Q1 2022 Dollarama Inc Earnings Call
Gold sales at all of as you see this conference is being recorded on.
Participants. Please standby your meeting is about to begin.
Good morning, and welcome to the dollar Ram of fiscal 2020 to first quarter results Conference call, Neil Rossy, President and CEO and J P counter C F.
Oh.
We 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 dollar AMA dot.
Dot com in the Investor Relations section.
As well as on SEDAR before we start I've been asked by dollar of admin to read the following message regarding forward looking statements dollar remiss remarks today may contain forward looking statements about its current and future plans expectations intentions results levels of activity performance goals or achievements and any other.
Future events or developments forward looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors.
Actors 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 remic cannot guarantee that any forward looking statement will materialize and you are cautioned not to place undue reliance on these forward looking statements.
For additional information on the assumptions and risks please contact consult a cautionary statement regarding forward looking information contained in dollar M. S. M. D. N. A date of June 9.2021 available on SEDAR.
Forward looking statements represent manage at night management's expectations as.
As at June 9th 2021, and except as May be required by law dollar Roma 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 Neil Rossy.
Please go ahead Sir.
Thank you operator, and good morning, everyone.
The dollar I'm of team continues to demonstrate its ability to adapt in order to serve Canadians safely and with purpose.
We delivered another solid performance for the first quarter of fiscal 2022.
We generated a double.
The increase in sales along with strong same store sales growth and industry leading margins.
This is despite additional COVID-19 restrictions implemented across Canada in early April.
It included strict measures directly impacting at select retailers on Ontario.
Well, we have 40% of our stores.
The COVID-19 impact on the first quarter was similar to what we experienced on the fourth quarter.
At it.
On top of quarter with solid momentum in this case right through early April with same store sales growth in the mid.
Digital.
Then in the last month of the quarter, our sales were negatively impacted by additional measures taken by provincial governments in response to the pandemic third wave.
The ban on the sale of non essential goods in Ontario, which is the most significant of these measures.
Was in place for the last 23 days of the first quarter and at currently remains in place today and is set to expire on June 11.
Against this backdrop sales nonetheless increased by 13% year over year.
Same store sales were up.
At G, 6%, driven by higher sales of seasonal items, including Easter holiday and spring summer products.
The opposite occurred in the same period last year with customers buying large quantities of household and cleaning products not Easter decoration.
Looking at real estate we.
Of started off of a year with a good new store opening of rhythm.
Having opened 12 net new stores this quarter.
This is compared to 10 in the same period last year.
As a result, you can expect of uptick in the quarterly number of net new stores openings as we reach the second half of the.
Year.
Turning to dollar city as planned they opened their first store in Peru last month.
Thereby entering a new and fourth market of growth in Latin America.
Like Colombia, the product offering in Peru includes product up to $4 U S price point at <unk>.
Justin.
And the equivalent of local currency.
Yeah.
Our local management team continues to deliver a solid operational performance and on.
All countries of operations.
We're pleased with their progress and ability to execute on the businesses growth strategy.
Okay.
On the ESG front I am pleased with the progress we have made integrating sustainability initiatives companywide over the last 2 years and during a pandemic.
We published our second ESG report this morning now available on our corporate website.
As a team we are more committed than ever.
Managing our operations and resources responsibly and to serving our customers with purpose.
Looking ahead and despite near term impact.
Of COVID-19 restrictions, which remain in place.
Our solid momentum in the first 2 months of the fiscal year.
Flex the relevance of our unique business model and the compelling product offering to Canadian consumers from all walks of life.
I would like to thank our customers for navigating this situation with us and for their continued loyalty.
Our customers have been very supportive and at times.
For a vocal about their desire to shop at dollar of armoured during the pandemic.
And we appreciate that enormously.
This is only further reinforced the role we play in the Canadian retail ecosystem.
With that I'll hand, it over to J P to discuss our results in more detail J P over to you.
<unk> quite thank you Neil and good morning, everyone.
Let's start by taking a closer look at sales total sales for the first quarter of fiscal 2022 increased by 13% to $954 million driven by an increase in the total number of stores as well as sss growth.
Growth looking at same store sales for the first 9 weeks of the quarter or the 9 week period ended April 4th 2021, we recorded same store sales of 15, 2% compared to the corresponding period of the previous fiscal year driven by strong seasonal sales.
<unk> holiday.
Spring summer products, however, various provinces across Canada subsequently imposed new or more stringent measures do this due to the sharp rise in Covid case counts.
