canadian tire corporation, ltd. q2 2018 earnings ... · q2 2018 earnings conference call thursday,...

CANADIAN TIRE CORPORATION, LTD. Q2 2018 EARNINGS CONFERENCE CALL

Thursday, August 9, 2018 – 1:00 P.M. ET

DISCLAIMER

The information contained in this transcript is a textual representation of the Canadian Tire Corporation, Limited (the “Company”) Q2 2018 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. Certain 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 material assumptions and Management’s beliefs, which may prove to be incorrect, include, but are not limited to, the effectiveness of certain performance measures, current and future competitive conditions and the Company’s position in the competitive environment, the Company’s core capabilities, and expectations around the availability of sufficient liquidity to meet the Company’s contractual obligations. Although the Company believes that the forward-looking information in this document is based on information, assumptions and beliefs that are current, reasonable and complete, such information is 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 and FGL 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 the Company’s ownedbrands or its financial products and services; (d) the Company’s margins and sales and those of its competitors; (e) the changing consumer preferences and expectations related to eCommerce, online retailing and the introduction of new technologies; (f) the possible effects on our business from international conflicts, political conditions, and developments including changes relating to or affecting economic or trade matters; (g) 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, climate change, 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; (h) the Company’s capital structure, funding strategy, cost management programs, and share price and (i) the Company’s ability to obtain all necessary regulatory approvals. 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 2017 and our 2017 Management's Discussion and Analysis, as well as Canadian Tire's other public filings, available at www.sedar.com and at www.corp.canadiantire.ca. The forward-looking information contained herein is based on certain factors and assumptions as of the date hereof and does 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.

The Company does not undertake to update any forwardlooking 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 required by applicable securities laws.

http://investors.canadiantire.ca/

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http://www.corp.canadiantire.ca/



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

Stephen Wetmore President and Chief Executive Officer Allan MacDonald Executive Vice President, Canadian Tire Retail Dean McCann Executive Vice President and Chief Financial Officer Mahes Wickramasinghe Executive Vice President and Chief Corporate Officer Greg Hicks President, Canadian Tire Retail Greg Craig President, Canadian Tire Financial Services and CEO, Canadian Tire Bank

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 Mark Petrie CIBC James Durran Barclays Vishal Shreedhar National Bank Patricia Baker Scotiabank Brian Morrison TD Securities Peter Sklar BMO Capital Markets Chris Li Macquarie

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

Operator Good afternoon. My name is Marie and I will be your conference operator today. At this time, I would like to welcome everyone to the Canadian Tire Corporation Limited Second 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, press the pound key. We ask that you limit your time to one question plus a follow-up question before cycling back into the queue. Earlier today, Canadian Tire Corporation Limited released their financial results for the second quarter of 2018. 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 call over to Stephen Wetmore, President and CEO. Stephen?

Stephen Wetmore, President and Chief Executive Officer Thank you, Operator, and good afternoon everyone. I have hosted quite a few quarterly calls with all of you but I can’t remember a quarter that was any more complex to explain to you than this past quarter. Weather, acquisitions, loyalty programs, credit card launches, IFRS accounting implications, which, with the exception of weather, were all planned in the quarter. It means we have to unravel the numbers for you over the next 20 minutes or so, so you understand the benefits to our future of the investments we have made. April managed to affect all our retail businesses with double-digit year-over-year sales declines. Our building was not a happy place for the first four or five weeks of this quarter. However, when the snowstorms stopped our businesses started to perform and it’s a huge credit to the team and the enterprise that we turned in consolidated comp sales growth of 1.6 percent over 2017. Our Financial Services business turned in some historical high numbers in our receivables growth and first use accounts. It cost us a few dollars but the team has far



exceeded our expectations with the launch of our Triangle Rewards and credit card program. In a few minutes, Alan will take you through Triangle Rewards key objectives and the early insights we are gaining as we work on growing our relevance, and most importantly, strengthening our engagement with customers. I’m also delighted to officially welcome Helly Hansen to our family. The execution of our integration plans is well underway and we will begin to report Helly Hansen in our financials in the third quarter. The Helly acquisition will be a significant growth engine for us, powered by three key focus areas. First, expanding assortment breadth and depth of Helly products in existing and adjacent categories across our banners in Canada. Second, the execution of Helly’s existing growth plans focused on the United States and core European markets will be Paul Stoneham and team’s top priority. Finally, utilizing Helly’s established international distribution network as a platform to distribute CTC own brands to new markets. While the third leg is still a few years away, we are very encouraged with the runway the first two opportunities represent. As early as this fall you’ll start noticing Helly in our stores, but since the lead time on assortment decisions is closer to 18 months, you won’t see the full spectrum of Helly’s products until the fall of 2019. Looking ahead, another priority is realizing the full potential of our FGL business. I am very bullish about its future and pleased with the leadership team, Allan MacDonald and TJ Flood have in place to take this business to the next level. While Sport Chek will continue to be our digital marketing leader and destination for millennials and achievers, we are looking to reposition the brand and creating a solution-oriented customer experience, and appealing to a broader range of customers. With that, I’ll turn it over to Allan to start giving you a bit more insight into the quarter. Allan?

