Q2 2021 Dollarama Inc Earnings Call
All participants please standby meeting its about to begin.
Good morning.
Good how about fiscal 2021 second quarter results conference call, Neil Ralph <unk>, President and CEO and Michael Brown, CFO will be short presentation, which will be followed by question and answer period open exclusively to financial analyst.
The press release financial statements and management's discussion and analysis are available at dollar and my Dot com in the Investor Relations section as well this on star.
Before we start I had been asked by dollar and that should meet the following message regarding forward looking statements.
All that much remarks today may contain forward looking statements about its current and future plans expectations intentions results levels of activity performance schools or achievements and 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 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 or achievements future events or developments to differ materially from those expressed or implied by such forward looking statements.
As a result, delaram I cannot guarantee that any forward looking statement will 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 Radnets and Deanna eight dated September 2nd 2020 available on SEDAR.
Forward looking statements represent managements expectations.
September 2nd 2020, and except as may be required by law dollar and I have no intention and undertakes no obligation to update or revise any forward looking statement, whether as a result of new information the future events or otherwise.
I would now like to turn the conference call over can you receive.
Thank you operator, and good morning, everyone.
We're pleased with our financial and operating performance and the second quarter fiscal 2021.
Highlighted by strong sales growth and gross margin performance.
Throughout the second quarter, Preventional, Reopenings plans unfolded and economic activity gradually resumed in communities across Canada.
During this time and to present day, our teams remained focused on providing Canadians with affordable everyday products and safe and efficient and store shopping experience.
Our strong topline performance.
Elected the relevance of our product offering and value proposition to Canadian consumers.
Dollar Ahmed positioning as a shopping destination of choice for all Canadian from coast to coast.
Compared to other rollercoaster, we experienced in Q1 with the shift from panic buying to full walk down the situation stabilized on several fronts during Q2.
We saw steady improvement in customer traffic throughout the quarter.
By mid June we were able to reopen the last 30 or so stores that were still closed temporarily as a result of government imposed mall closures in the greater Montreal area.
[noise] store opening hours have also been normalizing and sales of some of our non essential categories such as summer seasonal picked up as locked down measures were lifted.
Overall, when looking at sales performance by Department, our sales mix reflects the fact that our customers are spending more time at home.
I think more gardening barbecue things of that nature.
Looking at the bottom line as shopping patterns in sales mix continued to have all customers purchased a more higher margin items, namely summer seasonal.
Impulse items, such as chewing gum and candy, resulting in a strong gross margin performance.
On the real estate front, we opened 13 net new stores during the quarter.
Our plan is to process had with as many net new stores openings as possible for the remainder of the year inline with our long term growth plan.
As I speak conditions appear favorable, but as with everything else. These days the number of new store openings will depend to some degree on how well communities across the country control the spread of the Corona Bye.
In other words, the exact timing of openings, it's harder to forecast this year, but there is no lack of opportunities.
From a public helped standpoint, we're very pleased with the effectiveness of the numerous health and safety measures put in place in our operations.
More than 20000 employees have remained vigilant in protecting themselves and our customers.
We recorded a very low number of cobot cases, among store staff and then our logistics operations in Q2.
Bite the lifting up locked down measures and the resulting increase of in store traffic.
We will continue to make the required investments to maintain cobot 19 measures to protect the health and safety of employees and customers for as long as necessary.
While this situation stabilized throughout the quarter the impact of the pandemic remained and the experience of the past six month continues to shape customer shopping patterns.
And this context, we're closely monitoring what our customers are buying to ensure our store offering remain relevant to Canadian families.
Third and fourth quarter's well be particularly insightful since they are historically seasonal heavy quarters for our company.
We anticipate that Halloween historically significant season in terms of high sales and positive margin contribution will be negatively impacted by kobin restriction.
Including social distant thing.
Our Q2 results show the resilience of our business and we answer the second half of the fiscal year with a good tailwind.
And 1300, and 14 stores ready to serve customers across Canada.
With that I'll hand, it over to Michael for a closer look at our financial and operating results.
Michael Oh, yes, yes, thank you Neil and Hello, everyone. So sales for Q2 increased by 7.1% to a little over a billion dollars driven by a higher overall store count and 5.4% same store sales growth sales were.
