We're ready to reconvene the conference. It is my great pleasure to invite Greg Hicks, the CEO of Canadian Tire, to the stage for a discussion of his business. Canadian Tire, to me, is one of the more complex, yet more interesting retailers that we have in this country, and it has incredible relevance with almost 100% of the Canadian population, which I think provides with an incredible strategic advantage. It is my pleasure to be able to sit down and chat with Greg today on the business. Thank you, Greg. Thank you. I think I'd like to kick off by talking about the macro environment. Mm-hmm. Because it's incredibly topical. With the varied banners that you have, I think Canadian Tire, you know, you've got the Financial Services business, you've got Triangle Rewards, you've got, obviously, the beast that is Canadian Tire. You have Mark's, you have Sport Chek. I think that permits Canadian Tire to have probably the best lens in the country, as it were, to see and understand what's really happening with the consumer demand. I'd really like to dig into what you're seeing with respect to the consumer behavior and trends as well, and perhaps get a sense of how you think that might differ from what we're seeing south of the border. Because I know recent discussions that you and I have had, you're not seeing the same thing that we're hearing from some of the bigger players. Sure. In the U.S. Yeah. Well, first of all, Patricia, thanks for having me, us here today. I'm sure I'll echo the sentiment from most that get up on stage. It's certainly nice to be here in person and shake some hands. Mm-hmm. See some faces live. Yeah, I'm not surprised that that's where you wanna start, given everything we're reading and seeing today in the banks and the markets about a looming recession. You're right. We do have great kind of windows into consumer spending here in Canada, both with our retail operations and our bank. As you know, we have the largest book of credit card receivables outside of the top six banks in the country. So why don't we start there? I mean, the credit card spend in Canada, if you think about I think the way we would look at credit card spend is how our members are spending inside our stores and outside of our stores, and the outside of our stores is a much larger portion of total spend. We do believe we get some pretty good windows into the consumer psyche on that front. When you look to just recently Q2 is our largest, it's the largest number of transactions that we've ever seen on our card in our company's history. Then when you dig a little deeper, we segment all the data in all sorts of spend categories. What we're seeing is we're seeing kind of green lights in all major spend categories, most major spend categories. When you think about domestic and international travel, still very strong. Mm-hmm. You know, dining strong, food strong, personal care spending strong, cash advances strong. Where we do see some weakness emerging is in a category like electronics, not a big spend category for us, but a big spend category for Canadians, and home furnishings. Home furnishings would hit, you know, the consumer discretionary space in different ways. For us, it would travel through our kitchen business, which is, you know, a sizable business. The book is probably just under CAD 1 billion. Mm-hmm. Those are the only two kind of prominent Canadian spend categories where we're seeing some softening demand. When you look to the kind of competitive set, we're seeing some demand softening for large pure-play e-commerce retailers that benefited from the boom over the course of the last couple of years. And some softness in what I would call specialty smaller specialty niche retailers across the entire country. That's how we look at it from an external stand- Mm-hmm. standpoint. I think there was a word that emerged last week from a bank CEO that shall remain nameless, who said there's a little bit of a disconnect in terms of what we're seeing in terms of consumer spend and Bay Street and Wall Street. If you look at what we're seeing, we probably align Align. To that type of thinking with some pockets, for sure, of concern that we watch on a continual basis. If we move our focus to internally, I think you've heard me talk about three primary indicators that we use to understand where some bearish sentiment or a different environment might start to emerge. The first is sales of our high-ticket discretionary categories. We're not seeing any weakness in those categories right now. The second that Eric just talked about would be how we think about trade down. Mm-hmm. Not necessarily to private label, but just trade down in general. We're seeing no evidence of material kind of quality architecture trade down in the entire portfolio right now. The third would be the emergence of kind of outsized growth in our repair and maintenance categories. Again, to date, not seeing any real bearish indicators from that standpoint. All in all, I think we do see a little bit of a disconnect. We totally understand that can change quickly. You