Q4 2020 Earnings Call
All participants please standby meeting is about to begin.
Good morning, welcome to the dollar <unk> fourth quarter and fiscal 2020 results conference call.
Neal Rossi, President and CEO, Michael Ross CFO will make a short presentation, which will be followed by question and answer here yet.
Open exclusively to financial analysts the press release financial statements and management's discussion and analysis are available at dollar at my Dot Com any investor Relations section as well as on Star.
Before we start I have been asked by dollar amateur read the following message regarding forward looking statements.
Around his remarks today may contain forward looking statements about its current and future plans expectations intentions results levels of activity performance schools or achievements or any other future events or developments.
Forward looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate unreasonable on the circumstances.
However, there can be no assurance that such estimates and assumptions will prove to be correct.
Many factors could cause actual results levels of activity performance achievements future events or developments to differ materially from those expressed or implied by forward looking statements.
I think it's almost all or am I cannot guarantee that any forward looking statement, well well materialize and you are cautioned not to place undue reliance on these forward looking statements.
For additional information on the assumptions and risks. Please consult the cautionary statement regarding forward looking information contained in dollar Amazon and Dnanet dated April 1st 2020 available on SEDAR.
Forward looking statements represent management's expectations that April 1st 2020, and except as may be required by law adult around I have no intention and undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
I'd now like to turn the conference call over to Neal Rossi.
Thank you operator, and good morning, everyone.
I Hope you are all healthy staying positive.
Doing what you can to help and keeping safe.
It would be impossible to start this call without acknowledging the current situation.
Which is unprecedented in our lifetime.
I know that our shareholders and those who follow our company are very eager to hear about how all of this is impacting dollar AMA today.
And what we see coming.
Exceptionally we will provide you insight into what we have been experiencing in our supply chain, our operations and at store level in the current quarter as well as from a capital structure perspective.
Before doing that however, we believe it's important to discuss the results disclose this morning for the fourth quarter fiscal 2020 and for the full year.
The numbers demonstrate the solid fundamentals of our business as we navigate these uncertain time.
[noise] comparable store sales growth in Q4 was 2% or 3.8% if we exclude the retail calendar shift, which Michael will explain in more detail.
Full year assess asked was 4.3%, reflecting an increase in both store traffic and transaction side.
We reported solid net earnings and earnings per share both for the quarter and the full year.
Gross margin SGN, a an EBITDA margin well within our guidance ranges for fiscal 2020.
Our retail footprint expanded with the opening of 66 net new stores across the country to reach a total of a thousand 291, and we completed the expansion of our distribution center on time and on budget.
Our strong performance in Q4 in fiscal 2020 is proof of the effectiveness of our sales merchandising and operational strategies in the context of limited price inflation.
It also demonstrates the appeal of our value proposition to Canadians across the country and ultimately the enduring strength of our unique business model.
As Canada's leading value retailer, we are in a solid position to whether the current store.
Michael over to you.
Alright, Thank you Neil and good morning, everyone first looking up or the fourth quarter fiscal 2020. Its financial results. We achieved a strong performance across all key metrics sales exceeded $1 billion gross margin was strong at 44.7% of cells as your name was 14%.
<unk>, 0.6% Upsells EBITDA increased over a 329 million representing 30.9% Upsells net earnings were $178.7 million and diluted earnings per share growth grew to 57 cents.
Note that the fourth quarter fiscal 2020 was comprised of 13 weeks, whereas the fourth quarter fiscal 2019 was comprised of 14 weeks. The additional sales weaken the fourth quarter fiscal 2019 amounted to $57.7 million.
For same store sales grew 2% year over year sales in Q4 were negatively impacted by the calendar shift which resulted in one less pre holiday week in the fourth quarter fiscal 2020, historically strong sales week and an additional week at the end of January.
Historically low sales week.
There were also three last Halloween shopping days in Q4 as these were recorded in the third quarter.
Excluding the impact of this calendar shift Q4 same store sales grew 3.8% year over year, including a 1.2% increasing the number of transactions.
Now for fiscal 2020, looking now at our financial results. The full fiscal year can be summarized by strong top line performance, reflecting traffic and unit growth throughout the year with same store sales.
With the same store sales growth at 4.3% on a 52 week basis.
Gross margin was also strong coming in at 43.6% of sales, despite lower product margins and onetime logistic costs in the low inflation environment.
We met all of our financial guidance objectives for gross margin Gionee, an EBITDA as a percentage Upsells net earnings were 564 million an EPS increased one point $78 78 per share, reflecting improved earnings and the creative effect of our share buyback.
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We opened 66 net new stores for the year also meeting our guidance and we maintain a good spread of store openings throughout the year.
Versus in prior years, where a much larger pool proportion of stores were opened in the last quarter.
