Q1 2021 Dollarama Inc Earnings Call
All participants please stand by your meeting is about to begin.
Good morning, and welcome to the dollar ramming fiscal 2021 first quarter results conference call.
No Rafi, President and CEO, and Michael Ross CFO, well make a short presentation, which will be followed by question and answer period open exclusively to financial analysts.
The press release financial statements and management's discussion and analysis are available at dollar Ram a dot com any investor relations section as well if on feet are.
Before we start I have been asked by dollar parameter we the following message regarding forward looking statements dollar ran much remarks today may contain forward looking statements about its current and future plans expectations intentions results levels of activity perform in schools are achievements or any other future events or developments.
Forward looking statements are based on information currently available the management and on estimates and assumptions made based on.
No you based on factors that management believes are appropriate and reasonable and 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 achievement future events or developments to differ materially from those expressed or.
Implied by the forward looking statement.
That's a result daalder ran a cannot guarantee you then any forward looking statement will materialize and you are cautioned not to place undue reliance on forward looking statements for additional information on the assumptions and risks. Please consult the cautionary statement regarding forward looking information contained a dollar reimage m. DNA.
June 10th 2020 available on feed our.
Forward looking statements represent managements expectations as at June 10th 2020, and except this may be required by law. It's all around the has no intention and 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.
The turn the conference call over to know Rossi.
Thank you operator, and good morning, everyone.
I hope you're all keeping safe.
And enjoying some nice summer weather wherever you may be joining us from today.
Throughout the first quarter fiscal 2021, we adapted quickly to an unprecedented situation in order to safely and effectively serve Canadians from coast to coast in difficult circumstances.
[noise] our focus from the beginning of the crisis has been on keeping our employees and customers see.
And delivering on the promise of the dollar I'm a Brian.
Recognize isn't a central business early on in the crisis, we have operated our stores without interruption, except for a limited number of store closures and have done so in full compliance with public health guideline.
The resiliency of our business model, what's proven by our ability to keep our stores from British Columbia to Atlantic, Canada open and well stopped.
I am proud about 20000 employees and what we've accomplished together in such a short period of time.
With many new work processes and wide ranging safety measures firmly in place we are well prepared to do our part to keep everyone safe as communities across the country proceed with a careful and gradual restart of economic activity.
[noise], we remain steadfast in our commitment to providing Canadian with affordable everyday products and safe and efficient in store shopping experience.
With that let's take a look at some of the key themes of the quarter before I pass it over to Michael to discuss our financial and operating results in more detail.
Our first quarter results reflected the direct and indirect effect of covered 90.
Pandemic itself in the measures taken to curb it's spread out a significant impact on the shopping patterns of our customers.
Sales for the quarter were up 2% compared to the same period last year and comparable store sales growth excluding temporarily closed stores was a positive 0.7%.
After a solid started at the to the quarter through February we experienced a surgeon traffic in early March as customer stocked up a mid growing fears surrounding the spread of cobot 19.
We saw a significant uptick in sales a product categories like household and cleaning products health and hygiene essential and food brought.
It comes as no surprise the demand for Easter and early summer seasonal goods party supplies in greeting cards was lower and these exceptional circumstances.
[noise]. This was followed by a sharp decline in store traffic by late March as a result of increasingly strict measures imposed across Canada.
All stores that remained open were by far the most impacted seeing a much more significant drop in traffic than our street level stores and mall stores with an outside entrance.
With customers keeping shopping trips in malls to a minimum [noise].
Enclosed mall stores represent about 25% of the change.
As mentioned on the last call. We nonetheless kept as many locations open as possible so that customers had access to everyday essential.
That's what especially important in communities with limited options or where we didnt have a nearby location to redirect them too.
Overall customers were making fewer trips to our stores that spending more on each visit.
This is well as illustrated in our assess results for the quarter comprised of a 22.6% increase in average ticket and a 17.9% decrease and the number of transactions.
By the end of April the situation began to stabilize with some provinces announcing indoor authorizing the gradual restart of economic activity and with customers venturing out of their homes a bit more [noise].
However store traffic continued to be adversely impacted by physical distancing measures in place.
These measures remain in place to present day unlikely for the foreseeable future.
[noise] looking at online sales. These saw sharp increase in line with the overall trend experienced in the market due to the panda.
Keep in mind that dollar AMA online sales, which are by the case only remain non material to our overall sale.
While we are pleased with this uptick and continue to develop our capabilities in this regard while maintaining our focus on our brick and mortar stores.
