Q3 2022 Dollarama Inc Earnings Call

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All participants please standby your meeting is about to begin.

Good morning, and welcome to the dollar around my fiscal 2022 third quarter results conference call, Neil Rossy, President and CEO and J P. Counter 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.

Our available at all around my Dot Com in the Investor Relations section as well as on SEDAR before we start I've been asked by dollar amount that you read the following message regarding forward looking statements dollar on those remarks today may contain forward looking statements about its current and future plans expectations intentions results levels of activity performance.

Goals or achievements or any other future events or developments.

Forward looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable 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, all around my cannot guarantee that any forward looking statement will materialize and you are cautioned not to place undue reliance on these forward looking statements for additional information on the assumptions and risks. Please consult the cautionary statement regarding forward looking information contained in dollar M is M. D. N D dated December 8th 2021 available on SEDAR.

Forward looking statements represent management's expectations as at December eight 2021, and except as maybe required by law. It's all around my has no intention and undertakes no obligation to update or revise any forward looking statement, whether as a result of new information future events or otherwise I would now like to turn the conference call over to Neil Rossy.

Thank you operator, and good morning, everyone.

All around and delivered a solid performance across key metrics in the third quarter of fiscal 2022 and in the context of the ongoing pandemic.

We are pleased with our comparable store sales growth both year over year and on a two year average basis.

Last year, we had exceptionally strong sales with sss growth of seven 1%.

This was notably driven by pandemic fueled demand for Halloween products and a pull forward of Christmas sale also recorded over and above a five 3% sss growth the prior year.

Positive at that that this quarter was also particularly welcomed immediately following a disrupted in the second quarter.

As you will recall last quarter, we were significantly impacted by a ban on the sale of nonessential goods in Ontario and effect from April eight to June 11, coinciding with the peak spring seasonal sales.

The third quarter represent somewhat of a return to a more normalized situation from a pandemic perspective.

There were fewer restrictions in place and no restrictions on the sale of goods or on specific retail channels.

We also delivered strong EPS growth and an industry leading gross margins.

Despite the various headwinds, which continue impacting the retail sector, namely supply chain pressures and cost inflation.

In this context and given two consecutive years of strong comps in fiscal 2021 and fiscal 2020, we feel good about our Q3 performance in fiscal 2022, and we believe we are very well positioned for Q4, which is historically, our most significant sales quarter.

There is no doubt that we're not restricted Canadians rely on dollar or as a destination for value and convenience.

Whether for everyday or seasonal goods.

This was true before the pandemic and has only been reinforced.

We regularly survey our customers to ensure that our offering and concepts resonate with them.

We pursued that worked through the pandemic and what we consistently hear is that a broad range of Canadian family and consumers appreciate the breadth and depth of our offering.

Value, we provide for their hard earned money.

Our customers also appreciate the proximity and convenience, we provide and the time pressed world.

These results reinforce our conviction and the relevance of our brand and strong value proposition to community.

As we all learn how to navigate the ups and downs of Covid.

We are also pleased to see a gradual reversal in traffic trends with a continued uptick quarter over quarter and the number of customers visiting our stores.

Our direct sourcing expertise flexible merchandise mix and multi price point strategy and not only what make dollar I'm a sought after shopping destination. They are important levers as we manage through the headwinds that the retail industry is currently facing.

Looking at the global supply chain, including disruptions in container shipping.

Our position is consistent with last quarter.

For fiscal 2022, our teams have done an excellent job mitigating supply chain pressures, both from an operational and cost perspective.

Right. Despite the disruptions and delays in the system are nimble and proactive approach has ensured that we entered the fourth quarter and a solid inventory position with well stop stores ahead of the important holiday season.

Keep in mind that we are importers as much as we are retailers.

This coupled with the non perishable nature of our merchandize mix.

It does provide us with some added flexibility to mitigate current supply chain challenges.

On the retail front, we opened 16 net new stores during the third quarter.

This brings our year to date count of new store openings to 41, and our total store count in Canada to 1397.

We do expect a particularly busy fourth quarter on the real estate front as has been the case in the last few years.

We are on track to hit our target of between 60 and 70 net new stores in fiscal 2022.

Which means we've got 20 plus stores slated for opening in Q4.

Finally, looking at our investments and dollar city.

51% pick up of their net earnings was $7 3 million compared to $4 3 million in the same period last year.

This increase reflects the disciplined execution of their growth strategy.

Antinion strong consumer response.

And their ability to navigate the impact of the pandemic in their countries of operation.

New store openings continue in all four countries of operation with a focus on Columbia and now Peru.

Which is still in its very early stage.

During their third quarter ended September 32021, Solar City opened 18, net new stores, bringing their total store count to 312.

Year to date I am proud of what the dollar and the team has accomplished and our adaptability and what continues to be a complex environment.

I'm also pleased to see that quarter to date, our holiday assortment has been well received by our customers.

We are proud of the unique role we play in the Canadian retail landscape.

We will continue to be proactive in managing supply chain and cost inflation headwinds to ensure our customers.

Get the value they expect while shopping our conveniently located stores.

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

Thank you Neal and good morning, everyone like Neil I'm very pleased with our financial performance in the third quarter of fiscal 2022.

Total sales grew five 5% on the strength of new store openings and from the contribution of same store sales of note. There were no close stores this quarter because of COVID-19 restrictions for the first nine months of fiscal 2022, our sales are up six 3%.

Same store sales increased by 0.8% compared to seven 1% in Q3 of last year.

On a two year average basis.

S growth average at three 9% per year, which brings us in line with our pre pandemic.

As a result.

As assessed in Q3 consisted of a two 8% decrease in average transaction size and a three 7% increase in the number of transactions.

This is the second consecutive quarter in which we are seeing a reversal in those trends.

I spend that make restrictions ease cost customer traffic is picking up and we view this as a very positive indication, which speaks to the relevance of our business model.

EBITDA came in at $347 million.

11, 2% increase over last year. This reflects positive sales growth strong margins.

And lower year over year Covid costs.

Net earnings were 100.

$183 4 million EPS was <unk> 61 per share representing 17, 3% growth year over year. This reflects good sales solid margin performance lowest COVID-19 lower COVID-19 related expenses and a strong equity pick up from our investment in dollar.

City.

Our gross margin came in at 44, 4% of sales compared to 44% last year.

Gross margin was higher year over year, primarily due to a higher proportion of sales of high margin seasonal products, namely Halloween for.

For the first nine months of fiscal 2022 gross margin was up 20 bps year over year. We continue to expect gross margin to be generally generally flat for the full fiscal year.

In Q4, our product mix should be less favorable from a margin perspective.

Traffic trends become more in line with pre pandemic quarters, saying higher sales of lower margin items.

Looking at rising container shipping and raw material costs. As previously mentioned, we expect to continue to see these trends in fiscal 2023, we are believers its hard disposal to help mitigate cost inflation impacts on our gross margin.

Our response to inflationary trends will continue to be in line with our usual approach, which is aimed at maintaining our relative value.

So far this year, we've seen some of these costs being passed on as those pressures are industry wide and through refresh of markups, we've adjusted our pricing strategy.

In addition next year the stronger Canadian dollar is expected to be a tailwind.

Turning to SG&A.

<unk> 14, 2% of sales compared to 15, 1% last year.

SG&A. This quarter includes $1 1 million indirect COVID-19 costs compared to $10 9 million last year.

As a result of fewer pandemic related restrictions the restrictions in place labor hours attributed to managing customer traffic and in store capacity limits have been reduced.

Our health and safety measures and cleaning protocols, which will remain in place for the foreseeable future have been absorbed and day to day operations.

Excluding these costs.

SG&A represented 14, 1% of sales.

Is the same as the prior year.

So the first nine months of fiscal 2022, SG&A, excluding direct Covid costs was up 20 bps year over year and we're on track to remain generally flat for the full fiscal year.

Looking at the labor market more generally we've seen a tightening in labor availability across the country, but no material impact on average wages at this point.

A total of $5 3 million shares were repurchased in the quarter on their eye in CIB for $295 million.

And that's 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 final quarter of the year.

