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CANADIAN TIRE CORPORATION, LTD. Q1 2016 EARNINGS CONFERENCE CALL

THURSDAY, May 12, 2016 – 2:00 P.M. ET

DISCLAIMER

The information contained in this transcript is a textual representation of the Canadian Tire Corporation, Limited (the “Company”) Q1 2016 earnings conference call and while efforts are made to provide an accurate transcription, there may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only. The information set out in this transcript is current only as of the date of the webcast and may be replaced by more current information. The Company does not undertake to update the information, whether as a result of new information, future events or otherwise. In no way does the Company assume any responsibility for any investment or other decisions made based upon the information provided on the Company’s web site or in this transcript. Users are advised to review the webcast (available at http://investors.canadiantire.ca) itself and the Company’s regulatory filings before making any investment or other decisions. FORWARD LOOKING INFORMATION

This document contains forward-looking statements that reflect management’s current expectations relating to matters such as future financial performance and operating results of the Company. Forward-looking statements provide information about Management’s current expectations and plans, allowing investors and others to get a better understanding of the Company’s anticipated financial position, results of operations and operating environment. Readers are cautioned that such information may not be appropriate for other purposes. All statements other than statements of historical facts included in this document may constitute forward-looking statements, including but not limited to, statements concerning Management's current expectations relating to possible or assumed future prospects and results, the Company’s strategic goals and priorities, its actions and the results of those actions and the economic and business outlook for the Company. Often but not always, forward-looking statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”, “believe”, “estimate”, “plan”, “can”, “could”, “should”, “would”, “outlook”, “forecast”, “anticipate”, “aspire”, “foresee”, “continue”, “ongoing” or the negative of these terms or variations of them or similar terminology. Forward-looking statements are based on the reasonable assumptions, estimates, analyses, beliefs and opinions of Management, made in light of its experience and perception of trends, current conditions and expected developments, as well as other factors that Management believes to be relevant and reasonable at the date that such statements are made. By their very nature, forward-looking statements require Management to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that the Company's assumptions, estimates, analyses, beliefs and opinions may not be correct and that the Company's expectations and plans will not be achieved. Examples of Management’s beliefs, which may prove to be incorrect include, but are not limited to, beliefs about the effectiveness of certain performance measures, beliefs about current and future competitive conditions and the Company’s position in the competitive environment, beliefs about the Company’s core capabilities and beliefs regarding the availability of sufficient liquidity to meet the Company’s contractual obligations. Although the Company believes that the forward-looking statements in this document are based on information, assumptions and beliefs that are current, reasonable and complete, these statements are necessarily subject to a number of factors that could cause actual results to differ materially from Management’s expectations and plans as set forth in such forward-looking statements. Some of the factors, many of which are beyond the Company’s control and the effects of which can be difficult to predict, include: (a) credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, interest rates or tax rates; (b) the ability of the Company to attract and retain high quality employees for all of its businesses, Dealers, Canadian Tire Petroleum retailers and Mark's Work Wearhouse and FGL Sports franchisees, as well as the Company’s financial arrangements with such parties; (c) the growth of certain business categories and market segments and the willingness of customers to shop at its stores or acquire its financial products and services; (d) the Company’s margins and sales and those of its competitors; (e) the changing consumer preferences toward e-commerce, online retailing and the introduction of new technologies; (f) risks and uncertainties relating to information management, technology, cyber threats, property management and development, environmental liabilities, supply chain management, product safety, changes in law, regulation, competition, seasonality, weather patterns, commodity prices and business disruption, the Company’s relationships with suppliers manufacturers, partners and other third parties, changes to existing accounting pronouncements, the risk of damage to the reputation of brands promoted by the Company and the cost of store network expansion and retrofits; and (g) the Company’s capital structure, funding strategy, cost management programs and share price. Management cautions that the foregoing list of important factors and assumptions is not exhaustive and other factors could also adversely affect the Company’s results. Investors and other readers are urged to consider the foregoing risks, uncertainties, factors and assumptions carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. For more information on the risks, uncertainties and assumptions that could cause the Company's actual results to differ from current expectations, please refer to the "Risk Factors" section of our Annual Information Form for fiscal 2015 and our 2015 Management's Discussion and Analysis, as well as Canadian Tire's other public filings, available at www.sedar.com and at http://investors.canadiantire.ca. Forward-looking statements do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made, have on the Company’s business. For example, they do not include the effect of any dispositions, acquisitions, asset write downs or other charges announced or occurring after such statements are made. The forward-looking statements and information contained herein are based on certain factors and assumptions as of the date hereof. The Company does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by it or on its behalf, to reflect new information, future events or otherwise, except as is required by applicable securities laws.

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C O R P O R A T E P A R T I C I P A N T S

Michael Medline President and Chief Executive Officer, Canadian Tire Corporation Limited Dean McCann Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited Allan MacDonald President, Canadian Tire Duncan Fulton President, FGL Sports Mary Turner President, Canadian Tire Financial Services Rick White President, Mark’s

C O N F E R E N C E C A L L P A R T I C I P A N T S

Irene Nattel RBC Capital Markets David Hartley Credit Suisse Peter Sklar BMO Capital Markets Patricia Baker Scotia Capital Jim Durran Barclays Mark Petrie CIBC World Markets Keith Howlett Desjardins Securities

P R E S E N T A T I O N

Operator Good afternoon. My name is Annie and I will be your conference operator today. At this time I would like to welcome everyone to the Canadian Tire Corporation Limited First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press the pound. Earlier today Canadian Tire Corporation Limited released their financial results for the first quarter of 2016. A copy of the earnings disclosure is available on their website and includes cautionary language about forward-looking statements, risks and uncertainties, which also apply to the discussion during today’s conference call. I would now like to turn the meeting over to Mr. Michael Medline, President and CEO. Please go ahead.

