Canadian Tire Corporation, Limited

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

Jim Durran - Barclays Mark Petrie - CIBC World Markets Irene Nattel - RBC Capital Markets Derek Dley - Canaccord Genuity Brian Morrison - TD Securities Peter Sklar - BMO Capital Markets Keith Howlett - Desjardins Securities Chris Li - Bank of America

Thank you, operator. Good afternoon and thank you for joining us.

I have most of the senior leadership team with me today and they’ll be available as always to answer your questions after Dean and I speak. As you have already seen in our results this morning, the team is putting the numbers on the board.

2014 was a record year for annual sales, income before tax and earnings per share, all of that up against similar records in 2013. Our EPS for Q4 was up 5.1% or 112.8% on a normalized basis and this was despite selling 20% of financial services our second largest business.

So overall, I believe we are executing well, against our strategy that we shared with you at Investor Day. Canadian Tire Retail had its best year in a very long time posting its highest annual same store sales growth in eight years.

And positive comps again across all of its divisions. CTR is now a stronger division and much of the credit has to accrue [ph] to our merchant leadership as well as the dealers are doing a better job than ever serving our customers and our marketing programs are especially in brand and digital are hitting the mark.

We’ve continued to invest in our digital transformation and we rolled out a national e-commerce platform at Canadian Tire. In Q4, canadiantire.ca website traffic was up strong double digits year-over-year and we know it is driving sales at our bricks and mortar locations.

But we haven’t even scratched the surface on what we will do with e-commerce. As you saw all of our businesses were up this quarter against very seasonal prior year weather and strong numbers in 2013, but none more than our financial services business that was up against IBT growth of 16.6% last year.

So while their bottom line growth doesn’t look all that impressive at first glance, it’s actually right where plan it’s going to be and okay given the investments they made in GAAR growth during the quarter. What is impressive is the growth and the quality of the CTFS portfolio.

In fact, CTFS ended the year by surpassing $5 billion in gross ending accounts receivable a first for CTFS and with a record number of active accounts in the portfolio. I spoke last quarter about my four criteria for accessing our quarterly performance when I think about our retail businesses.

First, did we properly balance our promo and regular pricing, or were we buying sales? Our top line growth in Q4 was strong at the Canadian Tire and FGL sports banner or some already impressive results in 2013 and FGL Sports posted a 4.6 comp while Sport Chek put up a 9.4 comp.

Impressive results given what we are up against from Q4 last year. Our Quebec franchise sales were weaker than the rest of the country due to much milder weather in December of 2014.

As Mark’s a lack of more seasonal cold weather in December especially in Western Canada, hampered sales of outdoor and industrial wear, however the introduction of new national brands and the jeans campaign helped generate the topline growth. Overall I am pleased that Mark’s was able to pull off a positive 1.2 given the unseasonable weather and without buying sales.

I want you to know that when it comes down to it we will not seed market share to our competitors. We know where we had leadership positions across our core categories and all of our businesses will defend their position against our competitors.

Having said that, margins held in there for the quarter. Our retail segment margins were basically flat after stripping out the petroleum business from the numbers.

CTR did a great job of balancing their sales and margins with weather that was unseasonal in December compared to the previous year. Honestly at FGL we did buy some sales, discounting to offset lower traffic levels due to the lack of colder weather.

In December meant margins were down, but to be clear it was not because of competitive pressure and they weren’t down a lot. Second, did we drive sales through creative marketing?

Canadian Tire continued to innovate with marketing campaigns that resonated well with their customers. We created some of the best traditional marketing we have ever delivered through our flyer and on TV.

And we started to dip our toes into digital marketing as part of the generational shift we keep talking about. During the Worlds Junior Hockey Tournament in December our big play initiative put the highest viewed video twitter campaign ever recorded in Canada.

And all of this under the guidance of TJ Flood [ph] we were proud to see named Canada’s marketer of the year in 2014 our strategy magazine. At Sport Chek, our digital marketing was second to none.

This past December the team partnered with Facebook to create 50 seven second video ads to promote products that drove very high double digit sell through compared to products that did not get that video support. Sport Chek continues to ship resources from print flyers to digital advertising and continues to post strong comp sales in those weeks where the old print spend has been redistributed digitally.

Third, for Canadians choosing us for seasonal products and especially due to our innovative products resonate. Canadian Tire had fantastic results given the year-over-year weather.

