Q4 2021 Dollarama Inc Earnings Call
At this conference is being recorded.
So at school say homes at all of as you see.
All participants please standby your meeting is about to begin.
Good morning, and welcome to each other on our fourth quarter and fiscal 'twenty 'twenty One results conference call.
Rossy President.
E L. J P. Towner CFO will make a short presentation, which will be followed by a question and answer period open exclusively to financial analysts day.
The press release financial statements and management's discussion and analysis are available at all around my Dot com in the Investor Relations section as well as on SEDAR.
And so before we start I have been asked by dollar of them actually read the following message regarding forward looking statements.
It's all around his 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.
Other future events or developments.
Forward looking statements are based on information currently available to management and on estimates and assumptions made at based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct.
Many factors could cause actual results levels of activity performance achievements future events or developments to differ materially from those expressed or implied by any forward looking statements.
As a result of dollar of them I cannot guarantee that forward 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 statements regarding forward looking information contained in dollar of M. S. M. D. N. A dated March 31st 2021 available on SEDAR.
Forward looking statements represent managements expectations of at March 31st 20.
19 of 21 and accept of May be required by law at.
So all of the Roma has no intention at an 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 Neil Rossy.
Thank you operator.
<unk> and good morning, everyone just.
Just completed a truly unprecedented year.
There is no question that dollar on my like so many businesses was put to the test.
The strength and dedication of our team the resilience of our business model and the relevance of our brand to Canadians from all walks.
Of life I believe we have emerged stronger.
At the outset of the pandemic our team responded quickly and efficiently to implement a vast array of new operating procedures that protect customers and staff. So that we can continue providing canadians with convenient access to affordable everyday essentials.
From head office to our warehouses from our distribution center to our stores coast to coast every team member contributed to our ability to adapt and evolve in a rapidly changing environment.
The same can be said of our dollar city team in Latin America.
Early in the pandemic dollars.
City, just like dollar Rama was recognized as an essential business. The team on the ground acted quickly to support employees and adapt to strict and evolving measures.
In place by the government of Colombia, Guatemala, and El Salvador.
By their performance dollars.
Dollar city demonstrated both their agility in a time of crisis and Theyre growing relevance to Latin American consumers looking for convenience and value.
This bodes well for our long term growth plans in Latin America, including the expansion of dollar city footprint into Peru, where our market entry is.
As imminent.
As president and CEO I am truly proud of our entire team for the solid financial and operational performance. We achieved in fiscal 2021 ended January 31.
Despite the roller coaster of events over the last 12 months, our annual sales increased six point.
Per cent and same store sales were up three 2%.
We delivered solid EBITDA and gross margin both in terms of absolute dollars and as a percentage of sales.
This reflects dollar on them as attractive positioning as the destination, both for our central goods and seasonal items.
These results were achieved despite operating restrictions throughout the fiscal year and during our fourth quarter, which is historically our peak sales period of the.
For fiscal 2020, one we invested 84 million in Covid related measures primarily.
Really impacting SG&A.
Labor hours in stores were increased to allow the execution of daily cleaning and sanitizing protocols.
And we will we rewarded our staff both in stores and in our D C and warehousing facilities on a number of occasions.
This included a four month weighted.
Wage increase for store on logistics employees and the equivalent for agency workers as well as of one time gratitude bonus for store employees.
Over and above Covid related costs, we increased our logistics seasonal bonuses in fiscal 2021 and permanently increased base hourly wages.
Pages for all workers and our logistics operations.
Despite these incremental costs, we reported solid net earnings and earnings per share.
As restrictions are gradually lifted our team is squarely focused on safely and profitably growing our sales in foot and our footprint across.
Across Canada and in select Latin American markets.
We were pleased to announce this morning that we are increasing our long term growth target in Canada to two thousands of stores by 2031.
This is up from our previous target of 17 hundreds of stores by 2027.
Kevin.
Our hard earned position as of weekly shopping destination for millions of Canadian families has been reconfirmed and strengthened by the pandemic.
Our stores continued to deliver an exceptional payback period and performed consistently from coast to coast, whether they are.
Older stores or more recently opened locations.
And despite the pandemic, we opened 65 net new stores in fiscal 2021 consistent with prior years.
Based on our experience of our historical performance and what we see going forward, we feel very confident.
<unk> and raising our long term store target at this time.
We expect to achieve our growth objective by maintaining our current rate of annual net new store openings.