This included a stay at home order and a ban on the sale of non essential.
And across Ontario, which went into effect on April 8.2021, 2021. This had an immediate and sustained impact on sales for the remainder of the quarter as a result comparable store sales growth for ceded to 5.8% for the.
Good.
First quarter of fiscal 'twenty 2.
Same store sales growth consisted of a 9.3% increase in average transaction size and of 3.2% decrease in the number of transactions.
The basket consolidation trend as continued although the increase is more modest.
Is that of last year.
As a reminder, while only a limited number of stores were closed in Q1 fiscal 2020 to as many as 100 and for stores were closed during the same period last year, primarily Quebec mall stores as we're now lapping of the pandemic as.
Second half of the first quarter last year.
This as a bit more noise to our year over year comparisons for this quarter and in the coming quarters Youll recall that at the onset of the pandemic, we experienced a huge surge in transactions in early March 2020 as customer.
Customers stocked up on consumables. This was followed by a sharp decline in transactions as the first lockdown was implemented.
Turning now to gross margin.
We recorded a notable increase in Q1 fiscal 'twenty, 2 with gross margin as a percentage of sales coming and coming in at $42.
3% up from 41, 3% last year as anticipated and discussed during our last quarterly call.
This is as a result.
Of increased sales of higher margin seasonal products.
As G&A was 16, 6% of sales in Q1 fiscal 2000.
<unk> 22, compared to 16, 3% in Q1 last year SG&A reflects incremental costs related to COVID-19, including hours for in store cleaning sanitizing measures to protect the health and safety of staff and customers. These costs amounted.
<unk> 18 million in the first quarter compared to $14 million last year.
In that case, all incurred in the last 6 weeks of the quarter. Excluding COVID-19 costs SG&A would have been 14, 7% of sales in Q1 fiscal 'twenty 2.
And for.
14, 6% of sales.
Last year, so generally flat year over year as expected.
EBITDA was $248 million.
Presenting 26% of sales net earnings were $113 million and diluted.
At EPS was <unk> 37.
A 32% increase compared to Q1 last year.
Our equity pick up of dollar city's net earnings was $3.4 million in Q1 fiscal 'twenty 2 compared to $2.4 million in Q1 fiscal 'twenty 1 dollar city.
To perform well end opened 15 net new stores in its quarter ended March March 31, bringing its total store count to 279 stores.
The first store in Peru was opened subsequent to their quarter end. So it is not reflected in this total.
Our long term store target for 1 dollar city is 6.
600 stores by 2029, and they are right on track.
Keep in mind that this target excludes Peru, which is still in its very early stages.
In terms of our capital allocation the board approved a quarterly dividend of $5 <unk> per share.
We also actively resumed activity under our share buyback program in the quarter, we repurchased 4.9 million shares for a total of 283 million our leverage ratio stood at 282 times adjusted net debt to EBITDA at quarter end.
Bearing factors outside of our control due to COVID-19.
At 19, it is our intention to continue share repurchases under the NCI throughout fiscal 2022, while maintaining our leverage ratio of between 275 times and 3 times adjusted net debt to EBITDA.
Before turning to our outlook Neil mentioned the publication of our 2021 ESG report, which.
There around 4 pillars are people product supply chain and operations. This year, we've aligned our ESG disclosure with SaaS fee.
Which is the standard for our industry and areas of activity.
On the people front, we provide a comprehensive overview of.
As balance training and retention programs, which are resulting in lower turnover and an increase in internal promotions at store level regarding products, we outlined on our achievements and commitments under a robust product quality and compliance programs.
We're also reporting on our progress.
Of our <unk> the full implementation of our 3 pronged approach to vendor compliance and our extended supply chain and regarding our operations. We provide an update on the measurable initiatives underway to minimize our energy consumption and where mental footprint.
So.
We are also committed to.
Building, a roadmap to align with Tcf day recommendations in the future. The objective is to FERC further enhanced climate change disclosure and have a plan to reduce or mitigate our carbon impact. We have made great great strides since the publication of our last reported 2 years ago and we remain committed.
Added to continuing to integrate ESG across our business.
Turning now to our outlook.
The COVID-19 situation continues to make it difficult to predict the environment in which we'll be operating in the near term given that the Ontario restrictions as of yet to be removed as such we continue.
<unk> totally provide limited guidance for fiscal 2022.
Looking specifically at Q2 in the near term impacts of Covid restrictions, which remained in place strict.
