Q3 2023 Dollarama Inc Earnings Call
Good morning, and welcome to the dollar ammo fiscal 2023 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 managements.
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 have been asked by dollar homage to read the following message regarding forward looking statements. It's all around his remarks today may contain forward looking statements about its current and future plans expectations intentions results levels of activity performance schools 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 dollar Ram 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 statements regarding forward looking information contained in dollar M. S. M. D N a dated December seven 2022 available on SEDAR.
Looking statements represent management's expectations of that December seven 2022, and except as maybe required by law. All around my has no intention and undertakes no obligation to update or revise any forward looking statements whether as a result of new information future events or otherwise I would now like to turn the call.
Prince call over to Neil Rossy.
Thank you operator, and good morning, everyone.
This morning dollar Emma released strong third quarter fiscal 2023 financial and operating results highlighted by nearly 15% increase in sales and a double digit percentage increase in each of comparable store sales EBITDA and EPS.
Our solid performance across our key metrics speaks to our commitment to providing the best year round value on the everyday products, we offer combined with our ability to provide a convenient and consistent shopping experience.
We continue to see sustained demand for our vast selection of affordable products from coast to coast.
Notably in the consumable product categories, which is fueled in acceleration in same store sale.
Three quarters into the year the trend is clear.
You promise in a high inflation environment is even more relevant as consumers juggled the pressure on their wallets and adjust their spending strategies.
We believe that the combination of convenient locations, great value and strong store team execution, we'll keep those new customers coming back.
Last quarter, we provided an update on the rebuilding of our inventory, which has continued in Q3.
Higher inventories not only reflects the ongoing replenishment of our safety stock and the purchasing of seasonal items earlier than in the past, but also continued store network growth and strong same store sales.
In terms of product selection, our buying team has been working hard to procure compelling products in all categories and across all our price points.
Which is now clearly reflected in our stores.
This includes the further introduction of items at our new price points of between $4 25.
And five dose.
A gradual rollout which is proceeding as planned.
We also remain extremely disciplined when executing on a price follower strategy.
Product by product always making sure we are delivering the best year round value possible.
We continue to increase proximity and convenience for our customers as we pursue our profitable growth strategy through the execution of new store openings for fiscal 2023, we.
We opened eight net new stores during the quarter, bringing the fiscal year to date total to 41.
As has been the case over the last few years, we expect a busy Q4 on the real estate front and remain on track to reach our full year target of 60 to 70 net new stores.
We are mindful of ensuring that our distribution and warehousing network is up to the task to support our long term store objective in Canada.
This includes expanding warehousing capacity in tandem with planned store growth.
And ensuring we are maximizing the efficiency of our logistics operations over the long term.
Subsequent to quarter end and as announced this morning, we were pleased to enter into an agreement to purchase industrial properties located near our existing centralized logistics network just adjacent to our distribution center here in TMR.
The purchase price is $87 3 million subject to closing adjustments. This strategically located property will provide us with additional flexibility to support our long term logistics needs as we pursue our target of $2000 and the stores in Canada by 2031.
As a reminder, in late fiscal 2022 we signed a long term lease for a seventh warehouse in Laval.
Construction for this new 500000 square foot built to suit facility is expected to be completed by the end of fiscal 2023 as planned.
The city has continued to perform well generating strong sales and profitable growth since we acquired our 51% equity interest well over three years ago.
There was an extremely strong team in place executing on dollar city's business plan and delivering compelling value to markets with an appetite for our value proposition.
In a few short years dollar city has cemented its presence in El Salvador, and Guatemala has pursued its growth in Colombia, and a good cadence and successfully entered Peru in may of last year, our fourth market of operation.
From the beginning our objective was to bring our tried and true concept to these compelling growth markets and scale up the business overtime.
Executing our concept and a low risk manner that would not distract from the execution of our plans in Canada.
After a decade of experience on the ground I'm proud to see that our strategy and its execution has been on point.