We completed our distribution center on time on budget as Neil mentioned Capex was lower for the year, primarily due to higher investments related to the DC and expansion in the prior year.
Turning now to the current quarter and our outlook for fiscal 2021.
Usually in conjunction with the release of Q4, we provide guidance for next fiscal year due to the exceptional circumstances stemming from the global Cobot 19, pandemic and our limited visibility on future performance. We have suspended this practice for now.
We will revisit this decision ahead of the release of our Q1 earnings should the situation normalized by them.
In new formal guidance, here's what we are seeing so far in the current corridor, which again on February 3rd and will then may 3rd.
The strong momentum and same store sales and store traffic.
Experience in the fourth quarter fiscal 2020 carried over into the first few weeks of the.
First quarter fiscal 2021.
That is to say that we were off to a good start compared to the same prior year period.
So that was for the.
The whole month of February as coal that.
Outbreak ramped up in late February to mid March we experienced a surgeon number of transactions and growing baskets in our stores across the country as customers stocked up and purchase tire volumes of certain products. Thank household cleaning products health and hygiene products food items and crap.
After this bump in sales, which lasted a few weeks transactions began to level off. This is of course directly related to the increasingly strict measures imposed by governments all aimed at can finding people in their homes as much as possible. These measures are still in place as we speak.
Yeah.
As you are aware these strict measures have included the four shutdown of a huge swath of economic activity across Canada.
Our park, where a recognize as an essential business offering everyday necessities and all jurisdictions, where the government has mandate mandated the closure of nonessential commercial activity.
Currently about $54 I'm a store out of the 1291 locations across Canada are temporary close with the exception of a handful all of our closed stores are in Quebec shopping malls.
Mall stores in Canada that remain open across the country are those experiencing the lowest traffic numbers down over 50% in the last eight days of March our stores with.
With street access, which represents about 75% of that chain are not experiencing the same did in traffic.
What we are saying is that people are boarding malls that are still open on or keeping trips to enclosed malls to a bare minimum.
We are nonetheless, keeping as many of our locations open as possible. So that customers have access to everyday essentials. This is especially important in communities with limited options to purchase a central products or where they don't have a nearby location to redirect them too.
Overall, we expect same store same store sales to be negative through the rest of the current quarter due to significant reduced traffic and mall store closures outside our control.
Sure additional restrictions be imposed on Canadians, which may be the direction, we're going in we expect Canadians to further limit their outings.
So those are the sales trends.
We have a being experiencing at this point in time the country is still very much in the midst of this crisis and it remains impossible for us to forecast the impact on our future performance or the economic context in which we will be operating.
If the last few weeks have taught us anything is that a lot change.
In the matter of days and weeks what has not changed is that dollarized level remains a key destination for Ken for Canadians everyday shopping needs.
For the same reason, we have withdrawn the previously announced guidance for dollar cities contribution to Dollarize earnings per share for fiscal 2021 dollar City has performed well since we acquired 50.1% equity interest in mid August 2019, the achieve.
Their annual financial objectives, and opened 59 net new stores in 2019. They also had a good start to the year, but they currently face the same unknowns.
Due to the Kogut 19.
The dollar city team is doing an excellent job managing through this crisis about $38 city stores are close at this time out of 228 locations. The bulk of the temporary store closures are in Guatemala on Colombia, where strict lockdowns are in effect.
There are also impacted by strict curfews in Guatemala.
So turning back to our Canadian operations I've, given you some color on sales trends already now looking at this from a cost perspective I want to let you know that we are tracking the incremental costs related to cobot 19 separately and that we will be highlighting the cost impact when we.
When we release Q1.
Nearly all of the additional cost being incurred our labor related Neil will provide more detail our initiatives shortly but costs are primarily related to pay increases in additional employee hours to ensure the execution of the many cobot 19 preventive preventive measures now in place across.
The organization. We believe these costs are necessary to ensure that we follow the health directive in place and to promote the health and safety of our employees and customers. We will provide a precise figure when we release Q1 results in June 2020.
As for our capital allocation strategy in our financial position for.
Full fiscal year 2020, we repurchased 7.1 million shares for total cash consideration $327.2 million at a weighted average share price of 46 point 15 per share. The board also declared a dividend in all four quarters of 44.
0.4 cents per common share.
Dollar Ramos current financial position is strong we have a solid capital structure with strong cash flows from operations and available liquidity.
As at March Thirtyth 2020, so just recently.
We had approximately 490 million of cash on hand, and approximately 135 million available under our unsecured revolving credit facility.
Which was Upsized on February 14, 2020 from 500 million to 800 million.
This is net of principal amount of notes outstanding under the U.S. commercial paper program, which is.
Backstopped by the revolving credit facility.
