UPDATE 3-Canadian Tire profit falls on higher spending

Thu Aug 11, 2011 10:45am EDT

* Q2 2011 EPS C$1.29 vs C$1.50 in Q2 2010

* Profit missed C$1.45 estimate, according to I/B/E/S

* Revenue up 4 pct to C$2.57 bln

* Spending on promotions, infrastructure holds back profit

* Shares down 1.6 pct in early trading on TSX (Adds detail on previous acquisition, market reaction)

TORONTO, Aug 11 (Reuters) - Canadian Tire Corp (CTC.TO) (CTCa.TO) said on Thursday quarterly profit fell 14 percent as it spent more on promotions and invested in infrastructure, and the retailer's shares dropped.

Profit at the company, whose flagship Canadian Tire chain sells housewares, sporting goods and automotive products, dropped even as higher gasoline prices helped boost retail sales by 5.1 percent.

Earnings fell to C$105.8 million, or C$1.29 a share, in the fiscal second quarter ended July 2, from C$122.8 million, or C$1.50, a year earlier.

Analysts, on average, had expected earnings of C$1.45 a share, according to Thomson Reuters I/B/E/S.

Revenue, which includes financial services, rose 4 percent to C$2.57 billion, compared with the average analyst estimate of C$2.62 billion.

In addition to spending on its stores and merchandising, lower-than-expected sales of some seasonal goods and costs related to the company's Forzani acquisition held back profit, said Chief Executive Officer Stephen Wetmore in a release.

The C$771 million purchase of Forzani Group Ltd FGL.TO, the country's top sports retailer, cleared a review by the Competition Bureau in early August. Canadian Tire said it expects that transaction to close in the current quarter.

The Toronto-based company also owns Mark's Work Wearhouse, a chain of casual and work clothing stores that it acquired about a decade ago.

Since the acquisition, revenue and margins have improved substantially at Mark's, and analysts have pointed to that as an indication of what the retailer could achieve with Forzani.

Canadian Tire's more heavily traded Class A shares were down 1.6 percent to C$54.68 in early trading on the Toronto Stock Exchange.

($1=$1 Canadian) (Reporting by S. John Tilak and Allison Martell; Editing by Frank McGurty)

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