectives that we set out for the program in 2020 and we are absolutely on track to achieve our publicly stated target of $200 million plus, which I think you pointed out, Vishal, in run rate savings by 2022. While there's no specific timeline and schedule that we're going to share with you on the cost, I can tell you that right now there are over 200 initiatives in the pipeline to be executed this year and 2022. As it relates to our OpEx ratio, as we've discussed, there isn't a straight line from our OE program savings to our OpEx ratio.

Cost-out initiatives take time and inflation in your cost base can happen at any time. But overall, we're very pleased with the direction of our OpEx ratio in 2020. But keep in mind, we absolutely had the power of operating leverage, given substantial top line and revenue growth throughout the system. But we also had full fixed costs, absorption and months where we had minimal revenue in some banner. So again, it's very difficult to use 2020 as a base year or leaping off point.

I can tell you that we're running the business with efficiency in mind. And through 2021, we're going to start to see more broad-based system efficiencies and transformative initiatives come to life through the OE program.

Vishal Shreedhar: Okay, that's helpful. Thank you for that. And as we reflect on 2021 and beyond, how should we think about Canadian Tire’s intention for real estate growth, and maybe if you can give us a sense by your bigger banners?

TJ Flood: Maybe I'll start, Greg.

I think, Vishal, one of the things we've talked about is just given kind of this environment with the level of uncertainty, I don't think we feel comfortable at this stage kind of providing guidance or forward-looking information as it relates to kind of real estate. And I'll give you a reason why. You looked at last year when we had a lot of projects had to close and even in December with those restrictions and shutdowns that happened then, we had some jurisdiction’s construction was allowed to continue and some it wasn't. I think the longer-term answer, of course, is we're committed to real estate and we see great opportunities to continue to build out and enhance our network. But in terms of actually getting something more specific kind of in the short term, I just think it's just too uncertain for us to kind of provide that.

But I'm sure Greg will want to add to that as well.

Greg Hicks: We’re going to be working this quarter as long as we feel like we have fairly good line of sight to what's happening in the economy to update our strategic thinking with respect to capital requirements going forward. We've talked to you about the modernization investments as part of our OE program in our core technology infrastructure. We're in the middle of building a new state of the art distribution center in Mississauga, which is going to really help drive eCommerce fulfillment capabilities. And we've certainly learned a great deal during the crisis in terms of the role our store plays in driving connected experiences for the customer.

We're seeing growth in all market types across the board, but the highest levels of growth are happening in the suburban markets across Canada, markets that kind of index higher on home ownership for grass, a yard , active families and we think these markets are going to continue to benefit going forward as workplaces embrace work from home. And we see tremendous opportunities to improve the store experience. The in-store technology for enabling eCommerce wasn't built for this type of scale and the stores are doing a tremendous job with it right now. We see lots of opportunities to reduce friction in the system on their end and minimize touches, use automation for some of the order processes and really put our associates in a much better position to deliver a compelling experience. So, we're going to be -- we're having lots of conversations about putting an Investor Day into the calendar this year.

But we want to make sure we can do it live and in person with you all, Vishal. So we’re just going to have to put all the considerations together and develop the right communications approach. But rest assured, we're not standing still in terms of where we think we have an opportunity to invest capital in our business. It's going to be in the customer experience, both physical and digital. It's going to be in supply chain and automation.

We think we have the team. We've got the assets and strong understanding and momentum with the customer. And our financial position is strong. We're just looking for a little bit more certainty here as we look forward into the economy.

Operator: Thank you.

Our next question is from Chris Li with Desjardins Bank. Please go ahead.

Chris Li: Good morning. First question I guess is for Greg. How does your longer-term vision or strategy for SportChek change as a result of the pandemic? Is there an opportunity to perhaps rationalize your store base and focus even more on eCommerce channel longer term?

Greg Hicks: Listen, we think SportChek had a fantastic quarter.

All things considered, we're really happy about how the business is performing considering the restrictions and they have a very different mall dynamic than what I would have alluded to for Mark’s, and we're really excited about the owned brand penetration for the business. We're seeing the Chek banner really be a strong customer acquisition driver for the overall ecosystem with a couple of those core segments that I talked about earlier. And so that's where we're spending a good amount of our time. And we have lots of initiatives around, whether it's store leases or store labor or eCommerce fulfillment. We rolled out a few hub stores as an example or made a few of our stores hub stores as an example.

So we're looking at the network differently. And I think the decision that we made with respect to closing National Sports will drive some velocity and productivity to the SportChek stores. So we're constantly evaluating the role that that business plays in our portfolio, and we're feeling really good about what we're seeing in the business right now.

Chris Li: Okay, that’s helpful. And maybe just a couple of quick ones for Gregory.

In terms of the COVID cost, by maximizing the company incurred about 70 million-ish of costs from hero pay and increased safety protocols, how much of those costs do expect to recur again this year?

Gregory Craig: In 2021, I think -- as I think you're aware, the premium pay program came to an end at Canadian Tire. It was middle of August I think was the time period, so that really wasn't in the fourth quarter. Frankly, that was our decision as to why we didn't isolate the COVID related costs in the fourth quarter, Chris, was that in my mind, they weren't all that significant in the quarter, number one. Number two, they became a bit more recurring in our base operations. So we didn't feel that it was really helpful to kind of isolate those and separate them out.

We'll have to watch depending on uncertainty and third wave, et cetera. I might regret saying this, but from what we understand right now, I would call them more kind of in our continuing operations and we'll just keep an eye on that. And hopefully if it's safe enough for everyone to continue to operate, we don't have to have this discussion again. But that's how I'd answer your question.

Chris Li: Okay, that's helpful.