Our blocking and tackling have become far better. Much of the sales growth in seasonal categories came from new skews and our dealers really embraced our new ideas and products focused on our younger customer segment including Canvas our new home décor but product line which killed it.

It is also important to note that across all of our core retail manners we have taken positive steps to weather proof the businesses as much as we can. And we saw these efforts pay off as we had strong performance in non-seasonal categories at Canadian Tire in the quarter.

We also continued momentum in our automotive business and significant sales growth in our auto service business. And over in Sport Chek which posted 2014 comps of 10.6% I can tell you that our Sports technology wearables category was a huge contributor to Sport Chek’s very strong growth.

There is a lot of emerging technology in sports built into clothing, equipment and the wearables category and you are going to see check the leader in this arena. Fourth, did we probably watch our expenses while continuing to invest in the future?

Overall expenses were well managed across the businesses but in my view it was not good enough. I want to see more of its incremental sales dollar flowing to the bottom line and we as a team are committed to changing that.

Now Dean is going to discuss recent economic headwinds and its stock on how they may impact our business going forward in a moment. But before I should pass things over, let me just say that every year, every year we are profited by macroeconomic factors.

There are always puts and takes that impact our business whether it’s an economic downturn, regulatory changes competitors coming to or exiting the Canadian retail market and so on. But I believe we are making the right decisions to make this corporation stronger no matter what headwinds prevail.

So overall I think you can tell I am very proud of what the team has accomplished in Q4 and all of 2014. So that’s now over and we’re moving on to 2015 and onwards.

And with that, I’ll turn it over to Dean.

Thanks, Michael. My comments today will be brief and centered on just a few noteworthy topics.

I’ll start with a few things to keep in mind while reviewing our results. This is the first quarter since the close of their financial services partnership deal and as a result the EPS numbers reflect the impact of the 20% in financial services earnings, now owned by Scotia Bank.

Second, our Q4 results reflect an extra week of operations owing to 2014 being at 53-week retail year for us. To address this, we provided our retail sales on a reporting period basis and our same store sales figures on a 13-week comparable basis for each of the retail banners in our Q4 MD&A.

Third, earnings for the full year have been normalized for the early redemption premium on debt retirement in Q2 and for REIT CTF CT REIT formation cost in 2013. And finally for Q4, we normalized earnings to exclude the impact of the fair value adjustment related to Scotia’s banks put option.

Essentially this reflects the increase in the expected value, expected future value of Scotia bank’s 20% interest in financial services should they choose to exercise their rate to sell back their interest to CTC after 10 years. IFRS accounting requires us to perform this valuation exercise each quarter and given the non-operating nature of its adjustment we will continue to normalize our EPS and EBITDA metrics to decide in going forward.

As per our usual practice we’ve highlighted our normalizing items for Q4 and on a year-to-date basis in our MD&A. Now turning to Q4 performance.

This was a strong quarter, particularly for the Canadian Tire retail banner. Michael noted the strong comp sales performances from both the Canadian Tire and FGL Sports businesses especially given they were laughing at very strong Q4 in 2013 which experienced much more seasonal weather than we had in December this year.

Our operating expenses excluding depreciation and amortization as a percentage of revenue were well controlled in the quarter and came in 24 basis points above last year, largely as a result of higher share based compensation cost. Generally I am pleased with where we ended 2014 regarding our operating expense percentage but we are very focused on containing operating expense growth in 2015 and improving our productivity with the program we have underway.

As we said at our investor day in October, the focus will initially be on overheads and non merchandise supplier costs. The financial services business delivered stronger growth up 7% breaking through the $5 billion mark and ending receivables as of December 31.

Investments in marketing and balance transfers to drive receivables growth flattened the segments income before taxes prior to the effects of the Scotia Bank partnership. Earlier this week, CT REIT reported its Q4, 2014 earnings and first full year of results.

In addition they announced they would be firing a shelf prospectus which would enable them to access the capital markets as they continue to grow their property portfolio and complete the projects in their development pipeline. In my view this is a very positive development for CT REIT and a first step towards demonstrating their ability to fund their growth going forward.

Inventories are healthy across all retail businesses. Although we did pull forward some purchases at year end to offset the potential impact of disruptions at Western ports, which resulted in higher ending inventory levels, but we are very comfortable with those decisions.

Our ROIC methodology was refined in the quarter to fully isolate the effects of CT REIT and financial services, thus ensuring our retail ROIC metric represents a pure measure of a retail business segment. We have restated the prior year figures and the reported numbers at an 8.07% for 2014 and 8.10% for 2013.

