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Canadian Tire buoyed by 25 per cent leap in profit

Retailer fires off warning to competitors
Stephen Wetmore told analysts Canadian Tire was "well positioned for what promises to be a highly competitive retail environment."

Canadian Tire capped off a strong first half of 2012 with a 25 per cent jump in second-quarter profits from a year ago, and said it is ready to take on competitors during the latter part of the year.

"We got off to a strong start in the first three months of this year and that momentum has followed through into the second quarter with positive growth in the retail segment and another excellent quarter for financial services," CEO Stephen Wetmore told analysts in a conference call Thursday.

The retailer said it earned $133.7 million, or $1.63 per diluted share, in the second quarter, up from $105.8 million, or $1.29 per diluted share, a year ago. Revenue grew to $2.99 billion, up from $2.57 billion.

The average analyst estimate had been for a profit of $1.52 per share and revenue of $3 billion, according to Thomson Reuters.

Wetmore said Canadian Tire expects the fall and winter season - as usual - to bring stiff competition from rivals.

"We are well positioned for what promises to be a highly competitive retail environment in Canada in the second half of the year, with continued liquidations and closures by some players and new store openings by others," said Wetmore.

"We continue to be on offence, focused on our long-term strategic imperatives, making good progress quarter by quarter and preserving market share in our key categories.

"At Canadian Tire retail especially, that means constantly evaluating and enhancing our assortments by offering the best options to our customers and our key leadership categories."

The results for the quarter included $22.7 million of pre-tax costs related to the closure of more than 100 underperforming sports equipment stores under several different banners as part of changes at its FGL Sports business.

Canadian Tire announced a plan in May to close the Sport Mart, Athletes World and Nevada Bob's Golf stores, while adding more than 100 new Sport Chek and Atmosphere locations over the next five years.

Retail sales at its namesake Canadian Tire stores were up one per cent, while same-store sales gained 0.4 per cent in the quarter, helped by strong sales in seasonal categories and continued growth in what the company calls its living, fixing and playing categories - home accessories, hardware and sports.

Wetmore said there do not appear to be any signs of economic jitters eroding consumer spending.

A "rapid tailing off" in automotive likely has more to do with Mother Nature than the state of the economy, he said.

"The mild winter weather generally meant less wear and tear on cars, leading to less traffic at auto service shops as well as slower service sales of auto parts and all-season tires, which appears to be a common story across the auto industry in North America and particularly in the northeast," Wetmore said.

"However, vehicles will require maintenance at some point, and we view this as a delay in autoservice sales more than a permanent loss of business."

At clothing retailer Mark's, retail sales increased 6.1 per cent and same-store sales increased 4.2 per cent.