Since the beginning of a fiscal 2022 we've repurchased 13 1 million shares for a total value of 741 million, representing four 2% of our shares outstanding at the start of the fiscal year.

We expect our buyback strategy to continue contributing to our earnings growth next year as the impact of our buyback program annual license fee.

Finally yesterday the board.

<unk> also approved a quarterly dividend of 5.0 to <unk> <unk> per share.

Turning now to the remainder of the year.

We feel good about our performance year to date, including the first five weeks of the fourth quarter.

From an sss perspective fourth quarter to date, we're pacing at a two year average of approximately 4% per year.

We're pleased with where we are as of today, but keep in mind that our most crucial sales period still in front of us and many factors outside of our control could have an impact.

Barring the factors outside of our control, including the future path of the pandemic additional measures that may be taken in response to the latest variant and inclement weather, we're very confident and the relevance of our bread and our strong value proposition as we move towards a more normalized situation.

With that we want to sincerely. Thank our employees for their continued dedication and wish everyone safe and happy holidays. Thank you and 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're using a speaker phone. Please lift your handset before making your selection.

Do you have a question. Please press star one on your devices Keypad 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 by the participants register thank you for your patience.

The first question is from Irene <unk> with RBC capital markets. Please go ahead. Your line is now open.

Thanks, and good morning, everyone. A couple of questions around supply chain to begin so I think by now you've probably read into that what you've undoubtedly renegotiated your shipping contracts for next year. If you could talk about how we should.

Pardon me be thinking about that and how you're thinking about sort of I guess your all in cost structure for next year.

Thanks, Harry and the C P.

So so from a cost perspective next year, we've as you know I mean that the shipping contracts are mostly were negotiated in the fall, but they are staggered throughout the year. So we've renegotiated most of them. It's it's no secret as we've discussed in the past.

Next year, we'll see higher freight costs and.

Sherri pressures will likely continues as we've discussed on prior calls, but our strategy will remain consistent with the past, which is that were priced fall to where we're not a price setter.

The primary will be to maintain our brand promise and to have the best relative value.

As you know and we've seen it in Q3.

We have believers at our disposal to manage margins to refresh and Mark ups, the Canadian to U S D FX hedge.

It will be a tailwind for next year.

And so in short our priority will be to maintain our brand promise of relative value. When we have to lever at our disposal to adjust depending on how the competitive set moves next year.

I hope the SaaS right Yeah, Yeah, no absolutely. Thank you and then just on availability of product I think on the last call. Neil Sad that you know Christmas had been in for a while.

But you know could you just talk through where you are right now in terms of share of the shipping cadence what the next key dates are and the degree to which are the disruptions in D. C may or may not have an impact on Q4.

So I'll answer the Bcp's and then and then J P will answer the phone.

NBC other than FX.

The effect of flooding on specific stores. The overall BC sales have not been impacted in any material way.

And then as far as our handling of us.

Logistics going forward J P will get that I'll call. It look if we if we go back to the queue to a conference call because I think it's a good starting point for to answer your question remember at that point, we're dealing with a global container shortage.

And and we've successfully manish is that global pressure through number one our warehousing and distribution strategy and number two.

Our critical mass is one of the largest importers in Canada.

So that allowed us to have a good in stock position ahead of Halloween and supported the strong Halloween performance as we're seeing today in our Q3 results and so.

It also allowed US then to have a good in stock position ahead of the holiday season.

And if you shop any of our stores today.

Holiday in stock position is is isn't good in a good situation.

And then if we move to the BC floods specifically.

The same thought process applies which is of course, it's disruptive it's highly imperfect and we'd much rather manage without it but our teams are using the same strategies that we used in Q2.

And in Q3 that I, just described to manage the situation and make sure that we're ready for our Q1 sales as the holiday season evolves in Q4 evolves. So really right now it's getting ready from a shipping perspective.

For Q1, then.

And that's underway based on the strategies that I just described.

That's great and then just one final question because you know you'd be disappointed if I didn't ask it all of this discussion around inflation.

Does that play into your current thoughts around the higher price points or the possibility of higher price points.

Well, there's a number of strategies on the table.

To address the inflation question one of those strategies is adding.

The new price points, but for the moment.

We have nothing to announce on adding new priceline.

Thank you. Thank you.

Thank you.

The next question is from Mark Petrie of CIBC. Please go ahead. Your line is now open.

Yeah. Good morning would be helpful. Just to hear your views with regards to the competitive environment and the relative sort of pricing being pass through that you're seeing today is that accelerating as had been stable for the last few months, what's the what are you seeing.

It's a it's an incredibly it or their situation.

Mark as the.

Obviously the retailers in the country are all adjusting as required.

Every item has a different story different raw material cost effects on different items, the larger the Cuba the item the higher the effect of the challenging freight rates are really it's a very very fluid situation.

As the market adapts to the new reality of different costs.

Obviously retailers cannot absorb all of it and eventually it gets passed on to the customer.

And so what we have is our focus is what we have always had and that is remaining the best relative value in the market that is our.

Bread and butter, so to speak and so that's what each of the virus has been tasked to do is to ensure that whatever we're selling we are the best relative value in the market.

Yeah, Okay understood and.

A healthy gross margin result, this quarter.

Called out the seasonal mix, but you were also lapping a period last year were seasonal mix was was also a tailwind. So could you just give any color with regard to how much of the boost from last year or the improvement from last year was that seasonal mix versus other factors like you know core product margins or FX.

Yeah, no. It's it's really on the on the mix of Mark.

Hmm.

We had a good Halloween last year, and we had a better Halloween this year and so so the mix played in our favor and two two.

To your question earlier.

Earlier I mean.

We've seen so far inflation.

Being passed on and we've been able to through our refresh to adjust accordingly.

But it's mostly a mix a mixed discussion here.

Okay, and then I guess just last just a follow up on that as we look into Q4, you know you reiterated your view for flat gross margin for the year.

Obviously last year Q4 was a particularly strong.

Result on gross margin again, driven by seasonal but just given what you saw with Halloween what gives you caution about the seasonal mix heading into Q4.

Yeah, well last year in Q4, if we step back we had a well first of all severe capacity limits are across the country and the non essential restrictions in Quebec.

That kicked in.

Mostly impacted.

January and so.

Think of January is a lower margin months and so this year, we'll have if there's barring any unforeseen circumstances.

We'll have stronger sales in January just as a result of not being restricted and we'll have stronger sales of lower margin items. Because January is a lower margin month. So the mix in Q4.

Well normalize, whereas last year was there was driven by mix on the back of the restrictions.

Understood appreciate all the comments as always and all the best heading into holiday.

And to you.

Thank you.

The next question is from Richard of National Bank. Please go ahead. Your line is now open.

Richard from National Bank. Your line is open. Please proceed with your question.

Hi, Thanks for taking my questions I, Vishal, hi, with respect to a dollar's a dollar city.

Contribution.

We're seeing an acceleration there in terms of the contribution at least looking at the last few quarters because of your your growth wondering if this is a COVID-19 anomaly year over year or if there's.

Any specific issues or items that you'd like to call out in that dollar city business, that's leading to these results.

Lynn.

In terms of dollar city I think we've seen.

Good good store growth, our consumer reception to to our offering and our value proposition has been good in our countries of operations.

I don't think it's a it's a COVID-19 related dynamic it's really.

The brand that's that's been gaining traction and the value proposition. That's just well received combined with a very healthy store growth on a lower store count than our Canadian operation. So as a percentage it has a more meaningful.

Impact, but that's.

That that's what it is essentially.

And how about the margins up dollars and compare to tell around that.

Okay.

Obviously as the business grows we would anticipate some favorable operating leverage but give us the delta on Hong Kong, Let's say EBITDA margin versus the kingdom.

Yeah look at as you know.

No one in terms of disclosure, we don't go into specifics in terms of margin, but relatively speaking.

Of course, they'll ramp up being a more mature and a larger operation has economies of scales and its logistics and transport.

That dollar city.

Could gain over time.

But there it's it's a business that is performing well and in terms of margin. There is economy economies of scales to be to be gained in the future, but I can't go into more specific than that.

Okay.

Just changing topics here with respect to the.

