Canadian Tire Corporation, Limited

Stephen Wetmore - CEO Michael Medline - President Dean McCann - EVP and CFO Allan MacDonald - COO Chad McKinnon - COO, FGL Sports Mary Turner - COO, CTFS

Chris Li - Bank of America Merrill Lynch Irene Nattel - RBC Capital Markets Peter Sklar - BMO Capital Markets Mark Petrie - CIBC World Markets Jim Durran - Barclays Capital Brian Morrison - TD Securities Vishal Shreedhar - National Bank Financial Keith Howlett - Desjardins Securities

Thank you, operator and good afternoon everyone. Thank you for joining us.

As you’ll hear in our remarks today, we are very encouraged by the performance of the Company this past quarter. We have a lot of initiatives in progress to build for the future, yet our business leaders are staying focused on the short-term and delivering some impressive results.

All our major projects are on-time and on-budget, which also positions us well for the coming year. So, before I hand the call over to Michael, I just want to say, as I said last month at our Investor Day that I have total confidence in Michael and the team to continue to drive great performance and I’d like to thank Michael for turning in such great results in my last quarter.

Thank you very much for that. And I’d also like to thank all of you for your support of Canadian Tire over the last six years and your questions and insights have actually made us a better Company.

So thank you all very much. And with that I’ll hand off to Michael and Dean to take you through the details of the quarter.

Thanks Stephen and good afternoon everyone. Today marks Stephen’s 25th quarterly earnings call and as you all know Stephen has made a tremendous impact on the organization since his first earnings call way back in February 2009.

He has strengthened Canadian Tire by building our brand, our assets, our team, to move the Company to the next stage of growth. So thank you Stephen for that.

And I wanted to recognize that before we moved into our results. I am going to keep my remarks brief since you all just heard from us a few weeks ago at our Investor Day and I am not going to repeat numbers that are already available to you, but I will provide some color on our results that were released this morning.

Q3 was a strong quarter with good comps across all of our banners, especially given that we were up against strong comps in Q3 last year. Once again our revenue margins and operating expenses all met our expectations and our Financial Services business had another strong quarter of both top and bottom-line growth.

Like most retail businesses we are sensitive to changing weather conditions, but this quarter it was not a weather-driven story for any of our retail banners. At Canadian Tire Retail, we were up in all of our businesses.

We had another strong quarter for Automotive, where sales were up across all categories including automotive service and we executed well in growing non-seasonal sales, applying a renewed focus around back-to-school promotions and to our fixing and playing categories, which also posted good results. Revenues were up 2.8% due to strong shipments of both seasonal and non-seasonal products.

And just last week we launch My Canadian Tire Money, the digital evolution of Canadian Tire’s iconic paper money loyalty program. It is a national loyalty program that will take Canadian Tire to the next level, helping us to deliver more personal product offerings, rewards and in-store experiences.

Clearly it's still early days, but we’ve been blown away with the results from our first week. We are issuing about 100,000 new cards per day, well above our expectations and we are already hitting our 2015 targets for sales penetration.

The positive early results are largely due to the strong dealer support and staff engagement in the store in the program, which we’re seeing across our entire network. But as I said before, the real benefits to us are linkage to the data which will ultimately allow us to serve our customers better.

FGL Sports had its fourth consecutive quarter of double-digit comps at Sport Chek, very strong sales especially reflected in our athletic and casual clothing including outerwear. Later this month, we will launch a program that we announced at Investor Day which we’re calling Burn & Earn, where Sport Chek customers can earn and spend the same points on purchases at Chek.

We’re also excited about the new FGL Sports flagship store that is set to open Burnaby later this month, it will build up the great work the team has done at our West Edmonton store and represents our next iteration and latest thinking on the flagship concept. Moving on to Mark’s, last quarter I stated a 3.2% comps were not what we were aiming for at Mark’s, this quarter we saw impressive sales results of 6.8% comps due impart to new assortments, better merchandizing and recent changes to in-store signage and fixtures across certain stores in the network.

As I mentioned that at our Investor Day, Mark’s launch new national brand denim assortments along with the Everything in Jeans campaign, which resulted in a double-digit sales lift in denim this quarter. Our enhanced denim assortments are also an example of our efforts to weatherproof for our Mark’s business and a key part of our strategy to target a younger customer demographic and increase sales in the shorter seasons.

Moving on to our Financial Services business, we continue to put numbers on the board in this business with another quarter of impressive receivables growth led by both new accounts and increased average account balances. Improved in-store customer acquisition processes and better marketing programs across Canadian Tire also helped to drive results.

And strong return on receivables performance benefitted from favorable aging and lower write-offs. I’d also like to say a few words about interchange, earlier this week MasterCard and Visa announced they would be reducing their Canadian credit card transaction fees to an average of 1.5% for the next five years.