Barring additional extraordinary unforeseen circumstances, we believe that cash flows from operations together with cash on hand, and credit available, we'll be adequate to meet our future operating needs and capital money.
So in terms of our capital allocation strategy looking at new store openings transformational capex projects and see I'd be we are proceeding with caution in the weeks ahead until we get from handle on the situation.
Our long term growth plans and approach remains unchanged, but the immediate focus of the entire organization is on managing through these challenging times.
With that I will now turn the call back over to Neil.
Thank you Michael.
Michael has emphasized we have limited visibility on future performance.
But as an essential business.
We remain committed to keeping stores, well stocked with affordable everyday products and offering the same compelling value proposition that has made dollars a household name and the weekly shopping destination for millions of Canadian.
In order to do that we also have a responsibility to promote everyone's health and safety.
Let me walk you through while we are doing across the company to make that happen.
Dollar Emmett teens in stores warehouses, the distribution center and head office are doing everything possible to meet the needs of consumers in the days weeks and months ahead and they are doing an amazing job.
At the store level, the daily routines of our associates infield management team have changed dramatically in the last few weeks.
First we have implemented a broad range of measures in line with the directives from public health authorities to curb the spread of cobot 19, while still allowing customers to shop our stores.
These include additional cleaning and disinfecting procedures with a focus on frequently touched surfaces that are down throughout the day.
From door handles carts to pin pads and checkout counters, we have reduced opening hours and added labor hours in stores to allow more time for these sanitizing procedures and four restocking.
Second we have put in place a number of measures to enforce physical distancing of two meters as much as possible.
These include spacing out the Q line encouraging customers to pack their own item and their own reusable bags to pay with debit or credit cards and to control the number of people in the store at one time.
To support the implementation of these measures and their execution everyday we have increased employee hours in store.
This includes the addition of Polish shift in each location for a dedicated safety and Sanitization coordinator responsible for controlling the number of people in the store at one time and other specific cleaning test.
We also implemented a 10% temporary pay increase effective from March 20, Threerd till July 1st for all of our frontline employees in stores and in our distribution center and warehouse.
We continue to evaluate the measures to be taken.
Based on feedback from our employees and customers.
We want to ensure that the cautionary actions, we're taking our effective.
And we continue to assess how to recognize the work our team is doing.
We also need to stay abreast of requirements and recommendations and what is still a fast changing environment, including from a best practice standpoint.
Now, let's look at our warehousing operation and our distribution center centralized here in the Montreal area.
Our DC operations, our labor intensive and our team there is doing incredible work to promote health and safety.
This ranges from restricting access to the building.
I'll check points, including taking everyone's temperature before they start their shift.
As well as segregation and physical distancing measures on the floor and throughout the building and what is by nature dynamic work environment.
Our teams have shown creativity and initiative and have refine contingency plans in light of the specific challenges posed by covert 19 to ensure that our operations can keep running under various scenarios.
Our new work processes now in place for a few weeks are working well and also continue to evolve.
Despite these additional measures the flow of goods to our stores is keeping pace in reaching required level with the support of our strong logistics network and distribution capability.
Upstream and our supply chain the situation has also stabilized.
After halting production for a number of weeks in February due to covert 19, our overseas suppliers have steadily come back online and continue to ramp up production week after week.
We are working with them to prioritize goods to be ship given the exceptional situation.
The important thing is that we don't foresee any material supply chain issues from a direct sourcing standpoint, when it comes to the vast majority of products sourced from China, and we are effectively back to business as usual in terms of volumes.
A number of products, namely consumables have been selling more quickly than usual across our store network.
Also a situation that is by no means unique to dollar Emma.
The large majority of such goods are sourced domestically from us and Canadian suppliers.
Our teams are working hard to maintain the flow of goods for these product categories, such as hand, sanitizer, antibacterial wipes, which continue to face exceptional demand levels.
We are working through this with our vendor partners and are confident that we will be able to offer our assortment for the foreseeable future.
As you can see the focus across the organization is on maintaining our robust supply chain and on serving customers and unprecedented circumstances.
And we are making the investments required to promote the health and safety of our employees and customers.
I want to take a moment to recognize and thank all of our employees, especially our store associates and field management team, our DC warehouses and logistics folks for their incredible effort and dedication to helping Canadians through these difficult time.
As I said at the beginning of this call we are living through an unprecedented situation.
It is affecting our customers and our employees, we are working hard to keep stores open well stocked and sanitized to meet their needs.
We continue to evaluate measures, we can take to support our employees in the short and then the long term.
I am confident in our ability is Canadian to get through these current challenges together.
With that I'll now turn it over to the operating.
Thank you.
We will now take questions from the telephone lines. If you ask the question and you are using a speaker phone. Please lift your handset prior to making your selection. If you have a question. 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, if you have a question there will be a brief pause while the participants register thank you for your patience.