While there is a onetime increase in the Q4 2014 number, the new methodology does not materially affect our trend in our ROIC metric and we continue to be focused on achieving our aspiration of a 9% retail ROIC by the end of 2017. Operating CapEx which excludes spending on additional distribution capacity and CT REIT third party acquisitions and developments was $476 million for the full year.

Certain CT REIT funded development and intensification activities totaling $57 million, which were originally plan to be operating CapEx and were included in our guidance of $500 million to 525 million. So in total our operating CapEx ended up $533 million just above our guidance.

CapEx for external purchases developments and intensification by CT REIT including the $57 million for CTC totaled $183.4 million and was higher than expected, primarily due to the Q2 investments in the Canada Square property. And finally, spending on our new distribution center capacity came in lower than expected at $62.4 million.

For 2015 as we told at our Investor Day, we forecast ongoing capital expenditures of $600 to $625 million primarily due to increase 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 range of $175 million to $200 million or for the Company’s support of third-party acquisitions and development by CT REIT.

We ended 2014 with a very strong balance sheet and maintained our balanced approach to capital allocation. We repurchase $283.7 million of Class A non-voting shares under our existing NCIB in 2014 and filed a new NCIB with the intension of making further purchases through to the end of 2015.

We also increased our dividend to $2.10 per share. We paid down $200 million in corporate debt.

And finally, we invested in our businesses to drive organic growth while continuing to seek out opportunities to make a strategic acquisition that will build on our existing businesses. And I would remind you that any acquisition target that we would consider would be subject to the strict criteria that Michael had spelled out in the past.

Looking ahead to 2015, I want to highlight a couple of things that we will need to keep in mind as you asses our performance. As you think about modeling 2015, I would remind you that the first three quarters will be impacted by the reduction in earnings due to the Scotiabank partnership transaction.

This is especially true for Q1 because the retail earnings contribution is so small relative to the rest of the year. Second, is the headwinds from the recent developments in the economy, we expect to be impacted by the effects of the decline in the Canadian dollar.

But the degree is difficult to predict and I’m certainly no economist. That said, we know that like all retailers buying products overseas we will have to factor the higher exchange costs into decisions about procurement, pricing and supply chain.

A sustained decline in the dollar can be expected to have an increasing impact over 2015. Our hedging program will help, smooth this effect and as we mentioned before the exchange is only one factor in the determination of margin and our merchants have done a very good job managing all of the inputs into costs and margin to date.

We also have to consider the economic impact of a decline in oil prices especially in Western Canada. None of our businesses have seen a discernable impact to-date, although we expect that Mark’s is the most vulnerable given its industrial wear business.

With that said, Mark’s has grown outside the western regions over the years and its reliance on the West is less than in the past with about 17% of its store account in Alberta. And finally, because of the additional week in the 2014 and fiscal calendar, the 2015 quarter end dates will shift for the retail businesses and as result we anticipate there would be some retail sales and revenue shifts that may make quarter comparisons a bit more challenging through rest of the year.

And before I wrap up, I want to mention that we’ve just launched our 2014 year-end review digital summary that showcases the great accomplishments of the businesses through video and texts and gives site viewers a chance to hear directly from a senior leaders and employees. It went live this morning and can be access at 2014.canadiantirecorporation.ca.

And with that, I’ll turn the things back over to the operator to take your questions.

It's nice to see that Canadian Tire is no longer a weather-dependent company. Just back to the FX question, so I know you hedge the FX, but we can see that there is now a second year of demonstrable increase, and so as we get through the year, it doesn't seem there is any real ease of abatement at all.

If you look back at 2014, how successful were you in an order of magnitude on not having FX negatively impact gross profit dollars?

So, Jim, it’s Dean. The way I think about this is, obviously we had a headwind with respect to FX of 2014 and with the significant drop that we’ve experienced just in last really five, six weeks, that headwind were face the merchants in 2015 as well.

But what I would say is that they did an exceptional job in 2014 by looking at as we talked before, all of the elements that go into margin, right, and factor into margin, everything from – right from the sales line through to the cost line through to, ultimately the margin. So, and as well, also we’ve done a great job of managing their operating expenses.

So as we look forward to 2015, it’s kind of we’re expecting more of the same out of them, but there is no question that this drop that we’ve had over the course of 2015 as we talked before hedging just gives you a glide path to whatever eventuality you end up that, right, good, bad or indifferent. So, it buys us time for the merchants to kind of work their way through things, but as I said in 2014, as an example they did a great job adjusting to it.

