Q4 2022 Dollarama Inc Earnings Call
[music].
Okay.
Okay.
Okay.
Bob.
Thanks.
[music].
Okay.
Okay.
So it's gonna see homes that don't have as you see this conference is being recorded and is ready to begin.
Good morning, and welcome to the dollar in my fourth quarter and fiscal 2022 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 dollar I'm, a dot com in the Investor Relations section as well as on SEDAR.
Before we start I have been asked by dollar I am I to read the following message regarding forward looking statements.
<unk> 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 level of activity performance achievements future events or developments to deter differ materially from those expressed or implied by the forward looking statements. As a result deliver them I cannot guarantee that any forward looking statement, which will materialize and you are cautioned not to place undue reliance on these forward looking.
For additional information.
Information on the assumptions and risks please consult the cautionary statements regarding forward looking information contained in dollar M. S. M. D. N. A dated March 32022 available on SEDAR forward looking statements represent management's expectations of that March 32022, and except as may be required by law.
<unk> dollar Grandma 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.
Good morning.
Dollar having delivered a strong operational and financial performance in fiscal 2020.
We achieved this while navigating the ebb and flow of the pandemic impact on retailers and consumers.
Fourth quarter being no exception.
This remarkable performance speaks to the resilience of our business model.
The ability and flexibility of our people and our operations.
And the relevance of our compelling value proposition.
Same store sales for the full year grew one 7%.
This is despite the restrictions impacting sales at various times throughout the year.
The nine week ban on the sale of nonessential items in Ontario last spring was by far the most significant.
It came at a critical time for our spring sales and impacted 40% of our network.
For the full year.
The 4% increase in store traffic and a 2% decrease in average transaction size.
This is a reversal from the first pandemic.
When consumers were buying more with each trip visiting less frequently.
A return to positive traffic is very welcome trend.
Our business as we enter fiscal 2020.
This once again speaks to the dollar.
And this is relevant and the shopping habits of Canadian consumers.
Looking at our bottom line in fiscal 2022, our teams did an excellent job mitigating dynamic global supply chain and other inflationary pressures.
That work is ongoing.
Sourcing is one of our key strengths and something we manage tightly both from a cost and flow.
Yes.
Our procurement and logistics teams have been working relentlessly to ensure that stores are well stocked, especially from a seasonal perspective.
We delivered on that throughout the two years of pandemic, including this past Christmas.
As we plan for fiscal 2023 sales cycle, we continue to manage our inventory carefully.
We're prioritizing where needed working closely with our partners throughout the supply chain.
Ordering stock even earlier than we have historically.
To date I'm satisfied with our performance in tackling these industry wide challenge.
We are also more focused than ever on maintaining our brand promise and preserving our year round competitiveness across our product assortments.
In line with our price follower strategy.
Our pricing strategy also enables us to manage some of the margin pressures, including through the regular refresh of our assortments and by leveraging our multiple price points.
With regards to the introduction of additional price points up to $5.
This has long been the natural next step in our multi price point strategy.
It is also fundamental to our business model since its introduction in 2009.
Our strategy when it comes to new price points has always been and remains to proceed carefully and gradually.
The objective at all times is to both maintain and enhance.
Our ability to offer compelling value for each item in the basket relative value on the market.
Over six years since we last added higher price point, we feel that fiscal 2023 is the right time to proceed with the introduction of items up to $5.
Process is now underway.
There will be a gradual ramp up starting mid year and becoming more noticeable through the second half of the year.
In the near term this brings additional flexibility to manage cost pressures.
Heightened inflationary environment.
Over the medium term enables us to deepen our broad and compelling product assortment.
And at $5. We also remain firmly aligned with our unique and compelling value in retail.
Turning now to our growing Canadian footprint.
With the opening of 24 net new stores in the last quarter of the fiscal year, we met our annual target coming in at 65.
With the prior year.
This brings our year end count across Canada to Fortune 521 stores.
