Your meeting is about to begin. My name is Donna, and I will be your conference operator today. Welcome to the Canadian Tire Corporation earnings call. All lines have been placed on mute to prevent any background noise. If you would like to ask a question, simply press star, then the number one on your telephone keypad. To withdraw your question, press star, then the number two. Now, I will pass along to Karen Keyes, Head of Investor Relations for Canadian Tire Corporation. Karen? Thank you, Donna, and good morning, everyone. Welcome to Canadian Tire Corporation's second quarter 2023 results conference call. With me today are Greg Hicks, President and CEO, Gregory Craig, Executive Vice President and CFO, and TJ Flood, President of Canadian Tire Retail. Before we begin, I wanted to draw your attention to the earnings disclosure, which is available on the website. It includes cautionary language about forward-looking statements, risks, and uncertainties, which also apply to the additional material included this quarter to help you better understand the results discussion during today's conference call. After our remarks today, the team will be happy to take your questions. We'll try to get in as many questions as possible, but ask that you limit your time to one question, plus a follow-up question before cycling back into the queue. We welcome you to contact Investor Relations if we don't get through all the questions today. I'll now turn the call over to Greg. Greg? Thank you, Karen. Good morning, and welcome, everyone. As I'm sure you gleaned from our disclosures this morning, our second quarter results mark a turning point in the Canadian economy. When we announced our Q4 and 2022 results in February, I advised we expected a more constrained demand environment, specifically in the first 6 months of 2023. As inflation continues to persist along with rate hikes, consumers are feeling the squeeze and finding themselves in a precarious financial position, which has driven a change in household spend, a trend reiterated by the Canadian Chamber of Commerce and Angus Reid data several weeks ago. Despite these difficulties, our teams have done a commendable job navigating through the dynamic economic conditions, managing the remediation efforts at our A.J. Billes Distribution Centre, and supporting Canadians impacted by the devastating wildfires. I'm grateful for our team members' dedication to making life in Canada better for our customers, communities, and each other, while remaining focused on driving our long-term success and growth. Our management team remains disciplined and dedicated. There's no question that everyone is clear-eyed about the challenges Canadians are currently facing. I'll spend some time this morning discussing in more detail what we're seeing in terms of consumer demand, before I do, I'll provide some color on our Q2 results. Overall, our Q2 results were in line with last year's figures, arrived in a slightly different manner than expected. Consolidated comparable sales were up 0.1%, following strong growth of 5% in Q2 of 2022. Despite softening demand for discretionary goods, we continued to drive customer engagement by executing the initiatives within our Better Connected strategy. Our strong gross margin, aided by the MSA impact, helped offset increased expenses driven by our continued investments and higher supply chain costs, which were in part due to the DC fire. This enabled us to deliver a normalized EPS of CAD 3.08, slightly below what we achieved in Q2 of last year. Although Gregory will address this in his prepared remarks, I think it's important to say upfront that given the macro environment, we are managing operating expenses carefully while continuing to invest in the building blocks for our future. Let's address the challenging macro environment we face. With 10 interest rate hikes in less than 18 months and persistent inflation impacting the cost of living and leading to reduced savings cushions, Canadian consumers are experiencing increased financial strain and facing tougher spending decisions. Our Triangle Rewards and credit card data provide us with a privileged perspective on the economic landscape. These macro pressures are affecting spend across many external categories. This trend, which we've been observing over the last few quarters, accelerated in the latter half of Q2, especially the last few weeks of June. The spend per cardholder in Q1 was flat relative to last year, but Q2 marked the first quarter since 2020 that saw a decline in spend. Spend categories, including home, gas, electronics, and clothing, are now declining, and stalwarts like travel, dining, and grocery experienced significantly lower growth rates as the quarter progressed. When you move from external credit card spend to what is happening within our businesses and Triangle Rewards membership, specifically, we are seeing more pressure on consumers, particularly following the ninth interest rate increase in June. At the macro level, what we are seeing is real performance bifurcation between essential and discretionary categories. At CTR, our essentials portfolio was up more than 6% in the quarter, and our discretionary portfolio was down more than 3%. This performance delta was evident for much of the quarter and accelerated in June. When combining our Triangle membership data with external household data we use in our real estate modeling, we see that the discretionary softness is coming from more indebted households, most notably in Ontario and BC. Spending on higher ticket items started to get squeezed, and customers prioritized essential products over discretionary ones. As you would expect, this has had a bigger impact on sales at CTR compared to our other banners. Changes in monetary policy are softening consumer spend across the country, with the last two interest rate moves specifically, creating a more pronounced demand impact in discretionary categories. Overall, the macroeconomic environment and consumer demand differ significantly from our expectations when we set out our strategy in early 2022. Given this, further to the noticeable slowdown in sales in the second quarter, we have decided to withdraw our previously disclosed financial aspirations at this time. It is unclear whether the monetary policy tightening has ended. By the end of Q4, we hope to have a better view of the long-term macro environment and interest rate impacts, and expect, at that time, to be in a better position to provide an update on our long-term aspirations. To be clear, our decision to withdraw our financial aspirations at this time does not shake our commitment, nor our conviction, for the building blocks of our Better Connected strategy. Our ongoing commitment to our Better Connected strategy further positions us to deliver value over the long term, as the investments we are making in our stores and digital capabilities continue to outpace expectations. Although spending may be down, store traffic at CTR remains flat, indicating that customers, even with less to spend, continue to choose us for their purchases, reflecting our sustained relevance and their trust in us. We are continuously adjusting our tactics while staying true to our Better Connected strategy. Our Triangle Rewards loyalty program is a crucial avenue for delivering value to our customers. Investments in our Triangle Loyalty program have provided members with more opportunities to earn Canadian Tire Money. In the last 12 months, we've seen our highest spending members earn on average of 8% back on their annual spend, which helps their dollars go further at our stores. Canadian Tire