Strict in store capacity limits are expected to remain across Canada at least until the end of the second quarter and to continue to impact store traffic.
Ban on the sale of non.
Total goods in Ontario, which impacted dollar of them on the last few weeks of Q1 will be lifted on June 11.2021.
It's all of that's been in place for the first full 5 weeks of our second quarter of crucial period during which Canadians usually start planning for summer activities and stocking up on related seasonal goods.
Also keep in mind that Q2.
So keep in mind that in Q2, we faced tough comps with the strong performance in Q2 last year, largely driven by strong seasonal sales, but despite the significant impact the Ontario, <unk> will have on our sss in the second quarter and then the fact that we face.
Of comps our confidence in the underlying business fund the underlying fundamentals of our business model remains this is a temporary headwind and I can assure you that we're all very eager to be able to once again offer our full product assortment to all of our customers from coast to coast as soon as we're permitted to.
So.
Looking at full year metrics.
Provided last quarter on net store openings and capital expenditures the guidance on these 2 annual metrics remains unchanged. We did not release full year guidance on gross margin of our SG&A, but the color we provided last quarter still stands.
On tuck on results to date and visibility on now open orders, we anticipate gross gross margin as a percentage of sales for the full fiscal year to be relatively flat compared to last year with continued inflation on raw material prices and inbound shipping costs for SG&A as a percentage of sales.
Sales, we should also be generally in line with of prior year, excluding direct COVID-19 costs that concludes our formal remarks, I will now turn it over to the operator quest.
Questions from financial analysts.
Thank you we will now take questions from the telephone lines.
Great question, and you're using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star 1 on your devices Keypad you may cancel your question at any time by pressing Star 2 please press star 1 at this time. If you have a question there will be a brief pause for all participants register for questions. Thank you for your patience.
And the first question is from Irene <unk> from RBC capital markets. Please go ahead. Your line is now open.
Thanks, Ed and good morning, everyone.
Can we start with same store sales, please and would you be able to provide us with color on what you've seen in terms of same.
For sales and category demand.
Ex Ontario versus Ontario, and other words in the provinces, where there has been less disturbance.
Thanks Irene.
So first of all I would step back.
And if we look at Q2, the first part.
Same store too.
As I mentioned in the script.
As impacted by Ontario until June 11 and end.
And we have some.
Capacity limits, notably in Alberta.
Which we'll have to deal with and are starting to ease up.
<unk>.
At <unk>, the second half of June that being said once you.
Adjusted for the restrictions.
The on.
Underlying performance would be in line with expectations keeping in mind that we're lapping against strong comps in Q2 last year.
<unk>.
Consistent with expectations.
What are the expectations with which they are consistent.
We don't provide.
Specific.
Specific disclosure on that but what we can say is for the provinces that we're not impact.
By the restrictions. It is what you would have expected from us based on our historical performance.
Okay.
Just stick with this for I haven't got to take 1 more attempt at J P. So.
Would it be reasonable to expect that the torrid.
<unk>.
Sort of 1 of the first 10 weeks of the first 9 weeks of Q1 would not have been maintained but that nonetheless underlying same store sales would remain robust.
Yes.
I mean, it's it's.
It's hard to predict.
How how Ontario.
Come back.
Excluding on excluding Ontario.
Excluding on period.
<unk>, Ontario.
I think there is there is good momentum in the underlying business.
And that's as far as we can go on those.
Okay.
In terms of category demand would there be.
Would we be continuing to see the strong demand for the types of products that.
Of that we would have seen strong demand for a period of pandemic. So seasonal outdoor household basic household goods.
What's.
Category demand like excluding party.
For obvious reasons. So when you look at the category of demand first of all keep in mind that last year, we had with good mix performance in Q2.
And for this year.
Or for.
For Q2, although we don't provide specific guidance on that.
We're seeing at decent performance from.
From our seasonal.
Categories.
Okay and 1 last question from me and then I'll hand it.
Over on.
You mentioned sort of shipping costs, but are you having any what we're hearing a lot of discussion obviously around delays in shipping and difficulty in actually accessing containers at what is your experience currently.
So everybody is having a hard time getting containers Irene.
Around.
Around the globe.
And.
Nobody is.
As an exception to that particular challenge.
I would say that at all.
All of <unk> business model.
Mitigate those risks more than it does for most because the majority of our.
Good day or proprietary that we import ourselves and therefore, we sit on inventory of those goods that inventory provides a buffer that most people don't have for those goods and that buffer allows us to prioritize which containers are going for which goods at what time to help.
