Canadian Tire Plays Hockey Defense Against Target
Canadian Tire Corp. (CTC/A) will look for more acquisitions to fortify its position as the country’s largest sporting goods retailer after purchasing Pro Hockey Life Sporting Goods Inc. for C$85 million ($85.7 million).
The purchase of closely held Pro Hockey Life will give Toronto-based Canadian Tire 23 stores across five provinces and annual revenue of about C$95 million, the company said in a statement. The acquisition will be accretive to earnings in the first year, Canadian Tire said.
“We believe organically we can grow and we’ll also continue to look at other ways we can grow if there are other things to acquire or grow our company in sports,” Michael Medline, the president of FGL Sports Ltd., a subsidiary of Canadian Tire, said in a phone interview from Toronto. “We think it has a lot of runway.”
Canadian Tire became the biggest sporting goods retailer in 2011 with its acquisition of FGL, owner of Sport Chek, Athletes World and Sport Mart chains. It faces increased competition with the arrival of Minneapolis-based Target Corp. (TGT), the second- largest U.S. discount retailer, next year, and Wal-Mart Stores Inc. (WMT), the Bentonville, Arkansas-based retailer undergoing its biggest Canadian expansion since arriving in the country in 1994.
“Those competitors are active in sports, they’re big and they’ve got a lot of square feet and we compete against them,” Medline said. Competition from the U.S. mass retailers did not motivate the acquisition, he said.
Canadian Tire shares fell 0.2 percent to C$66.90 at the close in Toronto today.
Canadian Tire plans to build 100 new Sport Chek stores in the next five years, mainly in Ontario, which will increase the chain’s square footage by 50 percent, said Medline.
“They’re going deeper in hockey and they’re pushing the sporting goods side of things, and one thing it does do is differentiate themselves from the Targets and Wal-Marts of the world,” Brian Yarbrough, consumer analyst with Edward Jones & Co. said by phone from St. Louis. Yarbrough downgraded the company from buy to hold on Nov. 13, citing lack of prospects for large growth.
Smaller companies like Pro Hockey Life, based in Laval, Quebec, are among the few growth possibilities the company has, Yarbrough said.
“We believe that small transactions to strengthen existing categories are much more likely than a larger deal to launch CTC into a new space,” Mark Petrie, an analyst with CIBC World Markets, wrote in a note to clients today.
In a separate statement, the company said some senior executives will depart which will provide an opportunity for the company to reduce costs and streamline operations as it enters “one of the most competitive retail environments in our history.”
“Overall, we are reducing the total number of senior leaders and putting more responsibility on our strongest, most- proven talent,” Rob Nicol, the vice president of communications, said in an e-mailed statement.
Among the executives leaving are Mike Arnett, executive vice president of corporate development, Kristine Freudenthaler, senior vice president of technology and Angela McMonagle, head of investor relations.
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