As such this morning, we were pleased to announce an increase to dollar city long term store target from 600 stores to 850 stores by 2029 and its for current markets of operation.
The over 40% store increased compared to the previous target primarily reflects the inclusion of anticipated growth in Peru, which was not included in our previous target and additional anticipated growth in Colombia.
Yeah.
These are two attractive Latin American retail markets.
With each have a growing appetite for dollar city's localized value proposition.
As we look to the fourth quarter for dollar AMA, which is historically busiest in terms of sales, we expect inflationary pressures to persist through to our fiscal year.
In this context, we will stay true to our brand promise of providing our customers with convenience as well as compelling value on every dollar they spend in our stores.
J P over to you to review our financial results in more detail.
Thank you Neal and good morning, everyone.
We're pleased with our financial and operating performance in Q3 with Canadians from all walks of life, continuing to seek value and lower prices on the goods, they need which is driving traffic's traffic to our stores starting with our top line. Our strong sales performance reflects our growing store network and the continued acceleration in same store sales growth.
Which came in at 10, 8% for the quarter.
With a 10, 3% increase in customer traffic and a 0.4% increase in basket size. There is no doubt that our value proposition, which has proven to be relevant through the economy cycle remains so and the Kurds inflationary caught contacts. This is supported by a third consecutive quarter.
Higher than historical demand for consumable products, while also registering our good performance on general and seasonal merchandize finally, we're benefiting from our pricing strategy, including the introduction of new price points up to $5.
EBITDA increased by 11, 3% to $386 million or 29, 9% of sales and diluted earnings per share increased by 14, 8% to 70 cents per share our strong earnings growth reflects the continued acceleration in same store sales active management of our gross margin.
N S G&A as well as the higher equity pick up from dollar city.
Gross margin was 43, 3% of sales compared to 44, 4% of sales in the third quarter of last year.
Decrease was primarily attributable to sales mix as well as higher logistics costs and.
And the mix, we have a larger proportion of sales of lower margin consumables, while the ramp up in logistics costs. As previously discussed is a question of timing as we process exceptionally high volumes of goods through the back half of the year due to our inventory rebuild our inventory increase just to over 1 billion at quarter.
At representing a 68% year over year increase a large proportion of that for presents in transit inventory. It also reflect the purchasing of goods earlier than historically in the context of global supply chain disruptions and the fact that we're now seeing a compression in transit times.
This means that we have some inventory being received earlier than expected.
This combined with store network growth accelerated Sss and planning for our historically highest fourth quarter sales explains the significant increase year over year. We're now in a good inventory position and safety stock position for the coming quarters SG&A came in at 14, 1% of sales compared to 40.
82% of sales last year as previously mentioned, we're seeing stronger wage growth and the inflationary context offset by ongoing productivity initiatives and the positive impact of scaling from strong sales.
Our share of the large cities not earnings was $9 2 million up 26% compared to $7 3 million last year, reflecting a solid financial and operational performance as well as the entry into parallel continuing to wrap up.
In the third quarter dollar city opened 18, net new stores, representing year over year growth of 12, 8% and bringing the total store count to 395 stores with 235 locations in Colombia 83 in Guatemala, 61 in El Salvador and 17 in Peru. This compares to 350 total stores.
As their year end of December 31, 2021.
The ordinary course foot Fred's for dollar city's founding group commenced this past October .
If exercised we must purchase some of their shares at fair market value. This would be within a framework of conditions, which include but are not limited to transaction size and key person ownership thresholds. We have no indication of the founding group's intention to exercise its right at this time should it be exercise in the near future. We believe we are.
Have the financial flexibility to increase our ownership stake, which may have a short term temporary impact on our capital allocation strategy on the capital allocation front are in CIB activity was more moderate with the repurchase of just under 1 million shares in Q3, which is simply due to more cash are located toy inventory rebuild in the quarter the border.
Also prove a quarterly cash dividend of $5 53 per share at.