Media reports on the on the latest journey into the COVID-19 associated concerns or are you seeing any changes in consumer behavior recently in your stores.

Not to date.

Okay.

Maybe a last one here on <unk>.

Obviously, a lot of moving parts in the market is reacting very quickly, but with respect to adult dramas ability to control the controllable and are there any major efficiency projects that we should be we should be thinking about for for fiscal 'twenty three to control. These various pressures.

Well, we always have efficiency productivity initiatives that we will rollout and some of them annualized some of some of them are new we keep refresh refreshing Leds in stores.

We keep upgrading H backs were working on a new time management system.

So there there are many initiatives that we keep rolling out every year and next year.

Some of those initiatives will continue and continue to be rolled out across our stores.

And and drive efficiency and productivity as we have in the past.

Okay, Yeah, thanks for the comments contribution.

Okay. Thanks Vishal.

Thank you.

The next question is from Brian Morrison of TD Securities. Please go ahead. Your line is now open.

Brian Morrison of TD Securities. Your line is now open. Please proceed with your question.

Thanks, very much sorry about that I was on mute I want to go back to dollar city. If I can for a moment you are seeing this acceleration in earnings you did it put a $4 price point and Columbia back in November 2020, I'm wondering if you plan on expanding that to the rest of the network and then with respect to the store growth I think you have 48 stores year to date here, that's well above your.

Your piece and your long term outlook of 40 I'm wondering if this is an aberration or if you're seeing greater opportunities than you earlier thought.

It's a little of both.

The.

The question of store count is.

Really a question of identifying opportunities and as the leader of that business identifies opportunities in this country are partners.

They will be as aggressive as they can as those opportunities present themselves and so for the time period in question. The opportunities obviously presented themselves than they took advantage of that of that are.

Of of that situation.

If it does present itself N a.

Systematic way then then we will update you with guidance to that effect.

And on the on the price point and question the $4 price points have already been rolled out and and Salvador and Guatemala as well.

Okay, I'm, sorry, when was that done.

Ah.

Okay. It was October October okay.

Excellent and then can you just clarify for me I'm not sure I heard it correctly G. P. Just the 4% comment on the on the two year stack to date.

Is that is that saying that 4% relative to December eight last year, and that's before accounting for the Quebec restrictions, which made things kind of fall off and in the month of January.

Yeah.

Way to think about it and the reason.

The reason the two year average is important is because we're trying to normalize for the noise from the pandemic restrictions last year and as you pointed out the non essential restrictions in Quebec, which had a significant impact on our sss performance in Q4 last year.

But really what it means is.

If you take the point in time.

Q4 last year and you look at where we are today and the average our sss performance were pacing at the 4% average and that's also how we've seen the business pace in Q3.

With with 0.8% and seven 1% the prior year for a two year average of approximately 4%.

Okay. So I guess the message here, though is we should see that really grow and as we get through the back half of this this quarter because I believe that you are off to a very strong Christmas start last year of Q4 start pardon me prior to those restrictions kicking in is that a fair comment.

I mean, the the the two year average will remain and then of course you'll.

Well, we'll see if the two year average remains but the business spacing of that at that level and of course, we're going to face easier comps in the second part of Q4.

Thanks, very much good luck during the holidays.

Thank you.

Thank you. The next question is from Peter Sklar of BMO Capital markets. Please go ahead. Your line is now open okay. Good morning.

Do you mind, just elaborating on the labor situation. So.

Everybody knows about the labor shortage, it seems particularly acute in Quebec. So are you able to attract employees have you had to curtail opening hours in any stores.

Are you have you had to increase wages could you work your way through all of that thinking.

So the labor situation is.

It is a challenge no doubt about it across the country not just in Quebec.

That being said to date, we've been able to manage the situation without having to change our normal course of of the way we handle.

That process.

We've put more effort into.

Our HR initiatives for job fairs, and other like practices to help us.

Garner the attention we need to get the employees, we need but.

Even though it's a greater challenge than it's been in the past.

Joanne and team have done a phenomenal job keeping the stores staffed and and keeping our staff more importantly, happy and <unk>.

And in store and keeping the stores open. So so it is more difficult no question about it but to date, it's been manageable.

And from a wage perspective Peter week.

Haven't seen any material increase in and wages as a result of what Neil just described.

Okay, and so Neil just to confirm Theres been no curtailment of store hours.

No okay.

And then just the other question I wanted to ask about.

There was a discussion earlier about.

Dollar Ram has a long time you know.

Long term strategy in terms of.

Not being a price leader your are your price follower to make sure you maintain that brand messaging of compelling value. So.

Can you talk a little bit then like how are you seeing that your competitors. Thus far are you know are handling these increases in <unk> and Cogs inflation. So.

No I think you look at your <unk>.

As I've said, it's Walmart and drug stores and certain other dollar stores do you have any insights yet as to how they are behaving because youre going to follow along as you indicated on what they do.

I can't say that there's a clear picture to be honest, it's evolving it's still relatively new and will continue no doubt going forward over the next six months to 12 months.

We consider every one of our competitor.

So while we may focus a little more on some retailers. The truth is the entire market is the stat that we compete against and so its the buyers' jobs to shop every retailer.

And the country and make sure that for the goods we offer.

A tiny subset of everyone's goods and not necessarily a head to head with any particular retailers goods.

That we are competitive on those goods.

On some of our more.

Let's say a <unk>.

<unk> and type of goods the sensitivity to pricing is obviously less than it is on on consumable goods and that allows us to to help with our margins are but as a as a whole the market is evolving.

Constant study and I can't tell you that truthfully, whether there's any.

Clear message that I've gotten out of any retailer other than they're all handling different parts of their business.

But theyre all evolving and they all have no choice, but to evolve to what's happening in the market today and the challenges on the cost front.

Okay I understand thank you for your comments thank you.

Yeah.

Thank you. The next question is from Chris Li of data All day. Please go ahead. Your line is now open.

Well thank you.

My first question is.

And as you continue to scale out.

Alethia are self checkout kiosk rollouts to other stores, just curious how meaningful would that be a tool in terms of helping you mitigate some of these labor pressure.

For next year.

I mean, the way we think.

About the self checkout strategy is really as an enhancement to customer experience we want.

Want to to make it more convenient and easier for our customers to shop at our stores.

And make the door on my experience as seamless as possible, but it's it's not the and efficiency initiatives.

Our customer experience initiatives.

And its been rolled out so far Chris and about 20% of our stores and I'd say we've done.

The low hanging fruits in terms of.

Where we'd like to see those self checkouts being deployed.

Deployed and now as we continue to progress we're assessing every year.

What are the what are the next stores that makes the most sense, but it's really on a store by store basis, and where it makes a lot of sense based on traffic trends and shopping patterns. So that's how we look at it and I'm very pleased to add that.

It has been very well received by our customers and it's really.

Taken as a very nice alternative when the lines for our manual cashiers and cash out is busy.

The systems, we felt and our self checkouts have been well received by customers and our self checkout.

Except both cash and credit and debit.

So they're a full service machine and not limited to specific payment type.

Great. That's very helpful. And then maybe a question on the traffic growth during the quarter. Just wondering was that the growth pretty much in line with your expectation and then the second part is are you seeing sort of a pickup in traffic.

As a result of consumers continue to look for value and this very highly inflationary environment.

Yeah. So in terms of traffic trends look work, we're pleased and we're grateful to see traffic coming back at a good clip and our and our stores. We saw it in the second half of Q2, and we commented on it back in September.

We've seen the same thing in Q3, and so far in Q4. The same training same trend has continued.

So so yes, we're pleased and it's in line with our with our expectations I think we're not back to pre pandemic levels in terms of where traffic is but we're definitely trending in the right direction in a different direction that we'd like to see for our business then too.

To your second part of your question.

Hum.

Look I think the.

The.

The value channel with.

With the latest survey that we conducted as still a very healthy in relevant channels for all cat and Canadians in a.

We're definitely have a top brand awareness in that channel specifically, so how will that play out in the future it's hard to predict but we like how we're positioned.

Great and then my final question is can you provide us an update on the progress that you're buying team.