Looking at the second quarter now underway, we anticipate a very careful and gradual resumption of activities across the country.
Public health authorities closely monitor the effects of reopening businesses services and public spaces.
In this context it is important that the protocols, we have design and the measures we have invested in and implemented over the last three months remain in place.
Turning to our store network, we did manage to open 10, net new stores in the quarter, bringing our total store count 2301 location.
Please keep in mind that new store openings are planned well in advance and that most of these new stores were either ready for opening or close to completion before the start of the confinement and that construction, where it was still allowed proceeded and <unk> and such a way that all cobot 19 measures in place where risk.
Factor.
[noise] has Oh bar 1300, one stores hundred and forward temporarily closed at quarter end.
These stores were almost all in in close shopping malls, and primarily and come back.
The majority of these stores have since been reopened with the lifting of this measure and come back outside of the greater Montreal area on June 1st.
As of today, only 32 stores remain temporarily closed.
[noise] at quarter end, most of our stores operating with at least 10% reduced hours to allow more time for restocking and due to mandatory Sunday closures and the province have come back.
As of today, only 246 of our stores are operating with 10% reduced hours.
Measured improvement.
As previously noted supporting our employees and ensuring everyone's health and safety was our priority from the outset of the pandemic.
We invested significantly.
Significant capital and resources on wide ranging measures, which remain in place to this day.
Those include but are not limited to.
The implementation of a temporary 10% wage increase.
Robust in store health and safety measures to prevent the spread of cobot 19, including distribution a personal protective equipment, such as math glove and face shield installation of plexiglass shield that cash counters distancing markers in Q lines in directional arrows and <unk> as well as the implementation of copper.
At the store cleaning and sanitation protocols among other matters.
The addition of approximately 450000 employee hours in stores to ensure the execution of all new covert 19 protocol.
Financial support for employees directly or indirectly impacted by a positive covert 19 case with a total of only 20 confirmed store employee cases to date since the beginning of the Panda.
[noise] no operating procedures, and our distribution center and warehouses, such as health check increase sanitization reduce capacity in ship sizes and distribution a personal protective equipment among other measures.
[noise] incremental direct costs associated with these measures and incurred during the second half of the quarter are estimated at approximately $15 million about 14 million of which is S.G. and <unk> and the balance cost of goods.
This does not reflect any indirect costs related to lot sales or the impact of a different sales mix.
Our performance in Q1 demonstrates the strength of our business model.
And our strong execution abilities in a difficult contact.
It also reflects the continued appeal of our value proposition to Canadians across the country.
Every action we are taking today.
Is intended to protect and sustain the dollar him up brand for the long term.
Michael over to you. Thank you Neil and Hello, everyone.
So looking up the first quarter fiscal 2021 financial result in more detail sales increased by 2% to up $845 million driven by a higher overall store count.
And a 0.7% same store sales growth excluding temporarily close stores same store sales consisted of 22.6% increase in average transaction size and a 17.9% decrease in the number of transactions as customers would reduce the frequency of Sir.
More visits but purchase larger quantities of goods at one time.
If we include temporarily store close stores same store sales decreased by 2.4% year over year.
Gross margin was 41.3% of south down from 42.1% last year due to negative scaling affects of lower sales per store higher cells have lower margin consumable products and incremental direct.
Costs related to cold at 19 measures implemented which had a 10 basis points impact.
As you and therefore, the first quarter represented 16.3% of sales compared to 14.7% themselves for the first quarter fiscal 2020.
This variance mainly reflects costs related to additional health and safety measures and temporary wage increases.
EBITDA was $213.7 million, representing 25.3% Upsells, a net earnings were $86.1 million and diluted earnings per share share was 28 cents.
Capital expenditures increased by 17.3 million to $48 million for the first quarter fiscal 2021. This increase larger largely reflects a planned investment in additional self checkout machines. The piloting of self checkout has.
Ben and ongoing project for the last two years and we continue to gradually extend.
Additional self checkout machines will be installed and high traffic locations across the network to help accelerate that checkout process and free up our employees for other in store tasks outside of the quarter and we had just over 50 self checkout across Canada, and we expect to at least.
Double that by fiscal year end.
We are proceeding with planned capital expenditures were their work can be completed without requiring air travel and as long as all Colgate 19 related safety measures can be followed.
This applies to self checkout installations, but also to new store openings and other ongoing initiate initiatives such as security cameras and others for optimization project [noise].
