Canadian Tire Corporation, Limited

Stephen Wetmore - Chief Executive Officer Dean McCann - Chief Financial Officer and Executive Vice-President, Finance Mary Turner - Chief Operating Officer, CTFS Allan MacDonald - Chief Operating Officer, Canadian Tire Retail Michael Medline - President, Canadian Tire Corporation

Irene Nattel - RBC Capital Markets David Hartley - Credit Suisse Mark Petrie - CIBC World Markets Peter Sklar - BMO Capital Markets Jim Durran - Barclays Capital Vishal Shreedhar - National Bank Financial Keith Howlett - Desjardins Securities Patricia Baker - Scotia Capital

Good afternoon, everyone and thank you for joining us today. Dean will update you further on the details on this quarter’s results in a moment.

But let me first begin by touching on some highlights of our third quarter performance and provide an update on some of the key initiatives that we have been working on. As you saw in our earnings release this morning our results were strong, reflecting particularly impressive performance in our retail businesses.

We saw this quarter what Canadian Tire can do when we get reasonably seasonal weather combined with good execution of many of our important initiatives to build our brand and improve our service levels and bring innovative great products to our customers across all our retail banners. Sales growth at our Canadian Tire retail banner was strong, particularly in our automotive business where every category was up, with strong auto service revenues.

Work done in our assortments and automotive is paying off as we see a trend of consumers switching to premium branded products and improving the range of product options across key categories like batteries is also driving sales and average basket size. I know this type of performance has been a long time coming as the corporation and dealers embraced the automotive infrastructure technology.

The benefits of the new technology are leading to additional diagnostic and maintenance work being performed and most pleasing we are now seeing substantially higher customer satisfaction scores. We are also encouraged by the performance of our hunting and fishing pro shops.

Our preliminary data is telling us that these concepts are helping to drive traffic and incremental sales as sales of stores with Pro shop concept are up over the national average. To-date a 116 of our CTR stores have been converted and we continue to roll out the new assortments to select regions across the country.

The living strategy which highlights exclusive brands from leading national manufacturers is continuing to perform well. Our focus with this concept has been to enhance Canadian Tire’s brand as a destination store for kitchen, cleaning and storage and organization products.

Similar to our Pro shop concept preliminary data suggest that stores that have implemented the full living assortment and associated merchandising are out performing stores without the new living assortments. The latest phase of our digital strategy launched earlier this week, and we began testing e-commerce capabilities in approximately 30 stores across the country.

We are using a good cross section of store locations and more than 10,000 SKUs to test out operations and ensure we are ready to roll out a national program in 2014. Unlike many companies that are constrained by centralized distribution centers our unique business model will provide advantages to our e-commerce offering.

Our dealers effectively operate 490 mini distribution centers across the country, which collectively reflect a significantly broader and deeper inventory position than the products we have available at our corporate distribution centers. This will allow our e-commerce customers to have faster access to locally relevant assortment through their neighborhood stores than otherwise would be possible if a product were shipped directly from a centralized distribution center.

There is actually a ton of work underway with technology and innovation in the company right now. I was just down in Kitchener and Communitech where Canadian Tire is embedded with companies like Google developing applications to make the customer experience so much more exciting and easier.

Some of the work I saw could have global ramifications if we can commercialize it. So we are watching carefully the incredible progress that Eugene Roman's technology team is making.

They are actually implementing technology at faster pace than we ever have and I am sure Michael, Allan and Harry will go into details which you for each of their business units if you have questions about our progress. Moving on to FGL Sports, I continue to be very pleased with the momentum we are seeing in the business.

Total sales in the quarter were up versus last year despite the fact that we have fewer stores this year compared to last due to the completion of a banner rationalization. Our offerings are attracting more customers towards stores and building our reputation as the premier link between Canadian’s and the best sports brands in the world.

This, combined with efforts since we acquired the business, to improve our in store experience, add new international brands and change how we connect with our customers through the use of digital advertising and marketing, has translated in to strong sales performance at the core Sport Chek banner, which saw a 9.1% increase in same-store sales over the prior year. In addition, earlier in the quarter we announced the completion of the Pro Hockey Life acquisition, and have already seen a positive impact to our sales results and overall performance from the 23 stores that now fall under the FGL Sports banner umbrella.

Turning to Mark's, they had a great quarter. Margins were up across all categories and strong sales growth was led by better assortments in men's and ladies casual, apparel and footwear.

Much of our strength was also due to an improved in-store customer experience, which includes clear and consistent signage and improved in-store merchandising, as well as the evolution of our branding as Canada’s most trusted and favorite store for men's clothing and footwear. Moving on to Canadian Tire Financial Services, we had another exceptional quarter.

The alignment of this key business with our Canadian Tire retail banner and the account acquisition efforts made by the team in this challenging market continue to drive good results. Something Dean will give you more details on.

