Q3 2021 Dollarama Inc Earnings Call
All participants please standby your meeting is about to begin.
Neal Raucy, President and CEO and Michael Roth CFO will make a short presentation, which will be followed by a question and answer period open exclusively to financial analysts. The press release financial statements and management's discussion and analysis are available at all around the dot com in the Investor Relations section as well as on SEDAR.
Before we start I've been asked but dollar and let you read the following message regarding forward looking statements.
All right MS remarks today may contain forward looking statements about its current and future plans expectations intentions results levels of activity performance goals 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 and reasonable and the circumstances.
However, there can be no assurance and 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 the forward looking statements.
As a result dollar I cannot guarantee 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 and as Mdna dated December 9th 2020 available on SEDAR.
Forward looking statements represent managements expectations as at December 9th 2020, and except as May be required by law dollar and my 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 to turn the conference call over to Neal Rossi.
Thank you operator, and good morning, everyone.
Are you pleased with our strong performance and the third quarter of fiscal 2021.
The double digit increases and sales strong same store sales growth and earnings per share as well as an industry leading gross margin.
Our solid results reflect the enduring strength and relevance of our business model and the.
And we continue to play as a provider of essential goods during the pandemic.
Our affordable every day product offering coupled with the proximity and convenience we offer Canadian consumers continue to resonate.
Our performance also reflects our team's disciplined execution and maintaining well stocked stores and offering a safe and efficient and store shopping experience.
Strong sales and the third quarter were boosted by higher demand for seasonal products as well as certain all your categories, including household and cleaning products.
Despite stay at home direction, social distancing measures and in store capacity limits and various provinces. We saw a lot of customers looking to safely celebrate Halloween this year.
Even if that meant staying within their household bubbles to do so.
We also picked up a lot of summer sales and the quarter.
Their content and further contributing to our strong results.
Popularity of seasonal and that's of items and third quarter is a positive trend as we enter the seasonally important fourth quarter.
Assets EPS growth was very strong and continues to be shaped by evolving shopping patterns. This.
This quarter, we saw strong basket and balanced with further improvement and traffic compared to Q2.
And number of our stores were temporarily closed we're still operating with reduced hours store.
Store hours are currently back to normal with the exception of some mall stores, which continue to experience much lower traffic than the rest of the chain.
In Q4 to date basket size remains large compared to pre pandemic levels and traffic continues to pick up compared to Q3.
But a lot can happen and the very crucial next two weeks of holiday shopping.
Coming back to Q3 higher sales and seasonal merchandise also resulted in a favorable sales mix in terms of gross margin.
We continue to invest in COVID-19 measures to maintain safe operations for our employees and the safe and store shopping experience for our customers since.
Since March we have invested over 60 million in direct incremental COVID-19 costs.
In Q3, these amounted to 10.9 million and as she had a cost for additional and store hours.
Execution of sanitizing and cleaning tasks.
We also continue to support and recognize our employees who play the most important role and our continued success and.
And our ability to provide Canadian families with access to affordable every day goods throughout the pandemic.
And this context, we were pleased to announce today a bonus payment for all store employees to show them, our gratitude and to thank them for their continued hard work and dedication.
Full time employees will receive a 300 dollar bonus and part time employees will receive a 200 dollar bonus.
Active store employees as of today's date well received this onetime gratitude voted.
Thank you all for your incredible work.
Well I'll start teams delivered strong merchandising and sales execution and the quarter. Our real estate team also pressed ahead opening 19 net new stores during the quarter.
This brings the total number of stores opened in the last nine months to 42.
Based on where we stand today, we are on track to open 60 to 65 net new stores by year and but as you know many factors are outside of our control due to Cove and 19 and the situation can change quickly.
The important thing to note is that if we do not hit the 60 to 65 net new store mark by fiscal year, and it will be due to timing and not lost opportunity.
And the quarter. We also conducted one of our periodic customer surveys to keep a pulse and the market and to ensure that we are continuously delivering on what matters most to Canadian consumers.
The findings of this false survey reinforce the confidence we have and the core tenets of our business model offers.
Operating a wide range of affordable everyday products, providing outstanding convenience through our 1300 plus locations.
And deliver and compelling value that appeals to Canadians from all walks of life.
Many customers have adapted their shopping patterns during the pandemic our customers remain highly loyal to dollar <unk> and we have continued to expand our appeal to new customers.
Turning now to our activities and Latin America, we saw strong equity contribution of 4.3 million from the other city for the quarter stemming from their third quarter ended September thirtyth.
As of this day all dollar city stores are open and only 15 are operating with reduced hours.
Most cove and 19 related restrictions have been lifted and our countries of operation, namely, Colombia, El Salvador, and Guatemala, resulting in increased customer traffic.
Well the situation there has improved dramatically during the spring.
