Q1 2023 Dollarama Inc Earnings Call
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Yes.
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All participants.
Please standby your meeting is about to begin.
Good morning, and welcome to the daughter Aroma fiscal 2023 first quarter results conference call.
Neil Rossy, President and CEO and J P. Turner CFO will make a short presentation, which will which will be followed by question and answer period.
Open exclusively to financial analysts.
The press release financial statements and management's discussion and analysis are available at the daughter, all my Dot com in the Investor relations sections as well as on SEDAR.
<unk>, we start I have been asked by dollar Rama to Redefault message regarding forward looking statements.
Daughter, Rahmat 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 their circumstances.
However.
There can be no assurance that such estimates and assumptions will prove to be correct manufacturers can 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, daughter or am I cannot guarantee that any forward looking statement.
I'll bet, you realize 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 Dar Amas M D N a.
At June 8th 2022 available on SEDAR.
Forward looking statements represent management's expectations as at June <unk>, 2022, and except as may be required by law dollar Roma has no intention and undertakes no obligation to update or revise any forward looking statement.
Whether as a result of new information future events or otherwise.
I will now like to turn the conference call over to Neil Rossy.
Thank you operator, and good morning, everyone.
It's all around the delivered a strong financial performance in the first quarter of fiscal 2023, with a 12, 4% increase in sales and nearly 21% increase in EBITDA and over 32% increase in EPS.
With the lifting of COVID-19 restrictions across Canada early in the quarter. We were also pleased to see a double digit increase in customer traffic.
Contributed to driving same store sales growth of seven 3% over in about five 8%.
In the same quarter last year.
Our excellent performance in the first quarter reaffirms the route relevance of our business model and unique retail concept in Canada.
It also echoes the positive consumer response to our value proposition in a high inflation environment.
It is driving particularly strong demand for our broad offering of everyday essentials and consumable products. In addition to our seasonal and general merchandise.
Actively managing supply chain challenges rebuilding their warehouses store inventory and making sure our stores are well stocked in a timely manner our top priority.
This has been more challenging than ever and we are managing well all things considered.
Impressed by this flexibility dedication and creativity being deployed by our team to ensure that we deliver for our customers.
Inventory is now up year over year and our in stock positions have continued to improve.
Despite the inflationary environment, we continue to feel comfortable mitigating gross margin pressures with the tools at our disposal.
This is based on our current visibility from an open orders perspective.
Our ability to move on pricing where needed.
While continuing to maintain our relative value in the market.
We are gradually gaining additional flexibility with the introduction of the price points up to $5, but never at the expense of our value proposition.
The rollout of new price points is now underway with items, making their way to stores in the coming days.
Well this will be a gradual introduction we are excited to be able to bring back skus that were appreciated by customers in the past.
Were discontinued because of cost increases as.
As well as being able to offer new compelling items.
We will continue to provide a wide array wide array of products at each price point, ranging from $1 or less and up to $5.
Turning to Latin America dollar city continues to perform well generating strong sales growth and a solid net new store opening cadence.
The other city entered Peru in May of last year and continues to be happy with the performance of its fourth country of operation.
Each additional year of operation and increased store Densification dollar city continues to be recognized as the destination for compelling value on a broad range of merchandise much like dollar out.
I'm also pleased with all around this progress on the ESG front.
The publication of our climate strategy and an annual ESG update this morning.
We approach our sustainability commitment to the journey on which we must continuously raise the bar.
Yeah sure first GHT intensity reduction target by 2030 is a major milestone.
We believe in setting measurable and achievable goals that consider our business and operations unique role we play in the lives of Canadian consumers and the expectations of our stakeholders.
Through all of this we are always guided by our shared purpose, which is to provide Canadians from all walks of life with convenient and compelling value on every dollar they spend.
Our ability to provide affordable everyday products resonated throughout the pandemic and continues to ring true and this high inflation environments.
Over the last 30 years dollar Armours managed through several economic cycles, while pursuing its growth and our relevance to Canadian consumers from coast to coast has only grown throughout this time.
During these uncertain times, we will continue to deliver on our customer brand promise.
Generating sustainable and profitable growth for our stakeholders.
J P OLED.
Neil and good morning, everyone in the first quarter of fiscal 2023, we delivered a strong quarterly performance across all metrics sales grew 12, 4%, reaching $1 1 billion in Sss grew seven 3%.
This is over and above sss growth of five 8% in the same quarter last year.