know, I think I was just reading, but I think the markets are gonna be in tough today with the inflation report out of the US, and so I imagine as every day goes on, consumer sentiment here in this country starts to wane. With the multi-category assortment that we have. Mm-hmm. We lean into different categories and we really feel like that we could, you know, we'll be in a good position to handle any type of persistent inflation. Okay. Notwithstanding that disconnect, and I appreciate you bringing that up, but you did note that things could change fairly quickly. Given the consumer sentiment, the what people would still call macro uncertainty, it might be useful for investors in the room if you could provide an overview of Canadian Tire's performance in economic downturns. Mm. Both experience of the stores and the bank. Sure. Yeah, I think that's an important consideration for listeners and investors in the room. You know, I think for context, if we start with some context, Canadian Tire is celebrating its 100-year anniversary this year, so we've seen a few downturns in our day. I wouldn't necessarily position Canadian Tire as the nexus of retail risk in the event that we do head into a more meaningful recession. Again, certainly not immune to macroeconomic factors. That's not what I'm saying. Our category, our mix of categories, multi-category portfolio, really just shifts and adapts, and we help Canadians through downturns. I think the best way to think about it from my standpoint would be, you know, to look back. If you go back 13 years, just so that we include 2009, the last big kind of recessionary period, our core business has had 7 down quarters in terms of growth in those 13 years. Three of those 7 down quarters were in 2009, where our core business ended up down 3%. Not down 10%, not down 15%. Mm. No kind of cratering of the business, but down 3%. The team has done a lot of work going back to 2009. What we find, I think you and I may have talked about this one time, what we find is that a good chunk of the minus 3% traveled through some self-inflicted wounds—revisionist history. We thought at that point in time that our version of delivering value to Canadians through a downturn was about moving big swaths of our fixing business, inclusive of our entire power tool business, which was a big, big business for us, to an everyday low price strategy. The result was units just falling off a cliff. We've learned from that mistake. We won't do that again. We've got a good sense of what Canadians are looking for from Canadian Tire in a downturn. It's really that, you know, that engineered price crashing, that high low value in our promotional program, especially for big categories like power tools, highly competitive categories like power tools. I think that's how to think about the performance of the retail business. Now, if we move to the bank, again, not a 100-year playbook, but a 50-year playbook in the bank. What I love about kind of the bank is we have very large agile levers to pull. Okay. The two biggest ones that I would think about in the event of any contraction here would be just how we can limit or contract credit limits for existing cardholders, number one. Number two, we can really throttle down new account acquisition very quickly. Again, for the bank, if you go back to 2009, what happened in the bank, there was the quarterly write-off rate in the bank, the highest rate was just about 8% relative to 6% pre-recession. We didn't get hit really hard like some of the other banks did. Certainly got hit, the 8 versus the 6, but it was more shallow. I think you have to keep in mind for both the retail business and the bank, I mean, back then we were talking about unemployment, an unemployment rate in the neighborhood around 9%. Mm-hmm. I think. Employment is a big part of our risk picture. Okay. Obviously we're not seeing that same condition emerge as we sit right now. Lastly, I think I would just say, Patricia, beyond the stats and the history lesson is we just feel like we're a much stronger and more resilient organization with significantly more capabilities at our disposal than we had in 2009. Big capabilities like our loyalty program, our understanding with our first-party data of how to engage with Canadians in very different ways, our product development capabilities, our supply chain resiliency. I think the list goes on and on. We feel much better about our competitive position than we did back then. Well, if I could editorialize, I wouldn't suggest that you say you feel that way. I think it's a concrete fact. Hmm. that it's a far better business than it was in 2009. Of course. There's a lot of evidence of that. That's great. I just wanna stick with the macro and maybe talk about gross margin pressure. Mm. The unprecedented challenges, sorry to have all these Debbie Downer topics, but supply chain constraints, the labor shortages, and many of these are, you know, these are leading to higher inflation that we've discussed. We are seeing higher interest rates than we've seen in decades. All of these