Q3 2020 Earnings Call

All participants please stand by your meeting is about to begin.

Good morning, and welcome to did all around the fiscal 2000 2032 quarters results conference call.

No I see president in field, and Michael Ross CFO will make a short presentation, which we believe followed by your question and answer appeared hoping excuse would lead to financial analyst.

Well these financial statements and management's discussion and analysis or available at dollar Ramadan gone in the Investor Relations section as well as on SEDAR.

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The only rons remarks today may contain forward looking statements about current and future plans expectations intentions results levels of activity performance goals or achievements of dollar ran out or dollar city or any other future events or developments I mean, that's like the all around that or.

Dollar city.

Forward looking statements are based on information currently available to management and on estimates.

And assumptions made based on factors that means that management. The these are appropriate and reasonable in the circumstances.

However, there can be no assurance that such estimates and assumptions will prove to be correct.

Many factors could cause actual results at levels of activity performance or achievements future events or developments to deferred much really from those expressed.

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As a result dollar I cannot guarantee that any forward looking statement will materialize.

You are cautioned not to place undue reliance on these forward looking statements.

For additional information on underlying assumptions and risks. Please consult the cautionary statement regarding forward looking information contained in dollar Ramazan N D. Any dated December 4th 2019, which is available on SEDAR.

Forward looking statements represents management's expectation as at December 4th It 2019, and except as maybe required by law. The all around my has no intention undertakes no obligation to update or revise any forward looking statement.

Whether as a result of new information future events or otherwise.

I would now like to during the conference call over to meal Rafi.

Thank you operator, and good morning, everyone.

Good morning, we released our third quarter financial result, and we're very pleased with our strong top line performance for a third consecutive quarter. This year.

Factors contributing to this solid performance include a 9.6% increase in sales.

Seth up 5.3% driven by both higher basket size and transaction volume.

This increase in that that that is mainly driven by the success of ongoing merchandising initiatives.

Supported by strong execution by our buying operations and store team.

As discussed in prior quarters. This includes.

Improved category management.

Strong in store merchandising, a meaningful increase and our SKU count across all categories among other initiatives.

A new Q align design and an increasing number of stores with over 75% of the chain already converted.

Based on her performance to date, we've narrowed our underlying full year comparable store sales assumption.

From a range of four to 4.5.

The top end of the previously disclosed range.

Our increase in sales was also driven by the continued growth of our store network across Canada.

We opened 21 net new stores in Q3 compared to 14 in Q3 last year.

Total store count Rose to 1200 71 at quarter end.

Looking towards the fourth quarter, we are on track to open between 60 to 70 net new stores by fiscal year end.

Our sales performance to date this fiscal year reflects the strength of our business model and the continued appeal of our concept to consumers across Canada.

Gross margin was inline with expectations impacted by the same factors since the beginning of the year.

A slight decrease in the product margin higher sales of lower margin items and higher logistics costs, Although as mentioned at the beginning of the year. The latter is having less of an impact and the second half of the year.

Looking at growth plans in Canada.

I mentioned that we had a busy quarter on the real estate front with 21 net new stores, bringing the total count of net new stores open and the fiscal year to date to 46.

We also made significant progress on our distribution center expansion project since our last conference call.

In support of our long term growth plans to 1700 stores across Canada by 2027.

The expanded distribution center is already operational as we complete the remaining work, which will wrap up as planned before the end of the calendar year on budget.

Looking now at her second growth platform.

Our acquisition of 50.1% adults City became official mid August and as a result Q3 is the first quarter to include our share of dollar cities net earnings for the period of August 14, two September 30.

This amounts to 1.7 million of net earnings for the fourth quarter will include dollar cities net earnings for a full quarter from October one two December 31st.

We continue to expect dollar city to contribute between two and three cents to our fiscal 2020 bps, excluding the onetime gain on the call option, which Michael will explain shortly.