For Q1 this year, we saw 14% increase in the number of transactions coupled with a 6% decrease in average transaction size.
This reflects a continued trend reversal from the pandemic.
Corroborate the fact that we're not restricted customers seeking value shop, our stores and large numbers. It also reflects the strength and quality of our value proposition, especially in an inflationary environment. When Canadians are seeking more value for their money.
We generated strong earnings growth in Q1, EBITDA increased by 29% to 300 million or 28% of sales and diluted EPS increased by 32, 4% to 49 sets.
This earnings growth reflects our excellent topline active gross margin management, a good SG&A performance and a higher equity pickup from dollar city.
Gross margin was 42, 1% of sales compared to 42, 3% in Q1 last year.
The slightly lower margin year over year reflects a shift in our sales mix, namely strong demand for consumables in a high inflationary environment, which tend to be lower margin products.
The shift in mix was partially offset by lower logistics costs at our distribution center and our warehouses in Q1.
SG&A came in at 15% of sales, which reflects lower corporate costs, we had $1 6 million in direct COVID-19 costs this quarter compared to $18 3 million in the same quarter last year, we do not expect to incur COVID-19 costs in coming quarters unless restrictions are we implemented.
Our 51% share of dollar city's net earnings was $8 7 million.
<unk> to $3 $4 million last year, reflecting a strong financial and operational performance.
During the first quarter ended March March 30, 31, large city opened eight net new stores, bringing the total store count to 358.
And there are four countries of operation.
On the capital deployment front, we remained active on our NCI V with the repurchase of one 4 million common shares for cancellation at quarter end, our adjusted net debt to EBITDA ratio was 274 times, just slightly below our comfort zone of $2 75 to three times the.
The board also approved a quarterly cash dividend for holders of common shares of $5 53.
<unk> per common share.
Last quarter, we provided guidance for fiscal 2023 on select key metrics one quarter into the year, we continue to feel comfortable with our guidance ranges provided and as such these remain unchanged for the first half of the year, we expected the benefit.
Too bad we are expected to benefit from our February favorable sales environment with the lifting of COVID-19 restrictions and that's materialized in Q1.
For Q2 that has remained the case to date as we comp against a negative sss quarter last year.
This was due to the ban on the sale of non essential goods in Ontario, and impacted over 40% of our stores last year.
Looking at our Q2 S. SaaS performance to date five weeks into the quarter, we're comping against five consecutive weeks off the bat as such are assessed us performance to date weather compared to last year on a two year average basis is not a helpful measure to illustrate our underlying performance.
To cut through the noise caused by this has been an exceptionally this quarter. We're looking at our Sss performance on a three year stack based on this metric second quarter to date. We're currently pacing at the three year stack of approximately 12%.
On gross margin, we anticipated that supply chain and other inflationary pressures would be felt more in fiscal 2023. This assessment remains true and it's factored into the full year guidance range of 42, 9% to 43, 9% disclosed at the end of March as a reminder, the impact.
The new price points into the introduction was factored into our guidance range and should be felt more next year as it is a gradual process.
Looking at SG&A as a percentage of sales for the year, although wage inflation remains manageable at a consolidated level, we have observed increasing regional pressures over the past few months as such wage inflation in fiscal 2023 looks to be more sustained than anticipated.
No changes on annual Capex envelope and were also on plan on the new storefront with eight net new stores in Q1 and with a solid store pipeline ahead to get us within our 60 to 70 target for the year. Finally, we also expect to remain active on the NCI program as part of our commitment to returning capital and generating value for shareholders.
That concludes our formal formal remarks, I'll turn it over to the operator for the Q&A.
Thank you.
Well now take questions from the telephone lines.
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First question is from Irene <unk> from RBC capital markets. Please go ahead.
Thanks, and good morning, everyone really appreciate.
The update on Q2 performance to date.
Wondering what are we seeing in terms of the mix of sales relative to pre pandemic and I'm thinking both on the consumable side, but also maybe on some of the more celebration categories or other categories that were depressed during COVID-19.
So you're you're seeing.
Slight change in the mix.
Two more consumables.
But partly due to the fact that.
Like most retailers our inventories are not.
In a perfect position.
That continues to improve but.
There's no question that we don't have our full mix to our liking.
And we are very happy with with.
With the turn over the last few months towards returning to a normal flow.
Perfectly assorted store.
But for the last quarter Theres no question that.
Our mix was more heavily reliant on consumables than the normal mix.