Before I turn it over to J P. I would like to formally welcome him to the team.
He joined US a few weeks ago, but.
I can assure you of where he has hit the ground running and we couldnt be more pleased to have him on board.
As you know Michael has stayed on in an advisory capacity to ensure a smooth transition for J P and we thank him for delaying his well deserved retirement.
We appreciate being able to count on Michael for a little longer including.
On the call this morning, and as a mentor to many at dollar Rama.
J P over to you.
Thank you Neal and good morning, everyone I'm excited to join a very dynamic team and for the journey ahead.
As part of my responsibilities I look forward to.
Meeting analysts and investors in person as soon as conditions allow.
My goal is to maintain the high level of transparency and availability that have been the trademarks of dollar Armours Investor Relations practice.
Been getting to know my colleagues during the.
Past few weeks and I would like to thank the team for their welcome and support them.
Im grateful for Michaels counsel and fortunate to share in these great results for my first conference call with him by my side. So let's dive right in beginning with a review of the fourth quarter.
Quarter.
Dr Armour achieved solid financial results, despite many new and stricter government imposed measures in response to the second wave of the pandemic.
We began the fiscal 2021 fourth quarter with very strong momentum posting seven per.
Percent same store sales growth for the first five weeks of the quarter covering the months of November and the first week of December.
Seasonal merchandise performed extremely well.
King off earlier in the quarter than historically.
But within.
Within a matter of days and following the announcement of additional restrictions across Canada. This momentum was abruptly interrupted.
It is important to understand that these new restrictions coincided with not just our peak sales quarter of the year, but with the peak sales month.
December.
Lockdowns and stricter in store capacity limits were imposed in several provinces, including Alberta, Ontario, and Quebec in early December new of restrictions included a ban on the sale of non essential items in Quebec, where.
We have approximately 30% of our stores.
Even though of the ban started on December 26.
Its impact on store traffic began to be felt quickly following its announcement in mid December.
As a result of these measures same store sales.
Sales for the quarter declined by <unk>, 2%, while the wild total sales increased three 6% and exceeded $1 1 billion driven by the increase in the total number of stores compared to the same period last year.
Average transaction size increased by 12.
87%, while the number of transactions or store traffic decreased by 21, 4%.
We're pleased to inform you that sales momentum picked up as soon as the stricter measures were lifted in the second week in the fiscal 2020 to first quarter.
<unk> that is still underway.
Gross margin was strong at 45, 5% of sales primarily driven by the performance of higher margin seasonal items SG&A was 16, 9% of sales and included $23 8 million.
Of COVID-19 costs, representing 215 basis point impact.
This reflects additional in store hours and the December 2020, gratitude bonus for store employees.
EBITDA was $20 326.
$6 9 million or 29, 6% of sales net.
Net earnings were $173 9 million and diluted EPS was 56 cents per <unk>.
Things were negatively impacted by lower Sss, and COVID-19 costs, but.
Positively impacted by higher margins lower financing costs, and a higher equity pickup of dollar city net earnings.
Looking now at full year results.
Sales increased by six 3% to over 4 billion.
S S up at.
Cash was up three 2% over and above the four 3% growth recorded in fiscal 2020.
Sss growth for the year consisted of a 29, 1% increase in average transaction size and a 21% decrease.
Kris in the number of transactions throughout the pandemic consumer shopping patterns evolve in line with public health restrictions, which generally resulted in fewer trips, but higher spending per store visit.
<unk> growth was driven by increased.
Demand for seasonal items as well as various essential goods categories, including household and cleaning health of <unk> and food.
Sss for both of quarter end the year exclude temporarily closed store.
As you will recall.
Call a number of stores were closed during the first and second quarters as a direct result of government measures, mainly the closure of malls, primarily in Quebec, No stores were closed due to the pandemic and the third quarter during the fourth quarter and more specifically in January.
<unk> dollar of AMA temporarily closed a limited number of stores, mostly in Quebec and in enclosed shopping malls, where the majority of other businesses were closed at the time and where another dollar of on a location in close proximity was open.
These stores.
Since reopening.
Gross margin for the year was strong at 43, 8% of sales.
And up 20 basis points due to higher sales of higher margin products.
<unk> portion of COVID-19 costs are included in gross margin, namely for me.
<unk> implemented throughout our operations, including in the logistics chain.
G&A was 16, 2% of sales, which includes the bulk of our direct COVID-19 costs or $81 1 million. This represents 200 basis.