As a reminder, we have suspended guidance for the fiscal year due to the ongoing situation. We will continue to reevaluate this decision on a quarterly basis.
So looking now at dollar city that its latest quarter ended March 31st 20, $20 City had a total of 232 stores compared to 228 as at year end currently dollar city have three temporarily closed stores down from 40 close.
<unk> in mid March 2020, however, a strict colvin 19 government measures remain in place in El Salvador, Eduardo Guatemala, and Columbia, including Curfews, another measures impacting store hours of operation and customer traffic.
Older cities contribution to our net earnings for the first quarter was $2.4 million and was only slightly impacted by code at 19 cents. The pickup is for the period ended March 31st 2020, we expect a fuller impact of cold in 19 on dollar city to be felt in their next.
Quarterly results.
As a reminder of the calculation of the final purchase price for the 50.1% interests and dollar city was.
Acquired.
We acquired in August 2019 will be based on 20 month period ending June Thirtyth.
2020, so on a few weeks from now in the context of coal that 19, and its projected impact on 30 cities sales and operating results. We have adjusted the estimated purchase price from U.S. dollars 92.7 million to $80.4 million U.S. and.
From payment of 40 million you Wes I was already made in August 2019, the balance of the purchase price based on audited financial statements will be paid in our third quarter fiscal 2021 with available free cash flows.
Dollar I'm also made a U.S. 20 million U.S. dollar 20 million.
Capital contributions subsequent to quarter M $2 city to cover our share of the costs associated with a series of transactions.
And at bringing real estate assets into the dollar citigroup, eliminating existing related party leases and then sourcing logistic.
Activity.
No further capital contributions are expected to be required from stockholders in the foreseeable future.
Dollar cities management is proceeding with caution regarding ongoing projects on his focus on respecting directives in place, including health and safety measures. They continue to manage the business prudently and as the situation gradually improves will carefully resume our growth.
Flat.
[noise] in Q1 fiscal 2021, we did not repurchase any shares under normal course issuer bid in order to preserve liquidity in the context of Coven 19 pandemic. We also increased borrowings and drew down on our committed revolving credit facility and issued notes.
Under our recently implemented U.S. commercial paper program to further improve our liquidity in an uncertain contact at the end of the first quarter. Our leverage was identical to year end at 2.9 times adjusted net debt to EBITDA.
We will maintain our prudent approach to capital allocation as the situation normalizes. The board has approved the quarterly dividends, a 4.4 cents per share and we'll maintain its approach of evaluating the dividends on a quarterly basis.
Cash flows from operations together with cash on hand, and credit available. We'll continue to provide dollar I'm, a with a solid financial and liquidity position.
So Neil back over to you to for you the concluding remarks.
Thank you Michael.
In conclusion during the first quarter fiscal 2021, our teams in Canada, and Latin America, as well as our customers faced an unprecedented situation.
We adapted quickly and accomplished a lot in a very short period of time to serve customers safely and efficiently in these markets.
Our business model and supply chain of showing their resiliency in challenging time.
So has are strong and dedicated team.
The relevance of our convenience and strong value proposition to consumers also shine through in every corner of Canada as well as in the markets, where we are present in Latin America.
As we enter the second quarter in the summer month, we accept.
Back shopping patterns to continue to evolve keeping in mind that physical distancing measures will continue to have an important impact on store traffic.
We remain committed to providing our customers with a compelling assortment of everyday products at affordable prices, along with a safe and convenient shopping experience.
With that I'll now turn it over to the operator, thank you.
Thank you Mr. Rossy, we will now take questions from the telephone lines. If you have a question and you using the speakerphone. Please lift your handset before making your selection.
Other 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 if you have a question there will be a brief well that's all the participants register for questions. Thank you for your patience.
And the first question is from I agree Mattel from RBC capital markets. Please go ahead.
Thanks, and good morning channel and learning I was wondering could we could.
Just maybe start with a little bit more color around Q2, two days and they know which really early but you know nice things have started opening up a little bit are you seeing a little bit more demand for let's say some of the more boredom staying or.
Or items number one number two.
Anything you can do it but the way you items are displayed are located in the store to facilitate purchase of those kinds of items. When people are trying to respect social justice.
Okay. So maybe I can start to Neil.
So so following a volatiles sales environment a in Q1, we are happy and pleased with the momentum were seeing in our business right now a endear early.
Part of the second quarter so.
We are seeing seasonal cells like cast summer.
Picking up a in early Q2.