Boosted by demand for summer seasonal products, including gardening barbecue pull toys as well as our everyday products. We started the second quarter with 104 stores temporarily closed due to the mandate at closures primarily in Qubec malls. In addition, 84%.
Of our stores were operating with a 10% or more reduction and in opening hours to stock shelves outside of opening hours or due to mandate a closures of stores on Sundays and come back.
By June 19th all stores I had been reopened and as of today, only 83 or 6% our operating with approximately 10% reduced hours.
Mall stores, which represent about 22% of the network continued to underperform from a customer traffic perspective compared to the rest of the chain.
While customer traffic increased during the course of the corridor customers Nonetheless.
Continued to make fewer trips, but spend more on each visit this as well as illustrated in our same store sales resolved.
Comprised of a 41.7% increase an average ticket and 25.7 per cent decrease and the number of transaction.
If we include temporary closed store same store sales increased by 2.5% year over year.
Looking at online sales, while they remain non material to our overall sales. These continued to see a strong increase and we are pleased with the continued progression.
Gross margin was 43.9% of sales in Q2 this year up from 43.7% last year as a result of increased sales of higher margin summer seasonal products and the positive effect of scaling due to high yourself. However, the margin continues to be impacted by the incremental direct.
Costs related to covert 19 measures, which amounted to $1.9 million in Q2 or 20 basis points.
Gen eight was 16.7% of sales compared to 13.9% in fiscal 2020. This variance mainly reflects incremental costs up $32.4 million related to additional health and safety measures and temporary wage increases.
These costs had at 320 basis points impact the 10% temporary Riyadh temporary wage premiums for the store employees. Initially scheduled to will last until July 1st ended on August 2nd 2020.
Our measures for example, the execution of additional cleaning protocols, which represented about two thirds of the costs incurred to date will remain in place for the foreseeable future.
EBITDA was $277.9 million, representing 27.4% of sales net earnings of 102.5 million and diluted earnings per share was 46 cents, a 2.2% increase compared to Q2 last year.
Cash flows from operating activities totaled 282.3 million compared to 182.8 million in Q2 last year, driven primarily by improved working capital due to deferred deferral of tax installments allowed by Canadian tax authorities in the context of the cold in 19 pandemic.
Working capital also improved due to reduction in inventory as purchases were impacted by consumer shopping patterns at the height of the pandemic.
With higher sales have higher turnover domestic goods compared to lower turnover of important goods imported goods.
Inventory at the same day last year was pushed upwards by the early delivery of Halloween and Christmas stock to our warehouses.
Capex increased by 4.1 million to $34.5 million, reflecting our continued investment in self checkout machines.
As of quarter ran we had self checkout is available to customers and over 90 stores across Canada, we expect to double that number by fiscal year end. Our objective is to install these in high traffic stores only to help accelerate the checkout process based on our pilot to date install.
Machines are helping us achieve this objective.
The other cities contribution to our net earnings for the second quarter was $2.5 million. This contribution stems from dollar cities second quarter ended June Thirtyth 2020.
As you will recall confinement measures and dollar cities country of operations were very strict from the outset outside of the pandemic.
But as of their quarter ended June Thirtyth 20, $20 City had two stores temporarily closed and only 42 stores out of 232 operating with reduced hours as of this state all stores were opened and 40 stores were operating with.
Reduced hours.
Most importantly, most of which restrictions have been lifted in El Salvador, Guatemala, and Columbia, resulting in increased customer traffic in stores.
Store openings were on the whole at the end of dollar city second quarter, but have since resuming slowly but surely.
In the context.
Over 19.
And if forecasted impact on dollar city sales and operating results. We had adjusted downwards. The estimate of purchase price for dollar I must 50.1% interest and dollar city from 92.7 million, new West to 80.4 million us at the end of our first quarter ended may.
Our 2020.
This estimate has now been readjusted back to 92.7 million based on dollar cities June Thirtyth 2020, preliminary unaudited financial statements. So lifting of strict on finding measures imposed by governments in these countries and increased store opening hours resulted in higher than.
Forecasted sales and earnings.
