Buy Canadian Tire as it buys Party City

Canadian Tire hopes Party City will add high lifetime value millennials and Canadian families to its customer base and fuel growth of its Triangle Rewards program.

CTC’s Party City acquisition will add high-value millennials and families to its customer base and loyalty program.

Canadian Tire has acquired Party City’s Canadian business for $174.4 million. Party City is a leading, one-stop shopping destination for party supplies and an expert in seasonal and micro-seasonal celebrations, with 65 Canadian retail stores in seven provinces.

Blue chip stock Canadian Tire Corporation (TSX—CTC.A) comprises a family of businesses that includes a consumer goods retail segment, a financial services division and CT Real Estate Investment Trust. The retail business is led by Canadian Tire, and also includes Mark’s, Pro Hockey Life, Sport Chek, Hockey Experts, Sports Experts, National Sports, Intersport and Atmosphere.

Revenues and earnings up

For the six months ended June 30, 2019, Canadian Tire made $253.0 million (normalized), or $4.08 a share, compared with $248.6 million, or $3.77 a share, in the same period of 2018.

Revenues rose 4.5 per cent to $6.6 billion. This included a 7.6-per-cent decline in petroleum retail sales primarily due to lower per-litre gas prices and lower non-gas sales. Excluding petroleum, revenues rose 6.8 per cent driven by all retail segment banners and the contribution from Helly Hansen, a producer of textiles and gear for sports and work that was acquired in the third quarter of 2018.

With the acquisition of Party City, Canadian Tire becomes an important player in the party supply business. The company thinks it will more than double Party City Canada’s business by 2021, as it sells the latter’s products across 500 Canadian Tire retail stores and online at CanadianTire.ca.

CTC.A trades at just 11.2 times the $12.88 a share Canadian Tire will likely earn in 2019. The annual dividend of $4.15 a share yields 2.9 per cent.

Canadian Tire is a buy for growth and some income.

This is an edited version of an article that was originally published for subscribers in the November 1, 2019, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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