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Cold winter boosts Q4 profits at Canadian Tire

TORONTO - A bitterly cold and snowy winter put a run on everything from ice chippers to power generators and tobaggans at Canadian Tire stores — pushing up sales at the Toronto-based retailer and a 17 per cent profit surge in the fourth-quarter.

Canadian Tire Corp. (TSX:CTC.A) said same-store sales, an important gauge in the retail sector, increased by four per cent in the three-month period that ended on Dec. 28. The gain was attributed to customers buying more snowblowers, salt, shovels and car batteries to deal with winter's brutal landing.

"We were not only prepared in our stores but we also had the right assortment, proving that... we understand the need of Canadians and are always prepared for everyday life of Canada," said Canadian Tire chief executive Stephen Wetmore in a conference call following the release of the company's latest results.

New president Michael Medline said weather helped the retailer's sales but also credited the company's marketing campaigns.

"It's fair to say that about half of Canadian Tire's performance is directly attributable to favourable weather, although I doubt many of our customers would describe this winter as favourable. But good results related to weather isn't just related to dumb luck," said Medline during the call.

The company — which operates the Canadian Tire, Mark's, and Sport Chek brands among others — said it earned net income of $191 million during the fourth quarter. That's up from $162.8 million a year earlier and better than expected.

Its net income amounted to $2.35 per basic share, an increase from $2 per basic share year-over-year. Analysts had been expecting earnings of $2.23 per share, according to Thomson Reuters.

Canadian Tire's overall revenue for the period was $3.328 billion, compared with $3.166 billion in the previous year.

For the full-year, it earned $564.4 million, up 13 per cent from $498.9 million in 2012. Revenue for 2013 also climbed to $11.785 billion, versus $12.824 billion a year earlier.

In 2014, the retailer said it will expand products available on its e-commerce platform, which was rolled out as part of a "soft launch" last year.

Canadian Tire said the winter of heavy snow, ice storms and frigid temperatures also helped with sales of outdoor clothing at its stores. Clothing sales at its subsidiaries also rose as the retailer introduced more brands and added Olympic apparel ahead of the 2014 Winter Games in Sochi, Russia.

Canadian Tire said the earnings were also complemented by a 12.5 per cent increase in sales at FGL Sports, the subsidiary that operates the Sport Chek and recently-acquired Pro Hockey Life stores.

At Sport Chek, same-store sales were up 15.6 per cent year-over year.

Medline said the company is on track in its five-year plan to increase the square footage at its Sport Chek stores by 50 per cent. In 2013, it expanded the stores by 400,000 square feet, and plan on adding an additional 500,000 square feet in 2014.

Meanwhile, a growth in sales of industrial clothing and footwear helped plump sales at its work apparel chain, Mark's. The subsidiary's same-store sales grew by 5.2 per cent in the quarter.

There was similarly positive results from the company's financial services sector, which reported operating income of $70.3 million in the fourth quarter, up 14 per cent from $61.1 million a year earlier. Revenue for the period was $259.6 million vs. $248 million year over year.

This was also the first quarter that Canadian Tire's real estate spin-off reported results. The company holds an 83.1 per cent effective interest in CT Real Estate Investment Trust (TSX:CRT.UN), which acquired a majority of the company's real estate. CT REIT's initial public offering last fall raised $303 million.

The REIT reported net income of $31 million for the period and property revenue of $63 million between July 15 to Dec. 31, 2013.

Irene Nattel, an analyst with RBC Dominion Securities Inc., said that Canadian Tire has kept shareholders happy with better-than-expected results across most of its sectors.

But she said the strong spending habits of Canadians can change if economic conditions were to worsen.

"A sharper-than-anticipated deterioration in economic conditions could result in lower levels of consumer spending and higher delinquency rates, which would negatively impact earnings from the company's retail and financial services units," she wrote in a note to investors.

"In addition, should price and category competition increase, or should the roll-out of new stores fail to meet consumer acceptance, Canadian Tire's earnings and share price may fall below our expectations."

Shares in Canadian Tire closed up $2.94 or 3.1 per cent to $97.69 Thursday on the Toronto Stock Exchange.

Canadian Tire has over 1,700 retail and gasoline outlets across the country, including various banners under FGL Sports, such as Hockey Experts, Sports Experts, National Sports, Intersport and Atmosphere.

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