At quarter end, our adjusted net debt to EBITDA ratio was two point 72 point 79 times unchanged from the prior quarter and within our comfort Zone is 275 times to three times adjusted net debt to EBITDA, we expect to continue to be active underwriting cheap and CIB program in Q4 in October we launched it and successfully completed the bond offering of senior out.
Secured notes for proceeds of 700 million as part of the active management of our capital structure I'd like to congratulate the team for accomplishing this in a challenging credit market proceeds from the issuance were used this past November to repay a bond and short term debt maturities.
On the back of our continued yes, yes for which include our first climate strategy published last summer. We were pleased to have our MSCI rating upgraded from Triple B to H. This past October with significant progress made over the last 24 months. We continued to move ahead with our sustainability commitment.
Which we view as a journey, where we must continuously raise the bar.
Turning now to the outlook for the remainder of the year.
On gross margin the change in sales mix and the timing of higher logistics costs are reflected in the narrowing of our gross margin range for fiscal 2023 to between 43, 1% and 43, 6% of sales. This represents the middle of our previously disclosed guidance range.
Guidance on SG&A, net new stores and Capex remain unchanged.
Capex our property acquisition agreement is expected to close in early fiscal 2024.
And as such should be reflected in next year's Capex envelope.
Looking at the assumptions on which our guidance ranges are base. These also remain unchanged except for same store sales was stronger than historical demand for lower margin consumable products and our very strong SaaS performance. We have increased our S. S. S assumptions for fiscal 2023 from a range of six 5%.
To 7.5% to a range of nine 5% to 10 and a half per cent.
This assumes that demand trends year to date hole that we do not returned to a COVID-19 lockdown scenario and that the weather for the most part cooperates that concludes our formal remarks, our formal remarks, 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 prior to making your selection.
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The first question is from Irene <unk> with RBC capital markets. Please go ahead.
Good morning, everyone. I was wondering if you could please give us a little bit more color around what you're seeing now in terms of consumer demand trends.
Consumables versus non consumables and also reaction to the higher price points.
Sure so the.
The reaction to our higher price points have been.
No reaction at all from from the perspective of.
Verbal feedback or you know any any reaction that we would fear when introducing a higher price point I think it was very well received they saw the value in the goods that we had at the prices that we offered and so it was business as usual from that perspective.
As far as.
Our our category performance is certainly the impact of trade down in consumables.
Pushed our sss in Q3.
And our.
Q3 Halloween in back to school performance was good.
But again when you layer on the positive impact from consumables, you end up where we were in Q3.
So.
Two two.
That's right Joe down a little bit more the sort of the normal historical dollar around the categories. You didn't see any consumer hesitation and what are you seeing in terms of early holiday consumer behavior. So no consumer hesitation across all the classic categories.
Simply a lift in our consumable category.
For Christmas, it's too early to call.
There's a bunch of timing elements that has to be considered this year last year, we saw consumer shop earlier than usual due to restrictions and lockdowns and ER. This year, we're seeing a normalization of that pattern and are returning to a purchasing pattern.
More in line with pre Covid, where sales seem to come closer to the to the date of the actual holiday.
That's great and just one final one if I might and this goes to gross margins and shipping container costs, certainly we have seen a very nice.
The rolling over of those how should we be thinking about gross margins as we look ahead to.
To F 'twenty four.
Yeah. So in terms of next year's gross margin area and you're right. We're seeing a normalization of the supply chain environment and compression and lead times.
As we mentioned earlier.
And that normalization of supply chain is reflected in lower.
Container costs, which are trending back to pre COVID-19 levels. So when you think about next year's gross margin.
I have to put a what is definitely a tailwind from lower container costs against a currency that has moved slightly higher and some mix impact if consumer belt consumable demands remain so when you put it all together keeping in mind.
That we're always a price follower and our priority for next year.
Will be to maintain our relative value proposition as it's always been when you put it all together I think we're in a a.
