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Summary
- Canada’s consumer retail space is on a slow rebound.
- Changing customer behavior has pushed the industry to adapt digitalization, cut costs and offer best possible deals.
- While many traditional retailers are shutting shops, some companies such as Canadian Tire (TSX:CTC) and Aritzia (TSX:ATZ) have managed to attract investors’ attention with their recent stock performance.
Canada’s COVID-battered consumer and retail sector has been showing signs of recovery. But those numbers are far away from the pre-pandemic levels. Changing consumer behavior and shifting shopping preferences amid a global pandemic has pushed the industry to cut costs and yet, offer best possible deals. This is above and beyond the struggles of rapid digitalization and falling revenues. While many traditional retailers are shutting shops, some consumer and retail companies such as Walmart Canada, Canada Goose, North West Company, Canadian Tire (TSX:CTC) and Aritzia have managed to attract investors’ attention.
The pandemic has accelerated radical shifts such as the rise of Generation Z, online shopping habits and work-from-home trends. A 2020 PricewaterhouseCoopers survey on Canadian Consumers suggests companies must take a long-term approach to decipher what “more digital” and “remote” means for consumers.
Though shoppers are progressively getting comfortable with pre-pandemic physical retail and grocery store models, there is an increased emphasis on minimized touchpoints. In the digital commerce space, consumers are expecting quicker delivery and turn-around-times.
The TSX consumer discretionary index is currently down by 5.38 per cent year-to-date (YTD), while the TSX consumer staples index has soared by 8.81 per cent YTD.
Here’s a detailed look at the performance of consumer stocks Canadian Tire and Aritzia:
Canadian Tire Corporation Limited (TSX:CTC)
Sector: Consumer cyclical
Industry: Retail – cyclical
Current CTC Stock Price: C$ 216.66
After a rollercoaster ride in 2020, Canadian Tire stocks are currently up nearly 23 per cent YTD. The scrips have gained 17 per cent in the last six months and are up two per cent in one month.
Canadian Tire is retail brand with interests in home and sports goods, apparel, auto parts, and vehicle fuel. Some of its banners include Canadian Tire Retail, SportChek, Mark's, Helly Hansen, Gas +, Atmosphere etc. It also has majority ownership stake in Canadian Tire Financial Services and CT REIT.
Its current market capitalization is C$ 741 million, price -to-earnings ratio is 81.4, price-to-book ratio is 3.346 and price-to-cash flow ratio is 17, as per data on the TSX. Its current return on equity is 12.55 per cent and return on assets in 2.51 per cent.
Consumers’ changed behavior due to the pandemic was visible in the brand’s second quarter financial results, which posted 9.3 per cent retail sales growth (excluding gas) but a massive 400 per cent surge in eCommerce sales. The online sales peaked in April and May during retail store closures, generating C$ 600 million in sales.
However, the company’s sports’ segment was impacted by the pandemic, which led to decreased revenues of C$ 300 million at SportChek, Mark's and Helly Hansen.
Canadian Tire distributed quarterly dividends of C$ 1.137 and yields 2.1 per cent. Its three-year dividend growth stands at 22.67, while five-year dividend growth is 18.25, as per TSX.
The company operates over 1,700 retail and gasoline outlets across Canada, has recently collaborated with cloud-based experience management firm Medallia to gain insights to customer experience and drive operational excellence.
Aritzia Inc (TSX:ATZ)
Sector: Consumer cyclical
Industry: Retail – cyclical
Current ATZ Stock Price: C$ 17.93
The stocks of Aritzia, an elite apparel and accessory brand, are currently down nearly six per cent YTD. The scrip nosedived during the March market crash but has since recovered well, scripting 44 per cent gains in last six months.
Aritzia stocks are trading flat in the last three months and are down six per cent in the last one month. Its current market capitalization stands at C$ 1.5 billion. As per data on the TSX, Aritzia’s price -to-earnings ratio is 40, price-to-book ratio is 6.4 and price-to-cash flow ratio is 9.8. Its current return on equity is 17.36 per cent and return on assets in 4.45 per cent.
The fashion brand was forced to temporarily closed all its 96 boutiques due to COVID-19 in March. While the net revenue dropped by 43.4 per cent year-on-year (YoY) to C$ 111.4 million in first fiscal quarter 2021 (ending May 31, 2020), its eCommerce revenue shot up by 150 per cent.
Gross profit margin slumped to 11.7 per cent in the current quarter from 43.5 per cent in Q1 last year. The company ended the quarter with C$ 224.3 million cash in hand.
Aritzia had reopened 89 boutiques by 9 July 2020.
The company expects its boutique performance and eCommerce revenue growth to improve in the second fiscal quarter 2021, which will be declared on October 14. It also expects capital expenditures to touch between C$ 30 billion to C$ 35 billion, owing to increased operating expenses over pandemic-related incremental. However, the company did not provide a guidance for the second quarter and full year fiscal 2021 financial results due to the economic uncertainty. It also aims to launch five to six new boutiques in 2020.
