Q2 2022 Dollarama Inc Earnings Call

September 9, 2021

[music] isn't it.

All participants please standby your meeting is about to begin.

Good morning, and welcome to the dollar M. A fiscal 2022 second quarter results conference call, Neil Rossy, President and CEO and J P. Towner CFO will make a short presentation, which will be followed by a question and answer period open exclusively to financial analysts the press release finance.

Statements and management's discussion and analysis are available at dollar am a dot com in the Investor Relations section as well as on SEDAR.

Before we start I have been asked by dollar am I to read the following message regarding forward looking statements dollar Amis 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.

Vince 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 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 Roma cannot guarantee that any form.

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 M. S. M. D N a dated September nine 2021.

All of them on SEDAR.

Forward looking statements represent management's expectations as at September 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'd now like to turn the conference call over to Neil Rossy.

Thank you operator and good morning.

We've been navigating the ups and downs of the pandemic environment for over 18 months now and no two quarters have been aligned.

All around the second quarter of fiscal 2022, well defined by the ban nonessential goods in Ontario.

It impacted the tail end of our first quarter and remained in place for nearly half of the second quarter.

While other restrictions across Canada also affected our sales.

Ontario, Ban's impact was significant for several reasons.

Firstly, it impacted 40% of our network.

Nearly 550 stores in Ontario.

Second income.

I'm excited with our peak spring season sale and stretch to almost mid June.

Mind that much of this spring seasonal assortment offered at that time, so in a short window as it relates to activities completed in the spring.

And in your garden decorating your backyard.

Third, it's specifically targeted in store shopping at discount and big box retailers.

Other products, we put himself during that extended period were available for purchase in other retail environment, such as exterior garden centers.

And groceries.

All of these factors limited our ability to recoup sales once the ban was lifted.

The good news is that it was a temporary measure lifted on June 11th.

For the remainder of the second quarter ended August 1st at that that's growth rebounded to mid single digits.

That's both year over year and on a two year average basis.

Reflecting the underlying strength of Covid.

The increase in total sales for the quarter year over year, and we delivered positive EPS growth well openings 13, net new stores. This speaks to our solid fundamentals disciplined execution and compelling value proposition.

Despite the distortion effect on sales of the various restrictions in place during the quarter.

We saw a shift in consumer shopping patterns with an uptick in store traffic.

On the real estate front, we've opened 25 net new stores to date in fiscal 2022 and remain on track to meet our 60 to 70 net new store target for the year.

More stores are expected to be opened in the second half of the year.

It's historically been the case for some time now.

Turning to dollar city, we saw a notable increase in our 51% equity pickup of their net earnings.

$7.0 million last year to $5.0 billion this quarter.

We are pleased with the execution of dollar city's growth plan.

New store openings continue in our Orla time countries of operation with a focus on Colombia and now for it.

During the second quarter ended June 30th 2021 dollar City opened 15 net new stores.

Looking at the global supply chain environment container shipping is experiencing significant disruption.

For fiscal 2022, our teams have worked hard to mitigate supply chain pressures, both from an operational and cost management perspective.

Container shipping costs continued to be on the rise and our rate are mostly contracted through the fiscal year end.

Pressure on container shipping costs continue to build and as a result will be felt more in fiscal 2023.

As we renew contracts and renegotiate rates.

Clearly this pandemic has thrown everyone a lot of carnival.

As a team we've demonstrated our ability to adapt to changing market condition.

The resilience of our business model.

And their central role, we play in the retail ecosystem.

We are proud to continue serving Canadians from all walks of life as the economy reopens.

I'll now hand, it over to Jamie to discuss our results in more detail.

Thank you Neal and good morning, everyone. As we continue to lap pandemic quarters, it's important to look at our underlying performance.

This includes looking at our sales performance on the two year average basis. These metrics provide a more insightful picture of our trends and performance.

Year over year, our total sales grew one 6% on the strength of our new store openings and the contribution of non comp sales from stores that were temporarily closed last year.

Same store sales decreased by five 1%.

This drop primarily reflects the impact of the Ontario ban on the sale of non essential products in place for the first five five weeks of the second quarter, the timing and length of the band resulted in significantly lower seasonal and all your product sales in Ontario, thereby impacting total sales and we were already.

Dumping comping against a very strong performance last year in Q2.

If we carve out those first five five weeks.

<unk> growth for the remainder of the quarter was a positive five 1% and that's over and above four 3% growth for the same period last year. If we look at the same June 11th two August 1st period on a two year basis.

That's growth averaged four 7%.

Getting back to Sss for the full quarter. It consisted of an eight 7% decrease in average transaction size and a three 9% increase in the number of transactions.

This is the first quarter in which we are seeing a reversal in these trends and an increase in traffic.

These trends are also continuing in the third quarter to date.

We generated EBITDA of $300.0 million, representing a five 7% increase over last year. This reflects positive sales growth and lower year over year COVID-19 costs offset by a slightly lower gross margin and slightly higher SG&A.

We generated net earnings of $148.0 million and four 3% EPS growth in the second quarter.

Our gross margin came in at 43, 4% of sales compared to 43, 9% last year. This decrease is largely due to lower lower sales of higher margin spring and garden products impacted by the ban on the sale of non essential items in Ontario for.

For the first half of fiscal 2022 gross margin is up 20 basis points year over year, and we continue to expect gross margin to be generally flattish year over year for the full fiscal period as mentioned by Neil earlier, we expect an increase in container shipping cost to be felt more in fiscal 2020.

Right.

As G&A represented 15, 3% of sales compared to 16, 7% last year.

SG&A includes $18.0 million in direct COVID-19 costs compared to 33 to $36.0 million last year.

Last year at this time, we had temporary wage increases and were still incurring some incurring some implementation costs related to the rollout of Covid measures.

Excluding these costs SG&A represented 14, 1% of sales compared to 13, 5% last year as an essential business. We've kept our stores open and staff throughout the Ontario ban on the sale of non essential product, but this impacted store productivity, which explains the year over year variant.

And SG&A margin, excluding direct COVID-19 costs.

The FERC for the first half of fiscal 2022, SG&A, excluding direct Covid cost is up 40 bps year over year and we're on track to.

And generally flat for the full fiscal year as we see potential for the second half, especially during the fourth quarter looking at capital allocation and a total of $11.0 million shares were repurchased in the quarter under our <unk> program for a total of $169.0 million.

At quarter end, our leverage ratio stood at two eight times adjusted net debt to EBITDA, leaving ample room to remain active on this front in the second half of the fiscal year.

Since the beginning of fiscal 2022 under our previous and current and CIB program.

<unk> repurchased seven 8 million shares for a total value of $447 million and representing two 6% of our shares outstanding. This past July we renewed our in CIB, allowing us to repurchase up to seven 5% of our public float between July 2021 and <unk>.

<unk> 2022 yesterday, the board approved a quarterly dividend.

<unk> five <unk> per share.

Turning now to the third quarter underway and where we are headed.

Here are a few takeaways as we think about the balance of the year. What we know is that the underlying fundamentals of our business are strong for the first half of fiscal 2022, our sales were up six 7%. We've maintained an industry, leading gross margin and have generated 15%.