The dollar city team continues to pursue its growth objectives with discipline and success and I'm very excited by the long term potential of our second growth platform.

As previously disclosed the objective is to reach $600 city stores by 2029, and three current countries of operation with the majority of store growth in Colombia.

The target for the 2019 calendar year as to open 40 to 50 net new stores.

Dollar City is already opened 41, net new stores and its first three quarters.

This brings its total store count to 210 with 104 locations in Colombia.

48 in El Salvador, and 58 in Guatemala.

As at September Thirtyth 2019.

As a result as a result of this strong performance dollar city expects to not only meet by the slightly surplus the high end of its net new store target for calendar year 2019.

I'll now hand, it over to Mike will discuss our financial results and outlook in more detail Michael right over to you. Thank you Neil and good morning, everyone [noise].

[noise], so looking out our financial results sales reached over 947 million and same store sales growth was also very strong consisting of 2.8% increase in average transaction size driven in part by an increase in the number of units per basket and a 2.4%.

Increasing the number of transactions. This increase in the number of transaction is mainly driven by ongoing in store merchandising initiatives, which nail gave some color on as well as deposits the impact of the calendar shift with three additional Halloween shopping days falling in Q3 it.

It's important to keep in mind here that the calendar shift.

As a net positive for Q3, but create headwinds for Q4 in fact Q4 fiscal 2020 compared to Q4 fiscal 2019 will include one less week of pre holiday shopping, which historically has a strong sales week and which has replaced.

For the purpose of period over period comparison by a week at the end of January which historically is that low sales with the.

The calendar shift impact in Q4 is greater than it is in Q3.

Gross margins stood at 43.7% Upsells as mentioned by Neal. This is inline with expectations as we continue to operate in low inflation environment in which retailers are more reluctant to pass on cost to the consumer.

As Jim they represented 15% of cells this quarter higher year over year as a percentage of sales as a result of the timing of certain expenses and slight increase in labor costs due to wage increases and two calendar shift with Halloween packaway following in Q3 there.

This year.

EBITDA was up 4.3% to 273.2 million, representing 28.8% of sales net earnings were 138.6 million a 4.9% increase over the prior year and diluted earnings per share grew 10% to 44 cents net.

Turning to reflect the inclusion of dollar I'm a share of dollar cities net earnings for 45 days.

And a one time nonrecurring 2.8 million gain on the call option or 2.1 million. After tax. This 2.8 million is an accounting gain and represents the difference between the fair value of the call option based on their third party valuation.

And the estimated purchase price of the 50.1% investment in dollar city.

He P.S. was also positively impacted by the repurchase of shares to the corporations normal course issuer bid over the past 12 month during Q3 at totaled up to.

Point the US a 2 million 772340 common shares were repurchased four cancellation under the N C. IB for a total cash consideration of 120 $129.8 million.

Cash flow generated from operating activities increased from 129 million into 203, meld and an increase attributable to higher earnings and the current quarter and to a lower use of working capital as a result of the timing of payments of payables, partially offset by higher inventory levels.

Capex for Q3 fiscal 2020 totaled 39.8 million compared to 33 million the prior year with the increase attributable to more store openings quarter over quarter.

Quick note on dollar city accounting and the estimated purchase price before turning to fiscal 2020 guidance. The current it total estimated purchase price of 92.7 million U.S. or 122.1 million Canadian was recorded as an investor.

Men in Q3 as a reminder, this.

Estimate represents 50.1% of a five times multiple of dollars cities estimated EBITDA for the 12 month period ending June Thirtyth.

2020 minus net debt and subject to other adjustments, we made an upfront payment of 40 million you Wes upon closing of the transaction in Q3, the balance sewing currently estimated that 52.7 million U.S. and subject to final adjustments.

Is to be paid in Q3 of fiscal 2021.

It is now included in accounts payable on the balance sheet.

Turning now to the outlook, although we reported a strong same store sales of 5.2% for the first nine months of fiscal 2020, we are expecting.