Allan MacDonald, Executive Vice President, Canadian Tire Retail Thank you, Stephen. Good afternoon everyone. In looking at the results of the past quarter, I’ll offer you a little bit of context about our performance and the

progress we're making in building a stronger retail operation. In 2017, we laid out our operational priorities, as we set out to create one company focused on one customer. We started with changes in the business units and leadership, acquiring new thought leadership in areas like eCommerce, and we restructured the business around our One Company vision. From there, we began executing a sequence of tactical plans, enabling our growth and transformation. From investments in digital infrastructure, eCommerce, customer data and of course the launch of the Triangle MasterCard and Loyalty Program, we’ve created the right platform for our Canadian Tire marketplace. From here, our priorities shift to driving engagements within the Triangle marketplace, strengthening our brands as in the case of Marks with Well Worn, and operational capabilities within the banners. We’ve always said this is a journey and opportunities will continue to be addressed sequentially as we build our capabilities and our teams. On that note, let me offer some comments about each of the respective banners. At CTR, I’m pleased with our performance in Q2. I think it exemplifies our progress, building a strong core retail business. We’ve worked to deliver sustainable growth within CTR, even in the face of uncertain weather as was the case this quarter. From owned brands to assortments that have been curated for the season, Q2’s recovery after a dismal April—and I can’t spell dismal with enough capital letters—demonstrated the value of investing to build non-weather-dependent categories which performed exceptionally well. While the majority of our seasonal business bounced back in the second half of the quarter, the selling season for products like cycling, spring outerwear and camping was obviously cut short. We turned in good results but we could have turned in extremely good results had the weather been on our side. This quarter we continued also making progress with our owned brand strategy. Our top 20 owned brands grew about 8 percent versus last year. Also, this week, we announced our agreement with Petco to make Canadian Tire their exclusive retailer of premium pet food in Canada. Petco’s deep expertise in pet specialty combined with Canadian Tire’s retail reach and our new Triangle loyalty program is a powerful combination, and this partnership is another example of how we’re



developing categories to become even more and more relevant to Canadians. We’re also evolving our capabilities and I’m pleased to say we are in an execution stage for our eCommerce deliver to home rollout which will kick off in Montreal and Edmonton later this month and cover the rest of the country by the time we release Q3 results. At Sport Chek, I’m pleased with the progress we’re making, and we continue setting up the business for long-term success. Chek wasn’t able to recapture lost sales in April but that’s understandable. At CTR, April signals the start of spring jobs and joys, whereas at Chek it’s really the end of the outerwear and spring rainwear season. I thought this quarter would be an appropriate opportunity for me to share with you a few thoughts on our progress at Sport Chek. At its core, it’s a great business, probably one of our most important and fun assets. Sport Chek is a big part of our future. It’s our youngest banner, it’s cool, and it’s our digital test bed. The team is challenged, for sure, but they’re excited knowing they’re building capabilities that will help guide our future and build lifelong relationships with our customers. Their growth in recent years has created a much larger and much more complex business. Like any company that goes through a period of rapid growth, operational capabilities have to catch up just to sustain this level of performance and to propel Chek into its next stage of expansion. It’s an exciting journey and I think of it in terms of the Sport Chek brand. The brand above the door has to speak volumes. It has to mean more to customers than the label on the product, and we’re going to accomplish this be creating a world-class experience for our customers. Whether they shop in-store or online, we’ll be known as the destination for sports, fitness and wellness. We’ll inspire our customers with world-class stores, unique assortments, helpful and attentive staff, engaging digital experiences and access to the products in their sizes real-time however they choose to buy. Mark’s is a similar story, a strong base business. Some operational opportunities for sure, but a great foundation for a redefined brand with Well Worn. We had solid results in Q2 and made progress on Mark’s Well Worn reinvention. We launched the next evolution of the brand with an award-winning Father’s Day campaign, and Well Worn is really resonating with Canadians, and frankly, it’s resonating with us. It’s become the inspiration we needed to propel Mark’s into new territory.

Beyond brand, we’re continuing to make progress improving our customers’ experience in store and online. We launched distributed order management at Marks.ca to expand our eCommerce offering, and in-store merchandising initiatives are being executed across the country, bringing Well Worn to life. I’m very pleased with our progress, especially in Quebec, where we’ll have 24 renovated Well Worn stores by the end of this year. Finally, I’d like to update you on one last strategic initiative, the Triangle Rewards and Triangle credit card programs. Simply, one of the most critical investments for our future, and something I believe sets us apart from our competition. Triangle Rewards has given us the platform to aggregate our customer engagements across our physical and digital properties, creating a true CTC marketplace. And, it captures the power of cross-banner collaboration. It’s still early days but in the first 90 days Triangle has made quite a splash with a launch campaign surpassing our awareness, engagement and acquisition targets, especially with younger and more affluent Canadians. Since launch, we’ve had a 22 percent increase in our active loyalty members. Average spend is up 13 percent. Canadian Tire money issuance is up an incredibly 40 percent, and CTFS has surpassed the 2 million active cards milestone for the first time in our history. I started by saying I’m pleased with this quarter because it exemplifies the benefits of what we’ve done to grow this business and our continued progress on executing our One Company plan. With that, I’ll hand it over to Dean to talk about the financials.

Dean McCann, Executive Vice President and Chief Financial Officer Thanks, Allan, and good afternoon everyone. As Stephen indicated earlier, we are really pleased with how the business performed in the quarter, but it was in a word a complicated quarter, so I’m going to focus my time trying to ensure you have the same understanding or perspective that the management team has of the results and why we see it as yet another good quarter of performance for CTC as we pursue the long-run growth strategy for the business.