Overall, the team has done a very strong job, driving results in all lines of operations. We need to continue to focus on delivering results and in that vein I want to congratulate Michael Medline, who we appointed this morning as President of Canadian Tire Corporation.

Michael will oversee all our business units and a number of our corporate functions. Many of you will know that Michael has had an impressive 13 year career with the company, including his numerous corporate roles, operational roles with Canadian Tire’s retail division, CTFS and his critical work leading all of our acquisitions from Mark’s to FGL Sports to Pro Hockey Life.

You have seen the performance he has driven in the last few years at FGL and in the last year at Mark’s and this is an exceptionally and well deserved expansion of his current responsibilities. Now, because our corporate name and our lead retail name is the same, and sometimes confusing, it's worth pointing out that obviously Allan MacDonald is just completing his first calendar year end in his role as the Head of Canadian Tire Retail.

And he has accomplished some great things in a short amount of time. While Allan will still be in charge of CTR, as he is today, Allan will report to Michael in the same way as all the other business units will, all parts of Michael’s new enterprise wide responsibilities.

This new structure will greatly assist me in being able to devote even more time to the strategic issues that face us, therefore try to further strengthen our competitive position for the years ahead. Before I pass things over to Dean I should take a moment to update you on couple of other items.

As you know on October 23rd, CT REIT completed its IPO in which Canadian Tire sold a portfolio of 256 properties for approximately $3.5 billion and generated gross proceeds to the corporation of $263.5 million. Earlier this week, CT REIT also announced the closing of the fully exercised over allotment, which generated a further $40 million for CT REIT to support their growth strategy.

Real estate has always played a vital role in our success. CT REIT will provide a new opportunity for continuing and growing our investment in this core asset.

While it's still early days we were extremely excited to see the initial positive acceptance of the IPO from investors and the market. As a final comment you have seen us on a heightened brand journey over the last year or two and that journey has included new partnerships related to sport and the activity of use in Canada; from our MLSE and Ottawa Senators partnerships to yesterday’s launch of the Canadian Olympic high performance collection of apparel and footwear that you will find in most of our stores, to Mark’s new partnership with CFL, and a game changing announcement that we will be making within a few weeks with dozens of Canada’s leading sports and health partners.

There is certainly a lot of excitement in the company and I am sure the folks here will speak to it if you are interested during the questions. Before I wrap up with the holiday season ahead of us we are about to enter the most competitive retail market that we have seen in years.

As always we will continue to offer our customers competitive prices and the innovative and exciting product assortments they have come to expect to meet their seasonal needs. As you know the fourth quarter is our largest quarter in terms of sales and earnings across our retail business and we are well prepared.

With the benefit of some weather I believe the strength of both our seasonal and non-seasonal offerings will continue to drive customers to our stores. In closing, I think you can tell that I’m very pleased with our performance this quarter and remain confident in the future of the Canadian Tire family of companies and our strong brand.

And with that I will now pass things over to Dean, who will talk through our financial results in more detail. Dean?

Thank you, Stephen and good afternoon everyone. For those following along with the presentation slide I will begin with our consolidated results on slide four.

But first I’ll comment on two initiatives that we announced earlier this year. First, as you know, we recently completed CT REIT's initial product offering, which was oversubscribed and earlier this week we announced the closing of the fully exercised over allotment.

We have been very pleased with the value that this transaction has created for our company and our shareholders, and by the reception to the offering by the markets today. We estimate costs associated with the formation of CT REIT will come in at $18 million for CTC of which roughly $8 million has been expensed year-to-date.

We have called out Q3 cost in our MD&A and the other disclosure documents this quarter. And we will provide similar disclosure of the remaining $10 million in our Q4 results.

Second, we have started discussions with potential partners for the credit card assets and funding liabilities of our credit card portfolio. As I mentioned previously there are elements of existing precedent deals that are attractive to us, particularly around funding risk that as we work through this process we are keeping an open mind as the structure of the transaction and who a potential partner could be.

We are in the early stages of what is expected to be a year's worth of work so there is not much color I can provide at this point. Finally I will just remind everyone that our financial services business continues to play a very important role within the Canadian Tire family of companies and we are committed to remaining in this business.

So any transaction that we do will have to satisfy both our financial and strategic imperatives, which include protecting future earnings generation and supporting our retail businesses. Now turning to the third quarter and looking first at our top line performance.

We are extremely pleased to see the strong sales results from all our retail businesses this quarter and the positive impact sales had on our consolidated revenue in Q3. We also saw another strong quarter for the financial services businesses where the increase in revenue is largely attributable to the 7.6% growth in the receivables portfolio stemming from targeted acquisition efforts and an increase in average balance.

This reflects another impressive performance given existing consumer lending environment and the low credit card growth levels experienced across the industry over the past few years. Consolidated operating expenses or OpEx increased over the prior year, largely due to cost tied to investment in a number of major initiatives.