Money redemption continues to deepen engagement and drive spend. In Q2, customers redeemed CAD 100 million in Canadian Tire Money across our banners, the associated spend totaled CAD 220 million, a 3% increase over last year. Although in Q2, we saw a decline in spend per member, total transactions remained flat, another indication of our sustained relevance. Overall, in Q2, loyalty member spend continued to outpace that of non-members, and member registration rate also increased. Ultimately, our ongoing investment in growing our registered, promotable, and Triangle Select members is paying off and creating a pipeline of opportunity for when the market normalizes. In addition to Triangle, our high-low retail approach and broad multi-category assortment allows us to offer value to customers through pricing and promotional strategies across our banners. Our own brands portfolio gives us the flexibility to provide customers with what they need at budget-friendly prices, and our recent promo value message campaign emphasizes our commitment to helping customers stretch their dollars further. Finally, before I turn it over to Gregory, I want to emphasize our sustained commitment to investments that will enhance our competitive position and create shareholder value in the long term. As I said off the top, we do expect these macro challenges to continue for some time, but the market will inevitably stabilize. These investments will ensure we stay ahead and build our relevance to consumers, and they are delivering great results even today. Our strategic investments are working as we expected them to, notwithstanding the challenges we face. The recent addition of Mark's and Sport Chek to our One Digital Platform streamline the customer shopping experience, further enhancing customers' online experience and supporting sales through our websites. Our new partnership with Microsoft will accelerate our modernization efforts, enhancing flexibility, stability, scalability, and innovation. Through our co-innovation with Microsoft in the generative AI space, we will pilot our first customer use case in a key essential category this fall. Additionally, we are already reaping the rewards of our CTR store investments. The 57 new or refreshed store projects completed to date continue to outperform both our financial and customer experience score expectations. We believe our Concept Connect format is a strong representation of the future of retail. Overall, while we face challenges today, we are not losing sight of the bigger picture. Our focus on customer value through Triangle Rewards, own brands, strategic investments, and our high-low value-driving retail model position us well for long-term success. With that, I'll pass it over to Gregory. Thanks, Greg, good morning, everyone. I'll spend most of my prepared remarks this morning on what drove our Q2 results, followed by our views on the balance of the year, finish with some commentary on our continued focus on the long term. Starting with our Q2 results. Overall, although we are pleased with how we performed in the quarter, our results demonstrate that we are not immune to macroeconomic pressures, which are most impactful in quarters like Q2, where our discretionary mix is at its highest. As Greg mentioned, inflation remains stubbornly persistent and interest rates have risen at an unprecedented rate. I know we're all looking forward to one day when the economic conditions stabilize. That said, we are happy with our solid sales performance in the quarter, up 0.1% against a 5% comp a year ago. With good margin management, we delivered consolidated normalized earnings only slightly below last year. Retail earnings benefited from the MSA change, which flowed through the retail segment numbers. Excluding that, revenue and gross margin dollars were lower than last year, despite faster than expected remediation at the DC, with an 80 basis point increase in the gross margin rate, driven by CTR. Financial services delivered solid normalized earnings. Revenue gains were offset by the expected decline in gross margin, as net write-offs continued to return to more historic levels. We also had higher net finance costs, as a result, normalized diluted EPS was essentially flat compared to last year at CAD 3.08. Now, as reported, income was CAD 1.76, lower than last year by CAD 0.67. Let me unpack the two normalizing items. The first was a CAD 33.3 million charge in relation to recently enacted budget legislation, which will require GST/HST treatment on payment clearing services. The charge represented an impact of around CAD 0.35 at the EPS level and brings us up to date for this change. This expense will also be recognized in SG&A going forward. The second item was our continued costs related to the remediation of the March DC fire, which we have also normalized for. Costs for building damage, asset write-downs, cleanup and repairs were CAD 74.6 million in the quarter, or around CAD 0.97 at the EPS level. We expect further direct costs related to the fire to ramp down over the next quarter or so, and hope to provide an update on insurance recoveries as we progress the claim with our insurers. Additionally, it's worth adding here that we estimate the indirect impacts for the fire, which we did not normalize for, accounted for a further CAD 0.15 of impact on a per-share basis. With that, I'll move on to the performance of the retail business, starting with sales. Retail sales were just under 3%-- were down just under 3% to CAD 5.2 billion, driven by a 19% decline in petroleum sales on lower volumes and as we cycled record fuel prices this time last year. Excluding petroleum, sales were down 0.1% against strong growth in all banners last year. The quarter was characterized by good growth in April, which we mentioned on our Q1 call. Sales softened as we came through the quarter, particularly in Ontario. At CTR, comparable sales were up 0.1%. We continued to see customers shift to essentials and more value offerings. As Greg mentioned, providing our customers with value is where we remain focused. For the third quarter in a row, automotive and living grew at Canadian Tire Retail. These divisions were offset by declines in seasonal, playing, and to a lesser extent, fixing. Essential automotive categories such as maintenance and auto parts grew across all regions, driven by demand for oil, tires, and battery. In the living division, kitchen, cleaning, and pet care categories were also up across the country. We also saw good demand in other categories like gardening, golf, hockey, and outdoor cooking. Poor air quality drove higher sales of home air quality appliances and products. These were offset by lower demand for party supplies, patio furniture, bikes, and camping. Turning to CTR revenue now, stronger than expected outbound volumes from the A.J. Billes Distribution Centre meant that revenue we expected to be delayed into Q3 was actually recorded in Q2, as the supply chain supply chain team did a remarkable job completing significant remediation work at the DC ahead of schedule. CTR revenue was down 4.7% after adjusting for the $87 million of MSA benefit in our reported revenue. We've discussed before that in any one quarter, we may see a disconnect between sales and revenue growth, and that was the case again this quarter, as revenue in discretionary categories was down significantly against growth last year. At Sport Chek, Q2 comparable sales were up 0.1%, with good growth in Quebec and Ontario, with Quebec and Alberta, while Ontario was down. The tougher consumer demand environment meant promotional intensity remained highest in