The Canadian Investor - Slowing Inflation and Canadian Tire's Terrible Quarter

Episode Date: February 22, 2024

In this episode, we start by discussing the latest Canadian inflation data. We also go over challenges facing Canadian Tire, explore Intact Financial's surprising performance, and analyze Air Canada's strategic moves amid economic shifts. We then talk about the operational turnaround at Restaurant Brands International, with Tim Hortons leading the growth charge. Finally, we navigate the dynamic world of buy now pay later with Affirm Holdings, exploring revenue spikes, customer metrics, and potential risks. Join us as we dissect these financial landscapes, providing you with quick insights into the Canadian market's latest developments. Tickers of stocks discussed: AFRM, CTC-A.TO, AC.TO, IFC.TO Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kent, and we are back for a Thursday episode of some news and mostly earnings, but I think it'll be a fun one. We've got CPI inflation. But before I get started, Dan, really important question question are you happy that I only have slightly

more hair than you now yeah looking pretty similar now join the club yeah exactly I gave up on my hair a long time ago I think I was only like 24 25 and I just buzzed it off yeah so for those who are not watching and I'll probably update my picture on X or Twitter, Twitter eventually. But like what I did is I essentially took a, you know, an electric razor, the number one, the shortest you can do. So Dan, he's like completely like Bic style, right? Mr. Clean bald. there. I had done it a bit like you. So in my early 20s, I had like two, three years where I would do it like every week, once a week, I'd shave it to one. So I knew that my head was pretty slick underneath. So I was ready to do it. So I ended up doing that on the weekend and I'm saving like 60 bucks a month. So more money to invest. Yeah. It's kind of like a budgeting hack. hack no haircuts no shampoo saves you a lot of

money yeah and you look like you're always you know like uh like well kept too right so yeah exactly i have to do this every day okay so i'll go with the once a week i think that's uh that's the advantage but enough about uh not having a lot of hair uh i do want to go over a canadian cpi came out this morning right off the press do you want to provide the big lines and kind of the headlines here and we'll chat a little bit and give our impressions on that yes it was actually a pretty good cpi report it came in quite a bit lower than expected so they predicted the rate would come in around 3.3 percent but it came in at 2.9 so stats canada says the largest contributor to the decline was falling gas prices they fell by over four percent compared to a 1.4 percent rise in december so i believe that four percent decline is compared to to December's prices and not necessarily year

over year prices. Core inflation, which would strip out volatile things like gasoline and food, came in at 3.3%, which is lower by 0.3% compared to December. And when we look to year over year numbers, food increased 3.9%, which is quite a bit lower than it has traditionally been increasing over the last while. Shelter is still very high, 6.2% increase and a 1.2% increase in transportation costs. I pulled these three numbers just because I would consider them to be the largest factors in terms of overall inflation impacting most people. And Statistics Canada factors them in quite high as

well. So as mentioned, this looks to be the lowest we've seen in factors them in quite high as well. So as mentioned, this looks to be the lowest we've seen in food inflation in quite some time. And according to Stats Canada, mortgage interest costs and rent are contributing extensively to inflation at this point in time. I couldn't actually remember the numbers. It was something like 27% of inflation is mortgage costs and 8% is rent costs. I think that's how they did it. I'm not 100% sure on how it's calculated, but it was certainly 27% for mortgage and 8% for rent. So I think out of that total CPI, it's being impacted, well, what would it be about a third, maybe a bit more than a third just based on that.

So notable declines, on the other hand, would be natural gas prices, which have absolutely plummeted as of late, gasoline prices, and telephone services. I'm not exactly sure what this would be, but they did mark that as a pretty big decline. And as you'll mention in the Canadian Tire Earnings Report, I think Canadian consumers are pretty tight right now. And a big chunk of inflation is simply coming from kind of the Bank of Canada's own doing and that being policy rates. So, I mean, if you look at a 3.3% inflation rate, if rent and mortgage costs are making up, you know, one third of that, you're essentially at the target rate if you got rid of if you isolated that out. So it's I mean, it'll be interesting to see what the Bank of Canada does. All signs kind of point to them being able to cut rates, but will they do it before,

you know, the Fed does would be would be the most important question. Yeah, it sounds like the market is starting to think that they will cut rates before the Fed. Mostly, the reason why I'm saying that is just because the Canadian dollar is down compared to the US on the news today. And typically, that's because there's an expectation that there's going to be a wider gap between the rates in Canada and the US. The higher the interest, Obviously, it attracts capital because it's much easier to or there's a more of an incentive to park capital there. So that's what I think the market is starting to price in. So which is kind of nice if you live in Canada and

you have a lot of exposure to the US, it makes the value of your investment look a little better in Canadian dollars. Yeah, definitely. It could be a problem point, though, for Canada if the Canadian dollar weakens too much compared to the U.S. because then we could start importing some inflation as well because of that. So that'll be interesting. I think from what Bank of Canada has been saying, I think they definitely want to see a couple of prints like this before they make any decision. Obviously, they weren't even entertaining rate cuts as a question when they last released their policy rate, I think about a month ago now. What really stood out for me was definitely services inflation. So that's still sticky at 4.2%. So even if the price

of goods are not increasing as quickly, services inflation is definitely tied to what's happening in Canada, right? So it's a lot less dependent on imports from other countries, for example. And the price of airfare is going down, which aligns with what Air Canada's latest result and I will go through Air Canada's result today so I think it'll be interesting obviously Air Canada's quarter finished at the end of December so it's not quite but they said that prices for airline tickets declined 14.3 percent in December year over year of course and sorry fourteen point three percent in January and that was following a nine point seven percent decline in December that's year over year looking at the sequential decline would not make a lot of sense because prices typically are higher

in December when a lot of people travel versus January January is just not you know the time where most Canadians would travel even down south a lot of people tend to plan that more February and March. So I thought that was an interesting part. And I think you touched on it a little bit. So just the core measures of CPI. So those are starting to come down, but they're still above the target. So there's three measures. There's CPI common, CPI median, and CPI trim.