Maybe just a quick one first on gross margin. Can you maybe teeth out for us just the impact of the margin sharing agreement with the dealer? How beneficial was that to your gross margin?

Gregory Craig: It’s Gregory again. I'll try to answer that, Chris. It's a difficult thing to kind of unpack and separate. It's so -- there's so many puts and takes to it.

And I think the key point that I want to make, and I've mentioned this a few times on kind of some calls this morning is we had strong margin performance across every banner. So we're thrilled with what we saw in CTR and the team did a great job there. But I also don't want to downplay the contributions at Helly, the contributions at Mark’s, the contributions at Chek. This was a strong overall retail margin quarter. And was CTR a leading part of that? Absolutely.

Was part of that reason because of the margin sharing? For sure. But it's not necessarily a straight line to kind of say, here's the answer, because there are different puts and takes. I’d just say, overall, we recognize more as a result of this arrangement, because of the fantastic half -- full year that CTR had. That's how I’d answer your question.

Operator: Thank you.

Our next question is from Patricia Baker with Scotiabank. Please go ahead.

Patricia Baker: Good morning, everyone. Thank you so much for taking my question. I want to dig a little deeper into the capital expenditures.

And you made a very good point in response to an earlier question that you know that there's a lot of important areas where you will be investing in the business over the longer term. But I just want to ask two specific things about your outlook for CapEx. I don't want guidance or anything like that, but just the way that you look at it. So in fiscal 2020, the capital spend was a lot lower than you originally had anticipated. And some of that I presume was associated with timing of specific things.

But buried in there also there must have been more, taking a very, very close look at particular projects and making decisions not to go ahead with certain ones for various reasons, if you could share where any decisions where you decided not to go ahead with something so that we have a better understanding of that? And then secondarily, is there anything that you take away from how you view capital investments in 2020 that will feature in your future philosophy about capital spend? And then, Greg, you noticed that you learnt a great deal about your stores in 2020? And is there anything that you learned about the stores in 2020, anything you learned operating through these particular challenges that will inform or change the way that you’re thinking about investments in terms of like discovering that maybe there's places that you wouldn't have invested in that you think now are better places to invest for the long term?

Greg Hicks: Sure. Yes, lots in that, Patricia. Let me try and keep them straight. I think if we go back to CapEx, I tried to kind of give you a real window there in terms of how we're thinking about it and how we're thinking about communicating it. I think, Patricia, National Sports is a classic example and gives you a pretty good idea or an indicator in terms of how we’re thinking about capital.

It's a smaller banner for us, for sure, but the decision to close the business is a matter of focus. There's always been a fair amount of overlap with this banner, both SportChek and CTR. And now in addition to having store density in these trade areas, we have significant eCommerce capabilities as well. This was a business that was receiving just enough capital for maintenance needs over the years, and just wasn't a core asset for us and as we evaluated our portfolio. So we intend to evaluate or review our assets as part of our operational efficiency program with an investor mindset, ensuring there's an intended purpose to our investing.

And in this case, we just couldn't find a continued purpose. And on our docket in 2020 was a replacement of the whole European POS application for the banner as an example. So I think coming to a conclusion strategically with the right portfolio view and lens around how we think about that business in the context of the ecosystem, I think it gives you a pretty good indication around looking at capital on a more holistic enterprise basis. As it relates to the store, what we've learned, et cetera, I think about – we’re all thinking about relevance a lot, Patricia. I think today retailers are either relevant or they're not.

There's not much middle ground. I think we've been seeing rising customer expectations for relevance, and COVID only magnified it. Today's more kind of global eCommerce retailers can offer consumers everything. So customers aren't lacking any choice when it comes to products or places to purchase them. However, I think our biggest learning is for COVID as the customers are expecting more than product or even free delivery, they're demanding more value in ways that are relevant to them.

And although customers love shopping online, I think COVID has demonstrated that what they really want is control, control over where and how they receive their online orders. And the popularity of pickup services has challenged the notion of what customers want from eCommerce. Sure, it seems a little odd that someone would get dressed up for winter in the middle of the pandemic no less and get into the car and go pick up the product at the store. In our case, BOPIS or curbside, but that is exactly what's happening. And it's happening across the global retail industry.

So I think having a wide range of fulfillment options and choice for the customer is the way of the future. And using kind of the store for fulfillment which we're doing has enabled us to ramp up capacity in a way that many others struggle to do. So I think being an omni-channel retailer is a huge advantage right now and I don't see it going away. So it's a double click on is eCommerce here to stay? Okay, well, let's double click and really think about what experience in eCommerce is here to stay? And for us, we really believe that the store playing a fundamental role at the core of our strategy, eCommerce strategy is critical. And the great news is we're getting better at that.

65% of orders now, pickup orders at Canadian Tire are ready in two hours or less. And we certainly weren't delivering at this level of experience earlier in the pandemic and we can see what it can do for the business. So I think if you link that back to the question that Vishal asked around how to think about investment in the network, and it's about digital and physical coming together, you get a pretty good idea of where we're going to be focused from a capital standpoint.

Operator: Thank you. That is all the time that we have for questions today.

I would now like to turn the meeting over to Greg for closing remarks.

Greg Hicks: Okay. Thank you, operator. In summary, these continue to be extraordinary and challenging times. But we're an extremely resilient company.

The strength of our brand is built upon deep rooted values and a fantastic team. I'm proud of our performance in the quarter, for the year and of the thousands of team members I'm fortunate enough to represent. So thank you for your interest in Canadian Tire and for participating in today's call. Be well. Thank you.

Operator: Thank you, everyone. This will conclude today's call. A webcast of the conference call will be archived on Canadian Tire Corporation, Limited Investor Relations Web site for 12 months. Please contact Investor Relations if there are follow-up questions regarding today's call or the materials provided. You may now disconnect.