this business, but we leveraged Triangle Loyalty effectively to offset some of this, acquiring new members, reengaging inactive members, and growing loyalty baskets and sales. Sport Chek has been focused on building out its team sports offering, and we were pleased to see the category up 10% this quarter, with growth across all regions. At Mark's, comparable sales ended slightly ahead of last year, up 0.4%, despite cycling a really tough comp. As a reminder, in the second quarter of last year, Mark's was up close to 21% on demand for casual wear and industrial apparel. In the quarter, industrial and casual footwear sales were up, offsetting the decline in casual wear compared to last year. Strategically, our path to long-term and incremental sales growth continues to be finding the right balance to attract a broader customer set at Mark's by having an ideal mix of industrial and casual wear across owned and national brands. We are well on track with the conversion of a handful of Bed Bath & Beyond stores that will become part of the Mark's banner and contribute to Mark's growth going forward. We expect to open these in the coming quarters, starting in Red Deer later this year. We're also trialing a new format store dedicated to workwear in a few key markets, with the first scheduled to open in Edmonton in August. Turning now to Helly Hansen. At the end of Q2, Helly Hansen revenue was up 11.3% on a year-to-date basis, with a 2.9% decline this quarter, mainly reflecting the timing of sports wholesale shipments. Consumer demand, especially in the US, drove strong sales growth to our retail and e-commerce channels in the quarter. The business is gearing up for the opening of new outlet stores in Canada and US over the next year, which is expected to contribute to growth and margin expansion at Helly. Before I move on to financial services, I will briefly comment on our retail gross margin, as well as OpEx and inventory levels. In the current environment, it is critical that we strike the right balance between demand creation and being price competitive to drive value for our customers, and we were pleased with the balance we struck this quarter. Our Q2 reported gross margin rate, excluding petroleum, was 35.7%, up 251 basis points. Even after excluding the favorable MSA change, retail gross margin rate, excluding petroleum, was up 80 basis points. You will remember that freight costs were especially high in Q2 and Q3 last year. Lower freight costs this year helped across our banners. This, along with stronger product margin at CTR, more than offset higher promotional intensity at Sport Chek and Mark's. As you know, margin always varies somewhat quarter to quarter, and this year we have a more marked year-on-year movement due to the MSA impact, with a favorable benefit in the first three quarters reversing in Q4. In the current economic context, operational discipline remains a key focus, and we are intent on finding efficiencies that will help us drive the long-term growth of the business. Normalized consolidated SG&A was up 5% in the quarter, mainly due to strategic investments as we transition to a cloud-based infrastructure and invest in the retail store network. Due to the DC fire, we also had operating efficiencies that we didn't normalize for. The rate of SG&A growth did slow this quarter. We expect this trend to continue in the back half of the year as supply chain costs come down, and we reduce the need for 3PLs through further reductions in inventory, even as we continue to invest to support our Better Connected strategy. Inventory growth also slowed this quarter, with inventory up 6% versus up 22% at the end of Q1. DTR inventory was down, reflecting the adjusted buys we spoke to last quarter and spring/summer sell-through, offset by higher inventory at other banners, partially reflecting unit cost inflation. On the dealer side, inventory units are now below last year, with improvements in spring, summer, and non-seasonal categories. I'll now move on to financial services, where portfolio performance metrics continue to trend back towards historic levels and are in line with our expectations. Active accounts and average account balances grew more slowly this quarter. Both were up around 4% as a result of slowing credit card acquisition. As Greg mentioned, card spend declined for the first time since Q4 of 2020, softening through the quarter and ending down by close to 2%, driven by declines and lower spending on our card outside of our family of companies. Despite the slowing in key account metrics, receivables were up 8.2%, and ending receivables finished the quarter at CAD 7.2 billion. Turning now to the financial performance of the business. Revenue was up 7% over last year, while gross margin was down, reflecting higher write-offs and net interest expense. The ECL allowance was at CAD 913 million, was up CAD 44 million versus last year, and up CAD 16 million compared to Q1, reflecting growth in receivables in the quarter. The allowance rate finished the quarter at 12.7% within our target range of 11.5%-13.5%. OpEx this quarter included a CAD 33 million charge in relation to the recently enacted budget legislation for HST/GST on payment clearing services, which we isolated as a normalizing charge. Normalized IBT ended relatively flat compared to 2022, at CAD 88.7 million. Risk metrics were broadly in line with the last quarter. PD2+ rates were at 3%, and the write-off rate was up slightly to 5.6%. The write-off rate continues to return to more historic levels as new accounts work their way through the portfolio and mature account performance stabilizes. Employment, a key economic indicator for us, remains robust, and payment rates remain higher than historic levels. We have started to take proactive measures around acquisition strategies and reduce lending for the higher risk segments to manage potential exposure, given the economic uncertainty that we are facing. As we look ahead for the balance of the year, we have already seen meaningful indications that consumers have been cutting back on spend through June, as Greg has outlined. What we've seen in our results through July does not indicate any change in that consumer behavior, although we will have easier sales comps and fewer freight headwinds as we come through the last few months of the year, particularly in Q3, when we're cycling higher freight costs. In light of softer consumer demand, shipments to dealers and revenue growth at CTR will likely be softer in the back half of the year, especially when added to the fact we've now cleared our backlog caused by the DC fire. As we discussed in February, dealers ended Q4 a little heavy on inventory in certain Christmas categories. We expect them to continue to prioritize non-seasonal and essential inventory as they adapt and respond to a softer consumer demand. This should drive a further inventory reduction at CTR, which will help reduce related supply chain and interest costs, notwithstanding higher interest rates than last year. Before I conclude, I want to touch briefly on this management team's strong belief in CTC's long-term growth prospects. I want to separate that from the withdrawal of our financial aspirations. While we suspect softer consumer demand will dampen retail sales over the coming quarters, we expect our Better Connected strategy, in combination with favorable long-term trends, like Canada's growing population and solid employment trends, to favor retailers like Canadian Tire, who are prepared to be there for Canadians by investing in the Canadian market. As such, we remain committed to our Better Connected strategy and