So these are used by the Bank of Canada. And they fall in from, let's see if we go back to August, from around 4% or above, depending on which one you use, to around 3.3 or 3.4, depending on which metric you're looking at. So it's definitely going in the right direction, but I think there's a real risk that we may plateau here. So I'm not sure and we'll have to see where it goes going forward. Yeah, not much else to say. I mean, it's a pretty good print and hopefully it just keeps trending downwards. I mean,

it's better than coming in way above expected, but I mean, shelter and rent, they're still high, which is going to continue to be high, I guess, as long as policy rates stay high. So it's kind of a tough situation. Yeah, yeah, exactly. So damn if you do, damn if you don't, I guess. And I guess the last thing, and I don't know what your expectations were regarding that. But for me and the spring, I was definitely cautious about inflation going down because gas prices had essentially come way, way down. where prices would start increasing and then the year over year low prices of a year before would start essentially impacting inflation on the way up. So it would have a kind of higher impact on inflation and push it upwards. But that has not been the case. I don't know if you were expecting the same thing. I definitely was wrong. Yeah, I was definitely was wrong, but it's interesting to see where that that's gone. Yeah. It'll be, it'll be interesting to see what they do ahead of like,

they're much more incentivized to cut rates quicker than, you know, the fed, which cause the U S economy doesn't even seem to be doing that bad. But I mean, like you're going to go over Canadian tires earnings here. They were pretty ugly. Yeah, yeah, exactly. And that's a nice segue. Thank you, Dan, for going from CPI to Canadian Tire. So you might as well go on there. I think we've talked enough.

Yeah, about CPI. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA

account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be

a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Now I'll be mostly focusing on Q4 results for this one. The reason why quarterly is much more important here is because Canadian Tire was performing,

you know, pretty decently in the first half of 2023. And then things started taking a turn for the worse in the back half of 2023. When they came out with their Q2 results after obviously the second quarter, they basically said that towards the end of that second quarter they saw a marked shift in consumer spending which aligned with the Bank of Canada's unpausing if we remember correctly if people remember in June and that was really interesting and unfortunately the trend continued happening it was not a good quarter, like you said. It looks like the market was kind of expecting it.

I mean, I will give it to Canadian Tire management. They were pretty upfront that things were taking a turn for the worse. I'll be honest, though, I did not think it would be this bad. Yeah, I mean, it's always good. I guess I'll say it's always good when they're kind of upfront about this instead of it just happening, you know, and then you'll typically see that huge drop in price. Whereas, you know, when they kind of give you the idea that it's going to slow down, I mean, that happened to Aritzia in quite a way. Management said like, it's going to get bad and,

you know, it kind of took the damage then, but it's much more than just like a big shock surprise. Yeah, exactly. Now let's see what the numbers actually told us. So retail sales were down 7.1% to 5.3 billion. Now you'll see that sales and revenues are different here. My understanding is retail sale, there are some non-Canadian tire owned stores. So I think they include that in retail sales, but it doesn't trickle down necessarily all of it to their revenue so that's my understanding of how it's it actually works so that's why you see two kind of different two numbers that you'll see when it comes to Canadian Tire but first retail sales down 7.1 percent to 5.3 billionparable sales growth was down for each of their brands. So minus 6.8% for Canadian

tire brand, minus 6.4% for Sportcheck, minus 7.2% for Marks, minus 9.2% for Helly Hansen, although this is the total revenue generated since it's also sold in other places. Now revenue was down 17% to $4.4 billion. So a significant drop in revenue for Canadian Tire. Net income was down 65% to $197 million. This was in part due, not all of it, but part of it was because of some accounting changes. So that should normalize down the line as we go forward. EPS was also down 66%. But even despite those accounting changes, they said, I can't remember the exact number, but it was still a significant drop in net income. Free cash flow was down 18% to $612 million for the quarter.

However, a bit of a bright spot here. It was $773 million for the year versus free cash flow negative of 146 million in 2022 so as a full year wasn't that bad however you know when you're looking and i shared a chart with you dan on twitter and you were you couldn't believe it i think when you saw that chart and for those on joinCI, I think it'll be very interesting for you to have a look at this. Essentially, the chart is since Q4 of 2021, goes all the way up till the latest quarter. And it shows retail sales excluding petroleum, and then revenue excluding petroleum or gas. And you see it's increasing q4 2021 all the way to 2022 to the end you see an

increase and then the declines start happening as early as q1 2023 kind of flats becomes a bit flat in q2 2023 same for q3 and then q4 is a massive decline so it's definitely something that not as definitely worse than I was expecting when it came to that definitely I mean it's not like when you consider their brands I mean they don't exactly have you know Sportcheck's really expensive Marks is really expensive Haley Hansen is expensive so it's's not really like, you know, besides like staple items, it's not really surprising to see a lot of these companies or a lot of these brands kind of take take a hit. I mean, I wonder why free cash flow was negative in 2022. I wonder if it has something to do with didn't they buy back some real estate from their from their REIT that they owned? I