First question is from Irene Nattel with RBC capital markets. Please go ahead.
Thanks, and good morning, and I really really want to thank you guys for the incremental disclosure, it's very very helpful.
Lots of questions I'll.
Capital and then pass it on I guess first question is as we think about the assortment inside the store I would clearly against certain categories that are growing rapidly and others.
Falling rapidly.
Quickly keeping you adjust or accordion, what you actually Tom on the shelves to meet this shift in demand.
It's an excellent question I think it's less about the accordion at the moment because the items that you would accordion.
Let's say.
Larger.
Or give more space to our the items that all all of my all the retailers and the manufacturers can keep up with regardless, so the antibacterial gels the antibacterial why.
No those type of items, we are getting as much or more than anyone have but the demand is just off the charts. So to grow the section would be honestly not very useful because it's really more question of.
Supply.
Keeping up with the demand and the manufacturers that create those products are all over there had in and around the world because many of them our multinational companies and so I think as much as we'd like to say that we could turn our store into antibacterial wipe anti bacterial gel story.
In a minute it wouldn't be of any use if we couldn't get the goods. So the goods are flowing every week, we send those goods.
Multiple items and all in both of those categories for example to our stores and even at that.
[music].
The markets, having a very hard time, keeping up so it's it's a tough question because it's not.
The norm as far as to how we would answer the question.
Okay fair enough.
Then I guess to crawl rig question Neely is yes, I think it's fair to assume that seasonal and part here are way down.
I'm.
Just sort of accumulate that inventory and holdover for better days.
Deal.
That's basically how it's being handled I mean, we are we are able to.
To reduce our quantities for Halloween a little.
But the truth is Halloween orders were in long ago, and the production has already begun and whatever we ask our vendors well simply heard them you know as much as it would heard anyone to have an order thats already been given cancelled and thats just not the way we handle our business. So most likely we will take the vast majority of our goods.
We are still really in the dark on how Halloween and Christmas would would play out at this point in time and if they play out as much as it would be today than we will we will warehouse those goods and thankfully, we're not talking about goods that have a shelf life in the case of.
Less than candy as those orders tend to be at place later and the calendar year. So we still have time to adjust the consumable stuff that has a shelf life. So thats very helpful.
That's great and then just moving on to sort of what's actually happening in the stores.
Mike will provide color difference between the mall stores.
Not just makes sense to close along those stores or would you can you envision a scenario whereby you didn't close certain types of stores and keep others open.
Yeah, we are considered an essential service of course, and therefore, we must do our part to keep stores open where it's feasible.
And that's always our first priority.
Okay. Thank you and then just from a from a capital allocation perspective, So I guess.
Michael You noted died and Capex new store openings it kind of seeing just a little on it that was on hold for right now could you. Please clarify.
Right well first of all.
In terms of Capex, we do have some initiatives ongoing.
If however, there associated to product projects that could put employees into danger expose them more those are some that we would hold back on.
[music].
And see I'd. We're currently in the blackout period once we come out of the blackout period, well reevaluate whether or not we shouldn't be buying back shares most likely not.
Until the situation.
Yes.
Gets better.
So.
Thats what were we mean by managing it more close.
And with the presumably also new store openings will not happen.
The near term or are you obligated to open new stores, where you saw.
Hey, if we're you know.
If there are still some that are opening continued to be opening others not.
You'll get all sorts of constraints either permits not.
Non obtaining.
Not able to obtain permits or.
Situations are our current reasoning behind opening are not opening as more specifically and we are trying to open stores in areas that are underserved.
From a retail perspective and.
Where theres really no dollars anywhere in the in the region in regions that have multiple dollar Amazon within several kilometers we're holding off on the bulk of those openings and the only time, we would continue with one of those openings as if all the stores in the area are fully staff have no absent.
Shoes and and.
And I would have no impact on our current business and put none of our employees at risk.
Because everybody as you understand is already tax at the present time.
That's great. Thanks, I'll hand, it over the next person yes. Thank you.
Thank you. The next question is from Mark Petri with CNBC. Please go ahead.
Hi, good morning, and I'd Echo my thanks for.
All the ground that you guys have covered.
Just following up with regards to the supply chain that you already talked about.
Can you just so you do not expect any material issue with regards to disruptions from China is that right.
We are currently shipping at the exact same pace as last year.
Okay.
And I guess couple of things that you've talked a bit more broadly in terms of initiatives, increasing skews in store and also reducing insource safety stock related to sort of improvements in your efficiency improvements in your supply chain, how does the current environment affects those initiatives.
Honestly I don't think it really affects it per se, but for the handful of items that even if we hadn't had done that whether you had an extra 30 pieces of one of those items that are blowing out at hundreds and hundreds today I don't think truthfully statistically would have been impactful.