Based on latest estimate the balance sewing recorded in payables stands at $52.7 million us or approximately 70 million Canadian it will be paid shortly following the completion of the audit and the final final final address.
Segments if any.
Now looking at our capital allocation strategy, we will maintain our prudent approach as the situation evolve.
The board approved a quarterly dividend.
4.4 cents per share and we'll continue evaluating the dividend on a quarterly basis.
We did not repurchase any shares during the second quarter again in order to preserve liquidity at the end of the second quarter. Our leverage was at 2.8 times adjusted net debt to EBITDA compared to two point 94 times at the end of the previous quarter and 20 basis points below our come.
For zone three times.
Planned cash outflows for Q3 include the balance of the purchase price.
For our 50.1% interest in dollar city.
As as well as deferred tax installments of approximately $100 million.
Looking at our capital structure, we have two series of notes set to mature in 2021 in February and in July we are mindful of the conditions currently available in the Canadian bond market.
As such our currently exploring different possibilities.
So overall, we have a solid financial and liquidity position, we will continue to manage our balance sheet prudently to continue to fund our growth as well that's great value for our shareholders and maintain flexibility and uncertain times.
Neil over to you for the concluding remarks thank.
Thank you Michael.
To summarize our operations from coast to coast gradually stabilized throughout the second quarter, and we saw healthy increase in comparable store sales year over year.
Customers continue to consolidate trip, but they leave our stores with larger basket.
And during the third quarter all of our stores were opened to serve customers maintaining near normal operating hours.
We continue to closely monitor consumer shopping patterns to ensure store offering remains relevant to Canadian families and the evolving socioeconomic environment shaped by the pandemic.
The health and safety of our employees and customers remains Paramount.
We will diligently maintain our cobot 19, operating procedures and health and safety measures in accordance with public health directive for as long as required.
That concludes our formal remarks, I'll now turn it over to the operator for questions from financial analyst.
Thank you.
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The first question is from Irene nets out with RBC capital markets. Please go ahead.
Thanks, and good morning, everyone.
Thank you for your for your overall commentary you mentioned a couple of times meal that you're monitoring very closely customer shopping patterns wondering if you could share with us.
Those might look like today.
What kind of the exit rate wise as you came out of the quarter, what kind of demand you're seeing just category performance any color that you can provide that can help us kind of frame our expectations for the balance of the year.
Sure.
I'm not sure it'll help frame the balance sheet for the balance of the year to be honest, because we do live and a very uncertain time with regards to shopping patterns, but.
Theres No question that you know the lack of international travel and reduction in domestic travel means that people are staying home a lot more you know.
Sticking around.
Locally.
And therefore.
Things like gardening, and barbecue and you know cleaning up the backyard and redoing the living room have all been.
Impactful for dollar drama and and successful for dollar amount and they're all you know.
Some of our better margin import department.
By the same token and Theres also been an increase in.
Disposable consumable things.
Particularly related unfortunately to covitz, such as masks in hand, sanitizer, which are much lower margin items typically and then a you know to balance that you have the reduction in the things that people would normally do which is have parties and family over and so the party department and some other.
Things that would normally get boosted in the summer.
Then reduced.
Going forward.
We think the same thing.
Reproduced itself throughout the balance of the other seasons.
Until there is a vaccine.
We continue to be hopeful that that people will engage you know at Halloween and Christmas but.
Obviously, we believe that Halloween will be reduced from its normal door to door.
Outing.
Yes, so we will have our full offering out there and.
We what we will see whether people adapt their normal Halloween parting two to still be able to party, but maybe more murder locally and with people that are part of their bubble as opposed to door to door profitably. So.
We also keep an eye on the other retailers to see if they say they see or present things that we have impossibly thought up.
Because of course that happen and ER that that's it I think.
Okay. So couple of follow up questions if finite.
Would you be able to collapse I guess, how much of how important is Halloween to Q3, I mean, we have we've heard numbers in the past, while one day or two days at 100 basis points kind of like how much it is and.
Anything that you can tell us around maybe can you rank the relative importance is a different categories like core costumes.
So we can kind of think about.
That night all shakeout.
Irene Hi, good morning.
Thanks.
Yes, so for Halloween, obviously for Q3.
Without this that's closing the specific weight has a strong weight.
