Operator: Thank you for standing by. My name is Carmen, and I'll be your operator conference today. Welcome to the Canadian Tire Corporation Earnings Call. All lines have been placed on mute to prevent any background noise. Following today's presentation, there will be a question-and-answer period.

[Operator Instructions] Now, I'll pass along to Karen Keys, Head of Investor Relations for Canadian Tire Corporation. Karen?
Karen Keyes : Thank you, and good morning, everyone. Welcome to Canadian Tire Corporation's fourth quarter and full year 2024 results conference call. With me today are Greg Hicks, President and CEO; Gregory Craig, Executive Vice President and CFO; and TJ Flood, Executive Vice President and President of Canadian Tire Retail. Before we begin, I wanted to draw your attention to the earnings disclosure, which is available on the website and includes cautionary language about forward-looking information and the factors, risks and uncertainties which may cause actual results to differ materially from those expressed or implied, which also apply to the 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 we don't get through all the questions today. I will now turn the call over to Greg. Greg?

Greg Hicks: Thank you, Karen.

Good morning, and welcome everyone. The quarter came to us as we expected and we delivered the end of the year much as we delivered prior quarters. In an uncertain consumer economy, we controlled the controllables, architecting sales through strategic promotion and effective margin management, all while investing in our future. This continued diligence contributed to our return to growth and strong earnings performance in the fourth quarter. We achieved a normalized EPS of $4.07 in Q4, bringing our annual EPS to $12.62.

This represents a significant improvement over 2023 aided by some one-offs, which Gregory will address. In a complicated year, the team performed well and I want to thank them for their discipline and hard work. Before we unpack our results, let me give you our view into the current macroeconomic environment and health of the Canadian consumer. The short story is that like our business, the economy is in a much better place than it was a year earlier. The long story is a bit more complex.

Although consumer confidence remains low, it ended the year on an uptick. Interest rate cuts have had a distinct positive psychological effect on consumers, and we believe an economic benefit may follow. As you know compared to other nations, Canada's economy is more tightly tied to interest rates, so for our customers, rate relief is real relief. Now while rates have come down, there is a cycle of mortgage renewals ahead, which will hold shelter costs high. That said, we were keen to see a near 20% increase in home turnover in December, as historically people turn to Canadian Tire when they move and set up a home.

In terms of how Canadians are specifically shopping with us, although the gap between essential and discretionary persists, both sets of categories are moving in the right direction. For the first time in nine quarters, credit card spending was up in the categories in which CTR competes. What's more, Triangle MasterCard spend at CTR increased by 2.4%. Overall, we see multiple green shoots, which give us cautious optimism for the future. Now, I'd be remiss if I didn't caveat this optimism with the looming threat of tariffs.

I suspect the consumer confidence uptick that I mentioned earlier has now been substantially erased with tariff talk, while that threat may be on pause, we are conducting all the business assessments and preparations you would expect. We have also spent time reflecting on our brand purpose. We are here to make life in Canada better as it feels especially relevant right now. We have already begun to try to insulate our customers from the risk of higher trade costs hitting our shelves. We are reviewing products in U.S.

suppliers and assessing alternatives to the inevitable inflationary pressure these tariffs would deliver. Know that we will continue prioritizing value for Canadians. Although, this has always been a commitment of ours, it's been especially important these past few years. I also think there's a bigger conversation to be had. I applaud the provincial and federal government's unified response to the unjustified economic assault from our nation's longest standing ally, and I'm hopeful for an effective resolution in the near term.

Longer term, we need a national plan to build Canadian prosperity. I've had the chance to meet with government and business leaders in recent months. We share similar concerns and we also share similar ambitions. We believe Canada can be stronger and more productive. Locally owned since 1922, we're proud to be called Canada's store and the nation is actually in our name.

Just as we believe Canada must become a more productive nation, we must become a more productive company. Our conviction manifests through our capital plans and a range of strategic growth initiatives taking shape. I will speak more to this shortly, but first, allow me to provide you some color on our results. As I did throw 2024, I'll focus my remarks on three forms of leverage, creating value and deeper relationships through our triangle rewards program, maximizing our existing assets and driving operating leverage with a constrained top line. Let's start with Triangle Rewards, where we are successfully leveraging our customer relationships.

In Q4, the delta between loyalty and non-loyalty sales grew driven by more members joining the program and signaling that they continue to reap its benefits. Throughout 2024, members came back more often and spent more than they did in 2023. Remarkably redemption of ECTM is now 30% higher than it was just three years ago. What's more? While full year 2024 loyalty sales were up 1%, they grew 4% in Q4 and recurring revenue increased. Driven by our ability to inspire members to move through our loyalty system.

We continue to provide our customers with more opportunities to earn ECTM through personalized offers, promotional activities at our retail banners and partnerships like the one we have with Petro-Canada. This strategy is translating into increased cross banner engagement, highlighted by the growth in members shopping across our banners and increased redemption across our family of companies. Our loyalty performance is a sign of good health, both for our business and our customers. Our flywheel is working and members are coming back and spending more. Our flywheel is further propelled by our decision to retain full ownership of CTFS, which we announced in Q4.

We learned a great deal through our comprehensive strategic review, particularly the fact that our bank accelerates Triangle ECTM issuance and that it serves as an incredible source of valuable data. This data is among the many reasons that our bank is a pivotal piece of our retail future. In the quarter, we saw a nice tread line in the amount triangle MasterCard holders are spending across our family of companies. This is an important contributor to store sales and a metric that we will track more closely to monitor the bank's unique retail driving capabilities. To give you a picture of our progress in the last two months of the year, we saw a marked increase in triangle MasterCard sales in our stores.