And if I could just add Irene to what Neil just said strong consumables performance on the kind of general merch and seasonal categories. We're still seeing relatively good performance not as strong as last year, but they are relatively good performance in the context of what Neil just mentioned.
Okay, that's very helpful.
You mentioned that the in stock positions are improving but if you really think about it on a scale of one.
One to 10, when you look at the start of our seasonal.
Products like the non consumables, where are you now and do you see that normalizing as we go through the next few months.
So our inventory is up year over year, which is which is good now when you look at.
The reason why it's up a lot of our inventory at the end of Q1 was on the water. So what we expect to see and what we're seeing now is the underwater inventory, making its way to our D C and gradually making its way through our stores.
We expect the inventory position as we mentioned in March to be in a relatively good position, which we're we'd be very comfortable with in the second half of this year.
Okay. Thank you I appreciate it and that brings me to sort of a related question, which is obviously, we've seen a lot of distortion in retailer results.
North America more recently because of let's call. It a mismatch if you will between when inventory gets to the store when inventory sells through the store.
How should we be thinking of that in your case or is there any risk that we could get tightened the mismatch and it does happen and if that does situation does present itself what happens.
While we don't expect to Miss the season.
That's the most important.
Think from an inventory perspective, I commented on our Q2 performance to date Q1 was strong AR or.
Our seasonal general merchandise categories are still doing okay. In the circumstances were not as full as we'd like it to be but that situation will normalize and we don't expect to Miss a season as a result of that now.
The point that's important is the gross margin impact of what I just said so in Q1.
One of the reasons why our gross margin was only down 20 bps given the mix change is the fact that we had lower activity levels and at our D. C that had an impact of approximately 20% to 30 bps on our gross margin a positive impact.
So that's something to keep in mind us situation normalizes in the second half of the year.
Our D C and our warehouse cost structure will also normalize as well.
That's helpful, but I guess the last follow up I promise.
<unk>.
If the mix does shift a little bit more just season, all those are naturally higher gross margin categories.
Yes, but we.
We're still seeing from a consumer perspective, a very strong consumables demand. So ultimately the inventory will make its way to our stores.
But the consumer is always right and what we're seeing at this point in time as consumables is.
Continuing to perform ahead of our expectations.
There was no temporary.
Cost inflation on some of the seasonal goods.
F O b for certain seasons, which also.
Changes changes that a little bit.
As to what J P J.
Got it thank you.
Thank you.
The next question is from Mark Petrie from CIBC. Please go ahead.
Hey, good morning. Thanks.
I know product refreshes or are an important and ongoing part of your business and it looks like you've been quite active with new product introductions and more coming in at the higher price points. So could you just talk about that and I know you don't disclose it specifically, but can you just give some sort of high level commentary about the mix of goods by price point.
In the store and how that sits today versus a year ago.
Yes.
The the mix and the store I'd say has moved in line with our.
Our pricing strategy so.
We're continuing to be heavily reliant on our lowest lower price points, because we think that's where our customers are see.
<unk> is the best value and then we've been gradually of course over the past few quarters adjusting our pricing strategy. So naturally theres been a mixed movement.
Towards higher price points, but our lower price points remain a significant percentage of our sales in units.
Okay.
Okay. Thanks, and then I just wanted to follow up to just on the comments with regards to the.
The lower logistics costs.
So what you're saying is that that was strictly driven by the fact that there was less of an inflow of new product into the system and that youre going to see some higher.
Logistics costs through.
Through the balance of the year basically as that normalizes is that right.
Exactly.
Yeah, Okay, and then just another one I guess just with regards to sort of the outlook.
Obviously it was a great start on same store sales for Q1, and Theres clearly inflation in the market and in your business and so I guess from that perspective wondering what held you back from increasing your outlook, particularly on the on the same store sales growth.
Yeah.
Look given the macro environment, the macro picture the global fluctuations, we preferred to be little bit more patient see how Q2 unfolds Q2 is a noisy quarter, given what we're comping last year and <unk>.
And stay tuned when we release our results in Q2.
But for now we prefer it to be a little bit more patient.
Understood, Thanks, and all but.
Thanks Mark.
Thank you.
The next question is from Vishal <unk> from National Bank. Please go ahead.
Hi, Thanks for taking.
Taking my questions.
Just wanted to get your perspective on wage pressures and and how youre seeing that unfold what regions are more challenging.