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited Good afternoon. Thanks Operator and thanks everyone for joining us today. Before we begin with today’s earnings call I’d like to take a moment to address the catastrophe that has taken place in Fort McMurray. We at Canadian Tire are working closely with local authorities to provide assistance in any way we can to the thousands of Canadians affected by this historic disaster. We have strong roots in Fort McMurray with hundreds of employees working at five stores in the region and we are doing everything that we can to help the community. Turning to our results, we are pleased with our Q1 retail results. When you look under the hood, our top and bottom line performance looks even better, especially driven by our core Canadian Tire Retail engine. Q1 like



Q4 was not winter-like in terms of weather and there was definitely no early spring and we are still waiting for spring in Central and Eastern Canada. Canadian Tire Retail sales were very strong when you adjust for winter weather categories and when you consider that we were lapping solid first quarter 2015 comps across all of our three retail banners. Our results continue to highlight the consumer strength in all our businesses in Ontario and British Columbia, and even with foreign exchange pressures we put up the numbers. Q1 is our smallest retail quarter and typically financial services makes up most of our earnings in the quarter. Having said that, I am encouraged by our top line results strongly managed margins which were up again this quarter and continued productivity savings. In Q1 in certain areas of the country we saw the true power and flexibility of our dealer business model shine through. As you know, weather patterns across Central Canada fluctuated quite a bit during the quarter. Our dealers on the ground can respond immediately by switching up assortments on the floor to suit the changing weather and customer needs. If they saw a week of warm spring-like weather ahead they brought out the patio sets, gardening supplies and backyard categories. Then when the weather turned again a week or so later they would switch back to bringing the winter-related merchandise back out. Clearly it took some time and resources to keep making these nimble shifts but their ability to get ahead of the trends and be flexible drove sales at their stores and contributed to our performance during the quarter. This was truly a fantastic effort by our dealers and testament of how our model is a core differentiator for us. Canadian Tire Retail once again led the way in terms of margin improvement in the quarter with merchandising and productivity efforts more than offsetting the FX pressure the merchants faced. Of course I want to talk about the WOW Guide, our digital catalogue that we launched a few weeks ago. I don’t like that work catalogue because it sounds old school, but let me tell you, our catalogue, our WOW Guide is far from old school. We created the guide as a pivotal marketing tool that serves to educate our

customers on our wide seasonal assortment and on our digital capabilities, and it is an important investment in driving traffic to our website. It is a big step forward in bridging the gap between the physical and digital worlds and absolutely exemplifies the importance that we place on being innovative on how we reach and connect with our customers. We are to date extremely pleased with the results of the catalogue. FGL once again put up impressive numbers with Chek posting an impressive 12.3 percent comp. FGL is driving ahead on e-commerce. Sales are growing strongly as we improve the online customer experience and the functionality of the site. Our e-comm margins are also healthier since we took back the business from a third party provider last year and brought it under our own supply chain. The team is working to launch same-day delivery at Chek stores in the GTA in the second half of the year. Mark’s comp sales results of positive 0.8 percent was actually a bit stronger than we had expected given the continued headwinds this business is facing with the downturn in the Alberta economy and the negative impact that has had on sales of industrial wear and industrial footwear. We continue to expect this business to be negatively impacted for the foreseeable future but I am pleased with the work the team has been doing under Rick White’s leadership to ramp up sales of casualwear, denim and casual footwear and Mark’s focus on executing their strategy. As Dean and I mentioned on our call last quarter, we knew our financial services business results would be challenged this quarter as they were coming up against record earnings, strong GAAR growth last year and planned in-year investments in fueling future GAAR growth. However, the business performed in Q1 a little better than we expected. We anticipate continued and heightened pressure on earnings from our financial services business in Q2 due to planned investment to drive active account growth, but we should see some improvement in the second half of the year as GAAR growth continues to pick up. With that, I’m going to turn it over to Dean.



Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited Thanks Michael and good afternoon everyone. There are only a few topics that I’ll comment on today. As Michael mentioned, Q1 is a very small retail quarter and as you know the financial services business typically contributes the majority of earnings in Q1. Overall, financial services had a solid quarter, particularly in light of the fact they were up against a record Q1 in 2015. Financial Services did continue to feel the effect of low GAAR growth rooted in a lower number of active accounts, which as we’ve discussed previously can be traced to tightening of our credit standards in late 2014. This combined with changes regarding the regulations governing interchange translated into lower revenue this year versus last year. As indicated in Q4, the team has focused on marketing to drive growth in 2016 with increased emphasis on in-store financing which we expect will get a boost from the WOW Guide as well as increased emphasis on activation and retention programs to stimulate active account growth. Turning to the Retail segment, while it was a small quarter for Retail, the positive trends we have been seeing continued this quarter. Our Retail segment gross margin, excluding petroleum, was up 46 basis points, reflecting continued work on merchandising and productivity initiatives at Canadian Tire Retail that once again successfully offset the negative impact of FX costs. In addition, as Michael mentioned, the weather continued to be less than optimal and we chose to be not overly aggressive in respect of clearance at FGL and Mark’s which also protected margins. Our opex, excluding depreciation and amortization as a percentage of revenue and normalized for petroleum continued to trend in the right direction, down 10 bps versus last year. We continue to focus on managing our opex trend down over time, however we will also continue to balances needed investments in key events and initiatives such as marketing to capitalize on our association with the Olympics, the WOW Guide and