And.
At this.
Time.
In the quarter, we're not in a position to appreciate.
You know, whether you know costumes candies decorate of items will.
What impact.
We will we can project.
And so and we don't want to speculate and that's part of the reason, we're not giving any guidance. So we know we believe that law as Neal said that it will have a negative impact but to what extent.
We don't know.
And.
The same for Q4 with Christmas, but we'll.
Give you more information at the end of Q3, but for the time being I think it's safe to assume that Halloween will be down and.
It won't only impact the topline, but these are part of our highest margin items the seasonal items.
And.
So we.
Depending on the results that might impact margin.
There are.
Greater are slower.
So unfortunately, we can't give you more color.
Okay.
Fair enough just on one other question if I might.
Certainly.
We've seen inflation creeping into the system, whether it's in the form of lower promotional intensity or whatever it is everyone across the supply chain is dealing with higher costs. So wondering about your thoughts at this point around.
Directionally, what we might see and what you're seeing in the marketplace at this point.
Pricing activity.
Yes, I think.
If I look at it from.
Margins.
Standpoint.
Because as you know we factor that when we do a refresh and so on.
And it's consistent with what we told you in Q1.
And that it's stable ish.
So and you see.
Q1 was down obviously right and the peak of the pandemic.
Q2 has rallied we've picked up some of the summer sales that we couldn't make in Q1 in Q2, and if you look at our year to date gross margin, excluding the corporate costs were flattish and I think.
Any ways for the next quarter.
It's.
Safe to assume that.
That would continue to be that.
Okay and just to confirm.
Two thirds.
Hello, Good related cost you identified in SGN. They are going to continue for the balance at the year, Yes, absolutely and just until Q4 is the biggest seasonal.
Biggest season.
With that Christmas and depending on traffic.
In all of that that number.
All can fluctuate up and down in line with the traffic.
That's great. Thank you.
Ill add one thing Irene which is yesterday I bought.
I had a good amount of spectacular Chris Smith decorated K and 95 mask, so and hopefully those Matt well encouraged people to get close and have their family as well well still protecting themselves.
Okay.
Yes.
Thanks, guys.
Right.
Thank you.
The next question is from Mark Petri.
Please go ahead.
Hi, good morning, and thanks for all the color I just wanted to follow up on a couple of things I guess just to clarify.
Could you just recap of the in a little bit more detail and maybe even give some commentary with regards to Q3, thus far in terms of how same store sales growth traffic in basket size evolve.
The quarter progressed.
Well right now Mark.
We're early you know we're just at the beginning and I don't want to we don't want to go into any form of detail because the biggest part part of the quarters coming up and again Halloween having.
Good wait here and depending on how this.
The whole situation evolves as you know we're back to the back to school has started and everyone is anxious to see the impact that that would will have so you know.
We've had a good Q2.
Ill treatment things don't change from one day to the other because you're entering another quarter.
But I think.
No. The the biggest impact is in front of.
Okay fair enough and and I mean, just to clarify again you touched on it.
Our lead in Q3, and then Christmas in Q4, but I mean, it's fair to say that.
At the seasonal goods in Q4 are much more oriented around sort of gatherings and parties as opposed to Q2, which were more sort of toward the home and and outdoor activities is that fair.
Yes.
Okay and then.
You touched or you gave some great commentary with regards to capital priorities, but just wondering if you have any specific comments with regards to your expectations are restarting the nclb.
Right so.
Q3, again, depending on results and cash flow from operations.
He Halloween.
We already have to a large payments to do the 100 million on the deferred tax installments.
Which are due in September and the 70 million.
Which will be due shortly also.
You know restrict that and as we've always said and we'll continue to maintain our comfort zone is around three times adjusted debt to EBITDA EBITDA and.
And I think just with those two payments.
That.
Would prevent us from or from doing any share buyback anyway. So we don't anticipate doing any share buyback in Q3, asking if that's the answer and Q4 will revisit that.
Okay. Appreciate all the comments best of luck.
Alright, thank you.
Thank you.
Next question is from Peter Sklar with BMO capital markets. Please go ahead.
Good morning.
Just given the uncertainty regarding Halloween and Christmas.