What management can do to accommodate those wage pressures and remain within a.
Framework outlined earlier in the year.
Yes so.
We're seeing wage pressures regionally parts of the globe, particularly in regions, where our immigration levels are tend to be lower and we have to adjust we have to pay competitive wages.
We're still comfortable with our with our guidance range that we provided.
But there is more regional pressures are that we that we expected and we're adjusting accordingly.
Priority is making sure that our stores are well staffed and so we're taking action to make sure that that happens.
Okay can you comment on the regions of focus.
I wanted to I won't go into specifics, but.
It's it's.
Regional lives across Canada.
Okay.
Okay.
And with regard to to the comp.
The strongest comp that dollar number as opposed to in some time and I understand there's there's a transient issues on a year over year basis that are impacting but I'm wondering the extent to which this comp is due to youre seeing increased trade down and demand for <unk> products or is it due to inflation.
It just the.
Just the.
The circumstances on a year over year basis with the restrictions obviously all of them come into the into the into the mix, but I'm wondering if there's anything you'd call out specifically that's driving the strong performance.
Would answer all of the above so we've seen.
First of all keep in mind that last year's Q1.
Was on the back of the start of the restrictions.
In March 2020, as the inception of pandemic, where we had 0.7% sss. So when you look at it on the three year stack you get to 13% 14%.
On the three year stacked Ssi. So that's number one number two I think our value proposition is very well received were there for Canadians.
And our relative value is intact and so when you put <unk> together you get the results that we generated this quarter.
Okay and can you give us a sense was the pricing in the system was that materially more year over year in terms of the comp to that help us substantially.
Substantially.
On a year over year basis.
I'd say look there is as we had a well balanced quarter. So.
There's our pricing strategy, but also you saw 14% increase in traffic.
Consumers coming back more and more to our to the physical retail experience. So was it a well balanced sss performance.
Thanks.
Yeah.
Thank you.
Next question is from Patricia Baker from Scotiabank. Please go ahead.
Yeah. Good morning, everyone. Most of my questions have been answered, but I just wanted to.
Maybe dig a little deeper into.
The inventory situation and just can you talk to us about.
I know that you expect that you won't see them, but you have inventory in a good position in the second half, but where were in the first quarter in the second quarter what categories.
What are you missing inventory or was it.
Across the board.
I'd say, we were lighter on on on our imports categories, which would naturally tend to be a little bit more towards seasonal and general merchandise.
But those categories as I mentioned still performed well in the circumstances.
But but we were light.
In terms of inventory in those categories as I mentioned those those inventories are on water, making their way through our to our D. C.
As we speak and so that will normalize in the second half.
J P. Can you can you tell us how debate a worthy shipman well they significantly delayed.
I'd say anywhere from six to eight weeks.
Depending on on on the shipment and what we're doing what we've been doing Patricia too.
To counterbalance that.
As we mentioned in March as we've been preordering, a lot more goods than we we've we had in the past so that those preordering will flow through over the summer and so very comfortable about our seasonal in stock position for the rest of the year.
Okay excellent. Thank you.
Thank you.
The next question is from Chris Lee from <unk>. Please go ahead.
Hi, good morning, Neil and J P.
Based on your opening remarks. He commented is it fair to assume that most of the audits at the higher price points will be products that consumers really haven't seen in a while because like you said the costs were too high or or new products. So in other words I'm trying to guess.
The new higher price point product.
We'll not be sort of a multiple of existing products that we have seen a lot will be part of that consumers haven't really seen in a while is that correct.
Certainly throughout the price points.
Some of the price points well will reflect.
The cost inflation discussion, but at the highest price points.
Namely $5.
There's been a tremendous focus to ensure that those are really reflective of new items or tremendous values that we've had in the past that have disappeared because of major cost increases over the last two or three or four years that we can bring back.
And and serve our customers with a more well rounded assortment.
So.
It's a combination but at the highest price point it will be mostly yoga.
Okay. Thanks look forward to that for sure and then another question I have is have you.
Has there been any notable changes in the competitive environment, our competitiveness largely remaining rational and then passing on the higher cost.
I think all the competitors have had no choice, but to pass on cost ourselves included because the quantum of the cost increases.
And F O B transportation of labor et cetera perspective, it's just been incredible.
And so everyone is pass costs on our job as all around them and we remain ultimately focused on our our default and not so much other people's jobs is to ensure that we move on price lap and that our relative value and the delta to the rest of the market.