This includes $7.1 million in legal, consulting and other expenses related to the launch of CT REIT initial public offering, the inclusion of seven weeks of PHL expenses, and addition marketing and advertising spending to showcase our brand through the new sport and Olympic partnerships Stephen discussed earlier. In addition we saw an increase in OpEx for higher stock-based compensation expenses as well as personnel and occupancy cost supporting sales and network growth across the retail banners.

Turning to the retail segment on slide five, we continue to see year-over-year margin rate and dollar contribution growth with positive contributions from all our retail banners. This result reflects a shift in sales mix to higher margin items in key categories such as light automotive parts and handheld outdoor tools of CTR, better merchandise sell-through at Mark’s, the favorable sales mix at FGL Sports, plus the addition of PHL results for seven weeks in the quarter.

This also marks the third consecutive quarter of margin expansion in our retail segment this year, which stands out given the strong sales performance achieved across the retail banners in the quarter and despite the increasingly competitive Canadian retail environment. Inventory positions at our retail stores remain well managed, corporate inventory for Canadian Tire banners stores is down year-over-year across all the major classifications and inventory at our Canadian Tire banner stores reflects slightly lower levels in the prior year and fall in winter seasonal categories but we are well stocked with new and innovative products ready to meet demand for seasonal and non-seasonal assortments in the upcoming fourth quarter.

In addition Mark’s inventory position is very clean coming out of the summer and FGL Sports inventories are also in great shape. Overall, income before tax of the retail segment increased 19.4% versus Q3, 2012 or up 26.1% after normalizing for costs associated with the formation of CT REIT.

You will see from our other disclosures released this morning that we have adjusted our view of the company’s 2013 effective tax rate. We now expect it to come in around 28% which is slightly higher that we previously indicated.

This is largely due to a higher stock-based compensation expense than we estimated at this time last year. As is our practice we have also updated our 2014 effective tax rate estimate for planning purposes to 27.0% which assumes a lower anticipated stock-based compensation expense compared to 2013.

Looking ahead to the fourth quarter and full year which as Stephen just mentioned is our most significant quarter in terms of sales and earnings, we are planning elevated levels of spending in marketing and advertising across our retail banners. And despite these investments in elevating our brand across all banners our total OpEx spend as a percentage of revenue is in line with expectations for our planned initiatives for 2013.

Turning to slide six, Financial Services posted another strong quarter reflecting gross average receivables growth and improved credit portfolio metrics. Our cash position remained solid with our balance sheet continuing to get stronger and we used about $18 million of our cash in the quarter to repurchase roughly 205,000 of our Class A Non-Voting shares as part of our 2013 share repurchase program.

Our intent is to complete the buyback of a minimum of 100 million of our Class A Non-Voting shares by the end of the year. Earlier this morning our Board of Directors authorize a change to our dividend policy for 2014, increasing our targeted payout ratio to 25% to 30% of prior year normalized earnings.

In addition we declared a 25% increase in the quarterly dividend to $43.75 per share, both of which reinforce the Board’s commitment to increasing value for our shareholders. Our total capital spending increased a $141.5 million in the quarter, and includes the land bank we purchased for potential future distribution capacity.

We now expect our 2013 CapEx to come in at $500 million to $525 million given the execution of land bank purchase and good progress completing our planned capital projects during the year. Looking ahead to 2014 we expect that the CapEx will run about $500 million to $525 million primarily due to increased spending on FGL Sports network expansion, further investment in IT and digital initiatives across the retail banners and to support the CT brand.

In addition, we expect to spend an addition $75 million to $100 million in costs associated with site preparation and planning for future distribution capacity. Finally, I would like to address our progress against our financial aspirations.

As you know back in 2010 we set our five year aspirational goals for specific metrics. Well, a lot has happened since then and the company looks very different from how it looked back in 2010.

We still aspire to achieve those metrics today. The ROIC metric remains our most aggressive however, and while we continue to make progress towards achieving this aspiration, based on our expected capital deployment and the earnings we expect to generate from our existing assets it's unlikely like we will achieve the 10% return in this measure by the end of the strategic planned period.

That said we did see a 14 basis point improvement in our ROIC metrics over the prior quarter and the normalized ROIC metric improved 29 basis points over the prior quarter. We continue to focus on steadily improving the quarter-over-quarter trend in this metric.

And with that I will turn it over to the operator.

Thanks and I guess good afternoon everyone. Just listening to the prepared remarks what I heard a lot was discussion about improving the customer experience across the banners, improving the offer.

There was a lot of discussion about e-commerce and sports partnership and Stephen as you now have more time to think about the strategic options, how should we think about all of those coming into play in terms of what significant moves Canadian Tire may do next.

Thanks Irene. Well, I mean it’s only this morning that I have had more time to think about and you've got to give me a week or two.

Well, many of these were actually started a little bit independently of each other as you can generally imagine but we have been striving for many years here to try to develop the Canadian Tire brand and the family of company’s banners if you will to increase I believe what consumers think of us to drive the strengths of brand to much, much higher levels. Recognizing four and half years ago that probably the underpinning of the Canadian Tire brand was automotive we started on a long journey and that’s why we’re kind of pleased now to see what we can do with that aspect if we made the right investments and train the people properly.