Measured point impact EBITDA was 28, 1% of sales net earnings were up 1% to $564 3 million and EPS increased by one 7% to $1 81 per share reflecting.
<unk> slightly improved earnings and the accretive effect of our share buyback program.
Turning to Latin America, our equity pickup of dollar city earnings in fiscal 2021 came in at $19 7 million, despite disruptions to new store opening plans.
Basis through the first half of 2020 due to the pandemic dollar city opened 36 net new stores, bringing their total store count to 264 at December 31 2020.
City's long term growth objective of 600 stores by.
<unk> 29 in the three current countries of operation remains unchanged.
Now back in Canada.
Boeing a careful evaluation of the market potential for dollar Rama.
Management believes that the corporation can.
By <unk> grow its Canadian store network to approximately 2000 store over the next 10 years.
Or by 2031 with an average new store capital payback of approximately two years, which is consistent with our current.
And historical payback period.
Factors taken into consideration in our evaluation among others included Sensus and household income data.
The current competitive retail landscape rates.
Rates of per capita store penetration.
Historical performance of comparable in new stores, and our current real estate pipeline.
Looking at our capital allocation strategy.
In fiscal 2021 and in the context of the pandemic, we adopted a conservative approach and did not repurchase.
Any shares in the first three quarters of the year to preserve to preserve liquidity.
In the fourth quarter, we repurchased one 6 million shares for a total cash consideration of $87 million at a weighted average price of $53 67 per share.
Leaving ample room in our current end CIB expiring in early July.
Our adjusted net debt to EBITDA ratio at fiscal year end was 268 times 29 basis points lower compared to fiscal 2020 year end.
As for the quarterly dividend the board maintained debt at the beginning of fiscal 2021.
And announced a six 8% increase in December 2020.
This morning, we are coming back to a regular Q4 dividend increase and we are.
Announcing another increase of 7% bringing of the quarterly dividend two five cents per common shares.
<unk> <unk> per common share to be precise looking at our debt structure. As a reminder, we closed a new seven year bond financing for 300.
<unk> hundred million dollars in the third quarter of fiscal 2021 to take advantage of favorable market conditions.
This was a head of the maturity of $300 million of floating rate notes repaid this past February.
We continue to actively manage our solid capital structure.
And we have a healthy balance sheet.
Of the business continues to consistently generate excess free cash flow and as a result bearing factors outside of our control due to COVID-19, we intend to actively resumed share repurchases in fiscal 2020.
92, and we expect our adjusted net debt to EBITDA ratio to creep back up and to return to our target range of between $2 75 to three times, which we are very comfortable with.
Turning now to the outlook.
Due to continued on.
Uncertainty related to COVID-19, we have not provided guidance ranges for gross margin SG&A as a percentage of sales or EBITDA margin for fiscal 2022 at this time.
As demonstrated by the evidence of the fourth quarter of the pandemic of course can change very quickly.
<unk>, making its impact on some of our key metrics more difficult to predict and to quantify it.
But we can provide you with some color based on the first quarter on their way our experienced through the first year of the pandemic and what we do have visibility on.
Given our ability to open 65, new stores last year. Despite the pandemic. We are confident that we will once again meets our 60 to 70 net new store openings range for fiscal 2022.
Looking at same store sales as mentioned, we had same store sales.
Sales of 7% after the first five weeks of the fourth quarter, but ended the quarter at negative 2% as a result of suddenly imposed stricter COVID-19 measures, especially in Quebec.
At some of these measures were lifted.
In early February.
Our Q4 momentum return in full force, coupled with an additional sss catch up from the prior quarter.
Two months since two of the first quarter same store sales are in the low to mid teens.
Baring any COVID-19 related.
Factors outside of our control so as that such as what occurred in Q4.
We expect a solid performance in terms of Sss for the first quarter.
But keep in mind that we will be lapping tougher comps in Q2 end Q3 of fiscal <unk>.
'twenty two.
Looking at gross margin as a percentage of sales.
Gross margin of fiscal 2021 was very strong and based on results to date and visibility on open orders. We are also expecting a notable improvement in gross margin in the.
Quarter compared to the same period last year.
We expect the gross margin improvement in Q1 to be in the same ballpark as of what we saw year over year in Q4 fiscal 2021. This reflects the positive impact of changes in the sales mix.
However, it is important to note debt.
<unk> raw material prices and inbound shipping costs remain at current levels or continue to increase this will temper our gross margin performance through the second half of the year.
