Q2 2024 Dollarama Inc Earnings Call

Okay.

Good morning, and welcome to the dollar on the fiscal 2024 second quarter results Conference call.

Neil Rossy, President and CEO J P counter CFO will make a short presentation, 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 on the Dot com in the Investor Relations section as well as on SEDAR.

Before we begin I have been asked by dollar I'll, let you read the following message regarding forward looking statements.

Dollar Armours remarks today may contain forward looking statements about its current and future plans expectations intentions results levels of activity performance goals or achievements or any other future events or developments.

Forward looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances.

However, there can be no assurance that such estimates and assumptions will prove to be correct.

Many factors could cause actual results levels of activity performance achievements future events or developments to differ materially from those expressed or implied by the forward looking statements.

Yeah.

As a result dollar alma cannot guarantee that any forward looking statement will materialize and you are cautioned not to place undue reliance on these forward looking statements.

For additional information on the assumptions and risks. Please consult the cautionary statement regarding forward looking information contained in dollar rhombus MD&A dated September 13th 2023 available on SEDAR.

Forward looking statements represent management's expectations as of September 13th 2023, and except as maybe required by law, Colorado has no intention and undertakes no obligation to update or revise any forward looking statement, whether as a result of new information future events or otherwise.

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

Thank you operator, and good morning, everyone.

For the second quarter of fiscal 2024, we delivered excellent operational and financial results, including a 15, 5% increase in comparable store sales of nearly 24% increase in EBITDA and then over 30% increase in earnings per share.

More broadly our performance through the first two quarters of the year reflects our ability to execute on our long standing commitment to providing convenient and compelling value across our product mix.

Clearly day in and day out dollar and it continues to solidify its position in the shopping habits of consumers and as a key destination for a broad range of affordable everyday.

We are extremely pleased by the sales momentum we are seeing across our product categories. In addition to the sustained value seeking behavior from from Canadian consumers.

We are staying true to our price fall of our strategy to remain competitive and sparing no effort to help our customers get the most for their hard earned money.

Through our ongoing merchandising activities product refreshes and disciplined pricing actions, we are successfully delivering year round value to our customers on every product we sell while also maintaining strong margins.

And the current macroeconomic context and based on what we have been seeing year to date, including the quarter. Currently underway, we expect strong customer demand to continue through the second half of the fiscal year.

This is reflected in the upward revision of our same store sales guidance range for the full year.

On the real estate front, we opened 18 net new stores this quarter.

This is compared to 13 in the same quarter last year and 21 last quarter. This year. Our team worked hard to Frontload net new store openings to take some of the pressure off our fourth and historically busiest quarter of the year.

These results speak to the execution of that plan.

As mentioned last quarter. This acceleration has no impact on our annual target of between 60 and 70 net new stores.

Subsequent to quarter end, we completed the previously announced acquisition of industrial properties adjacent to our centralized logistics operations in TMR in the Montreal area.

As a reminder, the objective is to leverage these strategically located properties to the benefit of our logistics operations as we continue to move toward our 2000 store target for Canada by 2031.

And Latam the team at dollar City also continues to execute on its long term growth plan and consistently delivering strong financial and operational results.

And the second quarter. They opened 10 net new stores, bringing the total number of dollar city locations to 458.

They are seeing and experiencing many of the same trends and therefore, our markets of operation as we are here in Canada.

That is to say strong traction from your customers on the value and convenience theyre offering and the current economic context.

This coupled with the team's solid execution of its growth strategy is resulting in strong performance quarter after quarter.

Finally on our CFO search we launched a robust search process earlier this summer and I am pleased to say that it has been moving along well we will of course provide the market with an update in due time.

In the meantime, J P is still very much in the chair until the end of the month and we have a skilled team until the dysfunction in the interim until an announcement is made.

I'd like to take this opportunity to acknowledge JP. His outstanding contributions dollar AMA during his tenure with us and I wish him the very best in his new endeavor.

JP over to you to review, our Q2 financial results in more detail.

Thank you Neil and thank you for your kind words, it's been a real pleasure for me to work alongside such a talented team and for such an outstanding business.

But now let's take a look at our Kpis and performance and expectations for the remainder of the fiscal year.

<unk> delivered strong top line growth with a nearly 20% increase in sales and a 15, 5% increase in same store sales in the second quarter. This is all the more notable because this sss growth over and above our 13, 2% in the same quarter last year, we are seeing robust.