So, we we and as Neil alluded to and the opening a.
Text.
That as de confinement happens this is that type of a reaction we're seeing.
Okay, that's great Yeah, and others have for example, Canadian tire just talk a little bit seeing chicken in seals.
Fordham postures, certainly you guys seem to be well positioned from that perspective, Oh, you know lower <unk> more accessible price points would you when you look at your line up.
Seasonal yes types of items would you agree.
Well I think I think well I'll give you an anecdote that might answer your question. So so in our evolution.
ER of training you know next generation buyers and building our bench strength, the a buyer of summer gardening.
Watering accessories et cetera change last year to this year and I can tell you that the new summer gardening water accessories buyer looks like a genius right now.
And he's ecstatic that is numbers that.
Our over the Moon and I told them with all due respect that that it's exciting but you know since everybody is that home gardening right now it might have impacted it is performance a little so yes, I think that you know what people are doing at home right now is certainly impacting what they're buying and at what.
Great.
So you know, there's more barbecueing and gardening and and gains going on at home, then, they're usually isn't less travel or but I.
I think that specific of course, the this particular time and challenge in life and I doubt that that's that's a new trend per se. After we solve the current crisis.
Thank you and just wondering just talk a little bit about dollar city from all that.
Yes, sure the purchase price revision downward is that purely because of current performance.
He has it changed at all.
Or just a current environment change or how do you think about the potential.
Yes, great question Irene D.
So.
In fact, what's happening.
Is that and if you'll recall the cost of the investment is formula based and until the formula as Weve described than the past a is five times EBITDA the EBITDA.
Is.
The Paris covered is for the 12 month ending this June upcoming June Thirtyth and unfortunately, a the coal that impacted as we stated that beginning March April may and June had an impact on the couch.
Elation. So unfortunately for our partners that that impacted negatively so it's strictly a formula base has nothing to do with the potential of dollar city.
In the future and and and by the way this adjustment.
That's how we're doing a on the investment part also triggers or a tax.
Impact that we disclosed in our results in Q1, you will see that on the tax line, you'll notice that the percentage has increased a percentage of sales and that's due to a 4.5 million onetime.
Adjustment or impact relating to the adjustment of that investment and dollar city.
So our corporate income tax is 4.5 million higher.
Because of this.
And while I'm on the dollar city I mentioned that a in my tax, but just wanted to make sure everyone understood.
Is that [noise].
We incorporated.
We included in our Q1 results.
Our Q1 period. This February March or April their dollar cities period is January February March so their results that we included in our resolved.
That does not include April and so in our Q2 results, we will be including their April results. So expect that to have a negative impact.
In Q2 for a a dollar city so.
That's what I wanted to clarify and make sure everyone.
Understood clearly.
And I'd like to thank you Irene first supporting dollar AMA by buying you're Lucky immobile card.
[laughter] cod.
Again, [laughter] for that and got lots more questions but.
Thank you.
Thank you next question is from Mark Petri from RBC. Please go ahead.
Yeah. Good morning, I just wanted to follow up with regards to your comments I'm on the performance of Q2, thus far aside from the categories, where you've seen a.
The big surgeon interest related to the home and outdoor play has there been sort of other significant changes in shopping patterns in terms of which categories you called it seasonal recovering I guess from what we what was was it was a pretty tough Q1, and then also you also called out.
Traffic.
Being you know continue to being under pressure.
If you look at sort of the traffic trends for the non mall stores have those changed materially over the last kind of six weeks from the end of Q1.
Well, we just reopened a as we mentioned you know some of the mall stores. During Q1, we are the last time, we spoke in Q4 at that time, we announced 55 closures that went to up during the quarter to 100, then four ish and now as.
Back down.
To 32, so one for those stores that are reopening you've got some positive traffic at kicking backend obviously.
But I mean, that's a slow pick up where were just you know beginning to to see that I, but I think people are still what we see its tail car caution in other words people not coming as often by buying more at a time I think you know those are the.
What we're seeing right now.
Okay, and any other commentary about the category performance or where you've seen ups and downs over the last little.
I mean as mentioned party is down a greeting cards are down the normal the normal things that you would think that people are doing lots of where where large groups of people are necessary to generally to do at those.
They are down and and other things I guess have taken their place in our compensating and are stronger than normal like.
A lot of our toys in summer toys pool toys.
Gardening stuff like that.
Okay, and and as you sort of been planning your assortment for fall winter and that and then I guess even into 2021. How has this experience sort of affected that process and just sort of thinking specifically about mix, but obviously interested to hear any other comments you know how do you sort of plan for how long that these sort of in.
