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Canadian Rubber Company Limited (CDNTF) CEO Stephen Wetmore, Results in Q3 2018 – Call for Earnings Transcript



Canadian Tire Corporation Limited (OTC: CDNTF) Q3 2018 Results Conference Call November 8, 2018 1:00 AM ET

Managers

Stephen Wetmore – President and CEO

Allan MacDonald – Executive Vice President

Dean McCann – Executive Vice President and Chief Financial Officer

Gregory Craig – General Manager, Canadian Tire Bank

analysts

Mark Petrie – CIBC

Irene Nattel – RBC Capital Markets

Jim Durran – Barclays

Vishal Shreedhar – National Bank

Derek Dley – Canaccord Genuity

Peter Sklar – BMO Capital Markets

Brian Morrison – TD Securities

Patricia Baker – Scotiabank

Network

Good afternoon. My name is Valarie and today I'll be your conference operator. Currently, I invite everyone to the Tire Corporation Limited Third Quarter Conference Conference [Operator Instructions]. Earlier in the day, Canada's Tire Corporation Limited announced its financial results for the third quarter of 2018. A copy of the earnings statement is published on websites and uses a stimulating language about forward-looking statements, risks and uncertainties. speak today's conference call today's conference call.

Now I'm gonna hand over the call to Stephen Wetmore, President and CEO. Stephen?

Stephen Wetmore

Thanks to everyone, the operator and good afternoon. Firstly, in addition to commenting on the results of our third quarter, we will not officially speak again until February, so we will implement our 2019 plans. Therefore, we'll spend a few minutes highlighting some of our focus areas for the next few years, and we'll give you some information about our outlook for capital expenditure.

I told you that 2018 was a year of execution for the Canadian Tire, and we have been very successful in passing the triangle of awards and home delivery to our own brand strategy. [Technical Difficulty] new credit card.

There is a long list of what we achieved this year with the sole purpose of building a stronger, more capable company for the future. Since we can achieve better financial results this year without spending product design and development expertise on consumer brands, we will not launch Well Worn or invest in our digital assets and future investments.

But it is not clear if you are in the long run game. I believe that our third-quarter results are a reflection of exactly what we're trying to do to build the new Canadian Tire, the new Triangle, and at the same time, we've turned into some pretty good results that Allan and Dean will be further commenting on. a few minute.

I know you don't want to listen to me. Continue about the capabilities of our team in the CTC, but the successes we have achieved so far and the future are the basis of our management team and dealers. It is the basis of our highest growth. I would like to point out that Helly Hansen is perfectly on the plan.

We are progressing well with our integration plans. And I would like to point out that our business will surpass our quarter expectations without Helly Hansen as part of the CTC on Helly's future.

Productivity will continue to play an important role in 2019, and our second phase initiatives are planned for execution plans that will begin in the New Year, and our technology investments will include key initiatives critical to our success for the next 5 years. In addition, we announced that our share repurchase program continues for 2019, which reflects a two-digit increase in our profitability today and our confidence in the future of our company. Finally, as part of the Jumpstart's ilk Play Finds A Way st movement, we announced the first Jumpstart accessibility grants to give more access to recreation in nine communities in Canada. We proudly announced the Jumpstart playgrounds in Charlottetown and Winnipeg three more times in the spring and planned to enter new markets in 2019. Jumpstart is undoubtedly making an important contribution as our brand strength continues to grow and gain recognition.

However, I will hand it over to Allan to give you more information about our retail performance. Allen?

Allan MacDonald

Thanks, Stephen. Good day to everyone. Well, Q3 was another strong quarter with a 2.5% retail comp growth for us. The rate of 2.2% in the CTR has solidified, especially in Q3 2017, the highest increase in the last quarter of 2017.

In this quarter, we have achieved a significant turning point in the CTR with a successful national product offering to be delivered successfully at home, and we are testing self-service pick-up towers, lockers and automatic check-in terminals as we expand our e-commerce package. . We offer our customers. Consistent performance, as we have seen in the third quarter, is a result of the decisions we made 18 to 36 months ago to revitalize our national and our own brand varieties, to invest in product and brand development, innovation and better quality. We are reviving existing brands such as NOMA, MOTOMASTER and Outbound. These 3 brands have been renewed in the last 2 years and increased our sales growth in the third quarter.

We run our plans together with newly acquired brands such as Golfgreen and Paderno. This together grew over $ 8 million – up by $ 7.6 million in the quarter. We know the importance of strong partnerships with national brands and we have achieved great success in Q3 thanks to our partnerships with SodaStream, Instant Pot, Lagostina and The Rock Pots. Coincidentally, CTR is the # 1 retailer of these 4 brands in Canada and is proof of the strength of our partnerships with innovative companies.

I mentioned Paderno's contributions in the third quarter. Now, I can tell you that we have a 4-step plan for Paderno when we make the purchase. First, have a top-of-the-range oven with the best product range in Canada. Then we started last spring with soft products. Thirdly, there were 52 new products shipped last month and kitchen appliances launched in the third quarter. And fourth, comes to Q1 bench-top devices. Stay tuned, it will be very, very exciting for us.