It goes without saying that we are pleased to have retained CTFS’ strong return profile and meaningful earnings. When we spoke to potential bank partners, it became evident to us that the bank strikes a skilled and strategic balance between growth and risk, supporting our mid to high 20s ROE, which is no small feat. All these factors are fundamental to our go forward bank strategy, which we look forward to detailing for you as the year goes on. Moving now to our continued leverage of existing assets and investments, the value of our One Digital platform was on full display in Q4, we weathered the Canada Post strike with digital promotions and leveraged AI to address the unexpected HST holiday. We had rock solid website stability during the highest sales days of the year, and we grew important categories like automotive with online enhancements.

To be frank, these achievements would've been impossible 12 months ago. They're a testament to the value of our investments as we move to a single modern cloud-based tech stack built for all of our businesses, not just one. They also illustrate our enhanced efficiency. As this improved performance was delivered by a team that is both smaller and better equipped than it was a year ago. By honing and aggregating our digital capabilities, we have established a clear path to our targeted outcomes, specifically agility and scale.

This will rely heavily on a streamlined execution across our enterprise, along with new technology and AI tools that change the way we work, while many organizations are still piloting AI projects, we have several capabilities and production and in use. I am amazed at how fast Gen AI continues to evolve with thousands of our employees using our bespoke generative AI assistant to achieve better outcomes faster and more efficiently. Similarly, we are looking ahead at the next frontier of AI agents that we know will change our employee and customer journeys. We've seen the retail power of CT, our AI tire concierge. We want to scale that power by implementing platform systems, architecture and governance across our company, not banner by banner.

I'm excited about the work we have started and how it could drive a more personalized customer experience and internal agility and efficiency. In bricks-and-mortar, I want to highlight the success we're seeing at Mark’s where new store investments are showing considerable returns. Our modern concept Mark’s stores are attracting new customers, and in Q4, our eight stores contributed to half of Mark's overall retail sales growth. At a time when the Canadian apparel industry is thinning out, Mark’s is extremely well positioned to continue winning over customers with another seven new stores set to open in 2025. In the $43 billion industrial and apparel sector where Mark’s competes, we have sub 4% share and our fifth in the market with considerable runway for growth.

The success of Mark’s illustrates what happens when we target investments into our highest returning opportunities. It also shows that our banners are benefiting from our loyalty system, getting results that would quite frankly be impossible for an individual banner to achieve on its own without significant deleverage. Together, our banners, partners and triangle rewards loyalty program are becoming a powerful combination for growth and scale, and this is a lever we have only begun to pull. Moving now to operating leverage, our continued efforts to reduce supply chain costs were a meaningful contributor to lower OpEx. At the same time, we are maximizing and enjoying the benefits of our three year supply chain modernization with new technologies, facilities, and a network that has fully recovered from pandemic capacity issues.

For example, our DC transformations in Calgary and Montreal drove $20 million in savings in 2024. Another key to our OpEx success was our workforce reductions in late 2023, which meant that in 2024 our teams were more efficient and better equipped and more ruthless in their prioritization of tasks. In an age of hyper scale competition, we must be efficient tech enabled and clear about our tasks, while we made progress in 2024, I know we still have more to do. And with that, I'll pass it over to Gregory. Gregory Craig : Thanks, Greg.

Good morning everyone. We had a few normalizing items in the quarter reflecting the major announcements we have made since November. Namely, the conclusion of our strategic review of CTFS and the sale of our Brampton DC, which generated a significant Q4 gain. These two items represented about $3.30 at the EPS level. Normalized for these EPS was $4.07 up 20%.

EPS growth was driven by improved retail profitability as we continue to control the controllables with strong expense discipline. That contributed to higher earnings and along with working capital improvements, translated to higher cash earnings, which gave us the flexibility to fully pay down the $895 million of incremental leverage associated with our Q4 2023 CTFS repurchase. Now, I'll take you through a little more detail by segment. As we had expected, much of the quarter came to us in December. Given the shift and timing of the Black Friday weekend, and both sales and revenue grew in Q4.

This return to modest growth was a good outcome in a consumer demand market that has not yet seen full recovery. It was even more impressive in the context of a more limited flyer distribution due to the Canada Post strike, which was a headwind. Retail sales and comparable sales excluding petroleum, were up more than 1% with growth across the banners, while retail revenue was also up after seven quarters of decline, up 1.3% to $4.1 billion, higher CTR shipments contributed as did growth at Helly Hansen and Mark’s. Turning to customer metrics now, trips were down modestly across our banners, but both transaction size and units per trip were up this quarter, which we believe to be positive consumer signals customers are also scanning their loyalty cards when they shop, which adds to our first party data. Our loyalty penetration of sales was 54% for 2024, which was up 141 basis points compared to last year.

We had especially high scan rates over the Black Friday weekend, which was a strong weekend for us from a sales point of view. Turning to the performance by Banner now. At CTR, comparable sales were up 1.1% in what was yet another strong quarter for automotive offset by modest declines in our other divisions, as the teams worked hard to mitigate disruptions and offset them through the use of our privileged capabilities, including digital and loyalty data. Within automotive, auto parts, auto maintenance and tires drove growth. With much of that coming in December, automotive contributed meaningfully to the 4% increase in essential categories across CTR, but essential fixing and seasonal categories also saw growth as the sale of snow shovels and ice melt were also up against a milder winter last year.