might be wrong on that. But I'm not sure on that but i'm not sure yeah i'm not sure for the cause i mean it could have been a bunch of different things i mean yeah i've i'm not sure i haven't dug in that far yeah but what's interesting here is their financial segment so yeah for those who are new to the podcast canadian tire they're also they offer financial services mainly in the form of their credit cards which you, you know, a lot of people will use at Canadian Tire. You'll get triangle points, but you can use the credit cards elsewhere. And they're the ones that actually are the bank behind the cards. So they get some really good data there and also some data in terms of the general spend for Canadians, because they have a pretty wide net in terms of

across Canada, people that have these cards. Now, revenue was up 6.4% due to higher credit card balances, which can be a little bit worrying from a Canadian economy standpoint. But unfortunately, they said that was offset by high impairment losses, funding costs and SG&E expenses. The amount of accounts with a balance increased 1.1% versus last year. The average balance was up 3.5% year over year and 1.1% versus Q3 of 2023. This is actually not too bad compared to what was happening earlier in 2023 and 2022. I was curious. I started out looking different quarters. So it's not too alarming. I just wanted

to provide some context here. Net credit card write-offs rates were up 120 basis point to 6.1%. Past due credit card receivables were up 70 basis point to 3.6%. Both of these were up compared to Q3 as well. And management obviously said that their whole quarter fell short of expectation. And what's interesting, and to add to what you were saying, they said that rising rates negatively impacted discretionary or non-essential spending. And they also specified that around 60% of their sales are discretionary and around 40% are essential.

So that does provide a little bit more insight on why they've been impacted so much. And for me, I thought they'd have more essential sales, but I guess now thinking about it, there's a lot of stuff that are probably more nice to have that you don't really need so that was interesting for them to say that they also had that said that the weather had a negative impact in the quarter because it was warmer than usual in December which changed the spending pattern of consumers because they're very seasonal dependent and I can't that. I mean, you go in a Canadian tire and obviously it changes completely from one season to the other.

I'm sure soon they'll have the Christmas decorations ready for 2020. But that's as a whole, I mean, is what their quarter looked like. Obviously, they said that macroeconomic environment uncertainty, you know, that's a big point. It came back and back again during the conference calls. So it'll have to be, we'll have to keep an eye on them, their guidance. I couldn't really find some good guidance in what they provided. I think they provided some adjusted guidance, but I'm not a fan of those really. So we'll have to see how they progress throughout the year. Yeah, I seem to remember us that credit card write-off rate. Wasn't that like three and a half percent when we looked at them like a quarter ago or two quarters ago?

Or was that the past due receivables? I can't remember. I think that would have been, I think, yeah, the past due. Yeah, because if I was going to say that's gone up quite a bit, but it might be something else I was thinking. I mean, yeah, it's not surprising to see the financing end of things. Balance is going up. Write-off's going up.

So it's going to be a tough while for Canadian Tire, I think. I would have actually thought that more of their sales were discretionary. I would have thought they were more than 60 40 yeah because like canadian tire i don't know i guess like sport check is almost all discretionary yeah like there's almost no essential items at sport check marx is marx is probably essential but uh yeah i don't know i guess i was thinking more of a canadian tire as a brand less about their their other brands because canadian tire right you have like you know like toilet cleaner and stuff like that like you have like stuff that you actually yeah oil like the cars um the automotive i think it's considered essential so um no i mean at the end of the day it wasn't a good quarter it'll be really interesting to see

what it looks like going forward because they are definitely a bellwether company for canada so bellwether company if that's the first time you hear that it's just a company that's a good kind of gauge in terms of how the economy is doing as a whole they're not the only ones like a canadian national rail cp those are very you know good bellwether banks yeah banks exactly so there there are companies that are really interesting to look at because they provide a a glimpse into what's happening on a bigger scale yeah canadian tire definitely from a from a consumer perspective is one of the uh it's probably one of the best because uh they're going to be highly dependent

on you know how much people are willing to spend. You want to move on to Intact? Yeah, let's do it. More from credit card business to insurance business, which has been quite the performer on this company. Every time I look at it, I'm impressed. Intact, it's one of my largest Canadian holdings. I have some larger that are in the US, but it's definitely one of the largest stocks of my largest Canadian holdings most I have some larger that are in the US but it's definitely one of the largest stocks in my portfolio they're they're a PNC insurer so you

know you have like a Manulife which would be more of a life insurer and and Intact is more of like a like a home and auto things like that so they come out with some pretty strong quarterly results so on the day of earnings it went up five or 6%. And this is a pretty low beta stock. It's not very volatile at all. So a five to 6% hop is quite a bit. And the reason they went up that much, so earnings per share came in pretty much in line, but it was net operating income per share that really surprised people. So I call it NOIPs. It went up, it was $4.22 a share when only $3.22 was expected. So what this is relative to say earnings per share. So NOIPs will take, it'll kind of isolate out in tax insurance business. So you can kind of get a

better look at how it's performing with its core operations. Like you want to know, you know, in terms of how well intact is doing as an insurer and not necessarily like say one time earnings, it makes things like that. So this was quite a bit higher than street estimates. So the stock did close up quite a bit on earnings so in terms of overall premiums the company increased premiums written by four percent so canada and the united states grew in the high single digits while the uk segment decreased nine percent so the decrease was pretty much from the company exiting its uk personal lines of insurance last year it's had a lot of trouble in the UK,