<unk> across the board in terms of our three main product categories and their it departments.

We generated strong gross margin.

Presenting 43, 9% of sales compared to 43, 6% of sales in the same quarter last year, driven by lower inbound shipping costs, partly offset by higher logistics costs.

SG&A as a percentage of sales was 13, 6% compared to 13, 8% in the same quarter last year.

This improvement year over year reflects our strong topline performance and the scaling benefits. It is generating which have enabled us to absorb increased labor cost are 51% share of dollar city's net earnings was $11 4 million compared to $7 7 million for the same period last year.

<unk>.

Continuing to reflect very strong execution on the back of our strong API performance EBITDA increased by 24% to $457 million.

Presenting 30 31, 4% of sales and EPS was <unk> 86.

We're presenting a 30% increase over last year.

On the capital deployment front, we were active on the CIB in the quarter, we renewed our program in July allowing for the repurchase of up to four 8% of our public float over the next 12 month period.

July <unk>, our former and renewed in CIB, we repurchased nearly $2 9 million shares in Q2 of <unk> $248 million.

The board also approved a quarterly cash dividend of 7.08 per share we expect to remain active on our NCI and to allocate excess free cash flows towards our share repurchases. Some housekeeping regarding cash on hand, our Q2 cash balance is inflated by the 88 million.

<unk>.

Which was subsequently used to settle the land acquisition in August as a reminder, this capital expenditure is over and above our previously disclosed annual Capex range outlook.

Turning now to our expectations for the remainder of the year last quarter, we were cautious on same store sales or sales growth in upcoming quarters as we wanted to see how the consumer would lap last year's strong performance.

But that value seeking behavior has held strong and across all our product categories based on that performance and what we're seeing so far in the third quarter. We have revised our full year sss guidance to a range of between 10 and 11% this will be over and above 12% annually.

Annual Sss last year.

So far in Q3 Sss cadence.

Pacing at a two year stack.

<unk>, 21%.

Unknown Executive: Good morning, and welcome to the Dollarama Disco 2024 Second Quarter Results Conference call. Neil Rossy, President and CEO, and JP Counter, CFO will make a short presentation, 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 Dollarama.com in the Investor Relations section, as well as on CIDAR.

While the last mile of supply chain normalization is now behind US we continue to expect additional margin expansion in the second half of the fiscal year. This will bring us in line with our annual guidance range of four gross margin of 43, 5% to 44.

5% of sales.

On SG&A. We also continue to expect to meet our guidance range of between 14, 7% to 15, 2% given that our strong sales performance Zane, enabling us to scale SG&A as a percentage of sales. So all in all a stellar performance through the first half.

Unknown Executive: Before we begin, I have been asked by Dollarama to read the following message regarding forward-looking statements. Dollarama's 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.

Unknown Executive: 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, Dollarama cannot guarantee that any forward-looking statement will materialize, and your caution not to place undue reliance on these forward-looking statements.

Of the year. This is thanks to the team's ability to deliver on our value promise to Canadian consumers, who appreciated more than ever in what remains a challenging economy contacts that concludes our formal remarks now I'll turn it over to the operator for the Q&A.

As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.

Again that is star one one to ask a question.

Please standby, while we compile the Q&A roster.

Unknown Executive: For additional information on the assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in Dollarama's MDNA dated September 13, 2023, available on CIDAR. Forward-looking statements represent management's expectations as of September 13, 2023, and, except as may be required by law, Dollarama 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.

Okay.

Our first question comes from the line.

Of Mark Petrie with CIBC.

Yes.

Hello, Good morning, Thanks, guys and congrats on an excellent quarter I wanted to ask first maybe about.

How about just consumer traffic and spending patterns, obviously, a lot of shifts there within your business and just more broadly and I'm curious to hear your perspective on your assortment and shelf space allocation today and is there opportunity to make adjustments there or are you comfortable with where you're sitting.

Neil Rossy: I would now like to turn the conference call over to Neil Rossi. Thank you, operator, and good morning, everyone.