<unk> EPS growth. This is in the context of the pandemic and strict restrictions directly impacting value retailers.

Looking at the second half of fiscal 2022, and assuming that non essential product bands are behind US we are particularly looking forward to our fourth quarter performance. Historically Q4 is our highest sales period of the year and we will be facing favorable year over year sales comps as you will recall last year, we experience.

A significant pull forward of Christmas sales, which boosted Q3, but negatively impacted Q4, and then our solid momentum in Q4 was interrupted by new restrictions, including a non essential product band in Quebec, and Quebec in late December where we have about 30% of our network, resulting in a slightly negative.

The sss for the quarter.

If we look at the third quarter underway to date, we are holding comparable comparable store sales compared to Q3 last year keep in mind that we're lapping our best quarter of the past five years as for the rest of Q3, our performance will be dependent on the Halloween season will also need to think about that.

On a two year average basis in terms of consumer shopping patterns, which we're seeing in Q3. So far is a continued increase in traffic and a readjustment of basket size. The shift in March of 2020 was very sudden but to date the reversal, we're seeing it's more gradual.

In this context, we are as committed as ever to serving our customers and offering compelling value and unrivaled convenience, while creating long term value for our shareholders with that I'll turn it over to the operator for the Q&A.

Thank you we will now take questions from the telephone lines. If you have a question and you are using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your devices key pad.

You may cancel your question at any time by pressing Star two please press star one at this time. If you have a question there will be a brief pause while participants register for questions. Thank you for your patience.

And the first question is from Irene <unk> from RBC capital markets. Please go ahead.

Thanks, and good morning, everyone.

I think it's safe to say that the topic on everybody's mind is the shipping costs and as you look forward to F. 'twenty three.

Can you just talk a little bit about I mean, obviously, we all assume that the costs are going to be higher input cost inflation. So can you talk about the various tools that you might have to help you offset that gross margin pressure.

And whether there is something that we should be learning or that you've learned from the experience in 2015. When there was a similar kind of sudden surge and input costs.

Sure good morning.

So the levers that we have are the same levers we've had for.

As you've mentioned in the past that we've used for FX challenges raw material challenges <unk> challenges et cetera, and that is the the offering and the yen the offering can be tweaked.

By our buying group.

The count in any given item thats, a multi count item the weight of any given item the size of any given item. So so I would say that the greatest tool we have to combat challenges of this nature.

We can we can.

Also.

Change.

Materials that certain products are made out of change the plastic types from a more expensive plastic pipe for example in <unk> to a plastic that is affected at any given time like PTT and truthfully the customer can't tell the difference.

And its usage.

But there is a difference in cost and those those are the things that vary that are very hard for the consumer to see.

Are things that the buying group has to use as tools to navigate through a difficult situation.

So those are some of the two other things.

And how would you qualify things like markups or if we think about it.

Price points and brought the possibility of the introduction of new price points.

So mark ups are a factor that revolves around the market.

Our.

That has to be.

Great relative value in the industry and as long as the value at a price point higher is still the best value in the market and if we require markups to help manage margins well dang completely competitive on every item then we'll use that as a tool as well.

<unk>.

With regards to price point as you know.

Back on introducing $54.0, and five for a very long time and I would like to.

Hold off as well or longer, but but if if price pressures or container and shipping costs.

We're here for a long period of time, which is it's too soon to know that.

It is certainly another tool that we may use to help us navigate through a longer more extended period of higher cost.

That's really helpful. Thank you and then just thinking about just coming back to the offering as we look in the back half of the year and as you look at sort of what consumer buying patterns have been have.

Have you made any adjustments to the offering how do you feel in terms of your current inventory situation.

Just how do you feel the stores are positioned right now for the balance of the year.

Quite well I think.

We've made many changes to any many items.

And there have been some markups.

Where are the markets, where appropriate but I do think that the whole mix.

Should be compelling for the balance.

That's great and just one final one if I might on a different topic can you just talk a little bit about how the first dollar city stores are doing in Korea.

We are excited and happy about the start in Peru.

Okay. Thanks Neil.

Okay.

Thank you. The next question is from Mark Petrie from CIBC. Please go ahead.

Yes, good morning, I wanted to follow up about the inventory levels and Neil I recall from previous conversations.

Dollar M is largely proprietary assortment gives them much more control over the supply chain than some competitors and I recall your comments in the past about challenges, thus far not impacting sales.

But looking at inventories on a dollar basis. It does seem like they've come under some pressure even versus pre pandemic.

And I understand your supply chain efficiency would justify a lower growth rate versus past rates, but could you just talk about your inventory position both at the warehouse in D. C D C and in stores.

And how thats affecting both your supply chain efficiency as well as your in stock levels in both seasonal and non seasonal.

So in seasonal it's not affecting it because of the seasonal goods come in before the season and therefore have that.

The buffer of timing to compensate.

For our everyday good.

Like every other retailer on the planet and manufacturer.

There is not just the question of cost challenges.

Challenges on.

And on the freight side. There's also the question of container availability and so by being the controller of our own good what it means is we've had to prioritize the good that.

Our.

Most.

At risk of being out of stock and those guys would take priority as opposed to following normal course slow of containers. So I would tell you that our.

Our overall inventory is down, but not resulting in a loss of sales.

A lot of work has gone into compensating to make sure that the goods that are required are being prioritized. It in the past it wasn't something that we needed to be quite as focused on but a lot of focus has been put on that over the last year to ensure that any delays.

Or or lack of containers was going towards items that we had enough buffer in our current inventory.

Understood that makes sense and when you think about the next quarter or two.

Is is that sort of an escalating concern for you with regards to in stock positions or are you pretty confident that that can be navigated and it's really sort of the longer term cost question.

That's sort of a bigger factor.

I think you said it perfectly for the time being we feel comfortable.

The long term cost issue is a concern for us and everybody else.

But it certainly is a concern for everyone.

And if it is the case the only thing that makes me feel more comfortable.

Is the fact that we all will face those same pressures and our cost to the consumer will be relative to our competitors.

Okay helpful. Thank you.

Increasingly hearing about challenges in the labor market. What are you seeing in terms of labor availability on your own.

Turnover.

Store or warehouse and the cost of that labor.

Certainly the labor market is challenging.

We've been doing a fantastic job at store level.

To ensure that it hasnt impacted our store operation at the distribution center as you know we've implemented some seasonal peak season.

Increases.

That has been reflected in the numbers that youre seeing and for the time being we don't see any changes in the near future, but it's a continuous steady week to week to see how the labor markets are.

Our performing with regards to availability of labor.

If I may add mark Okay.

Saying that there will be that will be watching as when the federal wage subsidy ends at the end of October how the labor market reaction moves and function of that.

Subsidy being out of the labor market.

Yeah, Yeah definitely okay, and then just last one sort of a bigger picture one or away from the sort of the immediate term you've spoken in the past about your investments in tools.

Data analytics, and I guess, specifically to give you a more potentially a more dynamic approach to pricing.