Since the spring we continue to monitor it carefully.
After pressing pause on new store openings due to COVID-19 eight.
Eight net new dollars city stores opened and there last quarter, primarily in Colombia, bringing the total count to 240. This.
This is a step and the right direction as we resume our growth.
We're also pleased to confirm that we will be entering the Peruvian market, Peru being one of the nine countries covered by our agreement with all their city.
As mentioned in the past Peru is identified early in the process as our next country of entry given the favorable trends there in terms of consumer profile market dynamics competitive landscape and appetite for our value oriented retail model.
We expect to open our first stores there as early as the first calendar quarter of 2021.
Barring factors outside of our control.
As with everything we do we will proceed prudently as we test our concept and this new country and.
Near term growth will continue to be driven primarily by Columbia, and we will only revisit our long term growth target of 600 stores by 2029. Once we have established a from foothold and this new country of operation.
But certainly were excited by the additional growth potential this market.
Finally, the other city also started to roll out items at price points equivalent to U.S. 350, and U S $4 and Columbia only in November, which we expect will be well received by customers.
There are no immediate plans to roll out these additional price points and the other day all the city countries of operation for the time being but this will be reassessed at a later date.
Overall, we are extremely pleased with all the cities progress the business showed great resilience during the pandemic, increasing brand awareness and winning over new customers. As a result of its recognition as an essential business and all three countries of operation.
And the team continues to build up the operational capacity to support all their cities long term profitable growth.
With that I'll hand, it over to Michael for a closer look at our financial results before providing some concluding remarks.
Michael already.
Thank you Neil and good morning, everyone. So.
So sales for Q3 increased by 12.3% to.
$1.06 billion, driven by a higher overall store count and 7.1 same store sales growth same store sales results were comprised of a 26.3% increase and the average ticket and a 15.2% decrease and the number of transactions Neal provided some.
Cover in this regard, but the key take away here is that we are seeing some positive trends and traffic from quarter to quarter, while the basket remains very strong looking.
Looking at.
Line So [laughter].
While they remain non material online sales sorry, while they remain non material to the overall sales. These also continued to see a strong increase and we are pleased with the progress from [noise].
Gross margin was 49, 44% of sales and Q3 this year up from 43.7% last year as a result of increased sales of higher margin seasonal products and positive effect of scaling due to higher sales.
Good day was 15.1% of sales compared to 15% and fiscal 2020. This variance reflects incremental costs of $10.9 million related to additional hours for in store cleaning and sanitizing measures. These costs had a 100% a 100 basis point.
Impact.
On the quarter Jan day was positive, but to me and from me impacted by higher labor productivity and stores due to the processing of and lower volume of transactions by higher baskets less pack away of seasonal inventory and <unk> as a result of strong sales lower travel costs as well less cash.
Selling.
EBITDA was $312.1 million, representing 29.3% of sales net earnings were 161.9 million and diluted earnings per share was 52 cents a at 18.2% increase compared to Q3 last year cash.
Cash flows from operating activities totaled 201 million compared to 203 million in Q3 last year cash.
Cash flows from higher earnings were partially offset by tax installment payments deferred early and the year as permitted by CR aid and the context of the pandemic.
Inventory levels decreased from the quarter as a result of strong sales and the timing and receiving merchandise. They had to compensate we've been accelerating our replenishment cycles and drawing down on safety stocks, reflecting the strength and flexibility of our supply chain and pure occur broker.
And operations.
Also keep in mind and due to timing inventory levels were on the high side and Q3 of last year, despite inventories being on the leasing side stores are well stocked with all year and seasonal items, and we expect to me and anticipate and customer demand and the upcoming quarters.
Looking out transformation projects. We also continue to roll off sell checkouts and certain high traffic locations. We are on track to have self checkouts and about 200 stores by fiscal year and with about 106 75 stores with self checkout at quarter end.
[noise] wherever we offer a self checkout, it's always in combination with traditional checkouts and this additional convenience is achieved is achieving our top line objective, which is to help accelerate the queue line and high traffic stores.
In terms of capital allocation. The board approved day, 6.8 percentage increase and a quarterly dividend from 40 from 4.4 cents to 4.7 cents per share.
We did not repurchase and your shares during the third quarter again in order to preserve liquidity and.
And at quarter end, our leverage ratio stood at 2.7 times adjusted net debt to EBITDA.
This is 24 basis points below our 2.9, you four times leverage ratio at the end of fiscal 2020, which provides us with a lot of flexibility as we look to resume our buyback activities and before the end and the fiscal year.
Barring factors outside of our control due to cold and 19. It is our intention to actively resumed from such activities during the fourth quarter, while maintaining our leverage ratio and our comfort zone of between 2.75 times and three times adjusted net debt to EBITDA.