Making them to adjust the product offering to mitigate the cost pressures for next year. Thank you.

It's a it's a daily.

Yeah.

[noise] task.

With that I would tell you is more like so many parts of the business.

For so many businesses at this particular time, that's just far more time consuming and challenging than it's been in a very long time simply because the factors that affect the cost of goods.

Our are changing so quickly and thankfully.

Thankfully, that's not just up up up sometimes it up and then down again.

So it's not it's not just doom and gloom, but in order to make sure that it's not up and then no. One is paying attention that it's going back down it means that all the buyers need to stay on top of the cost of raw materials and the other factors that are that are affecting the goods that they are responsible for sourcing so.

It.

It's a very iterative process very.

Fluid again and.

Again, there's really other than staying on top of there.

Sourcing of their goods more than they've ever had to do on a more consistent basis to stay on top of what the right.

<unk> costs are in factors affecting that cost.

Theres no general theme across it that I can give you our enlightened.

You too.

Just general themes that apply to all pieces of our purchasing so really it's very items specific very raw material specific when it comes to F. O B cost very specific things also like what part of what country any given items made so if an items.

In China for example, and it's made in an area, where the government is reducing electrical consumption at any given time, while that might affect the cost of that product for that given period, but that may stop three weeks later and affect the product in a more positive fashion from a cost perspective and really short.

Time frame. So there are things like that happening all around the world from the different countries, we source from including little flare ups of Covid or what have you in different parts of the world, where we source, but and so it's a constant study of where we should source goods, which countries, which vendors and and just to stay on top of all of those.

Element.

Understood. Thank you very much and all the best for the holiday season too.

And to you too.

Thank you.

The next question is from Karen short of Barclays. Please go ahead. Your line is now open.

Hi, Thanks, very much I just wanted to clarify.

Sales for Fork you. So in the first five weeks you are comping at 7% I believe which would imply the last portion of the quarter. It was you're kind of downside are you you're trying to say that we should be thinking about a four year or right at <unk>.

Your average in the 4% range for the entire quarter is that the right way.

That's the right way to think about it.

Okay.

And then I wanted to ask I don't know if it's a little early to focus on that but I know, there's so many puts and takes to gross margins just for <unk> alone, but wondering if you could try to frame a little bit on how we should think about puts and takes to both gross margins and SG&A as we look to next year.

Broad high level.

Yeah and in terms of next year being more specific Karen.

It will it will be discussed of course on the next call in more detail I think.

We all know the different different tailwind and headwinds that we'll be facing for next year.

The good news is so far in Q3 and into Q4.

The consumer is responding very well to our offer and that's that's the fundamental of our business and.

Then in terms of inflation and freight which.

We've discussed in the past, we have levered that our disposal to manage those and it.

It will be a function of relative value, how our competitors react and our goal will be to maintain market share maintaining our value proposition.

<unk> maintained our brand promise and adjust as we see the competitive set that just too cost pressures next year, but we have the levers at our disposal to manage those freshers, depending on how the competitive set moves.

Like we've done so far this year.

So far this year, we've seen inflation, we called it out back in March of this year.

And we've been managing through those dynamics are for a good chunk of fiscal 2022.

And we've used the leavers that are that we all know about three fresh markups.

And.

And all the other ones that we've discussed in the past so.

That's that's as far as we can go probably in terms of.

Providing color on on gross margin.

Okay, and just to clarify one thing I mean, it seemed like that the last call.

The competitive landscape is very rational and somewhat benign and I don't know if you're trying to maybe signal that that was a little bit less so the case in this quarter or not and I ask that in the context of specifically labor offsetting entre of wage increases.

Increases how orderly do you think the ability would be to offset that and is there any change in how you're seeing the competitive landscape.

Great.

I mean in terms of the.

If your question is specific to Ontario minimum wage I mean first of all we need to step back and look at that minimum wage increase as very different than the last major Ontario minimum wage increase which was a more than 15% almost 20% increase. This this time we're talking.

In about 4% to 5% minimum wage increase which is.

In line with the inflation, we're seeing in the market.

So so it's not something that will have to.

Actively offset next year of course, we have efficiency and productivity initiatives, we will continue to work on to manage.

To manage that but it's.

It's not be a major headwind as we were headed into fiscal 'twenty three.

And it's the same headwinds that every retailer in Ontario has to deal with that as our competition.

So no change in the competitive landscape sequentially, though.

I mean, it's it's been fairly stable since since Q2.

Thank you very much happy holidays. Thanks Sharon.

Thank you.

The final question will be from Edward Kelly of Wells Fargo. Please go ahead. Your line is now open.

Yeah, Hi, good morning.

I wanted to first just kind of follow up on.

Q4, and the outlook for the comp.

So you're you're run rating at about a 4% average now but your your holiday compare.

If you go back over a sort of like a multi year period is actually kind of easy if we're sort of like doing stacks versus 19, because that you know that 19 comp had some calendar shifts in it which I think was 180 basis points back then.

So.

I guess my point around this is as.

As we think about the outlook from here is 4% really the best way to look at it because on a sort of a three year basis. It seems like it could be a little bit better than that.

I mean, 4% is where we've been pacing at in Q3 and Q4 so far.

How will how will the holiday season unfold, we still have very important weeks ahead of us that will.

That will tell us the final answer but does the.

The pace of our business. So far has been on a two year average of 4%.

And in holiday sales last year, where we're good.

And so when we look can we think about our Q4 performance.

The further we can go in terms of <unk>.

Providing color as how we're doing as of now and its really a 4% two year average, which is has been consistent since let's call. It the reopening of Ontario.

And in the second half of Q2, so that's that's really where we're seeing the business pace at this point to add.

Okay.

And then I wanted to ask you about on the supply chain side actually on consumables. We are hearing in the U S. Some dollar store players are having some issues.

On sourcing on the consumable side I'm, just curious if you're seeing any of that and if that is somehow you know weighing on comp at all.

It's more challenging no question about it I would say, it's more challenging from a good part of.

Of all manufactured goods at this point in time, and I think part of that discussion in many cases, although they don't provide color is simply that they are more expensive and so at a certain price point, they are saying that those goods aren't available to them, but they mostly mean that they can't afford those goods anymore.

Because that you know.

The manufacturers of the world have not in general are stopped making goods. They make they are just more challenged by the cost factors that affect them like the cost factors that affect everyone, namely raw material labor.

Logistics et cetera. So so all in all I would tell you it's more challenging to source all of those good but the goods are still available as a rule.

Okay, and then just one last one for you I just wanted to actually go back to the question of car and really trying to just asked and maybe a different way. If we think about what is known today.

From a cost perspective, how competitors are reacting what your potential offsets are as we look at gross margin into next year I'm kind of curious as to whether you could help us with how wide is the range of potential outcomes.

Youre running now right above 2019 levels from a gross margin perspective.

Is there risk that that could be lower right like it's just I don't know if there's any way that you could help us with with that at all.

But I thought I'd give a shot.

So look in terms of of.

The different the different cost headwinds and the tailwind and believers.

I think that's it.

As far as we can go at this point because I'll tell you at the key the key inputs that we don't know is how the competitive set will evolve next year and that's something that we're watching SKU by SKU every day and we're adjusting our strategies accordingly, and we can.

Can't predict how it's going to evolve and the fact that we're a price follower and are not a price setter.

Makes the the the discussion on on that we're trying to have a little bit hard to have at this point because we don't know how things are going to unfold next year and it's something that we're watching on a daily basis.

But we know we know the headwinds on freight and inflation.

And we know the leavers on.

Pricing on FX that we've been using in the past and that we've used so far this year.

So those leavers are at our disposal.

And it will really be a function of maintaining a relative value doing what's best for our brand and for our customers over the medium to long term and we have to lever at our disposal to manage those those headwinds. This thus far as we can go at this point.

Okay understood. Thank you good luck guys. Okay. Thanks, so much.

Thank you.

This will conclude today's conference call. The conference has now ended.

Please disconnect your lines at this time, we thank you for your participation.

Yeah.

Okay.

Yeah.

[music].

[music].

[music].

Good morning, and welcome to the dollar M. A fiscal 2022 third quarter results conference call.