Just wondering where you're at in that work.

Well I'd say, we're midway through.

Our our process.

Hum.

Takeaways have already been put into place.

But but it's far from finished and it's.

It's incredibly interesting to see what the.

What we can use.

On that but we are not we haven't completed that that particular process. We're midway.

I appreciate all the comments and all the best.

Thank you.

Thank you. The next question is from Karen short from Barclays. Please go ahead.

Hi, Thanks, very much I just wanted to clarify one thing and then I had a bigger picture question. So.

So you said you were holding sales in third quarter to date and that would be up against 7.1 in Turkey last year does holding flat just to clarify.

Yes.

That means we're we're trending flat so far.

Since the beginning of Q3.

Keeping in mind that.

The Halloween season is in front of us So it's way too early to call the quarter.

And it's really on an sss basis, our total sales.

Total says are definitely positive.

And the Sss, so far is flat.

In Halloween will be the defining factor in terms of our Q3 <unk>.

<unk> performance.

What I can tell you so far is although it's.

That's not a material season for us.

We're seeing.

Strong consumer demand on our <unk>.

Back to school season.

It's been very strong on all fronts.

And traffic continues to be back.

So we're we're watching and it's too early to tell how Halloween will perform that work that's what we're watching for Q3 Sss performance.

Great and then appreciating the fact that we have to factor in the pull forward of holiday into free Kansas exactly yes, okay.

And then I wanted to just talk a little bit about landed merchandize margin. So I know this is an area where you've been very good at controlling them.

You know precision basically based on your freight costs, but as we look into 'twenty. Two Neil you commented that they may get a little tougher to predict what freight is looking like is there any thing to think through in terms of risks to landed merchandize margin as you're kind of in the transition phase contractually.

<unk>.

With respect to your merchants, having conversations on which.

Which it cost versus actual freight costs.

As you know.

As you know Karen were.

For 2021 as you mentioned were mostly contracted on trade for next year.

We're in the midst of those renegotiations.

The buying group.

As you know when we make a pricing decision.

Have those those variables on freight and FX pretty.

Pretty much locked in.

And so I think.

As Neil mentioned, it's all going to be a question of relative value.

And we will be dependent on how the market and the competitive set moves over the next few quarters as freight costs.

Freight costs continue to increase and then.

Will will be a price follower as always we've always been.

I mean, there's there's definitely a benefit of having a multi price point strategy in times like like we're seeing now.

Okay and then just last question for me when I look at I mean I.

I think it's more helpful and I'm talking more calendar year to look at.

First half 19 versus you know first half 'twenty one.

And then your implied guide for second half.

The current year relative to 19, and Youre looking ex COVID-19 costs for a pretty meaningful increase in the <unk>.

Actual margins, so I'm I'm kind of backing into about 120 basis point increase in your second half margins for this year versus COVID-19.

Is that Directionally does that seem right to you because it does seem like a fairly meaningful.

Expansion relative to bolt on in the first half events here.

So year to date.

We're up 20 bps on our gross margin.

Year over year, and and I think the key common to keep in mind. When we think about gross margin for the second half of the year.

Is that we're still guiding to.

Generally flat gross margin for the full year of <unk>.

22 or call it calendar 'twenty one.

So that means in the second half of this year.

We will as we mentioned I think back in March we will start seeing some small headwinds from from inflation that we'll have our gross margin for the full year ended up but.

Generally flat ish gross margin keeping in mind that were up 20 bps year over year on a year to date basis.

Yeah, No I was referencing more EBIT margins, excluding coffee costs I'm, just I'm not I'm, just making sure that I'm doing math right because that certainly an impressive two year increase in the second half EBIT margins relative to okay. So.

If you look at the EBIT margin I mean.

My comment holds for gross margin and then I think what you have to layer on as the the SG&A.

SG&A SG&A we had.

Some productivity headwinds due to the non essential ban in Q2.

We will end flattish for.

For the full year.

And it will be flattish I mean, it's stuffy where.

Where we think we'll.

We will end up.

And but we did have those productivity productivity headwinds in Q2.

And but the flattish common fresh G&A generally remains.

For the full year.

Yeah, that's that's where we are so flattish on gross margin in the flattish on SG&A keeping in mind, the productivity headwinds that we couldnt forecast at the beginning of the.

The fiscal year.

Okay, great. Thank you.

Thank you. The next question is from Chris Li from Deja Dan. Please go ahead.

Oh, Hey, good morning, just wondering if you mentioned this earlier before but.

Can you give us some guidance in terms of corporate expenses.

For the current quarter or maybe for the second half of the year.

Yeah.

Hi, Chris So JP so for for Covid costs for the second half.

And I am assuming no.

Additional restrictions or a significant fourth wave.

You've seen those COVID-19 costs tailing off and in Q2.

Think we will see a gradual tail off in the second half.

How will that flow between Q3 and Q4.

<unk> to be seen but.

You should definitely expect that trend to continue.

For the second half of <unk>.

Fiscal 'twenty two.

Okay. That's helpful. And then just in terms of the competitive environment have you seen any sort of an uptick in competitive environment.

Businesses start to reopen and consumers are feeling more comfortable going to stores and shopping around again.

I mean from our competitive set.

We're dealing with the same competitors that we've been dealing with for a for many years.

I think the value proposition is strong as demonstrated by our year to date sales that are up six 7%. Despite the restrictions.

Our EPS growth that is also strong.

We are seeing traffic coming back after our customers have consolidated their basket with us. So overall, both in terms of relative value and value proposition.

We think we're at the right place and we haven't seen any material disruption in terms of the competitive set in general in Canada.

Okay. That's helpful and my last question is.

What are you seeing in terms of just dig industry reaction to the recent cost pressure.

Has there been a willingness by your competitors.

Too many places so far thank you.

Yes, it's a good question, it's too early to tell I mean, we're in the we're in.

As we said the renegotiation of those contracts.

We don't know where competitors are.

We're following the evolution of the markets I think we'll we'll see those trends more clearly as the next six to 12 months involved.

But it's too early to say, yes, or no in terms of or is the market.

Passing on inflation.

As you know our priority will be our value proposition and our relative value.

And we'll adjust as a function of those market movements.

Great. Thank you and best of luck. Thank you.

Thank you. The next question is from Patricia Baker from Scotiabank. Please go ahead.

Yes. Good morning. Thank you for taking my question quick.

Quick follow up on the supply chain discussion.

Can you tell us exactly when.

2022, you'll be renegotiating those.

<unk> did they fall across quarters on day one.

Got it.

Yeah, I don't think we typically disclose that information and.

I don't think we're going to start today.

[laughter].

Fair enough.

And.

Just with respect to the buyer probably believers that you discussed are opening remarks. So its the I understand that they have not yet started promoting users that's something that we'll see.

As we go through F 'twenty two.

Oh, they are buying they are pulling those levers.

Everyday of the week to be honest everyday of the week, they are repeating or looking at and items that needs to be.

Replenished.

Because we replenish our items.

On inventory level every month.