want to reiterate our confidence in our longer-term prospects for profitable growth. We're optimistic that the economy and the consumer will stabilize over time, and we will once again get the benefit of growth from the more discretionary part of our assortment. In the meantime, we have the capacity to navigate this environment with a strong balance sheet and a resilient business model. We have the right long-term strategy and a management team with the skills and conviction to get it done. I want to thank them for their continued commitment to managing today while remaining focused on driving our long-term growth. We continue to believe we are better positioned than we've ever been to operate with agility and manage our business tightly, to allocate cash effectively and manage our offering to deliver value to our customers. We will continue to prioritize spending that supports our long-term strategic initiatives as we plan for 2024 and continue to deliver returns to our shareholders. On a year-to-date basis, we've invested CAD 238 million in the business, paid CAD 138 million in dividends to shareholders, and returned CAD 421 million to shareholders by way of our current buyback program. We continue to believe that balanced and consistent capital allocation, anchored on investing in our business for the longer term, is the best approach. As we normally do, we plan to update you on our capital allocation plans for 2024 when we report our Q3 results in November. With that, I'll hand it over to Greg for his closing remarks. Thanks, Gregory. Challenging as it may be, we continue to balance managing in the short term with bolstering our capabilities for the long term through continued investment in our Better Connected strategy. We also continue to live up to our brand purpose of making life in Canada better, not only for our customers, but our communities as well. Back in June, we held our annual Jumpstart Month, and our Employees for Jumpstart campaign achieved record-setting fundraising results. I want to thank our customers, team members, Canadian Tire dealers, and our vendors for their incredible generosity, which is further enabling us to ensure that come what may, kids can continue to participate in sport and recreation. As I alluded to at the start of my prepared remarks, the challenges Canadians are facing are not just economic. The impact of extreme weather is being felt around the world. Here in Canada, it has perhaps never felt more real than right now. For our part, we will continue to step up with support for those impacted by these ongoing crises. I'll end my prepared remarks this morning by reiterating my thanks to the team. Getting through the first half of this year and delivering the results we announced today was no easy feat. We certainly need to continue proving our mettle, but I have confidence in our collective strength and ambition, which I expect to pay off in the long term. With that, I'll pass it over to the operator for questions. 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. You can withdraw your question by pressing star two. We ask that you limit yourself to one question, + 1 follow-up question before cycling back into the queue. We'll pause for just a moment to compile the Q&R roster. The first question is from Irene Nattel from RBC Capital Markets. Please go ahead. Thanks. Good morning, everyone. I really appreciate all the color that you're providing around the current demand environment. My question is around discretionary versus essentials. Can you give us an idea of what proportion of your sales fall into each of those buckets? Sort of also a little bit more color around how you're thinking about inventory and price or, offering and price points within good, better, best at this point. Yeah. Good morning, Irene. I think this is probably most applicable to CTR, I would imagine, so maybe we'll have TJ answer that. Yeah. Good morning, Irene. Hope you're doing well. As you know, we have a robust data set that we analyze our business with, and, and we've been talking a lot over the last couple of quarters about the bifurcation between essential and non-essential and how consumers are migrating more towards essential. If you look at our business in totality, we're about two-thirds non-essential and a third essential, and that really changes quarter to quarter to quarter. Q2 would be the quarter that we have the most pronounced... nonessential business, and you get into Q4 and Q1, and it becomes a little bit more essential. What we've been seeing, as you pointed out, and as Greg and Gregory both pointed out, is that we have seen a migration more towards essential spend. It, it drove the growth that we did have in, in Q1 or Q2, I should say. As we go forward, what we're doing is we're leaning into our inventory buys, particularly as we see consumer trends, leaning more towards the essential businesses. As we look to the back half of the year for Q3 and Q4, we do start to see a little bit more pronounced, SKU in our mix towards essential, and we will be driving our inventory buys accordingly. You see the dealers lining up that way as well. Our inventory buys and what they're holding in inventory will help drive Q3 and Q4, and, and we do expect some of these trends to continue as we go forward. Irene, I would just add, we feel really good about the fact that at CTR, when you look at our corporate inventory, our discretionary inventory is down over double-digit year-over-year, and our in-transit discretionary inventory is down even further. When you look at dealer discretionary inventory, it's only marginally up. As we think about, you know, the tactics and the planning and the running of the business around what we're seeing, you know, in the performance delta, inventory is rounding out and shaping the way we would want based on the demand signals we're seeing. That's really helpful. I just wanna make sure that I heard correctly. You said 2/3 is nonessential and 1/3 is essential? Correct. Yeah, over the long term, with a little bit different SKU quarter to quarter. As you get into the back half of the year, we SKU a little bit more essential than that, than that average. Okay, if... Just thinking how, thinking through or trying to put this all together in terms of sort of the evolution of the shipments to dealers in the back half of the year. If we're seeing weakness in discretionary, but dealers are a little bit up in discretionary inventory, we should be thinking that the shipments should be down more than what we might think that the sell-through will be down. Yeah, it's Gregory here. Let me take that one. I think, look, I think there's, as you know, any quarter, there's a lot of moving pieces in what you just said that can impact this kind of one way or the other. I think what I would say, because you also, again, if I talk again, what we're comparing against last year, that's part of the equation as well, right? As you remember, Q3 and Q4, from a comp perspective, we're a little softer from a demand, from a POS perspective. Irene, it's a, as always, it's a bit of puzzles pieces to put together. I think what you said is, is accurate around that one element of it, but I would just encourage you to think those other pieces of it kind of more in totality around, around, around what the revenue and sales picture may look like. That's all I'd want to, encourage in my, in my, in, in your thinking on this. Thanks. That's very helpful. Thank you. The next question is from George Doumet from Scotiabank. Please go ahead. Yeah, hi, good morning. I just want to get a sense of how the CTR comps performed in the quarter. I