Neil Rossy: For the second quarter of fiscal 2024, we delivered excellent operational and financial results, including a 15.5 percent increase in comparable store sales, a nearly 24 percent increase in EBITDA, and an over 30 percent increase in earnings per share. More broadly, our performance through the first two quarters of the year reflects our ability to execute on our long-standing commitment to providing convenience and compelling value across our product mix. Clearly, day in and day out, Dollarama continues to solidify its position in the shopping habits of consumers and as a key destination for a broad range of affordable everyday goods.

Yes, so thanks for the question Mark.

It's interesting because last year.

We were seeing trade down in the consumable space.

And this year.

Still a lot of activity in consumables, but our general merchandise categories are also outperforming across all departments.

So.

We're very comfortable with our mix in store, we're very comfortable with.

The shelf space that we have for each department in each category in fact those those.

Thats shelf space Hasnt moved that much over the past.

Neil Rossy: We are extremely pleased by the sales momentum we are seeing across our product categories in addition to the sustained value-seeking behavior from Canadian consumers. We are staying true to our price follower strategy to remain competitive and sparing no effort to help our customers get the most for their hard-earned money. Through our ongoing merchandising activities, product refreshes, and discipline of pricing acts... We are successfully delivering year-round value to our customers on every product we sell, while also maintaining strong margin. In the current macroeconomic context, and based on what we have been seeing year-to-date, including the quarter currently underway, we expect strong customer demand to continue through the second half of the fiscal year.

Two years and there's just more activity in each of those departments and then in terms of price points.

I think we've made good progress on the rollout of the new price points and more importantly, we are able to maintain our relative value.

Cross across all categories and across all price points.

With introduction of our of our new price points last year.

Yeah, Okay, Okay perfect.

Could I also ask you just about some of the factors within your SG&A. Obviously, the Q2 performance was fantastic and your guidance implies some bigger increases in the second half of the year sort of on a per store per week basis is is that a reflection of the October round of minimum wage increases or are there other factors that we should be considering.

Neil Rossy: This is reflected in the upward revision of our same-store sales guidance range for the full year.

I know.

Part of it is.

Part of it is what you mentioned on the October round, but part of it is also.

We've been able to scale.

With a strong top line performance.

Neil Rossy: On the real estate front, we opened 18 net new stores this quarter. This is compared to 13 in the same quarter last year and 21 last quarter.

Our SG&A line and I mean, you can derive.

Our second half expectations, and so we would hope to achieve probably the better end of our SG&A guidance range, if all things remaining equal.

Neil Rossy: This year, our team worked hard to front-load net new store openings to take some of the pressure off our fourth and historically busiest quarter of the year. These results speak to the execution of that plan. As mentioned last quarter, this acceleration has no impact on our annual target of between 60 and 70 net new stores.

But definitely it's a question of scaling, but then Thursday October around which we're watching as well.

Yes, Okay makes sense and I'll just squeeze in one more if I could and just on the air miles arrangement I know it wasn't a factor in Q2, but hoping you could just talk about any impact from that and also if you could just elaborate on the opportunities to leverage the data.

Neil Rossy: Subsequent to quarter end, we completed the previously announced acquisition of industrial properties adjacent to our centralized logistics operations in TMR in the Montreal area.

That youre that youre going to get from this thanks.

We're too early in the process to really have.

A good idea of what kind of leverage can or might be gained from that.

Neil Rossy: As a reminder, the objective is to leverage these strategically located properties to the benefit of our logistics operations as we continue to move toward our 2000 store targets for Canada by 2031.

Okay fair enough, thanks, and all the best.

Thanks Mark.

Our next question comes from the line of Irina <unk> with RBC capital markets.

Neil Rossy: In La TAM, the team at Dollar City also continues to execute on its long-term growth plans and consistently delivering strong financial and operational results.

Thanks can you hear me.

Fantastically.

Neil Rossy: In their second quarter, they open 10 net new stores bringing the total number of Dollar City locations to 458. They are seeing and experiencing many of the same trends in their four markets of operation as we are here in Canada. That is to say, strong traction from their customers and the value and convenience they are offering in the current economic context.

First of all let me just say, thank you to JP and we're going to Miss you.

And now onto buy my question so.

Thank you your commentary and I am looking at the implied guidance for the back half of the year and if we're kind of at 10 ish percent same store sales six weeks into Q3, it looks as though the 4% to 6% implied same store sales guidance in H two.

Neil Rossy: This coupled with the team's solid execution of its growth strategy is resulting in strong performance quarter after quarter.