And so literally every day of the week Theyre going through a list of those items and those items on that day are going to have to reflect the realities of all of the parameters at that point in time, what the raw material costs are of that item at that point in time.

At that point in time transport cost at that time et cetera, and it's based on all of those parameters that that buyer will decide what the offer will be.

From the perspective of all the things I explained earlier count's weight et cetera.

Okay Fair enough and then.

The third quarter and the importance of Halloween, perhaps if you could remind us what the dynamics were around Halloween last year, and how youre approaching Halloween this year with respect to inventory from the stores.

So I would answer the question in two parts in terms of store inventory I mean, we're well stocked on Halloween goods are.

Our inventory position is strong.

So in terms of assortment and in terms of of having the right skus in the store.

Number two if we compare to last year I mean last year, we had this.

If you recall, we had a surprisingly strong Halloween performance in light of some of the restrictions that we're facing on the time so.

That's what we're comping against that being said as I mentioned, we're pleased to see.

Traffic back into our stores.

We've seen although it's not material for us a very strong back to school season. So.

It's too early to call, how all that's going to perform but.

We're pleased with with seeing traffic back into our stores and the performance we've seen so far in back to school.

I think it would be fair to say, but you're reasonably optimistic about housing.

It ends up I wonder if I can ask.

One final question and Thats, a basketball at the current quarter and the seasonal the seasonal.

Mixed couldn't recoup.

After the stores open.

And that the bulk of that is product that you were just able to pack away for next year.

Yeah.

Yes.

That's exactly right.

Okay. Thank you very much.

Thank you. The next question is from Derek <unk> from Canaccord Genuity. Please go ahead.

Yeah, Hi, just one more follow up on the Halloween I know, sometimes with the calendar.

Days, leading up to Halloween are included in Q3, and sometimes they kind of move to Q4 can you just remind us where they were last year I think they were included in the Q3 and will they be again here this year.

Yes, yes. So this year is the last of the quarter is October 31.

It's a Sunday last year, we had November 1st in our Q3.

Our Q3 results.

Okay and is November 1st like typically a big dip.

Seasonal selling day or not so much.

I mean, it's it depends on the year it depends on the season and it depends on consumer trends, but we did see last year pull forward of Christmas sales into the third quarter.

Remains to be seen how consumer will behave between Q3 and Q4 this year.

Okay got it and then just on.

Again back to the your inventory it sounds like you're well positioned for Halloween can you just comment on the positioning for the holiday season and if.

You were forced to.

We put in this situation would you contract on spot rates in terms of shipping and shipping containers to make sure you would have product on shelf.

For which period of time, and so sorry, we're sorry for the holiday season.

The holiday seasons are always purchased way out we're sitting on those goods in the months ahead of time. So it will never be in a position I don't believe were.

What rates are required to get seasonal goods in time, the only discussion on spot rates would be one.

Every retailer would be in a position to have to consider most much more than us because we have that buffer of months for any given item, but if we ever somehow got to a point, where a basic item was low and we wanted to ensure that we had enough of that item at a specific time, we might have to pay.

But the spot rates for a container or two for that specific item, but that's what all of that focus and work on a daily basis is going into doing which is to avoid that situation as much as possible.

Great. Thank you very much.

Sir.

Thank you. The next question is from Brian Morrison from TD Securities. Please go ahead.

Yes. Thank you very much maybe JP when you say SG&A flat relative to last year can you just clarify that for me does that include or exclude COVID-19 costs. Because when you go through last year, you had some pretty high COVID-19 costs incurred in Q4, yes, it's definitely excluding COVID-19 costs.

So it's it's.

It's taking out the.

$36.0 million, we had in Q2 last year and $18.0 million, we had in Q2 this year.

And.

Otherwise on the total SG&A basis, where duffy.

Trending down in a significant way.

Thank you for clarifying that and then I want to go back to freight for one second if I can when your senior language in your MD&A. It does say that transportation makes up a significant percentage of cost of sales I'm, hoping you might be able to clarify what the percentage of cost of sales of transportation has comprised on average and maybe also what product merchandise would be.

Yeah. So.

As you know.

Imports are 50% to 60% of our business.

So they do represent the material portion.

What.

What we have in our stores in terms of the percentage cost related to freight and transport.

It's not something from a competitive standpoint, Unfortunately, though we can go into.

It would be too sensitive.

Would it be less than 10%.

It would be too sensitive.

Got it.

It's it's a it's a portion of our costs, but we can't Unfortunately go into the exact percentage.

Okay and then last question if I can just I know you said you're.

Willingness or.

Your commentary with respect to bringing on new price points and you'd prefer not to but it's potentially you could how quickly could that be brought onboard could that be a fiscal 2022 events.

Absolutely.

Thank you very much thank you.

Thank you. The next question is from Edward Kelly from Wells Fargo. Please go ahead.

Yes, hi, guys good morning.

Sorry, but I go back to freight.

So we've heard a lot of mixed things actually from some of our U S companies around their ability to secure containers. If the contract rate. So I'm just kind of curious.

How you're.

Managing through this and then as we think about the impact going forward I know you don't want to talk about the timing of when you would.

Negotiate but how to overall market spot rates influence, what you might end up paying on future contracts.

Is there any way to help frame sort of how materially increase.

Could be around all of this.

Just curious as to whether there's any help there you can provide.

Yeah, I think the best way to look at it add is is actually too to flip it around and look at the levers we have to manage those cost pressures.

We have we have a multi price point strategy that.

Oh, that's been in place over the past 10 or 11 years.

And as Neil mentioned with several additional tools to manage the cost pressures so.

I mean, we unfortunately.

We can't quantify.

What was the cost increases will be next year number one because quite frankly, we're still in.

Some of those are negotiations and discussion.

But more importantly, I think the focus when we have a multi price point strategy is really on using the levers that are at our disposal to offset those cost pressures and that's really how we've thought about it historically and how we're thinking about it now.

Okay, and then I guess.

Related to this then as you think about sort of $59.0

It does sound like there is still sort of hesitancy about wanting to go there and I guess, that's because they're still rubin and the price points underneath of this but you did mention that there was some sustained cost pressure right that could change things.

What would have to happen from a cost standpoint for you to view, what's going on with you know what.

But with freight right now is more sustained.

If if the current.

Great situation lasted.

You know.

12 to 24 months plus.

I would and started to feel almost like the new normal, which I really don't think it will but if it did.

Then it's something we would we would consider it almost.

As a.

A tool that every retailers prices due to inflation and increased costs as cost as a result of that massive change.

It'll be reflected in the cost of goods it simply has to be and it.

It might be a tool at that point, that's required simply to keep our offering what it is currently.

As much as that makes me.

Horrible.

Thinking about the reality is if inflation.

It has affected and those transportation costs are sustained for a very long period and it will simply be something that all retailers will have to pass on because they.

They simply could never absorb it.

And it will become the new normal and if that's the new normal then we may we may need those price points.

Sure.

Or the ability to continue to offer the selection that we would like to see investors.

But we are nowhere near that point at this time.

Okay, great. Thank you.

Okay.

Thank you and our last question is from Graeme Kreindler from eight capital. Please go ahead.