Another brand success story in the quarter is WOODS. Last year, we conducted 19 store tests for the WOODS outerwear store in Sport Chek. This year, at the 194 Sport Chek store, we came back aggressively with a full range of WOODS outerwear products that started the season. I am incredibly proud of this collection. With a striking new brand campaign that launched our original WOODS Parka, customer response is better than expected. Extending a brand to an adjoining category and demonstrating its potential to grow the brands we own in Sport Chek was a great first step. Every brand we build, create or implement is a multi-year, multi-category plan that will justify investment and lead our team to execute our strategy. So, expect the 2019 's to wait for some surprises for Sher-wood, Paderno, Golfgreen and of course Helly Hansen.

And now Mark & ​​a. With the growth and power of 6.1% in all categories, the beginning of the rebuilding of Mark is beginning to bear fruit. Clearly, with the work done to reposition Mark's brand with Well Worn, PJ's work on product variety and sales has had a significant impact. In this store, I was particularly pleased with the re-branding success in Quebec, where we saw double-digit sales growth after re-sales in 24 stores. We have 16 left in 2019. The same approach to resumption is in its first age in Sports Chek. In Chek, our growth of 1.4% has been a solid performance in casual wear, accessories and outerwear. We also achieved strong growth in our own brand portfolio, which grew by 20% in the quarter. We've seen some very encouraging results, but we don't run on all cylinders, and we still have to do things.

Customer, brand, product variety and merchandising. Now our job is to align them all. For this reason, we have made WOODS and other own brands a priority for ChO this season. In the coming weeks, we will implement a plan to repackage our athletics and outerwear departments according to brands instead of brands, such as 75% of its chain, or more than 1 million square meters of retail. Most of this store has some subtle but significant changes in our product range. We strive to be more famous for both national and own brands, focusing more on new categories and better depth categories, such as accessories and children. In mid-November, we will launch our new brand position, expecting to see a wider age demography and a broader definition of activity beyond competition alone.

In this note, let me make a quick update about the Triangle Rewards. The success of our success shows that our customers are joining us on all banners. We see increased involvement in loyalty and credit card programs that create a much more Canadian tire customer. To date, we have exceeded our expenses for Triangle members with an increase of 40%, an increase of 23% and an increase of 30%.

Now, this program is the foundation of our strategy to make data-driven decisions and make our customers individuals with personalized offers. Our triangles move forward with fruit and in the fourth quarter, we will offer 4.5 million people every week to the Canadians. To quickly summarize, this will continue to expand in 2019, including other features. For example, according to Q3 2019, 75% of our web visits display a personalized canadiantire.ca version for the individual customer.

Speaking of 2019, our focus continues to create long-term sustainable growth with ongoing product innovations and consumer brands. We will transform the Sport Chek brand and its operations. We will accelerate our customer experience and digital capabilities. We will introduce the newly designed store concepts to the market and interact with Triangle loyalty and credit card. These are just a few of the initiatives we took in the pipeline.

With that, I will deliver it to Dean to talk about finance.

Dean McCann

Thanks Allan and good afternoon. I want to spend a few minutes covering retail results, I'll help you understand Helly Hansen's impact and then your financial services business. Retail revenues increased by 11.4%. Canadian Revenue increased 10.6% in revenue from the retail segment. Now about two-thirds of this growth came from Helly Hansen, because it was reported in the first quarter, but the balance was 3.6%.

The CTR was the first in the quarter with an increase of 4.2%, which closed the imbalance of the years between POS and revenue. The retail gross margin was 99 basis points, and again Helly Hansen made a major contribution. Ex Helly Hansen continued to contribute to our margins, especially the type of margin driving programs we succeeded to achieve.

Helly Hansen, Retail Retail Fund, rose just a few points over last year. I would like to see another $ 15 million in our EBITDA line in this quarter, but we were affected by some long-term incentive expenditures due to the recent decline in stock prices, which hit our equity hedging program. And importantly, we continue to invest in future talents such as digital and own brands. To be clear, we can step back from such an investment and make shorter term earnings, but this is not the right way.

A quick comment on the inventory is not a problem that will not enter our biggest quarter. Particularly clean in the heat-related categories for CTR, coming out of Q3. One thing I should be aware of is that the inventory of Sport Chek continues to be well below last year. Proactively we will see our work to increase access to 19. This is one of the most important things that Allan and TJ have identified as a great opportunity to turn to FGL next year.

Switch to financial services. First, the basics of financial services are extremely strong. The increase of cards by 11.2% was realized with an increase of 8.1% in average active accounts with extremely well managed write-off performance. To me, this reminds me of the 2002-2007 period when financial services were a tremendous driving force for the CTC. Quarterly financial services benefited from 2 items. We updated the way we accounted for the returns on accrual-based accounts that accrued cash, and obtained a lump on our results of $ 21 million per year. Essentially, 3/4 of the one-year aid.

Again in Q4 we will benefit less. Also, considering the good performance of the portfolio in terms of risk, we compared the IFRS 9 model allowance with our original assumptions. This raised 15 million US dollars in the quarter, offset by the quarterly supplementary allowance, supported by portfolio growth and performance. I hope we'll be able to cycle through a full year of IFRS 9 allowance impacts, the results will be less noisy, and our financial services will reflect the strong operating performance of our business.

