Okay, we'll now move to Canadian Tire Corporation. The active members in Canadian Tire's Triangle loyalty program represent more than a quarter of the total population in this country, so we'll get especially relevant views on the state of the consumer. Please join me in welcoming CEO Greg Hicks, and EVP and CFO Gregory Craig. How you doing? Good to see you. Yeah. Real time. Good job. Thanks. I'll take far. You'll take that? I'll take far. All right. Hey, thanks to both of you for being here. So I think you know the theme. Yeah. We're starting with state of the consumer. Based on what you see in your retail business and your credit card data, how would you describe the state of Canadian consumers right now, particularly as it relates to discretionary spending? First of all, thanks for having us here this morning. This is always an important date in our calendar, and good to meet you. Likewise. Welcome to the fireside, so to speak. Thank you. Yeah, not surprised you're leading with that question. It's the first question we get from any investor meeting we have. I guess in general, I would say that we aren't seeing anything materially different, you know, show up in the economy. You know, the kind of consumption of the average Canadian household, now relative to the last, you know, nine or twelve months, the reality is, you know, consumption of discretionary items and categories has been tough. The performance bifurcation between discretionary and essential has been quite wide, you know, for us, and in kind of more market stability, time frames, there's very little difference, and in fact, the portfolio might tilt to a little bit more run rate, benefit to discretionary versus essential, given our mix of business tilts to discretionary. What we're seeing in the businesses that we own and the spend across our credit card is just a very cautious, you know, very cautious consumer. The reality is, and this would have been kind of new analysis that we would have put forward earlier this year, is what we're seeing is that the consumption weakness and discretionary is agnostic to income. It has everything to do with indebtedness. And so we're seeing, you know, two hundred thousand, you know, plus, income households spend on a discretionary basis, like a fifty thousand dollar, you know, household. And where that's manifesting in a material way is in VECTOM markets across Canada, really pronounced in Vancouver and Toronto. Think not just the city, the dense urban city, but also the first and second tangential, you know, suburb to those cities. It hearkens back to, you know, significant home turnover activity in the 2019 to 2021 time frame. You know, so you're seeing a pullback, you're seeing kind of savings rates grow in some of those households, as they get prepared for, you know, mortgage renewal, mortgage shock, et cetera. You know, I think it's important, you know, for us anyway, to get a read on spend outside of the businesses we own, as well. Actually, let me go back. Where we do see some benefit in the portfolio and the strategy, you know, standing up well, and growth on the top line is in the Maritimes. So generally speaking, although there are some pockets of indebtedness at the household level, in the Maritimes, it's a much healthier household, and our business is strong in the Maritimes. Maybe not quite at, you know, market stability rates, but positive top line and growth in discretionary categories. So again, we feel good about how the strategy stands up in front of the customer and those types of dynamics. When we look to our credit card, you know, CAD 25 billion worth of spend, household spend, you know, we're seeing, you know, a lot of red in the file from a total spend standpoint. In general, we're seeing the average Canadian household exercise fairly good discipline and constraint fiscally. They're paying their mortgages, they're paying their credit cards. We would have expected a little bit more aging in the portfolio this year. We've been pleasantly surprised with their dedication to paying their credit cards, and with some monetary easing, you'd hope that that will only continue on a go-forward basis. Big stalwart spend categories like travel and dining, you know, you're starting to see some year-over-year weakness show up on a week-over-week basis, and we believe, you know, there's still a fair amount of inflation in those services, so I think that would... You know, when the absolute dollars are starting to show decline on a, you know, a year-over-year basis, that's probably a pretty good indicator that the economic activity is down. And so, what we're seeing as the year is progressing here is a modest narrowing of the performance bifurcation between discretionary and essential. You know, anecdote, but I think a pretty good indication of how the average Canadian family is thinking about spend right now. We have just come through the back-to-school season. Sport Chek. That's an important kind of microseason, you know, for us in that business that we organize around. And our kids' footwear and backpack business was exceptionally strong. And children's apparel, not so strong. So again, if you've got a hole in your shoe, or a hole in your backpack, I think, you know, mom and dad are viewing that as a need, but you know, Johnny can go to school with a T-shirt that's, you know, a size too small or has a rip in it, and so these are the types of choices I think that are happening in the average Canadian household. You know, on aggregate, you start to see it if you're tilting to kind of more discretionary. It's still weakness on the top line, but it's narrowing, so we're tilting to some degree of cautious optimism. And for us, it just means continuing to focus on what we've been