productivity which may cause quarterly fluctuations in our results but which will pay dividends in the future. Q1 inventory ended heavier than expected coming out of Q4. Overall, corporate inventory is up $182 million versus the prior year. Canadian Tire Retail represents a small portion of the increase and it is largely in winter-related goods, namely tires and batteries. Dealers are a bit heavy in these areas as well but it is not significant in the context of the volume of merchandise shipped to and purchased by dealers in the back half of the year. FGL and Mark’s made up the majority of the remaining overall inventory increase, but made progress bringing down their winter stock position from the end of the year, and they did not choose to panic sell when the weather was challenging, particularly in February. So they will carry the winter stock over and adjust their 2016 buying to compensate. First quarter Retail ROIC moved up to 8.1 percent, up 16 basis points over Q1 2015, largely due to strong Retail segment earnings over last year. While ROIC improvement remains our most challenging metric to date, we are still focused on driving it up over time. The headwinds of FX and Alberta that have consumed a good deal of the gains achieved by the productivity program thus far, and as we have indicated many times, productivity is going to be a critical factor in moving us toward our ROIC aspirations. Our operating capital expenditures were down slightly over the prior year, largely due to timing of store projects at Canadian Tire. Our DC capex was up roughly $20 million over the prior year, largely related to costs for the Bolton DC. However, the project remains on plan and we are also on track to close the sale leaseback of the DC to the REIT next month. Depreciation and amortization was up roughly 11 percent over the prior year. This was expected and is in line with the level of capital investments that we’ve been making over the past several years. With that, I’ll turn things back over to the operator for the question and answer session. Operator?



Q U E S T I O N A N D A N S W E R S E S S I O N

Operator Thank you. At this time I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. We ask that you pick up your handset or step closer to the speaker phone system when asking your question to provide maximum audio clarity. We’ll pause for just a moment to compile the Q&A roster. The first question is from Irene Nattel from RBC Capital Markets. Please go ahead.

Irene Nattel, RBC Capital Markets Thank you and good afternoon. One question if I might to start with on the gross margin gains in the quarter. You’ve talked a little bit about productivity so how much is left in the tank on that? But also in terms of the sourcing, the mix, the promotional level, how should we think about all of these going forward and is it reasonable to expect that you can keep growing gross margins through the balance of the year?

Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited Maybe, Irene, I’ll start and then I’ll turn it over to Allan who’ll talk a bit more about what they’re doing to continue to work on margins. From a productivity point of view in terms of the initiatives underway, obviously we are really pleased with the progress the guys have been making in terms of being able to offset to date the impact of FX, but FX will remain a challenge in terms of on a year-over-year basis, so we need productivity. From that perspective, there’s much more to do would be the way that I’d characterize it. We’re not taking the pressure off my friend Lisa here or any of the teams in the room, and as we’ve talked before, we’re taking these initiatives on the road. CTR has shown unbelievable leadership in terms of

embracing this, and as I say we’re taking it on the road to the other businesses, so there’s lots more work to do. In terms of the kinds of things that are going on, in terms of the balance of your question, Allan, do you want to keep going?

Allan MacDonald, President, Canadian Tire Yeah. Hi Irene. You know, it’s managing the improvement in margin has really come from a number of things that have sort of been borne from a productivity focus but continue on through the business, and that’s everything from vendor management to making sure that we have the right brands, the right mix of private label within a category, the right assortment mix whether it be big ticket discretionary items or more usable and consumable items, and then watching our promo optimization. So it’s really about getting the volume right and having the right products from the right sources in the category. That takes a long time because as you know to start a category optimization at the assortment level takes months if not years. We’re continuing to work through it and I would say that we’re a third of the way through the journey, maybe optimistically, and we have a lot further to go. It’s more become a best practice at Canadian Tire as opposed to a productivity initiative.

Irene Nattel, RBC Capital Markets That’s really helpful. Thank you. Then I’m not sure whether this is or is not a related question, but clearly the WOW Guide is something that the entire CTR team has worked very hard on. It’s clearly something you’re putting a lot of focus on and seems to be, if you will, a kind of a bit of a roadmap for the way you want to sort of manage CTR as we go forward. Could you talk a little bit about your expectations for the WOW Guide, the consumer reaction and whether we can and should expect Canadian Tire Retail to continue to sort of—will we have two to three WOW Guides a year? Is this kind of where we’re going?



Allan MacDonald, President, Canadian Tire It’s kind of for me the WOW Guide really is borne from the products within it. That’s the result of a three-year journey to really, reorient our assortment. I’m personally very, very proud of the work the team has done. Bringing it to life in the way that we did is a mix of good marketing and I think we’ve demonstrated great strength there historically, and some innovation around IT. So at its foundation really what you’re seeing is us putting more marketing weight behind telling Canadians just how far we’ve come with our assortment. That’s for us I think a turning point, and you’ve rightly said it where that’s going to be more business as usual. So I would expect to see two at least paper editions a year, but more importantly as we migrate more and more of our readership online, to see a very, very dynamic and robust digital catalogue evolve from this, all supported by continued improvement in the assortment level.

Irene Nattel, RBC Capital Markets That’s great. Thank you.

Operator The next question is from David Hartley from Credit Suisse. Please go ahead.

David Hartley, Credit Suisse Thanks. Just a few questions. On the FX, I appreciate the productivity gains you’re making and when I’m thinking of those productivity gains should I think of them as kind of lasting, meaning they’re kind of cost savings that transcend or that are held onto over time? Or is this more related to working with vendors to offset cost, promotional changes that you mentioned, etc.?

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited I’ll start David and Allan can speak to some of the systemic changes that the guys are doing. As you rightly point out, FX is going to be a challenge for the business going forward on a year-over-year basis because our effective cost of FX will continue to rise and that’s a challenge. To date the teams have been doing a great job offsetting that. The productivity initiatives that are underway, they’re really about systemic change to our business and CTR has been leading the way with respect to that and it’s not about just one and done, beat a supplier up kind of thing. This is about systemic change in the way we do business.