Discretionary was down, but the trend continued to improve over prior quarters, and we saw encouraging pockets of growth. Consumables were up and the playing division saw hockey and fishing up in the quarter. Seasonal was weaker than we had expected in categories like Christmas lights, but newer Christmas day core lines did well. Overall, we were pleased to see high ticket discretionary items up driven by snow blowers and positive take up of new products as we continue to benefit from improved product vitality. Our investment in CTR stores remains on track, including the new replacement store open in Kitchener, Ontario in Q4.

A total of 39 CTR store projects were completed this year. Since we launched the strategy we have now revamped, expanded or replaced 120 stores. Moving now to SportChek comparable sales were up 0.4% marking the second consecutive quarter of growth at SportChek. Softness early in the quarter was followed by very strong growth in December, and growth was especially strong in Quebec at our Sports Experts banner. From a category perspective, hockey, hydration and lifestyle footwear all did well.

Winning in store continues to be a strategic priority for the team and our investments in the store experience continue to drive improved customer NPS scores. At Mark’s, comparable sales were up 1.8% as industrial businesses return to growth in Q4, led by strong industrial footwear sales. The results of our newer larger format stores were noteworthy, driving broad base retail sales growth across Mark's categories. We opened up two new stores, including one in Toronto during the quarter, taking the total of these new format stores to eight, and we plan to invest in a further 7 of these stores in 2025. Turning now to Helly Hansen, where revenue was up 12%.

The U.S. accounted for half of the total growth in the quarter and sales were up across most of our channels with direct-to-consumer channels showing the strongest growth. For the third consecutive year, we delivered a full-year gross margin broadly in line with our North Star of 35.9%. Q4 retail margin rate, excluding Petroleum, was 36%. Investment in higher promotional intensity at CTR pressured our margin rate, but we were helped by banner mix given stronger contributions from our higher-margin banners, Helly Hansen, and Mark's.

As we've said before, while we continue managing the levers to hold our margins over the longer term, there will always be quarter-to-quarter variances driven by business performance and mix. You've heard me speak to focus on controlling the controllables and prioritizing our spend throughout 2024. That focus continued to deliver improvement in SG&A expense relative to last year, with normalized retail SG&A down $15 million in the quarter. We ended the year with significantly lower supply chain costs, having worked hard to reduce and optimize capacity and helped by lower inventory and improved performance at our GTA Distribution Center. We also had a partial quarter of headcount savings against exits in November last year and lower marketing expenses this quarter.

These decreases have offset continued investments in real estate and in our IT network model as we incur costs to transition off legacy systems and move to new streamlined cloud-based infrastructure. In 2025, our IT investment will focus on tech and AI enablement to deliver longer-term productivity improvements. Moving now to inventory. Overall corporate inventory dollars were $135 million below last year or down 5% due to ongoing inventory management across the banners throughout 2024. We also remain focused on revitalizing our product assortment with new inventory in transit ahead of spring/summer selling seasons.

Dealer inventory was down 4%, and we expect their replenishment to continue to closely mirror consumption. I'll now move on to Financial Services, where there was a lot going on in Q4.With the decision to retain the bank in December, we have refocused the business even more firmly on how it can help drive share of tender at CTC retail banners and cardholder engagement. We also continue to prudently manage growth and portfolio risk, which allowed us to consistently deliver high return on equity for many years, something that was commented on many times by potential partners throughout the bank review process. Let me start now with a few key performance indicators of cardholder engagement before coming back to the risk metrics and the financial results this quarter. Cardholder engagement remains strong and card spend grew more than 3% in Q4.

Promotional activity was aimed at cardholders who shop our family of companies with enhanced Boxing Day orders contributing to the first increase in card spend with our family of companies in 6 quarters and an increase in share of tender, proving that our customers understand and react to the incremental value we deliver through the Triangle MasterCard. That also added to average account balances at year-end, which drove the 2.3% GAR increase for the quarter. Although risk metrics were up as expected, the pace of growth slowed. The PD2+ rate, which is typically an early indicator of future write-offs, was unchanged in Q4 of last year at 3.6%. While the write-off rate was at 7%, it represented only a 10 basis point increase compared to Q3, but it was up 90 basis points compared to last year.

We increased the allowance by $9.6 million in the quarter, reflecting higher year-on-year receivables. With the allowance now at $935 million, the allowance rate was 12.4%, up slightly from last quarter, and remains within our targeted range of 11.5% to 13.5%. Normalized IBT was down 12% as higher revenue, up 2%, only partially offset tightening gross margin due to net write-offs and funding costs. All-in-all, the business delivered a solid performance in an economic environment where consumers remain cautious about their finances and the impact of tariffs. While key metrics like insolvencies and unemployment rates seemed to moderate in December, the team is keeping a close eye on them and has a playbook ready to take additional measures to limit risk exposure over the medium term as necessary.

In addition, the team remains focused on funding and ensuring it remains appropriately diversified with access to committed support to navigate in times of uncertainty. CTFS's existing committed credit facility of $1.1 billion is expected to be replaced at or before maturity in April 2025. Before I conclude, I want to speak briefly about our plans and expectations for 2025. As you know, our original planning assumption coming into the year was to buy for flat to modest top-line growth and to continue to target our North Star margin rate of 35.9%. With tariffs still a possibility over the near-term horizon, we have identified potential actions, and we will monitor the economy and consumer demand over the course of the next 100 days before needing to make a call on our growth and buying assumptions for the fall/winter season.