In short, we provide some additional explanations of Helly Hansen, Helly Hansen results. EBITDA income before any consolidation or elimination, $ 181 million and $ 28 million. Suffice to say, a powerful start for operations. In the quarter, we've booked all the expenses of $ 22.4 million for a one-time period and we have to be clean. CapEx was slightly higher in the third quarter last year, but annual spending was worth $ 450 million from $ 500 million. a will be below the lowest level of our guide. The 2019 guideline is between $ 475 million and $ 550 million with a similar profile; Invest in networking, fresh, multi-year technology to keep projects and enterprise platforms. Helly Hansen's capital is included, but represents less than 5% of the total. Lastly, ROIC increased to 8.94% compared to the previous year.

And yet, I will deliver it to the operator for a Q & A session.

Question-Answer Session

Network

Thank you. [Operator Instructions] Our first question is with CIBC from Mark Petrie. Please continue.

Mark Petrie

Dean, you've provided some color on the gross margin, but whether it's Helly or its brands, you're wondering if expansion can give us a better sense in terms of the size of its drivers? And then, you had better SG & A performance with the costs of Bolton and Triangle flowing, but what's your point of view there? And in general, do you think that EBITDA margin expansion is a viable demand considering the business areas you wish to continue investing in?

Dean McCann

Well, I'm gonna start, and then the kids can bite. Ex, retail gross margin, as I said, the old oil rose by 99 basis points in the quarter. The majority of the fair was Helly Hansen, because we saw Helly Hansen for the first time in our results, but to be honest, FGL and Mark's internal retailers were mainly driven by CTR. FGL is still learning to strike a tighter balance between driving in the top ranks and investing in the margin. So, I think they're doing an exceptional job in this.

On the side of Mark, I know that PJ will say that he has made some openings, such as a woman's inventory. Some of the things that helped manage the upper line, but the overall margin still maintained its overall margin performance. So what I'm trying to say is the same story, right, if we look at such initiatives we talked to CTR from a new perspective, to operate and operate the businesses that the men are producing.

On SG & A line, just fast. Yes, I mean, as time goes by, I would like to see the expansion of the EBITDA margin, and I think the next phase of the efficiency program is really focusing on our cost structure. I think what we've done is, for example, some of the things that Allan said about in a series of marketing to individual customers if digital investments put these capabilities in the market, allowing us to market them for the operational groups that support the retailer.

All such analytics, all these abilities. I think we've built a large part of the teams we need to do it. It doesn't mean that we will continue to invest, but I think the speed of the investment will slow down a bit. And then we must focus on getting costs forward from the existing infrastructure. As we said before, this is the next stage of productivity.

Mark Petrie

And then I actually had a question about Helly, I mentioned it was the key drive on the gross margin side. But my question is more about the status of the brand. And I think I'm interested in hearing what your assessment should be. What steps should be taken to take this brand to the next level, and how big a factor is, is it that the distribution will expand and become a success against such drivers?

Stephen Wetmore

Mark, it's Stephen. I'm going to let Allan or TJ in the Canadian market make a comment about what her intentions are, which is a little different from what she'll be doing around the world. However – when it comes to international growth, the product design capabilities and brands of the Helly team are now adjusted to the market. They do a very, very good job with him.

I also believe that the increase in volume from Canadian operations allows more products from Helly to expand their worldwide categories. And we can test the things that are successful here, so they can take over the world. That's why I think branding suggestions go very well. We don't want to go before ourselves. To set up the US market, you can spend a huge amount of money to build your brand very quickly. However, the net supportive scores in all markets are extremely high, so they work very well in this regard. We have a game plan according to the market and clearly we have a kind of strategy for every market. Again, I think we'll help them tremendously in Canada and I'll comment on how we drive Allan in Canada.

Allan MacDonald

Yeah, I think, Mark. I don't worry about the brand at all. We're falling – I think the brand is really good, and I think Susan and TJ think they'll have less consensus about how to position the brand in Canada and more – sorry – we'll implement categories. So we're going to go after a big, wide range of products, we'll go to sell it deeply, like the kids I'm talking about. And that requires a lot of work. I mean, you have to take the priorities that they already have. Helly launched the 2019 autumn and winter season a few weeks ago, giving you an idea of ​​where we are in terms of the development cycle.

So, these loops are not short. But they were too good to work. We really enjoyed the team. They're smart, they understand, they understand our customers, and they're very keen to create a plan for Chek. This is a plan that allows us to represent what they are doing now. And let us never forget that a good part of their business is a business suit, and I know that PJ and his team are pleased with their relationship with what they have to say well, how can we make Helly's best and the best from a workwear in Canada? perspective. I mean, I have nothing more to say than that. You'll find that doing the job is better and better after the season.

Network

Thank you. The next question is RBC Capital Markets with Irene Nattel. Please continue.

Irene Nattel

Thanks. I just want to have a discussion about Helly Hansen. What we're saying is that later on in 2019 there will be little change in in-store presentation in Canada, and we should really look at '20 and 21'. how to install. Fair?

Allan MacDonald

If you look at my little story Paderno and apply the same idea, I think that for Helly we have seasonal end-of-season plans. And when you get them in July, you could imagine that there aren't any repositories full of inventory in all categories sitting there. So we're really excited for us and we say okay, so let's do it and let's do it and enter the rhythms of the producers. So according to the season, we are planning a seasonal pace, which I can say ambitious, but not irresponsible. And yes, in the middle of next year, I think you will begin to see a material change in Helly's presence in Canada.