To help mitigate the risk of running out of any given items so to date.
The challenges that everybody is experiencing have not impacted our sales and as long as it.
It doesn't go on for a year that will be the case, but certainly.
The availability.
City of containers and the cost of shipping.
As a major challenge for for everyone.
Understood. Thank you Neil.
Yes.
Thank you. The next question is from Brian Morrison from TD Securities. Please go ahead. Your line is now open.
Okay.
Yes, good morning, if I could just stick on that note I think at FX in the quarter flow through at about 130 to $1.35, and it looks like it's poised to declined pretty sharply in the coming quarters. So I hear you in terms of the cost inflation, but it's a challenge to see how your gross margin remained flat. So I'm curious if cost inflation or inflation going forward for the rest of the year is going.
B of headwind or a tailwind.
So Brian.
It's a mix first of all we have our hedges and our hedges.
<unk>.
Make our costs not at the same spot spot is built into the hedge and the hedge.
They can be positive.
<unk>.
When things are going down and look negative when things are going up but they provide the buyers the tool to know and have visibility on the cost of goods as they are buying them.
With that we have the same challenges as everybody else with higher <unk> costs due to increased raw material prices.
Rice's and at their discretion they have.
A slowly lowering hedge as well as.
As the ability to do some markups to control of their margins. So the guidance, we're giving on margins I believe everybody.
And and that's a mix of of using all of the tools at the discretion of the buyers but.
Relatively stable is probably the best way to look at it.
Okay, and then I guess, 1 follow up question.
Can you maybe share with us what percentage.
Percentage of units sort of non essential in Ontario, It looks to me like same store sales growth in Ontario in the month of April was probably down somewhere between 35% to 40%.
Yes.
We don't provide the exact breakdown of Skus. However.
We do provide.
The breakdown between.
He has consumables general merchandise on seasonal.
It's about <unk>.
<unk> 42.43.
42% consumables for the 3% Joe merchandise is 15% seasonal.
You can assume that most of the consumables would be essential.
That's that's.
For the color, we've we've provided in the past on that.
Could you just walk into the store, though as it was a shocking number of the items that were on available. If you cant clarify just from the percentage of units that were non essential.
No it's not a percentage that we.
<unk> closed historically and that we will disclose.
Okay. Thank you very much.
Thank you.
Thank you. The next question is from Mark Petrie from CIBC. Please go ahead of your line is now open.
Yeah.
Yes, So I guess just following up on the.
On the whole topic of inflation and costs can you I don't know if theres a way to help quantify the magnitude of inflation in your system at all and sort of how you have reflected that in pricing.
Thus far and I guess, maybe if you can sort of get into that what are you seeing in the competitive environment.
With regards to price increases.
So in terms of inflation as we've mentioned in the past, we're seeing increase in inbound shipping costs.
And product cost and we're working hard to offset.
Those pressures through our refresh.
And our markups and that leads us to to be able to provide some color on a generally flattish year over year gross margin.
And that's that's what we're hoping for.
But it's hard to predict how.
Inflation will evolve in the next in the next few quarters, we're doing our best.
So far to offset it.
Through through refresh of markups.
Yeah.
And just any comments with regards to the competitive environment and I guess sort of specifically in times of.
Where we've seen this type of potential tailwind with regards to FX in your hedging program, we have seen pretty sizable gross margin expansion.
But maybe at the competitive environment is somewhat different today, and maybe a bit of an offset I'm not sure what's your perspective.
Yeah.
<unk>.
The pressures on <unk> and the pressures on costs are making this a different situation than in the past when you saw a change in the FX.
Okay.
Just following up a bit more just on with regards to sort of price increases.
How do you consider your competitor sort of promotional efforts be of Flyers of rollbacks of loyalty. When you consider your price position given those arent parts of the of the dollar ramp sort of value proposition does that how does that how does that factor in or do you sort of just look at regular price benchmarking.
In your in your in your work.
The answer is it's painful.
As buyers as buyers trying to figure out.
What game to play what strategy to take it's very it's very challenging, but I would tell you that the <unk>.
<unk> team takes everything.
<unk> of account the everyday price the advertised price the once a year of ridiculous price and they use their judgment and decide in their categories, how they want to remain competitive.
But our everyday low price is the overriding strategy that we take.
And as you know, we do not play high low the high low game, it's just not something we've ever undertaken so I think over the course of time, our customers have come to appreciate that that everyday low prices as our strategy and at.
At the few times of year when people like to give.
Okay.
