Like many other retailers in the country, the company has been trying to win back market share from bigger rivals such as Amazon.com Inc and Walmart.

The Toronto-based retailer has focused on building up its online business, increasing private label brands in stores, boosting marketing spend and launching a loyalty program earlier in the quarter.

Expenses rose about 5 percent to C$831.2 million, with net income attributable to shareholders dropping 20 percent to C$156 million.

"We expect most of these costs to stay elevated for the remainder of the year," said Edward Jones analyst Brittany Weissman. "Canadian Tire continues to invest in new technology initiatives to incorporate more technology into stores and improve online."

The company, which operates the Canadian Tire, Mark's and Sport Chek stores, was also hit by bad weather conditions in the country.

A brutal cold, coupled with weak consumer spending, resulted in a 1.2 percent drop in Canadian retail sales in April, the largest drop in more than two years.

The weather hit seasonal categories across all banners, Edward Jones' Weissman said.

Total comparable same store sales, excluding petroleum, rose 1.6 percent, boosted by demand for air conditioners, gardening products and footwear during the onset of summer.

However, retail margins dipped 3 basis point, while analysts at Raymond James were expecting a rise of 21 basis points.

Excluding items, Canadian Tire earned C$2.61 per share missing analysts' average estimates of C$3.04 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 3.2 percent to C$3.48 billion.

The company's shares were down 7.7 percent at C$168.26 in early trading.

(Reporting by Shanti S Nair in Bengaluru; Editing by Sriraj Kalluvila)

By Shanti S Nair