Irene Nattel

That's great. Thank you. And then for just a while to switch to financial services, the number of active accounts increased by 8.1%. Can you talk about how you manage the risk aspect of this business or newly acquired accounts? In addition, how should we think about the evolution of account balances from newly acquired accounts and how they were built in such time?

Gregory Craig

I'm Greg. Yes you are right. With a significant increase in initial accounts, we experienced an increase of 8.1% in our active account base, which probably lasted from the last 12 months to 15 months. In fact, in the quarter, we had an increase of 30% in our first use accounts. As you know, we use highly complex tools and algorithms to develop scorecards for new accounts, and we're looking at something called vintage curves, and what we're basically doing is checking accounts over time and evaluating their behavior against previous accounts. And I can tell you that new accounts continue to act in the same manner as the accounts we have historically acquired. So, when I look at the risk segment, we don't see any change in the risk profile of the accounts. That is, where we are in the perspective of risk in new accounts is very comfortable.

And I think you have an opportunity as you would expect. I mean, the right way to grow this business is obviously getting more customers, because when we bring our customers together, we'll be able to get these customers in line with their average credit limits over time and set up balances over time. So you'll see these customers rebuilding their balances by 2019 and 2020, whereas this year is probably below the market and the Canadian market average, and also below your portfolio average. Therefore, we look forward to expanding the balance for these new customers.

Irene Nattel

And when you look at these new customers, it's safe to say – that's why you manage the obvious part of the purchase very carefully.

Gregory Craig

Yes, definitely. It should also be noted that this is a world-leading product that we have added this year. So, this actually allows us to draw a different customer profile from our historical past. So we moved. If we look at the age of the customer we buy, the revenue of the customer we get; all these metrics are moving in the upward direction, if you are going to do a little. So I'm sure we're sure what we're getting for new customers.

Network

The next question is from Barclays and Jim Durran. Please continue.

Jim Durran

I wanted to focus on the next fall holiday season in terms of inventory. So retailers are now comfortably loaded as retailers' dealers are well positioned to take advantage of what should have been the beginning of snowfall this weekend in Toronto?

Allan MacDonald

Hi, Jim, this is Allan. First, we are not afraid to end as a fact, but it would be a good day if we did. Greg's sitting right next to me and I'm gonna let him comment. But when it comes to Mark and Chek and the kids are here, that's where we are – we're very happy. Greg, you want to add it?

Gregory Hicks

Yeah, we feel good, Jim. Dealers are still on the rise in business. Inventory levels reached a higher level in the third quarter of this year compared to last year. I mean, we feel really good about where the inventory position is, so I think they're ready to attack the season as they come to us.

Jim Durran

And I know that in the fourth quarter of last year, you are aware that the reported retail sales amount and the surrogate for dealer shipments have increased by 10%. So how are we going to think about what happened last year and how we think in the fourth quarter?

Stephen Wetmore

As the dean said, shipments in this quarter were different from the first two quarters of the year. When we look at the 12 principles, there is a huge difference in the income left behind by sales. And we were joking around, the guys aren't really listening to me, but I have a phone; So last year was a quarter of a huge revenue quarter. As you've said, we – sellers ended up in some categories in the quarter last year, a little bit heavy.

and so, it helps what is the position of the stock that entered the last quarter of our last talk. That's why every time we hit the season, we think we're in a really good position to fight. We sank to the west for a few days and we were ready for inventory, and we will be ready for this region as it comes to Central Canada for the next few days.

Jim Durran

And it was the most powerful order at the end of the quarter's tail, to remind me once again from a historical point of view as in the quarter quarter last year, so it's a setup for the strong winter in Q1 or how did it play?

Stephen Wetmore

Yeah. So if you remember last year, the last 2 and 3 weeks of December were very strong in terms of season. It was snowing almost everywhere in central Canada. So the comments we're making right now are real strong shipments in the December time frame. And if you remember coming out of Q1, this was one of the great impulses of softness in revenue compared to the strong POS in Q1. I mean, he's on the back, Jim.

Jim Durran

And so [indiscernible] He said he needed to look at the inventory situation in Sport Chek in 2019. Can you give us a little more detail about how to handle Q4 in this business and how to handle the inventory situation in 2019? ?

Tc Flood

Jim, it's TJ. I'm thinking about entering Q4, we feel very good about where we are in the inventory. I think we have some work to make pockets in the inventory. Looking back to the school season, as Dean implied, we had the opportunity to prioritize the inventory earlier in the season. Thus, we will have a great workout in 2019 in order to adjust our stocks correctly according to the opportunities we have. But when I enter Q4, I feel very good about where we are, but we have the opportunity to take a better look at how we manage our stocks.

Jim Durran

OK. Mark?

PJ Czank

I think for Mark, seasonal businesses well stocked. In October we waited for the opportunity and stocked accordingly, and in the next few days we are ready for cold as we reach Central Canada and the East.

Jim Durran

And then we're at a point in general for e-commerce, I know that CT Retail is early in terms of home delivery, but other businesses have been well supported for a while. Is there a meaningful contribution from e-commerce to store sales results for each of the businesses?