Just wondering like how do you put your strategy in terms of stocking the stores you give up a full inventory and hope for the past and if it doesn't sales for the reasons.
You know you've been discussing this morning, you just talked about but given away.
I mean.
Our next year and bring it back for next year.
Exactly right, which is because it's actually an unknown and because it's it.
We are destination for it because we do a fairly strong job and it's something we've prioritized over the years App. We made the commitment to have our full offering and try to make a the shop as normal as it historically would be and since we don't.
No whether people will compensate by simply wearing masks and being more careful but still engaging in those season, which were hopeful they will add to try to maintain normalcy as much as possible.
We figured that that was the safest bet.
Okay.
Then just one last question Michael you said one of the cobot cost.
1.9 billion or 32 basis points was that the gross margin impact.
Yes, 1.9 advanced 20 basis points.
So already with the covert costs were 20 basis points better than last year. So if you add that 20, where it actually 40 basis points better than last year.
With the gross margin the same once you've adjusted for Gen. Eight we would be if you exclude the coal that cost we'd be 40 basis points ahead of last year and the EBITDA 100 basis points. If you add the 20 basis points related to Dol City.
Okay. Thank you.
Thank you.
Your next question is from Vishal Shreedhar with National Bank. Please go ahead.
Hi, Thanks for taking my question.
On labor.
And ongoing concerns so cobot 19, maybe you can chat about how you're finding.
The ability to attract labor into the stores and if there's any pressure there.
So that it's been very positive.
Actually had a discussion about that with the Joanne our COO yesterday, she said that the the morale in the field is excellent and hiring status is excellent. So we're very happy with with that situation and our employees seem to be very very comfortable.
Ease with how we've handled the situation to date. So all good I'm very happy to report.
Okay, that's nice to hear and on.
Central higher price point introduction, it's fair to assume that we'd need cobot 19 issues to stabilize before management investigate stat.
Are there other factors to consider.
Is your ability to traveled to China.
Preview the.
Potential price point merchandise, we've got a factor as well.
So so.
You said the eventual introduction.
Of higher price points, which I think is excellent because it allows me to say, it's eventual and it's not present. So we will one day get there and the question of studying it were always studying it be quite honest, we've been setting it for three years and we will continue to stay on top of it whether we buy the goods or not but.
There are no planned introductions to higher price points, and our bricks and mortar operations at this point in time.
Traveled to China from the U.S. in Canada is in fact.
Illegal at this point in time.
So no one is traveling to China, unless they have some special visa for some special reason.
So everybody is in the same boat sort of speak or not on the boat.
And.
We continue to do the best we can.
To work with you.
Conference calls and video conferencing and all those other.
Make shift ways to come to keep going in life, but it's certainly not as efficient and certainly not as pleasant, but it is what it is and we're making do I guess the only thing I can tell you is that everybody has got the same challenges. So we were all on a level playing field.
Thank you.
Thank you.
Thank you.
Your next question is from Karen short with Barclays. Please go ahead.
Hi, Thanks for taking my question.
Since I have just a couple.
With respect to the higher price points.
I'm just wondering have you identified at this point, how many skus.
To introduce.
And I mean, I guess is contingent on the ability to traveled to China.
Not really not a factor.
No higher higher price points uses is an entirely different discussion from travel and travel as as it required for any price point.
Low or high and as far as introducing a higher price point and the way we introduce higher price point when it made sense over the course of time is that when we commit to it and we have to have an excellent reason to do so.
Then anything that can provide excellent value in relative terms to the market and any category that that exists in our stores is.
Up for purchasing and so we don't we don't set a number we don't set a budget. We go all out when we commit to a new price point and get as many fantastic values as we can add sometimes that can happen quickly other times. It takes more time to develop and truthfully, it's an iterative process.
Okay.
And then within your comp.
Two questions.
My questions within your comp obviously, you gave us that store our overall reduction in store hours. So presumably you don't get 10% of sales in the areas that were so it's a slightly lower number in terms of the impact.
Within the stores.
I would assume stores are down.
Doug easily like double digits in the Twentyth in terms of comp.
There in terms of how to think about 22.
What has done to negatively impact.
Yes, so yes, one in terms of.
Mall traffic, it's definitely lower.