E-commerce, so now you’ve got a full deployed Canadian Tire retail product offering. How meaningful do you feel that could be your sales growth in 2015?

Michael, I’m going to say a few words and I’ll throw it over to Allan because he’s doing good job on that. We just started this up, these sales numbers are no where they’re going to be.

I think we’ll see some progress in 2015 and it will good for us and it will be more meaningful material but I don’t think you should expect a huge number in 2015. You’re going to see real material differences as we have in 2016 or 2017.

And I think all of the businesses especially Canadian Tire and FTL which is actually – retail is little further ahead in terms of their progress because they have been doing longer. You will see 2016, I think we’re going to see some meaning here to it, but if Allan maybe you want to fill in that?

No. I totally agree.

I think when we’re looking at achievements we’re in the market and there’s a lot to learn. It’s a very, very complex value.

It’s a very complex offering for our categories. And really we’re in the throes of building some capabilities that are going to be very, very important and we start to get meaningful scale.

So it for lot of that which will be as apparent to the public market as it will be internally over the course of 2015 and Michael points to 2016 because we’re going to see a difference based on our current course. A - Michael Medline I mean, Allan is planning for big percentage growth, but it’s --really big percentage growth.

It’s just not offer huge base yet, so.

On a consolidated basis to Canadian Tire retail, it won't necessarily move the needle very much from a sales growth standpoint in the immediate term?

No. But I think when we talk as a team about e-commerce, a lot of the strength of e-commerce is already showing up in bricks and mortar, and we’ll continue to do so.

So I think sometimes when we talk about only ecommerce alone, I think that Allan is already saying, as I said little earlier, some real – some real tailwinds here, because so many more people are going on line and researching product and seeing whether it’s in stock, in store which we couldn’t do before. So the infrastructure and even what we have in place right now, is helping our business, it just not helping it as much as we will get in pure e-commerce.

Just last question, Q4, last year if I recall correctly, you attributed 50% of the comp-store sales growth of CT Retail to favorable weather conditions and then the rest to the establishment of stronger business practices. Now the comp-store sales for this year, the Q4, given that the weather wasn't helpful, is quite impressive.

Can you give us an idea of what you think the biggest dynamics are driving that comp?

Allan, [indiscernible]. You’re talking about CTR, you want to talk about CTR.

Jim.

Yes.

Okay.

Yes. I think, Jim, it’s not dissimilar to what we talked about in other quarters.

We’ve been working really hard and making sure that we’re open for business, and that all five divisions of CTR are performing strongly, I talked to you in the past about fixing business improvements we have to do there. If you look at getting the inventory position right, where we’ve had our marketing over the quarter, you have seen Mastercraft Maximum come out with new drill bits.

You saw launch of CANVAS in living. We had a great quarter in tires.

Our activity in the market is I think quite balanced. We’re focus on bringing to market what our customers are looking for.

And that’s creating a bit of groundswell in terms of our regular more predictable non-seasonal business. Over and above that, of course with weather is going to come and changing line pattern.

So on top of the quarter, despite the fact that December was quite light in terms of weather, I’m really, really pleased with how we performed. Had December been freezing cold and snowy the way it was in 2013, we probably would have seen some incremental performance over top of that, but all-in-all I could be more pleased but I wouldn’t look to a magic bullet.

It’s really strong performance across the board.

Okay. Thank you.

Hi. Good afternoon.

I did want to just ask about the margins in the retail segment in the context of a weaker Canadian dollar, which you talked about in your comments about not giving up market share. Are there other levers that you can be pulling in terms of gross margin percentage in order to drive increases there and how realistic is cost leverage on the operating expense line, given your ongoing investment in e-commerce?

So Mark, its Dean, and I’ll start, and if any other guys want to chip in. But certainly from a margin perspective, I think I touched on this a bit, but you’ve obviously got the top line and you’ve got the cost line.

And we’ve talk about exchanges, just one of the inputs into cost. As I said, we talked about our hedging program, that gives you a bit of glide path, but there is no question that the move in the Canadian dollar that we saw through 2014, merchants handled very well.

And similarly we would expect there’ll be challenge to handle that same type of move in 2015 and it probably even more of a challenge in 2015. But that said, they’re doing some very smart things around and you put this in the category of the guys embracing productivity and just being smarter about how this company buys.