Looking at our debt structure, we closed a new bond financing and Q3 with 300 million seven year fixed rate note at a rate of 1.50, a 5% to take advantage of favorable and market conditions.
And of the upcoming maturity.
And 200, and <unk> million, a floating rate note and February 2021, and further solidify our capital structure.
So I'll now hand, it over to Neil for the concluding remarks.
Thank you Michael.
Strong Q3 results reflected the strength and relevance of our business model and strong value proposition to Canadian and consumers who are looking for affordability.
Similarly, and convenience as the pandemic persist.
Directly Q4 is our most important sales quarter and December is our most important sales and month we.
We entered the final quarter of the fiscal year with a good tailwind from Q3 momentum on the seasonal product sales front and 1333 stores ready to safely serve customers from coast to coast.
Of course, the next two weeks are hugely important to our fourth quarter sales historically and communities across the country are grappling with the pandemic second wave.
November provincial governments have been ramping up and measures and increasing restrictions to address rising case load.
As we buy time until the availability of and effective vaccine.
This includes restrictions on the sale of non essential items and the province of Manitoba Since November Twentyth, where.
Where we have just under 40 stores.
Such restrictions and pack sales, but they also bring their fair share of execution challenges.
We are also seeing a tightening of in store capacity limits and many other jurisdictions and approach, we endorse and abuse proactively across the network, but that also continues to negatively impact customer traffic, especially during a historically busy holiday shopping season.
As a provider of essential goods, our stores remain open from coast to coast to serve Canadian families, but the restrictions in place and the potential for additional ones could further and pack shopping patterns.
And our financial performance for the remainder of the quarter.
Our focus is on serving our customers safely and keeping our stores well stocked with the essential products consumers and need.
We will continue to monitor the situation closely and will adjust as needed as we have shown we can since the beginning of the pandemic.
We will continue to execute our plan and deliver on what matters most to Canadian consumers as.
As validated by our most recent survey we also remain confident that our value proposition will remain a winning one once depend and make is behind us.
And that we are very well positioned for the months and years ahead.
That concludes our formal remarks, I will now turn it over to the operator for questions from financial and.
Thank you.
Thank you.
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The first question is from Irene a total of RBC capital markets. Please go ahead.
Thanks, and good morning, everyone I knew.
Just following on that last calm and she's here about.
And the perception study can you provide us just a little bit of color around and you know how how debt service. The results of this one line compared to the prior line in terms of product offering relevance and price points and value. Please.
Sure.
It's essentially a found the same things as it did last time, which is that our customers. Appreciate the continued relative value that we offer compared to.
Litters that.
The low range of price points continues to be important to them and they recognize that we are and discount retailer.
And.
And convenience of course is a more and more important as time goes on.
So we are adding stores.
And and bring our offering closer to each customer across the country continues to be something very much appreciated by our kids.
[noise] and is there any change because I remember in prior surveys. It was a one to two relationship has there been any change and that and terms are price perception.
We don't disclose that level of detail and.
Hey, How's that I always follow my and my CFO lead [laughter] really you don't have to yell at me, leaving and everything without one.
[laughter].
No [laughter] sorry, just another question, if I might and that's with almost 74% of your sales and.
In the quarter at price points above $1.25 can you update us on your thoughts around a higher price points, possibly.
Sure. So my thoughts are that we're where we remain.
ER steadfast and our and our original.
Philosophy, which was a higher price point.
And the 450 and $5 or other price points that might be considered and the future are still exactly that their considerations for the future. We're convinced that our customers would be happy to receive those price points, but we're not ready to to add any price points.
For the time being.
Okay, and just one final one space.
Q4, you know certainly what we've heard from other retailers is that Christmas shopping has started earlier when you look at the cadence of sell through this year versus last would you agree with that statement as it applies and all around.
Irene.
So it's me I'm still here.
[laughter] okay.
I'll answer that so yeah, so what we're saying essentially and in Q4, we see the same momentum we had as of Q3 for sales and margins. So it and you know and November. So we just finished November entering December so and momentum was very good and you're you're right.
And Q3, we did see some.
Buying and that's buying a up Christmas items.
However, just to and bring the proper tone to Q4.
As you all know that this past week, the provincial governments across the country and mpos more restrictions on store capacity.
And traffic was and improve over from Q3 to.
From Q2 and took a true three and continued to improve in November and Q4, but they these recent restrictions are impacting and traffic I bet. So this is evolving on a daily basis, Alberta yesterday, and just yesterday announced you know whats reducing from.
Further it said capacity and store. So this is having some impact.
We still have two weeks to go to to Christmas. So, we'll see but for the time being where where we're happy with what we see for Q4.
That's great. Thank you.
Thank you then.
The next question is from Mark Petri of CBC. Please go ahead. Your line is now open.