Our next May lie.
So there there are too.
Parts to that question. The first part is.
The question of whether a Halloween and Christmas as you know will be normal not normal there'll be parties no parties there'll be a million kids that every front door or not and the answer is nobody knows the answer to that question and so we're going to continue with a busy.
This is usual approach if everything is back to normal fantastic will be integrate position and if it's not then we'll have a bunch of Christmas and Halloween goods to carry over till the next year and you know we're being more conservative how we buy the consumable things like the chocolates and the candies, but.
For the for the other stuff pick in last another year, it's not time sensitive and so we're going to take the risk of having too much holiday season goods in order to be sure that we have the good should things get back to normal. That's one piece. The other piece is you know will people continue to buy Alan.
Sanitizer and disinfecting wipes.
At the Mad pace that they've been trying to get them for the last several months to go forward a in a once there is a vaccine or another solution to this crisis and again nobody knows how stringent peoples mindsets will be post a solution to this problem well they have a different you know default level of.
Have you know sanitary habits, and protocols or not who knows so we're we're doing the best we can to put ourselves in a position that isn't over committed or under committed and taking the best educated guesses. We can but there is there are many questions that no. One has an answer to and therefore, we are.
Or simply doing the best we can to take our best educated guess on what the right way to handle that.
Yes, Okay. I appreciate that I guess, you commented that you expect to continue to invest in the value proposition to consumers.
But I think also times you guys are a fast follower and the market. When it comes to prices. So is that a common and not outlook that you will be holding price or investing in value is that irrespective of the competitive environment or were you just simply highlighting your expectation that the market is going to remain competitive and just limit price increases overall.
So.
That was more of a.
Temper temporary sensitivity to the occurring pandemic situation.
We don't want to be taking advantage in any way of our customers and we've taken on the responsibility of having been kept opened as an essential business and a very very very.
Let's say.
Serious are responsible fashion to the best of our abilities and regardless of what other retailers are doing whether they're charging more because they can because there's a need we feel we wanted to stay true to that responsibility.
The question over the long term of non essential goods. You know we continue to follow the philosophy, we've always followed which has to be a price follower and not a price leader and if the cost of goods. It goes up because the dollars weaker or a million other things that affect what cost.
Effects the cost of our goods and therefore, the retails as that we have to charge, we will follow the market and make sure that we remain competitive but.
We can we can't simply absorb higher cost forever, obviously at some point you know they get passed on in some form or fashion as conservatively as we can.
Okay. Thanks, and then just last one with regard to the elevated talks in the period I'm. Just wondering if you can give any more specifics about the buckets of the 14 million invest unit costs, obviously, it's mostly labor, but maybe a number and then also more broadly I'm just curious how you're looking at those elevated talk.
How sticky you think it will be what will go away and how you're thinking about sort of systems I guess semi permanent changes to your cost base and how you operate the than the DC or in the stores.
Okay. So.
The so we told you all that the a 14 million of Gionee. The majority of that is a labor costs are in fact, I'd say a 13 million.
As labor and 1 million as you know equipment Plexiglas, a hand, sanitizers mask loves the whole kit.
No the a and the 13 million includes the 10% bonus and the I agreed tour of the shift that we created and every store. So all of that is a part of that car.
Obviously, that's going to continue into Q2, and and so and we will highlight those again for you at the next board meeting.
Maybe the color we can give you a short term.
This is.
You know moving into Q2.
From a gionee standpoint, if you have to exclude the the cold that costs.
We expect Gen eight to perform the same and the same way or in line with what you saw in Q1. If you also exclude the cold and cough.
So that's.
What we're seeing right now.
For the gross margin portion.
We still expect a mix change impact to continue.
We still expect and.
An increase in products like Neil just mention that we're not going to pass on to consumers. So that will happen. There continue to have a negative impact on.
The gross margin and finally, obviously, the cold that costs that impact the logistics mainly operation.
Okay I appreciate all the comments all of us good cool.
Thank you. The next question is from Vishal Shreedhar from National Bank Financial. Please go ahead.
Hi, I'm I guess are.
This question is and maybe a little bit more difficult to answer maybe you've already alluded to it right.
As you reflecting on what the consumers telling you. During this period of time, obviously, the consumers coming to dollar Rama during that period as I call. It a distress.
Ordering signals that you're hearing message is that you're hearing from the consumer that will cause you to change the way you're doing things, maybe a little bit longer term for example.