Allan MacDonald, President, Canadian Tire Yeah. I mean it’s a skill set change. I can tell you, David, what we haven’t done is taken out one-time costs only to be concerned about them creeping back in. This is more systemically things like having a much more robust should-cost sourcing model that’s now implemented across the buyer group. So we’re really been changing our way of doing business and the way that we’re monitoring the business to manage the costs as opposed to opportunistically just relying solely on one-time cost elimination.

David Hartley, Credit Suisse Okay, so just as a follow up to that then, I shouldn’t expect when the currency goes the other way that you’re going to find yourself with a huge gain. This is part of managing the process so that this is an ongoing opportunity as opposed to taking cost out over the long term and seeing benefits against a better exchange rate.

Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited



I think David the way I’d describe that is quite frankly nobody ever talked to me about FX when the dollar was on the rise, so if you sit back and think about that comment for a minute, I think there was almost a lack of understanding of that impact and I think probably many retailers share this, right? What we’re trying to build is a situation where we have strength in terms of the visibility and the understanding of our merchants and the ability to forecast and understand the impacts to cost of things like FX such that if rates change, right, and that will probably be a over time thing given our hedging program, then we’re in a position to make decisions with respect to what the implications of those changes are on margins and be more deliberate in how we manage margin on go-forward basis. As I said, I think the real systemic changes here that are underway are going to be about the data, the visibility, the cultural, if you will, kind of change management that the teams have, are putting in place in order to be able to manage margins on a more systemic way. I hope that helps. That’s really what this is about. Then from a competitive and market point of view, that’ll dictate how we manage margins on a go-forward basis. At the end of the day you’ve always got to be competitive.

David Hartley, Credit Suisse Okay. Thank you. Second question I guess would be just sort of on the balance sheet, you know, you break out the Retail, CT REIT and Financial Services, so if I just look at the Retail, you have a net cash position ultimately there based on that breakdown. Is there anything preventing you from really ratcheting up a buyback program on your shares or is the aggregate amount of debt for the Corporation as a whole including all the businesses a limiting factor? Can you give me some guidance there?

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited

We have a balanced approach to capital allocation. It’s Michael. Thanks for the question. We like being BBB+. We have to invest smartly in our businesses and I think we’re at pretty well a high right now in terms of investing in our businesses, and then we’ve had a very good track record of increasing our dividends. We understand that we want a productive and efficient balance sheet and depending on other things we do we have shown a proclivity to buy back shares where that is a good investment, and so far it’s been a very good investment for us. I don’t want to go further than that because I don’t think that it’s appropriate, but that’s the way we think about capital allocation and I think you’ve seen over the last two or three years that’s the way we do it.

David Hartley, Credit Suisse Okay. Thank you very much.

Operator Thank you. The next question is from Peter Sklar from BMO Capital Markets. Please go ahead.

Peter Sklar, BMO Capital Markets Back on the Retail margin and your opportunity to put through price at retail, as I recall last quarter when you talked about this I think you said that you had put through some price but it was very selectively and very modestly. I’m just wondering if that has changed at all.

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited Thank you for the question. It’s Michael. It has not changed. Just to start and go back a little bit. Inflation did not have any meaningful impact on our same store sales in Q1. As we discussed last quarter, you’re right, we



have increased in certain categories prices at Canadian Tire Retail but we have taken a conservative approach to pricing decisions overall. As you know, pricing is only one factor in the balancing equation. We’re also striving to maintain margins, manage our inventory volumes and manage our market share. So yes, what I had said last quarter is how we’re proceeding.

Peter Sklar, BMO Capital Markets Right. Dean, this rally we’ve had in the Canadian dollar, not over the last couple of weeks but this general rally we’ve had, has that helped you at all or does your hedging just kind of glide you through all of the ups and downs?

Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited Yeah, in the short term, Peter, it’s less impactful but with our hedging program we look out and we try to take advantage obviously of those kinds of rallies. But hedging is not about playing roulette here. Hedging is about buying certainty over time. Obviously we’d like the Canadian dollar to improve some over time. I think that would be good for us, but as I say, the real value of hedging is like dollar cost averaging, quite frankly. You kind of buy yourself some certainty and don’t get sort of clobbered by one-day variances at any given point in time. But suffice it to say an improving Canadian dollar over time would be a helpful thing over the longer term.

Peter Sklar, BMO Capital Markets Okay. I just wanted to ask you about your fuel, your retail fuel business. I believe the comps were negative and I’m just wondering if you can talk a little bit about that and if you thought you had any issues in terms of your merchandising strategies on your retail fuel business.

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited

It’s Michael. They used to report to me, and I guess it does in some way. It’s a darned good business to us because it drives our CTFS and CTR results. We really like this business. Honestly, reportedly for a long time, you can’t look at revenue for gasoline. Unlike our retail businesses…

Peter Sklar, BMO Capital Markets I meant—I was referring to the volume.

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited Oh. The volumes, okay. Comps, okay. So in terms of the volumes I think that was mostly weather driven and there might have been some economics in Alberta affecting it, but that goes up and down in very small increments and what the margins are like in that business are a factor of 8 or 10 times to what moves in terms of volumes. They’re down a little bit. Our plan is to ensconce the Petroleum Division even stronger into our group of businesses, our family of companies including Canadian Tire Retail and CTFS and the more we do that the more we’ll be able to drive. We’re also doing a lot in terms of our loyalty offering at CTFS, so I’m not too concerned about volumes in the long term. They’ll remain steady or probably in the long term a tiny bit up, but they don’t move that much.