First is that April was, in a word, terrible for retail and the weather is sadly to blame. We saw double-digit drops in all three retail businesses that just wreaked havoc on our numbers for the quarter. Especially important was the double-digit decline in CTR revenue from dealers, both relative to last year and especially versus our plan for April. What is encouraging is that despite this, CTR and Mark’s still posted positive comp sales at plus 2 percent and plus 1.3 percent, and FGL was just off at minus 0.3 percent. Revenue for the Retail segment excluding Petroleum also got back to positive territory, ending at plus 0.5 percent versus last year. Retail gross margin rate excluding Petroleum held flat to last year’s high-water mark when gross margin had increased by 83 basis points. Our margin strength this year was despite headwinds within our supply chain operations related to higher fuel prices, and the execution of our mitigation plans related to the CP Rail strike. We certainly didn’t panic and try to buy April sales that really weren’t recoverable with the loss of the early spring season. The April effect on revenue is critical context to understand the second significant influence in the quarter, that is the growth in our expenses which was approximately $50 million consolidated and reflects the ongoing commitment to our strategic priorities. About half of the increase in our consolidated Opex, $23 million, was related to the Triangle Rewards program launch and the acquisition of Helly Hansen, and we normalize for those items. Although we incurred a portion of Helly’s transaction costs in Q2, we will incur additional costs in the third quarter which we will highlight for you in Q3. The balance, $27 million, reflects planned investments anchored on the One Company strategy. Evolving the ecommerce and digital capabilities across the banners, working with the dealers on a deliver-to-home rollout, building our Digital and Analytics teams, and Consumer Brands division, now augmented by Helly Hansen, record CTFS card acquisition and through all this managing our expense structure aided by the success to date of our productivity program. Frankly, had April not been so poor versus our plan for revenue, our Opex ratio and earnings would have been much stronger. For reference, our consolidated normalized Opex ratio excluding Petroleum is 74 basis points higher for the quarter, and 38 basis points higher on a rolling year basis. I would, of course, like to see that improve over the balance of the year. That’s a good segue for our plans into a new leg of productivity under Iain Kennedy’s leadership. You will

hear more about that over the coming quarters as Iain mobilizes those efforts to streamline the cost of our processes. Efforts to date have yielded strong gains concentrated primarily on gross margins. With Iain’s expertise we see the opportunity to capture more process related operating cost savings through redesign and investment in many of our legacy systems. We will keep you informed of the impacts, both capital and any short-term P&L impacts as the progress unfolds. Finally, a few comments on CTFS and the incredible growth we are experiencing there. We continue to experience unprecedented growth in both GAAR and active accounts, driven by the increasing integration of the Financial Services and Retail banners and the launch of the new Triangle Rewards program, which is laying a tremendous foundation for our long-term earnings growth. While we could not be happier with the health of the portfolio and the strength of our key metrics, growth in the Financial Services business comes with a significant upfront investment. This includes the costs to acquire new accounts, and more recently, the incremental expense related to the implementation of the IFRS 9 accounting standard. You will recall that this standard requires us to expense our estimates of expected future losses at account inception. This has resulted in an increase to the costs both to acquire and grow receivables. As a reminder, the allowance rate has moved from about 2 percent of receivables at the end of 2017 to 12.6 percent at the end of Q2. This incremental charge is a direct impact to gross margin, which also puts downward pressure on our return on receivables during periods of growth. We will need to fully cycle the current growth trajectory in receivables to see bottom line benefit, and that should start to build in later 2019. Before I hand it off to the Operator, I wanted to make a final remark on the successful debt offering we executed in early July, raising $650 million. The notes are rated BBB high by DBRS and BBB-plus by S&P, and we are pleased with the strong market interest attracting over 60 investors and reflecting the high demand for Canadian Tire debt. With that, I’ll turn it over to the Operator for the Q&A 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 the handset or step close to your speakerphone system when asking your question, and to limit your time to one question plus one follow-up question. We'll pause for just a moment to compile the Q&A roster. Thank you. We have a question from Irene Nattel from RBC Capital Markets. Please go ahead. Your line is now open.

Irene Nattel, RBC Capital Markets Thanks, and good afternoon everyone. Clearly there’s significant investment going on to drive future growth and it would be very helpful to us if you could walk through what we should be expecting in the back half of the year and what kind of returns you anticipate generating and how we should expect those to unfold, I guess, presumably in 2019, starting?

Stephen Wetmore, President and Chief Executive Officer Hi, Irene. It’s Stephen. Well, the launch of Triangle is obviously a multi-year investment, so there’s two components of that as Dean referenced, the first being obviously the launch of it, the marketing costs associated with it which that in itself is a one-time cost to get it out into the marketplace. At the same time, we launched a rewards program and the communication associated with that. The take-up of both has been absolutely extraordinary. The benefits of loyalty program is to give us a connection with our customer that we’ve probably never had to this degree, and an offering that obviously is unparalleled in our history for our customers. To get the data to understand how we can market, how we can personalize, etc., etc., as we’ve taken you through before plus the data is extremely important to us. That’s a long-term play and an extremely important play for us. As far as Greg Craig’s business is concerned, in order to invest for the future, you have to take the provisions of IFRS 9 as Dean said. That business can be broken down into two or three component parts, and if you took the part that generates all the income currently, that’s from

the acquisitions that have occurred in prior years that you now get to a maturity state; they’re working and you’re trying to maintain them and work on reducing churn and things like that. The second part of your credit card business is the investment for the future, and I think getting the receivables growth that Greg has managed to get out of this business from many things that he’s done over the last year, year and a half, but also now to be able to capture additional customers because of a card I believe that is one of the best offerings in the country has an upfront cost, both in terms of acquisition and provisioning, but the long-term benefit to our retail business as well but to the bank is absolutely substantial. It needed to be rebranded. It needed a new start in life and I believe we’ve done all of that within the last four or five months. The other investments that we—those are the big investments for the quarter, to tell you the truth. As Dean alluded to, if it was a relatively normal quarter I think our Opex ratios would have been in line. We had great expectations for the second quarter and could have easily hit it with more of a normalized weather pattern, and so I’m not overly concerned. We also took a few things in the second quarter that normally we wouldn’t even reference to you, things like CP Rail cost or the closure of Helly Hansen. Those numbers normally wouldn’t matter really all that much, but because of the Opex expense ratio we wanted to explain them to you. Those are ongoing. The rest of the year is what I would call a normal year. If Greg continues, Greg Craig continues to perform, which we fully expect he will, then you’re going to see this same type of provisioning accounting that you’ve seen in this quarter but that’s the investment for the future. It’s great news and bad news when that happens. It’s great news for the future and it’s bad news for the quarter because of the provisioning, but everything we have to invest for the future, Irene, as you well know, and these small amounts are relatively insignificant, to tell you the truth. We could do the same and invest $50 million or $75 million in capital, doesn’t hit the P&L and nobody says anything, so the investment is something that hits the P&L and everybody gasps. I hope that gives you a little bit more colour on what our expectations are for the year.