Hi, good morning, and thank you very much for taking my questions here.

Following up on the previous comments I appreciated the color on the same store sales growth mix I was wondering if dollar M has seen any changes in its customer mix, so far and if theres a potential opportunity to capture greater wallet share from from a new a new demographic of customers as we see prices increase for consumers how does the company.

Look at that as a potential opportunity for growth moving forward. Thank you very much.

I mean the <unk>.

Shortly as we've as we've increased price points I think are it's fair to say that our total addressable market has increased over time.

And we've captured additional additional share.

Are we seeing any any trends currently in terms of.

A different mix of customers in store.

The answer is generally in line with what we would've seen in the past.

We're not noticing any any major change in terms of a wallet share currently.

When you look at.

Our brand awareness being one of the top 10 brands in Canada in terms of awareness.

I think we have a solid wallet share in this.

The the value retailing space that we play in.

And the other point.

The results year to date.

Speak for themselves.

I mean, there is there is no way that.

With with the pandemic the restrictions that we've been facing in Quebec and in Ontario.

No. We wouldn't we wouldn't have had those kinds of results without <unk>.

Strong.

Relationship and bond I would say with our customers and we've kept delivering our brand promise over the past.

Over the past few years and chosen our results here to date so.

No in general I think.

Where was the right place and customer customers are connected what kind of nice that generally speaking.

Okay understood. Thank you very much.

Thank you.

And thank you everyone for joining us today. The conference has now ended please disconnect your lines at this time and we thank you for your participation.

This conference is no longer being recorded since closely Hosni. Please also as you say.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yes.

[music].

Yes.

[music].

Okay.

[music].

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yes.

Okay.

Sure.

Okay.

[music].

Sure.

[music].

Okay.

[music].

Yes.

Okay.

[music].

Okay.

Yes.

[music].

Okay.

[music].

Okay.

Yes.

Okay.

Yes.

[music].

Okay.

[music] space.

Great.

Yes.

Sure.

Yes.

Okay.

[music].

Okay.

Yes.

Yeah.

[music].

Yes.

Okay.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

[music].

Okay.

Right.

Sure.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yeah.

[music] guidance.

Okay.

Yes.

Okay.

[music].

Okay.

Sure.

Yes.

Yeah.

Okay.

Yes.

Yeah.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Okay.

Yes.

Okay.

Yes.

[music].

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Hum.

Okay.

Yes.

Okay.

Thanks.

Okay.

Yeah.

Okay.

Yes.

Great.

Okay.

Yes.

Okay.

Yes.

Sure.

Okay.

Yes.

Okay.

Great.

Okay.

[music].

Yes.

Okay.

Yes.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Yeah.

Okay.

Sure.

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Thank you.

Sure.

Yes.

Yeah.

Okay.

Yeah.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

[music].

Yes.

[music].

Yeah.

Good morning, and welcome to the dollar am a fiscal 2022 second quarter results conference call.

Neil Rossy, President and CEO and J P. Turner 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 dollar M. A dot com in the Investor Relations.

Section as well as on SEDAR.

Before we start I have been asked by dollar am I 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 or any other future.

Events or developments.

All of them on SEDAR.

I'd now like to turn the conference call over to Neil Rossy.

Thank you operator, and good morning, everyone.

Per dollar in the second quarter of fiscal 2022 was defined by the ban nonessential goods in Ontario.

The impact at the tail end of our first quarter and remained in place for nearly half of the second quarter.

While other restrictions across Canada also affected our sales.

Ontario, Ban's impact was significant for several reasons.

Firstly.

<unk>, 40% of our network.

Nearly 550 stores in Ontario.

Second income.

I'm excited with our spring seasonal sales and stretch to almost mid June.

Mind that much of this spring seasonal assortment offered at that time, so in a short window as it relates to activities completed in the spread.

And your garden decorating your backyard.

Third is specifically targeted in store shopping at discount and big box retailers.

The product we couldn't sell during that extended period were available for purchase in other retail environment, such as exterior garden centers.

And grocery stores.

All of these factors limited our ability to recoup sales once the ban was lifted.

The good news is that it was a temporary measure lifted on June 11th.

For the remainder of the second quarter ended August 1st Sss.

That's growth rebounded to mid single digits.

That's both year over year and on a two year average basis.

Reflecting the underlying strength of Covid.

Despite the distortion effect on sales of the various restrictions in place during the quarter.

We saw a shift in consumer shopping patterns with an uptick in store traffic.

On the real estate front, we've opened 25 net new stores to date in fiscal 2022 and remain on track to meet our 60 to 70 net new store target for the year.

More stores are expected to be opened in the second half of the year as has historically been the case for some time now.

Turning to dollar city, we saw a notable increase in our 51% equity pickup of their net earnings.

From $7.0 million last year.

The $5.0 million this quarter.

We are pleased with the execution of dollar city's growth plan.

New store openings continue in our Orla Tam countries of operation with a focus on Colombia and now Peru.

During the second quarter ended June 32021 dollar City opened 15 net new stores.

Looking at the global supply chain environment container shipping has experienced significant disruption.

For fiscal 2022, our teams have worked hard to mitigate supply chain pressures, both from an operational and cost management perspective.

Container shipping costs continue to be on the rise and our rate are mostly contracted through the fiscal year end.

Pressure on container shipping costs continue to build and as a result will be felt more in fiscal 2023.

As we renew contracts and renegotiate rates.

Clearly this pandemic has thrown everyone a lot of carnival.

As a team we've demonstrated our ability to adapt to changing market conditions.

The resilience of our business model.

The central role we play in the retail ecosystem.

We are proud to continue serving Canadians from all walks of life as the economy reopens.

I'll now hand, it over to Jamie to discuss our results in more detail.

Thank you Neal and good morning, everyone. As we continue to lap pandemic quarters, it's important to look at our underlying performance.

This includes looking at our sales performance on a two year average basis. These metrics provide a more insightful picture of our traveling performance year.

Year over year, our total sales grew one 6% on the strength of our new store openings and the contribution of non comp sales from stores that were temporarily closed last year.

Same store sales decreased by five 1%.

Dumping comping against a very strong performance last year in Q2.

If we carve out those first five and a half weeks.

Thus growth averaged four 7%.

Getting back to Sss for the fourth quarter. It consisted of an eight 7% decrease in average transaction size and a three 9% increase in the number of transactions.

This is the first quarter in which we are seeing a reversal in these trends.

And an increase in traffic.

These trends are also continuing in the third quarter to date.

We generated net earnings of $148.0 million and four 3% EPS growth in the second quarter.

Our gross margin came in at 43, 4% of sales compared to 43, 9% last year.

This decrease is largely due to lower lower sales of higher margin spring and garden products impacted by the ban on the sale of non essential items in Ontario.

Hi.

SG&A represented 15, 3% of sales compared to 16, 7% last year.

SG&A includes $18.0 million in the direct COVID-19 costs compared to 33 to $36.0 million last year.

Last year at this time, we had temporary wage increases and we're still insurance and creating some implementation costs related to the rollout of COVID-19 measures.