Neil Rossy, President and CEO and J P. Counter CFO will make a short presentation, which will be followed by a question and answer period open exclusively to financial analysts. The press release financial statements and management's discussion and analysis are available at all around my Dot com in the Investor Relations section as well as on SEDAR before.

We start I've been asked by dollar amount that you read the following message regarding forward looking statements dollar in his remarks today may contain forward looking statements about its current and future plans expectations intentions results levels of activity performance goals or achievements or any other 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 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, all around I cannot guarantee that any forward looking statement will materialize and you are cautioned not to place undue reliance on these forward looking statements for additional information on the assumptions and risks. Please consult the cautionary statement regarding forward looking information contained in dollar Armours MD&A dated December 8th 2021 available on SEDAR.

Forward looking statements represent management's expectations as at December eight 2021, and except as may be required by law.

Around my has no intention and undertakes no obligation to update or revise any forward looking statement, whether as a result of new information future events or otherwise.

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

Thank you operator, and good morning, everyone.

All around and delivered a solid performance across key metrics in the third quarter of fiscal 2022 and in the context of the ongoing pandemic.

We are pleased with our comparable store sales growth both year over year and on a two year average basis last year, we had exceptionally strong sales with sss growth of seven 1%.

This was notably driven by pandemic fueled demand for Halloween products and a pull forward of Christmas sale also recorded over and above a five 3% SaaS growth the prior year.

Positive that's SaaS this.

This quarter was also particularly welcomed immediately following the disrupted in the second quarter.

As you will recall last quarter, we were significantly impacted by a ban on the sale of nonessential goods in Ontario and effect from April eight to June 11, coinciding with peak spring seasonal sales.

The third quarter represents somewhat of a return to a more normalized situation from a pandemic perspective.

There were fewer restrictions in place and no restrictions on the sale of goods or on specific retail channels.

We also delivered strong EPS growth and an industry leading gross margin.

This is despite the various headwinds which continue impacting the retail sector.

Namely supply chain pressures and cost inflation.

In this context and given two consecutive years of strong comps.

2021, and fiscal 2020, we feel good about our Q3 performance in fiscal 2022, and we believe we are very well positioned for Q4, which is historically, our most significant sales quarter.

There is no doubt that we're not restricted Canadians rely on dollar amount as a destination for value and convenience.

Therefore every day or seasonal goods.

This was true before the pandemic and has only been reinforced.

We regularly survey our customers to ensure that our offering and concepts.

With them.

We've pursued that worked through the pandemic and what we consistently hear is that a broad range of Canadian families and consumers appreciate the breadth and depth of our offering.

And the value we provide for their hard earned money.

Our customers also appreciate the proximity and convenience, we provide and the time pressed world.

These results reinforce our conviction and the relevance of our brand and strong value proposition to Canadian.

As we all learn how to navigate the ups and downs of Covid.

We're also pleased to see a gradual reversal in traffic trends with a continued uptick quarter over quarter and the number of customers visiting our stores.

Our direct sourcing expertise flexible merchandise mix and multi price point strategy are not only what make dollar I'm a sought after shopping destination.

They are important levers as we manage through the headwinds that the retail industry is currently facing.

Looking at the global supply chain, including disruptions in container shipping.

Our position is consistent with last quarter.

For fiscal 2022, our teams have done an excellent job mitigating supply chain pressures, both from an operational and cost perspective.

Right. Despite the disruptions and delays in the system are nimble and proactive approach has ensured that we entered the fourth quarter and a solid inventory position with well stocked stores ahead of the important holiday season.

Keep in mind that we are importers as much as we are retailers.

This coupled with the non perishable nature of our merchandize mix.

Does it provide us with some added flexibility to mitigate current supply chain challenges.

On the retail front, we opened 16 net new stores during the third quarter.

This brings our year to date count of new store openings to 41, and our total store count in Canada to 1397.

We do expect a particularly busy fourth quarter on the real estate front as has been the case in the last few years.

We are on track to hit our target of between 60 and 70 net new stores in fiscal 2022.

Which means we've got 20 plus stores slated for opening in Q4.

Finally, looking at our investments in dollar city.

Our 51% pickup of their net earnings was $7 3 million compared to $4 3 million in the same period last year.

This increase reflects the disciplined execution of their growth strategy continued strong consumer response and their ability to navigate the impact of the pandemic in their countries of operation.

New store openings continue in all four countries of operation with a focus on Columbia and now Peru.

Which is still in its very early stages.

During the third quarter ended September 32021 dollar city opened 18, net new stores, bringing their total store count to 312.

Year to date I am proud of what the dollar and the team has accomplished and our adaptability and what continues to be a complex environment.

I'm also pleased to see that quarter to date, our holiday assortment has been well received by our customers we.

We are proud of the unique role we play in the Canadian retail landscape.

We will continue to be proactive in managing supply chain and cost inflation headwinds to ensure our customers.

Get the value they expect while shopping our conveniently located stores.

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

Thank you Neal and good morning, everyone like Neil I'm very pleased with our financial performance in the third quarter of fiscal 2022.

Total sales grew five 5% on the strength of new store openings and from the contribution of same store sales of note. There were no closed stores this quarter because of COVID-19 restrictions for the first nine months of fiscal 2022, our sales are up six 3%.

Same store sales increased by 0.8% compared to seven 1% in Q3 of last year.

On a two year average basis.

S growth average at three 9% per year, which brings us in line with our pre pandemic.

<unk> results.

As assessed in Q3 consisted of a two 8% decrease in average transaction size and a three 7% increase in the number of transactions.

This is the second consecutive quarter in which we are seeing a reversal in those trends.

I spend that make restrictions ease just customer traffic is picking up and we view this as a very positive indication, which speaks to the relevance of our business model.

EBITDA came in at $347 million.

11, 2% increase over last year. This reflects positive sales growth strong margins and lower year over year Covid costs.

Net earnings were 100.

$183 4 million.

Was that 61 per share representing 17, 3% growth year over year. This reflects good sales solid margin performance lowest COVID-19 lower COVID-19 related expenses and a strong equity pick up from our investment in dollar city.

Our gross margin came in at 44, 4% of sales compared to 44% last year.

Gross margin was higher year over year, primarily due to a higher proportion of sales of high margin seasonal products, namely Halloween for.

For the first nine months of fiscal 2022 gross margin was up 20 bps year over year. We continue to expect gross margin to be generally generally flat for the full fiscal year.

In Q4, our product mix should be less favorable from a margin perspective.

Traffic trends become more in line with pre pandemic quarters, saying higher sales of lower margin items.

Looking at rising container shipping and raw material costs. As previously mentioned, we expect to continue to see these trends in fiscal 2023, we are believers that our disposal to help mitigate cost inflation impacts on our gross margin.

Our response to inflationary trends will continue to be in line with our usual approach, which is aimed at maintaining our relative value.

So far this year, we've seen some of these costs being passed on as those pressures are industry wide and through refresh of markups, we've adjusted our pricing strategy.

In addition next year the stronger Canadian dollar is expected to be a tailwind.

Turning to SG&A.

<unk> 14, 2% of sales compared to 15, 1% last year S.

SG&A. This quarter includes $1 1 million indirect COVID-19 costs compared to $10 9 million last year.

As a result of fewer pandemic related restrictions the restrictions in place labor hours attributed to managing customer traffic and then store capacity limits have been reduced.

Our health and safety measures and cleaning protocols, which will remain in place for the foreseeable future have been absorbed and day to day operations.

Excluding these costs.

SG&A represented 14, 1% of sales.

Which is the same as the prior year.

For the first nine months of fiscal 2022, SG&A, excluding direct Covid costs was up 20 bps year over year and we're on track to remain generally flat for the full fiscal year.

Looking at the labor market more generally we've seen a tightening in labor availability across the country, but no material impact on average wages at this point.

A total of $5 3 million shares were repurchased in the quarter on their eye in CIB for $295 million.

And that's 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 final quarter of the year.

Since the beginning of fiscal 2022, we have repurchased 13 1 million shares for a total value of $741 million, representing four 2% of our shares outstanding at the start of the fiscal year.