Going into fiscal 2023, we have a solid real estate pipeline with site opportunities across the country.
Another notable development on the real estate front in fiscal 2022 is the execution of a long term lease for a seventh warehouse located in Laval, Quebec.
500000 square foot built to suit facility is currently under construction is expected to be operational by the end of fiscal 'twenty to 'twenty three.
This will enable us to increase our warehousing capacity.
Existing logistics operation in support of our target 2000 stores by 2031.
Great part dollar city had another solid year as reflected in the acceleration of its store opening cadence and its strong earnings contribution to our fiscal 2022.
In 2020, net new store openings were slowed down by the pandemic coming in at 36.
But dollar city made up lost ground in 2021 with the opening of 86 net new stores. This brings our total store count to 350 at calendar year end.
Entry into Peru is still in its early stages with nine stores, but preceding well and the plant there.
There is no doubt that dollar city and its value proposition continued to be well received in all countries of operation and gaining more traction our store density increases.
In 2022 dollar city will wrap up investments in the optimization of its logistics network, while continuing to scale its Peru operations real.
Real estate activity levels are also expected to remain healthy with dollar city recognized.
Solid tenants.
<unk> real estate site available.
Looking ahead for dollar out.
And what is expected to remain a challenging environment, we are well positioned to continue along the path of profitable growth, while staying true to our purpose. We are uniquely positioned to provide Canadians from all walks of life with compelling value on every dollar they spend with convenient.
Access from coast to coast.
We will achieve this by maintaining our value proposition and using the levers at our disposal to mitigate where possible the various inflationary pressures our industry will continue to face throughout fiscal 2023.
I would like to take this opportunity to sincerely. Thank all of our employees for their incredible dedication and solution oriented mindset and their entrepreneurial spirit.
I also wish to thank our customers for their support and continued loyalty.
I'll now hand, it over to J P to discuss our results in more detail.
Thank you Neal and good morning, everyone, let's start by drilling down in our fourth quarter results. We delivered a strong quarterly performance across all key metrics sales in Q4 grew 11% reaching over $1 2 billion in Sss grew five 7%.
Our sales were impacted by the new wave of restrictions implemented in response to COVID-19, and the critical weeks, leading up to the holidays and into the month of January .
Gross margin was 45, 2% of sales compared to 45, 5% in Q4 last year.
The slightly lower margin reflects a change in the sales mix as anticipated.
SG&A came in at 14, 5% of sales for the quarter compared to 16, 9%.
While we did have $4 4 million in Covid costs. These were low compared to the $23 8 million incurred in Q4 last year.
As Jenny also benefited from the positive scaling impact of strong sales.
For Covid costs are mainly additional hours to manage restrictions implemented in the quarter, notably store capacity limits as previously mentioned health and safety measures and cleaning protocols have now become part of our day to day store operations.
Earnings growth in Q4 was exceptional EBITA increased by over 20% and diluted EPS increased by over 30% to 74 cents a share our strong earnings growth reflects our excellent top line performance active gross margin management, and lower SG&A and a higher equity pickup.
From dollar city.
A few comments on full year results before turning to fiscal 'twenty 'twenty three outlook to Echo Neal <unk> performance in fiscal 2022 was remarkable reflecting our strong fundamentals.
So pleased that we met the guidance we provided across the board we delivered a solid performance on network and same store sales growth in the context of a roller coaster of measures implemented and lifted through successive waves of COVID-19 variance, we maintained our industry, leading gross margin year over year coming in at.
43, 9% of sales in fiscal 2022.
In line with the guidance provided.
SG&A as a percentage of sales came in at 15, 1% of sales compared to 16, 2% for fiscal 2021.
Excluding direct COVID-19 costs SG&A as a percentage of sales was flat year over year also in line with guidance provided.
Looking now at fiscal 2023.
There is no doubt that we continue to operate in a complex and volatile environment for consumers and businesses alike.
It also remains to be seen how the future path of the pandemic will play out.