Hi, Good morning, I, just wanted to follow up on that last topic, Michael and specifically with regards to the comment around basket size, you said that it remains.
Elevated and strong and but we typically are seeing an inverse relationship between traffic and basket. So is it is it reasonable to assume that as traffic continues to recover basket has subsided or has that basket and sort of remained at a level somewhat consistent to Q3, even as traffic has improved.
No you're absolutely right. There is a relationship between both so as traffic increases basket decreases.
And vice vice versa, So and that's what we've noticed.
So up till the end of November and that's and all like I said, what exactly what happens so your traffic improved and basket or a decrease.
Oh, it was offset a bit now for the past week, you know, where we know traffic has impacted I don't know how basket is aren't going to react, but we know that Ah. It's it's very recent data traffic is impacted by the the the.
Are they imposed constraints.
Yeah understood. Okay. Thank you and I just wanted to ask sort of more broadly I mean, obviously you know the entire concept a dollar and a bit.
Very well with a consumer focused on value and and looking for savings, but just wondering if you are approaching your assortment differently at all in terms of the distribution of goods across price points, and then I guess well leave it at that and then I have a follow up.
And actually what we've always tried to do philosophically is to offer and any given range of goods and a variety of price points. So for example, I'll take and Sanitizers.
And we'll try to have hand, sanitizers and formats that fit the dollar dollar 25 price point range. The two dollar range, the $3 range and the $4 range and and well apply that same concept across multiple.
As many categories across the store as possible just so that we can address different customer needs.
Sometimes that's just a format change sometimes it's a size change or a quantity change, but if we do believe that there are consumers that that rely on us and for things that the very lowest and of our price point range and others, who you know who rely on us for things.
And at the higher price point range, and then obviously the nature of the goods dictates in some cases, whether those goods will be I'd won and or the other.
Thanks, I guess just to follow up on that so, but but you're not seeing anything in terms of consumer demand across that sort of spectrum of you know good better best or however, you want to describe it I guess, it's not really that is just sort of across price points, but you're.
You're not seeing any sort of evolution and the demand across those price points that would cause you to skew youre, a typical balance or the balance that you had through and through fiscal 21, so far.
No not and I think that would be consumer driven a you know those changes and at times are driven by costs of course, and so you know I'd love to have everything and the sort of dollar still but you know that's just not the world, We live and now and so sometimes those price points are reflection of the reality of costs at all.
Retailers have to face and there for all consumers.
Have to face as well, but but no the answer to your question specifically as you know.
Okay. Thanks, and then just sort of last one I guess related I think I know the answer again, but but just to just to follow up in the past you know you've had and sort of shifts and Assortments I guess, specifically towards consumables I think the last time, we talked about it you guys were pretty happy with the mix across categories.
Is that still the case or or are you adjusting sort of mix across categories at all.
No we're happy with the mix I mean, obviously right now there's a focus on on the essential goods and making sure that we're doing.
Good a job as possible for consumers to have the.
Greatest selection that we can and in terms of Sanitizers in terms of cleaning in terms of of a personal care, but but other than that cove and related focus right now to ensure that we're doing our jobs from an essential service you know.
Point of view the balance of our assortment is pretty stable.
Okay I appreciate all the comments and all the best for the holidays and thank.
Thank you.
Thank you.
The next question is from Chris Lee of day. All day. Please go ahead. Your line is now open Oh, the learning and you want and Michael Neil Force was just going back to the percentage and certainly I think you mentioned and opening remarks that we've also found and you guys are expanding their appeal to new customers. Just wondering you know what is the typical profile and these new customers.
You are tracking.
There.
Theres no specificity to that so that appeal, we're attracting new customers from all ranges of life.
Age and Socioeconomically.
So so there's not been a specific target group net.
Or a group that happens to have been you know.
[music].
More representative than the others and it's a general appeal equally across categories.
Okay. That's helpful and maybe related to that is no. You know obviously you know the dollar and mustard.
Product assortment and compelling price points are you know drive and you know more consumers.
Consumers to consolidate their shopping trips and and that's benefiting your sales I guess my question and just based on your survey and your you know your conversation and customers do you think this is this will continue for a while even after that thing and then because under control like will would consume.
And she will continue to consolidate their their shopping trips or even when we return to a more normalized environment.
I wish I could tell you I was that smart to know the answer to your question, but I'll be honest I would be guessing and and I don't want to guess.
Okay, and no problem and maybe just another one just on the you know what we're seeing in some of the other retail channels is theirs and migration to consumers buying larger pack sizes, and just because the nature of the times here.
Yes, and opportunity for you guys to maybe offer larger pack sizes, perhaps at a higher price points that would be sort of your way of introducing.
Hi price point at some point and the future.
I think our way too.