We expect our buyback strategy to continue contributing to our earnings growth next year as the impact of our buyback program annualize.

Finally yesterday the board also approved a quarterly dividend of 5.0 to <unk> <unk> per share.

Turning now to the remainder of the year.

We feel good about our performance year to date, including the first five weeks of the fourth quarter.

From an sss perspective fourth quarter to date, we're pacing at a two year average of approximately 4% per year.

We're pleased with where we are as of today, but keep in mind that our most crucial sales period is still in front of us and many factors outside of our control could have an impact.

Barring the factors outside of our control, including the future path of the pandemic additional measures that may be taken in response to the latest variant and inclement weather, we're very confident and the relevance of our brand and our strong value proposition as we move towards a more normalized situation.

With that we want to sincerely. Thank our employees for their continued dedication and wish everyone safe and happy holidays. Thank you and now I'll turn it over to the operator for the Q&A.

Yeah.

Thank you we will now take questions from the telephone lines. If you have a question and you're using a speaker phone. Please lift your handset before making your selection.

Do you have a question. Please press star one on your devices Keypad you may cancel your question at any time by pressing star queue.

Please press star one at this time, if you have a question there will be a brief pause while the participants register thank you for your patience.

The first question is from Irene <unk> of RBC capital markets. Please go ahead. Your line is now open.

Thanks, and good morning, everyone.

A couple of questions around supply chain. She began so I think by now you've probably read undoubtedly renegotiated your shipping contracts for next year. If you could talk about how we should pardon.

You may be thinking about that and how you're thinking about sort of I guess your all in cost structure for next year.

Thanks, Irina this is JP.

So so from a cost perspective next year, we've as you know I mean, the shipping contracts are mostly re negotiated in the fall, but they are staggered throughout the year. So we've renegotiated most of them.

It's no secret as we've discussed in the past it on.

Next year, we will see higher freight costs.

Inflationary pressures will likely continues as we've discussed on prior calls, but our strategy will remain consistent with the past, which is that we're price fall to where we're not a price setter and prady will be to maintain our brand promise and to have the best relative value as you know.

We've seen it in Q3.

We have believers at our disposal to manage margin through refreshing markups.

The Canadian to U S. The FX hedge.

It will be a tailwind for next year and so in short our priority will be to maintain our brand promise of relative value. When we have to lever at our disposal to adjust depending on how the competitive set moves next year.

I hope the SaaS, great, Yes, yeah, no absolutely. Thank you and then just on availability of product I think on the last call Neil Sad that Christmas had been in for a while.

But could you just talk through where you are right now in terms of share of the shipping cadence what the next key dates are and the degree to which the disruptions in D. C may or may not have an impact on Q4.

So I'll answer the Bcp's and then and then JP will answer the balance.

NBC other then.

It affects the effect of flooding on specific stores. The overall BC sales have not been impacted in any material way.

And then as far as our handling of.

Logistics going forward JP will give that color look if we if we go back to the Q2.

The conference call because I think it's a good starting point for to answer your question remember at that point, we're dealing with a global container shortage Ah.

And we've successfully manage that global pressure through number one.

Warehousing and distribution strategy and number two.

Our critical mass is one of the largest importers in Canada.

So that allowed us to have.

Good in stock position ahead of Halloween and supported the strong Halloween performance as we're seeing today in our Q3 results and so.

It also allowed US then to have a good in stock position ahead of the holiday season.

And if you shop any of our stores today.

Holiday in stock position is as is in good in a good situation.

Then if we move to the BC floods specifically.

Uh huh.

I think the same thought process applies which is of course, a disruptive it's highly imperfect and we'd much rather manage without it but our teams are using the same strategies that we used in Q2.

And in Q3 that I, just described to manage the situation and make sure that we're ready for our Q1 sales.

As the holiday season evolves and Q4 evolves, so really right now it's getting ready from a shipping perspective for Q1 then.

And that's underway based on the strategies.

Just described.

That's great and then just one final question because you know you'd be disappointed if I didn't ask yet all of this discussion around inflation.

How does that play into your current thoughts around the higher price points or the possibility of higher price points.

Well, there's a number of strategies on the table.

To address the inflation question one of those strategies is adding.

The new price points, but.

For the moment.

We have nothing to announce on adding new Chrysler.

Danielle Thank you.

Thank you.

The next question is from Mark Petrie of CIBC. Please go ahead. Your line is now open.

Yes, good morning.

Would be helpful. Just to hear your views with regards to the competitive environment and the relative sort of pricing being pass through that youre seeing today is that accelerating as had been stable for the last few months, what's what are you seeing.

It's a it's an incredibly it or their situation.

Mark as the.

Obviously the retailers in the country are all adjusting as required.

And.

Every item has a different story different raw material cost effects on different items, the larger the Cuba the item the higher the effect of the challenging freight rates.

Really it's a very very fluid situation as the market adapts to the new reality of different costs.

Obviously retailers cannot absorb all of it and eventually it gets passed on to the customer.

And so what we have is our focus is what we have always had and that is remaining the best relative value in the market that is our.

Bread and butter, so to speak and so thats what each of the buyers has been tasked to do is to ensure that whatever we're selling we are the best relative value in the market.

Yeah, Okay understood and.

We see a healthy gross margin result, this quarter you called out the seasonal mix, but you were also lapping a period last year were seasonal mix was also a tailwind. So could you just give any color with regard to how much of.

The boost from last year or the improvement from last year was the seasonal mix versus other factors like you know core product margins or FX.

Yes, no it's really on the on the mix of Mark.

We had a good Halloween last year and we had.

Better Halloween this year.

And so so the mix played in our favor and two two.

To your question earlier.

Earlier I mean.

We've seen so far inflation.

Being passed on and we've been able to through our refresh to adjust accordingly.

But it's mostly a mix.

Mix discussion here.

Okay, and then I guess just the last just a follow up on that as we look into Q4, you reiterated your view for flat gross margin for the year.

Obviously last year Q4 was a particularly strong.

Result on gross margin again, driven by seasonal but just given what you saw with Halloween what gives you caution about the seasonal mix heading into Q4.

Yeah, well last year in Q4, if we step back we had a well first of all severe capacity limits across the country and the non essential restrictions in Quebec.

It kicked in and.

And mostly impacted.

January and so.

Think of January is a lower margin months and so this year, we'll have if there's barring any unforeseen circumstances.

We will have stronger sales in January just as a result of not being restricted and we'll have stronger sales of lower margin items. Because January is a lower margin. So the mix in Q4.

Well normalize.

Whereas last year was it was driven by mix on the back of the restrictions.

Understood I appreciate all the comments as always and well.

All the best heading into holiday thank.

Thank you and to you.

Thank you.

The next question is from Richard of National Bank. Please go ahead. Your line is now open.

Richard from National Bank. Your line is open. Please proceed with your question.

Hi, Thanks for taking my question.

Vishal high with respect to dollars dollar city.

Contribution.

We're seeing I think.

<unk> are there in terms of the contribution at least looking at the last few quarters because of year year growth wondering if this is a COVID-19 anomaly year over year or if there's.

Any specific issues or items that you'd like to call out on that dollar city business, that's leading to these results.

Lynn.

In terms of dollar city I think we've seen.

Good good store growth.

Consumer reception to to our offering and our value proposition has been good in our countries of operations.

Hum.

I think it's a it's a COVID-19 related dynamic it's really.

The brand, that's that's been gaining traction and the value proposition.

Well received combined with a very healthy store growth on a lower store count than our Canadian operation. So as a percentage it has a more meaningful impact but that's.

That's what it is essentially.

And how would the margins up dollars and compare to tell around that.

Obviously as the business grows we would anticipate some favorable operating leverage but give us the delta on.

Let's say EBITDA margin versus the kingdom.

Yeah look as you know as you know one in terms of disclosure, we don't go into specifics in terms of margin, but relatively speaking.

Of course, they'll ramp up being.

Our more mature and a larger operation has economies of scales and its logistics and transport.

That dollar city.

Could gain over time.

But they're it's a business that is performing well and.

In terms of margin there is economy economies of scales to be to be gained in the future but.

I can go into more specific than that.