like catastrophe losses and everything have really hit the company hard in that segment of the business. But overall, the United States is its fastest growing segment. That and Canada are probably high single digits. So the company's combined ratio, which is probably, it's the most important thing you're going to look at when it comes to an insurer, pretty close to the most important. It came in at 94.2%, which is a jump from 91.8%. So quick note on the combined ratio, you're actually looking for lower. So the simplest explanation possible, a combined ratio below 100% means the insurance company is collecting more premiums and it's paying out in claims. If this goes over 100%, that's bad news. You'll have often all the time, you'll have these insurance companies will, you know,

on the odd time report, combine ratios over 100, especially when catastrophe losses are bad. So in the UK, it's been reporting, it's paying out more than it's collecting for, it's been a while now, maybe even two, three quarters. It had a rough year over there. And the company's debt to capital came in at 22.4%, which is a tad higher than it usually is because it made a major acquisition in the UK to get into the commercial lines of business. So not necessarily personal insurance, but more business commercial lines. So debt to capital, again, simple explanation. It's a portion

of the business that is financed via debt versus capital. So I mean, the quickest way to explain it possible, if you need $100,000 to start a business, you had $70,000 in cash but needed $30,000 in debt, your debt to capital would be 30%. So the lower number here, the better. Intact likes to hover around 20%. So they're going to try to get that down to 20% over the next few years here, but it's still one of the healthiest debt to capitals in the insurance industry. So again, UK operations are dragging the company down a bit, but the majority of it was due to abnormally high catastrophe losses. So I think the market is kind of shrugging it off as maybe it's probably going to be a one-time cost, especially because it's exiting that segment of the business because the stock is just setting

new all-time highs pretty routinely. Again, I'm a big fan of Intact. I sold Manulife for it just to buy Intact because I like just the PNC business over a life insurance business. Manulife has done well as of late and has gained some ground, but Intact has been the much better performer over the long term. And yeah, it's been a pretty strong year for them. Yeah. I mean, I was pulling up the free cash. And yeah, it's been a pretty strong year for them. Yeah. I mean, I was pulling up the free cash flow per share and it's been quite the last 10 years. It just keeps increasing. Yeah. And they're one of the largest PNC insurers in North America and they still only have like 17% market share. So I mean, it's a pretty fragmented industry. And they're kind of

getting up there as like a blue chip Canadian stock. I think they got close to a $40 billion market cap now. Yeah, impressive. I have a buddy of mine who works for Intac and they get, I guess, I'm not exactly sure how it works, but they get access to some shares. I think the company will kind of match if they buy shares or something like that he's been with them for a while so he's done uh he's quite concentrated obviously getting his income from there and also the shares but he's done well because of it yeah they're they're pretty outstanding company i mean they have a lot of like you don't necessarily they have uh the one thing that i see most of the time here is bel air

direct i believe they're a big owner of Bel Air Direct. We don't have too many in-tacks, but yeah, they've done great. Especially when you consider the fires. And in the UK, it was mostly, I think, a very cold period. The weather was really, really bad there in terms of freezing cold. And it ended up causing a bunch of insurance claims. But even here, like the wildfires, the flooding, all of that, and they can still turn out some pretty crazy growth. Yeah, they must have like some really, I mean, they must have some really strong underwriting.

That's all it is with the insurance business, right? Which is, you know, that's, yeah, underwriting is all it is. I mean, and they're outstanding at it. Yeah, I mean, I don't love insurers, but it's hard to argue with their results. So I'm definitely going to keep an eye on them. As do-it-yourself investors, we want to keep our fees low.

That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I

need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with

Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. But now we'll move on to a company I alluded to, and I had a couple of people send us an email too that were asking if we would talk about them. So Air Canada. So here, obviously, everyone knows about Air Canada. And I'll look a bit at the quarterly, but also the full year results. I want to provide as much context as possible when I go over them. Now, in Q4, revenues were up 11% to 5.2 billion. That's year over year. For the full year, it was up 30% to

19.6 billion. So what this tells me just by that, and Dan, I'm sure you'll agree, but just by these two figures, you can tell that growth is decelerating here for Air Canada because clearly for the full year was way stronger. And then4 was you know a decent quarter but not as strong yeah i mean it kind of looks like it could be like a pricing decline to like kind of combined like volume and pricing especially because like i would imagine if gasoline has gone down a bunch so has fuel for you know air canada so i mean let's say hedge most of it but i would imagine uh they can you know tickets are going down along with a decline in volume so it's definitely like when you look at full year growth of 32 and then see 11 like there is definitely a notable slowdown which is

why it's like you said it's pretty important to go you know quarter over quarter to kind of see the trends yeah and there's a lot of seasonality too obviously to traveling so i think that's important for people to remember here cargo revenues which were thriving during the pandemic were down 27 for the year that's not surprising because 2023 people may forget or they want to forget about all the lockdowns. But 2023 was actually the full year that we did not have any lockdowns, at least for Ontario, because I remember we had our last one, I think it was in early 2022. So I think it's just a good thing to remember