ER that full year same store sales will come in between 4% to 4.5%, which is the top end of our previously disclosed range. This reflects the very real impact of the shift in the retail calendar. Despite same store sales of 5.2% fiscal year to date, which particularly.

Really impacts our fourth quarter.

As previously previously mentioned the shift results in three last Halloween shopping days and one less holiday shopping week in Q4, which historically is a strong sales week. This has replaced for the purposes a period over period comparison by a week at the end of January which historically is.

A low sales week as I mentioned earlier.

Having said that holiday shopping is well underway and all of our stores and we remain in line with and on track to achieve our previously stated guidance ranges.

And growth objectives, we have a compelling expanded assortment across all categories and our store teams continue to work hard on various merchandising initiatives.

To stimulate sales growth.

And grow the basket and increased traffic as we continue to open new stores across country.

Note that as per usual practice, we will provide guidance for fiscal 2021 in conjunction with the release of our fourth quarter and full year results on April 1st 20.

So that concludes our formal remarks, I will now I'll turn it over to the operator, operator to take questions from financial analysts.

Thank you we will now take questions on telephone lines. If you have a question have you are using his speakerphone. Please lift your handset before making your selection.

Two questions. Please press star one on your telephone keypad.

If at any time you wish to cancel your question. Please press the pound fine.

Please press star one at this time you can have a question.

I'll be brief sort of participants register for questions. Thank you for your patience.

Hi, My first question is from Irene the town with RBC capital markets. Please go ahead.

Thanks, and good morning, everyone on the market [laughter], just trying to make sure that I'm understanding your commentary around same store sales.

If we exclude the calendar shaft, okay like if we take actual same weeks to same week.

Are you, suggesting that underlying same store sales growth is in that 4% to 4.5% range.

Yes in fact.

So the first nine month, we accumulate at 5.35, 0.2% same store sales Q1 to two in Q3 benefited from the shift and if we exclude the the shift impact that 5.2 would look more like four to 4.5 you're up.

Absolutely right, so meaning since the annual guidance is four to 4.5 that Q4, if you compare apples to apples or and the excluding the shift.

Fact would also be of between four and 4.5, yes.

That's really helpful. Thank you, Mike and if we think the initiatives that are driving this very nice uptick and notably in traffic this year.

Kind of thinking about as we move forward in Q4, and I recognize you're not giving up 20 guidance now can you talk about who the sustainability of some of these initiatives or what you still have to rollout or whether it's all rolled out or how you think about keeping this momentum going as we move forward.

Yeah.

So you're talking topline sorry.

Yes.

Yes, yes, yes.

So and they have a question on costs after but topline yet.

Okay. So well right now I think that as we mentioned to you and I've mentioned on the Oh. The road shows is that.

You know this year.

First of all we benefit from Comping, a softer year.

So we.

That's out there but also.

And your state and the results, we've been able to stimulate from different initiatives.

You know some healthy.

Traffic and unit growth, obviously this year being strong on that side you would expect next year, you know that comp would be harder.

But that doesn't mean that the initiatives don't continue working and and add the initiatives that you're referring to we've got their front.

Ones, whether it's the Q line, whether it's a assortment management or other.

We still.

Obviously are working hard to.

To maintain that momentum, but just naturally next year, it's just going to be a harder to too.

To to comp against a strong year like this year in terms of traffic pickup and unit sales, but between now and the end of the year I think.

Nothing has changed we still feel the same momentum that.

We've had.

Since the beginning of the year.

Great and if we could just sort of talk a little bad on the cost side the equation.

Couple of things first of all I, just want to make sure that we understand so the pickup that we pick up what drove the same store sales growth in Q3 also drove a pickup in SGN a that all unwind in Q4. That's the first question, but the second question is around the whole DC expansion and the impact that had on both gross margin and.