Then they will go buy those items.
Those stores, but for 99% of the year they understand that we are going to be.
Right in there as far as having the lowest price in the market.
I would I would.
The size of that.
I mean, our strategy has always been.
Things.
A price follower not of price setter.
And so.
If and when we're.
We're seeing the level playing field move we're adjusting accordingly.
But it's really with the price following dynamic another price selling dynamic.
Yeah understood. Thank.
And I also just wanted to just last just as sort of a broader question, it's a little bit vague, but just with regards to your store format and then the footprint.
On size of the store obviously, the pandemic has changed the landscape significantly curbside pickup as an example of.
Obviously, it's going to pull back when stores returned.
For that capacity, but clearly it does have value for consumers and likely remains an option for many companies and your competitors.
At the same time the convenience element of shopping is obviously really important and clearly dollar number has been really successful with that so I guess my question is.
Do you think theres, an opportunity to adjust the size.
Turned to for layout of stores or potentially experiment with different formats.
In response to some of these shifts and potential opportunities.
So we do have.
Just because of the realities of the retail and real estate.
The availability is over.
And worst of all of those years with <unk> thousand 300, plus stores, we have 3500 square foot stores like we have 15000 square foot stores and so.
Just as a matter of of.
The fact that we have to deal with on the on the real estate side, we have sort of an innate testing.
Going on at all times on how to handle those different size.
<unk> as far as a change of strategy.
And have no current strength change of strategy plan, we're always open to the to the ability to adapt to the environment and we're always studying it.
But for the moment.
We're happy with the current strategy and we understand how to operate.
Current size boxes and in different markets those different sized boxes are required in order to be able to secure the real estate that we want.
Understood I appreciate all the comments thanks a lot.
Thank you.
Thank you. The next question is from Peter Sklar from BMO Capital markets. Please go ahead. Your line is now open okay. Thank you operator.
Just wanted to ask you a little bit about your SG&A margin, which you explained during your commentary with like the percentage of margin was flat.
Flat year over year.
After taking into account COVID-19 costs now there have been times in the past when sales are growing you do get operating leverage on your SG&A and show a lower margin because there is a fixed cost element to that but.
Now youre showing of flat margins so are there cost pressures.
In SG&A.
As well like I'm thinking of labor cost minimum wage. So if you could just drill down a little bit on SG&A.
So once as you mentioned at once adjusted for Covid direct costs of our SG&A is generally flat, which is what we expected in terms of the scaling benefit.
And.
On the SG&A line.
Most of it.
As is variable on average.
So the only thing to note there is.
As a result of of.
The Ontario restrictions, we didn't get the full productivity.
We would've liked in Ontario, and we managed.
To keep our adjusted SG&A flat despite that.
And that's probably the the <unk>.
Only the only color that debt.
Explains.
The scaling offset.
Okay. Thanks, JP and then the other question.
<unk>. Another question I have also addressing Ontario.
With the with the limitation on the sale of non Essentials did you like did you change the plan O Gram and your Ontario stores. So did you offer more did you change the mix of consumables end.
Food for example, or any other consumables or is.
Implant of Graham.
So we didn't change the mix for certain.
However, we did highlight on our end caps and in our at the front of our stores.
The items that we are most relevant to the consumers looking for a central items, making it as easy.
As at the fed for those consumers to find the things that they were legally allowed to buy.
Okay.
And then just finally.
I know you get this.
On every call just on higher price points, but has your language changed around that.
Given that we're 1.
As we could sort of closer to higher price points on the inflationary pressures you're seeing.
So.
I'll answer it twofold, 1 no nothing's changed but too.
And in that Nothing's changed we've always told you and we will continue to tell you that.
We are not against adding price points, if if the relative value required based on inflation and other factors.
Is what's best for our customers and the offering we can offer them. So for now there is no guidance to give.
That being said, it's always a possibility.
Ability.
Okay.
All I have thanks, Neil Thank you.
Thank you. The next question is from Vishal <unk> from National Bank. Please go ahead. Your line is now open.
Hi, Thanks for taking my questions.
Just.
Just given all of the challenges with shutdowns and changes in consumer behavior, I'm wondering how you're positioning yourself for assortment of Psi in summer and fall end.
Do you anticipate inventory.
I know you talked about.
Tori relative.
The container on that but you didn't disappoint anticipate any.
The challenges associated with some of these demand spikes.
No.
Do not we do not have any.
<unk> to ensure that our seasonal goods will be.
Here when they need to be it's more challenging to make sure it happens than it usually is.
