Morningstar DBRS Confirms Canadian Tire Corporation, Limited at BBB With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and the credit rating on the Medium-Term Notes (the Notes) of Canadian Tire Corporation, Limited (CTC or the Company) at BBB, both with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
Morningstar DBRS believes that CTC's operating performance will continue to be affected by cautious consumer spending in a still-challenging macroeconomic environment, which, combined with higher operating costs associated with the Company's "True North" strategic initiative, which is focused on data-driven customer relationships, core retail growth and an expanded Triangle Rewards loyalty program, will pressure operating performance in 2025. That said, Morningstar DBRS expects that, through balanced financial management, debt-to-EBITDA attributable to the Retail segment and CT Real Estate Investment Trust (CT REIT, rated BBB with a Stable trend) should stabilize at around the 2024 level of 2.9 times (x) in 2025. The Company's strategic initiatives, combined with topline growth, should drive EBITDA increases in 2026, which, combined with balanced financial management, should result in debt-to-EBITDA attributable to the Retail segment and CT REIT improving to around 2.8x. Consequently, Morningstar DBRS confirmed the Company's credit ratings with Stable trends.

In 2024, EBITDA attributable to the Retail segment and CT REIT increased modestly above the 2023 level of $1.6 billion, as moderating supply chain and IT costs were offset by persistent weakness in demand for CTC's discretionary product offering. The Retail segment and CT REIT repaid $925 million of debt in 2024, of which $895 million related to its debt-financed reacquisition of The Bank of Nova Scotia's (rated AA with a Stable trend) 20% stake in CTFS Holdings Limited (CTFS) in 2023. Combined with the modest growth in EBITDA, debt-to-EBITDA attributable to the Retail segment and CT REIT improved to 2.9x in 2024, from 3.6x in 2023.

CTC's sale of its Helly Hansen business for approximately $1.3 billion closed on June 2, 2025. Excluding debt and EBITDA attributable to Helly Hansen, Morningstar DBRS estimates that debt-to-EBITDA attributable to the Retail segment and CT REIT was approximately 3.1x in 2024. However, debt-to-EBITDA attributable to the Retail segment and CT REIT (excluding Helly Hansen's debt and EBITDA) increased to 3.4x in the last 12 months ended March 29, 2025 (Q1 2025), outside the 3.0x threshold considered appropriate for the current credit rating category. That said, Morningstar DBRS acknowledges that this is not reflective of a deterioration in CTC's credit risk profile, but instead reflects the seasonality of the Company's debt drawdowns in Q1 2025 as it builds up its inventory in preparation for summer.

CREDIT RATING DRIVERS
If Morningstar DBRS became concerned that key credit metrics could deteriorate to a level below the range considered appropriate for the current BBB credit rating category in aggregate (i.e., debt-to-EBITDA attributable to the Retail segment and CT REIT increases to more than 3.0x, along with a commensurate deterioration in other key credit metrics) on a sustained basis because of weaker-than-expected operating performance and/or more aggressive financial management, the credit ratings could be pressured.

Conversely, Morningstar DBRS could take a positive credit rating action should the Company's business risk profile meaningfully strengthen, combined with a material improvement in key credit metrics in aggregate (i.e., debt-to-EBITDA attributable to the Retail segment and CT REIT comfortably below 2.5x, combined with a commensurate improvement in other key credit metrics) on a normalized and sustainable basis.

EARNINGS OUTLOOK
Morningstar DBRS forecasts flat to low-single digit comparable sales growth in 2025, as cautious consumer spending in a still-challenging macroeconomic environment will continue to pressure CTC's discretionary banners/product categories. That said, Morningstar DBRS anticipates these pressures to be balanced by modest volume growth of essential products. The Company's investments in strengthening its product assortment should also benefit the topline. Consequently, Morningstar DBRS forecasts consolidated revenue to grow toward $16 billion in 2025, from approximately $15.5 billion in 2024 (excluding Helly Hansen). The continued weakness in demand for CTC's discretionary product offering, coupled with higher operating costs associated with the Company's strategic initiatives, is likely to continue to pressure Retail and consolidated EBITDA margins in 2025, and more than offset the benefit from CTC's growing owned-brands penetration and operating leverage benefits. Furthermore, Morningstar DBRS projects that potentially higher credit loss allowances in the CTFS segment could further pressure consolidated EBITDA margins. Consequently, Morningstar DBRS forecasts consolidated EBITDA and EBITDA attributable to the Retail segment and CT REIT to remain relatively flat on 2024 levels (excluding Helly Hansen) of approximately $1.9 billion and $1.6 billion, respectively. Looking ahead to 2026, Morningstar DBRS projects consolidated EBITDA and EBITDA attributable to the Retail segment and CT REIT to grow to approximately $2.1 billion and $1.7 billion, respectively, driven by the benefits from the Company's operating efficiency improvements associated with its strategic initiatives, combined with low single-digit revenue growth.

FINANCIAL OUTLOOK
Morningstar DBRS believes that CTC will maintain a balanced approach toward its financial management. In 2025, Morningstar DBRS expects the Company to apply its operating cash flow and net proceeds from the sale of Helly Hansen toward (1) approximately $700 million of consolidated capital expenditure, including investments in its Canadian Tire and Mark's stores, (2) maintaining a stable dividend policy, (3) share repurchases of up to $400 million, (4) repayment of CTC's $200 million Notes that mature in 2026, and (5) growing its cash reserves. Consequently, Morningstar DBRS forecasts debt-to-EBITDA attributable to the Retail segment and CT REIT to stabilize around the 2024 level of 2.9x in 2025. Debt-to-EBITDA attributable to the Retail segment and CT REIT should improve to around 2.8x in 2026, primarily attributable to EBITDA growth.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): BBB
CTC's CBRA reflects its strong brands and leading market position, geographic diversification, and real estate ownership and control through CT REIT. The credit ratings also reflect the intense competition and risks related to the Company's ambitions for growth. Furthermore, the CBRA continues to be adjusted for the Company's cyclical financial services business.

Comprehensive Financial Risk Assessment (CFRA): BBB
CTC's CFRA reflects that, through balanced financial management, debt-to-EBITDA attributable to the Retail segment and CT REIT should stabilize at the 2024 level of 2.9x in 2025. The CFRA also indicates Morningstar DBRS' expectations that debt-to-EBITDA attributable to the Retail segment and CT REIT should improve to around 2.8x in 2026 on the back of forecast EBITDA growth.

Intrinsic Assessment (IA): BBB
The IA is based on CTC's CBRA and CFRA. Considering peer comparisons among other factors, Morningstar DBRS places the IA in the middle of the IA range.

Additional Considerations: None
There were no additional considerations that had a positive or negative effect on CTC's credit rating.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196.

Further details on the Issuer's Intrinsic Assessment can be found at https://www.dbrsmorningstar.com/research/455589.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in Services Industries (February 3, 2025) https://dbrs.morningstar.com/research/447184

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025 https://dbrs.morningstar.com/research/447186) which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:
-- Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025) https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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