The consumers are coming to dollar AMR, obviously pressured and there and they're buying a lot in the basket, maybe that's causing you to reflect on maybe the price points higher. So we can offer consumers more where the types of merchandise that you offer or your ecommerce on for any of those types of initiative.
From from the perspective of our bricks and mortar at stores the answer is no.
From the perspective of our online operations.
Which are already not the norm and they're already.
Specific to trying to accommodate our customers and bring a different.
As sort of business or plan in a and availability of goods to our customers than simply buying the same goods is there in our stores.
Which which is not why we built that platform. We built it for people who wanted a large amount of the goods to not disrupt our brick and motor stores. We will continue to use that online platform to make all kinds of goods available that we think our customers might be interested in and therefore, you might see different things tested or tried on the online platform, which.
I'll have nothing to do with our philosophy or our approach with our brick and mortar operation.
Okay. Thanks.
And just a few other quick ones here.
In terms of bye.
There's so many new cost coming into the system and they're sitting not only dollar Rama, but your colleagues appears as well and and I know.
You are trying to maintain a certain.
Right price points for your consumers, but indeed, indeed, a more discretionary items are you seeing inflation in the market yet.
I think what we're seeing and the market is as inflation on the more essential items to be quite honest and less on the discretionary items.
And those are the items that were sensitive not to move on as much as possible.
But as though as a whole there's been a little movement on the non discretionary.
Or the discretionary I should say and the more it moves the more of course, it allows us to move along with it.
Okay and on the here, okay, or some retailers and start to scale back those initiatives. They I know you've given us the timeline for that first tranche.
Oh paid extended out a compensation there any thoughts on how how a dollar on this thinking about that.
Well, we're thinking of it what's best for our employees for our customers and our shareholders and all of those three categories are incredibly important but they're all affected by every decision we make and so we have to remain competitive for our employees to be able to have jobs and be able to pro.
Divide the goods, we have you know for our customers and so we have to keep at all.
In consideration and where where we're sensitive to all of those parties. So it's a it's a thing we study throughout the year every year for many years trying to make sure that we're treating our team as well as we can while still being competitive.
Okay, and moving on here, a little bit more technical.
The Tories were down a bit a year over year I know last quarter I think I last quarter. It was comment to that some inventory items were already in motion and there wasn't much ability to control the inventory at least I recollect right. Just wondering if the inventories were down because there was some managing of working cap or were there other factors at play.
No I think it's just timing so there's nothing going on with inventory you know either good or bad it's for us, it's more or less.
You know business as usual, it's just a timing here of of.
What you see a there so there's no nothing to be worried about or to be concern.
Okay and ER.
And I meant quarter over quarter inventory, but yen and just looking on last winter was on dividends I know a board decision, obviously management's encouraged with trends in Q2 and cash flow. So seems to be strong. So yeah. I guess, it's just a quick on [laughter] could put on behalf of the Gord, what do they need to see.
You got this dividend going again, your view and the buyback for that matter.
What we said during you know, we just and as things unfold, we will adjust but it was key for us to drilling.
They these uncertain times to freeze I bet you know the.
They are that dividend or buying back shares.
And just to make sure that may be over precautionary, we'll see a but for the time being you know we stated that during this period.
Those all elements that we would freeze and as things unfold and come back more to ignore normality.
Then I will discuss that again with the board.
Thanks for the color.
Right.
The next question is from Peter Sklar from BMO capital markets. Please go ahead.
Thank you Neil I just wanted to clarify your comments so on the 10% wage premium, but youve put in place are you, saying that.
You don't have a view yet on the timeline when that may come off.
Well, so far we've announced July 1st.
And until further notice that is the stance we've taken.
Okay.
I don't think I wanted to ask you in my call about is on your gross margin, which was down about 80 basis points during the quarter, which I thought was a good performance given the.
The real category shift you would have had into consumer both so I'm. Just wondering if you had any further comments about the gross margin beyond what you've said already anything about could.
Positively impacted it or any other color you could you could put on that.
Sure so.
We have so out of the 80 bps, you've got 10 beeps relate it to the Covance. The other Saturday I would almost split half and half scaling and mix.
Okay.
And there was a bit of cost also.
<unk> costs increased that wouldn't have not pass off but it's mostly.
Mix scale and last a bit of cost okay.
Michael The last thing I wanted to ask you you know like every one somewhere I don't know puts every year every two years.