Speaking strictly as one of Canada’s largest retailers, we welcome the news of lower interchange rates. However, as you all know we are both retailer and a bank, so we’re in a unique position that is different from most of our retail peers in Canada.

While we are still trying to determine the exact financial and operational impacts on our consolidated business, I have to remind you that the banking industry and our businesses have faced a number of regulatory changes in past and we’ve been successful in adapting to those changes overtime. We do not see this week's announcement on interchanges being any different.

There are many inputs to our results in any given year, some of them positive, some negative and interchange is one of those inputs. Now let me just stand back for a moment.

When I say that we are pleased with our performance at CTC in the quarter as we were in Q3, what do I mean by that, what makes a good quarter? When I think about our retail performance in the quarter, the top-four things I watch for are; first, did we properly balance our promo and regular pricing or where were out just buying sales.

In Q3, we balanced quite well as we have throughout 2014 with solid POS growth while managing our margins across all of our core retail businesses; secondly, did we drive sales through creative marketing. Customers in this quarter, Q3 responded to our offerings in all of our retail businesses.

Our jeans campaign at Mark's was a big success. Our new Canadian Tire guy TV spots drove traffic and sales and we continue to use digital advertising at both Sport Chek and at Mark's which led to incremental sales; third, where Canadians are choosing us for seasonal products, especially in our innovative products resonate.

Seasonal product sales in outerwear at FGL Sports and Backyard Living at Canadian Tire were very strong in Q3; and four, did we properly watch our expenses while continuing to invest in the future? Well in Q3, we have continued to invest in our businesses to position them to grow and compete, in this market and into the future.

We planned for higher spending in a number of areas to support the retail business, such as our store network investment and our digital and technology initiatives and continue to be on plan for that. So those are the four key retail indicators I watch for.

And the test is, did we drive regular sales but also have the products Canadians needed and wanted when they turn their minds to the season because the weather arrived. Now obviously we can't control the weather.

Although I think that we are doing a somewhat better job at weatherproofing our business. And when the weather doesn't cooperate, it's like we are all dressed up with nowhere to go, and this happened back in Q4 2012.

Now we are up against big sales numbers in our upcoming fourth quarter. In Q4 2013, Canadian Tire posted 4% comps, Mark's had comps of 5.2% and FGL Sports delivered 12.5% comps and 15.6% at Sport Chek.

Last year, as you know, we got a big boost in sales in December when we had near-perfect weather conditions and our stores were well stocked and prepared for it. Again this year, we believe that we are even better setup for the key November-December season.

Clearly we have a great deal of momentum and the tire is on a roll right now, unintended. We are pleased with where we are in terms of setting up for this crucial season and we will see if the weather cooperates.

Before I turn the call over the Dean, I would like to make one additional remark. Last week John Forzani passed away.

I know that many of you on the phone today knew John. 40 years ago John opened Forzani's Locker Room with his brothers and friend.

That store eventually became the Forzani Group, Canada's largest sporting goods retailer. So much has been said and written about John's legacy, athlete, entrepreneur, leader, businessman, philanthropist, mentors and so many.

We at Canadian Tire are all saddened by the loss of John particularly at our FGL Sports Division, where John's huge legacy lives on in the people, the culture and the competitive spirit. When Canadian Tire purchased Forzani Group, we had to come up with a name going forward for our new division.

We were proud to name it FGL to honor the history of Forzani Group and the leadership of John Forzani. He will be missed.

I will now turn the call over to Dean.

Thank you, Michael and good afternoon everyone. As you've just heard, we are very pleased to see strong results from all our core retail businesses this quarter and impressive results from our Financial Services business.

On a consolidated basis, our gross margin dollars were up 6% year-over-year, largely reflecting the strong revenue performance across the retail and Financial Services businesses and an indicator that we are able to generate the sales without heavy discounting. Retail gross margin rate was up overall by 17 basis points, which included a strong margin performance by Petroleum.

Excluding Petroleum's results, retail gross margin was down 22 basis points but still very strong in light of the top-line growth from our retail businesses and the dampening impact of increased foreign exchange pressure, which despite our hedging program began to rise. The merchants have continued to do a great job offsetting the impacts of changing cost due to FX, reexamining their promotion, pricing and buying strategies to hold margins in the face of this additional cost.

This will be a focus area for the merchants for the remainder of 2014 and '15. Q3 for retail is our second smallest quarter.

And as a result our margin growth for retail was largely offset at a planned higher run rate for OpEx coming out of Q3 owing to new corporate stores opened this year, outsourced franchise stores converted to corporate stores at the beginning of the year, higher run rate expenses for IT due to new investments and a rise in compensation expense associated with the rise in our stock price. Our consolidated OpEx on a year-to-date basis ex-depreciation and amortization as a percent of revenue is 21.7% versus 21.1% a year ago.