The the question of.
Rotating our goods that are high demand goods and getting them on different cycles on accelerated cycles. It's something we've been doing for several years and every year. We continue to work on it because it's never as good as we want it to be a force.
But we continue to work on it and its situations like that really put our logistics and flow abilities to the test and so far I'm very satisfied with how quickly we are getting to market on the goods that are being.
Beyond the normal call of.
Of quantities or replenishment and.
So far so good I would say.
Okay. Thanks.
So labor have you had any issues.
In terms of assets and to use them or labor availability, obviously, there's a lot is blocks in the market, but but just curious if you had any issues to this point and how you're sort of navigating that or would you expect.
Yes, we've had absenteeism, we've had more in some areas less than other areas for no specific reasons, it's all about each person comfort and we support our employees and their decisions and have made it very clear that they should do what they are most comfortable with and they are under no pressure and they.
Did want to go home that of course, there employment would be waiting for them. When they were comfortable again as so thats been the first and foremost message that's been put out there and.
Thankfully, we've been able to continue to operate efficiently and we have enough staff that have.
Sort of.
Had taken the call of duty and make sure that they help us like the people and the balance of the business that are.
Constantly trying to make sure that as an essential service provider, we are there for our customers across Canada.
Okay. Thanks, and I guess, just last question for stores that have been closed or seen those sort of material hits. The traffic. If you had preliminary conversations with landlords.
On how to sort of handle those situations.
Yes. So we are obviously, we are and contact but these are things that we don't talk about publicly.
Okay fair enough.
Alright, thank you.
Thank you. The next question is from Michelle Schroeder with National Bank. Please go ahead.
Hi, Thanks for taking my questions.
Hello.
I know, it's still in flux and I was hoping is there any range or any help you can give us with capex number and the store openings per year is it just too difficult at this point.
No it's too difficult to narrow at this point really so.
And all caused by this situation. So you know what our normal you've been used to our normal.
Trends and so.
But obviously this year with what we just mentioned.
It's becomes hard too.
To forecast, but as we move on Q1 will have more information then maybe then we'll be able to give you a bit more color.
Okay.
And I think it's already clear, but many of your colleagues and peer companies are announcing new efficiency initiatives scraps head count reductions is that.
In the cards for dollar.
Not at the moment certainly not in fact, we are we are hiring.
So quite the opposite.
And I don't expect that Dick change unless there's a change in and governmental decisions or governmental bodies decisions for for retailers across Canada, who are in our business.
Okay.
I know, it's really small business, but maybe your thoughts on online and what you're seeing there.
Well the online business is doing well.
But again, it's completely insignificant compared to our physical store base.
The sales are up but once again, what people want are the things that no stark and keep in their stores either so some of our sales are up for Kraft items, which is fantastic because I have craft items. This out.
But you know when it comes to things that are that are being driven by the specific needs of the public at the moment.
We have been consciously add directing all of our goods to our bricks and mortar operation. So when I'm able to buy an extra 250000 at hand sanitizer.
Bottles for example, which I did last week I want to allocate any of them to online sales, even if I could sell all of them online in a day simply because I feel that you know our the reason we are considered an essential service by the government's Canada is because we have the goods that people need at store level in stores.
And so weve directed all those goods to our stores and Michelle It's Michael just to come back a bit to your.
Question on Labor just want to mention to everyone that from a gen. Eight perspective, we were.
Not expecting this year at the beginning of the year any significant changes in our.
And our ratios from year to year.
So we were expecting the normal inflation and we as you all know ABA initiatives.
In the stores to offset the.
Some of that inflationary costs, however, again because of the current situation.
As Neal mentioned incurring additional labor costs related to pay increases additional employee hours to ensure the execution of the many co bid the 19 preventive measures.
Then.
And these costs are necessary to ensure that we follow the health.
Directives in place and to promote the health and safety of our employees and customers, but again, we will be providing precise figures on this in Q1, when we release the Q1 results so you'll lay below.
You will all be able to carve it out and understand the exact impact of it.
Okay I'll leave it for others.
Thanks.
Thank you and the next question is from Peter Sklar with BMO capital markets. Please go ahead.
Michael in your commentary you threw out a couple of percentages that 50% of a 75% I just.
I want to make sure could you go through that again I just want to make sure I understand.
What those percentages represent.
Okay.
And then and the script initially yes, so it's about the mall the stores in the malls et cetera, yes, okay. So.
Right.
The so we've got.
Okay.
Approximately 300 mall stores in Canada 54.
Those malls are close.
And for all the 300 ish mall stores that we have more than 50% of the traffic is down.
So it's a significant decrease the 75 so in other words, the mall store account for 25% of the chain and the other 75% of the chain the other stores.
And these other stores are not experiencing the.
More than 50% decrease.