The inventory it will happen.
Okay and with respect to.
Addressing the changes in consumer behavior that has happened rapidly for events for example.
More desire for certain seasonal goods are you changing the space allocated for certain categories to meet that consumer.
Buddy.
At the end of the day.
<unk> from the goods, but domestically that are produced domestically that there was of demand for in particular of COVID-19 related cleaning and health products.
The reality is that the balance of those goods are.
Consumers of the most part import and import goods take months to get and so when there is a <unk>.
Very quick change to what.
Consumers are looking for.
The reality is those things don't translate into end to product on the shelves and you can ask that of.
Every importer of slash manufacturer of sporting goods and fishing products end.
And camping products at.
And hunting products, who are all out of goods and cant get the goods, even though theres tremendous demand at the moment because people are having to stay at home and find things.
For your domestically.
So the reality is you can only do so much beyond the things that are manufactured domestically.
Okay, and just a few general comments on that.
The consumer perception of dollar on that through the pandemic.
Just thoughts on some grumbling on social media and it wasn't a dull on this.
Choice, obviously, but that they've.
They've gone to the store and they werent able to obtain what they wanted to end grumbling about what was available at the store.
Are you in your monitoring of consumer perception of dollar on are you noticing any changes on the brand as a result of all of this.
Is that a pandemic restrictions that you have to go through.
Well nothing breaks the heart of of retailer more than not being able to sell something that you have the customer wants.
But the reality is for any any given customers anchor that they can't buy what 1 inch from their fingers at.
We need to follow the laws of the land as everybody else does.
And we do as well.
We do what we can do our part to enforce those things and follow the rules and yet we are sensitive to the customers' frustration and we.
We look forward to the opening at.
As do all businesses that have.
At it in any way.
And the provinces that are currently.
Locked down are banning certain goods, but theres only so much we can do do we worry about our customers I think overall the <unk>.
<unk> vast majority of customers understand where simply following the rules of land at.
And they're Super excited.
Ben I believe to get back in the stores and be able to go buy those gardening and summer end and picnic things that they've been staring at end excited to get their hands on and we can't wait for them to get their hands on it.
Okay, and just a lot from here given that the consumer is in reasonably good.
Cited financial shape do.
Do you think that incrementally.
Dampened the appetite for value brand like dollar on our end.
Obviously, your comp store, suggesting suggesting that but wondering looking for it if youre seeing any of that incrementally on the margin.
At.
I think the the relative value of that we're on.
It.
Is realize as you pointed out by a lot of our customers.
And that relative value as Neil mentioned will remain in the future.
And we don't anticipate those dynamics to change in.
In the near future that's for sure.
Okay. Thanks for taking my questions.
Okay.
Thank you. The next question is from Karen short from Barclays. Please go ahead. Your line is now open.
Hi, Thanks very much.
I wanted to just ask about.
Freight actually of 2 <unk>.
Question. So on freight would you be able to provide a little color on what percent of your free.
Freight and our containers are 5 versus contracted and then what percent you are actually seeing in terms of on a dollar.
On cost increase year over year.
Okay.
So in.
In terms of dollar increase we.
We don't go there.
I mentioned earlier.
As I said, we were working hard to offset those inflationary pressures.
On our working hard towards generally flat gross margin year over year.
In terms of.
What's what's contracted versus spot.
At the exact.
Percentages, we've we've never disclosed.
And it's.
It's not something we will provide that at this point.
But I would.
Go back can fall back on on the general gross margin comment.
To address your questions.
Okay and then.
He discussed.
<unk>.
We're working hard to offset.
These pressures at the Markups is there any color you could give in terms of percent of Skus on Mark up say now versus like a normal whenever we go back to a more normal time period, just help frame how.
Youre thinking about that.
No I mean.
Yeah.
The only comment.
Is that we are seeing inflation.
Cross across.
Both inbound shipping costs and end.
And end product.
Cost of inflation.
Uh huh.
We're always getting back to that relative.
The value proposition, which as well.
We will adjust to the level playing field of debt level, playing field moves we will move if it stays at the same we will stay the same.
But for now.
We're seeing the level, playing field evolve, allowing us to.
On the through of refresh on markups.
Be able to offset some of those inflationary pressures.
Okay, and then just last 1 for me I know you've given the color on SG&A, but.
Within <unk>.
Excluding the color you gave on SG&A being flat there, obviously will be COVID-19 costs and to the next couple of quarters can you just give us.