It looks fairly conservative so can you walk through what the thinking is there and whether youre seeing any red flags that cause you to be more cautious than usual.

Neil Rossy: Finally, on our CFO search, we launched a robust search process earlier this summer and I am pleased to say that it has been moving along well. We will, of course, provide the market with an update in due time. In the meantime, JP is still very much in the chair until the end of the month and we have a skilled team to lead this function in the interim until an announcement is made.

So I mean, I think part of it is just our general philosophy around guidance.

And there is no there is no red flags.

Quite.

Quite the opposite I mean.

We were having a similar discussion.

Neil Rossy: I would like to take this opportunity to acknowledge JP's outstanding contributions to Dollarama during his tenure with us and I wish him the very best in his new endeavor.

You'll recall in Q1 in June .

On the back of 17% Sss in Q1.

And we wanted to see how we would be lapping last year's trade down and we're very pleased with.

JP Counter: JP, over to you to review our Q2 financial results in more detail. Thank you, Neil. Thank you for your kind words.

What we've seen in Q2, where we delivered.

15, 5% over 13% last year.

JP Counter: It has been a real pleasure for me to work alongside such a talented team and for such an outstanding business.

And then so far in Q3 as I mentioned in my remarks.

JP Counter: But now, let's take a look at our KPI performance and expectations to the remainder of the fiscal year. Dalramma delivered strong top line growth with a nearly 20% increase in sales and a 15.5% increase in same store sales in the second quarter. This is all the more notable because this SSS growth is over and above our 13.2% in the same quarter last year. We are seeing robust performance across the board in terms of our three main product categories and their departments.

We're seeing tier stack of 21% so definitely pleased with how our value proposition is positioned.

Very pleased with the traction we're seeing and the guidance is what it is but there is no red flags, but our conservatism often comes from things that have nothing to do with our execution, obviously and so we're also just wary of.

Contextually.

The situation with coming out of out of out of the <unk>.

JP Counter: We generated a strong growth margin representing 43.9% of sales compared to 43.6% of sales in the same quarter last year, driven by lower and down shipping costs, partly offset by higher logistics costs. As GNA as a percentage of sales was 13.6% compared to 13.8% in the same quarter last year. This improvement, Yuri, your reflects our strong top line performance and the scaling benefits it is generating which have enabled us to absorb increased labor costs.

Pandemic recovering and now there is a sensitivity you see in schools and this and that and so just we want to we want to remain conservative for reasons that may have nothing to do with internal Red Lake.

Understood. Thank you and then just thinking through kind of the cadence of what happened during Q2. So when we had the call in June I think you said same store sales are running about 11% you ended the quarter 15 half. So can you talk about our performance.

JP Counter: Our 50.1% share of dollar cities net earnings was 11.4 million compared to 7.7 million for the same quarter last year, continuing to reflect their strong execution. On the back of our strong KPI performance, EBITDA increased by 24% to 457 million. Representing 31.4% of sales and EPS was 86 cents, representing a 30% increase over last year.

Are you I guess June and July .

What youre seeing in in back to school and then if I may just as we think about the assortment for the holiday season, where are you in terms of price point penetration versus where you might've been a year ago. Thank you.

So.

Historically.

With the introduction of price points over the course of time.

The mix itself has not really shifted very much not just the last few years, but many many years and so the mix within any given department may shift yearly to some stuff that's a little on.

JP Counter: On the capital deployment front, we were active on the NCIB in the quarter. We renewed our program in July, allowing for the repurchase of up to 4.8% of our public flow over the next 12 months period. Utilizing our former and renewed NCIB, we repurchased nearly 2.9 million shares in Q2 for $248 million. The board also proved a quarterly cash dividend of 7.0 cents per share. We expect to remain active on our NCIB and to allocate excess free cash flows towards our share repurchases.

On the lower end of our price range and other year's a little higher depending on what's available to the to the buyers.

But the amount of space, we allocate per section and the amount of Av.

Of Skus, we list in any given department is extremely consistent so when you see.

Slight changes in sales patterns, they have more to do with volume than they do with a change in our offering.

JP Counter: Some housekeeping regarding cash on hand. Our Q2 cash balance is inflated by the 88 million dollars which was subsequently used to settle the land acquisition in August. As a reminder, this capital expenditure is over and above our previously disclosed annual Catholics range out flow.