Okay, and then just changing topics here with respect to be yet.

Media reports on the latest variance with COVID-19 associated concerns or are you seeing any changes in consumer behavior recently in your stores.

Not to date.

Okay.

Maybe a last one here on <unk>.

Obviously, a lot of moving parts in the market is reacting very quickly, but with respect to adult dramas.

To control the controllable are there any major efficiency projects.

Projects that we should be we should be thinking about for for fiscal 'twenty three to control. These various pressures.

Well, we always have efficiency productivity initiatives that we we rollout and some of them annualized some of some of them are new we keep refresh refreshing our lead.

Leds and stores are we keep upgrading them.

H backs were working on a new time management system.

So there there are many initiatives that we keep rolling out every year and next year.

Some of those initiatives will continue and continue to be rolled out across our stores.

And and drive efficiency and productivity as we have in the past.

Okay, Yeah, thanks for the comments contribution.

Thanks Vishal.

Thank you.

The next question is from Brian Morrison of TD Securities. Please go ahead. Your line is now open.

Brian Morrison of TD Securities. Your line is now open. Please proceed with your question.

Thanks, very much sorry about that I was on mute I want to go back to dollar city. If I can for a moment you are seeing this acceleration in earnings you did it put a $4 price point in Columbia back in November 2020, I'm wondering if you plan on expanding that to the rest of the network and then with respect to the store growth I think you have 48 stores year to date here, that's well above your.

Your pace in your long term outlook of 40 I'm wondering if this is an aberration or if you're seeing greater opportunities than you earlier thought.

It's a little of both.

The.

The question of store count is.

Really a question of identifying opportunities and as the leader of that business identifies opportunities in his country our partners.

They will be as aggressive as they can and if those opportunities present themselves and so for the time period in question the opportunities obviously presented themselves and they took advantage of that of that.

Of of that situation.

It does present itself N a.

Systematic way then then we will update you with guidance to that effect.

And on the on the pricing question.

The $4 price points have already been <unk>.

Rolled out and and Salvador and Guatemala as well.

Okay, sorry, when was that done.

Okay. It was October October.

Okay excellent and then can you just clarify for me I'm not sure I heard it correctly J P. Just the 4% comment on the on the two year stack to date is that is that saying that 4% relative to December eight last year, and that's before accounting for the Quebec restrictions, which made things kind of fall off and its in the month of January.

Yeah.

Way to think about it and the reason.

The reason the two year average is important is because we're trying to normalize for the noise from the pandemic restrictions last year and as you pointed out the non essential restrictions in Quebec, which had a significant impact on our sss performance in Q4 last year, but really what it.

If you'd take the point in time Q.

Q4 last year and you look at where we are today and the average our sss performance were pacing at the 4% average and that's also how we've seen the business pace in Q3.

With with 0.8% and seven 1% the prior year for two year average of approximately 4%.

Okay. So I guess the message here, though is we should see that really grow it.

As we get through the back half of this this quarter because I believe that you are off to a very strong Christmas started last year of Q4 start pardon me prior to those restrictions kicking in is that a fair comment.

I mean the.

The two year average will remain and then of course, you'll you'll.

Well, we'll see if the two year average remains but the business spacing of that at that level and of course, we're going to face easier comps in the second part of Q4.

Thanks, very much good luck during the holidays, okay. Thank you.

Thank you. The next question is from Peter Sklar of BMO Capital markets. Please go ahead. Your line is now open okay. Good morning.

Would you mind, just elaborating on the labor situation. So.

Everybody knows about the labor shortage, it seems particularly acute in Quebec. So are you able to attract employees have you had to curtail opening hours in any stores.

Are you have you had to increase wages could you work your way through all of that thinking.

So the labor situation.

Yes.

It is a challenge no doubt about it across the country not just in Quebec.

That being said to date, we've been able to manage the situation without having to change our normal course of.

The way we handle.

That process.

We've put more effort into.

Our HR initiatives for job fairs, and other like practices to help us garner the attention we need to get the employees we need but.

Even though it's a greater challenge than it's been in the past.

Joanne and team have done a phenomenal job keeping the stores staffed and and keeping our staff more importantly, happy and.

And in store and keeping the stores open. So so it is more difficult no question about it but to date, it's been manageable.

From a wage perspective, Peter we.

I haven't seen any material increase.

And wages as a result of what Neil just described.

Okay, and so Neil just to confirm Theres been no curtailment of store hours.

No okay.

Then just the other question I wanted to ask about.

There was a discussion earlier about.

Dollar Ram has a long time.

Long term strategy in terms of.

Not being a price leader your or your price follower to make sure you maintain that brand messaging of compelling value. So.

Can you talk a little bit then like how are you seeing that your competitors. Thus far are our handling you know these increases in Cogs inflation. So.

No I think you look at your competitive set is Walmart and drug stores and certain other dollar stores do you have any insights yet as to how they are behaving because youre going to follow along as you indicated on what they do.

I can't say that there is a clear picture to be honest.

Evolving it's still relatively new and will continue and no doubt going forward over the next six.

Six months to 12 months.

We consider everyone our competitor.

So while we may focus a little more on some retailers. The truth is the entire market is the stat that we compete against and so its the buyer's job shop every retailer.

And the country and make sure that for the goods, we offer which is of course, a tiny subset of everyones, good and not necessarily a head to head with any particular retailers goods.

That we are competitive on those goods.

On some of our more.

Let's say a treasure hunt type of goods the sensitivity to pricing is obviously less than it is on on consumable goods and that allows us to to help with our margins.

But as a as a whole the market is evolving.

That's a constant study and I can't tell you that truthfully, whether there is any.

Clear message that I have gotten out of any retailer other than theyre, all handling different parts of their business.

Currently, but theyre, all evolving and they all have no choice, but to evolve to what's happening in the market today and the challenges on a cost per ounce.

Okay I understand thank you for your comments thank you.

Thank you. The next question is from Chris Li of data All Bank. Please go ahead. Your line is now open.

Well thank you.

My first question is.

You know as you continue to scale out your self checkout kiosk rollout to other stores just curious how meaningful would that be a tool in terms of helping you mitigate some of these labor pressure for <unk>.

Next year.

I mean the.

Way, we think.

About the self checkout strategy is really.

As an enhancement to customer experience.

We want to to make it more convenient and easier for our customers to shop at our stores and make the door on the experience.

As seamless as possible.

But it's not the and efficiency initiatives.

Our customer experience initiatives.

And its been rolled out so far Chris and about 20% of our stores and I'd say we've done.

The low hanging fruits in terms of.

Where we'd like to see those self checkouts being deployed.

Deployed and now as we continue to progress we're assessing every year.

What are the what are the next stores that makes the most sense, but it's really on a store by store basis, and where it makes a lot of sense based on traffic trends and shopping patterns. So that's how we look at it and I'm very pleased to add that.

It has been very well received by our customers and it's really.

Taken as a very nice alternative when the lines for our manual cashiers and cash out is busy.

The systems, we felt in our self checkouts have been well received by customers and our self checkout.

Except both cash and credit and debit.

So they're a full service machine and not limited to specific payment type.

Great. That's very helpful. And then maybe a question on the traffic growth during the quarter just wondering what the growth pretty much in line with your expectation and then the second part is are you seeing sort of a pickup in traffic.

As a result of consumers continue to look for value and this very highly inflationary environment.

Yeah. So in terms of traffic trends look work, we're pleased and we're grateful to see traffic coming back it at a good clip and are in our stores.

We saw it in the second half of Q2, and we commented on it back in September we've seen the same thing in Q3, and so far in Q4.

Same training same trend has continued.

So so yes, we're pleased and it's in line with our with our expectations I think we're not back to pre pandemic levels in terms of where traffic is but we're definitely trending in the right direction in a different direction that we'd like to see for our business then.

To your second part of your question.

Look I think the.

The.

The value channel.

With the latest survey that we conducted as still a very healthy in relevant channels for all Canadians.

We're definitely have a top brand awareness in that channel specifically so.

How will that play out in the future.

It's hard to predict but we like how we're positioned.

Great and then my final question is can you provide us an update on the progress that you're buying team.