But everything from the cost of the inputs to how we pay for things to the top line and managing as Allan said, the mix of promotion in regular product. So there’s a lot of levers that team has to pull.

And then you’re question around operating expense leverage. I think all of the teams, so it’s a renewed focus which I’m very appreciative of around managing the cost structure in general and being much more if you will deliver it about additions and incremental investment and it just goes with a trend that we’ve been on about challenging every new dollar that goes into this place and looking for opportunities to take those dollars out, which fits very well into the program around increasing the productivity.

So, the answer to your question is, I think there is – we’re certainly expecting more to come and working hard to deliver more. And it all goes in line with what Michael said around, we want to see more fold at the bottom at the end of the day.

I mean, that’s really what we’re all kind of driving towards with on this various initiatives. Is that help.

Yes. Thanks.

There was big revenue growth in the retail segment, particularly at the Canadian Tire banner in Q4. Appreciating that often there is a timing issue and a disconnect between sales and revenues or shipments, can you just put a little bit of context around that number?

Obviously, there was a big restocking after the strong Q4 last year, but how are you feeling about that number and, I guess more specifically, dealer inventory levels?

Mark, it’s Allan. Yes, we’re feeling good about and I mean, there’s a couple things to play.

I think for the most part you mentioned them. Part of the growth were being able to captured that CTR is really predicated upon having the inventory and stock and when you have got broad range especially in Q4 seasonal and then the other five divisional product lines, you want to able to do business in all those categories, so of course, you’re going to have that component.

Optimism certainly drives -- is contagious and we see that deals are level. As well too what you would have seen as a spring some inventory and being careful to make sure that we’re well stocked in light of any potential disruptions that we’re expecting in late Q4, , early in Q1 with regard to ports and rail companies and the like.

So overall the inventory levels were quite healthy. I think it’s been a huge enabler of our growth very, very – we’re managing it very closely and are feeling quite comfortable.

Okay. Thanks.

I’ll circle back.

Thanks. Good afternoon, everyone.

Just sticking with the topic of inventory, particularly I'm thinking here about Mark's. With the weakness that – well, the warm weather that we saw, are you going to have to do a lot of clearance activity in Q1?

How should we be thinking about the margin profile at [indiscernible]?

It’s Rick White here. Thanks for the question Irene.

Not very concern about the inventory level at all. In fact the inventory level albeit it slightly over last year’s level is in line with very where we were at in 2012.

We were careful when we went in and we don’t anticipate any hits to the margin whatsoever. We did not buy sales as we saw that it wasn’t great December.

We made the decision not to buy sales. And we were actually affected by less than 50 basis points in our margin.

So at the end of day, we’re still able to pull out a small positive comp, but from a bottom line perspective coupled with our expense control we are very, very healthy and solid and as we’ve moved into January we’re not experiencing any big negative way of down margins. We’re managing very, very carefully.

In fact, I think it will be safe to say, we’re probably a little light in inventory in prior year in 2013 when we do it on comparative basis. So all in all we’re in very good shape.

That's very helpful, thank you. Just, also, thinking about the impact of lower oil prices, obviously there is a negative in western Canada, but some retailers are noting that they are starting to see a pickup in traffic and basket as consumers have more pennies in their change in Quebec and Ontario.

Wondering if you are seeing any of that?

I mean, its early days and hard to pick in a crowded environment of different factors, but we know that in central Canada and Eastern Canada the people have more money in their jeans, which we’re glad to see. So I think we have good expectations in terms of having some help there.

And I saw – I think we’ve generally agree with other retailers on that. But it is hard to pick out those factors.

That’s great. Thank you very much.

Thanks, Irene.

I was wondering if you could just comment on some of the trends that you are seeing in the financial services business. We saw write-off rates tick up a little bit this quarter.

Can you just comment on that and if you expect that to unwind going forward?

Thanks, Derek, its Mary. So, it’s complicated question to answer simply, but let me just say this.

We have to separate that. Let me just say that we have grown our portfolio much more rapidly over the last two years and we’ve done it two ways.

We’ve grown our balances and we’ve also grown the number of customers. So when you add new customers to your portfolio you inevitably are going to see higher rate -- write-off rates as you get to know them better.

There’s about a two-year cycle until they sort of become part of the material portfolio. So I think as we continue grow with new customers, you are going to see some pressure on the write-off line.