Irene Nattel, RBC Capital Markets That’s really helpful, thank you. If I just may ask one question about the repositioning of Sport Chek, can you talk a little bit about where you see perhaps the opportunity? Where you see that there’s white space that you weren’t filling, and really what your target is with it?

Allan MacDonald, Executive Vice President, Canadian Tire Retail Hey Irene, it’s Allan. Yeah, I mean it’s early days so I don’t want to tip my cards too much, but what I’d tell you is that Sport Chek’s traditional positioning around what we would call achievers has gone incredibly well, and the active, sort of very active younger demographic Sport Chek has really good resonance with. We think there’s an opportunity to expand that, not to exclude that category of consumers at all but to rather make Sport Chek’s positioning in the market a little broader. That’s going to mean amping up some categories. You’ve already seen evidence of that with some of the work we’ve done with kids and it’s also going to mean positioning the brand in such a way that it has a little bit broader appeal, but doing it really carefully because we don’t want to alienate that core consumer that we’ve built up over time. Over the course of the next few quarters, you should start to see us make some move to expand the appeal of Chek, staying true to who we are but the words fitness, sports and wellness, keep those in the back of your mind.

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

Allan MacDonald, Executive Vice President, Canadian Tire Retail No worries.

Operator Thank you. The next question is from Mark Petrie from CIBC. Please go ahead. Your line is now open.

Mark Petrie, CIBC Thanks, good afternoon. I actually just wanted to follow-up on that first question with regards to the expense investment. You called out the higher occupancy cost due to a change in the cost-sharing agreement with the dealers. Just wondering if you could elaborate or give a bit more colour in terms of what that is and how that will affect the business over the next year.

Dean McCann, Executive Vice President and Chief Financial Officer Mark, to some extent I’m regretting that to some extent because the reality is we’ve been talking about, as you know, the, if you will, movement in the dealer sharing arrangements. We refer to that quarter after quarter, typically more with respect to margin, but there was some change in how we handle occupancy in terms of maintenance and things like that, and the reality is it’s bundled in with the overall amendments that we made to the contract over the course of the last few years that you’re all aware of and that have been incredibly successful for both parties over the last number of years. So, I don’t want to get too hung up on that. That’s more of a kind of one-off blip more than anything so I wouldn’t get too excited about it, to be quite honest with you.

Mark Petrie, CIBC Okay. That’s fine. Thank you. My question is I know you don’t usually talk about sort of the next quarter or anything like that, but given the volatility that you experienced in Q2, I’m wondering if you could give a bit more colour on the performance thus far in Q3, and then sort of specifically at CTR there was a lot of noise in play between sales and actual dealer orders and dealer shipments. Could you guys give us a sense of how inventories are positioned today at the dealer level and sort of the outlook for sales versus revenues in Q3 or the second half of the year?

Stephen Wetmore, President and Chief Executive Officer Mark, it’s Stephen, hi. Our business is operating extremely well so I have no less expectations of the rest of the year than I had at beginning of the year at all. I think we’re doing extraordinarily well. As you well know, we’re measuring a big business, complicated business on a three-month basis, so



therefore you get three-month fluctuations which has absolutely nothing to do with the value of the Company. Going into the third quarter we have great expectations. If memory serves me right we had a very, very successful third quarter in 2017, so we’re comping over big numbers as well. The quarter is made with September from that point of view so very early days for us into the quarter and the expectation for September is as always very aggressive. Now we’re spending some money to grow our business, especially our Financial Services business and to launch our Triangle Rewards program has absolutely nothing to do with the performance in the rest of the year, if that helps you.

Dean McCann, Executive Vice President and Chief Financial Officer Mark, the question on kind of inventory and relationship of inventory to sales and that kind of thing, Allan and Greg, if you guys want to jump in, but roughly speaking, the dealers tightened up a bit, right? I mean as a result of what went on in April, so the inventory growth level—the inventory is in great shape, by the way, but the inventory growth level that we experienced kind of in the last few years we didn’t experience this year, and we still are in that sort of disconnect, if you will, where sales have overachieved relative to shipments, and you understand how that math works and I think everybody on the call understands that over the fullness of time generally that kind of works its way out. So, being in a good inventory position, both at the dealer level and the corporate level and with, if you will, that dynamic, as Stephen said, that just makes us all, certainly not change any of our expectations going into the back half of the year. I don’t know if you guys want to add anything.

Allan MacDonald, Executive Vice President, Canadian Tire Retail That’s well said. I don’t see any reason that we would be factoring the remaining quarters because of inventory.

Mark Petrie, CIBC Okay. Appreciate the comments. Thank you very much.

Stephen Wetmore, President and Chief Executive Officer Thanks, Mark.

Operator Thank you. We have another question from Jim Durran from Barclays. Please go ahead. Your line is now open.

James Durran, Barclays Good afternoon. There’s a number of things that are facing all of retailers, minimum wage increases, more recently a lift in transportation costs. There’s rate hikes going on out there that will have some impact on the consumer, and finally, this uncertainty around tariffs. Can you give me an idea, like on the minimum wage side, which is handled by the dealers, have they been finding ways to offset it or how are they digesting that increase? How material is transportation to you in terms of an expense lift in the second half of the year?

Stephen Wetmore, President and Chief Executive Officer I’ll do the dealer part if you want to do the transportation. Our store network has accommodated it as we’ve always said. They’re extremely good at handling these sort of things, Jim, and while they would, I’m sure, sitting around having a cup of coffee together start talking about the cost challenges within the business, as we all do, they’ve found great ways to offset it, to their credit. In addition, though, we have lots of productivity initiatives underway which also include in-store operational efficiencies and productivity and Allan and Greg could go on at great length of the things that they’re doing in store in order to assist with the performance. It’s been I think a combination of them being very clever, pricing well in store and their specials and etc., etc., and implementing a lot of the programs that we have. That’s the answer to that one. Transportation costs, Dean, you can probably do a better job answering it than I can.