are forcing management to react. You've been at Canadian Tire very agile, I think, in the last two years. Reacted very quickly, pivoted quickly. I think you were one of the first companies in North America to secure your own ships. Yep. To cope with the challenges and the lack of containers. You know, that served you very well in 2021. If we're looking at the challenges that we face today in 2022, what are you doing differently, maybe than you might have done in 2009? Sure. What levers or strategies do you have to manage these particular challenges? Yeah. I was intently listening to this very similar question that you had with Eric. It sounds like we're approaching the problem the same way, and it sounds like we would both agree that to use your words, unprecedented challenges. I mean, that is really, you know, where we find ourselves and where we have found ourselves for the last many months and quarters. I think I'd start with a little bit of context. I think Eric alluded to this a little bit as well. Mm-hmm. We're starting to see signs of the large inflationary impact softening. Certainly not going away, but softening. I think of a few things on that front by way of illustration. You know, when you look at our entire COGS portfolio, cost of goods sold portfolio across all of our banners, and you look at our commodity index tracking. You know, not every commodity, but it's a sea of kind of green lighting again around green meaning positive trend line and cost base relative to previous year. Some exceptions. Mm-hmm. For sure that travel through different businesses in different categories in different ways. In aggregate, we're seeing those commodity prices come down. Mm-hmm. Which is a great sign. Certainly, you can factually, you know, determine that the freight rate spot market right now is significantly lower than where it was this time last year. Lastly, we have, you know, very good kind of intelligence and are quite, you know, close to the freight industry, given how much freight we move from the other side of the world. There's kind of low single digit freight vessel capacity coming online globally the end of this year, more early next year, which will only help freight rates come down even further. Contextually, that's the environment we find ourselves in right now. On the lever front, I would say even though that's our context, to your point, we plan as an organization much better than we used to. I think we are agile in our planning processes. We've built the capabilities that I talked about, and I think of a few capabilities that you know weren't as developed in 2009 as they were now. They're not necessarily net new levers that we would use. We're just leaning in them. Okay. Let me give you some illustrations. First would be how we think about the dynamic between a category strategy and inventory allocation. We have 300+ categories that we go to market with across all of our banners. You know, we adjust. There are many businesses and categories that had inventory love during the height of the pandemic that don't have inventory love right now and vice versa. If I think about our automotive business as an example, we feel very strong about our automotive business right now, and we're changing our category strategies in a pretty opposite direction to the way we were managing them early in the pandemic. We're really leaning into inventory and advertising and execution tactics that allow us to get as much growth as we possibly can from that business. We could give you examples where that's completely the opposite. In aggregate, the portfolio, you know, tends to balance. It's just about leaning our shoulder into different categories. That'd be one kind of big lever where, you know, TJ and the team and the other banner presidents are really focused on a day in and day out basis on that execution. The second area of focus is our pricing elasticity algorithms. We spend a lot of time in our core business developing more sophistication, more automation in those algorithms, really focused on net promo return. That balance between units and sales, and we're moving those algorithms and sophistication into the non Canadian Tire banners. We have a very concerted focus in businesses like Mark's and Sport Chek to try and sell more of the business at regular price. We're making good progress there. Mm-hmm. We'll continue to kind of lean into that capability going forward. I think about sourcing, where we've talked about how much work and effort we've put into our sourcing organization over the course of the last 5 years, 5-7 years. In the last 2 years, we've made this an enterprise capability as opposed to a decentralized capability. It's really about pulling back out the discipline in our merchant teams around should-cost modeling and being as dynamic as we possibly can. When those commodities are changing real time, how do we have an honest conversation with the manufacturer about how the commodity price changes maneuver their way into the COGS base? How do we stay on top of more macro things like the RMB depreciating