You see how much we’re – how hard we’re working to manage it. So I think you’re going to expect to see that continue to happen.

We aren’t really seeing any impact yet on the economy but that that’s the other factor that we’re watching for very, very closely. So as we see the impact of the changes in commodity prices and that effects employment rates over time, certainly that would be something that would drive write-off over time, but so far no main sign, since no big sign to that, but something we’re focusing on very, very, very intensely.

Okay. Thank you very much.

Good afternoon. Mary, if I can just follow up on a question on CTFS.

Have those promotional items, specifically the balance transfers that impacted yield, have these slowed now and should I presume that they should dissipate as we look forward to Q1? And what does your historical precedent suggest in your ability to retain balance transfers?

Hi, Brian, it’s Mary. We’ve used balance transfers as a tool to driver GAR growth a lot over the years.

It’s a tool we understand very, very well. I have drawn back on it I would say, recently over the last two years, because I would rather do financing inside our own stores.

So we have tended to move some of that balance or some of that investments into other areas that are inside our own stores. So there were two things happening in Q4, one was certainly we have higher balance transfers.

And I think higher than we expected, we had a really good take up on an offer we put out in Q4, but we pull back in Q1 that I don’t need to do as much in Q1. I think what you’re going to see is continue to do is a lot of the kind of in-store deferred financing the 12 month or 18 month equal payment plan.

Those work really well for us. They get us new customers.

They drive GAR growth. There are some pretty good retention on the receivable balance.

The revolve rates pretty decent and its works for our retail business. Balance transfers work well too, but I think again something I would use probably more on a tactical basis as suppose to having it as a strong underpinning of GAR growth.

Our customers -- we do have customers who expected as part of our value proportion so we will continue to do it, but anyway hopefully that somewhat clear answer. But I think you won’t see the impact on yield perhaps since dramatic as you saw in Q4.

It’s a hard quarter for us to retail perspective. We had a lot customers inside the stores and I think that was reflected in how strong your customers to come on that investment.

That's excellent. Thank you.

Dean, if I can just turn to the retail balance sheet, you have had a marked improvement over the last quarter, inclusive of those heightened intercompany transfers to financial services. I am curious if funding in the financial services – curious if the funding in the financial services intercompany, if you’d look at funding that externally as an option?

And then second, as you mentioned, one of the objectives is to demonstrate the ability at the REIT to raise equity and debt independently. Does this increase the probability of repayment of the maturing Class C units, and if so, what is the use of proceeds?

Brian, I can always count on you for this question. The reality is as this goes in the bucket just managing the overall balance sheet of Canadian Tire Corporation and capital allocation.

And for sure with the financial services as an example, I mean, we’re having lots of discussions around if you will the term average term if you will they financing, right, so we have an ALCO committee and debate regularly. So, I think there is going to opportunity in 2015 to lock in more rates.

Similarly with the REIT as we talked about before and we’re certainly I think talked about IR Day and also signaled with the filing of the shelf prospectus is we would like to do something in the public market to demonstrate the REIT’s ability to raise capital and probably want to look at both the opportunity raise equity as well as debt. But this just puts us in the position to continue to have those discussions.

Our balance sheet is in fantastic shape like my job is flexibility and I think we’ll continue to kind of put ourselves in that position. We’ve got our announced uses of capital.

I mean at our IR Day we indicated the $400 million through to the end of the 2015. We re-file the CNIB so are in a position to kind that that forward.

And that’s kind of where we are at. So we’re continuingly monitoring yet as obviously you are.

Dean, and just a follow-on, are you leaning one way or the other with respect to the repayment of the maturing Class C units in May?

We’re still evaluating that, Brian, so it will really just depend on market conditions and where we want to end up.

Okay, and if I can just have one housekeeping item, if I can. The amount of real estate that remains at CTC that remains appropriate for the REIT at year-end – I realize there are some transactions post quarter, but can you provide us that balance and potentially the timing of vending them in total?

So I have it – its actually off the top, I haven’t look at that number very recently, Brian, I mean, it’s still substantial as you might imagine. But from a timing perspective, the REIT continues to kind of how the pipeline from CTRL from Canadian Tire real estate and we want to keep that pipeline filled over the next number of years.

We continually add if you will to the real estate portfolio with the acquisition of new properties and expansion of property. So I’m basically because I don’t the answer, off of the top of my head but I would say we’re probably still in the $1 billion kind of range that’s available if you will, to move over to the REIT, but because we – as we move some over, we seem to add more to it, so I would say that’s probably a pretty safe number.

