Canadian Tire Corporation Limited (TSX:CTC.A) has pulled back nearly 9% following an earnings report that disappointed the general public. Canadian Tire had a huge run before the decline, so it may be time for long-term investors to initiate a position in one of Canada’s best brands.
Canadian Tire reported decent quarterly revenue and profits, both of which beat estimates, but the stock took one on the chin because investors were expecting more in the same-store-sales-growth department. FGL Sports reported a same-store-sales decline of 2.7% and this rang alarm bells with investors who have become increasingly fearful of e-commerce giants and their negative impact on traditional brick and mortar retailers.
I’m sure you’re familiar with FGL Sports’s store Sport Chek. If you’ve walked into one of the revamped stores lately, then you’ve probably noticed the new technology around the store. There are futuristic display cases with holographic-like projections and touch screens present in various locations. There’s no question that the management team invested heavily in technology to grow same-store sales and drive customer traffic, so it’s alarming to see same-store sales halt, but have investors overreacted?
I believe the post-earnings sell-off is completely unwarranted, and that, like many other earnings reports delivered this year, Canadian Tire has been subject to unrealistic expectations from the general public.
Let’s face it. Stocks have rallied a huge amount since Donald Trump’s presidential victory, and investors have been expecting perfection, even before Trump’s pro-business agenda can be put to work. Earnings or revenue beats are no longer a guarantee of a nice rally. In fact, if anything short of a large beat across the board is reported, the stock will probably go for a plunge.
I think Canadian Tire is oversold. The management team is always thinking way ahead of the game. Home delivery is not a desperate move to try to grow sales; it’s simply another method to make Canadian Tire a stronger retailer in the long run.
Canadian Tire isn’t going all-in on its e-commerce platform, as most of the things it sells require a customer to see the item and try it out before buying. Most customers that aren’t handymen will probably also need advice from some of the staff before making a purchase. Canadian Tire owns a ton of locations, and this isn’t going to change because Canadian Tire is testing a home delivery platform. The home delivery platform is going to be for items that make sense to sell online.
I’m confident that the management team will be able to adapt to the changing retail environment, and I believe the current weakness is a terrific entry point for long-term investors.
Stay smart. Stay hungry. Stay Foolish.