We will update you on our view on both during our first quarter call in May. Remember, too, that we'll be cycling some gross margin, OpEx, and one-off tailwinds that had about $0.61 of earnings benefit in 2024 including insurance recoveries and outsized gains on property sales compared to our normal run rate, including the $13 million onetime gain on sale of Chilliwack in 2024, which flowed through the REIT's earnings. Looking back, it has been a lot of work to get this result, and we owe our teams credit for continuing to pull all the levers that made it possible to deliver a 22% increase in EPS on a normalized basis in 2024. We have done this all in the context of a 2% decline in retail sales and increasing write-offs at a bank by managing our margin and controlling our costs. Finally, I just want to take a minute to say how fortunate I feel to have had the opportunity to spend more than 30 years at this iconic company.

I feel very appreciative for all the interactions and support I've had from all of you on the call as well as from our Board, executive and finance teams and so many others across the CTC family. I leave knowing that the company is in good hands for the next step of its journey, and I look forward to cheering the team's progress on from the beach and PEI. With that, I'll hand it over to Greg for his closing remarks.

Greg Hicks: Thanks, Gregory. As we previously announced, Gregory will transition from his EVP and CFO duties on March 31 and officially retire on June 30, 2025.

Gregory has been a trusted partner during my time as CEO, guiding us through the challenges of COVID-19 and serving as an advocate to our investors. His trust and advice have been critical to CTC and to me personally. And for that, I am so grateful. On behalf of all of us at CTC, I wish him nothing but the best in his retirement. With Gregory's impending retirement, we are preparing to welcome Darren Myers as our new EVP and Chief Financial Officer in April.

I know many of you are familiar with Darren and his retail background. We look forward to introducing or reintroducing you in our Q1 call. To close, I've been reflecting on the progress we've made over the past few years, specifically through our better-connected strategy. Since 2022, we have invested $1.8 billion to advance our retail omni-channel network, supply chain, data, and technology. We've refreshed close to 1/4 of our more than 500 CTR stores, bolstered our digital capabilities, monetized redundant real estate, and drove more efficiency in our supply chain operations.

By harnessing the power of the Triangle and partnering for scale, we have grown our total active membership to 11.7 million and our active registered members to 9.2 million. Personalized offers now account for 8% of loyalty sales with increased one-to-one member engagement. Overall, our members are simply more engaged. By significantly elevating the customer experience, we reinforced Canadians' trust in us, illustrated by our top place in national and international rankings. Our better-connected achievements will be a springboard to our next horizon strategy and our plans to write a new chapter of prosperity for the strong iconic Canadian company.

I've previously said that CTC is a bellwether for the Canadian economy. When customers were stretched, it was reflected in our results. Likewise, our economy and our company are in a better position today than a year ago. I have been reflecting on 2 realities. First, we are a more enlightened company as it relates to the unique power of our customer relationships and insights as well as the tools we possess for this new era of retail.

And second, Canadian retail has never been more disrupted or competitive. This is no secret. And a number of retail company restructurings underway should give all of us pause. Our plan is to thrive, and we have a strategy to do just that. On March 6, we plan to issue a news release detailing our new path to prosperity and higher performance.

We look forward to sharing our next chapter with you. With that, I'll turn it over to the operator for questions.

Operator: [Operator Instructions]Our first question is from the line of Brian Morrison with TD Securities.

Brian Morrison: Gregory, it's been a pleasure working with you and I wish you all the best in your next chapter of retirement. Greg, a couple of questions, please.

So, and I'm not going to go operationally here, a couple bigger picture questions. So, CTFS, now that you own 100%, one of the issues there was your inability to achieve partnerships. Now that you have 100%, what should we expect with respect to expanding these coalition partnerships, what areas you have targeted to further build out this flywheel?

Greg Hicks: Yeah, thanks Brian for the question. Yeah, we, as we talked, it was a very fulsome and comprehensive review in CTFS. The strategic priority was about determining where we could create more value and that was not only value that we could create in the core banking CTFS asset, but also with triangle rewards.

So, purchasing 100% of the bank or owning 100% of the bank now gives us full control of where we go from a triangle partnership standpoint. And one of the things that we're very focused on in the core business, again to try and keep it higher level as you point out, is to build more resiliency in this business. And we think there are a number of ways to accomplish that, traditional operational ways in terms of assortment, but also I think the higher order strategy is about rebuilding resiliency and recurring revenue at a customer. And so today, we have a good line of sight to recurring revenue in our membership. Our recurring revenue in the quarter grew, we were very happy with the recurring revenue.

Keep in mind though that only 60% of our sales are loyalty sales, so we continue to need to move that bar up and then put our privilege capabilities for personalization and data to work to get more and more recurring spend from a customer on an ongoing basis. And ultimately, if you can get to a place where 100% of your sales are loyalty and 100% of your spend is recurring, you've built a very resilient business. So those might be kind of ultimate objectives that would be very difficult to achieve, so you need to supplement that with some other strategic tactics. And we strongly believe that we can add more value in a triangle member's life in everyday needs categories. And what we've been able to see with the Petro-Canada partnership is that gas as an everyday need, gas that's earned in Petro-Canada, Petro-Points members are seeing value in the points they're earning being redeemed for our durable goods and we believe that that provides more value and allows us to extend our reach in that particular business without having to own the asset to deliver the value both to our members and then back into our business.