In traffic so it's not as traffic they are experiencing some decline due to.
The facts, we mentioned to you.
And.
And we're seeing that more and more as the initiatives by the government tightening.
Movement of people and and.
Our impacting the that traffic up those sales in other words, the strip and the Standalone stores.
I'd also like to highlight the fact that almost all of those small store closures are in Qubec, where the government has mandated the closure of calls unlike the balance of Canada.
Neil you're talking about the bulk of the 54 correct, yes, Okay and then by April One thing you said confuse me.
So you said as a result comp.
We'll be negative in the first fiscal quarter, but are.
Stores that are being the stores that are being closed they will be excluded from the comp calculation Walter.
Okay. So first of all.
I mentioned.
That would be negative not for the.
Not necessarily for the quarter I sat for the balance.
Quarter, which is basically April.
Okay.
Okay.
And then my question is how are you treating.
The the stores that are closed in Quebec in terms of but comp calculation like are they taken out of a comp for just the close the period or the full quarter or are you seeing them.
Yes, well disclose that to you in Q1, so it fits say equity leave it in our if we carve it out we'll we'll be very clear on that.
Okay.
[music].
The other thing can I believe Easter is April 12 this year.
Neil can you talk a little bit about like typically which weeks leading into April 12, or the Easter selling season or the Easter selling weeks and can you talk about.
You know how how bad is shaping up I would assume that that Easter is way down year over year can you provide any commentary. So so generally it's around now I'm not going to give you much more specific city and generally generally you're right it's down.
[laughter] substantially down.
People aren't thinking about eggs right now.
Okay, and then lastly, Michael can you make any.
Commentary regarding the dividend.
Okay.
Look I assume that accompanies intention to maintain the dividend barring something dramatic happening, but what about what's your attitude towards the.
Typical dividend increases.
Well, it's exactly what your test so were not increasing our dividend we're maintaining it until you know.
Further notice.
Don't have a dividend policy its board to board and so.
If things were to change drastically, we obviously reconsider but for the moment as.
Steady as she goes.
Okay. That's all I have thank you.
Right.
Thank you and the next person.
The next question is from Patricia Baker with Scotiabank. Please go ahead.
Thank you and good morning, everyone actually I hadn't numbers questions, they've all been asked and answered.
I just wanted to get one simple clarification on Peter's first question.
The 50% down 50% down traffic in the in those malls or is that just are you talking about the period. There is that quarter to date I just want to know the duration.
[music].
No so that would be.
Six.
Yep.
So the it's yep.
Last week, yes.
It was down.
We started to see it last week, yes.
Okay, So approximately 50% decline in traffic for us for.
Just a weekend so far.
The net fair enough.
Okay, I'm glad I ask because I thought it might have been quarter to date and thank you. So much for all the incremental information and good luck.
Thank you. Thank you very much.
Thank you.
Next question is from Brian Morrison with TD Securities. Please go ahead.
Yeah, Good morning, I thought and appreciation for keeping economy mood for your responsible manner here. Michael quick question on the untapped revolver at year end I know you said you have a $135 million liquidity got increased to $800 million can you just clarify one from untapped to $700 million.
Currently is that $400 million cash pulled forward on the balance sheet maturation of the floating rate notes.
So its cash on the balance sheet for precautionary measures. So we pull we.
Hold on to the revolver.
Okay. Okay and then in terms of this is early days I realize it but I'm just looking at your hedge position and it looks like you've got US dollar hedge those six months forward just wondering as the U.S. permeate the cat is significantly depreciated.
Look towards the back half of the year, how what are your early thoughts on mitigating that.
Yes, so as you know our hedging policy has always been too.
Allow us to factor the cost of the currency into our pricing and so we've been hedge it's a bit more of them.
Then six typically it's safe to 12 months that where were hedged out so it's more than six and so yes.
We.
We are hedged out and so any commitments.
As always taken with that hedged amount in mind.
So the question is will there be inflation when we get to January of next year.
So yes, so maybe I can take that one.
We're doing our best.
To not raise prices on anything at the moment, obviously with the increased sensitivity on all sides.
That being said.
Obviously, when our dollar goes from.
$1.32 to $1.47 ish.
It's pretty serious.
And we'll have an impact and also when when some raw material costs like the cost of ethyl alcohol on one of the main ingredients and anti bacterial gels went up 10, 15% in the last week. All of these things will have an impact at retail at some point in the future.
We will do our best to push it off as long as we can but depending on how long it stays at those rates for then obviously at some point able get passed on but for the moment. We have we have zero plans to increase costs to our customers, but again that really is.
Function of the cost coming to us.
Thanks very much.
Q.
Thank you. The next question is from Chris Lee with T shirt and Securities. Please go ahead.