So we’re seeing a huge movement in our customer experience but initially we built the brand back by heavily investing in promotion as well to let everybody know that automotive was a key component of our brand, the support of Canadian Tire NASCAR series to run Ron Fellows to support of many of the other kind of racing events to be Canada’s automotive store. So as an example back [inaudible] re-building the brand and then investing in customer experience.

The brand from our point of view in terms of its triangle and the family, sports as we mentioned earlier the area is truly in the DNA of this organization and sports attributes bring out to the best in individuals and it will bring out the best in Canadian Tire. We now taken the Olympics and all the sports federations and our dedication to the success of those through our HR policies here, through all our marketing efforts as you can tell, now they’re working themselves in store.

So we think it gives kind of brand attributes, if you will that allow all our employees, front line and corporate to come to work every day and understand why they’re here because life in Canada depends on us, is kind of how we are positioning this. So it gives us purpose, it gives us focus and it builds the brand on a national basis in a way that I think has been kind of truly spectacular but behind that we put all the technology in the support to increase in the customer experience and I mentioned the product locator in a 116 of our store.

That’s not only becoming -- creating the efficiency in those stores, it means now the customers come in and ask for something we can find it. It means the front line staff don't have to say, could you wait a few minutes while I go check the warehouse, and they check for 10 minutes and they come back and can't find, they’re upset, the customer's upset all that’s gone away.

So all these things play an important role in how they come together and I just think that we’re now starting to see the benefits of it and we’re kind of on a bit of roll from that aspect of it. So sorry for the long answers it's just hard to put all the pieces together for you there.

And Stephen, how should we think about e-commerce and how it’s likely to launch in 2014?

I think the second month that I started in 2009 we decided to pool the e-commerce offerings that we have and the reason being is that we had not in our minds here properly prepared ourselves to be extremely successful and so what had to be built was an infrastructure that would allow a proper e-commerce platform to operate on. We in fact have done like just a huge amount of work with that and the last big component of it we actually kind of turned up within the last seven or eight days and that’s the engine that drives canadiantire.ca extremely successful and now we can turn on an e-commerce platform that I think our customers will praise us for the end.

We've selected some stores across representative stores across a number of geographies. We take roughly 10,000 views and so now we will get the in-store part of this perfected, understand it very, very well but this is not a trial to see whether we’re doing it.

This is actually execution excellence. So you would always do this.

You turn out some perfect it and then roll it out. So this is just the matter of months, we’re not talking about a trial.

And so the best way to actually get things done is to commit to it publically. So we’ll have this done during the lateral part of ’14 and turn it up totally at that point in time.

That’s great, thank you. And if I could just ask a housekeeping question of Dean please.

Just to be clear do you expect base CapEx in 2014 to be in that 5 to 5.25 range and an additional $75 million to 100 million for site preparation for future distribution capacity.

Yes, and the site preparation and investigation development, planning all those kinds of things, anyway seems like a lot to me too.

Thank you.

Sorry.

Thanks and good afternoon. Just on the automotive business, encouraging to see that you’re getting traction there and seeing the positive momentum.

Just want kind of get your sense around the table, what you think, where you think this can go where it can really start to, really benefit from all the initiatives you had over the last couple of years from so many different angles and driving this and really see it grab hold and drive the kind of results you thought from day one today?

I will give you a little bit and I will hand off to Allan, because Allan, it was actually Michael and Allan that ripped the business apart a few years ago and Allan's been running at until he took over as ahead of CTR, so. What's critically important over there David from my perspectives is that the -- it is when you start peeling back the Canadian Tire brand itself, it is truly the underpinning of the brand is being successful in automotive.

So regardless of the efforts and regardless of time you have to make that business as strong as it can possibly be. When we looked at it, a number of years ago virtually from at least my perspective, everything was wrong with it, we weren’t selecting good products and accessories, we didn’t have the right tire selection, we didn’t have the right system to support tires and rims, we didn’t invest in our technology in our service centers, people behind the counters didn’t have the right technology to actually do business with and we had the wrong parts.

We had the wrong selection and reorder system for parts both heavy and light. And all pieces of the business in my opinion were kind of treading water at best, it needed a lot of investment.

If you did that and we retrained our staff and you fixed all those problems and you had 5,500 service base across the country, then not only can you build all those businesses and I think we said in 2010 that we were looking at 6% to 6.5% top line growth. And those figures have been what we have been striving for us since then.

And we are missing so many big pieces of business because we work organized on a national basis. So we don’t have fleet business, for example because we just never to this point in time got our act together to able to handle it.