Really important.

Because I know that the.

Flavor of the day is all of these Youtube things about grocery and food in dollar amount, but the reality is we haven't grown our foods actions or grocery sections. We have is still remains a small piece of our offering just one of the many things we offer.

JP Counter: Turning now to our expectations for the remainder of the year. Last quarter, we were cautious on the same store sales growth in upcoming quarters as we wanted to see how the consumer would laugh last year's strong performance. But that value-seeking behavior has held strong and across all our product categories. Based on that performance and what we're seeing so far in the third quarter, we have revised our full-year SSS guidance to range of between 10 and 11%.

And.

It's important to just keep things fact based as opposed to Notionally based when we're having these discussions.

Or is that a question about it.

As the season coming up.

R R.

JP Counter: This will be over and above 12% annual SSS last year. So far in Q3, SSS cadence is spacing at the two-year stack of approximately 21%. While the last mile of supply chain normalization is now behind us, we continue to expect additional margin expansion in the second half of the fiscal year. This will bring us in line with our annual guidance range for a gross margin of 43.5% to 44.5% of sales. On S&A, we also continue to expect to meet our guidance range of between 14.7% to 15.2% given that our strong sales performance is enabling us to scale as G&A as a percentage of sales.

Our mix of good is is the same.

As it has been in the past with the introduction of the new price points, which will be which will be scattered throughout our Halloween and Christmas offerings.

In the same percentages approximately as they have been in our everyday lives.

That's great. Thank you.

Thank you.

Our next question comes from the line of Chris Lee with Desjardin.

Chris Your line is now open.

Our next question will come from the line of Brian Morrison with TD.

JP Counter: So all in all, a stellar performance through the first half of the year. This is thanks to the team's ability to deliver our net value promise to Canadian consumers who appreciated more than ever in what remains a challenging economic context.

Good morning, Thank you J P. It's been a pleasure and I certainly wish you well in your future endeavors I want to turn to price checks, we're starting to see a slowdown in your degree of price increases that are being put through just wondering if you can talk through with the slowing inflation, what youre seeing in terms of pricing with respect to the competition.

Unknown Executive: That concludes our formal remarks.

Unknown Executive: Now, turn it over to the operator for the Q&A. As a reminder, if you'd like to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press star 11 again. Again, that is star 11 to ask a question.

So you're correct.

We feel.

That even though domestically, we're still feeling inflationary pressures on cost.

On the on the import side.

Unknown Executive: Please stand by when we compile the Q&A roster.

Costs are fairly stable and control.

And we're always as you know a price follower and so we just.

Following the market, making sure that we're best value all year long and.

Mark Petrie: Our first question comes from a line of Mark Petrie with CIBC. Good morning. Thanks guys and congrats on on an excellent quarter.

The same story nothing has changed.

Okay, I guess Mueller J P. Can you just talk about what the timing of new store openings I know youre looking to even out throughout the year, but the second half typically has more availability and with the economic challenges I assume youre someone has to be renewed so whats your view on this and is there obviously potential upside to your annual target Jamie to open that in theory.

Mark Petrie: I wanted to ask first maybe about just consumer traffic and spending patterns. Obviously a lot of shifts there within your business and just more broadly.

Neil Rossy: And I'm curious to hear your perspective on your assortment and shelf space allocation today. And is there opportunity to make adjustments there or are you comfortable with where you're sitting? Thanks for the question, Mark. It's interesting because last year we were sitting trade down in the consumable space. And this year there's still a lot of activity in consumables but our general merchandise categories are also outperforming across all departments. So we're very comfortable with our mix and store.

To date.

Well I wish you were right, but the phone never right.

You bet.

Real estate is something that we must always chase down and stay on top of and manage and so the amount of availability hasnt changed from years past to now.

The difference is we've always wanted to open the bulk of our new store openings at the beginning of the year and it's always been something that escaped us even.

Well, we've tried just to help our operations being able to focus on the fourth quarter sales and the change is nothing more or.

Neil Rossy: We're very comfortable with the shelf space that we have for each department and each category. In fact, that shelf space hasn't moved that much over the past two years and it's just more activity in each of those departments. And then in terms of price points, I think we've made good progress on the rollout of the new price points. And more importantly, we're able to maintain our relative value across all categories and across all price points with the introduction of our new price. Yes, last year. Yeah, okay, perfect.