Allan MacDonald

Jim, I always have rent, we won't reveal it separately. [indiscernible] Good try. [indiscernible] I mean huge increases, such things. So it's part of it. I mean, my opinion is that I don't care how we sell it, so we just sell it and it's definitely growing and it's absolutely important. It's probably important in FGL and most importantly Mark and most importantly in the CTR, but it is prone to grow right, that is, to go out for home delivery. I mean, it's probably the best thing I can do for you in general.

Jim Durran

And I know it's probably early, but for a while now, you had a test in Ottawa. What is such a skew? Müşteriler tıklama üzerinden ev teslimine yöneliyor mu ve toplanıyor mu, yoksa işiniz için ne yapıyor?

Gregory Hicks

Jim, ben Greg. Hala Tıklama ve Toplama için daha fazla yatırıldı. Açıkçası, ülkenin geri kalanında ilk günler oluyor, ancak e-com emirlerinin karışımı, gemi-eve geçişte Tıklama ve Toplama lehine hareket ediyor.

Jim Durran

Ve oyuncak kategorisi gibi bir şey, bu sene daha önce gördüğüm kadar çok genişletilmiş bir oyuncağa sahip olduğunuzu biliyoruz ve biliyorum ki Amazon artık talebin erken dönemine girerken zaten oyuncaklara ücretsiz gönderiyor. sezon. Onları bu tür bir teklifle eşleştirmeyi düşünüyor musunuz?

Dean McCann

Dean. Bilmiyorum, birileri bana cevap vermek için bana işaret etti, ama yine de. Yüksek-düşük bir ortamda özellikle CTR için gönderim ücretine baktığımda, gönderim, ürünü nasıl fiyatlandırdığınız açısından başka bir araçtır. Yani, eğer aslında modele bakarsanız çok iyi oynarız ve bence başka bir araç, müşteriyi başka birinden satın almak yerine bizden satın almaya nasıl teşvik edersiniz. Bu yüzden, nakliyatın ücretsiz olup olmadığı konusunda kesinlikle emin değilim. Ürününüzün nihai fiyatının ne olduğuna gerçekten değer veriyor ve büyük bir değer veriyoruz ya da değiliz ve tarihin bu konuda oldukça iyi olduğumuzu düşünüyorum.

Şebeke

Thank you. Sıradaki sorumuz, Ulusal Bank ile Vishal Shreedhar'dan. Lütfen devam et.

Vishal Shreedhar

Sorularıma cevap verdiğiniz için teşekkürler. Sadece Amerika Birleşik Devletleri, Meksika, Kanada ticaret anlaşması konusunda bakış açınızın ne olduğunu merak ediyor ve Kanada Lastiği'ne bir etki bırakıyor musunuz?

Stephen Wetmore

Vishal, ben Stephen. Eh, oyunun bu safhasındaki tek spesifik alan, bizde bulundukları yer olan önemli bir şeydi, de minimis eşikleridir ve büyük bir kısmı, beklediğimiz yerlerde oldukça fazla olduğu ortaya çıktı. çıkmak istedim. Yani, şu anda bizim için önemli bir konu değil. We're going to keep, we obviously keep a very close eye on it and it's not going to be put in place for a little bit of time. But if it turned out, in comparison to the other countries, it turned out very well from that aspect of the negotiations for us.

Vishal Shreedhar

Okay. Just moving to another kind of broad question. Housing and I know there's little pockets throughout Canada, but call it in some major markets, housing has been slowing for a while. And just wondering at Canadian Tire Retail specifically, are you seeing a shift in the consumer and how is the consumer responding to that?

Dean McCann

I think, well, maybe I'll start and Greg, you can chip in. I mean I get asked this question all the time, Vishal, in terms of the Canadian consumer and that kind of thing. And we've got lots of windows into how the consumer is behaving with everything from our financial services business to a multitude of categories of retail that we operate in. And I guess my overall comment would be and I'll certainly look at these guys, but everything that I've seen, I mean we haven't seen any weakness in the consumer at all or change, if you will. As you know, I always look at unemployment. I think unemployment touched down again. So the housing and wringing of hands around interest rates rising and those kinds of things, we certainly haven't seen any impact of that with respect to our businesses. I don't know, Greg,

to our businesses. I don't know, Greg, if you want to?

Gregory Hicks

I mean to Dean's point, we look at macro factors for sure. But within the business, we look at a few things. So we look at high ticket discretionary items and category performance and our overall portfolio here are showing no signs of declines in unit sales on a year-over-year basis. We also look for evidence of the customer trading down from best to better or better to good and we don't see any material indicators of this type of activity either. And lastly, we take a look at growth rates in repair and maintenance businesses mostly in our fixing portfolio and again we're just — we're just not seeing any indicators that there's any softening based on kind of those 3 big looks into the business.

Vishal Shreedhar

Thanks for that. And if you were to see softening in some of these early indicators, what could the credit card book do to protect itself against potentially increased write-offs?

Gregory Hicks

Sure. I think — Vishal, it's Greg here. We have experience in this as you know in 2008, 2009 and so we are always looking for those early warning kind of indicators if you will. There's lots of things we can do around credit limit increases, new account strategies on score cards, collections activities. There's lots of tools at our disposal. I think the key thing is I don't think you want to overreact on this. You want to — that sometimes you regret that more if you make an action too quickly. So we're watching this very closely, as Stephen said, around all these key metrics and have a pretty robust plan on activities we can take if we do see weakening. I mean even go back to what we saw in Alberta a few years ago. There was a change in Alberta, in some of those strategies in Alberta as it related to credit increases or approval. So, pretty close eye on things and a well-developed plan should we start to see some weakness.

