* Q4 operating EPS C$1.51 versus expectations C$1.54
* Q4 revenue tops estimates
* Sales rise 2.4 percent
* Shares down 2 percent (Adds comments from conference call, updates shares)
TORONTO, Feb 10 (Reuters) - Canadian Tire Corp (CTC.TO) (CTCa.TO) said on Thursday quarterly earnings rose on improved margins and lower interest costs, but the retailer missed analyst forecasts because of a tax reporting change.
The company, which operates 482 Canadian Tire stores, reported a 2.4 percent rise in consolidated retail sales. But sales at stores open a year or longer, a key measure for retailers, fell 0.4 percent.
The more heavily traded class A shares dropped 1.7 percent to close at C$64.75 on the Toronto Stock Exchange.
The retailer said pre-tax earnings more than doubled at its Canadian Tire stores, which feature automotive products, housewares, electronics and other hard goods.
The company also operates gas stations and the Mark's Work Wearhouse clothing chain.
Canadian Tire has been revamping its stores, turning them into what it calls "smart stores," as it tries to boost sales.
"Canadian Tire continues to make headway. It's two steps forward and one step slightly back," Edward Jones analyst Brian Yarbrough said. "But longer-term we like the story."
This spring, it plans to launch a consumer campaign, pitching itself as a home-grown retailer that has been in Canada for 89 years.
The campaign comes amid rising competition in the Canadian retail market, where more U.S. retailers are set to challenge domestic companies.
Walmart Canada, a unit of Wal-Mart Stores Inc (WMT.N), has expanded rapidly, and Target Corp (TGT.N) plans to enter the Canadian market.
"Target may take some share, but they're going to have little impact on Canadian Tire just because there's not a lot of product overlap," Yarbrough said, adding that Canadian Tire has fared well since Walmart entered Canada in 1994.
The company noted intensifying competition and aggressive price cutting in the holiday season.
"In a marketplace that sought deep discounting toward the end of last year, we made a deliberate choice to manage our promotions," Chief Executive Stephen Wetmore said on a conference call with analysts.
He acknowledged that its same-store sales were not quite where they could be, but the automotive business did well.
"Looking at automotive, for the first time in six quarters I can say we had a good quarter," Wetmore said.
BY THE NUMBERS
Fourth-quarter earnings rose to C$181.1 million ($181.1 million), or C$2.22 a share, from C$96.2 million, or $1.18 Canadian cents a share, a year earlier.
Operating earnings rose to C$1.51 a share. Analysts, on average, had forecast earnings of C$1.55 a share.
A change in the tax treatment of stock options reduced after-tax earnings by 10 Canadian cents a share.
Gross operating revenue rose 4 percent to C$2.54 billion, with growth in all segments, just beating analyst expectations of C$2.53 billion.
Consolidated retail sales rose 2.4 percent to $3.1 billion. ($1=$1.00 Canadian) (Editing by Janet Guttsman) (email@example.com; +1 416 687 7918)