Thank you kindly.

On your Canadian Tire banner, just wondering if you can run through the various product category groupings, call it auto, fixing, seasonal, and others? Just which ones do you think you have fixed and are performing well, I think you’re reasonably satisfied with autos, and which categories do you think require further attention?

I know you touched – I think Allan touched a little bit about it earlier, answering one of the questions, so I’m just wondering if you can systematically go through it?

Yes. Post of the call [ph] that we did in a quarter at CTR especially with the weather patterns we had really is the result of the strong performance across all five categories and we think of in terms of fixing, living, playing, driving and in the seasonal business.

And seasonal would be both and some cases its weather related and also seasons like Christmas for example. So, as a broad based statement we were very pleased with the performance across the divisions.

Some, of course outperformed others, but there winter cold like lot of us, but by and large I think you’re going to continue seeing the fruits of our labor that I spoke with the past. The tools business or the fixing business most particularly we called attention to in previous quarters and I’m pleased to say we saw improved performance and that was one of contributors to Q4.

Whereby no means perfect, but I would say that we have less outliers in terms of performance projects divisional level that we’ve had in the past. And now we tend to turn our attention a little bit more into the next kind of issues in front for us like Michael noted when he talked about e-commerce and digital.

So by and large I'm pretty pleased with where we’re at.

Right, and what would you attribute the strength in auto service to? Someone called that out as a particular area of strength?

Yes. I think it’s an amalgam of a number of things we’ve been working on lot more closely with our associate dealers over the last couple of year on improving our service offering and we’ve invested in infrastructure that made it possible for us to have better advice and to be able to train our advisors better at counter.

The rising tide of our brand of the success of other divisions of course, help with traffic, and we’ve done a lot of work to shore up supply of parts and tires so that we have readily available parts and tires when you bring your car in. So, all of those things tend to result in just a higher satisfaction level overall, but also higher success rate in terms of converting potential customers we’re able to satisfy.

So not one magic bullet, not something that happened quickly, but it would come back something obviously too much and that’s we’re open for business and as customers comes to the doors are getting better, better being able to service.

Okay, and Dean, just one last question. The fourth quarter, there is always accruals and reversing of accruals to true up.

Was there anything that particularly happened in the fourth quarter either positive or negative or were the results pretty representative?

I would say they are pretty representative. I mean if you want to get into a big accounting discussion someday I mean I won’t be there.

But, no I mean there was nothing kind of unusual if you will from the perspective of the quarter at least to my estimation. Analyst Okay, thank you.

Operator Your next question comes from the line of Keith Howlett with Desjardins Securities. Your line is now open.

Yes had a question about the deferral financing in a CTFS. Can you give some indication above the 5 billion portfolios what part that is and how long the impact of growing that business will persist?

Hi, Keith it’s Mary. It’s not a very large type of business of the 5 billion and some of it’s quite short term it will reverse in Q1, bunch more in Q2 and the rest is over the balance of the year.

We did a – the BT [ph] for 3 year 6 month in Q4 and the financing side of CTR was either 12 or 18 months [Indiscernible] plans, so nothing that’s going to linger for a long time or cause us grief. Again, we had more kick up, but this is not new for us, this is – these are tactics that we’ve used before, we are just particularly in side of Canadian Tire retail work doing more of it than we were say three years ago.

But we’ve been ramping up this volume over the last two years, so we just had a bit more success in December than we had expected because there were more customers inside the store.

And is the deferral, is it was that the big success in December or both were big success?

We didn’t spend a lot of time over the last couple of years trying to improve how we connect with our customers. We’ve done a lot of improvements inside the store.

We just relaunched our new value proposition in the end of October which I think would have really got more customers paying attention to what we are trying to tell them and the offers that we are bringing to them. So I think it’s a whole lot of different things that we’ve been working on for some time to just really make sure we’re connecting with our customers more effectively and that’s why you see GAAR growth and higher number of active customer’s etcetera.

So, I think it’s a bit of a blip and particularly in December because it was busy retail market but nothing out of the ordinary.

And then I was just wondering on the digital initiatives that I know you’ve been busy at for the last couple of years and longer, is there a number that you would give as to what that is dragging your earnings and whether that would subside or whether that sort of just going to be an ongoing expense for the foreseeable future?