Dean McCann, Executive Vice President and Chief Financial Officer Jim, there’s kind of two buckets there. The first bucket is our teams do a great job when you’re sort of threatened, as we were, with respect to the CP Rail strike, so the guys did a whole bunch of work. It was probably a few million bucks in the big scheme of life for a one-day strike, so I beat them up accordingly, right? Why did you do that for a one-day strike, which obviously is the wrong way to think about it. We have to be in a position to be able to ship, which is what the guys do an exceptional job making happen. On the other side, there’s the transportation, everybody is feeling that, right? I think over time the guys will figure out how to manage through that from a margin effect point of view but it will take a little time to rinse that through. But, it’s not insignificant. There’s a bunch of things happening around fuel costs and rules in the States as to how long drivers can be in cabs and things like that. I’d put it in the category of stuff always happens and that’s why productivity is so important, as Stephen referenced, the dealers. The same thing at our side of the house. I keep looking at Iain every time I say productivity now because I’m expecting more great things from him.

Stephen Wetmore, President and Chief Executive Officer Jim it’s Stephen, there are positive things happening in the world too, you know what I mean? The economy is still motoring along at a pretty good clip and consumer spending, I mean one day you can be pessimistic about it and the next day you can be extremely optimistic about it. We’re continuing very strong in our own brands. I think we have an offering with our credit card that is second to none in the country and will have for a long period of time here, in my opinion. Our projects are running as expected. So, we’re in as good a shape as we’ve ever been and we’ve got businesses that give us the canary in the mine shaft cues here too with automotive, etc. and our gasoline business. Yes, there are always headwinds but combined, if you look back a couple of years ago, three years ago, the foreign exchange headwind was astronomical compared to the headwinds that you’re referencing. So, yeah, we’ll accommodate them one way or the other.

James Durran, Barclays Just as a final part to the question, tariffs. Can you give me some idea as to tariffs play any major role in your product offering? Is it material in terms of the size of that hurdle?

Greg Hicks, President, Canadian Tire Retail Jim, it’s Greg. From a CTR standpoint, which is where at least the most recent batch of tariffs would have been impacted, it’s not material in the grand scheme of things. We certainly would want to reserve the right to come back on that if the tariff war starts to escalate in a significant way, but we’re seeing it in steel for the most part, so we have alternative kind of sourcing options with the network that we have. Then the other big benefit that we have, as you know, we source a good chunk of our product overseas and with this war you’re seeing a pretty good depreciation in the RMB which provides us a little bit of an upside. When you put the two of them together, it’s really a wash in the grand scheme of things, at this point in time.

James Durran, Barclays Great. Thanks, Greg.

Operator Thank you. The next question is from Vishal Shreedhar from National Bank Financial. Please go ahead. Your line is now open.

Vishal Shreedhar, National Bank Financial Hi. Thanks for taking my questions. Just on the April sales, thanks for that colour, the double-digit declines and then the subsequent catch-up in the following months. I guess I’m wondering did these following months, did they just get catch-up sales from April, and if you were in our position, how would an investor know that it was truly weather in April and there’s not something else a little bit more untoward happening in the retail business?



Stephen Wetmore, President and Chief Executive Officer Well, I can—look what always happens, you’ll see it a lot with—we’ve seen it through the years obviously with many of the banners. When the seasons don’t come in when you anticipate the seasons to come in, the products are obviously not going to go out the door, whether it’s outerwear or whether it’s outdoor fun in the case of CTR. What you hope then is that when the weather does turn and the customers are going to buy, do they come back to you? That was our clue. We used to see it all the time with Mark’s and then sure enough they’d come back, and your customers are all coming back to you, so, great signs. While we’re down in April, it’s relative to where we had expected to be in the prior year. It’s not like we got zero sales or anything. It was mainly with the seasonal categories. Did they come back? Yes. I think Allan and Greg would say very much so though that did they potentially lose a trip or two because things that you would have bought in April and replenished in June, yes, we would have lost some trips, but from—and I would say across the board it’s very difficult to get accurate market share numbers across the board for us, but we have no reason to believe in any substantial category that we lost any, and probably gained. So, no, we’re very, very pleased about our performance in that regard.

Vishal Shreedhar, National Bank Financial In Q3, are there any extraneous challenges outside of the ones that you already highlighted related to charges that investors should be aware of when we forecast Q3?

Dean McCann, Executive Vice President and Chief Financial Officer Vishal, it’s Dean. Obviously the success, if you will, of CTFS and the impact thereof with IFRS 9 and those kinds of things, I think the IR team here wants to make sure everybody out there has a good understanding of how that works, right? I think I’m hoping that we continue to have the kind of traction that Greg Craig and team, along with the Retail team have had with the successful launch of the loyalty product Triangle. In addition, obviously we’ll have some Helly costs related to closing the acquisition, so we’ll highlight those for you in the third quarter. But other than that, as Stephen said, our outlook for the balance of the year hasn’t changed based on kind of one crummy weather month.

Vishal Shreedhar, National Bank Financial Okay, so on the back of that ‘hasn’t changed’, in the past Management used to say—and you can correct me if I’m wrong—that the goal was to grow I guess gross profit dollars faster than SG&A, and so far operating leverage in the year not coming in as I might have thought initially, just wondering is that still Management’s goal to get operating leverage in the Retail business, and is that more of a 2019 story now?