I guess sort of SGN, a and inefficiencies and when we really start to laugh.

And whether there's any way for us to think about how to quantify that.

Okay. So your first question you answered very well same time so.

You're absolutely right yet you know unlike other years like you know like glass, let's use last year were weak Q4 picked up an additional day of Halloween.

So these have the impacts but not as great. As this year when you have a whole week a whole seven day shift now the whole seven day shift. This year is not only three days of Halloween if the packing a way of all your Halloween season and putting in.

At your new Christmas season solve the labor costs related to that has impacted.

You know the.

Q3 results and now because it's behind US obviously Q4 will not have to deal with that and you will see effectively that DNA.

Ratio come back come back down if you want more into line to meet the range that we have in the outlook right now.

For the second question, the DC or you're absolutely right and as we've stated throughout the year. It's a one time for a onetime costs for this year. So it becomes.

Tailwind for next year. However, as we also mentioned we've got I am all 2020 kicking in so those are freight costs that.

Have even started a freight.

Freight in costs that have increased due to the reduction in solve for cap imposed.

By the international Maritime organization.

And so I would say.

A lot of that additional cost will be offsetting.

The one time G., a DNA a logistics you know a tailwind that where were getting so I think it's it's a.

Well try to manage it.

As as.

Mostly as we can but.

Essentially you've got the tailwind there, but you also have some.

Some headwind.

Yep.

Coming in.

Obviously, the IMO the freight and is in your gross margin figure but.

These are too.

Items that.

We know about today that I started to disclose that will also have an impact so thats why I mention yet.

So in other words, we shouldn't get too excited.

Okay.

Thanks, Michael Alright, Thank you.

Thank you Sir our next question Mark Petri with CNBC. Please go ahead.

Hi, good morning. Thanks.

Sorry could you just be a bit more specific in terms of yesterday sort of timing impact in terms of in terms of dollars in Q3, and then presumably that just comes right out of Q4 as well.

Right, so while we yeah.

A big part of the.

The a 100 bps increase relates to a pack away and the labor costs to change at all from one season, one big season to another big season. So it's not just 20 feet that you're changing its three fall or four full aisles of.

Stuff.

So and it all falls in that week.

All of that cost.

I will.

You won't have to incur in Q4, so that gap year over year.

NGL may.

Will shrink compared to what it is in Q.

Okay. So fair to say Gee at a rate would have been up in Q3.

Even absent this impact, but that's what pushed it just that yes cereal increase yes, okay. Okay. Thanks.

So so outside of the shifts in merchandising, which is clearly having an impact on your mix. What's your current perspective on pricing.

And that sort of regular course of price increases outside of the 25% to 30% sort of skew refreshes.

So the market is generally.

Stable, we're not seeing any inflation and our and our.

Competitors.

And.

For the moment.

We don't see any markups coming in the near future but.

Obviously, it's something we pay close attention to and it was we stated in the path.

We will never be the first to move our prices up but rather.

Always tried to be laugh and so for the moment.

We don't see that happening.

Okay. Thanks, and then in terms of the merchandising sort of shifts and the impact on mix.

Do you think that the most significant impact from that have been felt already or do you think that there are sort of incremental steps from here that will sort of further.

Move shifts the balance between same store sales and gross margin.

I think in terms of mix, we definitely had a big portion up to date. We told you that the for the Kulina example, that stimulating part of that mix change that 66% of the chain is already cover.

Moving closer to closer to 70 75, but.

So or.

So I'd say so.

Definitely would.

Transpire.

Next year. So in other words, if a lot of the reduction is already.

I mean, the shift the mix shift.

It is a lot of attribute it to that and so you will just have a little bit more next year on that.

Okay.

And then I think last quarter, you said it was still too early to say are you able to give us any sense.

Today in terms of the impact from the increased number of skews that you've been able to get on the floor through the course of this year.

No well when we're not going to no we're not going to dispose that we're continuing to study the the impact of that but.