All those things now become possible for us and we have increased the quality of the brands that we have and literally the sky is a limit for Canadian Tire as we get better on a daily basis. And the technology we put in, what we call the automotive infrastructure changed out I think almost half of the service mangers in Ontario for example, and which meant we have new management in our stores, morale is up and so I think we are kind of ready to do business but if I have miss something there, Mr.

McCann.

No, I think that's right. I think we are really pleased with the long term assessment we did and the course corrections we mad and that resulted in strong growth across all our categories, wasn’t in place four years ago.

That’s coupled with great performance in terms of the customer feedback and the margin growth seen. So from here, this point onwards we now have a solid platform with which start to entertain big growth ides with category expansion or things like the fleet business and other things so this position is really good..

And so when do you think about since you throw out the 6% and 6.5% number again, sounds like you throw it out because you believe it in again and if you do what’s the timeline to getting there?

Well, I think, across automotive to see kind of an annual growth rate at that figure, the seasons have to work with us David, obviously I mean you can’t, but in that if we received kind of whatever normal I guess seasonal weather in Canada then I expect this over the medium term to be able to turn out the performance at this level.

Okay, that’s helpful and I mean it’s such a high margin business that's where you are, right?

Absolutely, and one thing we have done is, we have maintained our margins and we made some mistakes probably through the last ten years, in how we did some of the pricing and promotions with automotive because I believe we treated automotive as part of a total little merchandising effort within the Canadian Tires, opposed to treating it as a business. So in GPS units for example we would trash the margins on it in order to drive traffic in the stores.

We wouldn't make those types of mistakes again because that has a very poor impact on the automotive side of the business. So yeah we have changed our philosophy.

To give Allan and his team credit I mean they have visited our manufacturers they have taken a look at every product. If it doesn’t meet standards, it is no longer acquired, they have increased standards across the board.

So yeah, it a pretty thorough effort but it is a very tough business but it is a huge differentiator for Canadian Tire. So therefore we enjoy from that aspect.

And just as a follow up and I will get off, just two things, how does the dealer agreement now feed into this, because as I recall back in 2010, the new dealer agreement at that time was something that was kind of celebrated around the whole automotive investment. So that's number one, number two is just for Dean on the CapEx numbers being elevated next year, when does it fall to more normal level and what is that number?

Thanks.

I will just connection on the dealer side here quickly. What the contract by the way as we announced the automotive infrastructure kind of a project if you will in 2007.

And then our new dealer contract took place, well it's actually taking place right now, it’s being implemented with all aspects of it being implemented on the 1st of January. The biggest event, I don’t believe that you manage, Canadian Tire Corporation, does not manage its dealers through the contract.

It manages its dealers through a co-operative, like minded aligned strategy and whenever you have to manage your partners like contract is going to be in trouble. We try to in this contract as much as possible, put pen to paper in terms of trying to characterize that relationship but what I really mean is that we share investments going forward, we look at the next three and four and five years together and decide where we have to go and what we have to invest in.

So when we put on a automotive university for example, one of our dealer conventions, our dealers brought in they all showed up but they also brought in 1,300 I believe of their folks to be trained. Since then I think we have trained something like 7,000 peoples on various aspects of our automotive and car business and so we are like minded.

I remember a large group of dealer saying to me, we are going to be number one in all categories. And so that’s their commitment to the automotive business as well.

So it’s not, I wouldn’t rely I never rely on a contract David, this is a relationship issue and making money together issue.

Great.

Yeah, and David, on the CapEx I mean obviously the outlier area is the work we are doing as sort of prep work around potentially a future DC, right, so we will put some money into that and the timing of that’s not yet determined. But that’s sort of an outlier.

But we will have this year we are sort of 425 would be kind of the range that we gave, sort of the normal CapEx as I call it. And we will see that probably tip up a little bit that going forward and that's a good thing from a perspective of going harder and faster at particular area at FGL and then as we talk about retail it is changing right so the investment in kind of backend for digital and technology and whatever it's in store systems those kind of things.

I think I see being a place that money continues to flow. So I guess my perspective is kind of that 425 to 500 levels kind of somewhere in the normal stage going forward.

But I haven’t thought that much about it. We are focused on getting ’14, right and then kind of rebalance once we get through that.

I appreciate that, Dean, thanks.

Hi good afternoon, I just wanted to follow up quickly on the automotive comments. Are you guys satisfied with your distribution chain and supply chain as it set up right now and performing right now?

With regard to the automotive business, Mark?

Yeah.

We are looking at, we are always looking at new ways to optimize, especially with increasing competition in parts and tires but as it stands right now we have made some great strides in optimizing how we assort parts in stores, how we assort tires in stores and our delivery model using them, so we have made big improvements over the last couple of years. So it’s been one of those underpinning of how we managed to grow the automotive business and it’s not something that we are going to take our eye off, so we are continually involved in that.

Okay, thanks. And then just on financial services, obviously the growth is pretty balanced between again number of account and account balances, what’s the sort of outlook for growth and wondering if you can sort of give some metrics or some idea of the success which I think has been pretty solid in terms of the purchase driven promotions and account sign ups?