Peter Sklar, BMO Capital Markets Okay. Then just lastly, Michael, I think you said in the Annual Meeting this morning that concurrent or shortly after the introduction of the WOW Guide that your e-commerce revenues doubled. Is that true and are you referring to the Canadian Tire banner? Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited



It’s true because I said it. That’s funny. Obviously the Canadian Tire banner because that was what the WOW Guide was attached to. We saw take up in terms of our app and online sales and sales especially of the items that were in the WOW Guide took off. At the same time, remember the bulk of our business is still in bricks and mortar and the bulk of it will remain there for a long time, but we’re seeing enormous growth off a relatively small base in all of our banners and online, and that is where we’re putting so much of our attention because it’s high growth, we can be very good at it and we saw through the WOW Guide some of the things we can do to boost interest in our online business. Is that okay, Allan?

Allan MacDonald, President, Canadian Tire Yeah. That’s absolutely right. I think the encouraging thing there, Peter, was less about the doubling in revenue and more about the reaction to the WOW Guide and it gave a measure of just how it was resonating, and it wasn’t a promo-driven event. It was another goof affirmation that our assortment is striking a cord with Canadians.

Peter Sklar, BMO Capital Markets I assumed it was off a very small base since you’re in your infancy. Thank you for your comments.

Operator Thank you. The next question is from Patricia Baker from Scotiabank. Please go ahead.

Patricia Baker, Scotia Capital

Thank you very much and maybe I’ll apologize in advance because I think I might have four questions. First of all on the gross margin at Retail, I’m just trying to get at a little subtlety here, but you certainly indicated that Canadian Tire Retail had a better gross margin and that Mark’s had a lower gross margin. Didn’t make any reference to Forzani Group. Are we to assume that it was flat year-on-year, the gross margin?

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited It was pretty close to flat in Q1. You’re right Forzani was pretty flat, Mark’s was of course down over the year.

Patricia Baker, Scotia Capital That’s helpful. Just two things I noticed on the WOW Guide and maybe this has always been done and just it’s the WOW Guide that’s got me paying a lot more attention, but I think it was really interesting in the presentation of products, particularly bigger ticket items. You gave the cost per month and I assume that that’s a way to try and drive credit card purchases with the WOW Guide and its CTFS and CTR working together on that? Is that kind of a joint strategy?

Allan MacDonald, President, Canadian Tire Yeah. Hey Patricia, it’s Allan. Yeah, we’ve been doing that for a while now and really this is about just getting sharper at marketing. We started with tires a couple of years ago in the flyer and there was a limited degree of success. We decided to really go strong with that message on our in-store financing offer around the Options MasterCard and the WOW Guide, and I think we’re getting better at telling that story. It’s a slightly different story than talking about product and promo, so it took us a little while to really find our rhythm, but I think you’re seeing it come alive much better in the WOW Guide.



Mary Turner, President, Canadian Tire Financial Services I wanted to just pile on because I’m very excited about the extra exposure that we’ve had in the last number of months, in the flyer and in the WOW Guide and other channels, because for us this is a really big opportunity to drive growth in our business which, as you know, we had slowed down growth because of our concern about the economy. We just see this as the perfect fit between us and the retail banners as a way to drive our business while helping our partners grow sales and give better values to their customers.

Patricia Baker, Scotia Capital Perfect. This is a personal note, Allan and Michael, but it really makes a big difference when you market a product in the WOW Guide or any kind of a flyer and you tell me which aisle I can get it at at Canadian Tire. I think that’s really important.

Allan MacDonald, President, Canadian Tire Stay tuned. We’re going to do even more of that.

Patricia Baker, Scotia Capital That will be very helpful. Just sticking with the WOW Guide and everything else that’s happening, I’m just trying to square the discussion that both Michael and Dean had around ROIC at Retail and it was nice to see that improvement in this quarter and we know what the longer term goals are. Just with respect to that and productivity, and not that I expect you to give me a number, but looking at the potential that I think that this WOW Guide could have at CT Retail in terms of driving better sales and volume, Allan, do you have within looking at your business, do you have specific sales per square foot targets? Not that I expect you to share but, you know, I would be very surprised if you didn’t tell me that you know you should be working to deliver a higher

than $400 per foot over the course of next two years if all of these things work.

Allan MacDonald, President, Canadian Tire Yeah, I mean you’re right in both counts. There’s two things at play here really. One is, I’m really proud to say, the productivity of the marketing spend that we’ve had where we’ve done a lot of marketing to add the WOW Guide with virtually no increased marketing spend. That first of all was a big win for us and that’s productivity. Of course we’re expecting that to have an incremental contribution to the business across a number of fronts. Partly in terms of the traffic it’s driving to store, the productivity of our linear space but also our digital productivity and the traffic they’re driving to our digital site. So the notion of introducing an integrated program like the WOW Guide has very specific performance targets that we think are going to be incremental.

Patricia Baker, Scotia Capital Perfect. A little bit more on the WOW Guide, and you gave a little bit of an answer there. I was wondering just how big a project that was and I’m assuming when you said it didn’t have any incremental marketing spend it meant that you reallocated marketing spend. But just how big a project was that? How long did it take? Just in terms of scope how much spend would’ve there been on that?

Allan MacDonald, President, Canadian Tire In terms of the project itself, believe it or not we made the decision to do it and started design work in about, literally the amount of time the laws of physics would dictate you needed. So it happened really quickly. To be honest, the driver magazine that we’d been producing historically at CTR Auto really helped us with the layout and the formatting of the print publication,



and the work that we’ve been doing on a number of fronts with in-store technology and our really, really good IT team made the IT component of the WOW Guide come to life really quickly. So the fact that we’d been doing so many small projects that were aligned to this, we really just aggregated them and made them into a big one. In terms of spend, I’ll defer on that one but suffice to say we were able to manage the spend, especially outside of the commodity aspects like paper, really, really closely because we were able to do virtually all of it in-house.

Patricia Baker, Scotia Capital That’s really interesting. Basically the way you described that you’re talking about leveraging off of other projects which means in an indirect way this all feeds into Dean’s push for productivity.