Under these circumstances, providing guidance can prove challenging but we felt it was important for investors to have some visibility on our expectation for fiscal 2023 and guidance and select metrics.
We are maintaining our annual store store target of 60 to 70 net new stores note that based on most recent store cohorts New store performance remains in line with historical payback thresholds.
We will also remain highly focused on maintaining a relative value in the market.
The first half of fiscal 2023, we should benefit from a favorable favorable sales environment as we lap COVID-19 restrictions during the same period last year.
Our sss assumption for the full year is in the range of 4% to 5%.
Turning to the bottom line rising freight and input costs are expected to be felt more in fiscal 2023 of them last year.
We do have good visibility on raw material and shipping costs for the next several months and we are confident that we have levers at our disposal to help mitigate some of the pressures on gross margin.
Stronger Canadian dollar.
Also expect it to be a tailwind based on this gross margin as a percentage of sales is expected to be in the range of 42, 9% to 43, 9% for fiscal 2023.
This guidance range reflects the gradual introduction of additional price points up to $5 throughout the year.
SG&A as a percentage of sales should benefit from scaling on higher sales and labor productivity.
Assuming assuming we wont see the implementation of strict restrictions like we did in fiscal 2022 and 2021 we expect minimal to no COVID-19 costs in fiscal 2023.
So far this year.
Wage growth has been manageable as such SG&A as a percentage of sales is expected to be in the range of 13, 8% to 14, 3% for fiscal 2023.
Our annual Capex budget remains in the range of 160 to 170 million.
The new warehouse in Laval being leased all the minimal capex associated with this project.
Obama continues to benefit from its capital light model, which drives significant free cash flow generation.
When it comes to returning capital to shareholders, we will stay the course and continue to prioritize share repurchases.
In fiscal 2022, we repurchased more than 18 million shares under our in CIB.
Fiscal year and our adjusted net debt to EBITDA ratio was 277 times, we remain well within our comfort zone between two and a half to three times and expect our active buyback strategy to continue contributing to our earnings growth in fiscal 2023.
This morning, we also announced <unk> 11th consecutive annual dividend increase.
The board approved a 10% increase to $5 53 per share.
Turning now turning now to the first quarter underway.
And that's a SaaS perspective quarter to date, we're pacing at the two year average of approximately 4%.
On gross margin keep in mind that last year's Q1 mix was exceptionally impacted by the beginning of the ban on the sale of non essential goods in Ontario as a result, we expect our Q1 gross margin to be in line with fiscal 2021 levels.
We're not restricted Canadian shoppers recognize and appreciate the affordability value and convenience we offer that's our brand promise and there's no doubt that these enduring strengths will continue to resonate with consumers throughout fiscal 2023.
Thank you that concludes our formal remarks, and I'll turn it over to the operator for the Q&A. Thank you.
Thank you.
We'll 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.
You have a question. Please press star one on your devices Keypad you may cancel your question at any time by pressing star too. Please.
Please press star one at this time, if you have a question there will be a brief pause while the participants register for questions. Thank you for your patience.
The first question is from Irene <unk> with RBC capital markets. Please go ahead.
Thanks, and good morning, everyone before I ask my question I really wanted to thank you for the detailed guidance that you provided it.
Best in class practice, so thank you.
But a couple of questions. Nonetheless first of all on the supply chain and availability of items, you mentioned that you're ordering earlier, but looking at the inventory levels, they've actually come off a little bit. So wondering where you stand now with in stock and how we should be thinking about pressures in the system.
How youre managing them.
So it's an excellent question and your observation is always is very astute. The answer is that those goods are.
Sure.
I'd love to say planes trains and automobiles, because it would be more fun, but the reality is they're on.
At ports, both imports and trucks so.
Yeah.
The real challenge for everybody.
Who imports.
A large quantity of goods across the entire retail platform.
As a logistics challenge.
For the last six months to a year and will continue for the foreseeable future. So the answer to your question is those goods are on route.