think you gave an April number, maybe a June, a May number. Just trying to get a sense of it, was it more linear or if it stepped down exiting? Also just wondering what drove the weakness in Ontario. Is that just higher household leverage or anything else you can call out? Thanks. Yeah, George, it's TJ. Maybe I'll, I'll start with the first part of your question. As we articulated, and Gregory mentioned this in his upfront, on our Q1 call, we mentioned that we were up 3% in April at CTR, and we finished the quarter +0.1%. Obviously, the sales trajectory went, went in a downward direction as the quarter went on, particularly in June. We definitely saw that, and we also looked at that from an essential and non-essential perspective. The non-essential categories drove that disproportionate growth in a more pronounced way, particularly into June. Greg, I think you wanted to comment on- Yeah, George, maybe, maybe, maybe I'll try and unpack the, the Ontario comment. It's part of a, it's part of a bigger story, so bear with me on that. You know, we tried to unpack as much as we could in the prepared remarks, but maybe I'll go a little bit deeper. I mean, generally speaking, when you, when you look across the country at spend by household income amongst Triangle Credit customers, what we're seeing is growth in CTC spend at all income levels. Customers with lower incomes continue to outpace the average spend growth across all income segments, but again, there's, there's growth in all segments. I think the bigger new analysis that we've shared this quarter is a level deeper, and it's about combining our Triangle data with external data around debt-to-income classifications. In other words, how indebted is the household? We really start to see performance deltas emerge by region as well. Debt-burdened households decreased their spend with us significantly in the quarter, especially in June, especially in discretionary categories. The sales performance with Delta was the greatest in Ontario and BC, which happened to have the highest concentration of debt to disposable income in Canada. What we're seeing, George, is very clear to us. Our essential portfolio remains extremely resilient across all income levels and all regions and inclusive of debt-burdened households. Where we're seeing softness is in the discretionary portfolio. You know, I think the objective of quantitative tightening is being delivered upon. I can't speak whether it's too much, but we can certainly tell you that across our portfolio of discretionary categories, especially in Ontario and BC, that policy is having its intended effect. What, you know, based on what we're seeing, as we tried to talk about, we are adjusting our overall resource allocation to lean into value and essential categories with even more conviction than our commentary, the last couple of quarters. As I've said before, we're gonna do so in the confines of the Better Connected strategy. I'm really pleased with what I'm seeing with regards to traffic holding steady, steady across our businesses, not just CTR, which I think is really positive. Okay, that's helpful. Just for my follow-up, maybe to Gregory, can you maybe break down that retail SG&A inflation number a little bit, maybe into buckets for us? I'm just trying to get a sense of what the exit could look like after the year. I'm just wondering, generally speaking, is there anything we can perhaps do to maybe slow that down in, in, you know, in case the macro gets a little bit tougher from here? Yeah, sorry, I think I missed the first few words. That was retail SG&A, I believe, George, right? Yep, yep. That's it, please. Okay. Yeah, I, I think what we're seeing is consistent with what we talked about last quarter, so I'll just... I think it's actually playing through even in our inventory numbers. That, if I break it down by category, you know, there are three areas that you're seeing kind of increase on, on the retail side of things from a cost perspective. One, of course, is, as you said, we're spending more on IT to support our Better Connected strategy. Frankly, we're, we're expensing more because it's, it's basically cloud-based infrastructure initiatives, which have a different accounting treatment. The issue we're facing there is I don't think we've reached the new norm yet around mix of spend. I think we're still, you know, a few quarters away from getting to that normalized kind of, new, new penetration rate or mix rate of, of capital versus expense. I still think that is gonna be kind of a headwind as we roll forward. I, I said this on a few of the calls last quarter, and I'll keep saying, the cash is the same here. All this is, is we're accelerating the recognition because essentially, you take the expense now instead of recognizing it as depreciation. Over time, the depreciation numbers will go down to offset this. We're just in that transition period, kind of in these early days as we've kind of invoked more on these cloud-based infrastructure initiatives. That's where I would say we are from IT. We're not through the journey yet, but we've absorbed a lot of that change, but there's still some more to come. On the supply chain side, we talked about the number of 3PLs. You know, again, the merchants, the supply chain team, have done a great job navigating kind of the inventory. Remember, back to Q, the end of Q4 this year, at the corporate level, we were up 30%, and we moved that down to 6%, and they're not done. There's more work we need to do to continue to work on that, on that corporate inventory position. What you'll see is a basically an improvement in a reduction of 3PL. Our supply chain costs will go down over time, and I, I think you're gonna start to see that kind of in the latter part of the year. The other one I'd point out around an increase is really around our retail. As we put, Greg said, there's 57 stores that, and projects we've refreshed and implemented. Those will start to kind of grow our, our occupancy costs, our, our, our CAM-related costs, et cetera. You're gonna get revenue for those directly, so that should be in line from a, from a, from a, from a leverage perspective. It's just, you know, right now, when the revenue's down a little bit for the reasons we've talked about, the leverage ratio looks a little bit off more than it, than I think it is. Long way of saying, I think it's playing out the way we've expected it to, and it is an area we're focused on. As I said in my remarks, we, you know, we know we have to look more closely at, at every spend right now. You know, we wanna make sure we're investing to support our long-term strategy, and those things we can defer, I will assure you all, we are deferring, and we're gonna continue to do that as we're moving forward. A bit of a long answer, but you gave me a chance to kind of get at this once and for all, so, so hopefully that adds some more clarity for everybody. Yeah, thanks for that. I guess no plans to really slow down that retail bucket this time, right? No, again, we are committed to kind of grow our, our strategy. You know, I, I don't think any of us want to take a short-term view on this and say, "Let's just cut all these IT projects." Like, you know, we've, we just got One Digital Platform in play. There's more things we want to do to leverage that and build off it and take advantage of it. I, I think that's just the wrong-term decision. Like, we're committed to this strategy, but we are gonna look around the edges. I'll say again, George, I mean, on a consolidated basis, not retail, on a consolidated basis, our SG&A was up 5% in the quarter. That's down from where it has