Canadian Tire Corp Ltd will open more than 100 new Sport Chek sporting goods stores and Atmosphere outdoor gear shops over the next five years, while shutting down 115 unprofitable outlets operated under different banners by its FGL Sports unit.
Canadian Tire, one of Canada's biggest and best-known retailers, bought FGL Sports, formerly Forzani Group Ltd, last year and the acquisition has become a big profit driver for the company. Canadian Tire's flagship stores carry automotive, housewares and other goods.
Canadian Tire has more than 1,700 retail and gasoline outlets, and 506 FGL Sports stores under different banners, including 163 Sport Chek and Atmosphere locations.
"We can drive the business more effectively through our core banners," Michael Medline, president of FGL Sports, said in an interview.
"We believe, obviously, we can grow our footprint in terms of number of stores and our sales and the profits, and that's why we're able to make an announcement like this today because we see enormous growth potential in this division," he said.
Total sales associated with stores set to close were $165 million US in 2011, Medline told analysts and reporters on a conference call.
The company will add more than 2 million square feet of retail space under the Sport Chek and Atmosphere banners over the next five years, or more than 50% to the chains' existing retail space.
"You'll see it really ramping up in 2013 and you'll have steady growth from 2013 on under that aggressive plan," Medline told Reuters.
The company will convert some of the shuttered stores - operating under the banners Sport Mart, Athletes World, Nevada Bob's Golf, Hockey Experts, Fitness Source and Econosports - into Sport Chek or Atmosphere stores. The others will close by the first quarter of 2013.
The expansion of the two chains will take place across Canada, especially in Ontario, with a special focus on the Toronto area, said Medline.
"We had expected the company to consolidate banners to execute a clearer brand strategy and further enhance synergies," said BMO Capital Markets analyst Wayne Hood in a note to clients. "The announced closings come as no surprise."
The company estimates $26 million in pre-tax costs related to the closures and expects to recognize most of it in the second quarter.
The closures do not affect any of FGL Sports' franchise banners or franchise store locations.
The company said it does not expect capital spending to rise materially next year, but that going forward, the new strategy will result in stronger growth and better margins on earnings before interest, taxes, depreciation and amortization going forward.
FGL Sports will make efforts to retain as many employees as possible. By end of 2013, the company will employ more people than at present, even before the store closures, Medline said.
Canadian Tire's heavily traded class A shares were down more than 1% to $66.83 on Wednesday on the Toronto Stock Exchange amid a broader-market selloff.