On the quarter, we ran closer to last year's level at 20.7% versus 20.6% a year ago. We continue to work on keeping the growth in OpEx in line with our revenue growth.

With Q4 being our largest quarter, our consolidated OpEx as a percentage of revenue is expected to be lower in Q4 and should bring our year-to-date rate down from the current rates. That said, we will likely end a bit higher on a full year basis.

Moving to inventory, corporate inventory levels are very clean but we are up this quarter versus prior year for two main reasons. First, at Canadian Tire, we brought some purchases forward to ensure we were well stocked for Q4 and offset risks of port disruptions.

And then secondly, at FGL Sports we were building inventory for 13 store openings in Q4. Our ROIC metric was up roughly 30 basis points over the prior year at 7.8% largely requesting our improved retail earnings performance over the past four quarters.

We've updated our expected 2014 effective tax rate to around 26.5%, which is slightly lower than 27% we previously indicated. This is largely due to our higher stock-based compensation expense and we estimated it this time last year and due to the non-controlling interest earnings that are not taxable for CTC.

Our 2015 effective tax rate estimate for planning purposes is 27.5%, which includes the full year impact of the Scotia Bank transaction and assumes a lower anticipated stock-based compensation expense compared to 2014. Earlier this morning, we declared our second quarterly dividend increase during 2014, at $0.525 per share our dividend is up 20% since the beginning of the year.

In addition, earlier in the quarter we completed our previously announced commitment to repurchase $200 million of our Class-A non-voting shares. Both of these actions reinforce our commitment to increasing shareholder value and our balanced approach to capital allocation.

As announced at our Investor Day, we intend to continue to acquire Class-A non-voting shares under our 2014 normal course issuer bid to a maximum amount permitted under that bid. It is our intention to repurchase $400 million of Class-A non-voting shares for now until the end of fiscal 2015 subjected to regulatory approval.

Our base CapEx increased to 152.8 million in the quarter and includes costs related to the expansion of the FGL Sports store network and investment in digital and technology initiatives. We remain on-track to be at the higher end of our previously stated range for 2014 CapEx of 500 million to 525 million.

On a year-to-date basis our capital expenditures for additional distribution capacity are below our previously announced range of $75 million to $100 million. However, we expect to see a fairly significant ramp-up in these costs in the fourth quarter and expect to be at the lower end of the range for end of ’14.

Looking ahead to 2015, we forecast CapEx of 600 million to 625 million primarily due to increased spending on the retail network expansion including the FGL Sports’ growth strategy and significant investments in digital and technology initiatives. This range does not reflect spending for additional distribution capacity, which we expect will land in the range of 175 million to 200 million or for the Company's support of third-party acquisitions by CT REIT.

Finally, I will remind you that a couple of items that will impact our Q4 numbers. Because 2014 is a 53 week year, our Q4 numbers will include an extra-week of results which we will call out as part of our disclosures when we report on our Q4 performance in February.

And secondly, Q4 will be the first quarter for our EPS results reflecting impact of Scotia Bank's non-controlling interest in the Financial Services business, the nature of which we provided as the effective and nature of which we provided on our Web site last month. As well beginning in Q4, our prior year comparative numbers will begin to reflect the REIT activity making the numbers for our retail segment more easily comparable in 2015.

With that I’ll turn it back over to the operator for the Q&A portion of the call.

Just a few questions on the strong FGL same-store sales performance, first I just want to confirm that the positive impact from the banner rationalization program was no longer impacting this quarter results?

Just a few questions on the strong FGL same-store sales performance, first I just want to confirm that the positive impact from the banner rationalization program was no longer impacting this quarter results?

It was not.

It was not, okay. And then if you exclude the West Edmonton flagship performance, are you able to share with us what the Sport Chek same-store sales comp would have been?

It was not, okay. And then if you exclude the West Edmonton flagship performance, are you able to share with us what the Sport Chek same-store sales comp would have been?

No, but one store doesn't make hardly any difference on our numbers this was across the board strength.

And then maybe just along the same line, can you share with us any metrics you have in terms of same-store traffic and average transaction size for FGL Sports.

And then maybe just along the same line, can you share with us any metrics you have in terms of same-store traffic and average transaction size for FGL Sports.

Chris, we don't typically do that, so in terms of average basket.

When you start putting up double-digit so you're seeing real good traffic and really good basket both of them and Chad will say a couple words.

I just want to add one thing Chris, we take a look at success rate which is a number of stores out of our chain that are comping and it’s very encouraging it’s nationwide 177, 183 stores have comped year-to-date, it’s almost a 97% comp ratio so it's coming from everywhere right now.