Slightly favorable gross margin environment coming in fiscal 2024, I'm going to add a little color as well, which is while we have it.
You know tailwind.
For transportation and overseas Applebee's, we still have major headwinds from domestic vendors and domestic manufacturers.
The very opposite of each other so they also tend to cancel each other out somewhat.
Thank you.
Thanks Howard.
Thank you. The next question is from Chris Li with Desjardins. Please go ahead.
Good morning.
A question first on the SG&A side of things.
We saw a little bit of improvement, but despite very strong topline growth. So I wanted to ask you to.
You can comment a bit more of a module to high SG&A and also going into next year. That's the SG&A picture look a bit better as you start to lap some of these minimum wage hikes and labor.
Labor shortage continues to improve.
Thank you.
So the the the wage growth environment remains.
A slightly higher than we expected at the beginning of the year.
That's that's offset through scaling and productivity initiatives that are that are ongoing in addition in Q3.
And so far in Q4, when you when you have traffic.
Freezing by double digits like like we saw in Q3. It doesn't mean that we have to allocate more hours in the stores to handle number one the inventory rebuild and number two.
The higher traffic so when you put it all together.
It was slightly favorable in terms of gross margin SG&A leverage this quarter.
But there's definitely a wage environment that that that is more.
Accelerating compared to compared to same time last year and we're managing through it.
Okay that makes sense, Jason thanks for that and maybe just.
Another one on gross margin as more of a near term question.
I appreciate youre tightening up the full year range, but even with that range. The implied gross margin for Q4 is still pretty wide down anywhere from 180 basis points to only 30 basis points, depending on the bottom or top end of that range. So can you maybe share with us some of the puts and takes on margins and it's particularly in Q4. Thanks.
Yeah. The way you have to think about it as mix are number one mixed for consumables, we expect that to remain so far in the quarter than number two.
Of course, the seasonal performance is a key driver of our of our margin Neil alluded to it in.
In his prior remarks, so it's really going to be a question on balance of how do you think about mix for consumables our Christmas seasonal.
And at the end of the day those two things.
Will will evolve over the coming weeks and will drive our gross margin for Q4.
Okay, that's helpful and maybe Neil maybe.
Longer term question for you I just wanted to get your thoughts on.
The expected increase in integration.
Canada longer term provide some upside to your.
Store target longer term.
And then secondly.
When.
When do you plan to give us another update on the store targets up Okay. And then I know you gave a couple of years ago. So maybe it was still one or two years away from getting an update from you. Thank you.
Well so the focus right now Chris is really on executing on.
On our current store target.
We released.
Our updated store target less than 24 months ago. So I'd say, it's too early to think about what what's the next door target could look like or May may look like.
As far as immigration I mean, I'd be speculating there is there's a bunch of things are going on and I don't think it will be a key driver a positive or negative.
All of our not toward growth in the next the next eight years, reaching to our 2000 store target by 2031.
Oh right.
All around that would be very happy to see it.
Influx of more immigrants into the country, thus, helping to stimulate the economy and.
Certainly help with the labor shortage.
Yes that makes sense and all the best and happy holidays.
Thank you.
Thank you. The next question is from Mark Petrie with CIBC. Please go ahead.
Yeah good morning.
J P. Hoping you can quantify the impact of logistics and freight costs in the quarter I think it was a tailwind in Q1, and then an even bigger one in Q2, but that was going to reverse what was the impact in Q3.
So it's a good question I'd say, we're in Q3, 20% logistics, 80% mix are approximately four four.
For the for gross margin pressure.
Okay.
And I guess related to the whole sales mix topic I'm just curious as dollar city is seeing the same sort of shift in and consumable sales.
It's obviously, a smaller base and different sort of.
Our position in terms of growth trajectory, but but are they seeing the same sort of shift in behavior.
We could copy paste are Canadian Commons and apply them to dollar city, they're seeing very similar trends in Latin America.