Thanks Mark. I think we are feeling very bullish about the success that we have had so far for our business by integrating more effectively with CTR in particular which is where we have had the most focus.

So I think that there is a number of things that we are doing better, we got better in store acquisition on the number of fronts but we have got the new things in the hopper. We’re going to be rolling out instant credit across all the stores at CTR by the end of the year.

We see some great things, same day take up by customers who are approved, a lot of them spend about day in the store, some great response as you said, there is new offers that we're making in conjunction with CTR, whether it’s a multiplier on Canadian Tire money, discounts, our in-store financing. We have got some opportunities to integrate better into the automotive infrastructure to more effectively provide financing in automotive.

So I think we still got lots of run one way. We have some plans after FGL and Mark’s which is going to take it into next year to realize on but I think we are feeling actually pretty bullish as I said about continued upside on acquiring new customers, I think we are really thinking hard about how our credit card value proposition resonates with Canadian and how it resonates with inside our mutual advantage.

Okay, that’s great, thanks. And what’s your outlook on the allowance rate, it picked up this quarter for the first time in a while?

Well, I think, what you are going to see, I mean we have a little bit of a variability in the quarters as our business starts to grow again. So as we acquire new customers one of the things that we have to do is put allowance aside as the balances grow.

So I think you are going to continue to see us putting money aside for new account growth.

Okay, that’s helpful, thank you. And just in terms of e-commerce can you give us some sense in terms of how the financials would work on that and would it be similar, are you targeting similar margin rates for the corporation and for the dealers?

Well, this will be in-store pick up. So it is not going to vary.

This is a convenience play as opposed to a margin play if that’s what you mean. And so as far as the cost of distribution et cetera and pricing is just simply, I would look at it as another channel as opposed to being affected by those factors.

Okay, and is store delivery something that is definitely ruled out, home delivery?

Home delivery you mean?

Yeah, home delivery.

Well, we do, some of our dealers do home delivery now and so we can easily start putting in home delivery for certain SKUs that would make sense. As we perfect the model and as our local store feels that it’s extremely important to put it in, we can, that’s a relatively easy thing to do.

We always say that, I think the latest one is we say that what 90% of Canadian’s are with 15 minutes of a Canadian Tire store. But as you drop those numbers down, if you say that 75% of Canadian’s they live a lot closer to a Canadian Tire stores than 15 minutes.

So as you drop those numbers we are very close to our customers and I think this is a huge, huge benefit in the online world and so we will see it. We will see how all this goes but I think we are very, very well positioned for e-commerce.

Thanks very much, appreciate the commentary.

Thanks.

Just going back to the gross margin improvement that you had in your core retail banner and specifically on the Canadian Tire banner, can you elaborate a little bit more where that margin improvement is coming from other than you used the word, margin management in the MD&A, can you talk a little bit more though about where it’s coming from?

Sure, Peter it’s Allan here. The two areas have big focus areas for us, one is the fundamental growth that you alluded to a while ago on some of the key categories like the living store and auto strategy and so what we are seeing some of our higher margin and great products are actually yet rebounding quite nicely as have a better focus on having the right brands and capabilities, the right assortments being able to locate products.

So those types rise off shifts which is really a good piece of work. And the second piece is being very sure on how we are managing our promotional margins, making sure that we are investing properly and what working most efficiently for us in driving traffic and try being very conscientious in not over investing in that.

So between P&L and margins management and being able to do some fundamental things the past couple of years has enabled us to grow some of the higher margins major categories. We are seeing most of the waivers so we are hopefully...

So the key categories that are driving that would be living and auto.

Well those are the two key examples but we see examples of if just across the whole store I wouldn’t point to one category that’s making up the lion's share of it.

Okay. And Dean I just want to make sure I doing my arithmetic correctly, the cost related to the REIT that would have been an impact of $0.06 per share on earnings for the quarter.

I think that’s right, yeah six to seven within, yeah $7.1 million so whatever the after-tax is and then...

Right, okay. That’s all I have.

Thank you.

Thank you.

I apologize if I have missed this earlier but as far as the dealers and their preparedness for the holiday season, help define their buying stance, are they hesitant to load up or they have been also making sure they are fully stocked.

Yeah, I mean Alan can jump in here but I think our sense is that we’re very well stocked for the fourth quarter and it goes to, I think the guys have done a great job on assortment and things like Christmas and those kinds of things. So I think we’re in good shape going into fourth quarter.

Yeah, we’re feeling pretty confident about where we are in terms of inventory position for Q4.

And you said at the corporate level your inventories are pretty clean.

Yes.

Great, thank you.

Right, at the store level I mean we’re in good shape as well.

Thanks Dean.

Thanks very much, good quarter guys. In terms of the marketing and advertising comments that you made in your prepared remarks Dean I think you said it’s going to increase in Q4 and I know from a year-over-year basis it's increased for some time.