because I think that impacted clearly their cargo revenues. Not surprising given that we looked at tfi international we also looked we also talked a little bit about ups and how the results were lackluster last year and clearly logistics or cargo is definitely being impacted by a weaker economy or slowing down economy operating expenses were up across the board, which resulted in a total increase of 17% for the year. Not crazy again, if you compare it to the revenues that were up 32%. For the year, they had net income of $2.3 billion compared to a loss of $1.7 billion last year. So again, for the full year, that was pretty good. EPS was $5.96 compared to a loss of $4.75 last year

free cash flow was up 246% to $2.8 billion and on the bright side as well they reduced their debt by 15% now the operating metrics this is where I think we're starting on top of some of the things we mentioned is where you're starting to see some slowdown in with Air Canada. So I decided to look mostly Q3 2023 versus Q3 of Q4 2023 versus Q3 of 2023 to see if there were trends happening. But I did also compare in some instances to the year before, again, just to provide some context here. Now, the available seat miles also called ASM was down 13% compared to Q3. ASM is simply the number of seats that are available for purchase sometimes seats are not available because you have a crew traveling for example or for other reasons

it's a measure of the total available seats for purchase and of course that can also be influenced by the overall fleet i look back at q3 2022 as well and it looks like the asm tends to be up in q3 versus other quarters however it was also slightly down when comparing to q2 of 2023 so however you want to compare it, it was definitely down here. Passenger load was 83.5%, down 630 basis point versus Q3, and down 440 versus Q2. Again, Q2 is still, it's a strong traveling season. And passenger load measures the percentage of available seating capacity that has been filled with passenger. And it was up 0.7% versus Q4 of last year. So we're seeing these metrics where it's just slightly up or down.

And passenger revenue per available seat miles. So passenger revenue per ASM was down 11% versus Q3. It was also down 6.5% versus Q2. And it was only up 2.6% if we compared it to Q4 of 2022. Again, not great, some slight increase if we're looking year over year, but we're seeing a bit of that deceleration looking back at 2023 as a whole. And the cost per available seat mile was up 19% versus Q3 and up 11% versus Q2. And it was actually down 0.9% versus Q4 of last year. So overall, I mean, the metrics, it's hard to say again, because there's cyclicality behind airline travel. But again, when I was looking at the different

quarters, I tried to look year over year as well. And again, when I was looking at the different quarters, I tried to look year over year as well. And again, looking at a quarterly basis overall, the operating metrics that are more specific to airlines seem to be either slowing down or heading in the wrong direction. Yeah. Is that cost per available seat miles? Is that what it costs them per mile? I believe so. Yeah, just a second. Yeah, so it's essentially the operating cost of the airline by the available seat, so the ASM. Yeah, so essentially what it cost them.

So it was definitely up pretty significantly, and it was slightly down year over year. So that is one that we'll have to keep an eye on. I think it'll be really interesting at this time next year to see how it compares to Q4. But again, either trending in the wrong direction or kind of flat year over year. Yeah, it's pretty great. Like Air Canada used to be, well, I think they were the best stock on the TSX for like a very long time until the pandemic hit them pretty hard.

I was just looking at like debt levels so in 2019 they had around 5.5 billion dollars in debt and uh by the end of 2022 they had 17 and a half billion there's like they would typically pre-pandemic they would have a a debt to equity of about 1.3 and now it's it's almost 15 so it's crazy like the the situation this company was put in during the pandemic i mean debt like you said debt has been reduced quite a bit they've gone from 17 billion to 11.3 so it's uh yeah it's been a pretty tough go for air canada and we're all we're all owners of air canada as well yeah exactly a lot of that debt is with the federal government.

Yeah, exactly. Yeah. Yeah. Yeah. And I think it's important to remember, like, clearly, they had a big boom the last couple of years with people wanting to, you know, shift their spending from buying goods because they were logged down to experiences. And obviously, experiences include traveling. So there was a lot of demand for that. But I think now what we're starting to see, and at least that's my interpretation, is that you're starting to see some pretty significant deceleration. And I think consumer and Canadian businesses, which obviously will represent the bulk of people traveling on Air Canada, it does look like people are slowing down now their spend on services and experiences and traveling that you know that excess savings that was being directed there seems to be evaporating quite quickly it's either evaporating or going to you know more essential places i guess so yeah

yeah it seems like it was a decent quarter like operationally, but like you said, it's trending back to being fairly mediocre, I guess. Yeah. Yeah. We'll have to see. Again, I think it'll be interesting to follow them as the year goes along, but now enough about Air Canada and I'll let you go ahead and talk about an iconic brand I guess or yeah popular Canadian brand yeah yeah another popular Canadian brand with restaurant brands international although one of their brands is very popular in Canada yeah so they're actually in the midst of a pretty solid operational turnaround they They were struggling for quite a while. They posted a really strong 2023. And the biggest laggard for the company for many years

has been Tim Hortons. I seem to remember, I can't remember when they acquired Tim Hortons. It was probably, it's got to be like 10 years ago now. It would have been pretty close to that. Yeah, that sounds about right. Yeah. Tim Hortons was pretty fast growing when they bought it and then you know they tried everything to turn it around like weird questionable food strategies there and like different types of coffee and it never really worked but you know now things are looking pretty good for for timortons. It's posted some of the strongest comparable sales out of all of its brands. So digital sales came in at $14 billion and now make up over a third of the company's revenue. I was actually amazed at this. So digital sales would be just when you

order before you get there or whatever on the app, I think. And then you pay by credit card on the app and pretty much just collect your food at the window. And it grew sales overall in the fourth quarter of 2022 or of 2023 when compared to 2022. So you're seeing double digit sales growth on a year over year basis. It grew sales by 12.2% and adjusted earnings by 3.2%. So that this is for the full year whereas above was just fourth quarter compared to the previous fourth quarter so you're seeing even more growth on a 2023 versus 2022 basis and Tim Hortons as I mentioned was a front runner again so this is the second straight year that Tim Hortons has been the company's fastest growing segment

it used to rely really heavily on Popeye's chicken, like especially I think during the pandemic and maybe even a little bit pre-pandemic, like Popeye's chicken was like, it was insane growth. But now it's kind of slowed down a bit. And although like it's still, Popeye's is still very strong, but Tim Hortons has actually overtaken it. But it also now has two very good segments producing solid results, being Popeyes and Tim's.