Even though that reopened.
No we havent reached the.
The levels the normal standard levels.
I won't comment on the exact percentage, but hey, you know it's significant enough to say that if it is lower.
And.
And as.
Time.
Moves on and.
You know at as.
The situation.
If it improves well, obviously traffic will go a backup but.
It does have an impact for sure.
Okay and then just last question I just.
Okay.
In holiday in general.
Hi.
As for any retailer, but if currencies so board so tired of monotony.
And they're not going anywhere like is there a chance maybe underestimated what sales could look like for holiday because no one as anything else to do so wouldn't it kind of stand to reason that actually.
Even more than they historically.
There's nothing else to do.
Just curious on your views on that.
So so.
From your mouth to God's ears, I mean, the I mean, it where all guessing you know and so this this is a debate about whether SUS society is fearful or aggressive.
Two to two have fun.
At this point in time and none of us have the answer to that but I can promise you that two months from today, we'll both be a lot smarter about what it is going forward.
But we bought like we have for the path and I'll be very honest, if we can do what we've done in the past, albeit static.
So if you're if you're a scenario comes to be which is possible of course, then we'll sell out of all of our goods and we'll have a great Halloween and I'll be ecstatic and.
Let's let's hope Youre right.
[laughter].
Thanks very much thank you.
Thank you.
Next question is from Chris Lee Deserting Securities. Please go ahead.
Good morning, and congrats on this a strong results just maybe two questions from me first it's back to school an important season I'm just trying to understand whether it was a positive or negative you guys.
In August.
Yes, we have we.
It is a season is definitely not as heavy as Halloween and.
Thats information, we're not disclosing Chris.
So.
But.
No.
Neil Yeah, I'll add a little color, Chris which is.
Our our business model is to offer everyday great pricing and in our stationary line, which I happened to be the buyer of so I can speak to it you know with with that with confidence.
Our everyday pricing on our entire.
Office and stationary line is very strong add back to school, where other retailers use marketing techniques like like giving things away to get people in their stores. That's just not something we do so where their sales spike because they're.
There are giving away a bunch of goods to get people in their stores. Our stores don't have that same thing. So we get a spike because a lot of people realize that our everyday pricing is incredibly competitive, but we don't have that typical retail spike because we're not in the loss leader business.
Great. That's that's very helpful. And then on the supply chain on supply seen side I used to seeing some shortages and things like pivotals cleaning products. So sanitizers or has your install position improved quite a bit.
Three months ago.
Our in stock position is was quite solid a few months ago and really had a few items that were really hard to come by I would tell you without making that people add.
Reckitt, benckiser or lysol, the lifestyle brand owners feel too good about themselves that the only commodity on the planet that's impossible to buy as much as we'd like is lysol wipes and so we'll have we'll have production of other antibacterial.
Or German and virus, killing a white calming that won't be of that particular brand and so we sourced ultimately and those goods are arriving actually imminently, but other than antibacterial wipes every other item that we sell.
In some form or fashion is in stock.
That's great you know and then Neil I know online is a very small part of your business, but as can you share with us how.
Performed during the quarter also noticed that you have started to sell higher price points.
Line platform certain product area. So wanted to ensure your thoughts on that please.
Sure so.
The online business as always mentioned how to specific purpose, which was to service our customers that were looking to buy bigger quantities and has to go store to store and it was highly inconvenient and it actually was negatively impacting our replenishment because they throw off our typical replenishment by buying things out of the norm.
Cycles, and so it's done a good job of serving that customer or customers seem very happy with the site itself. Its user friendly it's getting a ton of hits a day, we're very happy with the traffic. We did some dabbling during co bid of higher priced cobot items to help service our customers so for sure.
You will see some dabbling into higher priced goods for example, we were bringing in.
Some digital thermometers for use internally.
Health, Canada approved digital thermometers, So I said, let's buy some extra and put them on E. Com. If they can be helpful to our customer or to other small businesses in the middle of the pandemic, we're happy to help and so we did that and we had a very nice traction on that and so we'll continue to dabble in different opportune.
Cities at higher price points on E com only as since it does not affect our our bricks and mortar business. It's an entirely different business model and if it can service. Our customers. Then then that's what we're here to do.