Address your question is with our E. Com a proposal. So the reason we built our E. Com platform was to address consumers, who wanted to buy larger quantities of our current assortment and since and our stores, we can sell goods and.
You know and a different price range than the one we've chosen to be focused on if those consumers want to buy a larger amount of those goods and it's simple fashion. That's that's basically why we felt our E commerce platform.
Okay. That's helpful and maybe just a couple of quick ones for Fourq from Michael.
Like when do you think you guys moving a position to start providing guidance.
Again next quarter.
Well from that time being you know just predicting this quarter is up.
A challenge again, so I don't know well well, we'll have to see and you know historically weve been asked transparent as as a as we could and that's still the intention of and so we don't want to pretend we know stuff that we don't so.
And we'll see for next year, but what I can tell you.
Today is that there's nothing going on structurally around us that would have us change our business model, it's all about relative value and all we continue monitoring costs. The activities, we've demonstrated our agility and.
Our ability to manage the margins look at this year, you know and the opening up the year, we gave you a bit of color or less than the prior years, but at least you know and it and we we how to that color. We gave you a in terms of margins and and things like that.
And so we'll see and next Q4, and we have the ability to manage as a our margins through day refresh that hasn't changed to Mark up Paul probably I'd say, it's a that hasn't changed. So you know that's what we can confirm to you today.
Ah, but for next year I think we we we just well have to wait.
Okay. That's very helpful and just maybe a quick one and the margins you know the Canadian dollar has been quite strong lately and you see that strength persist into next year.
I guess overall and we will that be as held windfall for your from your margins for next year.
Yes, so that's one component day, and you've got inflation from shipping and from a buying so I mean, there's a lot of movements and there are many factors involved. So I just don't want to comment and say and Miss guide you, but you're absolutely right from a currency.
Stand point.
The the currency the Canadian currency is reinforcing that's definitely helping the margin.
Great and then my last question just on the S.G. and they line and the cold and cost of 11 million, we're live and lower than I think what you were sort of guiding mix last quarter.
Anything going on there and they said 11 million and this quarter a good run rate floor and.
In the near future.
No. It's it continues to be the cost and all our or more or less and that same a bit lower and but essentially it's the same quality of protection that the where were looking for and so were definitely and and.
Dave and I would say those protocols and.
Our you know a net accentuated with data that the traffic that increases.
So you know Ah, yes, I would say that well definitely that continues in Q4.
Well it should be no and a similar range and over and above that.
Over and above that we have and outside as you know Niels and went through that a gratitude and remuneration and so that will be added over and above the normal cold that caused that Ah you know you've seen and and Q3 should.
Be a similar Irish and Q4.
Lisa has a great and enjoyable holiday and all the best and next year and and Michael Congrats on your well deserved retirement. Thank you. Thank you very much.
[noise]. Thank you.
The next question is from Peter Sklar and be more capital markets. Please go ahead. Your line is now open okay. Thanks.
Michael you've talked in the past how like you look at other retailers that you consider to be your competitors and you won't take price unless they're taking price because you want to maintain your competitive your competitive position over the last number of quarters.
No. That's that's been and one of the topics that all around my has not been.
So taking in store price increases is that is that situation changed at all or is it. The same are you able to put through some price.
Yeah, but like we said at the beginning of the year and through the quarters and all it's more and less in line with what we had last year.
So ER and in other words not that much.
But we are definitely and this is done by the buying team Oh, no ongoing basis and that's what we do at dollar I must compare and make sure that were.
You know where were competitive so but in terms of you know a a markups a it's a seminar very similar to last year I eat and not that many.
And who do you consider to be or competitive backdrop is it still you know Wal Mart drug stores.
Is that the universe you look at.
We look at all universities to be honest Ah, we consider everybody to be our competition.
And ER and so we'll shop the entire market from the smallest stores to the largest stores and.
And and everyone in between.
And truthfully I think that all retailers you know, whether they say and are not do the same thing.
But we really do think that when we talk about being the best relative value and the market, we want to be the best relative value and the entire market and we understand that sometimes you know on any given day or any given item that and I might not be the case, but we'd like to try to make the case every day on every day.
Okay and Neil.
Like I believe that your buyers traditionally go to go to China, and that's where you source.
The majority of your product so.
How does that work and cobot are your buyers.
Still able to go or do they just buy off of catalogs from Canada how.
How was the cobot impacted your ability to procure.
And.
Very difficult not just for us but for any and.
Order anywhere in the World and no nobody is going to try and not right now.
You know you require special permits to get into the country and in any area that you go to you'd have to quarantine and each area for two weeks and it's just entirely and practical and the truth is that because of Cove and being a global.
Alan and.
The amount of creativity, and new molds and new ideas being generated in China for the balance of the World is also out and you know at a low sort to speak so even if we could go the environment is entirely different right now the entire planet is focused on.