Dean McCann, Executive Vice President and Chief Financial Officer I think our aspirations are still our aspirations. I think the pressure, if you will, that we internally put on trying to put our cost structure in check, I think we demonstrate with the kind of productivity programs we have. Stephen referenced the uphill climb with respect to foreign exchange which the teams managed through very effectively the go forward program. I’ll throw Iain out there again, in terms of looking at our processes in house and cost structure. I think there’s an opportunity, frankly, to do more, so we certainly have goals of improving the operating leverage in the business, but not at the expense of doing the right investments for the long term. We’re not going to sacrifice investing in data and eCommerce and so on, and owned brands and so on. From a perspective of being fussed about it, again, I’d just repeat these were planned expenditures, right, and we’d be having an entirely different conversation if I’d gotten anywhere near to our expectations with a normal weather pattern in April.

Vishal Shreedhar, National Bank Financial Okay, so just if I can paraphrase, the answer was, ‘yes, we aim to get operating leverages, positive operating leverage, but we’re also aiming to invest in the Company and we’re not going to stop investing for the sake of getting positive operating leverage.’ Is that a fair characterization?

Dean McCann, Executive Vice President and Chief Financial Officer Yeah, that’s fair. Yes.



Vishal Shreedhar, National Bank Financial Okay, switching to Financial, obviously strong GAAR growth. I’m just wondering about a decision that Management made a while ago, and the Board, which was to divest 20 percent of the business to BNS. Wondering if Management is pleased with that decision in retrospect, and if there’s any intention to move further on divesting Financial—either buying it back or divesting it further.

Stephen Wetmore, President and Chief Executive Officer Hi Vishal, it’s Stephen. Remember back at that time that just about every retailer in North America, around the world, sold their receivables, and we felt that that was the wrong move at that point in time. They were doing it to surface value. We were able to surface value by bringing in a wonderful partner with Scotia with a minimal investment, really, when you look at it. It told everybody the value of that piece of business. The regulatory environment was certainly uncertain and it was a time that we could walk through the future kind of holding hands, if you will, with a big player and a partner whose brand matches ours very, very closely, and don’t forget, we managed to de-lever the balance sheet, which I still believe is a very, very significant fact that everybody takes for granted now that we have it and have had it for quite some period of time. The irony is, “Oh, you would have been better off.” No, I think we’re better off having done what we did do and where we are today, and so I’m very pleased with what we did and where we are today.

Vishal Shreedhar, National Bank Financial Okay, thanks. Just the last one here, on the decision to reposition Sport Chek, I understand you want to expand the market that you’re addressing, but drove that decision? Was it because the comps have been falling lately and presumably the business is not hitting the numbers that it has in the past and that’s what motivated the decision?

Allan MacDonald, Executive Vice President, Canadian Tire Retail Hey Vishal, it’s Allan. No, I wouldn’t say that. I mean with Sport Chek, you’re always looking for opportunities within

these businesses and when we look at the appeal of Sport Chek and the asset base we have, the categories we’re in, where that brand can travel, we see a lot of potential and it has much more to do with trying to be innovative and looking at the opportunity that exists within an asset rather than reacting to any particular performance challenges it might have in the short term. We’ll always address those in a methodical and thoughtful way as we have in the past. But like any of our businesses, we just see a ton of potential at Sport Chek and we want to capitalize on it. It’s a journey. It’s going to take—this is going to take quarters and quarters but it’s going to be a lot of fun. I think this segment could be really, really important for us going forward.

Vishal Shreedhar, National Bank Financial Thanks a lot.

Operator Thank you. The next question is from Patricia Baker from Scotiabank. Please go ahead. Your line is now open.

Patricia Baker, Scotiabank Thank you. Good afternoon everyone. My first question, Allan, is for you and it is following up on the repositioning of Sport Chek. Is that something we should think of as really that’s a marketing repositioning as opposed to any sort of physical reset to the stores that would require a lot of Capex? Is there potential for that repositioning to also be manifest in the Sport Expert chain in Quebec?

Allan MacDonald, Executive Vice President, Canadian Tire Retail No, don’t think of it—the best way to characterize it as hopefully you’ll see it as subtle and that the relevance that Sport Chek’s store and digital presence offers all of us will just continue to grow and grow. There will be likely changes at the store or changes on the site marketing investments, but I see those as for the most part all normal course. I would expect that the successful pieces of that will continue to amplify and that our partners at Sports Experts will want to do the same. I’m thinking that as much as you position it as a brand



exercise that it will lend itself to how we present our categories in store.

Patricia Baker, Scotiabank Okay. That’s helpful. Dean, I just want to come back to the SG&A, and I’m not gasping at the increase in SG&A this year, but the layout in the MD&A, which gave us a lot of detail on what costs were higher year-over-year and I look at the higher occupancy costs and the higher personnel and IT costs that you said were executing against digital, retail and analytics capabilities, would I be right in assuming that you will be continuing to maintain higher personnel and IT costs as you’ll be investing in digital, retail and analytic capabilities on an extended basis? Then, also the same thing with the promotion of the owned brands, I would assume that that will continue as well. And if you could give us a little bit more colour on the Bolton DC and when the higher costs might roll off there?

Dean McCann, Executive Vice President and Chief Financial Officer First on Bolton, I’m really looking forward to next quarter when I don’t have to talk about Bolton because we’ll be fully comped on Bolton. If you’ll recall it opened in the third quarter last year, so park that one. In terms of the ongoing investment, yeah, these investments, those will be part of our run rate going forward but I want to continue to emphasize, right that the issues was not operating costs. The issues was, frankly, we planned these investments based on an expectation with respect to the April season and we didn’t get it. It’s just plain and simple as that. We didn’t sell the number of bikes that we thought we would sell and so on in the season and outerwear. As I say, and I think we repeated a number of times, we don’t change the outlook in terms of the balance of the year based on one crummy month. Those expenses, those investments, if you will, in terms of those capabilities that have been built, we’ve sat around in rooms here talking about okay, do we do anything different, and we absolutely would not do anything different. Hopefully that helps.

Patricia Baker, Scotiabank That helps. I didn’t anticipate that you would have done anything different given the weak April. I’m just talking about, as you said, the run rate going forward. You will have the—will continue to make those ongoing

investments and they certainly drive future growth, but we should be thinking about them not so much as investments but part of the cost of doing business.