So, you would expect to hear from us around more types of partnerships that provide everyday needs value to Canadians and replicate the exact same type of results and value delivery to the customer that we're seeing with Petro-Canada. We've suggested to you that we're active in a number of conversations that continue to be true today and we look forward to kind of announcing our progress on those as we move forward.

Brian Morrison: My follow-up question, I guess I will go operationally, maybe this is for Gregory, so with respect to the CTR sales, I think you mentioned in October, November you were battling some pretty warm weather, and then in December you came back very strong. Maybe just talk about, obviously, we're looking at some pretty big snowfall across Ontario and Quebec here this morning, can you maybe just talk with the momentum that you saw in December is continuing into the softer retail quarter of Q1?

Greg Hicks: Yeah Brian, it's Greg again, why don't I take that and I'll unpack it a little bit because I think it's topical for everybody on the call who, from a model perspective may have expected more growth from us in Q4. So listen, we built our Q4 plan for growth as well, given the lack of weather last year, but as usual, there were a lot of things going on in the quarter, so let me unpack how it came to us.

First, October and November were unusually warm, even more so than last year across the country, so our weather businesses were significantly down heading into December. Weather in December was better than 2023 but still below five-year averages, so it wasn't the size of tailwind that we were planning for. Second, the Black Friday shift from November to December was unusual this year. We started December down double digits as a result and we think the shift delayed Christmas shopping mindsets and the period between Black Friday and Christmas was just more condensed as a result. Third, the Canada Post strike was a big impact in the quarter in all banners, but mostly in CTR as we rely on this carrier to get all of our flyer distribution to Canadians in a time of year that we rely on most to communicate our best deals and values.

So the impact in the quarter was over 100 basis points of comps in the quarter, obviously much more pronounced in December, and we also incurred incremental costs to double print flyers, find alternative distributors where we could, and layer in incremental digital investments to drive demand. So we essentially, Brian had to completely re-plan the last five weeks of the year, our most important weeks, and the team did a marvelous and resilient job considering we had war rooms set up with our digital partners and we really looked to drive our value awareness digitally. We learned a lot, we've got a much better sense, it ended up being a giant unplanned AB test for digital versus the flyer. We have a better sense of where we can drive ROI digitally and what mediums and what channels create the most reach, and we think will just help us adapt our current strategy given the current situation with Canada Post has the potential to re-emerge. Having said all this, as we said in our prepared remarks, we did see positive and net new demand trends in Q4, especially in our membership.

So there are positive signals in our sales results and those positive signals have continued here in the first six weeks of the year. January in 2023 was our best comp month of the year outside of December because of the Black Friday shift and obviously, the weather patterns that you're seeing throughout Ontario and Quebec over the last few days into the weekend, etc. We started strong, the dealers are replenishing and those signals that I talked about around demography and income at the household level are continuing here into the first six weeks of the year.

Operator: Our next question comes from the line of Mark Petrie with CIBC.

Mark Petrie: I'll echo my congratulations to Gregory and it's been a pleasure to be dealing with you and working with you for all these years.

Maybe, and this question probably does go to you, Gregory, so you're not off the hook yet. I just want to talk about SG&A dollars. Obviously, this has been an area of strength for you guys, and certainly in Q4 that showed up, but at the same time, there's also no shortage of areas where you could invest for growth and so I guess I'm curious where you see opportunities for further SG&A leverage, and then what's the right way to think about sort of dollar spend growth in 2025.

Gregory Craig: Thanks, Mark. I thought you were going to ask me a favorite color, but I guess not.

And thanks to Brian for his comment as well. You know, it is probably one of the things we're really proud about around 2024 results. One, I'll just get the commercial again around our improved liquidity position. I think Greg and I are thrilled with the progress we've made to kind of get the balance sheet back to where it was prior to the acquisition. And probably the second would be our performance around SG&A.

Top line was down in the year. And if you look at the financials -- the details of the financial services segment, excuse me, you'll see things like personnel spend where they were year-over-year on overall SG&A spend. And some of that reflects some of the actions we took last year. Some of it reflects -- sorry, I got some noise here, but some of it reflects some of the actions we took, some of it reflects some supply chains kind of closing some of the 3PLs. As you look into '25, I don't see this team relenting kind of 1 minute on controlling the controllables.

I tried to put in my prepared remarks, real estate and IT was an investment in 2024. I think that's going to continue in 2025. We think there's more that we can do and should do, frankly, to drive kind of more longer-term productivity gains. So I think I would say that is going to be important for this team as we move forward. I think beyond that, we're going to try to work every angle we can.

I think there's more that we can do, recognizing -- I think you have to recognize, Mark, there's some pressure around variable costs. So depending on what happens around tariffs and demand, as I said, last year, POS was down almost 2%. This year, that helped us a little bit in terms of variables. If we are planning and buying towards that modest growth that we talked about, that's not going to be something we're going to be able to rely on to help us a little bit. So is there more than we can do it? There is.

And I think I like kind of the capability that's been built in the last year around how this team has kind of really tackled OpEx. And I don't see that going away. I really don't.

Mark Petrie: And then my follow-up is actually just a question of clarification. Greg, in your comments around loyalty, you're talking -- and I guess, CTFS, you're talking about recurring revenue.