And staying healthy the essentials plus of course, you know.
Some every day goods, but relative to when when the world is booming the amount of new things being created and and and People's mindset being put on on new and exciting items is entirely different than it is now as you can imagine so there there there wouldn't be.
The same experience if one could go you know shopping around the world right now for for every day goods that being said.
We you know the show goes on and so it's our job to make sure that we have open lines of communication with all of our vendors around the world, including China.
But also in Europe, and also in the states and and in Mexico and.
And on and on and.
We are doing a lot of video conferencing, which is not nearly as efficient of course as being somewhere and person and so much more time is being spent.
Doing what can be done more efficiently.
And person, but it is what it is and everybody has to contend with the same challenges and at the end of the day.
As you well know, we live and a market where everybody has to has to deal with the same situation and so the question is just you know who's working the hardest and the most focused on providing what it is that they're trying to do for their customers and so our job is to remain ultimately folk.
Just on great value and and at the best possible quality and the price ranges that we sell and we're using every means and methods that we can to find those goods for a customer at this point in time, but there's no question that it is from.
And more challenging than it was historically by the same token.
What's what's really everyone's focus right now is more on the essential.
Okay, and then just one final question.
When you talked about the consumer survey.
I believe the point you were making is that consumers are increasingly value and convenience I assume that means convenient store location, how close the stores to them and does a parking access that kind of thing. So I'm just wondering in that context, and what has that changed your thinking at all about your.
And all targets for the number of stores and all around like could have been candid I believe you know officially you know based on some consultants you use your at 1700 store Count does your aspiration and in Canada, but I'm, just wondering Neal and your feelings have changed about that.
No I think I think it's totally in line with our historical philosophy that you know, we'd like to keep putting as many stores as we can over the course of time and a thoughtful manner. That's you know that's cost.
Effective and so every year you've seen that that's very steady.
Roll out of 60 to 65 stores over the course of time every one of them taking into account the cost of the leases the locations a cannibalization and all the other opportunities, but no. Our goal has been and remains what it and what it has truthfully.
For for 20, plus years, which as you know to have over the course of time as many stores as possible that make sense economically for for our customers to have a stores close to them as well.
Okay, and and just to maybe add to that so we you know normally we update you with the amount of data that the a 10 year forecast, where we're supposed to do that this year, we put it on pause because of the covance situation. So.
Oh post Cove and once all of this is behind us.
You know a we we will communicate that to you and we hope that things track like they are tracking right now.
Okay. Thanks, Mike all right.
[noise]. Thank you [noise].
The next question is from additional Shreedhar of National Bank. Please go ahead. Your line is now open.
Hi, Thanks for taking my question.
I was hoping to.
Give his question and saw it in terms and perspectives on mall mall performance and non mall performance are making and traffic you're able to go line clear on that.
Yeah. So a mall stores are continued to be impacted by and lower traffic. So it has a impulse and improved slightly over the time, but and it's still a concern and so that that's.
Then the case throughout the day here up to date.
Okay are there any numbers you can provide or the most stores positives in terms of copper and.
No, we're not disclosing any specifics Ah Ah.
And that on that information and and sometimes Ah you know traffic is lower and certain malls, but picked up by and other stores that the art and strips are around those so there's there's a lot a too much noise and there are two to start trying to communicate that.
Okay and incentives.
In terms and momentum through the quarter all.
Obviously, the traffic and traffic trends improved.
She also beat that's it's just the overall scheme score improved through the quarter.
That the overall, what I, sorry, I missed that Michelle.
Sorry, same store sales growth did that and proof as well through the quarter.
Well no I'm not going to go there, but all I said was that we had a very that and all the same good momentum, we had and two or three and November.
You know first month of the quarter and traffic continuing to improve but as we said the trends are usually when traffic and proves basket or the ticket or reduces.
But overall and as well as for the margin so and all things. So we're happy with what we see and that's as far as I'll go.
Okay, and with respect to the elevated seasonal sales and the benefit on gross margin rate.
And obviously next year Dalai Lama <unk>, we'll lap so hopefully this unusual cobot situation at this time and does hoping to maybe get a little perspective and to what degree the gross margin rates were elevated by elevated seasonal sales and that's something that you can shed some light on.
And all that would be a net assets and too much detailed information, but I mean, and you're right to say that you know Halloween went well Ah Christmas we've yet to you know the two biggest weeks are in front of us. So we'll see a summer sales.
And was very strong no Easter was very poor so and there was very poor and all and so there again a lot of things that are moving around and Oh. So once we get to next year, we'll we'll.
Well clarify all of that.
Okay, and maybe another tough one here.
And in terms of a similar question on that you know and less Packaway and.
Less labor related to transaction and some of these items appear to be perhaps that transient.
Is there anyway and any color you can give us to help identify yeah, and that's kinda transient impact on EPS benefit there.