against the US dollar, and how does that feed the negotiations with the suppliers? Those should-cost models Mm-hmm. You know, really important as well. In the bank, if we switch to the bank, still, you know, learning every day about that business, for myself. I saw, you know, just a great exercise recently where the team, you know, performed a payment simulation exercise, and this is kind of core to what they do, that really looks at potential payment shock, at the cardholder level and gives us a sense of, you know, a subset of customers who might be at risk as interest rates start to move forward. Allows us to proactively, you know, think about different kind of actions and tactics and credit limit decrements that we might deploy, before those customers potentially end up being a problem. There's 3 or 4, you know, levers. Mm-hmm. That the team would utilize. Again, all in all, there's puts and takes across the entire portfolio. We're really focused on execution in gross margin, and using those capabilities that I walked through. Okay. I'd like to pivot to maybe a more strategic discussion. You had your first Investor Day under your leadership in March. You unveiled a multiyear strategy that aims to accelerate the growth and drive to EPS of CAD 26 by fiscal 2025. I don't think that's in the numbers that are out there, just saying. At the essence of this strategy is a plan to better connect the business units and permit them to operate in a truly integrated manner. Can you review the core elements of that strategy? What are the key enablers of that growth? Of the growth? Sure. Again, maybe context for the crowd and listeners. Yes, we did. I listened to Jose, it sounded like, you know, he too had his first Investor Day in a number of years. We had an Investor Day back in March. I think it was our first one since 2014 or 2015, where we did announce what we're calling a Better Connected strategy. It's better connection from the standpoint of the integration of all of our assets into an ecosystem and better connection and one single view of the customer. Utilizing that view of the customer with our first-party data to better connect with them on an ongoing basis, create stronger relationships to engage. That's the essence of Better Connected. It involved the unveiling of just under CAD 3.5 billion worth of investment, and culminated in a CAD 26 EPS aspiration by the end of 2025, which is essentially a doubling of the EPS from 2019 levels. The way to think about it, maybe I'll talk about it at the highest level, and then. Sure. Kind of double-click a little bit on some of the major components. I think we'd want, you know, an investor to think about the strategy from this standpoint in terms of what needs to be true. At the top line, it's about growing our business at 4%, and that 4% is roughly a point higher than our historical norms. The second big building block is flat gross margins, flat product gross margins. We have appreciated our gross margins over the course of the last couple of years, just under 200 basis points, and we intend to protect those margins going forward. The third building block would be modest OpEx leverage in the business, partly delivered by a higher top line and partly delivered by a communication on an increase in terms of our committed savings associated with an operational efficiency program. We had originally launched the program a few years ago with a CAD 200 million commitment. We ran past that goalpost and announced another CAD 100 million commitment. Those would be the two big building blocks for OpEx leverage. If I go back up and double-click on growth and double-click on margin, if that's helpful. On the growth side of things, what needs to be true to hit 4%? I think about 3 big building blocks. The first would be a major investment in our Canadian Tire Retail stores. We heard a little bit of that, you know, today. We're really kind of putting the chips in, well, CAD 1.2 billion of the CAD 3.4 billion is an investment in an improved omni-channel customer experience for Canadian Tire Retail. We really feel looking back that we've underinvested in the network. Given the tremendous sales increase that we've had over the last couple of years, the throughput requirements of those boxes have increased significantly. Especially in the second quarter and fourth quarter, we've got that kind of two-hump camel in terms of productivity of the asset base. The strategy is about connecting fulfillment all the way through to the store experience, and that's everything from, you know, the size of the warehouse, the technology that supports the filling of the warehouse to the floor, things like electronic shelf labels, pickup areas for our bulk and e-commerce, a differentiated auto service and garden center proposition, and really making sure our own brands business stands up really tall in front of the customer. It's a whole kind of experience in addition to, you know, logistical interventions. Mm-hmm. To operate in today's retail. That'd be the biggest driver of growth. I think like, somebody