been trending. Okay. Appreciate the color. Thank you. Thank you. The next question is from Mark Petrie from CIBC. Please go ahead. Thanks. Good morning. You called out strength and higher penetration in own brands, despite the shift away from discretionary spend. I just wanted to dig into that a bit more. Maybe first, where are you seeing the biggest sort of growth in own brands? Two, how materially are own brands skewed to the discretionary portfolio? Yeah, maybe I'll, I'll take that, Mark. We, we, you know, we obviously, you know, continue to be very bullish on the, on own brands in totality in terms of its ability to differentiate our business. We've got all sorts of work, you know, going on across the, across the business to, you know, further penetration, further penetrate our own brands business. When you, when you look to the quarter specifically, about 38% of the business was own brands. We had real strong growth in a couple of key, key brands across the businesses, you know, Vida by PADERNO is really strong, powerful, PWR POD, Sherwood, Petco, to name a few. Maybe, maybe just for illustration purposes, I know, I know you love to hear some of these brand stories. I'm really pleased with the progress we've made with the Sherwood brand over the last few years. Since the brand's launch in 2020, we've been really focused on building the brand's credibility with the next generation of hockey players, and this just gives me a nice opportunity for an announcement plug, which we'll formally announce tomorrow. We've just aligned with Connor Bedard and his management team on a multi-year partnership, where the Sherwood brand will be the exclusive provider of hockey sticks, gloves, and other equipment to enable Connor to be his very best on the ice. I don't know that he really needs it, but... and this partnership with Connor, along with our other partnerships with top athletes like Matthew Tkachuk and William Nylander, just, I, I think it just really demonstrates how far our product development and quality has come, the progress we've made over the last few years. You can definitely expect this brand to show up as a greater force in the hockey market going forward. As it relates to discretionary and essential categories, there's a pretty, you know, even distribution of own brands penetration across those two segments of our portfolio. To TJ's point, it shows up a little bit differently by quarter when you think about, you know, some of the big discretionary categories that drive Q2, like barbecues, and bikes, and patio furniture, and camping. We saw softness in those discretionary categories and still held our overall penetration rate at 38%. You know, the automotive and repair and maintenance, fixing businesses, et cetera, are gonna show up tall in our essential portfolio. You know, there's a whole, a whole bunch of brands, you know, MotoMaster, Maximum, Mastercraft, that start to come to mind, Noma, when you think about that essential portfolio for the back half of the year. I think we're well positioned with the own brand portfolio to provide value as the shift moves more to essential going forward. Okay, thanks. And then, on a related question, obviously, the relationship with big national brands is a key part of the strategy across banners. I know there's been lots of success stories, so don't necessarily need a full recap, but I'm just curious, particularly with CTR and Check, if there's anything of note with regards to how your relationship with the key national brands is evolving. Mark, it's TJ. Maybe I can start, start with that. I think when we talk about our assortments, we like to talk about the diversity of our assortment and the breadth of offering, and we often talk about kind of the good, better, best spectrum and, and how much breadth we have in the price range architecture. Similarly, from an own brand and a national brand standpoint, we really believe that we've got a really strong one-two punch when it comes to the consumer offering. What we do is we partner up category by category with the national brands that consumers covet and, and stay loyal to over time. We continue to do that as we go forward here, and whether it's SodaStream or Dyson or, or the likes of those types of brands, despite the fact that we have a very, very strong own brands portfolio, we see a ton of value for our consumers, and our consumers see a ton of value in, in us having the brands that they want, category by category. We're gonna continue to, to continue to kinda drive that one-two punch as we go forward here, and, and we don't see any change in, in tact from, from that perspective. I would just add, Mark, you know, in, in, yeah, specifically about Check, very strong growth with Nike on a year-to-date basis, and Sport Chek, I think we're moving that relationship, you know, closer where we'd like it to be. The inventory supply, is, is kind of moving in our favor relative to last year and previous years through the pandemic. I think the teams are working well together. And the assortments are standing up tall in front of the customer in the Check business. All right. Thanks for all the comments. All the best. Thanks, Mark. Thank you. The next question is from Tamy Chen from BMO Capital Markets. Please go ahead. Thanks. Good morning. First, a clarification question. When you talk about corporate inventory, it entered the quarter up 22%, I think, year-over-year, and exited the quarter up 6% year-over-year. like, you're factoring in, the, the spring/summer, as well as, the, the Christmas inventory too, correct? That is total owned inventory on ships, in DCs, that is on CTC's balance sheet. It is every tire, every lender that you can think of that we own title for. The up 6%, is that largely in- inflation? Yeah. Are units down? Yeah, I think it, it's a bit of a different story by banner, I think I said on my remarks. Canadian Tire Retail is actually down. If you look at some of the other banners, they're up. There's a little bit of pre-order, I think, at Mark's and Check. They took a bit of an early receipt, I, I certainly think inflation is part of that story. There's no question. I, I again, all the banner presidents continue to work in this regard, but we're, we're really pleased on the progress we've seen to get us from 30 to 22, down to six. As I said on my prepared remarks, we ain't done yet. There's more that we want to do, there's probably been a bit of early receipt. And you're right, there's gonna be a price inflation component of it. Really, I mean, I don't want to underscore this. We're really happy with the performance to get the inventory levels down to where they have been and keep the margin performance where it is. I think those are. You know, I just don't want to lose sight of those few points. Yeah, I'm glad you mentioned the margin part, because that's my, that's my follow-up question, is I'm just really surprised that your underlying retail gross margin improved 80 basis points when the consumer environment is what it is, and you but you still managed to work down your inventory. I guess the question is, how did that happen? Can you talk a bit more about what, what the tools were that, that enabled you to achieve that? Sure, Tamy, it's Greg. I, I'm, I'm assuming you're pleasantly surprised, right? Yes. Yeah. Well, listen, I, you know, Gregory hit on this. We, I think this is the story, right? It, it's that the teams continue to manage margin extremely well. When you look at components of margin, we certainly had headwinds from freight, and COGS inflationary pressures. We start to see those reverse in the quarter, and we're working as hard