Looking at SG&A as a percentage of sales, excluding COVID-19 direct cost.
We should be generally in line with the prior year, although the first quarter should benefit from additional scaling on higher sales finally, our capex envelope is between 160.
$60 million to $170 million, which is in line with fiscal 2021 and will go towards new store openings regular maintenance and some transformational capex.
We'll update you on our assumptions and hope to be able to provide more specific guidance across all.
All key metrics concurrently with the results of our Q1 results in June.
With that I will now turn the call back over to Neil.
Thank you JP.
COVID-19 pandemic test at our resilience.
On home, our purpose and the relevance of our France on as to Canadians.
<unk> from coast to coast.
I don't believe there has been at time in recent history during which the value and importance of.
Of proximity and convenient access to affordable everyday goods has ever been more important.
This is reinforced the longstanding appeal of our value proposition to Canadians across.
Cross the country and ultimately the enduring strength of our unique business model.
This motivates us as a team to continue on our sustainable growth path.
As Canada's leading value retailer, we will continue to grow our footprint to reach new customers and provide even greater convenience.
And to adapt to evolving market dynamics and consumer behaviors.
With fiscal 2022 off to a strong start we look to the future with hope and optimism as vaccination programs continue to rollout, while continuing to adapt to the pandemic in order to protect and serve our customers and.
Employees.
With that I'll now turn it over to the operator.
Thank you we will now take questions from the telephone lines.
I have a question and you are using a speaker phone. Please lift your handset prior to making your selection.
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You may.
Your question at any time by pressing star two.
Press Star one at this time, if you have a question there will be a brief possible other participants register for questions. Thank you for your patience.
The first question is from at Mark Petrie.
With CIBC. Please go ahead.
Hey, good morning, Thanks for all of the commentary with regards to the outlook I'm, hoping you could just clarify.
Excuse me your your comments with regards to SG&A for fiscal 'twenty to end.
And just provide a bit more color with regards to the.
The timing and how.
How that plays out through the year.
Hi, Mark this is Michael.
So in terms of.
Yeah.
G&A obviously.
As the Covid there.
At Covid costs that are part of this.
Yes.
And so going forward in Q1.
If you look at Q4 was 23 eight you had approximately almost.
$6 million in terms of.
A bonus that was given so you're down to $17 million to $18 million ish.
Cash.
So I think that in that range for Q1.
I think it's reasonable.
Between 17 and volume.
Now for the rest of the year, it's hard to say.
It depends on the restrictive measures if those.
Strange or not will impact it but if you exclude <unk>.
Any of the Covid.
Direct COVID-19 costs, which is.
Essentially the additional shift that we have.
In each store to manage physical.
Physical distancing.
And the rest.
I think it's safe to say that we've got.
Enough initiatives this year that we'd be able to.
Offset.
We are seeing inflation, so stable too.
Compared to last year.
And yes, so that's kind of where.
We think that is.
That's great. Thank you.
And then with regards to the comments on gross margin.
Highlighted the sort of uncertainty with regards to.
Two the impact of inflation in manufacturing and supply chain for the second half of the year.
Is that is that sort of.
Expected to present sort of gross margin headwind or is there enough.
Flexibility in the business to sort of preserve margin, but maybe just.
Won't be as strong as it has in the first half of the year.
Okay. So maybe just to give you a bit of context, because theres a lot of stuff going on right now so I think it's worthwhile.
No on things for certain.
Certain things.
Let me begin with Q4 in Q4.
What we saw is a notable increase year over year.
The major part of the explanation is mix change.
In Q1.
At the same.
At type of situation in other words, if you recall last year in Q1.
On the.
The summer season.
Was pushed to Q2 essentially end Easter.
Form poorly this year summer is performing well to date and Easter.
Also performing very well and Easter.
Easter is a week in advance this year also at.
And with the catching up we did from non essentials in Quebec.
On a.
In Q1.
So this is why we mentioned that.
We expect.
A similar type of notable.
The increase in Q1 like we did in Q4, however here on the.
Main differences moving forward two things.
One is Q2 Q3 and Q4 of last year.
The impact of the sales mix.
Of sales mix in other words Q2 had strong summer.
Summer season sales uneven borrowed from the Q1 core sales.
Q3 have strong Halloween sales in Q4 had strong Christmas sales.
All of seasonal sales are.
At <unk>.