Whereas Burger King is still solid, but it's probably the most established and slowest growing out of the three. And then they do have Firehouse Subs, but it's a fairly small portion of the company's overall revenue. So the key difference in the growth of the company segments comes down to comparable sales or same store sales. Sometimes it's kind of interchangeable. It's a metric that's going to isolate the sales when it comes to acquisitions and new stores. So you can get kind of get a better idea of how the company is growing overall, because you don't just want to rely on new stores being contributors to growth. You also need same store sales from those existing ones to grow. So Tim Hortons had same store sales of 10.4%

while Burger King and Popeyes were 7.4% and 4.8%. So the other thing that is driving some pretty strong results is the company's international growth. So the numbers above are actually for the North American portion of the business only. So its international segment actually reported 17.6% growth in sales. And overall, it makes up around 40% of the total business for the company and comparable sales came in at around 9%. So there's a lot more aggressive international expansion. International restaurant growth was a front runner as well. So they had around an 8.9% increase in overall restaurants. The next comparable was Popeyes at 4.9% and then Firehouse Subs, as I mentioned, at 3, Firehouse is very small. I think they acquired them in the last couple years, but it only makes up around 2.5% of revenue. So it's a very small portion of the business. It issued a five-year outlook.

So it plans to grow to over 40,000 restaurants, generate 60 billion in sales and 3.2 billion in operating income. So this would be annualized restaurant growth of 5%, comparable sales of 3.2 billion in operating income. So this would be annualized restaurant growth of 5%, comparable sales of 3%, and operating income of 8%. And the really key thing, and we were discussing this, is the company says it's planning to expand its Tim Hortons brand in the United States aggressively. And they even said it will be the largest largest contributor of net restaurant growth over the next five years in north america and like tim hortons kind of failed very badly in the united states like when i went to new york i'm pretty sure i i saw a couple in new york like

on on the eastern side but i know for the most part it it failed pretty bad in the united states so i'm kind of interested as to why they're like going this route again. Yeah. Yeah. And as we were chatting about it, I texted my cousin and shout out to Elliot because he does listen to the podcast. He's one of our probably six US listeners and he's based in Syracuse. And I was asking him, wow, are there any like Tim Hortons left? And apparently there's three in the greater Syracuse area and there are some in buffalo that are left so clearly new york state still has some uh but yeah i remember like years ago they closed a bunch because they i think were not they just didn't do all that well yeah exactly so it'll be interesting what kind of strategy because uh

i mean it's competing i think most against duncan donuts would be the other brand i think it's that same kind of quality is that fair take yeah yeah kind of like cheap coffee cheap food i mean the one thing i will say is they do have a lot more of a like i think when they expanded earlier they were kind of like a coffee and donuts i don't even know you know they've kind of had a lot more food they have burrito bowls now yeah they got like they got everything i remember for a long time they had they were doing some really weird stuff like potato wedge poutines and like it's oh yeah burger king's always doing that type of stuff but not tim hortons so what's your uh take on their coffee the coffee is not not good it's not very good like i'll drink it but it's not i don't really

like we that's what we make at home because we get the big jug of tim hortons coffee yeah i'm a cheap coffee guy the mcdonald's coffee is a couple bucks more so we buy the tim hortons yeah yeah mcdonald's actually has pretty decent coffee. For me, Tim Hortons, I find it tastes like not that great, but it's when I started drinking coffee in university. They had one. I went to Ottawa U, so they had one in Ottawa U, and obviously they get all the students addicted when they have like 8 a.m. classes. So I still like it for a weird reason. I think it's just because it reminds

me of when i started drinking coffee but clearly it yeah it it leaves you with a bit of an aftertaste yeah i mean you can get the odd one that's pretty good but for the most part it's it's it's not the best no no and and it's funny i guess like a medium coffee it's like a buck 80 a buck 90 i think now which is still like way cheaper than like going to starbucks or something which is good luck getting under five dollar for whatever you get at starbucks and i might i mean they must be doing pretty well on the food side of things which is probably what's driving a lot of this growth because i don't think you get this type of sales growth from just coffee although they're all they're kind of like competing with starbucks

in a way with like the cold brews and all that kind of stuff they're kind of catching up in that regard but i mean even a cold brew at tim hortons is is like five bucks so i mean if you're going there for basic generic coffee yeah yeah you make your own my own at home yeah yeah we have you can buy these little things like a container and then you put your ground coffee in it you put some water you put it in the refrigerator for like 24 hours and boom it's like way more affordable it's basically the same as brewing coffee it's just cold brew at home because i do like it and i noticed i was i don't know i feel like my money is better invested or spent elsewhere than buying a five5, $6 pop cold brew.