And I imagined given your strong performance you are taking share away from sticking some market share and where are you really taking market share from or where are you taking share from?

And I imagined given your strong performance you are taking share away from sticking some market share and where are you really taking market share from or where are you taking share from?

I got to watch what I say here, look when you're putting up the numbers that FGL is putting up you're taking it from everywhere, I also think though that when with the branding and the stores and what we’re doing that will also grow in the market that more people are buying athletic wear or shoes or hard goods in Canada, but it’s not all taking market share.

Do you have a sense of what the market grew during the quarter?

Do you have a sense of what the market grew during the quarter?

No.

I was really interested in your remarks Michael because this is the first time in many quarters that, we really didn’t hear anything about either cautious consumer spending or how the competitive promotional environment in just sort of lot of a pressure. So, wondering kind of what you're seeing on both of those factors?

I was really interested in your remarks Michael because this is the first time in many quarters that, we really didn’t hear anything about either cautious consumer spending or how the competitive promotional environment in just sort of lot of a pressure. So, wondering kind of what you're seeing on both of those factors?

Yes, I mean we do take it for granted that this is going to be more and more competitive as we move forward and as for the economy we don’t see the huge differences from what we saw even year ago. At the same time I am not sure that we reflect best in terms of what other retailers are saying, I think we are having some, a little better success than some are seeing right now.

But we have planned and executed on the basis that we have got to make our own good fortune here and so that’s why we don’t talk about it a lot, we don’t even like talking about weather, but we end up talking about that a little bit. But we’re not seeing anything, more I think we are prepared for Q4 for some competitors especially if they believe that they are struggling to make it quite competitive and we’re ready for that.

And just on a related topic, so clearly your comps are outpacing that I would say likely and easier underlying categories are growing. So how much of this is catch up and should normalize and versus do we really still have some more arrows in a quiver on things like, remerchandising, repositioning and that can sustain these kinds of comps?

And just on a related topic, so clearly your comps are outpacing that I would say likely and easier underlying categories are growing. So how much of this is catch up and should normalize and versus do we really still have some more arrows in a quiver on things like, remerchandising, repositioning and that can sustain these kinds of comps?

That’s a great question Irene and obviously from our standpoint, we see all the things that we’re not doing right and all the opportunities that we still have out there. We see a heck a lot more opportunities than what we’ve already taken advantage of, I mean if you look at just like that what we’re doing just in our the bog dog Canadian Tire retail and the changes we’ve made in merchandizing execution, our relationship with the dealers, now having this loyalty card and we hadn’t even started to exploit data and e-com yet.

We’re at sort of the Stephen I think put us on the right path as I always like to say and on the journey, but way closer to the beginning of the path than the end of the path. So, I could have picked any of the divisions and gave those examples we’re bullish, we also know that we got a -- every quarter is a new adventure.

So now we’re working on Q4, Q1 and all 2015, so we don’t like to get too swaggery about our successes, we celebrate them for about three minutes and then we worry about the next year. But I think we’re in good spot and we have many arrows left in our quiver and it's up to us to execute.

Dean, I think you said in your commentary that the Retail segment margin when you exclude petroleum was down 22 basis points year-over-year, which is a bit of a change from those previous few quarters where you’d had very strong pick up margin in basis points. So I am wondering what’s changed is it the FX or are you just comping now against strong quarters or can you provide any further comment there?

Dean, I think you said in your commentary that the Retail segment margin when you exclude petroleum was down 22 basis points year-over-year, which is a bit of a change from those previous few quarters where you’d had very strong pick up margin in basis points. So I am wondering what’s changed is it the FX or are you just comping now against strong quarters or can you provide any further comment there?

Thanks. Peter, I think it's a combination thing, but let's just be clear that at 22 bps we’re not fussed about that at all, I think the merchants have done an exceptional job right, comping over a very strong quarter last year first and foremost and secondly I would say there is some headwind with respect to FX, but they have done a great job, we have that throughout the year and the merchants have done an exceptional job kind of if you will kind of bending that off with everything from their pricing promotional and their purchasing strategy.

So, and I would expect them to certainly expect them to be able to continue to do that going forward. So, I don’t see it as a big change in terms of the 22 bps.

And then I have a question on the Financial Services business, like your impairment losses continue to remain low and I am just wondering does that reflect any change in your credit standards or it's just a consumers hanging in there? I am just wondering you are really showing that as a very strong stat?

And then I have a question on the Financial Services business, like your impairment losses continue to remain low and I am just wondering does that reflect any change in your credit standards or it's just a consumers hanging in there? I am just wondering you are really showing that as a very strong stat?

Hi Peter, it's Mary. So we haven't changed our credit standards we are still using the same strategies and same guidelines as we have for a long time.