And we have enough good that its a non issue, but certainly it is more of a challenge than it's ever been.
That's very helpful. Thank you. So you know as we think about certainly in the stores. It looked like you had you know all of the spring merchandise in the or.
Rather than the Easter merchandise and it sold through very well so the stuff. That's in transit now is for later in the year sort of summer merchandise. That's that's right.
It's summer it's all year.
Halloween is all of the things that normally would be coming.
Month, or two or three earlier, that's just the supply chain is slower and so because we have.
Our business, where we have a buffer built into the way we run our business with our warehousing et cetera.
We can cover.
These issues and mitigate those risks better than most.
So there's something to be said at times for not just in time delivery.
Absolutely and just thinking about demand.
Demand across categories, obviously, a lot of distortions last year.
Hopefully not this year just around sort of the category. So what are you seeing when conditions are normal what are you seeing in terms of consumer demand levels relative to pre pandemic.
Yeah, So hi, Irina.
J P. L. I'll give you maybe some color on on our S. S. S guidance and at the same time I think ill answer your question of how we're thinking about traffic in and categories.
Is that the way, we're we're seeing the environment evolve right now is there's actually good traffic levels in our stores strong demand in consumables and so we're very pleased that consumers across the country recognize that.
And then when you look later in the year I mean.
We'll be comping very favorable comps in Q2.
And then and then the back half of the year, where I mean, the the guidance reflects the volatility of the environment and acknowledging that things could change rapidly like we saw last year. So I mean, just stepping back what we're seeing is good traffic.
Good consumer demand, we're pleased with the pace and the cadence strong demand in consumables generally speaking and then when you think about later, yes later in the year and the guidance there is comping.
Comping in Q2, which will the store this year is us SaaS and then acknowledging the environment and the volatility in the back half, which I mean, it's hard to predict at this point.
And just just one final question if I might.
On that subject are you know I think that on the last call you mentioned sort of the early sell through for Christmas was good but then of course, we had those last minute restriction. So how would you categorize the overall demand sort of are your sell through for Christmas last year.
Is that call it a normal pre pandemic level.
Yeah. So so what we saw on the Christmas sales was good consumer activity. This the sales generally speaking were slightly better than the prior year. So I think we saw good seasonal performance really when you look at our Q4 S. SaaS It was really.
The impact of the restrictions and the fact that we were closed on Sundays and cut back for example in January in the store capacity limits that we have we had to deal with in Q4.
That's great. Thank you I'll get back into the queue.
Thanks, sorry.
Thank you. The next question is from Brian Morrison with TD Securities. Please go ahead.
Mr. Morrison, we cannot hear you at this time.
Sorry about that.
Wonder if I can just elaborate good morning can I just elaborate on that same store sales growth question. When I look at the two year stack for your guidance it looks like you're in the range of about 6% I think historically, it's been closer to 8% you've got the new price points coming on you've got price increases so.
Wondering if you can just walk me through the derivation behind that.
Yeah.
Again, it's it's.
Ryan recognizing.
As I've said number one on the front half of the year, the the favorable comp environment.
But then the back half of the year like we saw.
Last year, where in a volatile environment.
There's good cadence going in the year.
It's hard to predict how that will evolve in the second half of fiscal 'twenty. Three so it's it's more around the the unknowns in the different puts and takes then kind of a clear cut driver of what's going to happen in the back half of the year.
Okay.
Hum.
It's not changed a two dollar city. Please when I look at dollar city, you've added 86 stores this year.
Its foreign excess of your run rate I realize it includes Peru can you maybe just give us some color on this front and then I think your EBITDA margin was 16%. When you acquired it can you maybe just give us a little bit of color on how that's trending as well at this point in time.
Yeah, So look Dar cities performing really well we saw.
A good cadence of store opening pair.
So it's still early days, so we want to be prudent we only have nine stores. There. We're still in kind of typical dollar I'm a fashion, making sure that all of the angles are covered that there's there's good receptivity to our business model in Peru, We're pleased with the early results.