No. We are aware, we know it helped the topline and we just.

Haven't decided whether that's a level, we want to sustained or not yet. So we're still looking and studying that okay. Thanks, and then just the last one I know you've been sort of testing self checkout.

Maybe the I think that test is expanding or maybe it's now a full rollout what's the penetration today and can you give us a sense of the economics either in terms of the dollar savings from that or or sort of a payback or something.

Yes, so we.

We're still studying a self checkout.

And the what we're looking at this is more topline.

Initiative topline generating initiative and that.

So were piloting thing this carefully to match or the additional revenues that we get from.

The initiative.

Of putting in these.

Self checkout machines so.

We say topline because we notice that in key peers like we're in today.

We theres a lot of traffic and waiting lines and we actually.

I'll.

Pickup.

Stuff.

Left and right and fill up baskets of people dropping out there or whether we're going to purchase because they're tired of waiting and but to be clear that that's not a new phenomenon, it's not happening.

Forever. So there is just this is an initiative that helps resolve that right, yes, and yes. So work at were approximately.

20 stores today.

And and.

Pilot mode, if you want to have.

Continuing to understand the impact.

So that the rollout of the of the south checkouts or eventual slow, but sure rollout is all dependent on how.

Well, we can make sure that those machines serve our customers and it's an evolution theres a lot of work to be done because we'd like to do things a certain way a dollar AMA and so we're trying to integrate.

Correct security that doesnt cause our customer.

And any downside with China implement ways for them to have the availability to buy shopping bags.

Conveniently.

And on and on so it's not just a study both.

Returned to study about execution and then when we feel we've got the right execution will will ramp up to speed of execution, but it's quite complex because it also FX the flow of the entire front of your store and so it's.

It's actually a fascinating study because every single store is a new study and we want to make sure the floor flow of our stores is efficient because they're not very big footprints and we have a lot of traffic as you know and so.

It's a it's a slow but steady rollout it won't be a faslane.

Okay I appreciate all the comments thanks.

Thank you. Our next question is from it shall Sri Lanka with National Bank. Please go ahead.

Hi, Thanks for taking my questions on the slight decrease in product margins that you've noted this quarter and in prior quarters should we think about.

The only way to eliminate that slight decrease in product margins is is if inflation comes back to the market and if it doesn't than that slight decrease in product margin pressure will continue.

Right. So as you know we do their two components. One is the refresh so we refreshed 25% to 30% of our.

Our goods every year and through that process were able to.

Maintain.

Also some decent margin levels of.

With the other 70%.

You are right, so as saying earlier.

We don't.

We're all getting inflation competitors and ourselves and.

If they're not passing on that cost were not so the day that.

They start passing all we will and and that will help.

Pick up some of the the margin for sure and over and above that as we've stated then the path if you'll find ways to stimulate more unit sales more traffic well obviously.

That that helps it how this year and hopefully it will continue helping us in future years.

Okay.

Okay. So moving on to the SNA. So so thank you for for helping us understand that a big part of the S. You name it was due to.

The increase was due to timing shift.

But you had indicated that even without even without that timing shifts as today's would have still been up.

Year over year, just wondering if you see efficiency initiatives that dollar almost been implementing over the last few years and I know, they're not as big as they used to be is that effectively behind us and now we should think of as today.

Dollar on not being able to lever as today outside of.

Some of these calendar shifts.

Right, So, yes, and one you're right that you know the lower hanging fruits are behind us the big projects are behind US now it's more grinding it out and so were two things impact that number.

The initiatives themselves App.

Offset by inflation, so depending on the inflation level, but also on scaling so.

In years.

Higher sales scaling impact health that percentage.

And.

So those are the main factors influencing that so you're right right now where it's more about grinding it out we do have a lot of initiatives.

Whether there are.

On the gross margin side with logistics, a whether they're at store level or overhead.

So we've got initiatives going on everywhere, but.