Vishal Shreedhar

Many of your retailer counterparts are talking about cost pressures — pervasive cost pressures in the business and the difficulty in passing price increases. Just wondering what your perspective is on that and if you see inflation — price inflation increasing at least for you guys looking forward?

Gregory Hicks

I can start, it's Greg, in the Canadian Tire Retail business. We're not seeing a lot of evidence of inflation. We're seeing some increased competitive activity in key promotional weeks in real kind of discretionary items, most notably high ticket. So, I think the competition is ensuring they keep their fair share obviously and I think as we've talked about before, we've got a pretty good pulse on how to react to that in terms of what do we need to sharpen our pencil and our promotional program. But overall when we look at our competitive indices and we track this very closely with a basket of competitors across our entire business, we're not seeing a lot of price inflation in the market.

Vishal Shreedhar

Do you anticipate that changing or you think that's status quo for now?

Gregory Hicks

Yes, I mean status quo for now is probably the way I think about it. It's highly competitive so nobody seems to want to give an inch. So, I would expect that to continue certainly throughout the busy Q4 season.

Stephen Wetmore

It's good that our competitors are going to increase their prices though.

Vishal Shreedhar

Okay. And lastly, just on acquisitions. Your tire has been more active than call it usual in making acquisitions both smaller and larger. I'm wondering if that's — given the brand strategy, if that's the way to look at it going forward, continued high activity?

Gregory Hicks

The high activity relates to everything from probably $1 million to $1 billion. So, there has been some activity in between those 2 numbers. I think the — it truly does depend on what the opportunity is and what Allan and team feel that they can do with whatever the brand is that's caught their eye or is available. So it varies, but it has to continue to be active. In addition, once you get the brand whether it's a $5 million brand or potentially a $50 million brand, there's a lot of work to be done and I think Allan has given us some really good insight in brands like Paderno as to what is done at the second, third and fourth stages. So, lots of investment post acquisition. But I would hope that we would stay active with the smaller brands that catch our eye. And we're going to — we've got our work to do with the Helly Hansen type acquisition before we become extremely active again.

Operator

And our next question is from Derek Dley with Canaccord Genuity. Please go ahead.

Derek Dley

I was just wondering if we could get an update on Triangle. I think last quarter you said your reward members are kind of in the collection phase of accumulating points. Have you seen any of that sort of turn more into redemption at this point and are you starting to leverage some of the learnings in terms of the analytics of Triangle yet?

Allan MacDonald

It's Allan. I'll offer a couple of comments when it comes to the Triangle program, but Greg's here. Yes, redemption — so first of all, really really pleased and my comments about increasing our personalized offers, Triangle's core to that. It provides us with the customers to offer — to send the offers to and the data and insights that are required, but it also gives us a conduit through which we can speak to them whether it be via e-mail or on the app. So, we couldn't do any of that without the Triangle program so really pleased.

Our issuance is up 40%, our redemption is up 23% and the spend per customer — per Triangle customer in our banners is up 15%. So, it's a good deal all around. I really — I have nothing to complain about. And Greg, I don't know if you want to make a comment or 2 about CTFS?

Gregory Craig

Yeah. I think Allan's right. Last quarter we talked about you'd see it — first of all in acquisition, you'll see it more in kind of on the earn side. What we started to transition to me on the credit card side is usage and the data point that I would point to is sales on our credit cards in our retail banners. They increased by $100 million in the quarter so that's about a 23% increase. So, it's a pretty — so that's what you're starting to see and redemption is falling as well. We've seen a pretty, on the credit card side, sizable increase in redemption as well.

So we're — I think you're really starting to see this gain more traction with our customers. And Susan O'Brien and I spend a lot of time on this so they're really starting to turn attention now towards ongoing engagement and retention of customers as well. So that's the next chapter in this I think is seeing some of the upfront pieces, how do we then keep building out the program with a value prop like the partnership with Husky for example and then really building out kind of some great engagement strategies to really help our retention numbers as well.

Operator

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

Peter Sklar

Greg, were you at financial services in the crash in 2008, 2009?

Gregory Craig

Peter, I absolutely was yes.

Peter Sklar

So, could you go through like the important credit metrics and what happened during that period?

Gregory Hicks

Sure. I think what you have to remember in 2008 and 2009 was the nature of how the economic — it was led as you will recall by dramatic changes on unemployment. So, what you saw pretty quickly was our past due rates pretty much across all the provinces. So it wasn't localized, it wasn't in one geography or one area. It was pretty much widespread across all of the provinces and you saw pretty quickly the PD2+ rates are aging accelerate pretty quickly. One thing I do want to mention though that we learned for the recession as well is you have to remember the nature of our portfolio.

Where we are typically a bit of a higher risk more of a near-prime portfolio, it actually acts almost as a natural hedge against economic downturns because these customers are more used to being kind of closer to the edge, if you will. So, we don't have as many stock brokers making $200,000 that became, lost their jobs or went bankrupt. So, I think that was my key learning from 2008 and '09. You saw the data pretty quickly. It impacted the business pretty quickly in terms of the allowance and the aging, but I think it was more, we didn't see the same volatility that some of the other banks had seen because of the nature of the portfolio that we had.