said this morning, there's a maturity curve to that investment. You know, the big benefit from a comp standpoint travels later in the outlook as we fill the pipeline. Mm-hmm. Et cetera, but that's building block number one. Building block number two would be on growth, would be our Triangle program. I think about that on two fronts. Number one, how do we use our rich first-party data to engage existing customers, to essentially spend more with us? A spend per member focus, and that has us really thinking about the insights we have about the customer and then thinking about what the next best offer could be from an engagement standpoint. That could be introducing a Canadian Tire Retail customer to Sport Chek or Mark's, or that could be determining that the next best offer for a high value Canadian Tire customer is a credit limit increase at the bank. Think about engagement spend per member, existing members, and then net new members from a customer acquisition standpoint. We've got a pretty good track record over the course of the last few quarters on that, and we intend to continue to attract new members. Those would be the kind of the big the third big banner. I said there was three. Own brands. Really, pushing the penetration of our own brands from high thirties to low forties, kind of a 400 or 500 basis point move that's been a concerted strategy and has served us really well. We're continuing to again put the chips in on that strategy going forward. We've got real good line of sight, multi-year line of sight to that. Margin, you know, very quickly, how to think about that is start with own brands again. Own brands provide a 600-700 basis points margin differential, and we intend to keep that differential as we penetrate further. The second big area would be that pricing elasticity work that I talked about. Mm-hmm. especially in non-Canadian Tire banners. The third, probably not as big as the first two, area of belief is that the freight, especially the inbound freight that we're seeing in 2020 and 2021, will subside as we head more towards the outlook. I think that's the way to think about the strategy the big levers for growth. Okay, thank you for that. Now, I wouldn't normally ask this question, because I'm gonna ask you about the stock price, and it's outside of your control. When you look at the fact, you know, the stock's been under pressure, I recognize that discretionary retail is not, you know, the flavor of the month or almost the year. You have set a reasonably clear path to doubling your earnings, you know, over that timeframe. You've got real strength in own brands, a phenomenal loyalty program, a CPG company with tons of innovation buried within the business, that I don't think you get enough credit for. I'm gonna ask you, what do you think, is there any one thing or several things that you think The Street is missing about your story? Yeah. You just answered your own question. Didn't mean to do that. No, no. I mean, listen, it's an interesting question. You know, from my standpoint, I guess here's the way I think about it. I think about a company that's trading at roughly 9 times prior year's earnings, and who has kind of significantly, I think, stood up through the crisis in the last couple of years. Fair. Ginned up a significant amount of incremental earnings. I think when you look back at the 5- and 10-year average multiple trading range, it's in the 12-13 range. We've just communicated a plan, as you said, to significantly grow our earnings from 2021 to 2025. I think we've got a good track record. You know, when you look at that 10-year charting, we've taken our dividend from CAD 1.20 to CAD 6.50. We bought back 35% of our share count in that time. When Q2 ended, we had already completed 70% of the CAD 400 million commitment that we made this year for share buyback. All that to say, I think it's a great buy. It's a great time to get in. You know, for sure, as you point out, we're caught up in the quagmire that is the angst in the market about the recession. We really believe the strength of our business model is not appreciated. Our Associate Dealers stood up really tall during the pandemic, and they force us every single day to sweat the small stuff. Mm-hmm. Around execution, at the same time now have their hands in the air, and all of them wanna be a part of this store investment plan, and they invest alongside with us. We really believe that our own brand capabilities and our first-party data loyalty capabilities, if they're not world-class, we're taking them to world-class. I hope to be able to stand up here, tall one day and really say they are world-class. They travel and give benefit to our core business, and they're giving our smaller banners more scale than they could otherwise get on their own. Mm-hmm. That strong ecosystem is feeding the core, so there's a flywheel effect happening here. I think my biggest hope is the markets realize, you know, how strong and resilient an organization that we are. 100 years. 100 years. Yeah. Big part. Thank you very much, Greg. Thank you. Thank you.