What it always has or better that's the goal of the team at all around.
Okay, and then maybe still early but you know based on your internal data what has been the consumer reception to the higher price prices are you seeing any decline in unit volume that is out of the ordinary as a result of these mark ups that you've done.
So.
The amount of markups ER last year was certainly a far greater than historical amounts you know the three or four or five years. Prior but there will continue to be cost increases that youre going to see at store level for the goods that are ordered and on the water.
Or that are all at these new higher <unk> and higher freight rates. So just like the goods coming in and other People's stores, you will continue to see the goods coming into retailers across the country at higher retails simply because there's no choice.
Okay. That's helpful and maybe a couple of questions for Jay Thanks for the incremental colors on the gross margin.
Breakdown I'm trying to kind of maybe be a bit greedy here and maybe ask for some more disclosure I was just wondering for gross margin.
Are you able to quantify how much headwind you saw from just higher freight.
Ocean freight.
Costs during the quarter.
Well, Chris you can't separate what Neil just mentioned and the.
The freights discussion.
The reality is we've been adjusting our pricing structure to reflect those pressures. So you really have to look at it on a net basis.
I think the person to put it and you've seen our Q1 results.
We've.
When even when you adjust for my comment on our distribution center logistics costs.
I think we were able to manage our a good portion of the pressures coming at us and maintaining our relative value in the meantime, and the focus for US is as the latter is making sure that we always have the best relative value.
And that will determine the.
The impact on our gross margin.
Okay. That's helpful and my last question, maybe just on SG&A.
For the quarter I didn't if you exclude the COVID-19.
Year over year impact.
The increase in the SG&A dollars, where I think it was around $19 million for the quarter.
Is that a good.
Run rate plus two two to model for that for the rest of the year.
Aye.
Look at it more in terms of.
The range provided in our guidance so.
As I mentioned, we're seeing more sustained wage growth than than we expected.
Three or four months ago.
But we're still comfortable with our guidance range.
Okay. That's helpful.
Thank you.
Chris.
Thank you.
The next question is from Derek <unk> from Canaccord Genuity. Please go ahead.
Yeah, Hi.
Just following up on on the inventory comments or have you guys changed your your inventory I guess buying habits of procurement habits.
Are you trying to buy more at once or you're trying to secure shipping containers with longer lead times, using expedited freight or or anything.
Of that nature I mean.
Have you sort of evolved and how you're managing the disruption that we're seeing.
I'd like to think we've evolved.
And we're dealing with the realities of the market to the best of our abilities certainly as J P mentioned, we've we've ordered.
Some of our holiday season, much earlier than we normally with which means we'll.
And curse of warehousing costs et cetera, but reduce the risk of missing goods when they need to be in our stores and there will be of course, a massive refilling of our warehouses and warehouse inventory, which we reserved as there.
As the delays in freight deliveries.
Incurred and.
Other than that.
It's pretty much business as usual, while we keep an eye on what's happening at the ports.
And the countries of origin or the good and it supports both are in the U S and in the West and East Coast of Canada, because there are.
Exciting new new events happening all the time that all the parts. These days and so it's a constant battle to keep up with where the goods are coming from where they have to be transferred to whether there is average cost or detention costs et cetera, and so the team is busier than they've ever been and just trying to get the goods from from factory to.
To warehouse.
I guess that's the.
That's the best I can give you because truthfully is changing by the <unk>.
Yeah, No understood and then just on the gross margin front.
It just it sounds like there is some more headwinds than perhaps previously expected and just your comment on the new price point really sort of benefiting the margin in the next fiscal year.
Does that imply that you're leaning more towards the lower end of the of the guidance range that you gave us at the end of Q4.
So it means that we're we're still very comfortable with the range we provided.
The as I mentioned, there was a mix impact in Q1 that was partially.
Partly offset.
To the tune of 20 to 30 bps by lower distribution center, and warehousing costs and as the situation normalizes.
We hope in the second half of this year.
Those warehousing and distribution center costs will normalize as well.
Okay.
Warehouse costs that was a positive impact rate this quarter 20 out of 30 basis points exactly okay got it. Thank you.
Yes.
Thank you.
The next question is from Karen short from Barclays. Please go ahead.
Hi, This is actually Zane Barack on for Ken Thanks for taking my questions and congrats on a nice quarter.
My first question is on discretionary and inventory it seems like you're still playing a little bit of catch up on inventory.