And I know well again, you we explain why we see some improvements and labor and obviously the great sales and one but also a and and you mentioned that traffic. There's there's less traffic so we need less hours too.
And at store level, slightly and and they if a and a fuel truck traffic come back a higher a which is a positive well we'll need to put more hours to address that so.
And there are communicating links here, but for the time being you know I'm, a we are where we are right now.
Thank you.
You're welcome.
[noise]. Thank you.
The next question is from Brian Morrison of TD Securities. Please go ahead. Your line is now open.
Hi, Thank you good morning.
Michael I hear you with respect to the limited price Merck EPS that you are seeing so you're taking but I just want to follow up and ask what are you seeing from your competitors are they taking price, especially as we see increases with respect to.
Higher price of commodities and higher price of food and there's a potential for price inflation impact the timing or importance and bringing on a new price point.
Yeah. So for the full park and all were not our mix of products is very low so that's a one part but for the Ross like.
Like I say, if we see a some lower markups. It's a following the a the market a competitive environment, where are where a price follower and not a price setter and and so you know if we do see opportunities if they do.
I start and all passing on cost.
That then we are you know, we'll we'll evaluate the opportunity to do the same that's it's again nothing changes, it's always been like that and for now the intention is to keep it that way I.
I guess to ask it another way are you seeing competition start.
And you take price at a more aggressive rate than you would have to say that three to six months ago.
No I would say the answer is no by the same token I think that we are starting to see some price pressures on raw materials, and certainly on freight and other things that will be coming into effect and.
And Ah I I believe that you will start seeing the market have cost pressures and therefore markups and to be clear, they're not mark ups for more margin there mark ups to keep margins. So it's you know it's a different philosophy when the cost of goods are going up.
It's more about maintaining than it is about grow and your margin, but when I look at what's happening and.
To raw materials around the world and to freight rates, particularly from Asia from when it when it comes to freight rates.
There's no question that there will be cost pressures going forward and that as those got cost pressures got addressed by the market. We will we will adjust accordingly.
I understand that doesn't necessarily impact your merge and but it does give you greater pricing flexibility and going forward basis, you'd agree with that correct. If if it was and if it was market wide and raw material wide yes.
Okay, and then Michael just to be clear your and see I'd be you plan on starting that actively next week is that the message.
Yes, yes, we are.
Alright, thanks cash that yeah, okay, well thank you.
Thank you. The next question is from Karen short of Barclays. Please go ahead. Your line is now open.
Hi, Thanks, very much and just a question for you with respect to force it.
You commented on the fact that.
He is being generated.
Were much lower than normal so I guess I'm wondering.
Does that make sense for 50 to $5 harder too and it's just given maybe a lack of newness but to and.
From the time line that you internally you decide to go.
Level, what is the time line typically from decision, yes, like a go decision to actually seeing it and the store.
That got pushed out a little more and.
The current environment, and then I had one.
Question.
It wouldn't get pushed out it would still be three to nine months you know post the decision to do it with regards to seeing the goods and the stores from.
And import perspective, if the goods were domestic.
It could be a week to be honest, but.
The <unk> the decision again.
It's very much a consequence of both the cost of goods as well as the opportunities and so you know if the cost of goods.
For everybody goes up dramatically then you know that decision that price points and maybe one simply.
Being able to maintain our offering a if the cost of goods don't go up and you know.
The World goes back to normal, let's say then you know it'll be more on the side of possibly introducing new items. So it's very much dependent on the situation and.
We all live on the same plan and we all have that same challenge and again thankfully, we're and the business of relative value and so whatever we do we're playing we're playing the same game as everybody else.
Okay, and then just on that actual cost of goods or overall inflation. So what do you what do you see in the quarter from and inflation perspective, and what do you. How are you thinking about inflation for Fourq, you and 2021.
Okay, Yeah great.
Great.
Actual product.
Right. So and again, we are going into the Q4 corridor, a same momentum as you've seen and in Q3.
Okay. So we had that margin improvement and Q3, so where where we're saying we're we're having some and that includes like I said earlier very little markup. So that talks to the the the rest of the debt factors for next year, we don't know yet aware like net.
Sales have we and as I said earlier to they're there you know we expect cash cost pressures from.
Our suppliers, we expect cost pressures are.
From shipping, we expect a tailwind from the currency.
And and we've got our refresh that we do every year and marked up opportunities. So you know all of that will allow us to continue doing what we've done well historically.
Historically, a and to manage the margin and in Q3 and Q4 cash Karen. We you know we'll have a bit more information, obviously closer to the year and end the year and hopefully and give you a.
More information.
Thanks, and congratulations on your retirement.
Thank you.
People really seem to want to see you go Michael.
[laughter] I'm not going yeah.