Mix has already impacted and in all three quarters Q2, Q3, and Q4, you had weak impulse sales, which are our lowest margin items.
No.
That's one element that will differentiate those three quarters to Q1.
The other one is at.
In Q4 end Q1.
On the.
The markup margin has improved in most of the categories.
And in Q1, we were able to offset.
Those inbound shipping costs and.
Inflation in from our suppliers.
But going forward the unknown for now is.
If those costs remain what will be the impact of that and if.
They even increase so as you know.
And Thats why we.
You mentioned.
Our caution here for the second half of the year.
Two.
And I'll make sure that.
Through our refresh and markup strategy that.
We're able to offset it so no in non.
Ideal world.
I'd be disappointed if we could not maintain.
The.
At the current.
At the F 'twenty, one actual margins gross margin.
And hopefully.
We're able to do so but there are still some unknowns in front of us.
Okay. That's great context. Thank you very much Michael and then just one more question with regards to the long term store target.
Obviously been you have been through a challenging period, particularly with the performance of mall stores. As you think ahead to 2000 stores can you.
Any thoughts with regards to how the portfolio evolved with regard to composition of mix.
At type of development or region anything like that.
So just to keep it very simple.
Yes.
It's going to be more or less like you've seen to date. So.
No the bigger composition of our.
Chain.
If strip than Standalone, Denmark.
And.
It's a super urban urban suburban rural.
And at more or less.
All of those the population size and.
In terms of opportunities for a number of stores. So Ontario has the most of the offer a number of stores than Quebec then.
Western provinces end.
On the Maritimes, and so I would say, it's more of what you've seen today, so nothing extraordinary or very different.
Excellent.
At all the comments end are welcomed J P and all of the best.
Thank you.
Thank you.
The next question is from at Brian Morrison with TD Securities. Please go ahead.
Hey, good morning, everybody at Michael I want to follow up on your gross margin because there is the omission of one key element there on your and your ex.
Explanation, if I take a look at your hedge book Youre, starting to see of contractual rate decline on your new hedges and certainly if you take a look relative to Q1, two and three it's.
It's a substantial decline so I hear you on your inflation with respect to shipping and raw materials, but in terms of of Canadian dollar of inflationary environment as it is at actually inflationary in terms of Canadian.
I appreciate all of the terms.
Yes, so a good question.
Brian So the effect of the currency.
As you know we hedge out typically eight to 12 months out so.
We haven't.
To see the the impact of that more towards at the end of the year.
Canadian debt.
That's all part again of the refresh of our approach at all considered by the buyers when they refresh and so when we talk to you about what we see coming up at the year at factors.
Our.
Are they.
<unk> currency.
Movements.
No there's nothing notable impacting this year.
And even next year when we do at a refresh that will be a tailwind and will consider it but then you'll have other headwinds.
<unk>, which will impact again end.
So.
Uh huh.
At.
It's.
Almost.
It's always considered at.
When we gave you of color on the margins and we have time to see at coming so so would you say overall of the cost.
Inflation is relatively neutral this year.
And then and then and then just following up on that when you talk about your rate of replenishment, we do our store checks there seems to be an awful lot of new products that are in there I'm wondering if your rate of replenishment is increase from your standard rate of 25% to 30%.
No so at the same 25% to 30%.
We see.
And inflation.
Not saying there is no inflation on the contrary, we're saying that there is some steep inflation from the supply side from the inbound shipping costs side.
Through our refreshed strategy on markup strategy.
Strategy, we're able to offset some of them some of that at which we've done very well in Q4 end tier one as I told you Q4 on Q1 and most of our categories. Our markup is higher than last year. So that's been going well, what we don't know is at.
The rest of the year.
Specialty Q3, and Q4, we've got some color on Q2, but.
The impact of Q3 and Q4.
We'll have to see.
As we move ahead.
Alright, Thank you for that and then last question just.
Your initial feedback I think you put $3 15 poured all of our price points in the Colombian market.
Market.
It looks like your contribution and your equity pickup was very strong this quarter wondering how that was received on whether you're early assessment might be to expand that into other countries.
Okay. So yes.
Dollar city is going doing very well.
They've got challenges like we have here in terms of Covid.
<unk>.
Net and restrictive measures and they fared extremely well very happy about that.
Opened up.
Just on the last quarter of 24 net new stores.
And so.
<unk>.
Very strong performance.
Going ahead, we talked to you about.
Peru, and that's a market that we will.
B.
Opening up stores shortly.
