powered by GlobeinvestorGold.com
OTTAWA (GlobeinvestorGOLD) — There will always be a Canadian Tire. This matter has periodically been in doubt in recent years, but not right now.
As the sorry case of Hudson's Bay shows, being a well-established household name in retailing is no guarantee of success. But Canadian Tire has been on a five-year roll that has increased its share price about 163 per cent to the high $50 range. Not bad for a company that twice in the past 10 years looked to be stumbling in a way that's all too common in the up-and-down retailing sector. Even after its strong share price gains of the past few years, analysts still give Canadian Tire a strong consensus "buy" rating.
Back in the early 1990s, Canadian Tire looked ripe for a puncturing by the likes of Wal-Mart and Home Depot, which were making their way into the Canadian market after building reputations at home for being ferocious competitors. Against savvy marketers like these, the company derided as "Crappy Tire" seemed to be in tough.
Investors made their feelings clear by knocking Canadian Tire shares down to $14 on the day in the spring of 1993 that Home Depot announced it was expanding northward. But later that same year, it became obvious that Canadian Tire was making a comeback.
Much of the credit went to Stephen Bachand, a former executive at a U.S. home-improvement chain called Hechinger Co. and a veteran of the Home Depot wars. Mr. Bachand worked with suppliers to drive down the price of goods, thereby improving profit margins. He also put a new emphasis on customer service while also expanding and relocating stores. "Ladies and gentlemen, I am here to tell you that there is a fire at the Tire," Mr. Bachand told the 1994 annual meeting.
So great was Mr. Bachand's reputation that investors pounded Canadian Tire shares in 2000 as he prepared to leave. Compounding the company's problems were weakening financial results and surprise writedowns, some of them related to Y2K expenses. In 1999 and 2000, the shares fell to $15 from the mid-$40 range, with analysts noting that Canadian Tire shares had a P/E ratio of 11, which was the lowest in 15 years. Net result: one of the better buying opportunities for a blue-chip Canadian stock in many a year.
Today, Canadian Tire's P/E is a much more robust 16.5 and much of the credit goes to Mr. Bachand's successor, Wayne Sales, who had held the position of executive vice-president at Canadian Tire. Another U.S. retailer (he once worked for K-mart Corp.), Mr. Sales set about improving Canadian Tire stores with wider aisles and a friendlier atmosphere, building new stores, upgrading the company's on-line sales through its website and buying clothing retailer Mark's Work Wearhouse. The results sent Canadian Tire shares on a rally that has paused only for passing moments, including one in May when the company reported an unexpected 14-per-cent drop in first-quarter profit.
Canadian Tire's share price hasn't changed much since then, which may present a buying opportunity. Among those thinking this way are analysts at Scotia Capital Markets, where they've put Canadian Tire on the recommended stock list with a 52-week price target of $71, which would represent an appreciation of about 25 per cent from mid-summer levels.
Canadian Tire's adaptability over the past 10 years suggests that it's one of those retailers that will always be around. People may have thought the same thing about other historic Canadian retailers such as Eaton's, which is defunct, and The Bay, which is struggling, but Canadian Tire has shown the ability to find the right leader and then execute the right strategy. So ingrained is this company in national fabric that it's hard to image most of us won't be spending money there on a regular basis over the years. Might as well make some back by owning the shares.
Rob Carrick has been writing about personal finance, business and economics for more than 12 years.