Hi, Good morning, I'm, sorry to ask you just getting because I had mentioned, we'll get some questions. After the call, but just want to confirm again.
The common unit.
So one of which I heard you right. So about 25% if your stores our mall based on those that are remaining open.
Greetings and the on average about 50% decline in foot traffic, yes since last week, yes, that's all good.
And the 50% as compared to what you guys were experiencing a year ago.
Yes.
Perfect. Okay. Thank you very much and another bunch when it comes from Michael You mentioned.
One of your questions.
Before closing.
Happened was.
The view on issuing a rate for the year was going to be largely flat.
Did I hear that right, Okay, yes, perfect okay.
And then just on dollar city can you maybe just remind me what are the terms of purchasing the remaining 49.9% stake.
Already or is it based on the fixed valuation multiple.
Right. So first of all there's no more call option.
There are only put options and put option period can only started in three years from the University from August 14th and it's at fair market value.
Okay, so as not based on anything pre negotiated.
Okay and.
And then maybe Neil just looking at sort of past economic downturns, how to your general merchandise category form.
One is that your low price will definitely be a for a strong selling points due to this environment.
Some of your products are more discretion nursery nature, which but you'll see a bit of an impact on volume. So maybe can you give us some colors on on how that performance went what was going.
Well I think it's going exactly as you said you said it perfectly which is.
At the moment people arent really thinking so much discretionary and at the moment.
Our business is open.
Not because of discretionary it's open because we're in the central service provider and so truthfully, if it impacts our sales, which it will no doubt.
Compared to a food store for example, as that's okay. Because the reason we're being kept open is to provide that service and less about the east drag.
Or the garden fence, although I'm thinking when the summer comes if a lot of people are staying home those garden fences might come in handy.
Perfect and then my last question is more of a high level.
Question I know you cannot give any numbers right now, but if I take a high level looking on your gross margin.
The next 12 months.
Can you walk us through some of the major factors that will impact your gross margin either positively or negatively over next 12 months I know you mentioned that raw material cost where do you like you see maybe just to elaborate on some other factors there will be much much appreciated.
Okay. So let me just I will do that and just step back a big a bit also because.
No we're talking about a short term situations, but the fundamentals have not changed the long term fundamentals are intact dollar Rama just so we're all clear now we're living a a.
Short term hopefully very short short term as possible situation.
And so coming into the year.
No.
Last year, we experience a 120 beep declining gross margin three main reasons mix change, which was not necessarily a negative.
Margin percentage went down but the.
Margin dollars went up then there was low inflation so.
Reduced on number of markups, which was a negative and the onetime logistics cost.
Impact, so which is no longer a negative this year so.
And all of this this balance approach allowed us to maintain our compelling value and stimulate more traffic sales and unit sales throughout the whole year and into fiscal 21, as we mentioned earlier.
Now.
We were not expecting significant changes in gross margin percentage this year.
From where we ended up.
At the end of.
Fiscal 20.
We don't have a onetime effect of DC IMO 2020, finally is not as significant as we thought the inflation level was expected to remain constant from year to year end. The mix change was not as high although I was a positive was not as high as less.
Year.
So.
That's coming into the year.
Now this what this situation is creating.
Is that.
We are experiencing.
Significant mix change as Neil mentioned earlier, so again more consumable sales so thats pushing.
The percentage margin.
Down and there's the negative scaling impact that's impacting also the margin and other costs that are related to.
Additional logistics costs due to the increase in frequency of distribution of certain products and so on so forth. So all of this is impacting negatively the margin, but this is clearly related to the situation that we're.
Going through right now.
After all of this.
And hopefully everything will come back more to normal, but so thats the color on gross margin.
Well. Thank you for your answers and I wish you and your employees continue to Ccs and healthy and continue to serve your communities can be challenging times. Thank you Sir.
Thank you.
Your next question is from Karen short with Barclays. Please go ahead.
Hi, Thanks for taking my question.
You know, obviously, you've given as much.
As far as possible on I guess last week, but I'm actually just wondering for the weakening 29 would you just to be able to give us a comp in Canada, because it does sound like that will get worse.
Before I get better who knows how long it last.
But if you could just give us a number that would be helpful.
Yes, when we have decided not to disclose that we've debated that then decided not to disclose it for the time being.
Prefer giving you the information that we have right now and clearly again all of this has nothing to do with the business model has nothing to do with competition has.
It has all to do with coal that.
A 17.
Why is going into.
Im sorry.
[music].
Otherwise.
Like I said coming into the year in starting the year.
Everything was.
The momentum was what we were we disclosed today.
But otherwise.
[music].
Where we will get disclose more information in Q1.
Okay.
And then I guess, just wondering with respect to mix shifts between.
I guess consumables and discretionary can you I. Obviously, there is a margin differential we will now that is the margin.