focusing on, which is disciplined expense control, and real strong margin management to work to accrete earnings in an environment where you can't rely on the top line. Mm-hmm. That's good color. Gregory, I want to get to the CTFS business. Just a quick housekeeping matter first. Oh, perfect. I was going to ask about the clock. Thank you for that. Write-offs, should we expect these to continue to increase? And at what point do you think they might plateau? You know, it's funny. Greg said the first question we get is the state of the consumer. The second isn't the question that I thought you were going to ask. It was more, what's the latest update on the strategic review? So let me just say that the review continues. It's a priority for us, but you know, to get to your question, you know what the review has kind of reminded me of how strong our credit risk capabilities and our resources and our team actually are. To get to your specific question, though, we have a loss rate in the second quarter on a rolling twelve basis, 6.7%. How do we get there? The first thing I would say is the bank team, and Greg and I are incredibly comfortable, and we're on our expectation around where we thought we would be. It's important to go back, to wind the clock back a little. Canadian Tire Bank has always acquired their customers through our retail stores. It's been a very cost-effective way to obtain loyal Canadian Tire customers. When COVID hit, as you can imagine, you know, we had store closures quite a bit in that time period, and our acquisition fell fairly significantly. Our credit card acquisition fell fairly significantly. The team started to delve more into kind of the capabilities on the digital side of things. That gets us to kind of our investor day, where we announced, you know, we're back in business for growing our book of receivables, because it's all part of that better connected strategy, get more cards in circulation, get more Canadian Tire Money in circulation you can only redeem back in our family of companies. We announced kind of going back on the aggressive on acquisition after that year or so of a pretty significant pause. That was a signal saying we're expecting higher loss rates as you move forward, because the minute you start acquiring more new accounts, by their very nature, are riskier. If you've been on my books for ten years, Greg's been on for an hour and a half, you're just lower risk than Greg is. I know more about you. I have more of a history. We knew this write-off rate increase was going to come. I think what exaggerated everything was, you know, as we went through that period of increased interest rate increases, we decided the prudent thing to do, probably in the middle of last year, was just start to slow the growth in acquisition. So now think of two things: We knew these losses were going to be coming, but we decided to slow the growth. The write-off rate's a math formula. It's write-offs divided by average receivables. So as you start to slow your receivables, you're putting more upward pressure on your write-off rate. So we could have, you know, telegraphed this, and this is working exactly as we would have thought as we move through this cycle. And I'd end again, where I started, that we're very comfortable with the risk capabilities and the expertise, and if the market does deteriorate from here, you know, there's additional actions clearly the team has in their playbook. And I will just pick up on something Greg said, the early stages of aging, so the before you get in kind of the later stages, like past due, two months, three months, four months, so kind of the really early stages, are looking much better than kind of earlier months or vintages. So, that does bode, I think, we think well for the write-off rate going forward. And the watch item I said on the call was we'll just keep an eye on the unemployment rate, and if that does continue to deteriorate, there's additional actions, as I said, we can take to kind of manage the risk accordingly. Mm-hmm. Okay. That's, that's helpful. You, you mentioned loyalty. I'm going to bounce around a little bit- Yeah. -and then we'll get to that, that subject. It's an important part of your growth aspirations. I wonder if you think the Triangle program is properly understood by investors. How would you like us to think about its importance to the overall ecosystem? What's its strategic significance to Canadian Tire? Want me to take that one? Yeah. I'm glad you asked that question. It's, you know, we do believe that the Triangle program is very strategic, and we also believe that it is misunderstood in the markets. I think it's really easy to think about the Triangle program solely from the standpoints of a consumer loyalty program. So you're thinking about the rewards, you're thinking about the currency, in our case, Canadian Tire Money for driving value, and you know generating demand. And that is an absolute critical component to Triangle for us. I mean, the reality is we have a value prop. It provides, you know, up to 4% cash back. We have, you know, scalable multiplier functionality and events that kind of layers on top of that. And all of that manifests in kind of one-on-one incentives to customers that have generated hundreds of millions of CAD worth of incremental sales over the course of the last few years. So again, very, don't get me wrong, extremely critical and important part of the way we go to market from a demand creation standpoint. But we really believe that you've got to look behind the curtains. You know, Triangle, as a management team, we believe is a privileged strategic capability. It provides us a wealth of first-party data that allows us to understand the behaviors and preferences of our