Walter.
If the if the cadence continues and and and we continue to like what we see in Peru.
Then.
Of course pair was not factored in the 600 store target by 2029.
One element to keep in mind, when we think about bottom line for dollar city is that as we're scaling parity, where we're investing in the business. So there's kind of the initial J curve investments that you would.
Specced in entering a new country. So.
This should have somehow have an impact on on fiscal 'twenty three in terms of bottom line for dollar city.
We're looking at 50 stores. This year are we looking at 80 stores this year.
Okay.
We.
We don't we don't provide.
Specific guidance for dollar city in terms of stores opening.
But it will really much depend on on the environment for now I think anywhere between 50 to 60 stores is more reasonable to start with as an assumption and we'll see how the year evolves.
Alright, well done thank you.
Thank you. The next question is from Mark Petrie with CIBC. Please go ahead.
Yeah, good morning be.
The announcement of the $5 price point comes a little bit differently than previous announcements I know you talked about sort of the gradual rollout in it and that giving your flexibility on gross margin, but I guess I'm just curious what does that mean, what does this type of role. It mean in terms of how we should expect this to hit shelves and be marketed to consumers.
Leveraging learnings from our past price increases.
So the answer is that in.
Historically news new price points.
Hi.
One rule, which was to bring.
New and exciting to the table in the current environment. It will be that combined with the fact that we're living in an inflationary environment.
So we would not expect to see the kind of margin expansion that we've seen historically following the introduction of new price points, but we're extremely sensitive to this not simply being a a markup tool and more importantly, allowing the buyers and the bill.
Business to broaden their assortments and theyre offering to the customer.
Over the course of time.
Okay. That's helpful.
And I guess, just a high level question, just with regards to the competitive environment. I mean, I know you are laser focused on relative value I'm, just curious to hear your thoughts with regards to what youre seeing in terms of inflation.
Your price gaps versus peers and then also just how you think sort of the constrained supply chain that you talked about earlier.
It is sort of playing into the sort of price and promotional environment.
So I think it's important to clarify that.
The issue is not.
The supply the supply is really very stable, it's more a question of logistics challenges between the supply and the store.
And that involves mostly overseas challenges in port challenges.
Little bit of trucking challenges, but certainly all.
With inflationary challenges and on the supply side. It also has inflationary challenges not supply challenges, but inflationary challenge.
That's the case of course for everyone. There's also.
The wage challenge it.
And all of that goes into the cost of goods.
Because at the end of the day, our business can only absorb so much of course, so eventually when all of the costs go up then the retail goes up and you know we have in place. So to answer your question, we've seen huge pressure.
On all retailers to increase their prices and sort of mitigate some of the pressures that are coming from all of the multiple points that input that create the final retail and we are doing what we've always done which is ensuring the gap between us and the balance of the REIT.
<unk> market, so that we provide our customers with the best relative value. We can while also being responsible to our investors and shareholders and employees to run a business that's why.
That's very helpful. Neil N J P. Thanks, a lot all the best.
Thank you.
The next question is from Vishal Schrader with National Bank. Please go ahead.
Hi, Thanks for taking my questions.
<unk>.
Can you update us on the dollar city's younger put rights and if they've indicated anything about their intentions and.
In terms of capital outlay do you have any comments on how investors should think about that.
So.
Is that the put option for dollar city becomes exercisable later this year.
And in the second half we really.
Really likes them as partners, we're working very.
Very well together there are good synergies between the two groups and and I think they see the upside in.
In the business as we see the upside in the business. So it's very hard at this point when you take the synergies the management teams.
And and grow the future growth of the business to to speculate on how the put option would play out.
In any case, if it were to play out.
We have the liquidity and the balance sheet capacity to handle them.
That kind of that kind of transaction. The second piece. That's that's important and that discussion is that the the put option in general is subject to many restrictions and we're not in a scenario where they were.