Yeah Okay.
And then one other one I guess, just with regards to price points and sort of the distribution of goods across the range. You guys have always put a lot of emphasis on maintaining a good proportion of products out sort of dollar dollar 25 type price points, but clearly that becomes more challenging just given the broad cost pressures in your overhead I guess you know on the.
The flip side, the market's giving you some license I think Neil you touched on that earlier. So I'm just curious sort of how you think about those dynamics today.
Yeah, and you know all the different sort of pieces at play.
Well I think we've always tried to have a mix that catered to the range of our customers. So in every category and in every product.
Where we can we would like to have a dollar dollar 25, offering a three dollar offering and a $5 offering in a perfect world.
Each with its own distinct reason to upgrade sort of speak.
But in many categories, it's not possible.
Depending on the cost of raw materials of any given item.
It definitely has an impact on the discussion, but it continues to be our philosophy that.
For example, if I'm buying.
Our version of a cotton swab, you will find a dollar twenty-five version and our stores you will find at $2 50 version and you will find a four dollar version or a 425 version.
So you know, they're they're all distinct.
And it's not about the quality of the actual small, but and maybe how much cotton we put at the end and maybe the more expensive one as Ana would stick instead of a paper stack or a plastic stick there's always.
Ways and reasons for the for the relative retails, you see and are having that range for our customers who of course, you know all have different powers of of of a physical.
Physical powers to two feet and take care of their families. We tried to provide the biggest range weekend.
Alright understood appreciate that and one sorry, one just last quick one the the property acquisition can you just is that just for additional warehouses or is.
Is there sort of an expansion of the distribution center, that's part of this plan as well so it.
So conveniently located and the opportunity to buy land in and around our current environment is very very much as one of the reasons, we took advantage of the opportunity.
It is it's going to be.
Bandwidth for distribution and it also allows us if required and to add warehousing in the future. So on both fronts. It provides that flexibility at the closest location to our current distribution facility, which makes it the most efficient.
Space, we could acquire so that was the reason behind it.
Okay Super helpful and all the best and happy holidays. Thank you enter your export.
Thank you. The next question is from George <unk> with Scotiabank. Please go ahead.
Yeah, Hi, good morning, Neil and JP given that you just gave the number I don't want to ask about upside, but just wondering to what extent the east 50, <unk> takes into account saturation in Peru, and Colombia, maybe how should we think of the opportunity outside of the existing territories for dollar city.
And so the way to think about it Georgia is a this is not saturation point in Latin America. This is an update.
Our 2020 time 2029, sorry store target.
If you think about the target then the increase half of it would come from.
The addition of Peru in a revision and the other half would be densification of our existing countries mainly in Colombia.
So this is not saturation is just an update to.
Our existing forecast to reflect good execution and good cadence and store openings.
Okay. Thanks for that and you know you've mentioned a couple of times the difference between pricing in Asia with the vendors in North American vendors, just wanted to explore that a little bit and get your thoughts on that or are you, maybe perhaps seeing an early indication that at least north American prices have peaked.
We have definitely not seen north American prices peak, although every week I think they've peaked and every week they haven't peaked yet.
Ah, but but as it is and I cannot truthfully explain why there's such a massive discrepancy between the trends coming from our goods overseas and in Europe and in other parts of the world.
As to what's happening with our North American vendors, but there is a massive discrepancy and that trend has not stopped yet.
To my amazement and so we're simply.
Fighting the fight on our buying side doing the best we can add to manage the cost of the goods that we buy domestically and make sure that the values. We provide our customers are the best relative value as possible because the one thing I know for sure is that those pressures that are being put on dollar.
Rama are being put on every other Canadian retailer and as you know and the one thing that we can control is that our job is to provide the best relative value to our customers I can't control, what other retailers do and I cant control, even though I love to what our vendors come in with as far as as cost. So we.