Use not consulting firm kind of does an economic God demographic study by.
All the sub markets across Canada, when you come up with a view on store count when is your next update for potential store count per dollar Ram and Canada.
Yes, so so that would have been that would be like this year, but right now because of what's going on with the cold weather. We just want to make sure that we understand that dynamic coming out of this and <unk> and and the you know then well once were comfortable with.
That will.
At the appropriate time come out and give you more color.
Okay. That's all I have thank you.
Q.
Our next question is from Brian Morrison from TD Securities. Please go ahead.
Mr. Morrison from TD Securities. Your line is now open.
Hi, there sorry.
Neil We just go back to price inflation understand or clarify exactly what you're saying here. So we've noticed a handful of price increases in recent days on specific items and confirmed that was store employees and Michael So that's going to continue to be a headwind in Q2, but I'm really curious if you've started to response, we take price.
Recently as you see things such as FX forthcoming.
Right. So so it's all relative and other relativity of the number of price increases that we are doing now relative to what we do and normal course of business or others do normal course of business is at an all time low or is that to say.
That you won't see any no definitely you'll see some where vendors have put through at a large increase in our cost and I can think of many items, where the costs have gone up by 20% to 40% I can think of some items, where they've gone up over 100%.
We will be passing on some of those increased cost to our consumers. The question is more where the market is going up and we have a decision to make do we or don't we and we can keep our.
Existing price, particularly on all of the essential good we will hold our price and not take any markup.
So as we go forward will your price increases as we get into fiscal 22, do you believe that they're going to be positive neutral.
ER to your gross margin.
I honestly, that's something I have to watch and see it's it's not it it's less dependent on US then it is on the market we need to remain competitive the market goes up we will go up because it means we're all absorbing the same higher costs for multiple reasons.
Okay. If I can ask a question on dollar Citi. Please can you just maybe just outlined the seasonality of that business I thought it was flatter than not a dollar AMA, but just based on the Q4 in Q1 results are clearly have been correct.
Okay, Yes.
That the the this so.
For Q1, it's a more or less the same as a dollar on my except for April like I said.
Because there is up.
The kind of.
Uh huh.
Offset an offset.
Right now between their quarter NR corridor. So like I said, we picked up their January February March results.
Not their April results are our results our February March or April too.
So.
So for Q1.
It's more or less the same Q2 Q3.
Q4 is.
A higher but again there is that month their friends difference in Q4, because they've got October November December we have November December January.
So there's not sat here.
Between ourselves and them, but typically if you look out on a monthly basis, it's more or less the same as we have.
Okay understood and last question in terms of your store count at dollar Amazon or the end of the year can you provide a sort of an updated target on where you think that could land.
No.
We I mean, we're not giving any targets up Brian, but I mean, you can see today.
Going through the worst of it we opened 10 store compared to 11 last year. So.
I think a it's going well.
Maybe we'll give you a bit more cover next quarter.
We decided not to give out more now.
But to date, it's going very well.
Thank you.
Thank you next question is from Chris Lee from danger, Dan. Please go ahead.
Hi, good afternoon, everyone.
Just two quick questions hopefully bushland Neil you guys increase the number of skews by almost 1000 last year I guess my question is how they performing so far and just a higher number of skews.
Increase of flexibility to perhaps lunch higher price points.
In the near term.
Well.
The first part of your question is that those skews are performing well and in line with the overall mix.
The second part of your question is that the bandwidth of more skews has nothing to do with the discussion about raising prices there entirely different questions. We can raise prices whenever we wish we just choose not to for the time being and as what it does allow us to do over the course of time.
I am as as our logistics and supply chain and replenishment systems get refined it allows us in the same sized retail boxes to have more skews without increasing our logistics costs for managing them and that's why it's a slow but steady procedure.
Okay Thats, great Thats helpful and then.
We expect to see more attractive real estate opportunities. During this recession. This other retailers like be shutting down and therefore is real potential for adult around that to perhaps accelerate your new store openings over the longer term.
Well God willing every landlord in Canada is listening to your question and something good will come from it but for the time being we remain a diligent about finding and assessing every possible location that would be interesting to add to our.
Our current mix based on geographies and population densities and all the other things that you would think when asked to consider when looking at new store locations.
Hopefully without.
Sounding.
Insensitive to those.
Locations that were occupied by other businesses.
Hopefully dollar on well have opportunities that it hasn't had in the path and Ah you know that's that's being studied on that day to day basis by our real estate team and a if if if were.