Allan MacDonald, President, Canadian Tire Absolutely. You know we had the skill set in almost every aspect in different manifestations of it and we were just able to repurpose them, so we literally had an Executive Team meeting in the lead-up to announcing it in September of last year where we went greenlight around the table because everybody understood their component part; it was just originally focused on a smaller project.

Patricia Baker, Scotia Capital Fantastic. It’s a great app.

Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited They can do even more Patricia Patricia Baker, Scotia Capital Yes, Dean.

Allan MacDonald, President, Canadian Tire Thanks for the questions, Patricia.

Patricia Baker, Scotia Capital A pleasure.

Operator Thank you. The next question is from Jim Durran from Barclays. Please go ahead.

Jim Durran, Barclays I just want to start off with e-commerce as sort of follow-on. Can you just give us a sense of where you feel you are on that journey? How fully deployed you are at Sport Chek and how far along you are at CT Retail and when do we sort of feel that Mark’s will get up the curve, additionally?

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited That’s a great question. I’m just going to say a few words and then I’m going to let the business leaders talk individually for a couple of seconds. Because we are at different points in sophistication, I think Sport Chek, as you could hear from my script is running really fast now. Mark’s is further ahead than I think people know. CTR is doing an unbelievable job in getting that infrastructure for a much more difficult online experience due to the nature of our business, a few differences in our business, some of the other banners that we have, and they’re really using a test and learn approach and testing things in the Ottawa and Ottawa Valley region. There’s some really great stuff and if we hadn’t invested in that infrastructure over the last number of years, especially in technology, servers and data, we wouldn’t have been



able to do the WOW Guide and we certainly wouldn’t be where we are today in terms of digital, especially e-commerce. Why don’t I—why don’t we start with FGL, then go to Mark’s and then hit CTR?

Duncan Fulton, President, FGL Sports Sure. Hi Jim, it’s Duncan.

Jim Durran, Barclays Hi Duncan.

Duncan Fulton, President, FGL Sports We’re very happy-

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited Welcome to the call, Duncan.

Duncan Fulton, President, FGL Sports Thank you. My first call. I’ve been sitting in them for five years and now I get to talk.

Jim Durran, Barclays Stand back.

Duncan Fulton, President, FGL Sports Yeah, exactly. Overall, very, very happy with the growth that we’re seeing with Chek e-comm. I mean obviously with the platform that Eugene Roman’s team put in for us, the kind of content we have, my expectations for growth are always going to be higher than what we do

so we’re going to continue to drive that as hard as we can. We’re seeing the effect of digital marketing on traffic to online as well as traffic to store, and we’re beginning to measure a web-to-store conversion as well because we’re seeing people look for things on our website and are actually driving to the store to buy them, as well as buy them online, which is the exact kind of omnichannel world that Michael talks about so often. So overall, very happy, and the message to our team is you can’t grow fast enough to meet our expectations.

Jim Durran, Barclays So is e-commerce a material contributor to comp store sales? Or too early for that?

Duncan Fulton, President, FGL Sports I think we’re beginning to see an impact when we have a good e-comm day and a bad e-comm day but I don’t think we’re there yet, Jim.

Jim Durran, Barclays Okay. That’s helpful.

Rick White, President, Mark’s Hi Jim, it’s Rick. I’ll talk about Mark’s for a moment here and just to let you know where we are in the journey. We launched our L’Equiper site in the province of Quebec. It’s the first transactional site we’ve ever had there. We launched that in November and it’s doing exceptionally well. We re-did the Marks.com site and relaunched actually in January of this year, and the site they re-did really follows Dean’s model of saving costs because what we did is we used the Chek platform, leveraged that and just basically reskinned it and saved a whole bunch of money in doing so, so we’ve been kind of following behind them a little bit in lockstep with them and it’s been working very well for us.



We’re also currently working on a B2B platform that we plan to pilot out in December of this upcoming year, so we’re moving along. Not likely as quick as they’d like to but we’re moving along.

Jim Durran, Barclays Great, thanks.

Allan MacDonald, President, Canadian Tire Hey Jim, it’s Allan. I’m really, really pleased, and as I’ve said before, we’re really focused on much more the capability and the complexity of being able to manage the inner workings of e-commerce than we are on immediate results. Between what we’re doing in the Ottawa trial, understanding the implications on our supply chain of Cube (phon) and an assortment that’s as big and as broad as ours, and just how our customers are going to react to things like the WOW Guide. I’ve got to tell you I’m really, really pleased at the learnings we’ve got, at the progress we’re making and I don’t see any reason why we can’t continue to occupy the same space in e-commerce that we occupy in bricks and mortars in the not-too-distant future.

Jim Durran, Barclays Where do you see delivery to home versus store pick-up? Falling out for you guys?

Allan MacDonald, President, Canadian Tire In terms of CTR? I think it’s going to be really interesting. I think as volumes continue to increase delivery to home will be more and more the norm, and we are watching very, very closely what our customers are doing and one of the reasons why a trial is so important. We’re going to continue to be the same leading retailer, like I say, in the e-commerce space as we are in bricks and mortar. We’ll follow along with customer behaviour but as it stands

right now, just sheer volume I think is going to make re-purposing Retail for click and collect difficult as time marches on.

Jim Durran, Barclays Last question, just back to productivity. Some of the heavier lifting projects were presented as being further out on the horizon. How far away are we from that? It even sounds like in some respects maybe you’ve tackled some of them earlier than I would have thought.

Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited Absolutely Jim. I’m really pleased with—if you remember, I put those three buckets out there and we’re well into the third bucket now. Really I give that credit to Allan’s team, guys like Greg Hicks, and so on on Allan’s team have really grabbed hold of this stuff and made it happen, with much more to come. As I say, we’re going to take this on the road and the other businesses I think are seeing the opportunity that’s created in some of these initiatives and we’ve got ramped up resources on this and support for the businesses, and at the end of the day the credit for actually realizing on these things goes to the businesses and how they support it. Because if they get into it then that’s kind of a mantra around Canadian Tire; once they grab ahold of something, they’ll make it happen.