So I started doing it and drinking this summer. I really like that. Yeah, you'll save a ton of money doing that because it's like, go ahead. Yeah, no, I was just saying anything else for Tim Hortons or do we move in the last one? I was going to do Cineplex, but I don't think we'll have time. move in the last one. I was going to do Cineplex, but I don't think we'll have time. And I've been wanting to talk about this next company for a couple of episodes now. No, I got nothing else to say. Pretty good quarter. So are you going to put all your life savings in Tim Hortons before we or QSR? No, I used to own it. I don't anymore. I moved on. I got tired of Tim Hortons dragging them down.

Well, maybe start being a bit of an owner and then make money on the coffee you buy. Now, moving on to completely, I guess, the financial services once more. This one, I was really interested in looking at what it looked like. So it's Affirm Holdings. So for those not familiar with Affirm, they're a company, a buy now, pay later, or buy now, worry later is basically the way I see it. And fun fact, I was reading an article and it's not just Affirm. I think it's a buy now, pay later company. They do a lot of their approvals based on various data points because they don't do a lot of them don't do like hard credit checks. So they have, you know, ways of making sure that I guess people are likely to pay and not default on the installments.

And they apparently notice that people buying things after 2 a.m., there's a greater chance of them defaulting on the loan, which is really interesting. I don't even get that. What would that be? I guess it's people either maybe they're intoxicated. Yeah, that could be part of it. And making some stupid purchases. It could also be people feeling kind of stress, you know, not having any other choice. I'm not quite sure, but I read an article that apparently that's an important data point for them, whether they approve someone or not is the time of purchase. Yeah.

I mean, I have seen this on like Domino's pizza orders where you can like split the order into four. It's, it's a crazy, crazy trend. Yeah. If you, if you need to split the order because you're ordering food you should not be ordering yeah you should be uh just go walk to this like the grocery store and go buy it that's my uh my opinion but for those not familiar with them so they're all very similar obviously firm holdings not the only one here but they are publicly traded

so i'm sure if your people are not familiar, like you just mentioned, if you check out online and you can buy the item, it's like four installments without interest. That's typically how they'll work. Affirm also has a debit card that people can use like a debit card if they have money in their Affirm account or make a purchase using installments. My understanding is that it's a bit like of a hybrid of a debit slash credit card. You can also apply through their loans through that. You may also ask how the hell do they make money if it's for installments without interest, for example. Well, they get a fee whenever a purchase is made using their service from the merchant. So that's a way

of them getting money. If payments are not done on time by clients, there are late fees that are applied. And they also offer long duration loans that have higher interest rates. And the biggest issue I have with buy now pay later is that it's very loosely regulated, poorly tracked from a consumer debt perspective as well. And I have a feeling that it's also heavily skewed towards those who are living paycheck to paycheck. I don't know. Do you kind of agree, disagree with that? Yeah, it would have to be. I mean, I guess if you're splitting, if it's zero interest, I mean, it kind of maybe makes sense to some people. But yeah, most of the people who are doing this are going to be hard up for money. I would say the one thing I was actually interested in after reading this is

like, who carries the risk here? Like, so say somebody buys something from us, do they pay us right away? And then they, they take the fee from us obviously. But what happens if the, if the person defaults, it would probably be on a firm, right? Yeah. Yeah. It's on a firm. Yeah. So pretty much like say somebody subscribed to us, like we would get that subscription money. They would take a fee.

But then if they didn't pay, the business really wouldn't be liable. It would all be on a firm. Yeah. Yeah, and they take a pretty fat fee as well, like a pretty juicy fee. I think I can't remember, but it's definitely like more than what you'll see from interchange fees from credit card companies and banks. I think it's in the range of like three to five percent, if I remember correctly. I think the reasoning is that the retailer without it won't make the sale. So they'll pay the fee.

That's kind of the reasoning behind it. I think, yeah, that's my if i remember correctly looking at it it was uh that's their their spread in terms of fees so yeah it's on them i mean again there is some credit risk involved and i think they're definitely i think the regulators are will start regulating that because i cannot see company, banks not having an issue with this because that is like taking away business from them or, you know, yeah, I'm just having a hard time seeing like not seeing banks, not lobbying regulators for more regulation here. Yeah. I mean, in the, and the banks kind of always win. I mean, we saw with those high interest savings ETFs, they kind of mentioned to the regulators and within six months or whatever, they tuned down the interest rate on them. It's a good business model for a firm. They take a cut and then just kind of assume the risk. I imagine there's a lot of risk in this type of lending.

Yeah, there is. I mean, they take a cut and then just kind of assume the risk. I mean, I imagine there's a lot of risk in this type of lending. So what did you... Yeah, there is. Even a 5% fee seems like kind of low to me just because it's probably a lot of people who are paycheck to paycheck and are kind of doing this as a last resort. Yeah, but don't forget the fees is for the merchants and they also have like late fees that tack on to that. So they definitely have a way to, yeah, to make money. So to look at the results here, so revenue was up 47% to 591 million. GMV, which is gross merchandise

volume was up 31% to 7.5 billion. This is just a total volume in terms of kind of the goods, the total volume, I would say. And the active customers increased 13% versus Q4 of 2022. Transaction per active customer increased 25% versus last year. Again, numbers of merchants increased 15% to 280,000. They reduced their net loss by 52%, but still lost $149 million for the quarter. They generated $34 million of free cash flow compared to a loss last year. But again, free cash flow is highly volatile on a quarter basis. Delinquency rates, so I guess the risk portion you're talking about,