The next question is from Patricia Baker from Scotia Bank. Please go ahead. Your line is now open.
Hi, Good morning, everyone I'm, Michael I want to follow up with you or discussion on the self checkout. She said that at the end of Q3, you had the net <unk> hundred 75 stores by year end you will happen in.
200 stores and I'm just curious if you could provide us with some sort of indication with that that group of 200 stores. What's the average revenue GAAP, it's between them and you're the average revenue of the fleet just from a degree of magnitude and then secondly, with respect to the remaining stores in the network.
I'm presuming that there are other stores and also our high traffic stores and do a large revenue that will benefit and maybe in the future from having self checkout and we'll be able to see operating efficiencies in those particular stores and you know also no looked like.
They will provide a good payback is that fair.
Yes. So okay. So first question is <unk> for a total yeah. We're expecting 200. This year, we will give you more information next year and tool for us to what we propose for next year, but there are definitely.
More stores next year that we're gonna be introducing self checkout and you're right tell checkouts are a a top line.
Hmm savings generator, it's to reduce the queue line. That's the purpose of the self checkout.
And we've seen that working very well drilling did this I called that period and.
And so we do see efficiencies we don't so in other words, there are added efficiencies of having introduced the self checkout and a good portion of that was top line generated and and we will have more next year, we're not going to go into we cash we're not there.
Closing the details, but I'll, just say that though we're definitely going ahead and pushing more self checkout and stores next year okay.
Okay fair enough and I'm, just going to ask the first part and a slight let slightly different way and I am right in assuming that those 200 stores actually do a higher revenue than the average revenue per store.
And the entire fleet.
And that they do Oh.
There are no I'm not I'm not sure okay.
Okay, and if you're right that and you know, it's a for those stores that the higher traffic or the space and all the.
And they so definitely a better trend after but I wasn't talked about and I would tell you that that it's it's not representative of our 200 strongest stores.
[laughter] ex <unk>, Yeah, I personally I'm, sorry, I I could have asked about it. Thanks, a lot and no. It's okay. Patricia [laughter], it's time that I leave now I can't even understand that question [laughter].
[laughter] [noise].
Thank you.
And the last question is from Edward Kelly of Wells Fargo. Please go ahead. Your line is now open.
Yes, hi, guys.
Hi, Good morning, just a couple of quick.
First is sort of a follow up and I think were karnes and be going on.
$55 and as you think about you know moving up into a higher price point. It does the merchandising opportunity change meeting that you'd have the ability and maybe sell new items that you.
And but haven't been able to and the past it may even be more incremental to the store offering and then what you've historically been able to do and you go up and price.
So to answer your question at.
Conceptually, yes, but again it depends on whether when one goes to a higher price point, they're doing it as a result.
Global cost pressures and.
Ordered and maintain the same assortment as we currently have or whether it's it's a matter of.
New available items purely and no cost pressures and that decision can be taken for an entirely different reasons. So so far we haven't taken it for either of those reasons.
And for the moment and until.
Until further notice and we have no intention of taking that decision for the time being.
Or should it present itself and should we should we make the announcement that were going to do it it would be for one of those two.
And maybe just to add to that and to corroborate what and Neil. This thing all gets to 12, when we introduced $253 wants to bring in new items are there even in February tool and nine in August 2016, we just gone through 30% inflation on the currency over 18 months and.
And that accelerated for us the introduction of the $354 price points because our top.
Price point at that time was pressured by a steep increase and the inflation. So those are your two examples are right there.
Understood. That's helpful and just a follow up for you. So as we think about digital if you look at some of your peers and you and they have started to move down the road and they you know for our digital offering, particularly around sort of like buy online pickup and store any changes it is to.
How you're thinking about that particularly given what's going to happen with dependent mic and you know and adoption around things like that.
Right and so.
So [noise].
And our case, you know buy online pickup and store or is it is very dependent on the situate the let's say the pandemic situation and how it's being handled store.
Store by store Province by Province region by region.
We don't think.
The momentum that there's much upside to have people do the shop.
You know dollar items piece by piece and then have a store prepare that.
Per day per customer ready to pick up we don't believe that you know that that is an economically.
Viable.
Our business plan. So if if it's a piece by piece business, we're going to keep the customers coming back to pick up the pieces themselves so to speak and if it's if it's something that they need to access or want to access those goods by the case, then that's what our what our cash.
And platforms for but and the one to $4 range. We don't believe that you know having people handle and and shop sorta speak for for a single customer piece by piece I want to $4 will ever be and economically viable.
Makes sense. Thank you for the time being.
Who knows what the future.
Thanks. Thank.
Thank you.
Thank you. This concludes the question and answer session and also concludes today's conference call.
The conference has now ended please.
Disconnect your lines at this time and we thank you for your participation.
[noise].
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