The.

They're not as big as said or the impact of it as strong as you saw on historically, so moving forward well you you've got the guidance for this year and in March will come back for next year's guidance.

Okay. Thank you for that color and just on the third party valuation for dollars city.

Obviously, it came in a little bit higher than what.

Measured anticipates the pay for the business, but still still I guess in that five five times EBITDA range.

Which is considerably lower than the trading valuation for dollar <unk> dollar almost core business.

Just wondering if.

If it's natural was surprised that pulls valuations came in so close and if there's any.

Hills or parameters you can provide on that third pretty valuation given that we can't see dollar city details.

Right so.

You know the initial they are the price were paying on dollar city is based on negotiation that happened back in 2013, So it's a formula that you apply and and so.

So that's what we're record, but the accounting rules require us to at that data they exercise of the call option to have an independent valuation done and and which they did.

And it came out to where it is today as stopped for us too.

Two too.

To challenge and that we rely on that expertise and it came out to where it is there's a difference.

And for accounting purposes and tax purposes.

You know we.

That's the amount we go by.

There's nothing more I can say on it.

I appreciate your color. Thanks.

Thank you.

Our next question Miss from Peter Sklar with BMO capital markets. Please go ahead.

Just have one question for Neil.

Neil you and Michael are always.

Referring to your merchandising initiatives and the impact that is having on traffic and basket.

Et cetera margin.

Can you talk and Michael's used.

The expression assortment management, which is kind of ahead of him, but can you elaborate a little bit more.

What some of these initiatives ours it just normal.

Blocking and tackling that your buyers and or merchants are executing everyday.

Yeah honestly I think.

To date the answer is.

95% of it is normal blocking and tackling.

And I will make it sounds more complicated than that because it's not but to do it as well or better than everybody else is constant challenge on a day to day basis, and I guess, our focus on that and our ability to execute that in an efficient manner through an entire.

Business that has been built to execute.

Very restrictive amount of price point and fashion that is profitable as what allows us to do it.

I would never sit here and tell you that if our business was built.

To do it for items up to $200, we could do it nearly as efficiently as we do for the items that we do it for so I think.

With all due respect to the.

The genius of the buying team and they have the advantage of working within a system. That's so highly restrictive and so highly efficient because of its focus on a certain number of price points that.

It allows us the ability to.

Remain ultimately focused let's just say.

Okay and are your buyers also your merchants.

And excellent question.

I would say that Theres, a combination of the buying team and the ops team that decides on the merchandising of our stores.

And the.

Arch department or or our internal marketing.

Piece of the business also helps with that so when we're bringing in an item.

The buyer has specific department in mind that'll be communicated to the art Department. The our department will try to integrate that.

That said a family of of art or look that we have in that certain area. The store that will simplify the task for the store on knowing where it goes if it not obvious and.

Obviously our.

Our codes that we use internally and the top right corner or most items et cetera also gives guidance to our stores on where the items go and then the stores within the store itself.

The ops team well, we'll have full discretion on where and how they think the actual section should be set up and what's the most logical for the customer who is doing the shopping and then they'll try to standardize that across all stores. So that you have that same feel look and.

Variance when you go from store to store. So it's a combination of the ops team the our team and the buying team that decide those things.

Okay that that was helpful. Thank you very much. Thank you.

Thank you.

Our next question is from and Derek delay with Canaccord Genuity. Please go ahead.

Yes, Hi, I was just wondering if you could provide a.

A little bit more color just done.

Some of the categories that helped drive the strength in same store sales I mean, im assuming seasons seasonal items were one of them, but did you see any sort of differences in some of your other categories.

No no not really but you're right I mean, obviously, a Halloween was a big part.

As a Christmas will be a big part in Q4, but for the rest are as we mentioned you know that in terms of mix consumable continued to do very well.

And and the rest of items I I'd say also it's you know there's nothing that stands out other than Halloween in Q3.