Instead of how youre thinking about that.
How much of it is actually now more permanently embedded.
So.
It's a good question on Covid costs over the medium to long term.
The way, we've identified them and segment of them those are costs.
For.
Some of the vast majority will be.
Out of the business once COVID-19 is over.
That being said.
For for the coming quarter, I think you should expect COVID-19 costs to be in the same range of what we've seen in Q1.
Okay. Thank you.
Q.
Thank you for.
Next question is from Chris Li from day shutdown. Please go ahead. Your line is now open.
Thank you.
Traffic was down on these 3.2% was that better than your expectation because that was expecting traffic to be down more given the restrictions in Ontario do you think this.
Selection of the fact that not all of them on as a destination store for essential product and then that's why consumers continue to go over there even though perhaps.
Half of the store was was closed during part of the quarter.
Yes.
2 drivers there is the first 1 as.
As you pointed out and as I mentioned earlier.
As of the.
The underlying business of sound and.
And is performing in line with.
With expectations at.
Now you also have to keep in mind that in Q1 last year. Because this is of year over year metric, we're comping against half of quarter.
Yeah.
Or so of restrictions so that plays into the year over year.
Traffic and basket size numbers.
Great. Okay. That's helpful. Thank you. My other question is just on the on the self checkout kiosk can you give us an update on.
Where youre at how many.
Order in store so for how many more flow for the year and then maybe related to that is when all of these sort of implemented do you think this will help at a structural reduction in your labor costs or is this more of a waste to alleviate some of the bottlenecks at the til so that when demand does come back this will help improve your sales productivity even.
He has been better thank you.
Yes. So our focus is is on client experience first.
And.
That's that's a key driver of.
Our decision to implement self checkout.
In terms of what you can expect for for Capex.
And what's been done and what will be done.
We've done.
Retrofits on on stores that where we thought we would we get the return that we need to get to justify the investment going forward and now that those low hanging fruits have been tackled.
In terms of return on.
And capital.
We'll be deploying self checkouts and our new stores.
As they open over the course of of the coming year.
Okay, and do you have sort of how many stores are with self check out right now and what's your target.
So at the end of the year.
Will.
We will.
We'll get back to you with the exact numbers okay. Thank you.
Yeah.
Thank you. The next question is from Edward Kelly from Wells Fargo. Please go ahead. Your line is now open.
Yes, hi, guys good morning.
First off just a.
A follow up on on free can you talk of data about the timing of.
When you go through and sort of contract Ocean rates. If we look at some of our other companies 5 of low seems to have done a good job of sort of getting at it early.
We've seen other things at places like dollar tree.
The name of this the impact of that is actually pretty sizable.
Just kind of curious as to how you manage through this process and then if spot rates stay as high as they are.
Does that create risk in the out year, just curious as to how youre thinking about all of that.
So it's part of the.
Of the daily task.
Of the logistics team.
Yeah.
Literally every day every working day of the year.
Which is basically every day of the year.
They are at.
Negotiating contracts twice in a year with the different.
Great companies.
<unk> tried to offset the cycles to make it.
More practical and have another.
Sort of insurance.
And that way that there's different times.
For the most part of course, we're covered through all of our contracts.
And.
We want to stay away as a rule as most big companies do from spot because spot generally has risks like it would with hedge with FX and so we hedge and so that same philosophy is used when we're when we're contracting our fragrance.
And so based upon where you are today do you feel you have pretty good visibility on ocean spot sorry of ocean rates.
The rest of the year or 2.
As investors do we need to sit here and.
Closely monitor of the fact that spot prices just keeps going higher.
I don't.
Each of closely monitoring.
Okay.
And then I wanted to ask you just about.
This issue with Ontario end.
Not being able to sell non essential items.
<unk> seen historically when those restrictions come off.
And how should we think about sort of like <unk>.
Thank you need demand I guess once we get to July 11th I know you talked about.
Missing some of the critical summer selling season, but I presume everybody is kind of missed that right. So.
How optimistic are you that youre going to be able to.
To capture the pent up demand related to that.
Yes.
Pent up of short answer is we don't know.
It will.
What we've seen in Quebec.
Was was a strong come back from the customer.
That being said.
We don't know how.
How it will take place end.
And shape out in Ontario were very eager to see and look at our Sss figures post June 11.
We're certainly hoping for.
At some level of of of higher activity, but at this point at.
It's anyone's.
Guests.
Sure.
Okay. Thank you.
Thank you.