Jim Durran, Barclays So when you define that third bucket, is this sort of the end-to-end category review? So it’s not just about procurement savings. It’s about how you source, how the merchandise mix is done, etc. How much structural change has to take place to capture all of what that third bucket is defined as?

Allan MacDonald, President, Canadian Tire



It’s Allan here. It’s structural but not necessarily just in the organizational structure sense. It’s in the how you’re doing business sense and what we’ve been adopting is an incredible commitment to scrutinizing the value we’re delivering with every process, every investment, every piece of capital. We’ve got a long way to go because it’s not because necessarily we’re working through a list but because we’re changing the way we’re doing business. So we’re looking at the productivity of our inventory, the productivity of our linear space, the contributions of our assortment, the categories we’re in, and I’m really, really pleased that the CTR team has adopted this as a new way of continuing to scrutinize the business. We’ve got lots of opportunity in front of us, for sure but it’s less, like I say, of a checklist exercise and more of a running the business, quite honestly, in a more sophisticated way. And by the way, full credit to Dean and his team and their leadership because that level of sophistication isn’t borne within a business unit typically. It takes an external catalyst and they did a great job of providing it.

Jim Durran, Barclays So Dean, if you were to sort of go back and look forward, right, would you say based on the learnings you guys have had over the past year or two as you went down this road that there’s a fourth bucket out there that you hadn’t perceived before? Or has the third bucket just become a bigger bucket?

Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited I want to—let’s not get ahead of ourselves here. The reality is it’s a third bucket and let’s also recognize that sometimes having no choice makes decisions easier. So the reality is we have a huge mountain in terms of FX to deal with, right? So that has clarified the minds around the table as to the importance of this, and I think as was referenced earlier on the call, this is not one and done

stuff, this is systemic change, as Allan has mentioned. That’s the exciting thing about this, but I would still put it all in the same category. This is what we envisioned is this sort of from the factory to the customer’s car to go home kind of thing is really what this is all about, and I think the other opportunity is taking this on the road to the other businesses and applying some of this across the entire company. I still think it’s three buckets. I think there’s probably more opportunity than we thought but there needs to be, right, given the pressures on the business and the challenge in terms of moving our ROIC up over time, which is where we sort of started thinking about this whole exercise.

Jim Durran, Barclays I believe Allan suggested that you’re kind of 30 percent of the way through your categories from an end-to-end standpoint. How long is it going to take to get to the finish line? I mean the elusive never ending finish line.

Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited If this is successful, this is never ending, and I mean that in all seriousness. Like it’s about systemic change and the dream is you create a culture of a company that comes into work everyday and everybody is sitting around going, “Okay, well that’s how we did it yesterday. How do we do it differently tomorrow?” and are continuously trying to improve our organization, and like I say, at Canadian Tire, if something catches fire generally it’ll keep burning but you’ve got to have the right people, the right cultural change implemented into place and there’s some encouraging things happening. And to date, as I always say, to date they’ve done a great job offsetting the pressures of FX but I also want to say let’s not get ahead of ourselves here, right? There’s lots of pressures and lots of hard work ahead. This stuff is not easy and so far so good, but lots of hard work ahead of us, and some investment probably and additional



resources that we’re going to need in order to accomplish this. So, you know, so far so good.

Jim Durran, Barclays Great. Thanks to everyone for the answers.

Operator Thank you. The next question is from Mark Petrie from CIBC. Please go ahead.

Mark Petrie, CIBC World Markets Good afternoon. I wanted to follow up on the discussion on e-commerce opportunities and the challenges of improving Retail ROIC, and I guess recognizing that investment in stores is crucial, how do you look at square footage growth today? I mean we’re at 3 percent for the quarter year-over-year and your absolute level of capital spend on the stores. I'm focused on Canadian Tire Retail.

Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited I’ll take that, Mark. The reality is typically, as you know historically, we’re sort of in the 1 percent camp in terms of retail square footage growth. I think as a retailer we still see the combination of bricks and mortar and e-commerce as being the future. But I think from a practical perspective, we’re going to get more and more selective with respect to the retail square footage we add, and the real focus is, quite frankly, as you’ve been listening, is about the productivity of the space we have. That’s one of our biggest assets is the space that we own, and Allan and team have identified that as one of the best opportunities in future for improvement of margin profitability, and frankly, assortment that meets what customers are looking for. So, very exciting.

Then you wrap that into e-commerce, we think it’s an ecosystem, right? One needs the other, right? Allan referenced the complexity associated with CTR and figuring that out and the test in Ottawa is part of the work to be able to do that. But short answer to the question is retail space is part of it but the real gem here is to get more out of our existing retail space as opposed to too much focus on growth in real estate. We’ll do some of that; we’ll just be choosier.

Mark Petrie, CIBC World Markets So this is peak square footage growth as a rate.

Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited I don’t really know how to answer that. I think we’ll be choosy and I think going forward if you look out long term, will our growth rate in retail square footage be the same as our growth rate over the last five years? Probably not, it will probably be a little less, but that’ll depend on the opportunities that present themselves.

Mark Petrie, CIBC World Markets Okay. Thanks. On the Financial Services business, obviously a number of puts and takes in the quarter in terms of impacting the gross margin, but maybe just taking a step back, how do you feel about the quality of the portfolio there, the credit losses going forward over the next two years?