It would be in a position to sell their full ownership in dollar city. So if if there were any put options to be exercised it would be a percentage of what they already own I hope that helps answer your question.
Okay, and the transformation transformational initiatives referencing the outlook can you provide some color on what that.
It relates to.
I mean, it's the.
Usual productivity initiatives that we would have talked in the past in terms of of scheduling energy consumption shrink management, we've seen very strong performance in our shrink control this year and and we.
Hope that continues next year.
So the standard productivity initiatives that that we would have talked about in the past.
Right, Okay, and with respect to the jumping back to dollar city.
The earnings growth was very strong.
Were there any transient items in there that we should be aware of and how should we just reflect I understand you gave some hit that cruise still scaling, but should we reflect that kind of cadence that looking forward.
And look towards 2023.
Fiscal 'twenty.
As we as we scale Peru.
I think there will be further investments in the bottom line and so.
Although we will see a good healthy store growth and we like what we see in terms of customer perception I think we should also acknowledge.
The investments that need to be made to scale parity with two to where we'd like it to be assuming the business continues to perform as it has been performing so far.
Thanks for the color.
Thanks Vishal.
Thank you. The next question is from Patricia Baker with Scotiabank. Please go ahead.
Yeah. Thank you and good morning, everyone.
Lastly, Goodyear and in your guidance you've provided.
The assumptions that you're making that supports that particular guidance I'm one of the things you talked about within approximately three months visibility on open orders and product margins and I'm, just curious about the whether or not historically three months is the visibility that you would normally have had or is it slightly.
Slightly different than normal times.
Sure.
And the assumptions I'm, it's a good question Patricia and the assumptions, we mentioned at least three months visibility right.
Right now the visibility we have on open orders would be in line with historical average.
Nothing different than what would have seen in the past.
Okay. Thank you and then separately I just want to clarify are you with respect to the seven the seventh warehouse that you'll be opening up towards the end of fiscal 'twenty three am I right in assuming that that seventh warehouse will provide it.
We'll provide the full support that you will need for the 2000 stores in other words, we won't be seeing any other incremental warehousing activity between now and 2031.
Got it.
[laughter].
We won't say, yes to your question, but.
Because we may make changes so it may not be a question of whether we'll be adding and it may be a question of whether we'll be adapted so no. It's.
It's not as simple as that we won't add more but we may make changes and therefore, there may be more capex because of the changes that we would make and we would make those changes of course, if there was a business plan behind it that made sense.
Okay that makes sense. Thanks for that and then my final question and maybe that's a little difficult to answer, but you know things are changing dramatically.
Respect to to Colgate to something that would be used for the last two.
Two plus years with all this volatility and currently you have Shanghai under Lockdown and I'm, just wondering whether you foresee any kind of issue with with your vendors.
Along this way and whether that.
Could have an impact on trying.
Trying to get product in the future I know, it's difficult to answer but are you concerned about what's happening there in Shanghai been under a lockdown.
We're always concerned about.
Everything globally that affects the business.
Whether it's geopolitical or otherwise.
Or COVID-19 base.
And it all has an impact.
It really comes down to timeframe, it's been you know why.
One to three weeks, it's no problem.
At three months.
It's a challenge.
And there are always ways to work around the problem, where 99% of the time.
I used to work around the problem.
If the port in Shanghai is closed and the city is closed.
First of all not much production happens around the city, it's mostly in the outskirts and the goods that we ship out of Shanghai can be dropped down to other ports, where there's less flare ups that are currently happening in.
In China, there's a cost to that there.
There is a time factor to all that but at the moment, we're not concerned if it goes on for a long period of time, we will be concerned and what will happen is.
We will find alternatives that that cost more money and that caused anybody who makes good to those regions.
Yeah.
Okay. That's very helpful. And then just a startup on that same topic you know we're getting hearing.
A lot of retailers talking about diversifying diversifying their sourcing away from Asia, and particularly away from China can you just talk strategically or philosophically about what your view is on.
