Canadian Tire (CDNAF) is Canada's most beloved retail chain, selling everything from automotive services to sporting goods to apparel to groceries. The company has prospered even as big-box chains from the U.S. invade its home turf. In the episode below from a recent Motley Fool Industry Focus: Consumer Goods podcast, our team introduces this intriguing consumer goods investment to listeners.
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This video was recorded on May 28, 2019.
Jason Moser: I was wondering what the impetus was for this kicking the tires on Canadian Tire this week. Now I get it! I mean, hey, let's jump right in here, because it's not a business I was very familiar with before you had mentioned it. But I had a chance to give it a look over the weekend, and there are some interesting points of this business here that I think are worth expanding on. I'm going to throw it over to you immediately here, just ask you, what is it about Canadian Tire that has your interest today?
Asit Sharma: First off, the name is deceptive. It's not really a tire company. Canadian Tire started out as a tire business in 1922. They're coming up on their hundred-year anniversary in 2022. But it is a widespread Canadian retailer which sells automotive tools and hardware, home essentials, sports and recreation, and outdoor living products all under one roof. Some locations also have grocery and apparel. If you think about big-box stores here in the U.S., maybe a little bit of Walmart, a little bit of Sam's, a little bit of Home Depot, a little bit of Dick's Sporting Goods, and maybe a little bit of TJ Maxx, you'll start to get the flavor of a Canadian Tire store. It's a uniquely Canadian concept.
Why I'm interested in it is, we just don't spend enough time looking at those businesses north of the border. It's a smaller market. U.S. businesses tend to go into Canada and expand, so we hear about Canada all the time. Folks who read financial reports, you know that the consumer goods companies you're investing in are going into Canada. But what about these local companies?
I'm going to run down the makeup of this big retailer for you and maybe hit a couple of financial snapshots,and hand it back to you, Jason, for some comments. But listeners, picture this. The company has roughly 500 Canadian Tire flagship stores, that big behemoth store, big-box store I just described. They also own gas station chains. The biggest is called Petroleum. It's got [...] and convenience stores combined. They have an apparel and footwear company called Mark's, which has 400 stores nationwide in Canada. It's got SportChek, which is a sporting goods and activewear retailer, and Pro Hockey Life. Hockey is extremely important to the lifestyle in Canada. They have multiple hockey-based businesses. It's big business in Canada.
Also, the company acquired a Norwegian sportswear and workwear a company called Helly Hansen last year for about 985 million Canadian dollars, which is in the $800 million U.S. range. They also have a consumer brand division, which expands multiple private-label brands. The one that listeners will be familiar with is MasterCraft, the tool company. We often see MasterCraft tools here south of the border. It finally has a finance segment to offer loyalty credit cards and also a REIT segment, a real estate investment trust, which invests in properties, not just its own, but income-producing properties across Canada.
Just to give you an idea of how big this company is, last year, it had revenues of $14 billion Canadian, that's about $10.6 billion U.S., and it experienced 6% year-over-year revenue growth. And it also has pretty solid margins. Gross margins were 33.5% last year. Operating margin was 9.2%. And it booked net income of around $700 million Canadian, that's about $520 million U.S. Lastly, it's got a fairly solid balance sheet. It's got a debt-to-equity ratio of about 0.38 times, so not very highly leveraged, and that's after taking on this big acquisition of Helly Hansen last year.
So that's an overview of this really sprawling Canadian company, which considers a lot of our well-known big-box retailers its primary competition.