I think a number of things are happening. One is we continue to improve our models and our execution of our models and how we manage collections and customer service, so all that helped us with better aging and better write-offs.

So that's kind of our internal perspective. But externally, I think we are seeing maybe I will call it a very modest improvement in the economy we saw some small improvement to non-employment rate.

So I think that’s helping us too it does sort of seem like the consumer is hanging in there as you said. So I think we are fairly optimistic about the position we are in with the economy and with our ability to cope with it.

I think the other thing maybe I'd just point out is, is over the last year or so, we have really ramped up our growth in new accounts. So you are going to see some numbers that they might look a little puzzling where you get allowance rates going down and write-offs going up, those are the -- that's the delay between when you take on new accounts and as they ramp-up, you build up allowances but write-offs don't really start to kick in for some time.

So you are probably seeing a little bit different patterns than you would have seen if you went back a couple of years when our new account growth was more flat.

And then lastly I am just wondering if someone from the management team could comment on the relatively new e-commerce effort at the Canadian Tire banner and what kind of traction you are getting?

And then lastly I am just wondering if someone from the management team could comment on the relatively new e-commerce effort at the Canadian Tire banner and what kind of traction you are getting?

Peter it’s Allan. We are really pleased with it.

I mean it's early days for us introducing e-commerce in a model as complex as ours with a product that will, product assortment that is broad and seasonal related is definitely a journey and we are just beginning now. But we are seeing customers respond well to it when we make changes we see the impacts on a daily basis.

Our Tires e-commerce business remains strong, so I think we've positioned ourselves very-very well for where we want to grow from here and if anything it's been very encouraging.

I think we are just looking at how many visits to our Web site we had this year than last year we were up 18% Q3-over-Q3. And it’s the infrastructure that I really like, I know that our customers have more surety of trips to our stores so we can tell you how many of the winter wipers that fit on your car are available and the store closest to you and that is the part of the infrastructure that I am very excited about.

And I think that, that capability and our online presence is getting better is helping the sales in the store. So I think it’s early days and we can get a lot better but it seems a real progress.

I just want to ask what the retail business and pace of sales growth versus revenue growth and given the strong Q4 I would have guessed that revenues might have been a little bit closer to sales or even outpaced sales in Q3. So can you just talk about the timing of dealer orders as it relates to restocking for winter and how we should think about that?

I just want to ask what the retail business and pace of sales growth versus revenue growth and given the strong Q4 I would have guessed that revenues might have been a little bit closer to sales or even outpaced sales in Q3. So can you just talk about the timing of dealer orders as it relates to restocking for winter and how we should think about that?

Well, hey Mark, it's Allan. Yes, I mean we are in a nutshell feeling really good about our inventory position going into Q4, like anything you always try to set ambitious targets for yourself and you have to have the inventory to make that possible and we feel like we are in a good position.

Of course as you know the timing of shipments doesn't always match up with the quarter but we have no reason to believe that we will be as Michael described open for business when the seasons arrive.

So I guess that sort of noise of sales not necessarily matching up with revenue that's going to continue but strong revenues for Q4 shipment potentially?

So I guess that sort of noise of sales not necessarily matching up with revenue that's going to continue but strong revenues for Q4 shipment potentially?

Well I am not sure when you say sales are not matching up with shipments, I mean over a long enough timeframe they match up identically. But yes, in Q3 I mean it's always hard to time these on a quarter-by-quarter basis especially when you may start the quarter with a small week and end it with a big week one year and didn’t push the next.

So I wouldn't look to match them up too closely on a quarter-by-quarter basis but we feel we are going to be ready for business in 2015.

Yes, Mark it's Dean. You are right there is a bit of a lag here right but it's nothing that any of us is concerned about, that's for sure we are greatly are very well-positioned from an inventory point of view going into the fourth quarter.

I think as I mentioned to you earlier today, we have, we brought in some extra inventory so the guys are set in terms of the stores. And as you know, Q4 last year was an exceptionally strong quarter for all the businesses but particularly for Canadian Tire retail.

So I expect we are in good shape.

So Q3, though that inventory is sitting at corporate level, but over the first part of Q4 that's moving to dealers essentially?

So Q3, though that inventory is sitting at corporate level, but over the first part of Q4 that's moving to dealers essentially?

Yes, we didn't buy it not to sell.

And then just on Financial Services, you recently moved up that return on receivables target, but obviously you're dramatically outperforming that recently and clearly in Q3, what dynamics do you expect to change or turn against you to come closer to that 6% and do you feel like those would be more market driven or engineered by changes in your strategy or tactics?

And then just on Financial Services, you recently moved up that return on receivables target, but obviously you're dramatically outperforming that recently and clearly in Q3, what dynamics do you expect to change or turn against you to come closer to that 6% and do you feel like those would be more market driven or engineered by changes in your strategy or tactics?