On that and whether or not you're actively.
To diversify away from China in any way shape or form.
Well philosophically and strategically we've always tried to diversify as.
As much as we can around the globe our supply base, but we also have to be realistic to the.
The costs from those alternatives and as those costs do not allow us to be who we are which is.
That's relative value in the market then we take a note of what the alternative supply sources should something ever happen and forced us to do so, but we continue to buy from the lease cost vendor because.
That's part of our special sauce.
Thank you very much now thank.
Thank you.
Thank you <unk>.
Next question is from Chris <unk> with Deutsche Bank. Please go ahead.
Hi, Good morning, everyone, Hi, Neil just wanted to clarify so the <unk>.
Reason youre, introducing the higher price points now is.
Is that youre seeing other competitors raising prices too and this gives you the comfort.
To do the same in and essentially maintain still a healthy price gap versus your competitors is that correct that is certainly one factor in the decision. The other factor so that it's not just a story about charging more because that would be a horrible story is that it also allows us to be.
Bring in a new range of goods that we could never afford so it's a mix of both things I certainly would not tell you that it will only be new good there will be some price changes on the goods that at our highest frankly, a price point, we were absorbing cost increases for the last six years because it.
Whereas our highest price point at some of those costs will be passed on so that we can continue to offer those goods are but it allows us to bring back goods that were priced out of our price range and it allows us to bring in but we've never been able to buy because they weren't in our price range. So it's a combination of both.
Okay. That's helpful. But the point is that your competitors are doing the same thing because you guys have obviously price followers. So.
Yes, they're doing it you wouldn't feel comfortable unless youre seeing similar actions by them you are 100% correct.
That's helpful. And then maybe related to your comment earlier about sort of this as being a more of a margin neutral impact I just wanted to confirm I guess, you're referring maybe just for this year because there was some cost pressure, but let's assume we go into next year cost pressures hopefully normalize you're still going to have these higher price points. So at that point is it fair to assume that you have.
Should start to see some margin benefits all else being equal.
So thats possible, but its also possible that some of the retailers will have to go down to stay competitive.
Our competition does that as well if our competition does not get less expensive and we remain the best cost supplier than even if some of the cost pressures in the supply chain are diminished or some of the applebee's or diminished then it's possible that those those will be realized in <unk>.
But for our shareholders, but our most important focus is always the value to our customers and we all know that some of our costs will never go down such as wages.
Et cetera, but there's a whole list, but but if F N b's and some of the supply chain goes down that you know and it remains to be seen how that goes.
Okay. That's helpful. Thanks, and all the best.
Thank you Sir.
Thank you.
Next question is from Peter Sklar with BMO capital markets. Please go ahead.
Hi, Good morning Assembly for Peter So, let's shift to the consumer so as a result of the recent inflationary environment have you seen any changes in the consumer behavior at all around MA on like for example, the basket or traffic being impacted because like improved because you know it's all around my view that the value.
Destination or has basket sitting at all impacted because the consumer wallet is now screen, increasing gas prices and et cetera, and are there any mix shifts or categories coming in or out of favor as a result of these changing trends.
So I.
I mean generally speaking I think our value proposition is very well received by Canadians.
We're working really hard to maintain the best relative value and that of course translates into good traffic activity levels. So we're pleased with what we're seeing going in.
The first quarter, how that will evolve over the course of fiscal 2023 remains to be seen there is a lot of puts and takes to that discussion.
And then in terms of in terms of mix and categories. I mean, it's there's there's good demand on the consumables side, but.
But the general mix overall remained stable and and and where were in line with what we've seen historically.
Okay. Thank you very much thank you.
Thank you. The next question is from Derek <unk> with Canaccord Genuity. Please go ahead.
Yeah. Thanks, any any outlook you mentioned that you've got some gross margin levers.
That you can use.
It is to manage inflationary pressures can you just outline what some of these are outside of outside of price increases.