We take it as we get it and are we tried to be as reasonable as we can and as competitive as we can so that our chefs that are our customers don't question when they come into our stores, who the best relative everyday value across the country would.
Okay. Thanks for that and just one last one for J P. But working capital was up $400 million plus a year to date.
Can you maybe give us your view on where you think it shakes out for the year and is there any chance as you look to next year that we can maybe see a reversal there.
So in terms of working cap.
I mean, most of it vast majority of it is driven by the rebuilt our inventory position in the first half and in Q3.
When we look at Q4, we think that.
With an inventory level that starting to be.
Be in line with our expectations in terms of safety stock and inventory available for our stores. So I wouldn't anticipate a similar pressures in Q4 and then for next year, it's too early to too to see through given all the supply chain normalization that's going.
Uh huh.
Hey, guys. Thanks, good quarter.
<unk>.
Thank you. The next question is from Vishal Schweda with National Bank. Please go ahead.
Hi, Thanks for taking my question I'm looking at dollar city and increase there I'm wondering if management feels comfortable with the rate of expansion as I know there are other companies using elements of the dollar on my approach to grow in adjacent countries and just wondering if management feels any.
Thoughts about a white space being left behind that perhaps given you're a cautious approach to growth.
I think we're extremely comfortable.
[laughter] with our strategy that's the strategy.
The.
The.
Slow and steady wins the race it tends to be a very dollar amount like approach, we'd rather be a cautious and mindful to each market, we consider to the rollout and how we do that rollout so that it makes sense and if there are.
<unk> left on the table are I guess the way we look at it is if we do the very best job and any country of operation sooner or later, we're going to win that race.
And so if somebody tries to zoom in and do it hastily unless there in a way better than we are which is possible.
But it's unlikely that their execution will be at the same level and in the end the customer will go to the store that's doing the best job.
Okay. Thank you for that and just changing topics here there was a a day lots of Halloween how should we think about the impact was it meaningful.
Yeah. So so Halloween this this year fell into Q4.
But the impact is is I mean, it's it's rounding I wouldn't qualify it as meaningful one way or the other.
Okay, and how should we think about the.
The labor impact I'm wondering if it's if it's stable or if it's getting tougher because any.
Color that you can provide on what you're seeing.
I mean, it's it's a it's a labor market that's.
The same for all retailers currently and so we're doing our best to attract and retain talent and so far we haven't had to curtail opening hours or anything like that so we're very pleased with the execution at the store level and the work that our store operations and HR doing to make sure.
But we have the best people to serve our customers in our stores.
And while we have our C O O in the room, Joanne I'm going to say that it is harder than it's ever been just like sourcing is harder than it's ever been because of incredible.
Fluctuations of of cost.
Cost of goods are and in the labor market is the very same for our ops people. So the amount of effort. Our office people have to put into doing a great job with our employees. So that they feel like they're getting the attention. They should the training they should Ah the support that they should.
It is a huge focus for us.
Because as you know we're nothing without you know goods in our stores and without a team that's executing on the ground and so it's very very important to us that we're doing the best job, we can to attract and retain that talent and I think Joanne and the team have done an outstanding job.
Thank you.
Hmm.
Thank you. The next question is from Peter Sklar with BMO capital markets. Please go ahead.
Good morning.
J P. On this land parcel that you built that sorry that you bought for $87 million like it seems like a big number.
I'm not really that familiar with the Montreal industrial market, but can you talk a little bit about what you bought like what was the size of the property what's on the property.
How was the location et cetera et cetera.
So you're asking questions that I'm not sure I am allowed to answer but I can say that it is expensive. It is not a deal I would agree with you, 100%, but I would also tell you that.
Hmm.
When you want something that's one the one and only that's right next to your to your primary point of of execution, the heart sort of of the operation getting goods to the stores.
Acquiring that land was something that we felt was worth the premium I would tell you that.
The efficiencies that we get from that co location.