customers, and how those customers and members interact with every single business that we own, inclusive of the bank, and all digital touch points associated with our enterprise. That, you know, golden record, so to speak, of a customer, provides us a view to be able to model customer lifetime value and profitability at an individual customer level. And give us that understanding around preferences and behaviors and knowledge around those members. And so what do you do with that? Well, you build a, you know, highly sophisticated automated system, and that's what we've been working on over the course of the last two, three years, that has AI and machine learning and advanced analytics that allows you to personalize engagements, you know, at a member level. And allows us to move all of our marketing, or not all of our marketing, but a good portion of our marketing, away from a one-size-fits-all approach that provides value to the average Canadian. And so, you know, when we think about, you know, the Triangle program now, we think about it from the standpoint of this continuous learning automated system that allows us to engage with the customer on a one-on-one basis with highly sophisticated outputs and a P&L at a customer level, that really has us understanding, you know, elasticity and those things that can provide us better efficiency on the hundreds of millions of dollars of incentive spend that we have in our marketing line item. And then, you know, where we go from here, because keep in mind, to Gregory's point, if you go back, context really matters. You know, this loyalty program was only in CTR up until 2018. So 2019, you roll forward with the bank, a critical part of the value proposition, Sport Chek, Mark's. Now we've added Pro Hockey Life and Atmosphere and Party City, Sports Experts, et cetera, et cetera. And many of those businesses had real tough times during COVID and were closed. And so now our data scientists, our analysts are getting a perspective on understanding the value that the system creates for the average member. And what we know to be true now through our analysis is the system is creating more value for each individual component than what a banner could create on its own. So it has us thinking now about how we adjust our op model, our operating model. For years and years and years, we've been operating more akin to a HoldCo. And now with this analysis, we believe there's an opportunity to organize ourselves around the customer in an Op Co to create even more value for shareholders and for members as we go forward. So very, very privileged strategic capability. Lots of investment has gone into getting us to where we are now. The model and the automated system is all connected to not only our banners, but also external partners, whether they be CRM or social media platforms, so that we can put the right messages in front of the customer at the right time and the right channel. And we still have work to do, but I think the heavy lifting is behind us, and the model will continuously learn and provide value to, you know. This is 11 million plus Canadians, right? 70% of Canadian households that we now have an algorithm of understanding for. And so, you know, as we move forward, it'll be about, you know, creating value with that understanding. Okay, that's great. I wanna come back to strategy. I'll start with an optimistic point of view. Let's say the rate cuts we eventually get do generate the results we're hoping for. What can we expect during the transition to an upcycle at Tire, and what changes will we see? Yeah, I'll. Maybe I'll take that. And I'll. I think it's easy to talk about this from a Canadian Tire Retail perspective. Just to give you, you know, some practical nuance with the model. Obviously, we go to market, you know, different, different than most, with our Associate Dealer model. The reality of the last twelve months is, you know, that the dealer confidence is similar to consumer confidence, confidence, generally speaking. And they're, you know, we, we talk about CTC being the canary in the coal mine, with respect to the economy. Well, they're even ahead of us. So I don't know what the analogy is, but they're ahead of the corporate entity in terms of canary in the coal mine. And so what's happened in the last twelve months in the model? You know, their confidence has not been, you know, strong, and so what happens is they pull back, and their consumption from us is weaker than actual consumer demand. And what happens? Their inventory draws down, our revenue dries up. You know, our profitability is attached to the revenue in what we ship to those stores. And so, you know, that's kind of how the model works in a downturn. They own the inventory. They own kind of the interest coverage associated with their inventory. So over the last twelve months, they've drawn down their inventory. We think that drawdown has been healthy, but it certainly has impacted us to the point where, over the course of the last twelve months, our revenue has been kind of below POS. And so we're on record at the end of Q2 saying, with this cautious optimism tone, we think, you know, for the balance of the year, that that should normalize. The upcycle works exactly the opposite. And so, you know, what's happening now is, you know, they're starting to. You know, they're reading the headlines. They're starting to see, you know, where we may have left some sales on the table with that drawdown. We drew down CAD 500 million of inventory in Q2, and we didn't get everything right, so we didn't, you know, replenish everything that the dealers would have wanted in season. At the portfolio level, we feel really good. Our service levels were extremely strong, way stronger than they were