Should we expect at some point, what I’m trying to get is this a new normal expense or should these expenses decline at some point?

Hi. I think Vishal there is a recognition that investing in our brand and investing in this type of whether its Olympics sponsorship, whether it's, there is great stuff you are seeing from across the retail banners in terms of digital marketing and new forms of advertisement and I call we’re sort of in and world, where we’re doing digital world and then we’re still in, if you will the older world, which is flyer even though the guys have up days and done a much better job with just what the flier in terms of paper flyer looks like.

But we’re entering a world where you can see new ways of going at advertising across the retail banners. And I think for that reason I think the investment is I have to grudgingly say very good.

I’m sorry missed the last part?

I think the investment is worth it and we are probably and to answer your question Vishal we’re probably at an elevated level. So we still got to manage our overall OpEx and if I look at my overall OpEx growth targeting to have that grow at less than -- at or less than our rate of revenue growth is really what I’m kind of focused on.

Spending more on marketing is a great thing if you’re spending less on everything else.

Okay. So in terms of the total OpEx level, I should at some point in the future look for a target of less than sales growth.

Less than revenue growth yes, is what we used, as a target not guidance, that's the target.

Okay. I know you prepared remarks you’re not able to answer any question on the financial partnership, but just a high level strategic question, not sure if you can answer this, but if you were to engage in, if you were to sell or engage in this partnership from your understanding of how it might work, would that improve your retail ROIC?

Vishal, I can make up an answer to that but I’m not going to, because I just don’t know what the partnership is going to look like. We started discussions, I think I’m not sure if I talked to you earlier or not but we started discussions, have had, been very pleased with the level of interest and we’re keeping a very open line of how to process.

I mean the one thing I’d say we up this business, and end this business and we want to participate in it over the long term. We have some objectives we’d like to achieve and if we can achieve those objectives maybe a fantastic thing long term for Canadian Tire and for financial services.

But in terms of answering that question around the impact on ROIC who know, I mean quite frankly. I mean I can come up with a scenario where it does, and I can probably come up with a scenario where it doesn’t but from a deal point of view accomplishing those strategic objectives is what’s paramount.

Okay. And just quick ones, for the curiosity, is the automotive the benefits that you’re seeing in automotive is that filtering through in both parts sales as well?

We’re seeing good performance Vishal, in parts that would be consistent with automotive.

Okay. That’s all I have.

Thanks a lot.

Thank you.

I have the question on PartSource, you haven’t really been growing that chain too much in the last couple of years, can you speak to how you view the future of that whether it fits in Canadian Tire, so what’s your thinking?

Keith, its Stephen. Well what we have done we've grown it from the following aspects to ensure that it’s part of our distribution channel.

It's very important for it to be back. We’ve also, I think kind of perfected that model of being able to supply our stores from a commercial side, We have built up our business-to-business revenue within again in PartSource and got some good performance from the stores is being well, run maybe the best it’s ever been.

So we wanted to at this stage of the game make sure that our CTR stores are operating as they should. What we'll do going forward is to ensure that the areas that need kind of distribution out of PartSource to CTR stores is built out, that’s our focus to make that system work extremely well.

And it would be a Phase 2 if you will be to build them out in their own right, that the primary objective of this distribution.

And then on I think you added auto service initiative trial -- I think it was the dealers in Montreal, I just wanted to know how that's going?

That was part of a program that we have been rolling out nationally actually, that, that was aimed at trying to help our auto surface businesses to understand key value, drivers for customer satisfaction how we continue to optimize our operations and to continuously improve that. So we have got, as we have been able to earlier some national training program that we’ve been taking some of the elements of the trial in Montreal and incorporating those on a kind of point-by-point basis and there are national issues and we’re continuing to work in Montreal to drive, to explore some incremental operating business opportunities.

So it’s proved a good sort of training ground for us, and proving ground for some of the things that were beneficial nationally and that we are overseeing that that's the case.

And in terms of the sort of the opportunities that the platform could now offer you, could you offer just hypothetically things like warranties on cars over pass the dealer warranty or would you be interest in auto body or insurance work or are those also bit wild card.

Two questions, obviously they are questions the answer is could be in some instances, yes and would we is a different question together, those businesses tend to some of the ones you mentioned are more close in line than others when it comes to providing auto service parts and auto accessory supplies. So as you said before sort of stabilize the automotive business would be a great growth across those categories and then in addition to trying to grow our share we are going to be looking at expansion opportunities and everything will be on the table but we want to make sure this is prudent and is connected as possible to the business we have today.

The difficulty Keith is that, what we’re trying with to do with all of the assets that we currently have is to do something that is a logical extension to them. You would on the face of it say that auto body repair is a logical extension and then when you actually dive inside the auto body repair, which is a very, very interesting industry, by the way, but it requires different facilities than what we have.

It requires different training than what we would have and it is a completely different business although it’s underneath the automotive umbrella. So you have to be very careful when you move into a business like that because it is radically different than what we do today.

