Should You Buy the Dip at This Canadian Retailer?

Canadian Tire Corp. Ltd. (TSX:CTC.A) stock was down 0.45% in early afternoon trading on August 10. Shares of Canadian Tire have plunged 5.7% over the past week. The company released its second-quarter results on August 9 and in large part analysts were disappointed.

Consolidated comparable sales were up 1.6% in the second quarter with Canadian Tire and Mark’s up 2% and 1.3%, respectively. The financial services segment powered earnings and reached two million active credit card accounts. The retail gross margin remained relatively static year over year.

Rising gas prices have been a boost for Canadian Tire while other sectors of its retail business are facing challenges. Automobile parts dealers have seen a decline in activity in 2018 as have home and garden supply shops. However, there was evidence of a rebound in the month of May.

Sales at motor vehicle and parts dealers experienced a 3.7% increase in retail sales and general merchandise stores posted a 3.2% jump in activity.

Canadian Tire will hope to capitalize on momentum in this area going forward, but the Canadian economy does carry some major risks at this juncture. The uncertainty surrounding the North American Free Trade Agreement will continue to keep investors anxious going forward, although there has been some optimism in recent weeks over talks. For those seeking income, Canadian Tire also offers a dividend of $0.90 per share representing a 2% dividend yield.

Traditional retailers will continue to carry risk while consolidating smaller businesses. Canadian Tire completed the acquisition of Helly Hansen on July 3. With economic headwinds on the horizon investors should proceed with caution especially in the retail sector.