Making to adjust the product offering to mitigate the cost pressures for next year. Thank you.

It's a daily.

Yeah.

Task.

But I would tell you is more like so many parts of the business.

For so many businesses at this particular time, that's just far more time consuming and challenging than it's been in a very long time simply because the factors that affect the cost of goods.

Our are changing so quickly and thankfully.

Thankfully, that's not just a pop up some.

Sometimes it's up and then down again.

So it's not it's not just doom and gloom, but.

In order to make sure that it's not up and then no. One is paying attention that it's going back down it means that all the buyers need to stay on top of the cost of raw materials and the other factors that are that are affecting the goods that they are responsible for sourcing so it [laughter].

It's a very iterative process is very fluid.

Fluid again and.

Again, there's really other than staying on top of their that the sourcing of their goods more than they've ever had to do on a more consistent basis to stay on top of what the right.

<unk> costs are in factors affecting that cost.

Theres no general theme across it that I can give you our enlightened.

You too.

Just general themes that apply to all pieces of our purchasing so really it's very items specific very raw material specific when it comes to Fob cost very specific things also like what part of what country any given items made so if an items.

In China for example, and it's made in an area, where the government is reducing electrical consumption at any given time, while that might affect the cost of that product for that given period, but that may stop three weeks later and affect the product in a more positive fashion from a cost perspective and really short.

<unk> frame. So there are things like that happening all around the world from the different countries. We source from include.

Including little flare ups of Covid or what have you in different parts of the world, where we source, but and so it's a constant study of where we should source goods, which countries, which vendors and and just to stay on top of all of those elements.

Understood. Thank you very much and all the best for the holiday season. Thank.

Thank you and to Youtube.

Thank you the next.

Question is from Karen short of Barclays. Please go ahead. Your line is now open.

Hi, Thanks very much.

I just wanted to clarify.

Net sales for <unk>. So in the first five weeks you are comping at 7% I believe which would imply the last portion of the quarter. It was you're kind of downside are you you're trying to say that we should be thinking about a four year or right at <unk>.

Peer average in the 4% range for the entire quarter is that the right way.

That's the right way to think about it.

Okay.

And then I wanted to ask I don't know if it's a little early to focus on that but I know, there's so many puts and takes to gross margins just for <unk> alone, but wondering if you could try to frame a little bit on how we should think about puts and takes to both gross margins and SG&A as we look to next year.

Hmm broadening out a high level.

Yeah in terms of next year being more specific Karin.

It will it will be discussed of course on the next call in more detail I think.

We all know the different the different tailwind and headwinds that we'll be facing for next year.

Good news is so far in Q3 and in Q4.

The consumer is responding very well to our offer and that's that's the fundamental of our business.

Then in terms of inflation and freight which.

We've discussed in the past.

We have levers at our disposal to manage those and it will be a function of relative value, how our competitors react and our goal will be to maintain market share maintaining our value proposition.

<unk> maintained our brand promise.

And adjust as we see the competitive set adjust to cost pressures next year, but we have the levers at our disposal to manage those freshers, depending on how the competitor set moves.

Like we've done so far this year.

So far this year, we've seen inflation, we called it out back in March of this year.

And we've been managing through those dynamics are.

For for a good chunk of fiscal 2022.

And we've used the leavers that are that we all know about to refresh markups.

And and all the other ones that we've discussed in the past so.

That's a that's as far as we can go probably in terms of.

Providing color on gross margin.

Okay, and just to clarify one thing I mean, it seemed like that the last call.

The competitive landscape is very rational and somewhat benign and I don't know if you're trying to maybe signal that that was a little bit less so the case in this quarter or not and I ask that in the context of specifically labor offsetting entre of wage increase.

Increases how orderly do you think the ability it would be to offset that and is there any change in how you're seeing the competitive landscape.

Great.

I mean in terms of the.

If your question is specific to Ontario minimum wage I mean first of all we need to step back and look at that minimum wage increase as very different than the last major Ontario minimum wage increase which was.

More than 15% almost 20% increase this time, we're talking about 4% to 5% minimum wage increase which is in.

In line with the inflation, we're seeing in the market.

So so it's not something that will have to.

Activity offset next year of course, we have efficiency and productivity initiatives, we will continue to work on to manage.

To manage that but it's.

Its not be a major headwind as we were headed into fiscal 'twenty three.

And it's the same headwinds that every retailer in Ontario has to deal with that as our competition.

So no change in the competitive landscape sequentially, though.

I mean, it's great it's been fairly stable since since Q2, yeah.

Okay. Thank you very much happy holidays. Thanks Sharon.

Yeah.

Thank you.

The final question will be from Edward Kelly of Wells Fargo. Please go ahead. Your line is now open.

Yeah, Hi, good morning.

I wanted to first just kind of follow up on <unk>.

Q4, and the outlook for the comp.

So you're run rating at about a 4% average now but your holiday compare.

If you go back over a sort of like a multi year period is actually kind of easy if we're sort of like doing stacks versus 19, because that you know that 19 comp had some calendar shift in it which I think was 180 basis points back then.

So I.

I guess my point around this is as.

As we think about the outlook from here is 4% really the best way to look at it because on a set of three year basis. It seems like it could be a little bit better than that.

I mean, 4% is where we've been pacing at in Q3 and Q4 so far.

How will how will the holiday season unfold, we still have very important weeks ahead of us that will.

That will tell us the final answer but.

The pace of our business. So far has been on a two year average of 4%.

And in holiday sales last year, where we're good.

And so when we look and we think about our Q4 performance.

The further we can go in terms of <unk>.

Providing color as how we're doing as of now and that's really.

4% two year average, which has been consistent since let's call it the reopening of Ontario.

In the second half of Q2, so that's that's really where we're seeing the business pace at this point to add.

Okay.

And then I wanted to ask you about on the supply chain side actually on consumables. We are hearing in the U S. Some dollar store players are having some issues.

On sourcing on the consumable side I'm, just curious if you're seeing any of that and if that is somehow weighing on comp at all.

Yes, it's more challenging no question about it I would say it's more challenging.

A good part of <unk>.

Of all manufactured goods at this point in time, and I think part of that discussion in many cases, although they don't provide color is simply that they are more expensive and so at a certain point they are saying that those goods aren't available to them, but they mostly mean that they can't afford those good.

Anymore.

Because that.

The manufacturers of the world have not in general.

Stop making goods they make they are just more challenged by the cost factors that affect them like the cost factors that affect everyone, namely raw material labor.

Logistics et cetera. So so all in all I would tell you it's more challenging to source all of those good but.

But the goods are still available as a rule.

Okay, and then just one last one for you I just wanted to actually go back to the question of care and really trying to just asked.

Maybe a different way if we think about what is known today.

Cost perspective, how competitors are reacting what your potential offsets are as we look at gross margins into next year.

I'm kind of curious as to whether you could help us with how wide is the range of potential outcomes.

Youre running now right above 2019 levels from a gross margin perspective.

Is there risk that that could be lower right like it's just I don't know if there's any way that you could help us with with that at all.

But I thought I'd give a shot.

So look in terms of Av.

The different the different cost headwinds and the tailwind and believers.

I think that's as far as we can go at this point because I'll tell you at the.

The key the key inputs that we don't know is how the competitive set will evolve next year and that's something that we're watching SKU by SKU every day and we're adjusting our strategies accordingly, and we can't predict how it's going to evolve and the fact that we're a price follower in the price.

Not a price setter.

It makes the discussion on on that we're trying to have a little bit hard to have at this point because we don't know how things are going to unfold next year and it's something that we're watching on a daily basis.

But we know we know the headwinds on freight and inflation and we know the leavers on.

Pricing on FX.

We've been using in the past and that we've used so far this year.

So those leavers are at our disposal.

And that will really be a function of maintaining a relative value doing what's best for our brand and for our customers over the medium to long term and we have the levers at our disposal to manage those those headwinds. This is thus far as we can go at this point.

Okay understood. Thank you good luck guys. Okay. Thanks, so much.

Thank you.

This will conclude today's conference call. The conference has now ended please.

Disconnect your lines at this time, we thank you for your participation.