Dean McCann, Executive Vice President and Chief Financial Officer Yes, and in the context of what we plan to achieve over the course of the year, right?

Patricia Baker, Scotiabank Yes, exactly. Thank you.

Operator Thank you. We have another question from Brian Morrison from TD Securities. Please go ahead. Your line is now open.

Brian Morrison, TD Securities Yes, good afternoon. Allan, with respect to the importance of the Triangle, you rhymed off a few numbers highlighting the strength out of the gate. I’m wondering if you can just elaborate what are the ongoing metrics you’re focused on to ensure it’s driving the success you desire? And to the extent possible—I realize it’s early days, but can you just share how you’re seeing accumulation and redemption participation rates at the non-CTR banners and how they’re tracking relative to projections?

Allan MacDonald, Executive Vice President, Canadian Tire Retail Sure. Hey, Brian. Look, if I said to all of you last year, “Here’s what we’re planning to do with our loyalty program and credit card,” I don’t think you’d believe me. The success that Susan and Greg have had in the relaunch of this program has been just absolutely excellent. We’re very, very, very pleased. The Triangle marketplace has really created a vessel for us to do so much when it comes to engaging our employees. So when we think about where we’re going to go from here, acquisitions in terms of the credit card business, and Greg can speak more about this, but they’re performing even beyond our expectations.



Indulge me for a second because I’d be remiss if I didn’t mention that note the power of the collaboration amongst our business units, because one of the big differences here is yes, we changed the value proposition, and yes, we had great marketing, but suddenly we had all of the business units including the Canadian Tire Retail and the dealers behind this and really bringing this program to life. That made a huge difference. So, acquisitions are going incredibly well. Now it’s about managing to retain those customers we’re acquiring and make them and get them to be active. Whether it’s participating in our loyalty program, visiting our app, visiting our website, continuing to get engaged with earning Canadian Tire loyalty rewards, that’s really important, and the same is true of the credit card. Really, our focus is to continue to acquire customers but more importantly continue to retain and engage them, so that’s really where we’re focused now. To your question over the performance metrics we’re looking at, it's really a balance of how are our channels performing in terms of those two lenses: Are we acquiring customers, and are we engaging and retaining them? When you do that, we’re building properties that will pay dividends for us for years and years to come because what we’re building is the marketplace of the future. It’s the flyer of the future and the more customers we have and the more frequently they visit it, the more power we have to engage them and drive traffic. It’s early days but I couldn’t be more positive.

Brian Morrison, TD Securities Accumulation and redemption at the non-CTR banners, the same thing?

Allan MacDonald, Executive Vice President, Canadian Tire Retail Accumulation, I think I gave it a number, right? We’re up substantially in CTM issuance and that’s coming across all the banners. The presentation of the loyalty rewards, so the issuance of loyalty rewards, let’s say, or percent of transactions at Mark’s and FGL primarily, which would have been zero a year ago because they obviously weren’t participating in the program, is as good or better than CTR’s already, and it’s only 90 days in.

In terms of issuance, that’s a little bit slower to catch on. That’s normal though because people tend to collect—sorry, in terms of redemption. People tend to collect before they redeem so that’s still a TBD.

Brian Morrison, TD Securities If I can turn the channel here for a second and go to Greg because Allan has just kind of walked into this. I’ve got a decent grasp on this IFRS 9 and the putative impact on new customers, and Stephen alluded to it earlier, but it sounds like we’re going to see a similar impact in the allowance or the gross margin in the second half of the year, but I realize there’s no impact over the life of the customer. I’m not sure I’m asking this correctly, but can you just help me understand when you see the benefit or the pressure of the gross margin subside, presuming that the risk metrics are constant? Dean, just following up on that, can you just confirm that with this headwind we’re still reiterating that 10 percent growth target over your three-year average?

Dean McCann, Executive Vice President and Chief Financial Officer I’ll start, it’s Dean. The answer is yes. We’re not coming off our aspirations or anything like that, right? In fact, absolutely not.

Greg Craig, President, Canadian Tire Financial Services / CEO, Canadian Tire Bank Brian, it’s Greg. I’ll start on the IFRS 9 question. I think, as you know, this is a new accounting standard that was implemented in January of this year, so with the implementation of any new accounting standard it’s going to be more impactful in the year that that standard is actually implemented, so as Dean mentioned in his remarks, I would expect it’s probably later in 2019 before we kind of get through the normalized cycle with IFRS 9. The results, I would also think from an acquisition perspective we’re probably another two quarters of elevated kind of acquisition. I think you will see acquisition continuing in 2019 but just not at the same kind of growth rate you’ve seen certainly into 2018 given, as Allan talked about, we had a 40 percent increase in our first use accounts in the quarter. I mean that’s unprecedented, to use that word.



We’re going to keep our foot on the gas on this because we think there’s a great opportunity right now. I do want to echo Allan’s comment as well. It’s a great value prop but the partnership between Susan and all the retail banners is really what’s really helping to make this thing sing as well. Any question or opportunity, the guys are there to present it to us to keep growing this business forward. So, we really see that continuing in the latter part of ’18 and into ’19 as well.

Brian Morrison, TD Securities Thanks, Greg.

Operator Thank you. We have a question from Peter Sklar from BMO Capital Markets. Please go ahead. Your line is now open.

Peter Sklar, BMO Capital Markets Dean, on the loyalty program, obviously the cost is the reward, could you explain a little bit how Canadian Tire accounts for it? I’m not too sure if you record the expense when you issue the reward or when there’s the redemption. Where do we see that flowing through your financial statements?

Dean McCann, Executive Vice President and Chief Financial Officer I’m going to suggest we do that offline because that’s just going to be a painful discussion for everybody, but at the end of the day we expense it as it’s issued, if that’s the sort of fundamental root of the question, and it actually ends up as a contra revenue, right, because of a standard, another accounting standard that was issued some years ago, right? I think if you want to go through kind of the detailed, kind of how the journal entries work, I’ll let Marina and Lisa handle that one for you offline.

