Canadian Tire’s Earnings Soar in Q4: Is the Stock a Buy?

Canadian Tire (TSX: CTC.A) posted solid fourth-quarter results recently, with revenue rising 1.5% to $4.5 billion for the last three months of 2024. Net income also surged to $411.5 million, more than doubling from a year ago as the company got a boost from the sale of a Brampton industrial property. Excluding this and other items, normalized net income was $247.5 million, representing a more modest but still healthy 16% increase from the prior year. Comparable sales grew across the company's major brands, with Mark’s leading at 1.8%, followed by Canadian Tire stores at 1.1% and SportChek at 0.4%. Given the challenging economic environment, any sales growth is a positive sign. But the bigger question is what lies ahead. The potential for tariffs in the U.S. and Canada could increase costs and pressure consumer spending, creating headwinds for retailers like Canadian Tire. Over the past year, the stock has barely moved, up around 3%, and its five-year performance has been negative. The danger looking ahead is that tariff-related cost pressures could hurt margins, and with e-commerce competition rising, traditional retailers face ongoing challenges. Even though the stock looks inexpensive at a forward price-to-earnings multiple of 11, uncertainty could keep investors on the sidelines. On the bright side, Canadian Tire remains a well-established brand with a loyal customer base. While short-term risks exist, the company’s fundamentals remain strong. Its 4.5% dividend yield offers a compelling reason to hold the stock for income-focused investors, especially with a manageable payout ratio of around 60%. However, beyond its dividend appeal, growth prospects appear limited. While it’s not a bad investment, Canadian Tire may not be the best choice for those seeking big returns, even over the long run.