Essential size consumables in line with historical or is that actually currently being squeezed a little bit more given cost of goods is probably a little bit higher.
It's in line and I expect that to go up a bit from our cost perspective.
And the next week or two or three or four but I don't expect that to transfer into our retail.
For hopefully not at all but but.
For the moment, we have no plans to change the retail.
But but to date.
Historical.
Okay, but it may get squeezed a little bit more well just just as the raw materials get more expensive to our manufacturers right and then I guess last question I would ask is obviously you are as you pointed out you are essential and you're doing great service to everyone in Canada.
I actually was wondering if you had some learnings from.
Thank you could point too in terms of how you.
Kind of emerged from that.
Thats or whatever.
But also any color on kind of sticking if you had with customers.
I don't I'm curious you saw you would fresh eyes.
Any color there would be helpful.
As truthfully I don't think we're all looking at each other and I don't think anything comes to mind, obviously when it when we come out of this lot of people will have been hurt financially which is horrible.
And I think.
Unavoidable for the safety of and the greater good of all Canadians.
But.
We will do our best to keep that in mind, when we come out of this thing and make sure that.
We tried to do what we've always done which is really our guys on that.
And that is to provide the best relative value for the items that we can sell from one to $4.
Okay. That's helpful. Thank you.
Thank you. The next question is from directly with Canaccord Genuity. Please go ahead.
Hi, guys. Just a quick one just wanted to follow up on that gross margin discussion. The we've obviously seen a big reduction year fuel costs.
Over the last month, just wondering how quickly that can flow through year through your Cogs line.
Yeah. So there are fuel cost changes, but the challenges faced by our truckers and trucking companies with.
Potentially some of their staff going down either to through absenteeism or through actually getting sick or what have you as the offsetting some of those fuel costs for the moment and of course, when when Asia. A went down at the beginning a lot of boats were not selling et cetera. So overall, we're not really.
Are you seeing any any advantage from a cost perspective for transportation per se.
But I do think over the long term if the cost of oil stays down it could be helpful and I hope it will be helpful. Yet.
Okay. Thank you very much right.
Thank you.
The next question is from a Neal Goldman Cummins Dow with Industrial Alliance. Please go ahead.
Yes, good morning, guys.
Morning.
Just talking about your labor requirements on the number of people you have to hire to keep up with all the demand are you able to return masks some of the employees from the close stores to alleviate.
In the stores.
I have the actual staffing levels changed or you just reach asking whether they are doing so so I'll answer both questions. The levels have changed and Weve added labor hours to all stores that are open.
And as far as transferring employees from stores that are closed that is something that our field management team has put on of effort into.
And whoever is willing to transfer has been transferred and we'll continue to be transferred because our goal is to keep as many of them working as possible and some regions of course, it's simply not possible because if your stores off by itself.
Let's say 100 kilometers from the next door.
It's not practical to go with that concept, but as a whole we are doing everything we can to transfer employees from stores that go down for any reason as long as they follow all the you know the health and safety protocols that we need to follow.
Right and then your.
Distribution center.
Really I mean, that's incredible beehive activity.
Can you go to 24 by 70, helping.
Space out some of the people more you've already and that type of capacity.
We're still running our two shifts and the building has been split into physically into different parts. We have other buildings that are that are capable of taking on the job should we physically have to divide the building into different buildings.
More than just in half we've.
Segregated our workforces.
How they come in when they come in.
They all have protocols to follow to wash their machinery before they go to work physical distancing everything we can do to mitigate anybody getting unhealthy.
First and foremost and then obviously any effect that they have on the business doesn't help anyone either as so it is really our first priority that you know that whole distribution idea and piece of our business is extraordinarily important and so that is where.
The bulk of our efforts have gone to ensure that we can do the best we can to make sure. We have alternate plans should something happen.
Okay. So bottom line is you've had no loss of your capacity to serve this your stores and you could probably even do more if you wouldn't see sort of 24.
Space. So far that is the case, but as we all know you know we don't know it tomorrow holds but we're trying to think about everything we can do to make sure that if tomorrow holes that greater challenges, we're ready for them.
And then just on a broader I think supply chain you source from 25 different countries any any thoughts on further diversifying your reliance on China, specifically or or taking their products from North America, especially after this is over to build resiliency.
So the concept is nice and has always been nice, but the reality is in order to.
Be the that's relative cost in the market, we need to be the best relative source or.
Globally, and if if items were less expensive in other countries we would.
Theoretically already be sourcing them from those countries, so barring no pain or more to reduce the risk which is a decision. We've made in the past on some items and as a decision. We may continue to make on others. The I think the bulk of the discussion we need to be realistic about supplies and where they can come from around the world.
At the cost that we need to sell them for.
Okay. Good point excellent.
Thank you.
Thank you.
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Well as the conference call for today.
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