And we will need as we've done with the other countries to SaaS.
How.
Competition reacts how we fare.
And following that.
That will determine.
If we push ahead or not.
So.
That's the color right there.
Alright, thanks, very much Michael on Echo Mark's comments on welcoming J P.
Thank you.
Thank you.
The next question is from Vishal <unk> with National Bank. Please go ahead.
Hi, Thanks for taking my question.
Just wondering with respect to the opening comments.
That said that we've provided.
Management referenced that dollar on that as a stronger company as a result of this pandemic.
I'm wondering if that was set at that more of a reflection on managements perception just given their experience on retail or are there specific metrics that you could point to maybe customer perception surveys or indications.
A better real estate prices.
So on and so forth that you can mention which help us better understand why you said that.
Yeah well.
We mentioned a bit of that.
Our last call. We told you about of survey we got back.
That we do.
Okay.
Consistently from time to time on almost every year at <unk>.
Where we had questions concerning COVID-19 so the.
The responses were very positive the value proposition the convenience of having.
A bigger chain more stores, so being closer and closer.
Our our customers.
And just recently.
Canadian Major of survey, we were named Tim most of most popular breath renewable.
And Canada.
So.
But.
Like we told you two.
Two.
And just from our results.
We have a temporary.
Situation in Q4 of imposition of.
Restrictive measures that did not impact of big business model, we told.
Coming out of it not only did we immediately pick back the momentum we had in Q at the beginning of Q4 end in Q3, but also caught up some of the missed sales.
In Q1.
And it talks to our model.
The value.
Our proposition is still very strong there's nothing going on structurally around us that would have us.
Change our mix categories.
The competitive dynamics.
Or anything of that nature.
Sure.
We still come on very strong end.
End.
No.
Anxious to move out of this.
Pandemic environment.
To further demonstrate that I'd also add that.
We've also come out stronger from the perspective that.
Based on feedback from our employees at at the distributions.
<unk> center, our warehouses our stores.
At <unk>.
I have felt like we've had their backs the entire time that the team is as strong or stronger than it's ever been that we fought hard to ensure that the business would have all of the products required for both our customer.
Customers and the protection of our employees that the measures we put in place were well received and appreciated and professionally executed. So I think our team is stronger at all levels because of this pandemic as well and.
They've been appreciated the way we've navigated.
Advocated through these challenging times and always had their backs.
Okay. Thank you for that.
With respect to the strong early Q1 trends is there a way for us at all.
I understand what.
To what extent.
Maybe isolate at number wise.
What extent that is.
Some of the.
Pick up from Q4, just shifting into Q1 and how much of it is of the strength is due to strong kind of seasonal sales due to a warmer Q1, so far or is it.
Is there any way for us to get a gauge on that yes.
Yes so.
So.
J P mentioned earlier that we're on the low to mid teens in terms of as a.
Almost two months into the quarter.
And.
And so assuming there is no additional restrictive measures like we've seen in.
In January in Quebec for example, or end.
On <unk> in the other provinces.
If things remain.
More or less the same we'd be disappointed if we could not maintain that.
Low teen.
<unk> figure.
And in terms of gross margin.
That's a bit of the.
At the same situation in other words.
We told you that the sales mix is impacting us positively for at the time being we're against a quarter last year, where Easter was.
Ah.
Almost.
No.
Low end.
And we're already seeing Easter being strong right now and at so we can advance also and summer sales are doing very well, which they werent last year. So.
That means that we should.
End up with a notable.
We'll increase like we did in Q4 in terms of.
Gross margin.
Okay I appreciate that and just lastly at a fast one here on labor availability or are you seeing any changes in the market with respect to your ability to get labor in the stores in D C.
Now for the moment, it's very stable.
<unk>.
Not an issue whatsoever.
Thank you for the color.
Thank you.
Thank you.
Next question is from Irene <unk> with RBC capital markets. Please go ahead.
Thanks income.
Good morning, everyone just to kind of beat this horse on same store sales it sounds as though essentially what youre, saying is that if we move aside all of the Covid noise items that you Couldnt sell you could sell at shifting from one season to the other dollar ran that is back.
On track with what would have been kind of on normal historical rate of same store sales growth is that a fair comment.
Uh huh.
[laughter] not a good sign.
Well, it's not.
It's because there's so much noise right now.
The shift in sales mix.
I mean, yes.
All of <unk>.
Post COVID-19.
For us.