And then when you in your press release I think you commented that there was the margins were.

Favourably impacted by.

Product mix or a shift so to lower margin categories. I mean, if consumable the locally would that be the lower margin category, you're referring to.

Yes, well again, there are three components does that one time logistics costs related to the DC. There's the the fact that we're not doing mark ups.

And as the mix impact absolutely.

All three have been of those factors have impacted Q1 Q2 in Q3, and we expect to act impact Q4 again.

And one of those three logistics.

Will fall off.

And for next year, the onetime logistics costs that will not continue on next year.

Okay. Thank you very much.

Right.

Next question. Thank you. Our next question is from Chris Sliva, David on line. Please go ahead.

Maybe just the first one for Michael Michael You mentioned, IMO 2020, as being a potential headwind.

Gross margin next year I know there are lots of moving parts, but how much visibility since the company have in terms of this magnitude.

Empaque and plan to try to mitigate that impact.

Yes, so we do have visibility.

And.

We're we're working on plans.

We didnt learned this now into its a last quarter we.

We started to.

Two.

Factor that in.

And.

I'd say, you know, where it's a I'd say a 50%.

Fine tune, a understood and where we're trying to.

Figure or other ways to to mitigate part of that but.

It's it's definitely going to hit us.

But to what magnitude is something we're still working on.

Okay, and then maybe just follow up on just transportation cost.

I guess.

Our next year, but the year after Canada, theres going to be amend mandate for the electronic logging devices for trucks. I know you guys are more skewed towards rails, but.

See that also having a potential because when or is that something that is not as meaningful.

With that will be headwind I don't seeing as CFO as material for the time being for next year.

But we're certainly.

Looking at it.

Right now Okay and then my last question I guess, it's been almost a year. Since you guys did a national rollout of Youll Bookselling initiative can you give us an update on how thats going.

Yes so.

It's a nearly can add color, it's going well as expected again not material.

We don't expect that to be material by the end of this year or next year again, but it's going according to.

What we had anticipated and and also learning some stuff through its O'neill I don't know us.

Yes, it's progressing nicely we were building our capabilities. So you've added Halloween and now we have Chris Smith said very select amount of items, but we keep them.

Opening doors to the actual and functioning of the of the website and.

We're seeing.

Very nice acceptance our customers are happy with the efficiency of of of the execution when they place an order.

But again as Michael said. This is this is an addition to our current business it will never be a substantial.

Piece of the business. It is meant to serve a specific purpose and that is.

When our customers require a larger quantity of our items and don't wish to go store to store.

We will offer those best selling items on our site and we will also.

Consider any request for items that are not on the site that we currently sell in the stores. If the quantity is large enough as well.

Just a follow up on that is it isn't helping you to target maybe a new customer base like the small medium businesses prisons are hospitals schools that you historically havent penetrated because you didn't have that or or is that not really having a big impact.

On that business.

Well, we had some of those customers before it's giving those customers and easier way to interact with their needs and dollar Ams ability to provide those needs.

To be clear our goal is not to become a wholesaler we are a retailer and.

As you can see if you visit our site we're charging the exact same thing on the site as we do in our stores as so there is no advantage or disadvantage to the customer from a retail perspective.

Surely a question of efficiency of getting the goods to them in an efficient manner and Theres no question that small businesses in hospitals and schools and daycares and and what have you at for the goods that we sell well find this a very useful tool.

Okay, Great and all the best for the holiday season. Thank you. Thank your views. Thanks.

Thank you. Our next question is prime and Karen short with Barclays. Please go ahead.

Hey, Thanks, this is actually ever anonymous thoughts on the line for Karen Good morning.

Right.

So first I just wanted to touch on the competitive environment.

Just wondering what you're seeing out there I know, it's generally pretty competitive but.

Clearly you've been focused on protecting are growing share and one of your competitors recently had a change in leadership, which could presumably changed their approach. So I'm wondering if you've seen anything to indicate a change in competitive intensity out there.