last year. So I always try and bring them up to the portfolio level, but these kind of little misses of instances whereby we could have attracted more sales at the item level in a store, in a region, et cetera, start to manifest in the psyche. And in that upcycle, the opposite now starts to happen, where revenue outpaces consumption and their inventory builds. It's not a light switch, it's more of a dimmer switch. But that is likely what will happen, if history repeats itself. And when that will happen definitively is the sixty-four thousand dollar question, but you start to see hints of it already in terms of how they're buying for winter and Christmas, et cetera. And so you think about, you know, we think about, well, what's our job in that upcycle, as you call it? And that is, we just need maximum agility in our supply chain. We need to think about where potentially we take some risk, where we otherwise wouldn't from an inventory standpoint, so that we can be there for them from an in-season management standpoint. We need to bring kind of new products to market and create some excitement that starts to change their psyche. And, you know, we need to be there when discretionary demand comes back and gin up demand, you know, with our demand creation toolkit. So, on the supply chain front, we feel like we're in a better position to do that than we ever have been. We've put hundreds of millions of dollars of investment to automate our supply chain over the course of the last two years. We're adding a regionalized distribution center in Vancouver that'll open the first few months of the year, which will improve the speed to market, turnaround time, et cetera, for a large swath of our Western stores, and we're gonna be ready. You know, our vendor service levels, the global supply chain looks pretty good right now. We've got some domestic challenges that we, you know, we've been dealing with, but globally, I think the supply chain is sound, so we feel, you know, ready to support that upturn when it comes back our way. The only thing I would say, John, just that, you know, the notion of kind of what we've talked about since Q3, given the uncertain demand environment around controlling the controllables, that's not gonna stop. So yes to everything Greg said, which is absolutely. It's funny, we've both been doing this together for a while because, and it was a jump ball question, I think I would've answered the exact same way. But I just wanted to kind of reinforce the notion of kind of that margin management, that cost control. And, you know, when we talk about inventory, I think we're, you know, we're talking about being more selective, say, where we would take more inventory risk versus kind of maybe what we did in 2020 during the COVID periods, right? So it's because I don't want to get kind of out in front of ourselves too much. Like, it's still, you know, we've got cautious optimism, which is true, but we feel very strongly that the discipline we've instilled into place is gonna long last. The benefits from it are gonna be long lasting, and don't wanna let our foot up off the gas off of that either. Mm-hmm. Well, that's good. No conversation about tire would be complete without addressing dealer network and dealer health, so I'm glad we touched on that. I wanna ask the opposite question from a strategy perspective. If we don't get the economic activity we want from rate cuts, if you see a more prolonged period of tougher conditions for consumers, how does that influence your go-to-market strategy? Do you do anything different from the past twelve months? Is there anything you've learned from the last period of moderation that would inform your strategy for another round of that? I'll maybe start. Sure. Greg will jump in. Yeah, you know, it's interesting, right? Like, you know, Greg talked about what's key to us strategically around our connection with our customers. That never changes, regardless of where we are in an economic cycle. That is core to our strategy around connection with customers. So take that as read around what we're trying to achieve here strategically. You know, but again, I go back to Q3, 12 interest rate increases, an uncertain demand environment, and we went to the tone of control what you can control. And what does that mean? From an operating cost perspective, it meant, you know, look at people. We took about a 6% reduction in our open headcount, which was clearly not an easy thing to do. On the inventory side of things, we said we've just got too much inventory, and as Greg said, we worked really hard to be as smart as we could with it. Was it perfect? No, but what it allowed us to do was, frankly, close 12 3PLs, and get our operating cost structure back where we wanted it from a supply chain perspective. I think, you know, so those are two big things that I would say from a cost perspective that we've managed through, while at the same time not destroying our margin rates. I think that's a really important point to make, to go down 15% in your inventory, CAD 500 million, but maintain, if not marginally increase our margin rates. Really happy with how the team's managed to do that, although we acknowledge there's probably been a few revenue misses as a result around being out of stock in certain places. So I don't think that notion of, again, controlling what we control. And then on the margin, you know, there are so many levers. We often get questions about, "Well, what about the impact of containers? Or what about the impact of a promotional environment?" We could talk to you about 40 different things that we have at our... You know, there's a mix of art and science, but there's a lot more science behind margin management that I think is probably as well