It's continuing to perform as well as we've done historically, we don't see anything happening.
Of that.
Have us think otherwise just for the current period and because the year. We just went through.
Where you have had a lot of mix.
At our sales mix.
<unk>.
So.
And I've tried to describe those as accurately or as <unk>.
Reasonably as possible.
Obviously.
No.
Impact quarter to quarter movements.
I said Q1, we're comping against at Q1 last year of that.
Was extraordinarily weak so this year.
Extraordinarily high but if you look at the averages.
It's still pretty good because of the.
Reduction that traffic decrease.
Cause by the Covid.
That has been impacting impulse.
Sales so once we're out of this.
Yes.
Covid situation in traffic comes back into line Youll see impulse sales coming back in.
On which are lower margin, so you'll have more margin dollars, but it will impact your margin percentages, but.
Otherwise essentially.
Coming out of the Covid.
It should be back to.
Numbers that we've seen in the past.
That's great. Thank you.
Just following on the discussion around inflation in the past, we've talked about what could trigger higher.
Higher price points, and certainly inflation has been one of the factors that you guys of pointed too. So just wondering about your current thoughts around let's say $455 price points or however, you want to however, you want to just describe at.
Yes, so essentially.
Sam.
Like we told you on the path the ideas is to like we say milk our current price points.
We have.
Up to $4, we've seen throughout the whole year and every quarter.
All of hire for dollar sales then.
The prior year higher $350.
Items sales than the prior year, so our penetration of higher price points has.
Continued to perform very well so there is no rush to move on to.
The $4 55 of which we told you we will be doing.
Again.
We're not yet ready sorry, yet to announce anything on that side.
And it's out there it's going to happen and we will do at when we're ready.
But youre right inflation also plays a role.
At played a role back in August 2016, when we introduced at $3 $54 price point.
And.
It's something that we monitor at that can influence the introduction.
Of the $4 $55 price point.
Thank you and.
And then just a question on the on dollar city.
We're already up to 264 stores that pace of store opening is accelerating once again.
Now, maybe Peru gets thrown into the next end Gwen.
When might we get an update on that store target can certainly.
And then on that.
Seems very reasonable or what would trigger.
You guys to come out and say, yes, we're increasing that store charge yet.
Yes, well for the time being we are sticking with our <unk>.
600 start target.
Store target by 2029, which includes all solid.
Certainly what the MLR in Colombia, it excludes per room.
Peru, we don't know yet if like we said we are moving in were going to test the market and if we see potential.
Then that would impact the.
The future store target and when.
On the Doug comfortable.
We will update you on that.
But for the rest.
For the time being.
We're still at 600 by 2029.
That's great. Thank you.
And welcome J P.
Sorry.
Thank.
And the next question is from Peter Sklar with BMO capital markets. Please go ahead.
Hi, I just had one question at this point so.
At this time.
Guidance, you've given on potential store footprint across Canada going from 17 200 to 2000.
And I understand like you use of consulting firm.
We feel too looks at all of the demographics and other factors that you.
But you talked about it comes up with the number but really nothing much has changed in Canada.
Demographically, if anything immigration has slowed.
On the growth has slowed.
So I'm just wondering what were the what was the underlying factors.
That caused them to increase the limit like if you go to.
2000 stores on 1700, Thats, an 18% increase in store footprint, which is a lot. So there must have been something that really changed their model and like the only thing I noticed that has changed is that youre going out of few more years. So maybe it's just more of.
Runway can you.
Talk a little bit about like like you would've seen the details of their report.
Yes, so yes, thank you Peter.
I mean, when we each time, we give you.
Our store outlook, we talk.
We're at.
At 10 year.
Years of bass, so and every two or three years, we update that forecast. So it's not a saturation point.
When we get to that target, it's where we think we will be.
By 2031, so we've.
We went from 2020.
Four at them to 2031.
So all of that is is that end and so we're it's not saturation.
It simply.
Our best estimate so we go above at like J P mentioned.
First we look at the.
Current store pipeline, then we look at the addressable market so that evolved since the IPO at the IPO, we only had price points at went up to $2 now we've got price points that I'd go up to $4 sort of your addressable market is higher.
And we look at population size growth retail activity, yes.
Current use of consulting firm, but it's not we don't pick the consulting firms number we use the analysis, but them at.
Obviously, we've got a very competent are real.
Estates team internally that we'll look at every single site.
We will look.
At the potential look at current.
Competitive environment around it.