Peter Sklar, BMO Capital Markets I wasn’t concerned about the specifics. I just wanted to make sure that we’re seeing the associated expense currently in the …

Dean McCann, Executive Vice President and Chief Financial Officer Yes, absolutely. Absolutely, yeah.

Peter Sklar, BMO Capital Markets Okay. Allan, when I listen to Stephen’s comments about the third quarter, I think you suggested that the make or break for the third quarter is the month of September, so I just want to—for the CTR banner, I just want to make sure I’m hearing him correctly. If that’s true, what are the critical categories for September for CTR?

Allan MacDonald, Executive Vice President, Canadian Tire Retail That’s a good question. Good news, Greg is sitting right—Greg Hicks is sitting right to my left, so let me just offer this. Stephen is absolutely right. I mean September, especially when it comes to CTR and as CTR goes, CTC is huge. With FGL, and to a lesser degree Mark’s, back to school is a big part of it as well and that starts in a couple of weeks actually in sort of mid August, so we have a lot of work ahead of us. In terms of categories, Greg, do you want to offer a comment or two?

Greg Hicks, President, Canadian Tire Retail Yes. September is a big build month in terms of dealer inventories from a get-ready standpoint for Q4. Our tire business is a real kind of big business that pushes out in September and into October as we get ready for winter changeover. Our Christmas and toy businesses have the same kind of crossover between late Q3 and early Q4. Think about it, Peter, really with respect to kind of building the channel to get ready for the merchandising activity for the busy Q4 season. You’ve got some gift giving and kitchen categories that would fall into those types of situations as well. If you just put that whole basket together that’s really how to think about what happens in September from a fill standpoint for the dealers.



Peter Sklar, BMO Capital Markets Greg, from your perspective, in terms of wholesaling to your dealers, at the dealer level what are the critical categories that they’re selling in September?

Greg Hicks, President, Canadian Tire Retail On the sales side, through the tail in September it’s really linked to kind of backyard cleanup. You’ve got everything to do with kind of hopefully leaves falling a little earlier and pools closing, and then there’s a lot of automotive maintenance type activity as there’s more free time in the households from a parent standpoint with kids back in school. There’s preparation with cars back on the road for hockey season and those types of activities, family activities for Life in Canada, but normally what we see—and it didn’t play through in Q3 of last year—normally we see a build in revenue at a higher clip than POS, so those categories that I mentioned aren’t huge in general, whereas the fill in the categories that I mentioned are quite large and some of them quite high ticket in nature.

Peter Sklar, BMO Capital Markets Okay, I get that. Thanks very much.

Operator Thank you. We have a question from Chris Li from Macquarie. Please go ahead. Your line is now open.

Chris Li, Macquarie Good afternoon. I guess this one may be for Stephen. I know you touched on this already but I was hoping if you can elaborate a bit more on what you’re seeing in terms of the health of the consumer. In light of the recent headwinds, overall do you expect them to tighten their purse strings a little bit relative to a few months ago given what’s been happening in the economy.

Stephen Wetmore, President and Chief Executive Officer It wouldn’t, Chris, surprise me but we’re not seeing it in any of the data at the moment. It’s a large country. Some cities and regions may be seeing it a bit or suspecting it more than others.

In most of our kind of forward-looking businesses that give you some indication we’re not seeing it either, so we’re kind of bullish. The economy is doing quite well. I know a couple of rate hikes has an impact on people, but I’m not—we’re not seeing it. We’re not getting any big clues on it. I’m okay as far as looking at the confidence in the consumer market at the moment.

Chris Li, Macquarie Okay, that’s helpful. Maybe related to that is are you seeing any more aggressive actions by your competitors, mainly in the ecommerce space, or are you seeing them kind of more or less behaving the same way as they have been before.

Stephen Wetmore, President and Chief Executive Officer Normal behaviour is quite aggressive, but you’ve heard about some of the bigger players opening up additional DCs and things like that in country. Again, we always have quite a substantial advance warning of those sort of things because of our knowledge of real estate in Canada. Across the board I think we’re—I would say that we’re becoming better at eComm than our competitor’s ability to come after us in eComm. Let’s put it that way. We’re investing well and when we reference eComm, we reference everything, not just the actual sale but our ability to work our digital online data and understanding of what’s going on. So, no, I wouldn’t say so. When you take a look at some of the U.S. market retailers, the weaker ones are going to continue to shutter and continue with closures or bankruptcy protection. The big box operators are all, for the most part, are all doing quite well. If you look through 2018, some of our traditional competitors and things like that that we operate in this market with and know well, they’re all performing very, very well too. I think we’re all upping our game. Put it that way.



Chris Li, Macquarie Thanks for that. Last question for Dean. Just a quick modelling question on gross margin for the back half of the year. If we just focus on the inclusion of Helly Hansen and just ignore everything else that’s happening, given that Helly’s gross margin is in the mid 40 percent compared to mid 30 percent for the Retail segment, all else equal, we should expect your margin rates to be up year-over-year. Would that be fair?

Dean McCann, Executive Vice President and Chief Financial Officer Yes, if you just do the math, but it gets complicated if you look up the purchase price accounting equation and how that all works because you have to rinse the inventory through at market value and all those kind of things, but we’ll walk you through all of that impact in Q3, Chris, is the plan. We’ll give great visibility to all those impacts. But obviously Helly is a higher margin business than typically CTR and more in line with kind of the Mark’s and FGL businesses. So yes, on a global basis, yes, you’re correct.

Chris Li, Macquarie What type of disclosures can we expect from Helly going forward?

Dean McCann, Executive Vice President and Chief Financial Officer We’ll go through all of that with you in Q3.

Operator Thank you. This conclude 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 disconnect now.

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