And SG&A margin, excluding direct COVID-19 costs.

The FERC for the first half of fiscal 2022, SG&A, excluding direct Covid cost is up 40 bps year over year and we're on track to.

<unk> generally flat for the full fiscal year as we see potential for the second half, especially during the fourth quarter looking at capital allocation and a total of $11.0 million shares were repurchased in the quarter under our <unk> program for a total of $169.0 million.

At quarter end, our leverage ratio stood at two eight times adjusted net debt to EBITDA, leaving ample room to remain active on this front in the second half of the fiscal year.

Since the beginning of fiscal 2022 under our previous and current and CIB program.

<unk> repurchased seven 8 million shares for a total value of $447 million and representing two 6% of our shares outstanding. This past July we renewed our CIB, allowing us to repurchase up to seven 5% of our public float between July 2021 and <unk>.

<unk> 2022 yesterday, the board approved a quarterly dividend.

<unk> five point or <unk> per share.

Turning now to the third quarter underway and where we are headed.

<unk> EPS growth. This is in the context of the pandemic and strict restrictions directly impacting value retailers looking of the second half of fiscal 2022, and assuming that nonessential product bands are behind US we are particularly looking forward to our fourth quarter performance historically Q.

For us our highest sales period of the year and we will be facing favorable year over year sales comps as you will recall last year, we experienced a significant pull forward of Christmas sales, which boosted Q3, but negatively impacted Q4, and then our solid momentum in Q4 was interrupted by new restrictions, including <unk>.

Product been in Quebec, and Quebec in late December where we have about 30% of our network, resulting in a slightly negative sss for the quarter.

Cancel your question at any time by pressing Star two please press star one at this time. If you have a question there will be a brief pause while participants register for questions. Thank you for your patience.

And the first question is from Irene <unk> from RBC capital markets. Please go ahead.

Thanks, and good morning, everyone.

I think it's safe to say that the topic on everybody's mind is the shipping costs and as you look forward to F. 'twenty three.

And whether there is something that we should be learning or that you've learned from the experience in 2015. When there was a similar kind of sudden surge and input costs.

Sure good morning.

So the levers that we have are the same levers we've had.

As you've mentioned in the past that we've used for FX challenges raw material challenges <unk> challenges et cetera, and that is the that's the offering and the yen the offering can each week.

By our buying group.

The count in any given item, that's a multi count item the weight of any given item the size of any given item. So so I would say that the greatest tool we have to combat challenges of this nature.

We can we can.

Also.

Change the materials that certain products are made out of change the plastic types from a more expensive plastic type for example in <unk> to a plastic that isn't as affected at any given time like PTT and truthfully the customer cash held.

The difference.

And any and its usage.

There is a difference in cost.

And those those things that are very that are very hard for the consumer to see are things that the buying group has to use as tools to navigate through a difficult situation. So those are some of the two other things.

And how would you qualify things like markups or if we think about it.

Price points and part the possibility of the introduction of new price points.

So.

Markups are a factor that revolves around the market.

Sure.

That is to be a.

With regards to the price point as you know I've pushed back on introducing $59.0 for a very long time and I'd like to.

Hold off as well for longer, but but if if pricing pressures or container and shipping costs are.

<unk> here.

For a long period of time, which is it's too soon to know then it is certainly another tool that we may use to help us navigate through a longer more extended period of higher cost.

Have you made any adjustments to the offering how do you feel in terms of your current inventory situation.

Just how do you feel the stores are positioned right now for the balance of the year.

Quite well I think.

We've made many changes to any of any item.

And there have been some markups.

The markets, where appropriate, but I do think that the whole mix.

Should be compelling for the balance.

That's great and just one final one if I might on a different topic can you just talk a little bit about how the first dollar city stores are doing in Korea.

We are excited and happy about the start in Peru.

Okay. Thanks Neil.

Okay.

Thank you. The next question is from Mark Petrie from CIBC. Please go ahead.

Yes, good morning, I wanted to follow up about the inventory levels and Neil I recall from previous conversations.

Dollar M is largely proprietary assortment gives them much more control over the supply chain than some competitors in our recall your comments in the past about challenges, thus far not impacting sales.

But looking at inventories on a dollar basis. It does seem like they've come under some pressure.

You mean versus pre pandemic.

And how that's affecting both your supply chain efficiency as well as your in stock levels in both seasonal and non seasonal.

So in seasonal it's not affecting it because of the seasonal goods come in before the season and therefore have that.

The buffer of timing to compensate.

For our everyday good.

Like every other retailer on the planet and manufacturer.

There is not just the question of cost challenges.

Challenges on.

On the freight side. There's also the question of container availability and so by being the controller of our own good what it means is we've had to prioritize the good that.

Our.

Most.

At risk of being out of stock and those goods and take priority as opposed to following normal course slow of containers. So I would tell you that our.

Our overall inventory is down, but not resulting in a loss of sales.

A lot of work has gone into compensating to make sure that the goods that are required are being prioritized and in the past it wasn't something that we needed to be quite as focused on but a lot of focus has been put on that over the last year to ensure that any delays.

Or or lack of containers was going towards items that we had enough buffer in our current inventory.

Understood that makes sense and when you think about the next quarter or two.

Is is that sort of an escalating concern for you with regards to in stock positions or are you pretty confident that that can be navigated and it's really sort of the longer term cost question on that.

That's sort of a bigger factor.

I think you said it perfectly for the time being we feel comfortable.

You know the long term cost issue is a concern for us and everybody else.

But it certainly is a concern for everyone.

And if it is the case the only thing that makes me feel more comfortable.

Is the fact that we.

We all will face the same pressures and our cost to the consumer will be relative to our competitors.

Okay helpful. Thank you.

Increasingly hearing about challenges in the labor market. What are you seeing in terms of labor availability.

Your own turnover store or warehouse and the cost of that labor.

Certainly the labor market is challenging.

We've been doing a fantastic job at store level.

To ensure that it hasnt impacted our store operation at the distribution center as you know we've implemented seasonal peak season.

Increases.

That has been reflected in the numbers that youre seeing and for the time being we don't see any changes in the near future, but it's a continuous steady.

Week to week to see how the labor markets are.

Our performing with regards to availability of labor.

If I may add mark Okay.

The thing that will be that will be watching as when the federal wage subsidy ends at the end of October how the labor market reacts and moves in function of subs.

Subsidy being out of the labor market.

Yeah, Yeah definitely okay, and then just last one sort of a bigger picture one or away from sort of the immediate term you've spoken in the past about your investments in tools.

Data analytics, and I guess, specifically to give you a more potentially a more dynamic approach to pricing.

Just wondering where you're at in that work.

Well I'd say, we're midway through.

Our our process.

Some.

Takeaways have already been put into place.

But but it's far from finished and it's.

It's incredibly interesting to see what a.

What we can use.

On that but we are not we.

We haven't completed that that particular process we're midway.

I appreciate all the comments and all the best Thank you.

Yes.

Thank you. The next question is from Karen short from Barclays. Please go ahead.

