08/08/2013 12:28 EDT | Updated 10/08/2013 05:12 EDT

Canadian Tire shares soar to record high as it beats analyst expectations

TORONTO - Canadian Tire Corp. (TSX:CTC.A) shares climbed to a record high on Thursday after its second-quarter earnings raced past analysts expectations and it announced plans to seek a financial partner for its credit card business.

The retailer's stock rose seven per cent, or $5.94, to close at $89.45 on the Toronto Stock Exchange, after climbing to as high as $90.49 earlier in the session.

President Stephen Wetmore said the company has been working for years to better integrate its financial services operations with its retail business.

"As a result of that work, we now feel that we are well positioned to explore an arrangement that would increase our financial flexibility while continuing to enjoy the substantial contributions of our financial services business," he told analysts in a conference call.

For the quarter, Canadian Tire earned $154.9 million, or $1.91 per diluted share, which was 14 cents higher than analysts expected on average according to a poll by Thomson Reuters.

A year earlier, the company earned $133.7 million, or $1.63 per share when it booked a number of expenses related to its acquisition of FGL Sports.

Revenue grew one per cent to $3.02 billion from $2.99 billion.

Canadian Tire noted that its credit card business would be attractive for potential partners. The financial services operations ended the quarter with about $4.31 billion of accounts receivable — money owed by cardholders — up 6.6 per cent from $4.04 billion at the same time last year.

It said the net credit card write-off rate in the second quarter was 5.86 per cent, an improvement from 7.16 per cent last year, and return on receivables improved to 7.19 per cent from 6.47 per cent in the second quarter of 2012.

Other retailers are partnered with major banks for their credit cards businesses because it reduces expenses and risk. Canadian Tire chief financial officer Dean McCann used the relationship between TD Bank (TSX:TD) and Target Corp. (NYSE:TGT) as one example.

McCann said the retailer is looking for a partner that could take the liquidity risk and balance sheet funding. One stipulation of the arrangement would be that Canadian Tire continues to receive "the lion's share" of revenue, he added.

During the quarter, the company's retail segment accounted for most of Canadian Tire's revenue but its financial services business accounted for $254.2 million of revenue, up 4.8 per cent from $242.5 million in the second quarter of 2012.

Canadian Tire announced plans earlier this year to create a $3.5-billion real estate investment trust to help unlock the value of its property holdings.

The proposed new REIT would acquire a majority of the company's real estate, including some 250 properties comprised largely of Canadian Tire Retail stores, Canadian Tire anchored retail developments and one distribution centre.

The retailer would retain a significant ownership interest of 80 to 90 per cent of the REIT with the remainder of the REIT's units offered to the public via an initial public offering anticipated in the fall.

Canadian Tire has over 1,700 retail and gasoline outlets across the country including Canadian Tire stores as well as Mark's and various corporate and franchised banners under FGL sports, including Sport Chek, Hockey Experts, Sports Experts, National Sports, Intersport and Atmosphere.