Mary Turner, President, Canadian Tire Financial Services Hi Mark. It’s Mary. We’re actually feeling pretty good about the quality of our portfolio. As you know we took a more conservative stance a while back when the economy started to wobble, so I think that certainly helped us on the absolute write-off. We’re seeing some



softness in Alberta, as you would expect, but it’s a fairly small part of our portfolio. So I would say actually we’re feeling quite confident about the quality and our metrics, and our ability to manage through whatever happens, because as you know that’s really a core competency for us to be able to deal with delinquency levels and our analytics about credit risk. We feel quite confident.

Mark Petrie, CIBC World Markets Okay thanks, that’s helpful. Then just last, I guess I just wanted to clarify I think you sort of addressed this early on but just in terms of the economic backdrop across the country, basically negative trends in Alberta but any sign of slowing down in Ontario, BC or Quebec? And I guess any change in the patterns from the consumer in terms of how they’re accepting some of your higher price point products?

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited Michael for the first part and then if you want the second part, do you want CTR or …?

Mark Petrie, CIBC World Markets Yeah, I was focused on CTR.

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited All right. The first one is we’re seeing no slowdown in Ontario at all. It’s been going on for quarter after quarter, and British Columbia, honestly, is even stronger than that. The stories are the exact same in all of our banners, so I can generalize. Same direction, tiny bit different numbers but the same places are booming and obviously Alberta has slowed, and has gone negative, but the other provinces are making up for it.

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited And Allan?

Allan MacDonald, President, Canadian Tire Yeah, in terms of product and spending, it’s going—when you look at the results that we’re posting and the kind of weather patterns, I think what we’re seeing is affirmation that the consumer behaviour is going in stride with our forecasted sort of trends. I mean what we’re investing in in terms of the WOW Guide, the product assortment that we both get and the product that we brought in, it’s all moving according to plan. So that’s a good affirmation that things are as we expected them to be sort of 12 months ago.

Mark Petrie, CIBC World Markets Okay. Good stuff. Thank you very much.

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited Thanks Mark.

Operator Thank you. Your next question is from Keith Howlett from Desjardins Securities. Please go ahead.

Keith Howlett, Desjardins Securities Yes, I had a question on the SG&A. I was referencing Note 11 and the Other category that I guess is the most rapidly increasing one. Can you just speak to what’s in the Other bucket of expenses?



Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited Hi Keith, it’s Dean. Probably one of the biggest factors in there is IT, but that’s a sort of catch-all bag, and I think probably it’s better just to take that offline and we can give you some better understanding of the depth of that. But, you know, IS costs, information support costs would be a big factor of that.

Keith Howlett, Desjardins Securities Great.

Dean McCann, Executive Vice President and Chief Financial Officer, Canadian Tire Corporation Limited But there’s also a mixed bag of stuff in there. That’s why you call it Other, right?

Keith Howlett, Desjardins Securities Then just on the Financial Services business, is the cadence of the development of the new business account acquisition model, is it going as expected? Do you expect 2Q to be similar in performance as 1Q? Was there any shifting of activity from one to the other, quarter to the other?

Mary Turner, President, Canadian Tire Financial Services Hi Keith. I think what I’d say, because we’re focusing more with our integration with retail, I wouldn’t have expected Q1 to have been where you’d see the big impact because a lot of what we’re doing with Retail will show up in Q2. So we’re doing more advertising, more financing inside the store, so I think you’re going to see a ramping up of the activity to drive growth in the business, and the expenses that go along with that.

Keith Howlett, Desjardins Securities Is that about what you expected it going into the year? I presume I guess-

Mary Turner, President, Canadian Tire Financial Services Yes, I think it is what we expected. I think I’ve said in the past this is going to take a bit of time for us. It took a bit of time for the growth to slow and it takes a bit of time for it to come back up. I believe we have all the components in place to drive the growth that we need, but, you know, it’s all in the execution and the time it needs to come to fruition.

Keith Howlett, Desjardins Securities Then I just had a—I’ll call this the Ottawa question. I noticed that you’ve bought five stores as of April 1 in Ottawa. I wondered if you could just—if FGL Sports could speak to that? Then also on the e-commerce test in Ottawa, if you could just maybe amplify what’s going on in the Ottawa market at the Canadian Tire Retail store test?

Duncan Fulton, President, FGL Sports It’s Duncan. On the FGL side, as you know Sports Experts stores are primarily and have historically been inside of Quebec, and there’s been a few legacy examples where we had that brand outside of Quebec. Ottawa was the most prominent. We saw an opportunity to get those back, turn them over to Chek, put in the best of our Chek concept into that market and we took advantage of that.

Michael Medline, President and Chief Executive Officer, Canadian Tire Corporation Limited Anyways, it’s very difficult to run corporate stores and franchise stores in the same market, and so we’ve been looking to do this, oh geez, for years. It came about and



we’re very pleased and we’ll be working on those stores. Allan?

Allan MacDonald, President, Canadian Tire Yeah. I think in terms of the Ottawa trial, we’re of course using that to understand the implications of our unique business model and assortment and online space from a whole bunch of different perspectives. What we’re seeing right now, I must say, is really encouraging, both from an economic standpoint, customer response, dealer engagement, and we’re going to be continuing it but you’ll start to see different elements of that test come to life in market and some of the learnings influence the solutions that we put in place going forward. Long story short, the market is outperforming the rest of the country and really, really pleased with the learnings we’re taking away from it.

Keith Howlett, Desjardins Securities Is it across all dealers in the Ottawa area?

Allan MacDonald, President, Canadian Tire It is. It’s 22 stores, including the Ottawa.

Keith Howlett, Desjardins Securities Thank you.

Operator Thank you. This concludes today’s conference call. A webcast of the conference call will be archived on Canadian Tire Corporation Limited’s Investor Relations website for 12 months.

Please contact Lisa Greatrix or any member of the IR team if there are any follow up questions regarding today’s call or the materials provided. You may now disconnect.

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