But it’s not, and when we take a look at expansion and what things we should get into and shouldn't get into those of the areas that we do, I mean we study inside and out about three years ago thinking it was logical and then when we finished our study we realize that it wasn't that logical for us to do it. So we kind of backed off.

So give you some ideas and the types of things we look at but it is an interesting industry.

And where it comes to the hardware business which I think is also one of the pure businesses, do you think that your merchandise division there is what you wanted to be in terms of the pricing, quality like or is there some, or is there any analogy to the auto, where the auto business was four years ago.

I think it’s a great analogy Keith, our fixing business is okay in a lot of respects but it has a lot of room for growth, the categories, power tools most specifically, some of the brands we chosen the best what's out there, we thought over the last couple of years, and internally I can tell you we’re making some pretty big decisions and great strides in addressing where we are in terms of the quality level, in terms of how we support the product, take some warranty we have and where we position the brand. And we’re making some pretty substantial changes because I personally am not satisfied with how we positioned ourselves in the good, better, best for Canadian Tire’s reputation, longevity in the placing business is more deserving that perhaps product we put together in this entirely in years of late and we're in the process of changing that.

I think you will start to see that very, very quickly. I’d also say two of these assortment that we have chosen put forward has opportunities, the home and care business it seems that we continually pare that down and when you reach a certain point if you only, if you -- the assortments you only have real convenience that you start coming to the destination and I think we are dangerously close to that point.

So we’re very much calling back to say we’re going to be a destination for spects and we have to have an assortment that supports that. So big things to come and we’re going to reposition our brands absolutely we are addressing quality and we will start to build up.

I apologize I got on the call a bit late, did you update on the loyalty program?

No, we didn’t, but we’re continuing with it, manly things we’re still kind of trailing if you will and collecting data, Keith, interesting it continues to be fascinating exercise for us and we’re now designing kind of some of the activity and additional marketing and additional both marketing and operational things that we want to try through the next probably six months I guess, something like that. And I believe we’re going about this in the correct way.

And here is one of the big pieces of this is that we think the future is in being able to analyze data that we’ve never used before and therefore when you’re presented with new data that this trial in Nova Scotia is presenting to us it requires Mary's team at CTFS to do a tremendous amount for analytics and it means that now we have to put subject matter experts and to understand what the data is really telling us and then figure out new programs to put in market, understand our customer behavior, all the sort of things we just don’t have the amount of capability inside yet that we would like to see. So we’re building back, at the same time that we’re continuing to trial in the market.

So a sensible approach. It maybe, so the timing to me is a little bit unknown as to when we would roll that pure national play only because I would like to see us become very good at certain things before we load the place up with literally 100s of millions of pieces of data.

Thanks very much.

Thanks very much. My operational questions have been answered but I think I'll take this opportunity since you have Mike Medline in the room.

Mike can you share with everybody on the line perhaps what your vision is or what you see as your mandate and this new world or maybe just share what you see as your top three priorities going forward.

Thanks, Patricia. Like Stephen said he only had the morning to do, I have only been...

I’m sure you have been thinking about it for a while.

I guess for 13 years Patricia. So obviously the key to this business is and we’re on the great track with obviously the shift to the entire retail what we like to call out just entire and the team there is as you heard on this call I mean you guys been really focusing on automotive and our fixing which we need to fix fixing little bit more.

So that is obviously something we are to be supporting now Alan and with the relationship we have with our sourcing dealers across the country that’s I think we’re in good shape there. And as you probably know because we know each other a little while, results are -- what Stephen done in terms of getting us get the results for you, we’re doing keep doing that but growth and innovation are obviously going to be where I am going to be putting a lot of time over next months and years in this role to be able to ensure that this company continues to grow but that our stock price and shareholder and all our stakeholders are pleased with that.

But I think we’ve made huge strives over the last couple of years in terms of innovation, innovation in terms of products, in terms of how we market and Stephen touched on what we’re doing in Waterloo and Communitech and in terms of technology and I think technology marketing, merchandizing and even store ops and some things we’re doing since the last five, we've shown this is the company that can innovate and I think that’s going to really differentiate us as well as our product mix and our strengthen of dealers and all that in terms of that. But the other part of it is too and my role will be to bring together aspects of the family of the company.

So great strength we have in Canadian Tire with what Mary is talking about in terms of our value proposition at CTFS, the great growth that the team over has been showing and what’s going on in marks. And there are things that we can do that I don’t think anyone else can do.

So we have great strategic and execution advantages. So look at and that probably all I should probably say today, I look forward to working with Stephen some more I think we’re on a great path here and that’s what I am going to be trying to accelerate.

Okay. Thank you very much.

Well, thank you everybody I know it’s a busy day for you as well with others reporting. So thank you for spending the time with us and we’re always here should we have missed one of your calls or one of the answers.

So look forward to talking to you. Thank you all very much.

Thanks operator.