Keith, it’s Dean. I mean I would look at this as – there is capital obviously being invested in and that comes with depreciation, amortization and that kind of thing, but from the perspective of ongoing investments I don’t think you can think of these things as won and done.

I think it’s a – you update the websites, it’s more of a continuous investment. I think we’ve done a lot of what we needed to do in terms of the backbone, all right as we talked about at IRR day and I think Michael alluded to that and Eugene Roman and team had done a superb job of kind of building if you will the backbone, but the ongoing, I mean we are going to be spending money on digital I think for ever more so from that perspective I think it’s’ somewhat embedded in the cost structure right quite frankly on a ongoing basis.

So that’s the way I think about it anyway.

It’s Michael. I mean we’ve reallocated capital and operating expenses and we’ll continue to do so in the right mix to ensure that our old business which is a great healthy business is great and that we’ve transferred into the new world.

And I think we’ve done it suddenly almost in terms of if you look at our results, but Dean is absolutely right. The future here is to get ahead of your competition.

I think everyone is spending a bigger proportion of capital and OpEx on technology and that isn’t going to stop and it’s a good thing. That’s going to help us grow our business.

And just finally if I could on the Mark’s industrial wear business, did do you see directly in that, in say, Alberta and Saskatchewan the last two months in the oil patch or just take a while to catch up?

We as we said, Keith, it’s Michael. We have not seen meaningful, any meaningful movement in terms of what we’ve seen in Western Canada specially Alberta.

Having said that, you are going to see some. The other thing is its hard in a short period of time to pull things out, but and – weather factors there are other factors that are going on but we have not seen anything yet, we expect to see a little bit.

Mark’s will be the first to see a little bit.

Great. Thanks and then maybe could you just update us on your flagship Sport Cheks, I think you have some opening up soon?

Yes, Keith its’ Chad I’ll give you a quick update. Our West Ed store just finished its first full year and we are ecstatic by the results, drove the whole market up.

We are 30% increase in the whole Edmonton market. We learn every day, the number of transactions going through there something new lot of retail.

So very excited about West Ed. Metropolis opened in Burnaby, BC, in November, right around Black Friday, it’s exceeding its results so we’ll have a second 20 million plus store coming up right away.

So very encouraged with that. And then we’ve got two opening in the GTA which is a big, big move for FGL we still under index in the Toronto area so in November of 2015 we’ll launch simultaneously Yorkdale and Square One.

Shortly there followed in spring – March right now for share way so that three full flagship set up and then we’ll go after Vancouver after that. So I see 2015 being about the GTA and 2016 looking at showing up our Vancouver market but very happy with the results so far.

These aren’t just flagships for the brand which they are, these are money makers.

Great. Thank you very much.

Oh hi, good afternoon. My first question is in recent years, the Company has invested to drive efficiency in the distribution centers through new technologies, and I am just curious to see.

Are most of the benefits now behind us or are there more initiatives planned to drive efficiency at the Company-operated DCs?

This is Michael. I think we’ve done a good job in our DCs, but there are plenty left in term of driving efficiencies and taking cost down and I think we have great teams running our supply chain and every year they are finding cost and I think as part of the productivity initiative that is going to be a place where we can take cost out of this business and see more of our topline slowing down at the bottom line.

I think it’s a great question.

Okay, and my second question is a two-part question on Target. First is do you expect their liquidation sales to have a material impact on your sales in Q1?

And secondly, would you be interested in scooping up any other leases that might come up for sale?

I was waiting for this one. Yes we don’t expect the material impact on us.

They didn’t have a material impact before, they are not going to have a material impact coming out and for sure we’ll look to scoop up a limited number of real estate opportunities if they are available and if we like them there might be deals available, there may be properties that we would not otherwise be able to take into our portfolio. So we are diligently looking, but I think it’s a very limited aspect to that.

Okay, great. Last question, I guess, is housekeeping question for Dean.

Just in terms of your NCIB, can you just remind us of the $400 million that you are targeting to this year, how much of that is now behind us? Just trying to guess how much you can do this year so far.

I think that in the documents I think we’ve done, I think we got 318 or something like that left to go.

Okay.

There’s a lot of people waving at me right at the moment, but I think it’s – 320 is kind of what I have in my head less to go.

Okay. Thank you.

Thanks, Chris.

I just want thank everybody. I know it’s a busy day for especially for the sell-side analyst.

You’ve got a lot of reports today, so thanks for calling in and if you have any further questions where to reach us and appreciate it. Bye, bye.