As far as.
The uptick in E com during the last few months, yes, we have seen a multiple multiple fold increase in what is a small business. It's still a small business, but it's gone up several fold over the last few months. So we're happy about that.
That's very helpful.
Michael You mentioned there were some labor efficiencies during the quarter, because there's less traffic to the store, but offset by much bigger basket and so in this environment that remains the norm do see another opportunity, where you can be utilized food and labor efficiencies because the traffic will remain.
Depressed in the foreseeable future.
Yes, well, we'll see I mean.
But you're right through labor scheduling.
Initiatives to know tight labor scheduling.
Patrol and management, we're able to to reduce.
You know, it's tough to match activities that store with a cost as much as possible and we'll continue doing that.
In the next quarters.
For sure so.
That's great and my last question is if you can share with US again, the gross margin the tailwinds and headwinds in the second half.
Alluded to in the beginning about the seasonal potential impact there, but other other big factors that we should be aware off for the second half of the.
No I don't think so I think again these are you know the seasonal.
Impacts.
Our material in Q3 in Q4 bought there would be specifically irregularity related to the Covance situation. This is not a there is no structural change.
And our competitive environment.
It's strictly related to the Covitz situation.
And.
Given the weight of the seasons Halloween and even bigger Christmas.
No it's hard to predict and Thats why we don't give guidance as these.
Two seasons have.
Impact.
On margin topline end margin.
Great. Thanks for your answers and best of luck in the second half of the.
Thank you very much thank you.
Thank you. The next question is from Brian The Morrison with TD Securities. Please go ahead.
Thank you good morning.
Michael I want to switch gears and asked a couple of questions on dollars city, because it's a material growth engine for you guys in the purchase price that was revised down materially in early June and then obviously put it back to where it was prior to the Q1 revision. So I really wanted understand three things here, what what's really the increase back to the prior level.
And then number two could we get some color on what the EBITDA margin is at the measurement date and then three.
How can we expect that margins progressed in terms of benefits and timing from the Columbia warehouse investment that you just made.
Okay. So.
Juan the adjustment.
The part of the.
Initial adjustment in Q1, bringing that down as we anticipated EBITDA for the June to June period, which as a reference period for calculating the cost.
We had anticipated that the coal that would have impacted that EBITDA.
More significantly but.
You know.
And the happy for Us and our partner.
The situation finally was better than anticipated so that had an impact on the EBITDA and as you know the formula is five times the EBITDA.
And related to that they're all Colm you know mingle.
It impacts the debt level and impacts that working cap so all of that.
You know with the better results than anticipated.
Set the price back to 2.7 million your Wes.
It it seems like a big adjustment just based upon.
Q2 performance that June ending.
It would have been impacted by dependent so is it more working cap than anything else.
It's truly EBITDA okay.
Okay, and it and the EBITDA margin are you able to provide some color. So it gives us some look at with the sales might be there.
So we don't disclose them.
Any margins we did this close that up.
At the outset August 14th when we exercise the call which was.
Around 16% to 17% at that time.
And for the reasons, we told you a sands that we're not disclosing information.
No we.
With.
That amount where were not ready to disclose at this point in time.
The elements that you alluded to Colombia and logistics.
Absolutely those are projects that were working on.
Two.
Because as you know.
All the initial logistics was set around El Salvador in Guatemala that we moved into Colombia.
And now were working on that to improve the efficiency and therefore, hopefully mill the overall EBITDA.
So sorry, just to be clear is it fair to say at the measurement data. We can use the inaugural EBITDA margin as a benchmark and in terms of the benefit you might get from the Colombian warehouse any sort of timing or or magnitude.
No I, if I I, it's no it'll take a few years before you know we settle in you have to to try to build to too.
You know initiate and grow so that will take a few years to happen. Meanwhile were growing.
No more and more stores in Colombia, therefore, pulling down the margin a bit.
And as we kind of fixed logistics and that part of the world the margins should be coming back in.
Alright, congratulations on a good quarter.
Thank you.
Thank you.
Thank you.
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Okay opinion activity.
For the Tammy.
Okay cushy with filling your fee.
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Our fiftyth.
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The opinion.
Okay.
Okay cushy when pending.
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