Peter Sklar

So, what was the, like what was the effect from an accounting perspective? Were your allowances sufficient or did the allowance rates go up? Like how does it impact the profitability of the division?

Gregory Hicks

If you remember, the allowance rates would have went up pretty quickly. I would have said Q1 of 2009, if memory serves, you would have seen a pretty, there would have been increase in Q1, I don't know the specific numbers, but I remember the allowance went up. That was the first driver that would have increased would have been the allowance rates and that's how it would flowed through.

Dean McCann

Peter, it's Dean. I think there's a presentation probably buried on YouTube someplace around a Investor Day that we did. Like our write-off rates and our provision rates or whatever you want to call it went up about 20 some odd percent in that period. To Greg's point, that was much lower than what even the big banks or even some of the other kind of third-party players like a Citi or whoever experienced. They were sort of more in the 50% to as much as 100% range. And the reason for that is all the things Greg just articulated. I mean in addition to our investment in credit risk and our investment in collections and those activities is at that time was very strong, best-in-class and I don't think it's gotten any worse since then.

So, there's lots of things to kind of manage that, but there's no question that if times turn bad, then obviously like any other banks or any financial services business, I mean you have an impact on the earnings. But we routinely stress test for that being an OSFI regulated entity, right. So, we understand kind of how that works and what the impact is on the business. But it's inevitable that you have some impact. But it's something that as I said, we have experienced managing and managed very well through the last crisis, which was supposed to be the worst since the Great Depression.

Peter Sklar

So Greg, that kind of leads to my next question. Your business has changed somewhat as that's just so integrated with Triangle now and into the retail system. Like I'm just wondering if the character of the credit portfolio has changed since 2008, 2009 because of that integration and whether you expect the performance to be different in the downturn whether that be better, worse or the same?

Gregory Craig

Yes, Peter. I'm honestly not sure how to answer that question because to me it comes back to the nature of what causes the recession to begin with. I don't know how to, we are certainly more integrated. I will say as Dean said, we continue to invest in our credit risk, our collections capabilities. So, we've got all the tools for the team to manage for when and if this does occur. But I think it's going to really depend on the nature of how this comes to us to be honest. I'm not sure I know how to answer that.

Peter Sklar

And Dean, just, I've just one last question for us. It's hard for us to determine the organic growth rate in SG&A because there is, seems there's an unusual item in there and then of course you've got the Helly Hansen SG&A. Are you able to tell us what the organic growth rate was for the company ex those 2 items?

Dean McCann

Yes, I think, I mean suffice it to say, Peter, that if you haul out Helly and you haul out petroleum, which is what we typically do when I look at it; our basis points increase was very low teens basis points. So, I'm very happy with how it kind of ended up, and frankly we also had the thing I referred to in terms of long-term compensation costs because of the drop in the share price as a factor in there. But these are all kind of basis points things.

I think the one thing I would tell you is relative to the last couple of quarters because we had a strong top line growth, our metrics are much improved compared to where they were even in the first couple of quarters and frankly below what we've been planning in the year and again reflecting that sort of relentless pursuit of capabilities that we're just not going to manage this place quarter-to-quarter. We're going to manage this place for the long term and as long as it's in line with what our revenue plans are and how we're kind of managing the business, then it's the right thing to do.

And as Stephen alluded to is the next phase of productivity is very important in terms of taking that opportunity to the next level after having made some of these investments and getting things kind of in place to allow us to kind of take advantage of them going forward.

Operator

Thank you. Our next question is from Brian Morrison with TD Securities. Please go ahead.

Brian Morrison

Good afternoon, a question for Greg Craig. I look at the discussion on the success metrics of the Triangle Rewards and then I see your announcement with respect to Husky and then look at the strength of your brand and your loyalty and I'm curious if you're actively seeking additional external accumulation partners or whether they're seeking you? And if you are, what are the verticals that would be of greatest interest? Are you looking at the grocery, hotels, travel, et cetera?

Stephen Wetmore

Greg, go ahead on the Husky. I can take it from there.

Gregory Craig

Sure, really excited about having Husky as a partner. I mean the early data we've seen a Husky is very promising. Sales increases on the cards have been very dramatic as you know. Increases, I think it doubles, more than doubles our number of petroleum outlets across Canada for us basically as a source of future credit card acquisition and a way to really just get more Canadian Tire money in circulation. So, we're really excited about the partnership and I think the really early data because it's literally been weeks has been very positive out of the gates.

Stephen Wetmore

As far as partners are concerned, this wasn't us kind of actively searching for Triangle Reward partners. I think Susan probably turns down people on a daily basis from that aspect of it not that she won't consider it in the future. But this was more an extension of ensuring that we have the combination of petroleum and Canadian Tire retail to offer to our customers as much as anything. I think it added another 400 sites or whatever across the country. So, it was more in line with that than it was hunting for additional partners.

Brian Morrison

Fair enough. Just a clarification question to just Dean on the commitment, the $300 million to $400 million. Could you just go through the reasoning behind maybe the size of that range relative to what it has been previously and it is a commitment, correct?