I'm just curious how you're actually defining that and what's in that bucket?

Greg Hicks: Yes. Mark, it's done right at the member level, and we measure it a couple of different ways. One is they're just their activity. Obviously, we're not a high-frequency retailer like grocery. So, we measure their activity in terms of engaging with us from a spend perspective over a longer time period.

And then we measure the actual spend per customer in a quarter and how much of that is recurring. So, when we quote in the kind of high 80s number from a mid-to-high 80s from a recurring standpoint, that's at the activity level, not at the spend level.

Operator: Our next question comes from the line of Tamy Chen with BMO Capital Markets.

Tamy Chen: Gregory, it was great working with you as well. So, I wanted to echo that.

I had a couple of questions here is first point of clarification. Greg, I think it was you mentioned March 6, you'll detail a new path to higher performance. But earlier, you'd said there'll be an update, I think, on how you're planning for top-line growth and margins this year in May. So, I don't know if I misheard, but I guess what's the difference between those two milestones if I can call it that?

Greg Hicks: Sure. Thanks, Tamy.

So, March 6 is about kind of an out-of-cycle strategy announcement. When you think about -- we contemplated providing it this quarter, but we wanted the quarter to be as clean as we could. At any year-end, we're messaging for both the quarter and the year. There's only so much time on a call like this, and you guys are busy with a bunch of other issuers today. So, March is about just an update on our strategy.

We think it's time for an update on our strategy. We haven't really provided a more fulsome review since our Investor Day in 2022. We have some emerging thinking on spring boarding from our better-connected strategy. And I think it will help you update your models in a couple of areas. Any reference that I would have made to May was just simply that's when we'll get back together to talk about Q1 and around our AGM.

So hopefully, that's helpful.

Tamy Chen: And my second question is, I wanted to focus a little bit more on gross margin. So, you've been in your North Star range for last year. For this year, I wanted to revisit a topic that was touched a bit upon on your Q3 call is, can you give us a sense of some of the key inputs to gross margin for this year? If we think about, I think, procurement costs given the FX where the Canadian dollar has been versus the U.S. I do believe you hedge quite a bit, but I think it's a rolling hedge.

And I think in the Q3 call, you also talked about was that ocean freight costs are coming back up again. So can you just give us an update on those pieces? And just how you're thinking about that for gross margin this year?

Gregory Craig: It's Gregory here. Maybe I'll start, and Greg or TJ want to jump in. I mean, I'm sure they will. I think you hit on a few things that there are so many levers in kind of what the team does in managing margin.

And frankly, I'll go back beyond just last year. So, we did slightly overachieve last year against our North Star. I think our normalized number was 36.2%. But if I go back to the last two, three years since pretty much Investor Day, we've broadly been in line with that North Star every year. And we have to recognize quarter-to-quarter, there's going to be noise.

There could be some promotional intensity that we have to deal with or a mix issue for businesses that always cause this quarter on some noise in that basis. So, I think that's what I would say kind of the first comment. I will talk specifically around FX. You're right to say that we hedge, and it is kind of rolling. So, a lot of the currency would be bought for most of kind of, say, the first three quarters to have a little more spot kind of in the fourth quarter.

And the way we're still thinking about it, look, we know there's risk out there with tariffs and what that might do to exchange rates, for example. But we believe that we can still be competitive kind of in that margin profile, and there are things that we can do and will do. But again, I think a lot of it is going to depend on this tariff and where things go in that regard. So I think that's part of what we try to say in the remarks is I think we need 100 days or so for kind of the world to hopefully settle down a little bit and then come back and talk a little bit more about things. But as we sit here today, without any news on tariffs, I would tell you that TJ and the team are still striving to get that North Star for 2025.

Operator: Our next question is from the line of Vishal Shreedhar with National Bank.

Vishal Shreedhar: Regarding tariffs, could you just give us some high-level puts and takes on how you -- and I understand there's substantial uncertainty on how that may unfold. But for the investment community to help us understand your high-level thinking of how that might pressure your results and what offsets you could do and how quickly?

Greg Hicks: Sure. Thanks, Vishal. It's Greg.

Yes, I mean, the situation is so unfortunate on so many levels at a time when the economy seemed to be moving in the right direction, and we were gearing up for a return to growth. We're now faced with the threat of tariffs. And as you suggest, a new zone of uncertainty. The biggest -- the way we think about it is the biggest concern for these tariffs for us is the indirect impact of the tariffs. Their potential to slow down Canadian GDP and employment trends, reversing some of the positive signals we've seen emerging from 2024.

If that materializes, it's going to have broader implications for retail demand and lead to write-offs at the bank unless there's some government intervention. On the direct impact side, here's what we know today. We purchased 15% of our goods directly from the U.S. And there are some minor residual impacts from both the China and Mexico tariffs. We all know the dollar hasn't reacted favorably to the news over the last few weeks.

So, it's prompted us to closely examine the impact of currency on pricing and reassess our assortment architecture across all banners. If you have a tariff impacting your COGS in the good level of your assortment, it's going to impact your better and best as well. As Gregory just said, we have a forward hedging program in place that helps us in 2025, and we're hedged forward for over 80% of our 2025 USD requirements at well below the spot rate of today, which provides us some cushion for 2025, but margin risk as we head into 2026. So, the majority of the direct impact, Vishal, just comes -- it's straight down to margin management. I can tell you we certainly prefer a tailwind in our gross margin line, but we managed through our fair share of headwinds these last few years, and I have confidence in the team's margin management capabilities.