Mark it’s Mary, I think overtime, I mean right now I guess what I should say is, we are reaping the benefits of a lot of very good tailwinds so interest rates are really low, the economy is pretty good and while we always have good expense controls so that seems happy and we saw growth in our portfolio which is driving our top-line. So all those things are working for us now over an economic cycle those don't all go your way, you'll start to see higher write-offs in tougher times and presumably higher interest rate.

So I think that's why we don't have seven or higher as a permanent target because it is really at this moment in time there is a lot that's very favorable about the card business but it just never lasts.

And of those criteria that you outlined, what do you feel like is the most at risk at this point, in terms of turning from being so favorable to even just more normal?

And of those criteria that you outlined, what do you feel like is the most at risk at this point, in terms of turning from being so favorable to even just more normal?

Well I think it's what happens to the economy, I think it's external not internal, I'm not concerned about our ability to manage expenses or drive revenue or control credit risk but in a tougher economic environment that can put pressure on the ROI.

Yes, just wanted to go back to the interchange fee change that's coming up, can you provide us with an indication as to what percent of your retail sales are done on credit card?

Yes, just wanted to go back to the interchange fee change that's coming up, can you provide us with an indication as to what percent of your retail sales are done on credit card?

I think Jim we've sort of resisted doing that and like what I would say is the change that came down, we don't have all the details of how it's going to be implemented yet, right? That said, we think it's a very manageable impact like Mary and Dean have dug through it and we have our foot in both sides of the pond here, right?

In terms of being a retailer and being a Financial Services business, so it's just a manageable impact for us going forward, right? And certainly for 2015, we don't see it as being a terribly big deal for us, right?

It will affect Mary's business a little more than the retail businesses but at the end of the day, it's very manageable and these guys have lots of experience kind of working through regulatory change and the impact of it. That was a non-answer to your question, I realized.

So I'm going to ask another question then, on e-commerce across the board Mike, at what point in time I know it's going to vary by business do you feel it will become a meaningful driver to sales growth and I assume you include that in the comp store sales depending upon which business we're talking about?

So I'm going to ask another question then, on e-commerce across the board Mike, at what point in time I know it's going to vary by business do you feel it will become a meaningful driver to sales growth and I assume you include that in the comp store sales depending upon which business we're talking about?

Yes we do include it in the comp store sales growth although it's not very meaningful at this point and I've said it's Michael how are you doing Jim? I've said that within three years each of the banners will be world-class I expect in three years to four years it will be a meaningful part of our business and hopefully a fast growing one for us.

So if I get more tactical about that though and think about 2015, is there sort of a time through 2015 where you think you're really going to have ramped up and offset it does become a meaningful driver?

So if I get more tactical about that though and think about 2015, is there sort of a time through 2015 where you think you're really going to have ramped up and offset it does become a meaningful driver?

No, I think it will be, it will obviously we have -- we are already seeing big percentage growth and we're going to make some changes in some of the banners in 2015 which will improve it but I don't think it will be what you and I would call a meaningful in 2015.

And then last question just on depreciation, it's a much bigger number this quarter Dean I'm just trying to figure out how to look at it for into 2015 in terms of the things that are driving it, should we continue to see it up substantially or was this an aberration quarter?

And then last question just on depreciation, it's a much bigger number this quarter Dean I'm just trying to figure out how to look at it for into 2015 in terms of the things that are driving it, should we continue to see it up substantially or was this an aberration quarter?

I think you should see it trend up Jim just simply because I mean we've highlighted the approaches around investment in digital and IT projects or project agenda right with, led by Eugene and then escorted by the business folks that are at an all-time highs over the last two or three years so I think it will trend up it's not going to be the end of the world but it's obviously when you put IT projects in they are amortized at a much faster rate appropriately than traditional risk. Now we're not giving you kind of a number but I'd have it rising over the next two or three years.

I'll take that as a more tangible answer than the first question.

I'll take that as a more tangible answer than the first question.

If I can just go back to Financial Services for a moment clearly the operating leverage in Financial Services was impressive, but what really caught my attention was that SG&A was essentially flat to last year which was a little bit different than it was in the second quarter, so can you just address the performance this quarter versus last and I guess how we would see this trend moving forward?

If I can just go back to Financial Services for a moment clearly the operating leverage in Financial Services was impressive, but what really caught my attention was that SG&A was essentially flat to last year which was a little bit different than it was in the second quarter, so can you just address the performance this quarter versus last and I guess how we would see this trend moving forward?