Hi, Thanks, very much I just wanted to clarify one thing and then I had a bigger picture question.

So you said you were holding sales in third quarter to date and that would be up against 7.1 in Turkey last year does holding flat just to clarify.

Yes, I mean that means we're we're trending flat so far.

Since the beginning of Q3.

Keeping in mind that.

The Halloween season is in front of us So it's way too early to call the quarter.

And it's really on an sss basis, our total sales.

Total says are definitely positive.

And Sss, so far is flat and Halloween will be the defining factor in terms of our Q3 Sss performance.

What I can tell you so far is although it's.

It's not a material season for us.

We're seeing.

Strong consumer demand on our.

Back to school season, it's.

It's been very strong on all fronts.

And traffic continues to be back.

So we're watching and it's too early to tell how Halloween will perform that work that's what we're watching for Q3 Sss performance.

Great and then appreciating the fact that we have to factor in the pull forward of holiday into three Kansas exactly.

Okay.

And then I wanted to just talk a little bit about landed merchandize margin. So I know this is an area where you've been very good.

Thank you.

With respect to your merchants, having conversations on which.

Which it cost versus actual freight costs.

As you know.

As you know Karen were.

For 2021 as you mentioned were mostly contracted on trade for next year.

We're in the midst of those renegotiations.

The buying group.

As you know when we make a pricing decision.

Have those those variables on freight and FX pretty.

Pretty much locked in.

And so I think.

As Neil mentioned, it's all going to be a question of relative value.

And we will be dependent on how the market and the competitive set moves over the next few quarters as freight costs.

Freight costs continue to increase and then.

Will will be a price follower as always was we've always been.

I mean, there's there's definitely a benefit of having a multi price point strategy in times like like we're seeing now.

Okay and then just last question for me when I look at them.

It's more helpful and I'm talking more calendar year is to look at.

First half 19 versus you know first half of 'twenty one.

And then your implied guidance for second half.

The current year relative to 19, and Youre looking ex COVID-19 costs for a pretty meaningful increase in the <unk>.

Actual margins, so I'm I'm kind of backing into about 120 basis point increase in your second half margins for this year versus COVID-19.

Is that Directionally does that seem right to you because it does seem like a fairly meaningful.

Expansion relative to bolt on in the first half events here.

So year to date.

We're up 20 bps on our gross margin.

Year over year, and and I think the key comment to keep in mind. When we think about gross margin for the second half of the year.

Is that we're still guiding to.

Generally flat gross margin for the full year of <unk>.

22 or call it calendar 'twenty one.

So that means in the second half of this year.

We will as we mentioned I think back in March we will start seeing some small headwinds from from inflation that we'll have our gross margin for the full year ended up but.

Generally flat ish gross margin keeping in mind that were up 20 bps year over year on a year to date basis.

Yeah, No I was referencing more EBIT margins, excluding COVID-19 costs I'm, just I'm not I'm, just making sure that I'm doing math right because that certainly an impressive two year increase in the second half EBIT margins relative to okay. So.

If you look at the EBIT margin I mean.

My comment holds for gross margin and then what you have to layer on the SG&A.

SG&A SG&A we had.

Some productivity headwinds due to the non essential ban in Q2.

We will end flattish for.

For the full year.

And it will be flattish I mean, it's a stuffy where.

Where we think we'll.

We will end up.

And but we did have those productivity productivity headwinds in Q2.

And but the flattish common fresh G&A generally remains.

For the full year.

Yeah, that's that's where we are so flattish on gross margin and flattish on SG&A keeping in mind, the productivity headwinds that we couldnt forecast at the beginning of the.

The fiscal year.

Okay, great. Thank you.

Thank you. The next question is from Chris Li from Deja Dan. Please go ahead.

Oh, Hey, good morning, just wondering if you mentioned this earlier before but can.

Can you give us some guidance in terms of corporate expenses.

For the current quarter or maybe for the second half of the year.

Yes.

Hi, Chris it's JP, so for Covid costs for the second half.

And I'm assuming no.

Additional restrictions or a significant fourth wave.

You've seen those COVID-19 costs tailing off and in Q2, I think we will see a gradual tail off in the second half.

How will that flow between Q3, and Q4 remains to be seen but.

You should definitely expect that trend to continue.

For the second half of.

Fiscal 'twenty two.

Okay. That's helpful. And then just in terms of the competitive environment have you seen any sort of an uptick in competitive environment.

Businesses start to reopen and consumers are feeling more comfortable going to stores and shopping around again.

I mean from our competitive set.

We're dealing with the same competitors that we've been dealing with for.

For many years.

I think the value proposition is strong as demonstrated by our year to date sales that are up six 7%. Despite the restrictions.

Our EPS growth that's also strong.

We are seeing traffic coming back after our customers have consolidated their basket with us. So overall, both in terms of relative value and value proposition.

We think we're at the right place and we haven't seen any material disruption in terms of the competitive set in general in Canada.

Okay. That's helpful and my last question is.

What are you seeing in terms of just the industry reaction to the recent cost pressure.

Has there been a willingness by your competitors.

Too many places so far thank you.

Yes, it's a good question, it's too early to tell I mean, we're in the we're in.

As we said the renegotiation of those contracts.

We don't know where competitors are.

We're following the evolution of the market I think we'll we'll see those trends more clearly as the next six to 12 months involved.

But it's too early to say, yes, or no in terms of or is the market.

Passing on inflation.

As you know our priority will be our value proposition and our relative value.

And we will adjust and function of those market movements.

Great. Thank you and best of luck. Thank you.

Yes.

Thank you. The next question is from Patricia Baker from Scotiabank. Please go ahead.

Yes, good morning, and thank you for taking my questions I had a quick follow up on the supply chain discussion.

Can you tell us exactly when.

<unk> 2022, you'll be renegotiating those contracts the baseball.

Quarters are they lumped.

Got it.

I don't think we typically disclose that information and I.

I don't think we're going to start today.

[laughter], Okay fair.

Fair enough.

And.

Just with respect to the buyer probably believers that you discussed in the opening remarks. So its the I understand that they have not yet started to pull out or is that something that we will see.

As we go through F 'twenty two.

Oh, they are buying they are pulling those levers.

Every day of the week to be honest everyday of the week, they are repeating or looking at an item that needs to be.

Replenished.

Because we replenish our items.

On inventory level every month.

At that point in time transport costs at that time et cetera, and it's based on all of those parameters that that buyer will decide what the offer will be done.

From the perspective of all the things I explained earlier count's weight et cetera.

Okay Fair enough and then discuss the.

So I would answer the question in two parts in terms of store inventory I mean, we're well stocked.

On Halloween goods.

Our inventory position is strong.

So in terms of assortment and in terms of having the right skus in store.

Number two if we compare to last year I mean last year, we hand.

If you recall, we had a surprisingly strong Halloween performance in light of some of the restrictions that we're facing on the time. So that's what we're comping against that being said as I mentioned.

Were pleased to see.

Traffic back into our stores.

We've seen although it's not material for us.

A very strong back to school season so.

It's too early to call, how all that's going to perform but.