as we possibly can to get every dollar we can on some of that reversal. We'd like it to come quicker to us, but we're working hard to get it. We've continued to leverage our capabilities, and I would say there's three or four big ones. One certainly is our sourcing, to take advantage of that deflation in the COGS base. 2 is the elasticity modeling, around promotional discounting and really, you know, pivoting towards how to think about elasticity for essential businesses. Then our customer data, to really strike the right balance between price investment and margin efficiency. I think we've talked about many times, we're, we're also placing increased emphasis on targeted Triangle Rewards related investment versus mass price investment. That shows up in all banners. It's really starting to, to come through. Has been for a couple of few quarters in, in Check and, and, and Mark's. It's just giving us better better efficiency. In general, I'd say in most of the categories in which we compete, the industry was and, and, and maybe still is dealing with higher levels of inventory. For sure, the promotional intensity was high in the quarter, and we expect it to be as we move forward for the balance of the year. Although we did appreciate our margins, I can tell you, we don't feel like we left the bat on our shoulders at all this quarter, as our promotional discounts this quarter were steeper than they were last year, both in terms of average save story and total dollar discounts. Our growth across our businesses is definitely more pronounced for discounted items, but we're still managing those margins with all the levers I, I talked about. Gregory mentioned, you know, just like revenue and sales, there can always be variation quarter to quarter. As we talked about, a fundamental building block of our Investor Day plan was to hold our margins flat, and this quarter, I think, demonstrates that capability really shining through. Okay, thank you. Thank you. The next question is from Vishal Shreedhar from National Bank Financial. Please go ahead. Hi, thanks for taking my questions. Just a clarification. So when you're, when you're withdrawing your longer-term, 2025 aspirations, you're, you're maintaining your, your aspiration to hold gross margin, and protect those gains that you saw through the pandemic? Is that what I just heard you say in the last comment? I think. It's Gregory here, Vishal. I think, you know, as Greg said in his prepared remarks, you know, we withdrew the financial aspirations. I'm gonna keep saying this because I think it's critical, but we are totally committed to the Better Connected strategy, so let's just make sure we all separate those things and keep separating them because we're really pleased with what we've seen. I would say it this way: We're gonna come back at one point, as Greg alluded to, with some new aspirations, which will cover all the elements at this point. I would say that that was really never technically an aspiration. It was more just an objective within the aspirations that we had around ROIC or around, you know, the EPS target. That is still a focus of the area. I don't want you to think just because we've withdrawn the aspirations, we're gonna let TJ go hog wild and do a bunch of things on margin. I say that a bit in jest, but I mean it. It's really around kind of the demand environment and how different things have been versus what we expected, is why we felt that it appropriate to withdraw the aspirations at this time. We feel the actions we're taking are bang on, and so we're gonna continue to work on margin management. We're gonna continue to focus on own brands. Like, none of that's gonna change until, you know, And then once the economic conditions we think settle down, then we'll kind of put it all back together again and talk to you about aspirations at that point in time. Is that, is that clear? Yeah, it's clear. I, I just wanted to double-click on that. I mean, obviously, there's something that's changed within, within your modeling to, to cause you to say, "Hey, you know what? Maybe these aspirations that we've laid out are inappropriate." O-obviously, you said the demand side is one, so I'm just cascading down the P&L and to figure out what the other line items are. You know, in your, in your mind, and, and, well, o-obviously, demand is one on the sales side, but, you know, gross margin and sales are in-- are, are linked. I was wondering- Yeah, well, maybe it's- how you think about that. Let me hit that again. I think in our disclosures on the press release, we tried to kind of outline what were the kind of changes kind of were. You hit on the biggest one in my mind, which is consumer demand, which cascades its way down everything, to be frank. The other thing is kind of inventory levels. We talked about, I think in the press release and the MD&A around carrying much more inventory than we thought that has an impact on 3PLs and some of our SG&A and costs. interest rates, what that's done, not only there's been more kind of working capital we're carrying, but we've got 10 interest rate increases that we didn't necessarily contemplate. It, it is, you know, interest inflation driven that kind of makes its way in various parts of the P&L. I'll tell you, the biggest one, far and away, is the demand environment and what that's done. That's, that's what I would just want to reiterate. Yeah, I think, Vishal, that's, that's the most important point. I mean, since the Investor Day, which is less than 18 months ago, we've seen a complete inversion with GDP growth and the policy rate. You know, we- going into the Investor Day, we, we, we had 5% GDP and effectively a 0 nominal interest rate, and we've gone to the exact opposite. It's not clear to us now where we are in the tightening cycle. If we aren't done, then we'll continue to see demand impacts in our discretionary businesses. If we are done, or close to being done, then we're in a better position to provide a view to how we believe these businesses will perform on the top line and how that flows through the revenue and the rest of the P&L, to your point, because we're going to be operating with much more stable visibility. We just don't have that right now. That's the biggest rationale for the withdrawal. To Gregory's point, the key components of how we run our business for long-term growth, they're not going to change while we're waiting to get that visibility. Okay. With respect to e-commerce sales and Canadian Tire's path to increasingly become a omnichannel retailer, improve your omnichannel capabilities, are your e-commerce sales, are they where you thought they would have been when you came up with your Investor Day plan? If not, you know, no one's talking about changing the plan, but is it possible to defer some of the investments later down the road, or, or is that something you're still actively investigating and will update us on later? Well, we're certainly not taking our foot off the gas from an investment standpoint, Vishal. We, you know, we continue to believe that looking at e-commerce and bricks and mortar as two different channels is the wrong way to look at the business. The customer is the channel, and the lines are so blurred between digital and the store, and that's what our new Concept Connect format is all about. It's about deploying, you know, technology in store that improves the customer experience, and ODP is about improving, you know, every element of the digital experience, which connects to physical sales. I mean, as we've talked about before, our estimate is that 80% of all in-store transactions, the front door of the transaction