Hi Brian, this is Mary. We had a bit of a blip in last quarter if you remember we had a settlement of a contract that was really a one-time blip, I think we, I made a joke about it earlier and Dean didn’t smile but we really, we focused a lot on our OpEx and because our volume of business is growing that is helping us from a scale perspective and there is just a lot of things going on in our business where we’re trying to improve our processes trying to acquire customers more efficiently at a lower cost, look for ways to, the one needed on this very task.

So it's just a big focus at our place it’s like I am pretty sure you know. So, I think all you're really seeing is that the impact of that blip last quarter and hopefully that answers your question.

And then the second question I guess is probably for Dean, but on the cash flows and retail with the Glacier financing it looks like with about 600 million back to retail from Financial Services, presumably there is a little bit more from the REIT through interest and dividends yet the net debt at retail remains flattish. So, I guess I have two questions, I understand the timing of inventory there is an elevated CapEx and of course the buyback, but are there any other movements that may have been out of the ordinary on the retail side of cash flows?

And then the second question I guess is probably for Dean, but on the cash flows and retail with the Glacier financing it looks like with about 600 million back to retail from Financial Services, presumably there is a little bit more from the REIT through interest and dividends yet the net debt at retail remains flattish. So, I guess I have two questions, I understand the timing of inventory there is an elevated CapEx and of course the buyback, but are there any other movements that may have been out of the ordinary on the retail side of cash flows?

Not really and we completed the share buyback. So that would be the only other factor in there, but I think you have hit all them on.

And I am not sure that 600 is dead right, but we can walk you through that Brian, but you are in the ballpark anyway. And as we raise the Glacier money we did reducing our company debt between the corporation and CTFS.

And then just on the negative inventory adjustment of 236 million I think you have pointed out in the MD&A, how much of that was to avoid destruction risk and how much was carryover due to the weather that you mentioned there as well?

And then just on the negative inventory adjustment of 236 million I think you have pointed out in the MD&A, how much of that was to avoid destruction risk and how much was carryover due to the weather that you mentioned there as well?

It was a decision right on the part of picking out of those Allan’s team to bringing inventory in earlier. And I think as we mentioned right I think the guys were worried about port disruptions and that kind of thing and quite frankly we had a very strong quarter as you know last year and the team wanted to be ready going into Q4 right to be able to support the stores.

I understand that, I am just wondering the carryover due to weather, how much of that was due to that?

I understand that, I am just wondering the carryover due to weather, how much of that was due to that?

Not an issue in any of the meetings I was in, let me put it that way.

And the first one is just on the impact of lower oil, just wondering if you're seeing anything in your own cost or if you're seeing anything at the store level maybe improved traffic or improved customer reception or even at the gas pump any comments related to the lower oil?

And the first one is just on the impact of lower oil, just wondering if you're seeing anything in your own cost or if you're seeing anything at the store level maybe improved traffic or improved customer reception or even at the gas pump any comments related to the lower oil?

Any movement in sort of more macro things like in the world of oil has plus and minuses lower priced pumps will put more cash in the genes of Canadians which is good news, lower oil at a certain point lower our cost of delivering our products to our customers. But at the same time the Canadian economy, and jobs and strength of the Canadian economy is incredibly important to us as a retailer.

And some big portion of our business, especially in some of our banners are western banners are in Alberta and Saskatchewan and that have been a good growth provinces for us. But at this point I don’t see anything change and that doesn’t mean it won’t, but there is always pluses and minuses in how it works out, but those are the three things I think about when I think about big changes in oil.

Though at the same time the Canadian dollar has fallen as you know at the same time as oil so in terms of competitiveness of our business in Canada is probably not huge in the global picture as much as it appears to have, it’s one input as I said in my script to you earlier in many imputs, but we watch it, we watch it very carefully.

So no benefit to traffic yet or at least perceive benefit to traffic as a result lower oil?

So no benefit to traffic yet or at least perceive benefit to traffic as a result lower oil?

Would be hard to pick up immediately, but you have got to believe in the long-term that people are spending so much money at the pump and that gives people more disposable income.

In terms of the gross margin in the MD&A you noted benefits from cost saving initiatives and the timing of payments. I was hoping you could elaborate on that further?

In terms of the gross margin in the MD&A you noted benefits from cost saving initiatives and the timing of payments. I was hoping you could elaborate on that further?

Hey Vishal, it's Dean. Cost saving initiatives I mean are and we talked about productivity at IR day kind of on a go forward basis, but I think I did mentioned that Allan and team particularly but all of the businesses have been focused on cost for the last couple of years and I think an example that I gave there the returns process and that whole world has been a focus area that Allan and his team have done a great job with that’s an example.

So, I think that’s what we’re referencing there and is probably the primary factor.

And in terms of the SG&A rate target, the flattish versus last year, now I think you said it may not be exactly flattish this year on the SG&A rate and if that’s correct is it delta the stock-based comp?