We're pleased with seeing traffic back into our stores and the performance we've seen so far in back to school.

Okay.

To say that youre reasonably optimistic about Halloween.

Where it ends up.

If I can ask Tom.

One final question and Thats, a basketball at the current quarter and the seasonal the seasonal.

It couldn't recoup.

After the stores, but I'm, assuming that the bulk of that is product that you were just able to populate the nexgen.

Yeah.

Yes.

That's exactly right.

Okay. Thank you very much.

Thank you. The next question is from Derek delay from Canaccord Genuity. Please go ahead.

Yeah, Hi, just one more follow up on on the Halloween I know, sometimes with the calendar.

Yes. So this year is the last day of a quarter is October 31.

So it's a it's a Sunday last year, we had November 1st in our Q3.

Our Q3 results.

Okay and is November 1st like typically a big dip.

Seasonal selling day or or not so much.

I mean, it's it depends on the year it depends on the season and it depends on consumer trends, but we did see last year pull forward of Christmas sales into the third quarter.

Remains to be seen how consumer will behave between Q3 and Q4 this year.

Okay got it and then just on <unk>.

Again back to the your inventory it sounds like you're well positioned for Halloween can you just comment on the positioning for the holiday season and if.

You were forced to.

We put in this situation would you contract on spot rates in terms of shipping and shipping containers to make sure you have product on shelf.

So for which period of time and so sorry, we're sorry for the holiday season.

The holiday seasons are always purchased way out we're sitting on those goods in the months ahead of time. So it will never be in a position I don't believe were.

What rates are required to get seasonal goods in time, the only discussion on spot rates would be one that that every retailer would be in a position to have to consider most much more than us because we have that buffer of months for any given item, but if we ever somehow got to a point where a basic item.

But at the low end, we wanted to ensure that we had enough of that item at a specific time, we might have to pace, but the spot rates for a container or two for that specific item, but that's what all of that focus and work on a daily basis is going into doing which is to avoid that situation as much as.

Possible.

Great. Thank you very much thank you Sir.

Thank you. The next question is from Brian Morrison from TD Securities. Please go ahead.

So it's it's.

Taking out the.

$36.0 million, we had in Q2 last year and $18.0 million, we had in Q2 this year.

And.

Otherwise on the total SG&A basis, we're definitely.

Trending down in a significant way.

Okay. Thank you for clarifying that and then.

And I want to go back to <unk> for one second if I can when your senior language in your MD&A. It does say that transportation makes up a significant percentage of cost of sales.

I'm, hoping you might be able to clarify what the percentage of cost of sales of transportation has comprised on average and maybe also what product merchandise would be.

Yes so.

Hum.

As you know.

Imports are 50% to 60% of our business.

So they do represent the material portion.

What we have in our stores in terms of the percentage cost related to freight and transport.

It's not something from a competitive.

Standpoint, Unfortunately, though we can go into.

It would be too sensitive.

Would it be less than 10%.

It would be too sensitive.

But.

It's it's a portion of our costs, but we can't Unfortunately go into the exact percentage.

Okay and then last question if I can just I know you said you're.

Willingness or.

Your commentary with respect to bringing on new price points.

You'd prefer not to but it's potentially you could how quickly could that be brought onboard could that be a fiscal 2022 events.

Absolutely.

Thank you very much thank you.

Thank you. The next question is from Edward Kelly from Wells Fargo. Please go ahead.

Yes, hi, guys good morning.

Sorry, but I go back to freight.

So we've heard a lot of mixed things actually from some of our U S companies around their ability to secure containers, if the contract rates I'm just kind of curious.

How you are.

Managing through this and then as we think about the impact going forward I know you don't want to talk about the timing of when you would.

Negotiate but how to overall market spot rates influence, what you might end up paying on future contracts.

Is there any way to help frame sort of how materially increase could.

It could be around all of this.

I'm just curious as to whether there's any help there you can provide.

Yeah, I think the best way to look at it and this is actually too to flip it around and look at the levers we have to manage those cost pressures.

We have we have a multi price point strategy that.

It's been in place over the past 10 or 11 years.

And as Neil mentioned with several additional tools to manage the cost pressures so.

I mean, we unfortunately, we can't quantify.

What was the cost increases will be next year.

One because quite frankly, we're still in.

Some of those are negotiations and discussion.

But more importantly, I think the focus when we have a multi price point strategy is really on using the levers that are at our disposal to offset those cost pressures.

Really how we've thought about it historically and how we're thinking about it now.

Okay, and then I guess somewhat related to this then as you think about sort of $59.0

It does sound like you're still sort of hesitancy about wanting to go there and I guess, that's because they're still ruben and the price points underneath of this but you did mention that you know if there was some sustained cost pressure right that could change things.

I would have to happen from a cost standpoint for you to view, what's going on with <unk>.

But with freight right now is more sustained.

Hi.

If the current.

Great situation last it.

You know.

12 to 24 months plus.

I would.

And started to feel almost like the new normal, which I really don't think it will but if it did.

Then it's something we would we would consider it almost.

As a.

A tool that every retailers prices due to inflation and increased costs as cost as a result of that massive.

Change.

It'll be reflected in the cost of goods it simply has to be.

And it.

It might be a tool at that point, that's required simply to keep our offering what it is currently.

As much as that makes me.

Horrible.

Thinking about the reality is if inflation.

It has affected us.

And those transportation costs are sustained for a very long period and it will simply be something that all retailers will have to pass on because they.

They simply could never absorb it.

And it will become the new normal and if that's the new normal then we may we may need those price points.

Sure.

For the ability to continue to offer the selection that we would like to see in our stores.

But we are nowhere near that point at this time.

Okay, great. Thank you.

Okay.

Thank you and our last question is from Graeme Kreindler from eight capital. Please go ahead.

Hi, good morning, and thank you very much for taking my questions here.

Look at that as a potential opportunity for growth moving forward. Thank you very much.

I mean the <unk>.

Shortly as we've as we've increased price points I think are it's fair to say that our total addressable market has increased over time.

And we've captured additional additional share.

Are we seeing any any trends currently in terms of.

A different mix of customers in store.

So the answer is generally in line with what we would've seen in the past.

We're not noticing any any major change in terms of of wallet share currently.

When you look at.

Our brand awareness being one of the top 10 brands in Canada in terms of awareness.

I think we have a solid wallet share in this.

The the value retailing space that we play in.

And the other point.

The results year to date.

Speak for themselves.

I mean, there's there's no way that.

With with the pandemic the restrictions that we've been facing in Quebec and in Ontario.

That we wouldn't we wouldn't have had those kinds of results without <unk>.

Strong.

The relationship then bond I would say with our customers and.

Kept delivering our brand promise over the past.

Over the past few years and chosen our results here to date so.

No in general I think we're the right place and customer customers are connecting to recognize that generally speaking.

Okay understood. Thank you very much.

Thank you.

And thank you everyone for joining us today. The conference has now ended please disconnect your lines at this time and we thank you for your participation.

Q2 2022 Dollarama Inc Earnings Call

Request a DemoDemo

DOL

Dollarama

Earnings