We're going to do our absolute level best to insulate our customers as much as we can from higher costs. As you would imagine, kind of standard playbook-type stuff, we're reviewing products. We're examining U.S. suppliers, exploring opportunities for Canadian partnerships. As a retailer with a diverse product range and sourcing strategies, I think we're well-positioned to manage this as best we possibly can.

Our broad assortment includes multiple brands at various price points and sourcing from different countries with varying tariffs and foreign exchange exposure. So I think it's this diversity that offers some natural substitutability between products and helps us shield both ourselves and our customers from some of the pricing pressures. In the bank, it's really about unemployment, Vishal. The modeling in the bank, how we plan for the bank assumes an unemployment rate for the country, which would have been the exit rate coming out of December in that 6.6 territory. So any movement up from that exit rate is going to impact the ECL and most likely write-offs in the year.

So those become a little bit harder for us to manage. It's more of a straight line, unfortunately. But in anything related to the core business, we have levers at our disposal. And then I would think about it, Vishal, both in terms of direct and indirect. And the indirect we'll just continue to obviously keep you updated as we learn more.

I think Gregory just wants to jump in here, too.

Gregory Craig: Vishal, just Greg nailed the bank answer. And I just want to close the last piece of it is the team still has a playbook in their hands that if something, like Greg mentioned, were to come into effect. And go back to what happened with COVID when the government introduced [CERB] like there's so many variables at this point that it's hard to call. But will there be an impact in the unemployment rate? Greg nailed it around the impact on the ECL.

I would just argue there's going to be some mitigating impact from the government. I don't think they're going to watch that carefully, I believe. Then you'll have the business will mitigate as well around actions they can still take to try to manage that risk. That was all I wanted to add on to that.

Vishal Shreedhar: And related to that question somewhat is once upon a time, Tire had ambition and probably still does to grow its own brands and start to explore international opportunities.

I noticed you said Helly Hansen, a big part of their growth was in the U.S. Does this new angle and the way the world is developing, does that cause you to reflect on that strategy and maybe think differently?

Greg Hicks: No, when you look at the impact, it's not really material for Helly given where goods are manufactured and where they flow. Our kind of testing the waters, so to speak, with a few of our brands in the U.S. on various digital channels is not really a strategy we're deploying anymore. And so it doesn't really impact our go-to-market strategy on that front at all, Vishal.

Operator: And it comes from the line of Irene Nattel with RBC Capital Markets.

Irene Nattel: Just sort of following up on all of this. Can you walk through sort of at a more granular level, how you're planning for and how the dealers are thinking about your expectations around order flow through 2025, given all of these uncertainties? And can you also walk us through what your ability is kind of to do, I guess, mid-course corrections and be sort of really, I guess, reactive as the situation evolves?

TJ Flood: Irene, it's TJ. Thanks for the question. I think maybe where I will start is just to give you a bit of an inventory snapshot of where we are because that gives you a sense for kind of how we're starting the year.

And if you look from a corporate standpoint, we finished the year down. But when you think about where we've been over the past couple of years, we're now starting to turn our attention pretty significantly to what we describe as assortment vitality and newness in the assortment. So we feel like we've done the heavy lift of reducing our inventory levels coming out of COVID, and now we're reinvesting back into the newness of the assortment. And I think if I was to piggyback on that and explain where the dealers are as well, I think I would say similar. They've kind of right-sized their inventory and they're looking forward to a new fresh assortment as we head into the spring season.

We mentioned on the Q3 call that our inventory levels on spring/summer are good and are healthy, I should say in dealer land. So given all of the uncertainty surrounding us, whether it be tariffs or the direct or indirect impacts of that, I think what we can expect is that dealers are going to more closely mirror how consumption flows in terms of their buying habits. I think during the pandemic and post-pandemic, you saw a lot of build-and-burn activity from their inventory standpoint. I think it's going to much more closely mirror what happens from consumption. And I say that over the long term, as you know, you've been following us a long time, quarter-to-quarter, you could get some choppiness in there where the shipments to dealers outpace POS or vice-versa.

So I think that's how I would kind of prognosticate it. With respect to how we're looking at this and as things unfold here, we are really analyzing the demand trends very closely at the category level, and we're agile in our ability to adjust our inventory buys. So as Greg and Gregory pointed out with the indirect effects of tariffs, we'll have to see how demand translates across the country. It's not likely to be uniform across the country. It's not likely to be uniform in terms of demand across categories.

So we watch our demand signals and all the data that we have in order to make our inventory buys, and we lean heavily into trending categories, and we try to make offsets when we start to see some softening in demand. So that's really how we're going to manage it as we go forward here in a very dynamic environment.

Irene Nattel: So a couple of follow-up questions for that. What is your lead time? When you say sort of respond to evolving trends, what is your lead time at this point? And how quickly can that adjustment reflected in the inside store assortment? And to what degree is the incremental data now that you're getting through loyalty versus, let's say, historically when it would have been really just on the card, to what degree is that helping you make all of these decisions?

TJ Flood: Yes. Let me start with your second question first.

I think the consumer data and what we've been able to gin up with our Triangle membership base over the past couple of years is really informing our buying decision. We're getting a lot richer data. Greg talked a little bit about kind of how we get visibility at the customer level in terms of folks returning and continuing to buy a Canadian Tire. So I'd say the data that we have is very rich. Lead time really varies category by category.