is, is the website. We, we continue to remain very pleased with the work done across our banners, on the digital front, both for e-commerce and in store. You know, our penetration rates, to your point, they've settled in that mid to high single-digit range, and we continue to show up, you know, with options for the customer any way they want to shop. We've now successfully rolled out One Digital Platform across all of our major banners, as we talked about. We've been talking to you about that investment for almost 4 years, right? It got slowed a little bit with COVID, but it's modern architecture and the ability to quickly unlock personalized, you know, customer-centered, centered experiences that could end online or could end in the store. You know, I think we feel really, really good about how, how all this is, is coming together. We continue to push technology deployments into, you know, physical locations. When you think just in CTR, 90% of Canadian Tire stores now have lockers. We have rolled out scan and buy in stores across the network. We've got deployment now of electronic shelf labels that we're pretty excited about, in 70% of the store network. Sport Chek is moving forward with a significant amount of locker expansion. We've got same-day delivery pilots going. There's a tremendous amount of activity, but I wouldn't tease out that activity specific to e-commerce. It's really about omni-channel, and it's the essence of Better Connected. It's connecting the physical and digital channels, so that is the essence of the strategy. Thanks for those comments. Thank you. Thanks, Vishal. Thank you. The next question is from Chris Li, from Desjardins. Please go ahead. Oh, Good morning. Thanks for squeezing me in. Just apologies if you covered this already, but could you share with us what was the CTR comp in July? It's Gregory here. I think what we said was the trend we saw in June continued. We didn't give the number, and I'm not planning on right now either. All we were notifying was just that the trend that we saw in that, you know, our disclosures talked about, you know, noticeably slowed down, I think, was the wording we used in July, and that same trend continued in July. Okay, that's helpful. Then my other question, I know, I know, I know this is a very difficult question to answer because no one here has a crystal ball, and it's probably too early to ask this. Given the 10 interest rate hikes have a delayed impact on consumer spending, do you think it's reasonable to expect earnings growth next year? I mean, obviously, sales will likely remain challenged next year, but it sounds like you do have other levers that you can pull to, to get some growth. Just at a high level, you know, how do you think about the, the earnings growth cadence for, for next year? Thank you. Yeah, I think. It's Gregory here, and I think, you know, I'm just not going to be prepared to answer at this point. The reality is, is I think Greg gave a good summary in terms of where we are. Let's get through kind of these economic conditions. Once we have that settled, we're more than willing to talk about next year, five years, two years, whatever it is. We, you know, we're just seeing, as you said, what's happened in June and July, and I just think, you know, for us to kind of talk at this point, it's, it's just, it's not, it's not appropriate in my mind. Stay tuned. I know it's a question on all your minds and we'll look to be able to answer it when we think we're ready. At this point, I just want to reiterate, we are working on the right things for the long-term success of Canadian Tire. If there's some short-term noise and some pain in that, that'll be what it'll be. We're a better business, we're more resilient, and we can work, and we'll work and manage our way through this, is how I'd, how I'd want to leave it. Okay. That's fair, and, best of luck. Thank you. Thank you, Chris. Thank you. The next question is from Luke Hannan, from Canaccord Genuity. Please go ahead. Thanks. Good morning, and appreciate you squeezing me in here. Gregory, I, I think I heard you correctly earlier in the call, you said during your prepared remarks that you expect the pace of SG&A growth to slow through the balance of the year. I'm curious if you can help us get an understanding of what exactly is embedded within that assumption as far as the, the combination of ramping up the new GTA DC that you have, and also the use of 3PLs for the balance of the year. I appreciate that it's probably gonna be less than what you're doing right now, as far as relying on them, but just wanna get an understanding of what your base case is for where you expect that mix or that usage to be in the balance of the year, 3PLs versus your own DCs. Maybe if you anticipate still relying on a good mix of 3PLs for 2024. Yeah, I, I think the way I'd answer the question is, we think about going into 2024, our number will be significantly reduced from number of 3PLs. I, I'm gonna stop short of telling you kind of where we are and what that's gonna fall down to, but I, I mean, it'll be noticeable on the P&L. Let me put it that way. It's not, it's not insignificant. As you know, there's lots of things to work through. It's still kind of in this time period. That's our plan. Feel really good about all the progress made. The, the, the merchants, the supply chain team, are all committed to this kind of activity, and I would expect we're gonna enter 2024 with a very different, you know, excess capacity picture than, than we have now, and certainly than we had at this point last year. Okay. maybe a, a quick follow-up as, as well. appreciate the commentary that you've given so far on the remediation efforts, at the A.J. Billes DC. Yep. I appreciate it's early days, but would you be able to give any sort of rough timeline for when you expect those remediation efforts to be fully complete, or is it just too early to tell at this point? Yeah, let me, let me take that one. It's Gregory again. I think, you know, it, it's, it's, it's been a, it's been a, a, a long process. I will tell you, given the extent of the, the, the fire, we couldn't really get investigators in, till kind of midway later into Q2. You know, and, and that, that's what you have to consider as part of this process, frankly, is people's safety and, and, and well-being. It has gone a bit longer than I, I think all of us had hoped, but the practical reality is that that's kind of where we are. There's still some direct costs we are certainly going to incur. For example, there's still a hole in the roof. Having said that, like, that's probably capital and a different accounting treatment, but my point is, I don't think we're done with recognizing direct costs. I expect the indirect costs that we've kind of talked about in Q1 and Q2, I expect those to start to trend downwards. The question is, we're working with the insurer on the claim about when we're gonna be able to, you know, recognize recoveries. It's just a, you know, it, that, again, just given where we were in the process, it's just gonna take us a little bit of time. That's the best I can give you at this point, and we'll speak more about it in, on Q3. Okay, appreciate it. Thank you. Thank you. Thank you. There are no further questions registered at this time. I'd like to turn the call back over to Mr. Hicks. Thanks, Donna. Thanks, everyone, for your questions and for joining us today. We look forward to speaking with you when we announce our Q3 results on November ninth. In the meantime, enjoy the rest of your summer. Bye for now. Thank you. This concludes today's call. You may now disconnect your lines.