No.

I would say the simple answer is no.

Okay fair enough.

And then just just on the new stores.

I would be helpful. If you could provide some color on new store performance I'm wondering how.

The most recent vintages performing both versus prior years and also your internal expectations.

So it's a if you look at 17 and 18 cohorts.

As we stated on past there the payback is within two years on its actually better than prior years. So.

Cost to open up a stores still around 400000 net of tenant allowances and the average shelves.

First year around 2.22nd year 2.3.

Average chain sales $3 million, so, it's a going very well.

Okay, Great and then didn't last question for me.

Is there anything we should be thinking about with respect to the timing of the introduction of.

Higher price points above $4.

In other words.

What are you wouldn't really your top considerations with respect to that and have you seen any changes to those factors that would potentially.

Changed the timing.

With respect to really on higher price points.

Okay. So as I stated throughout the year and Thats still stands as there's no.

Intention of doing this this year most likely not next year.

And we'll.

The further out we go the more likely we will but for the time being it's the same speech.

I would say the one thing that wouldn't that would make it an obvious choice for us and the only thing that would make it an obvious choice for us as well when today's for dollar is worth $5 well talk about it for sure until.

Then there is no rush at something we understand that we can do at any time, but as we really would want inflation to be a big piece of that decision.

Okay, great. Thanks for the color.

Thank you. Our next question is from Edward Kelly with Wells Fargo. Please go ahead.

Hi, good morning.

I wanted to just quickly follow up to start on the calendar.

Its impact on the gross margin was there some.

Gross margin benefit.

Q3, just because of the.

The higher mix of Halloween sales and then as we think about Q4 I would think Q4 could be negatively impacted if you have.

Last higher margin discretionary sales and I guess I'm asking because part of this is to is the gross margin pressure in Q4, it maybe a bit bigger than in Q3 because of all this.

No. So in terms of gross margin impact percentage.

Or or dollars no.

So that decrease you see in Q3 and Q4 compared to last year that we yeah. We told you at the beginning of the year to expect that in the second half of the year.

The spread between last year were shrank, that's because last year's Q3 in Q4 compared to the year before shrank a lot so that explains.

Because it was that transition of the mix that kicked in last year that data you're feeling much more tier, but as we roll into Q3 in Q4 that last half of the year.

You know a.

We told you that the difference would come in.

Bit, which it did in Q3 and expecting to do in.

Q4 also.

Okay.

As we said about beginning.

Yes.

As we think about gross margin going forward now.

See what's the outlook in terms of product cost inflation, so what you're you're paying for product I mean, theres no plan to take pricing.

So it seems like the market pressure will remain I'm, just curious going forward as we start thinking about next year is that pressure. The same is it more.

What does mix look like going forward is that pressure that same more I mean, I'm asking all this because as of right now the consensus.

The Street has your gross margin on 25 basis points next year.

Wondering if there's hope for stability.

Yes, so we're going to give you.

More guidance in March.

We can talk to you is today, so we're not seeing.

And.

Opportunities to markup, we're not seeing that inflation, we have the opportunity to improve margin to act.

More unit sales more traffic and refresh those are means for the moment as so.

So we don't have visibility over next year, yet we we've got it over the rest of this year.

But not next year.

So we'll have to see.

When we come back in March.

All right and when you say that the.

The landscape from a pricing perspective is.

Able.

Is there any sign whatsoever of anyone passing through some cost. So there's just no sign at all that.

No well I'd say, it's it's more generalize, we're not seeing yet obviously.

We are doing some.

Small portion, but not as much as historically so.

So where we're not.

Disclosing the details but generally.

For the time being it's a it's as we've seen that.

Throughout.

This year.

So it's flat.

Okay. Thank you.

Right.

Thank you.

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50 for them.

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Probably not because.

I mean.

She was running.