"We are in very good shape to compete going forward," he said after the annual meeting attended by about 400 people.

In the first quarter, net earnings were $66.7 million, up from the year-earlier period's profit of $55.7 million, with lower taxes and one-time gains offsetting soft sales "as customers reacted to news of slowing economic growth and higher gasoline prices," the biggest Canadian hard-goods retailer reported.

The company, with 1,170 stores across the country, said January-March sales rose 1.9 per cent from a year ago, to $1.84 billion from $1.81 billion, in what is seasonally its weakest quarter.

Sales at stores open a year or more were down four per cent, and Canadian Tire's share price deflated by nearly three per cent.

Net income was 82 cents per share, up from 68 cents. However, earnings excluding non-operating gains and losses were $55.2 million or 68 cents per share, a 4.9 per cent decrease from a year earlier. Analysts surveyed by Thomson Financial had expected a flat ex-items profit.

Gauld said key negative factors included "incremental investments in the information technology renewal initiative, slower retail sales and shipments, and an increase in the allowance on the loan portfolio at financial services."

These were "partially offset by strong earnings at petroleum stations."

The slackness in sales was most pronounced in Ontario and Quebec, and Canadian Tire said the timing of Easter and the new Ontario Family Day holiday in February hurt the top line by $18 million.

But Gauld said he is encouraged by strong customer response to spring seasonal merchandise, "which helped us post solid retail sales growth throughout April."

Management feels "comfortable with our forecast for the year ... confident in our long-term strategies and our financial plan for the year," he said.

"We have confirmed our original forecast that 2008 operating earnings per share will be in the range of $5.25 to $5.40 ... despite a relatively soft first quarter."

While the core Canadian Tire retail operations showed a 15 per cent rise in pre-tax earnings to $43.6 million, the company's credit-card and other financial operations grew pre-tax profit by 18 per cent to $53.6 million.

The financial division's loan writeoff rate actually declined slightly, remaining "well within our tolerances." Credit card receivables grew 9.5 per cent to $3.6 billion as account balances swelled.

Canadian Tire Petroleum raised its sales 16.5 per cent to $449 million as higher prices overwhelmed a 0.4 per cent decline in gasoline volume, and the division's pre-tax profit doubled to $5 million.

Mark's Work Wearhouse sales frayed 3.2 per cent to $172.5 million, and the casual-clothes subsidiary suffered a pre-tax loss of $3.4 million.

Overall, management took "a number of steps to make sure that our cost structure was in good shape and that we had lots of opportunity to manage and reduce expenses" in a volatile economy hit by rising fuel costs, a credit crunch and a strong Canadian dollar, Gauld said.

"We expect that there may be some improvement in the economy in the second half of the year," he said. "We still feel good about the (growth) forecast."

Gauld said the company is sticking with its expansion plan, increasing retail space by 28 per cent by adding 329 new outlets, some in communities where they have never been before.

Four small-market stores featuring a Mark's Work Wearhouse inside a Canadian Tire outlet will be opened, starting in Deep River and Hearst in Ontario, Gauld told shareholders. In some areas, gas stations and convenience stores will be added.

With these stores, he said "we will be able to compete a little bit more aggressively against Home Hardware, independent hardware stores, in these markets where we really haven't had the presence."

So-called smart stores are also being tested, "incorporating the look and feel of several small boutiques within the larger store," said Gauld.

This concept, including enhanced sporting goods and pet food areas, "is going to be a breakthrough for us," he predicted. "It is going to cost less for us to do this than any of the other renewals that we've had."

Brian Yarbrough, an analyst with Edward Jones, said that given the tough economic environment these days, Canadian Tire is "doing an OK job."

"Earnings looked pretty decent ... they've done a good job of managing margins and managing expenses. That was positive," said Yarbrough.

"Longer term we still like the story," he said. "They've laid out a good five-year growth plan with a lot of productivity improvement that should drive higher earnings."

Edward Jones has a "buy" rating on the company, he said.

"We think long-term there's a great opportunity here as they convert older traditional stores to some of their new formats."

Also Thursday, Canadian Tire declared a quarterly dividend of 21 cents per share on each common and class 'A' non-voting share. It is payable Sept. 2 to shareholders of record as of July 31.

Canadian Tire shares closed down $1.76 to $64.24 in TSX trading, with a 52-week high and low of $87.75 and $55.78.