While as you're well aware, there's a seismic shift happening in the U S with regards to consumer demand shifting away from some discretionary categories and our many retailers are placing markdown risk all of a sudden so how are you thinking about your inventory positioning in Canada, followed the footsteps.
The U S. Although I understand there are different dynamics in play in Canada versus U S. So how do you expect to manage our inventory.
In general in the latter part of the.
Yeah.
And so I think it's important to keep in mind two things number one an unseasonal, we have the ability and we've done it for years to pack away inventory at the end of a season if it sold.
Less than or more than we expected we always back away from most season at the end.
At the end of the season.
And our goods don't go out of fashion.
On an annual basis, they tend to remain relevant.
Over the course of time so.
The situations that you.
Youre alluding to.
It's not something that's overly concerning.
Concerning to us as as given our strategy and our inventory strategy.
Yeah, that's fair I appreciate that and I'll follow up on the trade down question, maybe talk a little bit about what you're seeing in terms of that behavior evolving.
Two one and so far in Q2 and comment on the health of the Canadian consumer today in general and are unrelated to the trade down are you seeing a sequential acceleration of consumables on a one year basis, so far in Q2.
So.
The trends we've seen in Q1 are mostly remaining true and so far in Q2, so as Neil mentioned.
As a start a consumer.
Consumables remained strong.
And the reality is our value proposition.
And our relative value in that context.
Is it is very relevant to the Canadian consumer and so what we're seeing is a lot of the same things.
Things in trends that you would've seen in our Q1 results is just carrying through.
So far in Q2.
Got it and maybe one last one J P. I don't mean to pick on it but the slight so on the three year.
Stock from 13, 8% in Q1 to 12% so far in two two.
That's related to maybe lack of inventory in some categories or slower organic demand and more discretionary items painting any color would be appreciated.
I mean, the we're only a few weeks in the quarter and and we'll see how things evolve in the next in the next two months, so I wouldn't draw too many conclusions on the.
The trending of our <unk> SaaS based on five weeks.
But I wanted to provide color as to.
How were trending so far.
In Q2, given the noise that we're facing in terms of comps.
When we look at our performance on a year over year basis, I mean, where let's be honest, we're comping against the nodes.
The noisiest quarter in <unk> history last year at minus five 1% Sss so.
It's way too early to draw any conclusion and yeah. So five weeks doesn't make it doesn't make a quarter.
No that's fair and I appreciate the color and congrats once again.
Thank you.
Thank you. The next question is from Edward Kelly from Wells Fargo. Please go ahead.
Hi, guys. Good morning, I wanted to ask you about dollar city contribution from dollar city.
Once again strong and it's been strong for a while now I thought, but I remember you were talking about some investment.
And that business. This year I'm, just kind of curious as to how.
Well I guess, one how performance is sort of tracking versus expectations and then two how we should be thinking about the contribution from dollar city this year relative to.
To last year.
The dark city performance.
First of all where we're very pleased with we're seeing good traction in Peru.
You.
Our new country of operation as is tracking well.
We're doing our homework on what a new store count could look like.
We'll be updating investors in the second half of this year on that specific topic.
But that's that's as far as.
As I can go really I mean, the performance has been good we're pleased.
And and stay tuned on.
On the store target for dollar city.
Okay and then a second question for you is I'm sorry. If this is kind of a stupid question, but do you guys participate at all and you know in the closeout market and I only ask because you had some talk in a little bit about U S. Retail in order cancellations and things like that that were happening out there at the moment and it does seem like there could be.
Right.
Opportunity.
U S dollar stores participate a little bit so I'm just kind of curious if this is something that you could be an opportunity.
So we do we do participate a little bit.
But.
Of course, the goods that are sold in the U S are really.
Marketed and branded and.
The rules and regulations that apply to those goods are generally for the U S market and a lot of good.
It cannot be brought to the Canadian market, regardless of cost so the amount of goods that we can look at it.
Much much smaller secondly, because most retailers.
Had a major shortfall in the amount of inventory they have their own goods they bought up.
Certainly last year, and I expect them to buy up this year the vast majority of closeout.
At very high prices that one would not historically have called those closeouts.
Inexpensive now they're actually paying for full input costs on a lot of those clauses because the retailers in the U S. Since they need good so it's often less expensive to buy those closeouts goods in the U S than it is to pay today's for heat rates and today's F. O b on the same boat.
So what would have been a closeout is no longer a close out sort of the peak.