Dean McCann

Yes, it's — I mean I think we always say it's an intention, if you will, to execute that. And so I think the same wording we've used for the last four years so you can draw whatever conclusion you want out of that. The rationale is the same rationale we always use on these things. I mean we follow the same kind of balanced approach to capital allocation. First and foremost, invest in the business, make sure we maintain our investment grade rating and preserve our financial flexibility and then look at balancing dividend increases and opportunities to return capital to shareholders.

So, the selection of that particular number with a bit of a range to it I think kind of falls right in line with our efforts to deleverage a bit over since spending $1 billion essentially and it just feels like the right number. That's the discussion that we had with our board and so on. So — and if you look at it on an average over the last kind of 3 years, it's not really kind of at align with what we've been kind of averaging in terms of return of capital overall.

Operator

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

Patricia Baker

Yes thank you. Hello everyone. I have 2 very quick questions. First, just want to make the comment to Dean. Dean, I have to tell you that I found your phrase relentless pursuit of capabilities very interesting. My question — first question is for Allan and thank you for providing us with a little Paderno story, Allan, and providing that that would be a framework for how we should think about how you're looking at most of the brands that you've acquired and your framework for how we should be thinking about Helly Hansen. Just curious though when you look at the 4 phase plan and own stovetops, soft goods, kitchen tools, counter-top appliances; is there any margin differential across those categories or do they all deliver very similar margin?

Allan MacDonald

That's a great question. For the most part, similar. I mean they are pretty big when you talk about wooden spoons versus coffeemakers. But we're not using Paderno as a high velocity, low-margin traffic driving brand. This is a brand that we'd like to have as one of the best if not the best premium kitchen brands in the country. So, it's about making sure there's value in the products. We're investing in some quality and some innovation. So this isn't about getting the lowest possible cost, but also being able to charge a fair price for it. So, the brand premium that comes along with the product is well-earned and is there too. If we fail to do that, then we're really not staying true to our own brand strategy and we're really just white labeling. I mean that would be my view on it. Greg, I don't know if you'd have a different view.

Gregory Hicks

I would just say, Patricia, in general where we're deploying a new own brand into a category, if that category — the characteristics of the category have a high penetration of very popular and well-marketed national brands, our experience would suggest there's a little bit more juice from a margin appreciation standpoint to going on our own in those categories. And to Allan's point, when you're into kind of wooden spoons and more commodities and national brand isn't playing a role; there is still a material kind of margin benefit, but it doesn't show up quite as large as it does when national brands are very strong in the category in which we're re-architecting.

Patricia Baker

When we start to say that this Paderno also part of the strategy is it would make Canadian Tire a destination store and drive traffic specifically and if you teed up that with incremental purchasing whilst the customers are in the store.

Gregory Hicks

Absolutely. I mean when we think about creating a destination category, our share in kitchen I think led us to be that in a lot of different ways. We've been setting the stage and setting the bar I think when it comes to kitchen in particular. So for us to have a brand that we own that's a complement to our great partnerships with national brands only strengthens our ability to be a destination. We're putting some marketing behind it to remind Canadians of our credibility and our strength in this category. And I think the reason I mention all that is if you take that blueprint and apply it to categories that we're making a sort of overt signal to hold very, very important, you should expect to see the same type of strategy.

So with WOODS and our outerwear, we've gone to market. And if you really look at our integrated campaigns, we've gone to market with canvas and interior decor this fall. So, these are categories that are very important to us and the own brand strategy, the integrated marketing and the complement of national brands I think really makes Canadian Tire a destination for them.

Patricia Baker

And can I just squeeze one last question in on Triangle? Obviously very strong performance there and was very important to Q3. When we look at acquisition, which was up — acquisition was up significantly, spend was up on the card, is there any differential performance across that banners with respect to either acquisition or spend?

Allan MacDonald

Well, I mean other than Greg's about to tell you how awesome it is to be able to partner with Sport Chek and Mark's.

Gregory Craig

Took the words right out of my mouth.

Allan MacDonald

I thought I might have.

Gregory Craig

I think what you see is actually interesting. It matches some of the — so, for example, Sport Chek would tend to be a little bit younger in terms of the customer profile that we see. So, we do kind of match the — I guess the footprints in the store to some extent with what we see. What is also interesting is you're seeing some cross-pollination. So if somebody started in Sport Chek and didn't necessarily shop at CTR, that they then come to CTR following that because they're hopefully hooked on the Canadian Tire money. So, we are seeing some unique activities dependent on where the customers are coming from.

Gregory Hicks

And Patricia, it's the other Greg. I would just say it would stand to reason that issuance and redemption would be way up in Mark's and FCL because it's net new. But I can tell you both are way up in CTR as well, both issuance and redemption up well into double-digit and we had a fantastic quarter again with ISF. So, we're loving what the new Triangle program is doing for CTR. It's not just about the other banners.

Allan MacDonald

What we've had established here is as you can probably guess, a little healthy competition between the 3D [indiscernible].

Gregory Hicks

Which Greg Craig is [Indiscernible]

Operator

Thank you. This concludes today's call. A webcast of the conference call will be archived on the Canadian Tire Corporation, Limited Investor Relations website for 12 months. Please contact Lisa Greatrix or any member of the IR team if there are follow-up questions regarding today's call or the materials provided. You may now disconnect.


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