Thank you. The next question is from Patricia Baker from Scotiabank. Please go ahead. Your line is now open.
Thank you very much on good morning, most of my questions have been at.
Asked and answered all of that.
Just 1 follow up on the discussion of the.
Self checkout and we did reference the fact that you know you start first with wanting to ensure that you have a great customer experience I'm just wondering what your what your setup is in the stores, where you have self checkouts.
How are you many of the cash registers.
How they.
Some of the Apple cash Register.
Even where you have the self checkout.
So where it makes the choices about what they want to do.
Yes, we always have a cashier and we always have a self checkout monitor at.
And depending on the the.
For the level of.
Of busy.
Zenith of the store.
We could have more than 1 monitor at the self checkouts, and obviously more than 1 cashier at the cashless, but.
When when there are customers and there is a need we have personnel at book.
Thank you very much now.
Thank you. The next question is from Graeme Kreindler from 8 capital. Please go ahead. Your line is now open.
Hi, good afternoon, and thank you for taking my questions. Just 1 question Neal and on past Conference calls you discussed the manufacturing environment during Covid.
There was definitely some capacity constraints.
Some of the producers of goods to focus more on keeping up with demand with existing products and has taken down.
Some of the innovation and I think the lack of trade shows on a like could also impact that as well I'm. Just wondering does that impacting at all of the ability for dollar of am I to implement its at MC.
Refresh or potentially.
Implement a new price point, given that would feature of lot of new merchandize from some additional color on that would be appreciated. Thank you very much.
Sure.
Certainly.
The focus on only making masks and hand sanitizers.
Yes.
Cause.
<unk> evolved into thinking about.
Beyond Covid.
So we're starting to see some return to normal.
At the manufacturing level.
The biggest constraint at the moment.
<unk>.
Uh huh.
And on the movement of goods around the world the factories of the world there are starting to get.
It ramped back up and capable of producing but their challenge is getting the goods after of factory floor and into containers and so thats the current challenge.
For the manufacturers of the world on the retailers of the World.
As far as generating.
New and exciting sort of speak.
At starting at starting I would tell you there's.
There is still a ways to go.
Of course, we know that consumers focus on what they want to buy.
Phrase changed a little and thankfully while consumers are more focused on.
Covid related things still.
The GAAP of new creations or new innovation.
Not having the impact it might.
In normal times, so I'm, hoping that as things get back to normal from of creativity perspective around the world.
It will come about at the same time when people start focusing on.
The balance of the goods in the store and it won't be an issue, but that remains to be seen.
Okay understood. Thank you very much for that that's it for me.
Thank you and the last question is from Derek <unk> from Canaccord Genuity. Please go ahead. Your line is now open.
Yes, hi, thanks.
I just wanted to just to kind of frame the.
The new normal I guess in Ontario.
<unk> for at least from at for the period, so with 15% non essential capacity what does that look like in your stores or you're going to have the full assortment of non essential items and like how do you traffic came on.
Out of people in the stores.
So there's 2 questions I think 1 was how do we control the number of people on.
Interiors and the other is is it going to change the offering.
Did I understand that correctly.
That's great. Thanks.
So the offering doesn't change.
The offering remains the same.
We're.
In the store and how much we highlight.
Covid related.
On our stores as of May change a bit.
And when the reopening starts.
Barbecue is what customers want then barbecue well beyond the end and Covid will shift over a little.
But it will certainly both will still be in the store and available for our customers as far as controlling the traffic in.
At at items, we've gotten pretty good at it for.
Of course of this thing and we.
We have we are of monitor.
We do counts.
There is a system in place in all stores to ensure that we're following all of the rules of the land and doing our part to ensure the safety of our customers and our employees.
Of our stores.
Okay great.
I think you guys man you guys gave us a breakdown of <unk>.
Super Bowl of general seasonal as you typically do which was great.
I guess outside of Ontario, where you've been able to sell sort of the full suite of products have you seen that that mix returned to normal over the last.
I don't know of few months of already into Q2.
Yes, so as as I.
Mentioned earlier the once you look at the underlying business.
You try and remove the restrictions on.
Our business and our mix is in line with with expectations.
Keeping in mind that we had a strong mix.
And the tailwind from our mix.
In Q2 last year.
Okay.
Okay. Thank you very much.
Thank you.
Thank you everyone that concludes the question.
<unk> and answer session and our conference for today. Please disconnect your lines at this time and we thank you for your participation.
Question. Thank you once again the conference has now ended please disconnect your lines at this time and we thank you for your participation.
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