There are some categories that are closer in, in terms of lead time that we can pounce on quickly. Others, we have to take inventory risk. Despite the tariffs with all the green shoots we've been seeing, we have been planning for growth. And we're leaning into those categories where we're seeing green shoots. And we're just going to have to read and react as the tariffs take place here and go from there.

But the lead times vary depending on the category.

Irene Nattel: Finally, I just want to add my thanks to Gregory and my best wishes to everyone. It really has been a pleasure.

Operator: Our last question comes from John Zamparo with Scotiabank.

John Zamparo: I'll add to the compliments and best wishes to Gregory as well.

I wanted to come back to consumer sentiment. And I don't imagine you're about to give intra-quarter guidance on same-store sales, but I wonder if you can talk about it directionally just over the last month or so or even less than that. Have you seen a noticeable change, negative change in spending or sentiment, or traffic once tariffs were announced a couple of weeks ago? And we've all seen the same reports about consumers looking to buy local or buy from Canadian retailers or Canadian brands. Is that something you've seen over the past couple of weeks?

Greg Hicks: John, it's Greg. As I said earlier, there's strong demand out there right now.

We said we were up against a tough January and feel good how we exited January. We continue to be a Canada store for seasonal needs. So this type of weather pattern, and we don't make apologies for that. We've worked for decades to get to that place in consumers' minds, Canadians' minds. So yes, I mean, we're feeling good.

It's really tough to draw a linear line to sentiment, especially in a really tight period like the first 6 weeks of the year. I can tell you, I guess, it would have been last Monday when the whole country was worried about this cataclysmic event that was going to happen. That wasn't a very good day for sales. People were -- they were glued to their television sets. But in general, it's really -- because the weather has hit, it's tough to see if kind of buy Canadian is giving us a little buoyancy on the top line.

And because the weather is here, the same is true in terms of trying to tease out if people are tightening their belts because they're worried about tariffs. So we just need a little bit more time here, and we'll update you as we come out of the first quarter.

John Zamparo: And then a second follow-up on tariffs. I wonder if you could add a bit more color on what are some of the larger categories that you're importing from America and any other details on how quickly you can pivot to other suppliers on those particular products.

Greg Hicks: Yes.

The way to think about sourcing, I think I quoted 15% we source significantly more from Canada, and our Canadian sourcing has -- from a country standpoint, has grown the most in terms of percentage of mix over the course of the last couple of years. The Canada sourcing mix flows with our essential businesses. So if you think about anything that kind of goes into a bag or a bottle, it's likely that is a Canadian supplier. So to the degree that tariffs continue to negatively impact discretionary consumer demand, and we have to continue to pull on essentials, and that's where Canadians focus their spend, then we have Canadian sources to be able to stand at the ready for those types of categories. It's a whole mix of categories across all of our businesses, CTR, Mark's Chek.

Any product that we source in the U.S., we have alternative sources for. We think that about 25% to 30% of it, if we -- percent of it if we had to completely resource, we would be able to find Canadian suppliers. And if you take a big business like auto parts, as an example, a big kind of U.S. supply base into the CTR and parts source businesses that would probably have to move overseas. But again, I think we feel good about our sourcing capabilities and the diversity around a plan B, plan C, plan D, et cetera.

And obviously, there's not a country in the world from a sourcing perspective that we don't have freight capabilities to be able to move the product. It's just about making sure from a service to supply, from a product quality specification standpoint, et cetera, that we're putting ourselves in a position to maintain what type of service levels Canadians need of us relative to our primary partners today.

Operator: We have time for one last question from Jonathan Matuszewski with Jefferies.

Jonathan Matuszewski: My question was just on promotional activity and just trying to understand what you saw in 4Q as it relates to consumer elasticity, kind of where that is these days, and how it's changing. Maybe just like the categories where incremental promotions are working in 4Q and those where maybe they're not.

I think this quarter saw higher promotional intensity. So any more color would be helpful.

TJ Flood: Yes, Jonathan, it's TJ. I can give you a bit of color on that from a CTR perspective. I think you nailed it.

The competitive intensity and promotional intensity definitely ramped up this year. I think with the shift in Black Friday timing, I think a lot of retailers were trying to -- and the fact that consumers are craving value, I think our retail competition, including ourselves, kind of really leaned in a little bit into promotional activity. A couple of categories we saw some interesting positive benefits from investing in price were in household batteries and some hunting categories that we were able to drive demand on. And I think how I would summarize it is I was very impressed with our marketing team's effort in bringing forward how much value Canadian Tire does provide, whether it be our digital and TV presence with our equity ads or whether it be us sharpening our pencil using our elasticity modeling to decide where to make the appropriate investments. I think overall, as we did a post mortem on Q4, Canadian Tire did a great job in owning value.

And you're going to see us continue to do that as we go through 2025. We've got a strong marketing arsenal, our Triangle membership rewards, our good, better, best architecture across a whole swath of categories across Canadian Tire retail. Really our own brands and national brands kind of want to allow us to provide value to our customers, and that's what they're creating right now with the uncertain economic backdrop.

Operator: Thank you so much. And this concludes our Q&A session.

I will turn it back to Greg Hicks for final comments.

Greg Hicks: Thank you, Carmen, and thank you for your questions and for joining us today. We look forward to speaking with you again soon. Bye for now.

Operator: And this will conclude today's call.

You may now disconnect.