And filter of that number.
To the level that we feel comfortable and again, we look at two year average.
Cash on cash payback stores.
Yes.
Which means that youll have stores that payback within one year on the stores that payback within four.
Four of five years so.
And it's the average so that's how we get to that.
Those numbers.
And often often the difference between.
New year's end for years to give you a revision of.
Of our of our number is based on a question of us getting comfortable that whatever number we can give we can execute on so sometimes it's two years, sometimes we make you eight more years, because we want to ensure that the number we gave.
Two number that we're extremely comfortable that we can execute at a level that we execute.
Okay and.
Changes any changes in consumer behavior.
As a result of what happened over the last year.
Did that play into it are really COVID-19 at the way the consumer.
You as any of US know really wasn't type of play on your calculations.
No.
It was not a factor of whatsoever.
Okay. Thanks, that's all I have thank you.
Yes.
Thank you. The next question is from Karen short with Barclays. Please go ahead.
Hi, Good morning. This is.
Behavior not on <unk> on for Karen and thanks for taking my questions. So just just wondering if you can speak to what youre seeing from a competitive pricing perspective.
Historically, you've been of price follower on you.
You've talked about.
Additional market today, but just wondering if youre seeing competitors also.
Actually you're taking more price given some of the supply chain pressures and then to what degree of U C.
Those price increases.
We're starting to see them and we expect that to continue and of course.
As you said, we're a price follower and therefore.
At.
We will absorb the impact of the inflation until the new price point that we have to offer if we do of markup is still the most competitive price. So we continue to be a follower and we are seeing inflation for sure.
Sure.
And as long as we feel comfortable that our next price point is at a price point that keeps dollar of Amazon price extraordinarily competitive then it becomes an option for the buyers to uses of tool to help combat some of the.
The headwinds that they have on a daily basis.
Okay. That's that's helpful. And then just my second question is on wages.
You mentioned.
Some of the increases in 2020 at night, I think historically, you've talked about at 3% increase in wages as being <unk>.
Manageable for the business overall, so just wondering.
Sure of all of wage inflation, you're expecting this year and then if you can remind us how youre thinking about.
Sort of the comp needed to leverage your overall fixed costs going forward that would be helpful. Thank you.
Yes, we don't disclose the specific.
Increases but.
What I wanted to mention it.
Nothing out of the normal so obviously, we follow minimum wage increases.
No.
Across the chain across the country end.
And then there are further adjustment.
<unk>.
If we need to bring them.
So that.
Where we're at in terms of.
Labor and your other second part of the question.
Just the comp needed to leverage overall fixed costs going forward.
Alright, well again well.
We don't disclose the specifics of that.
Sorry.
Okay. Thank you.
Thank you.
Thank you.
The next question is from Derek <unk> with Canaccord Genuity. Please go ahead.
Thanks, guys I'm just following up on on the on the new longer term store target you mentioned, you're you're still targeting that the two year payback on new stores can you comment on on what the average store is doing in terms of of revenue today and maybe what it was doing in I guess 2016 2017, when you when you.
Your last forecast.
Yeah. So.
I'd say we're at.
Average sales per store increased from 2017, I don't have it by heart, but.
It has increased.
And today, we're approximately average three.
You put out too.
The $3 million per of revenue per store.
Yeah.
So.
And we of our average.
Store sales have increased steadily since the IPO at.
And.
Three point, whereas our.
Cost of open up a store of net of tenant allowance has remained more or less stable. Since then so our actual paybacks at.
More recently in the more recent two year full two year cohorts has improved.
Year over year.
So going forward.
And it really helps.
Okay. No. That's good I seem to recall at a $2 7 million number per store I think.
And yes that that that would make sense by 2016 2017, yes, yes.
And then.
Just in terms of the dynamics.
Definitely it's difficult because you guys don't really have any sort of pure play.
All of the quote unquote dollar store peers, but.
But the new the incremental 300 days are you seeing market share gains within your footprint or.
Are you seeing just more demand from consumers for your offering like what is sort of at dynamics.
And I noted at 300 increase well you had the introduction of higher price points of the penetration increase and higher price points.
Fact that we've deepened the offer within each category is definitely an element that help there is inflation over time.
2016 and 17.
And we had the currency inflation steep inflation back then.
At the.
<unk>.
We.
We had just introduced the higher price points of that helped.
During that period of time.
Okay, great. Thank you very much.
You bet.
Yeah.
Thank you.
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