If we're fortunate and the opportunities will be there more than they have in the path and if we're not fortunate it will be what you've seen for the last number of years, which is still.
A very aggressive growth.
[music].
The pattern that we are doing our best to continue.
Okay Thats, great maybe just one more realistic question.
What's the company able to obtain any type of rent relief and then maybe secondly are you able to review leases, perhaps a more favorable terms.
Given the current environment, then prequels it.
So so the second part of your question, we don't disclose on the first part of your question I'm, Craig I'm quite proud of the fact that.
Regardless of what we could've done or what others did.
We made a decision from day, one to be you know sort of perfect corporate citizens and pay every landlord every lease every penny whether thats store was open or closed so even if the mall was closed.
For no fault of our own a we continue to pay ranch everywhere and absorbed all the costs of the pandemic in those locations and did not go back to the landlords to try to get at anything from them and I think you know part of our philosophy was one it was our responsibility.
To do so if we could end for too that we hoped.
Our partners and on the landlord side would acknowledge the efforts we made it now and go forward when they are re signing leases and renewing leases.
You know how how good we were as partners.
Great and then for the 60 stores that have self checkout is currently can you share with us what is the average scan rates.
Total stores.
We don't.
Disclose that.
Chris.
But maybe what we can say is that it did increase during the current period that's for sure.
But otherwise.
No. We are we're not disclosing that information right now right.
So so it was an interesting.
Project at the start with and I think our customers have really told us in the last little while in particular that they like at the idea and sort of there was much more by in two of the concept of checking yourself out then there has been in the past.
Even if it made sense in the past.
From a customer perspective, they liked the IDN started to use it more than ever and so you know in the end the cash out process is a customer centric protest, we need to be sensitive to out best serve our customers and they're telling us that they like that process very much. So we're working on a nice.
Balance of of you know continuing to roll out and and and improve our self checkout process is make sure that our employees, who manage those self checkout machines are available to ensure that those processes are well executed.
Are there for the customer and so we're trying to keep an eye balance between you know.
Customer service and making sure that we have the correct employee hours in the correct people at those machines to help with that service.
Great and then my last question is just on Chin expenses I just want to confirmed Michael I guess this Q1, if we exclude cobot.
Do you see an expense dollars were largely flat compared to last year did I hear you correctly that for Q2, yes. It's gotten the same trend. Okay and recently was flat was it flat, mostly because of reduced hours and temporary store closures.
Well with any initiatives that you guys accelerate to manage the expenses.
Yes, well to be you know.
Clear and transparent there's it's flat with last year, there are some noise there related to covance.
It also takes into account the fact that it's flat regardless of the downscale.
So.
But there's a there's noise in there.
To to be is to be more.
Not to lead you on a wrong path.
So, let's just say that.
Overall, you know.
Q1 was a good.
We've got productivity initiatives in place.
That are an accelerating them.
With what you saw on the Capex side in Q1.
To help us offset any normal inflation for this year, so thats moving along very well.
That's great has a quick summary, and continue to see safe and healthy.
Thank you and Youtube.
Thank you.
Thank you and the last question is from Patricia Baker from Scotia Bank. Please go ahead. Thank you. Good afternoon, everyone. Neil in your opening remarks, you did talk about the fact that you had a strong online sales and that's not surprising, but I'd be really curious to hear which categories, which products I did you see demand for in the folks out.
Sure so.
We did the best we could to make our essential covert items available online and there was a at a very strong following of customers whether they were individuals are small businesses or or institutions that.
Took advantage of that platform.
To help them solve their issues in sourcing PPD. There was also a very nice uptick in.
Crap.
And the other project items for people, who had to become I guess as teachers to their children. When their children can no longer go to school.
And things of that nature, Okay interesting and then Michael I don't know if you will answer this but just on that question Uh Huh.
The work growth in 2000 in 2020 can you talk about how many projects are currently.
In the second quarter are currently still under construction.
Uh huh.
No but.
No I again, it all in Q1.
We have fared very well in.
The worst of the.
Pandemic.
So you know hopefully what things are.
Getting calmer income or is it just makes it easier.
Alright, Thanks, Mike all right.
Thank you we are unfortunately I would have time this will bear for close the call at this time.
Thank you.
Once again, we the conference has now ended please disconnect your lines at this time, we thank you for your participation.
Once again to conference has now ended please disconnect your lines at this time. Thank you for your participation.
This conference is no longer being recorded no because she's pretty modest goofy homes.
Pete.