Yes, so so those would be the usual leavers that.
We've talked about in the past for example, refresh we refreshed 20% to 30% of the store every year and so that allows us to to to offer goods to drive drives traffic and drive sales, but also maintained the margin thresholds.
So we want they're of course, our multi price point strategy.
We can optimize our packaging in Q if required. So there's there are a bunch of leavers that that we've used historically that we're continuing to use in this year keep in mind. There that we also have the tailwind of a stronger hedged Canadian dollar rate.
Yes, Okay understood and then just on the real estate front have you have you witnessed any any changes or perhaps any relief and in real estate costs just given.
Some of the Covid challenges that many other.
Less well capitalized retailers have faced over the last two years.
But I'd love to say, yes, but the answer is no. We haven't seen any relief on the cost side of things on the real estate front, where a major tenants across the country I think landlords in general don't want to set precedents with with all around.
And so where we're not seeing.
Any relief on that front from a cost perspective.
Okay. That's interesting. Thank you very much thank you.
Thank you.
Next question is from Karen short with Barclays. Please go ahead.
Hi, Good morning. This is actually of our novel compound for Karen Thanks for taking our questions.
Just first wanted to follow up on the new price points.
You talked about a gradual introduction and referenced midyear. So just wondering if you can provide some details or maybe even quantification on the on your you're factoring this into the 4% to 5% comp guidance.
In the the new price points introduction keep in mind, we will be very gradual throughout the year. So starting in the back half June July and that's when we'll start to see.
The new price points kicking in.
And there will be gradual so that's been that's been factored in our this year's sss guidance, but I wouldn't say that for fiscal 'twenty. Three it's it's a it's a major material driver of all of US are SaaS performance given the gradual ramp up.
Got it that's helpful. And then just just wondering if you could talk a little bit about the relationship.
Between sales growth and EBIT growth on a more normalized basis going forward.
Obviously, there's been some noise over the last couple of years and this year.
Something unusual with the supply chain and the new price points, but.
Just wondering wondering what the sales and EBIT relationship should look like excluding some of the factors that have kind of impacted things over the last couple of years, so on a more normalized basis. Thanks.
Yeah, I mean, it's the it's the general growth algorithm that you'd be familiar with when looking at the all around myself. So we strive for good Sss performance, we have the contribution from new stores, we work hard on gross margin management.
And we're generally doing a very good job, but the Opex management on the SG&A front of things so all in all.
The EBITDA EBIT growth should reflect revenue growth keeping in mind that you have dollar city contribution that's that's an additional kicker to our to our growth profile.
But it's the usual growth algorithm that that that you'd be familiar with so so nothing would change in our outlook.
Medium term move drove its algorithm going forward.
We're going through the supply chain disruptions navigating the environment.
When when things normalize, which they will eventually.
It's kind of a normal growth equation that you'd be familiar with all of them.
Got it that's helpful. And then just lastly, if I may just just wondering if you can speak to.
The high gas price environment and any potential impact.
If you've seen anything thus far and if not.
What gas price do you actually start to see an impact historically in and if you think the higher fuel prices benefit you from a convenience or a trade down standpoint from a consumer perspective. Thank you.
So higher dry gas prices from an expense perspective are not good and so.
They've been factored in our our guidance of course, depending on how it fluctuates over the course of the year. This will impact where we will be one of the factors impacting where we will end up in terms of gross margin from a consumer.
For perspective in S SaaS.
I think as as we mentioned before the value proposition and the relentless focus on having the best value in the market is being recognized by causing consumers in and so that that's really our focus right now is just.
It's making sure that we have the basketball to value and if we do that good things will happen.
Great. Thank you and best of luck. Thank.
Thank you.
Yeah.
Yeah.
Thank you.
This will conclude the question and answer session as well as today's conference call. Please disconnect. Your lines at this time and thank you for your participation.
Okay.
Thank you the conference.
<unk> has now ended please disconnect your lines at this time and we thank you for your participation.