on monthly installment loans have risen since their quarter ending in June of last year, although they have seemed to have stabilized a bit in the latest quarter versus the previous quarter. So that's for 30 days, 60 and 90 days delinquencies. So they do provide all that information, which I think at least is good. Definitely something to keep an eye on because there is a lag here. You know, if we see a rise in delinquency, for example, related to holiday purchases, that's going to start happening. We're going to start to see those in the next quarter when they report. So that's something to keep an eye on. They increased their allowances for credit losses to 5% up from 4.6% in June. And although the 5% is in line, it may seem a bit high, but it is in line

with December of the previous year. And now their transaction mix is very interesting. So in terms of the composition from point of sale versus a firm transaction. So we've seen an increase of a firm-based transaction. So that kind of debit card and app I was talking about. So in 2023, it was the same quarter. It was 19% for a firm, 81% point of sale. And then this quarter for 2020, sorry, yeah, exactly. So Q2 of 2024, they have a real weird kind of reporting schedule here. So that's why I got a bit confused. So their most recent quarter, it went from 19 to 23% for a

firm only and went down from 81 to 77% for point of sale. And then if you have their product mix, now it went from 67% last year interest bearing. So I was talking about these longer loans. It was 23% pay in four and 10% their core zero APR, which I'm not exactly sure the difference between the two, but that's okay. And then the 70 in the latest quarter, it went up to 73% interest bearing versus that 67% of the previous year. And then the other two segments kind of went down compared to the previous year. So they're definitely starting to shift a bit more to that interest bearing source of revenue.

So it'll be interesting to keep track on that. Again, I think this is the kind of information whenever you look at credit delinquencies, there is always a delay for that. So depending on when the purchase were made, it'll be interesting how that evolves throughout the year, whether it gets worse, better. My inkling is that it'll probably either stay stable or get worse. It's an interesting company to look at because unfortunately probably gives us a better perspective at the consumer that is, I think, living more paycheck to paycheck. Like, you know, I think you and I, like, I don't know. Have you ever used a product like Buy Now, Pay Later? No. And most of the times I ever see it like i wonder what like niche businesses would be good

for probably like i don't even know like where would this be efficient like kind of a retail aspect maybe it's kind of tough like what are you paying and for installments that's like a essential i've never go ahead i think they they have uh they had a pretty big deal with peloton so when the results they actually like provide sometimes results like excluding peloton just to give you an idea how prevalent that was but i think for the most part they're just smaller purchases could be i don't know like a pair of shoes that you want to buy and then you split it in four installments yeah yeah that's what i mean more of like a discretionary, you know, items where people are just.

And what happens, like, I'd be curious. So there's just late fees on the pay in four. If you don't pay, it doesn't roll over to an interest bearing loan. It's just a big late fee probably. I think there are late fees. But if you, if you put that on an annualized basis and you kind of use the late fees compared to the actual loan, I mean, it's it's very high interest. If you probably punish you. Yeah, for sure.

Yeah, they definitely punish you. So it'll be I mean, I'm not they they say it. It gives like, you know, they try to sell it as a good thing. know they try to sell it as a good thing it gives the consumer more choice and just a way to i guess a new way to manage their finances and all that bs i think it's just a dangerous product to be honest and it's probably a reflection of just a lot of people having a hard time making ends meet and have to result into this to be able to make relatively small purchases. Pretty much, yeah. Like you could argue that you could maybe capture some interest on some money, but it would be so minuscule because the payment period is only like two months.

So most people would just use this probably completely irresponsibly. And it'll just end up with higher debt levels among people who can't really afford the debt. Because like you said, they're probably not buying that pair of shoes if they have to pay the whole thing up front. But whereas they can split it among these payments, they might make that purchase, which ultimately isn't really all that good for the consumer. Yeah, and I think one of the big issues with consumers

is some people will just lose track of it too. Yeah. And that's one of the bigger issues. Another issue as a more kind of society perspective is, you know, when you talk about like debt to household income, unfortunately, not all of this kind of like buy now, pay later debt is actually reported to credit bureaus. So the debt, the figures we see may not, you know, it doesn't include all of it. That's for sure. That's one of the big criticism behind it. So these kind of metrics that look as the consumer's health, household health in terms of debt is, there's a case to be made that it's even worse because of some of the data not showing up in it, like buy now,

pay later. Yeah, I know it's growing at a pretty pretty rapid pace i mean you can tell the merchandise volume like up 31 which means you know a ton more people are starting to use this so it will be interesting how they do it from like a regulatory standpoint so yeah yeah i have a hard time at you know probably in the next couple years not seeing any regulation towards this like i think i would i would bet some money on that but i think that's it for our episode today we've ran a bit long before you start rambling too much i think we'll i think it's a good point to uh to sign off here for those who are new to the podcast uh you can

see us on video on join tci it helps helps us support the podcast. If not, you know, just listening to us every week is greatly appreciated. If you have time, please leave us a review on Apple Podcasts, Spotify, or whichever platform you're listening from. You can find me on Twitter at Fiat Iceberg. And you can find Dan at Stockstrades.ca. He writes some articles there. He's also on Twitter getting into sometimes some Twitter cage match with some people, which are quite entertaining. Very entertaining. Anything else you want to add?

Yeah. No, no, we're starting to make YouTube videos again. We're going to be putting out our first one today. So back to regular weekly videos there if you want to check us out there. But other than that, thanks for listening, everybody. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.