And in terms of the SG&A rate target, the flattish versus last year, now I think you said it may not be exactly flattish this year on the SG&A rate and if that’s correct is it delta the stock-based comp?

I expected this question from you Vishal so you are right on queue. Yes stock-based comp will be a factor.

I think potentially marketing maybe a factor because the teams are up against big quarters a year ago. So I think as we look at it and going into the fourth quarter, I think the teams may want some more marketing money and with the levels of performance they have been putting up, they probably deserve it.

And then thirdly is the IT cost i.e. infrastructure cost project cost so some of that continues to filter through.

Most all of this is planned except probably the first two will probably look a little higher. So that's all I am signaling there is we have been targeting to try and get back to roughly flat grow at the rate of revenue growth and we still committed to those but we will probably end up a little higher on the full year than where we originally anticipated, but not dramatically.

Yes, I just want to go back to the $240 million of roughly of inventory year-over-year. Can you sort of break that down as to how much of that is just a shift of by delivering earlier to avoid court issues and how much of that is anticipation of sales growth in the holiday season?

Yes, I just want to go back to the $240 million of roughly of inventory year-over-year. Can you sort of break that down as to how much of that is just a shift of by delivering earlier to avoid court issues and how much of that is anticipation of sales growth in the holiday season?

I think the majority -- no there will be a component of it Keith that will just be bigger business right i.e. we've opened more stores throughout the year, year-over-year.

I think as we have mentioned we've also, we took back 24 or bought back I think I guess 23 or 24 PartSource stores that we franchised a year ago now we are corporate. But the biggest majority of it was as I mentioned before Allan and team's decision to get ready for the fourth quarter having had such a strong fourth quarter a year ago.

So I am not giving you the numbers, just to be clear, but the majority of it is the third point.

And just on the FX I wondered if you could speak that. Presumably most of the competitors are looking at the same FX what is sort of what is the impact I guess in the short run of the change in the dollar?

And just on the FX I wondered if you could speak that. Presumably most of the competitors are looking at the same FX what is sort of what is the impact I guess in the short run of the change in the dollar?

I mean as we have said before, we have got a hedging program that kind of gives you a flight path to it, a smoother flight path to it, you sort of glide into it. But at the end of the day, you will feel whatever the change is, it just takes time to get there.

As you rightly point out, our competitors are going to feel that same thing, we are not the only people buying stuff in U.S. dollars from China and so on.

So I would expect the marketplace to reflect that overtime and that's one of the things that will factor into the guys strategies as they deal with this kind on a go forward basis. But we haven't isolated out an ex-number of basis points but it was a factor in that 22 basis points with respect to retail ex-petroleum that I referenced earlier.

Then just on the new loyalty program. Is it already sparked any change in signups for the credit cards or is it mostly people are just getting their loyalty card?

Hi Keith, it's Mary. So that is a great question and I think we very much anticipate the ability to attract more customers as a result of our stronger value proposition.

We are only a couple of weeks into it, so it's hard for me to give you any kind of certainty on it but that is very much part of what we think is going to happen. We've got a number of things going on in the stores, we are looking at it again in making it easier for people to sign up for our card when they come into the store and they see how strong that value proposition is.

I think we really expect a lot of people are going to, or want to immediately become cardholders. So we will have more color on that next quarter for sure.

Just Dean, I want to make sure I understand for the CapEx for next year. So just want to confirm here 600 million to 625 million for '15, but that excludes that another 100 million to 125 million of additional investments in distribution capacity, is that -- did I hear that right or?

Just Dean, I want to make sure I understand for the CapEx for next year. So just want to confirm here 600 million to 625 million for '15, but that excludes that another 100 million to 125 million of additional investments in distribution capacity, is that -- did I hear that right or?

And second question is kind of on the scale of 1 to 10, 1 being no impact and 10 being a lot of impact, how would you rate targets impact on your business, relative to your initial expectations?

And second question is kind of on the scale of 1 to 10, 1 being no impact and 10 being a lot of impact, how would you rate targets impact on your business, relative to your initial expectations?

I am not going to rate it. I was excited by the question but I am not going to rate it.

It's been as you know, it's been less than we anticipated and less than we planned for and but you give us 2.5 years to get ready and I think the team at Canadian Tire retail did a good job getting ready. And we respect all our competitors but it's been less of an impact than we imagined.

And my last question is, I'm not sure if you mentioned this before, but are there any plans to do a potential shares like given where your share price is at the moment?

And my last question is, I'm not sure if you mentioned this before, but are there any plans to do a potential shares like given where your share price is at the moment?

No there is no plans to do that at the moment.

That's great operator. Thank you very much.

Thanks everybody for joining us and happy holidays, we'll talk to you soon. Thanks.