understood. So I don't see those changing if the economic condition, you know, gets worse or doesn't change, as you said, or even if it improves. Now, if you're asking me about demand creation, how are we gonna do it? The team is working really hard on trying to create demand, and I'll give you a few examples of Q3 around pricing as to Q2, so I think Greg maybe mentioned lawnmowers. That might have been one of the one-on-one meetings. I can't recall now, but anyway, you know, there wasn't a need really to increase discounting on lawnmowers in Q2. Think how much rain we had. It was hard to frankly keep them on the floor, so there wasn't much increase in discounting. Why bother? To be candid. If you look at things like outdoor fun, like backyard amusement, like a trampoline, I don't know if you could discount that enough to frankly move any more product. It's high ticket discretionary, so, you know, we did discounting, and it didn't really, frankly, work all that much. But we did. The teams tried and learned and rather validated, frankly, what our assumption was going in. Now, an area like home organization inside the store did very well with discounting. It actually drove sales in that category in the quarter. So the team has an ability to generate demand. What the team is working really hard on is my patio furniture example. Let's not waste the discounting in an area that you're not gonna get any benefit for it. So that's what I see moving forward into balance of 2024 and into 2025. Control what you can control, and where can we take action to kinda, you know, move demand kind of in our favor? That's how I see the future unfolding. The only thing I would add is it goes back to, you know, this, what's the next kind of horizon of opportunity with Triangle is how do you kind of marry that very kind of traditional product discounting approach to your customer understanding? So, you know, if we, you know, if we know that there's 500,000 Canadian households with low indebtedness that should be elastic, how do you turn on your one-on-one algorithms with the right categories and the next best offer engine to stimulate that demand? And so with a lot of data and just interrogating, you know, what's happening on the top line of our business over the course of the last 12 months, we're starting to have those conversations, like, what if you just had one more trip, you know, associated with about 500,000? Instead of, I'm gonna grow, you know, this category by 10%- Yes This category by 10% and this category by 10%, and these ones are gonna go down, and it's all gonna roll up to something that makes sense for us. It's like, go to the household level, go to the member level, and think about getting the teams focused on getting another trip. And so that's relatively new, in terms of, our go-to-market strategy. Mm-hmm. Okay. I want to conclude on capital allocation. So a couple, two-part question here, I suppose. In the context of being involved with, exploring an asset sale, how are you balancing demands on capital, and how should we think about pausing the buyback program? Yeah, I think the first thing I would say is, look, I mean, Canadian Tire, before Greg and I, and Greg and I have been consistent as well, that, you know, the long-term philosophy on a balanced approach to capital allocation hasn't changed in our tenure. I will acknowledge in the short term, there's some differences due to, frankly, buying the shares back for Canadian Tire Bank. So that's increased our leverage more than we would have liked it to our normal kind of levels. So that's the reason why we've kind of been on pause from a share buyback perspective. But if I go back to a kind of a long-term philosophical discussion, it hasn't changed. First priority is invest in the business. We want to be around another hundred years and have a really strong asset for the management teams in the future to come. And I think we've got a really strong track record of return on capital, either through dividends or share buybacks over that last ten-to-fifteen-year period as well. It's part of the story. We know it's important to investors, and I'll just, you know, remind everybody around free cash flow. If you look at retail last year, which, you know, was a tougher year from a profitability perspective, the retail business still generated CAD 1.1 billion of free cash. You add to that kind of the dividends we received from the REIT and from financial services, it's CAD 1.6 billion, which is more than enough to kind of fund kind of the all the elements of our capital allocation of a capital allocation stool or legs of the stool for 2024. Mm-hmm. Okay, and then as a follow-up to that, what is the right level of leverage for your business? Yeah, I'd like us to get... I think we both would really like this CAD 900 million that we've taken on to be off. We feel with that, that'll put us pretty close to the right level of leverage for CTC. Okay. Maybe we could fit one quick one in. Dividend, any reason to think differently moving forward than historical? As I've said, I mean, I think, stay tuned. I think you know that, Q3 is typically when we, as part of our Q3 disclosures, kind of mention that. Again, we know it's an important part of the story, so we, you know, we will take our recommendation through to the board and look to announce what that'll be in the Q3, but I just would remind everybody around kind of the free cash flow generation that the business has in even in a set of a tougher year like 2023, and you've seen some of the improvements in 2024 already around profitability for the first half of the year. Mm-hmm. Okay, great. We'll have to leave it there. Appreciate the insights, so thank you for joining us. Great. Thanks, John. Thank you!