But I do not think that the.
Percentage of Closeouts available to dollar AMA will be any more than it was in the past if anything it'll probably be lab.
Okay, and then just last one for you on on more on the pricing that you are taking on sort of like like for like items. How has the elasticity then.
Around that generally kind of as expected.
Yes. It is.
I would say a very fair assessment is as expected.
And the relative value remains intact. So that also plays into that elasticity equation.
Great. Thank you.
Yeah.
Thank you. The next question is from Martin Landry from Stifel. GMP. Please go ahead.
Hi, good morning.
I had a question on dollar city I was wondering.
As it's been said, it's it's been a very strong quarter it looks like Oh.
<unk> were up more than two fold, which would be the fastest growth rate in recent quarters. So I'm wondering is there any details you can give us is this a factor of our margin expansion is it a factor of sales growth any color would be helpful.
Yeah, Thanks, Mark so the.
The operational performance of our city is the key driver.
Of the of the results there's no special onetime.
Element.
That's number one number two a lot of the trends that we just discussed for Canada. We're also true for dollar city.
So when you put those two things together I think you'd get to a good cause.
A good core operational performance from from that basis.
Okay.
And and then another question on your mix you know we've heard recently from U S retailers that you know shoppers are.
Appear to the travel more participate more in gatherings to make up from from the restrictions we've had in the past years and I was wondering if you if you've had if you've adapted your merchandising mix.
Capture a little bit of these trends.
Certainly we were not selling many luggage tags over the last two years. So so I can tell you that our travel department.
Is it.
Coming back into the stores.
Whether that's travel size cosmetic products or or or luggage tags or neck pillows or you name it.
And and so on that particular category.
It went to almost nothing for the last couple of years and now we believe that it will return to a more normal situations. So the stores are going back into it in stock position, but other than that.
Nothing else has changed meaningfully.
Okay. That's it for me. Thank you for your results.
Yeah.
Thank you.
The next question is from Brian Morrison from TD Securities. Please go ahead.
Hey, good morning, a J P. Morgan deal a couple of follow up questions. Please so.
When I look at your 12% stock that your guidance towards for Q2, I'm just going back to my notes a couple of years back for Q2 fiscal 'twenty. One you had a 5.4% S. S. S in that quarter, but if you included the store closures. It was two 5%, so I'm wondering which which number you've got factored in there.
Yeah. It's a great question. So is the former of the.
The former.
It was a five 4%.
Okay. Thank you and then I want to follow up on dollar city as well. So you've got these exceptional results here and I'm just wondering within the context of your current guidance is there any sort of growth rate you can provide us for the year, what you expect for dollar city or even for Q2.
Look as I've said, a lot of the same comments that I.
Neil and I made for Dara applies to dollar city and that's true for us.
There are Q2 to date performance. So that's as far as I can go but the trends that youre seeing in <unk>.
Are also true for Dar city business.
Okay. So fair enough fair fair to say, we should see Q2 exceed the Q1 results just based on seasonality.
Stay tuned for our Q2 result, Okay, and then J P turning to the put option.
I know you have one coming in October I don't believe it can be done in full but does this have any potential to impact your degree of aggressiveness on your N. CIB and then Furthermore, if the put option is exercised would that lead to a consolidation of your dollar city results in two dollar them at that time.
I'll start with the last question so no consolidation.
That would be triggered.
So would remain a equity equity accounting.
That's the most likely scenario if the put option were to be exercised and then in terms of our buyback and capital allocation.
<unk>.
We're staying the course.
And maintaining maintaining that $2 75 to three times adjusted net debt to EBITDA.
And we have capacity if needed to fund there's the capacity needed to fund the liquidity from a put exercise.
If that was required but.
The capital allocation for now remains the same.
But would that be at the expense of your in CIB is what I'm wondering.
But all I mean, it depends on too many factors right. It would depend on the percentage that gets exercised it would depend on the valuation.
So.
Depending on the answers to those two questions are it could or could not have an impact and then CIP.
But for now we're staying the course and capital allocation remains the same and keep in mind.
Ryan.
That option window that gets opened on October one 2022 remains open for all the following in the following years so.
The.
We're not going to change our capital allocation and function of something that could or could not happen at any given point in time.
Alright very helpful. Congratulations okay. Thanks, Brian .
Thank you. This concludes today's question and answer session and the conference call.
Please disconnect your lines at this time and thank you for your participation.
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Yes.
Yeah.