That also obviously have great value to us that they wouldn't another buyer. So if you were just prospecting where you were you were trying to build something on inspect it wouldn't make sense to pay what we paid but for dollar amount for the strategic needs that we have and with the efficiency efficiencies, we'll get from that Colocation. It made sense for the best.
As far as size et cetera, I'll be honest I'm not sure what I can say at this point, so I'm going to stay healthy.
Okay.
That deal closed.
That deal is not closed.
The deal will close Peter in the first half of next year.
And so that's when you'll see the capex a trickle into our financials right, but there is a building on the property now.
There is there is the remnants of builder, yes, there are few small buildings, but nothing nothing major okay. So it's basically the land okay.
The land acquisition, yeah, Okay, understood and I understand the benefits for you.
Just switching gears here on.
On dollar city, which is starting to become meaningful for you. You know now that you have quite a presence in Colombia and.
<unk> had over a year in Peru could you talk a little bit about.
You know a little bit more in depth on on both of those markets and how they differ and how they compare to Canada and what the returns are like and just the product profile differences the consumer different maybe just ramble, a little bit on each of those markets now that they are becoming significant.
Sure. So it shows the market all of the markets that we're in for the most part are similar to dollar armour from a mix perspective, you know theres, a slight tropical ization to the assortment, but for the most part they're very very similar.
Because people are people and we tend to consume the same type of products are Peru has had a terrific start very promising so far it. We're excited about the country Columbia of course are more complex country more challenging from the perspective of the of the geography.
And a more competitive environment of course, because it's a more established larger country. So you know, but it has much more runway of course, it's a much larger scale countries. So we're excited by both countries and are from a product perspective, both countries have had been very accepting of our of our assortment which is.
Continuously changing of course and are are you know our buyers are which which are amazing partners.
Do the buying system.
And sourcing of all of the domestic goods.
In each of those countries because each country has its own.
<unk> strengths and weaknesses with regards to our consumables for the most part.
They've they've put buyers into place in each of those countries catering to the specifics of those countries and they're doing a fantastic job G. If you have anything to add no I think I think that's.
Okay, and then just lastly.
Your part your partners are in dollar city and this put arrangement could you.
Could you just go through the details a little bit like what what is the maximum possible obligation for dollar city to take up ownership you know should they decide to go that route.
So the way the way it's designed the philosophy.
Is that number one we have a fantastic partner there.
And we want to keep them aligned for as long as possible and so the way. The agreement works is they cannot put all their shares to us it's only a portion and the key person there of being the CEO .
Is is with us for a long time, so we're talking about shares of more passive investors. That's number one and number two as I am.
Mentioned in the script if it were to happen we would temporarily for a short term change.
Change our capital allocation to absorb a put option being exercised.
Okay.
Thank you for your comments.
Thanks Peter.
Thank you. The next question is from Brian Morrison with TD Securities. Please go ahead.
Hi, Good morning, if I can just go back for a moment to the benefit upon sales from a.
The shift to consumables I think your latest disclosure here about 44% of your sales last year were consumables can you provide maybe a range of where you think that could come in this year. Just so we can understand the magnitude of the shift.
Yeah and in terms of percentage.
No we disclose annually so we'll see how Q4 <unk>.
But the way things are shaping up so far of course, we have a stronger penetration of consumables.
But keep in mind, Brian and and that's really important when we think about the business and our categories. The general.
General merchandise seasonal and a quote unquote normal year, we would consider that performance is good performance. It's just that now we have good performance across all categories plus the impact of trade down. So you have to put all that together when you think about the mix for this year, but but for sure consumables is gonna be.
Slightly more than it was last year.
Okay, maybe changing gears the NCI B I appreciate your comments, you're gonna be active in the fourth quarter I'm, just wondering with the rising cost of debt and the proposed government tax Ah in 2024th if theres any maybe change your approach or the mid term with respect to your in CIB.
Yeah. So on the midterm we're we're.
We're reviewing in the coming months, how that should be used for for the year to come let's call. It fiscal 2024 to make sure that we have.
Optimal capital allocation are going forward and I mean, we've we've been clear in the past about after tax cost of debt and earnings heal being kind of two guiding principles. So we'll keep that in mind as we think about next year's capital allocation and we'll we'll do what's.
Best for shareholders from a return perspective.
Okay, and then last question if I can G. P. Just you've got less exposure hedged on your FX for merchandise.
You know relative year over year basis is this just a data point in time or is it a change in your approach to them.
And hedges with Canadian dollar weakness.
No. It's no change in approach to hedge strategy remains the same theres some timing element to this.
So you shouldn't read too much into the quarterly difference in hedge exposure.
Thank you Kenny.
Thanks, Brian .
Thank you. The next question is from Martin Landry with Stifel. GMP. Please go ahead.
Hi, good morning.
In light of the market share gains that you're making I was I was wondering to get more insights on your on your customers. How are you collecting data if at all.
And have you ever considered establishing some sort of a loyalty program to enable you to gather more data on your customers.
So our loyalty program is the best value and the way we think about that is when you look at results here to date I think and you look at the Sss performance I think the best value for US is it's kind of the focus and we're probably not the right segments.
Not only in Canada, but globally, a dollar store segments not the best segment for for our loyalty program. The focus is on the relative value proposition and it's working well we like the results.
And then you know are you collecting any of that on your customers like is there any way for you do you see you know.
What proportion of customers running in income above $100000 of shopping at your stores.
So we do a we do frequent customer surveys to learn more about our customers.
But we're not collecting customer data per se.
Okay and is this something that you want to upgrade in the future or not a priority.
Let's say the focus for now is getting better with our analysis of the data we have and that's transaction data not customer data. So we know which units get sold at what time and what the total our total bill is in the transaction.
Size, so when it got better and taking all of that data that.
We have on a on a daily basis to.
To continue to optimize our merchandising and all of the initiatives that.
We've discussed in the past.
And that's really the focus we have a lot of data and we want to leverage as much as much as possible.
And that transaction level data.
Okay. Okay. That's helpful. Thank you.
Thanks Martin.
Thank you. The next question is from Derek <unk> with Canaccord Genuity. Please go ahead.
Yeah, Hi, great quarter.
Wanted to follow up on the discussion on Latin America can you just give us some detail like what is the average store size in Latin America compared to what you have in Canada, and you know in Canada, you disclose what it cost to open a new store in including inventory can you give us the same metrics for Latin America.
Yes, so in terms of store size you'd see slightly.
Smaller stores in Latin America, and Eastern Canada.
And in terms of the cost of opening a store.
Is that fiscal 2022 so last year. It was about the same a dollar city may be a little bit more expensive, but not take a materially different and where within well within a two year payback in Latin America as well.
No that's great that's helpful.
During during the quarter I mean, you had a really strong.
Basket growth.
Can you.
I'll break down or just give us some incremental color on how much of that that basket growth was split between price increase and.
Incremental products in each basket.
Okay.
Yeah, we we've for reasons that are obvious we're not we're not going to go there into our pricing and volume strategies.
But we're very pleased with with the traffic and the basket size that we saw in Q3 that's for sure.
Okay, and then just last one.
I believe in Q2, you mentioned, a 70 basis point.
Tailwind.
Inventory going through your D C and it sounds like you had about a 30 basis point.
Edwin this quarter on that so.
Like do you expect to be able to offset some of that potential upcoming headwinds going forward. Yeah. I mean in traditional fashion, we're doing our best to offset as much of the of the cost pressure as possible. So.
We've done that in Q3, and we will continue to do the same thing and work actively.
To be as efficient as possible in Q4.
Okay, great. Thank you very much.
Thanks.
Okay.
Thank you.
There are no further questions registered this concludes the question and answer session as well as today's conference call. You may disconnect. Your lines now and thank you for your participation.
Yes.