The other way to look at it is it's an incredible achievement by.

By our real estate and operations team to just keep pushing the landlords keep pushing our construction team and our and our store execution to front loaded because.

The World has not changed the real estate market has not changed the availability has not changed is purely just a question of <unk>.

For it to get them opened at the beginning of the year, even though we've always wanted to and failed in the past. We've succeeded this year and we're all very proud of it.

So Neil does the effort translated and upside to your annual target.

JP Counter: Could I also ask you just about some of the factors within your S.G.A. Obviously, the Q2 performance was fantastic. And you're gotten to apply some bigger increases in the second half of the year, sort of on a first or per week basis. Is that a reflection of the October round of minimum wage increases or are there other factors that we should be considering? Part of it is what you mentioned on the October round.

So.

We're still very comfortable to our with our annual guidance and we don't see any off site. So you should expect 60 to 70 net new stores this year.

Alright, thanks, very much JP, okay. Thanks, Brian .

Our next question comes from the line of Chris Lee with Desjardin.

And I Hope you can hear me now.

JP Counter: But part of it is also that we've been able to scale with a strong top line performance, our S.G.A.A, line. And I mean, you can derive our second half expectations. And so we would help to achieve probably the better end of our performance. So that's our S.G.A, guidance range of all things remain equal. But definitely it's a question of scaling. But then there's the October round, which we're watching as well. Yeah, okay, make sense.

Yes, we can hear you, Chris yes, sorry about that.

I know, it's probably too early to talk about next year, but just.

Just at a high level, what do you think are some of the key puts and takes for same store sales growth for next year, because on one hand youre likely to go ahead to benefit from good demand skill refresh.

Penetration of the higher price points, but under that had maybe some reversal from discount if inflation.

It does moderate and macro conditions improve so just wanted to see get your thoughts on do you think positive same store sales is the reasonable expectation for next year and again what are some of the key puts and takes we should be thinking about for next year. Thank you.

JP Counter: And I'll just squeeze in one more if I could. And just on the AMILES arrangement, I know it wasn't a factor in Q2, but hopefully you could just talk about any impact from that. And also if you could just elaborate on the opportunities to leverage the data that you're going to get from this.

So.

I think you started your question the right way, it's too early to talk about next year's same store sales.

Irene Nattel: Thanks. We're too early in the process to really have a good idea of what kind of leverage can or might be gained from that. Okay. Thanks. And all the best. Thanks, Mark. Our next question comes from a line of Irene Natel with RBC capital markets. Thanks. Can you hear me? Fantastic. Thank you, Neil. First of all, let me just say, you know, thank you to JP and we're going to miss you.

As we are.

Justin.

We're just in September so.

But the puts and takes are all of the puts and takes that we would have in any year.

Our business is hasnt changed the fundamentals are the same.

And so as the year progresses, we'll start to have better visibility on next year's same store sales and that will translate in to our guidance in March but at this point.

Our focus is on delivering Halloween delivering Christmas delivering on our annual guidance that we just raised it.

So it's it's too early to talk about which will happen in 12 months from now.

Irene Nattel: And now onto my question. So I'm listening to your commentary, and I'm looking at the implied guidance for the back half of the year. And if we're kind of at 10% things to our sales six weeks into Q3, it looks as though the 4% to 6% implied things to our sales guidance in H2. It looks fairly conservative. So can you walk through what the thinking is there and whether you're seeing, you know, any red flags that cause you to be more cautious and usual.

Okay, That's fair and maybe a follow up is just on.

The higher price point, it's been more than a year since you launched them.

Our pricing surveys, we noticed that only a small percentage of products have been discontinued and this is partly a rhetorical question, but does that mean that you're generally happy with how the consumer acceptance has been with the higher price points and then secondly, what are some of the key learnings so far from the higher price points that you can share with us. Thanks.

I think the learnings are the same as they have been for every price point introductions, which is.

Irene Nattel: So, I mean, I think part of it is just our general philosophy around guidance. And there's no, there's no right red flags. It's quite, it's quite the opposite. I mean, we, we were having a similar discussion, if you recall, in Q1 and June. On the back of 17% SSS into one. And we wanted to see how we would be lapping last year's trade down. And we're very pleased with what we've seen in Q2, where we delivered 15.5% over 13% last year.

One we don't like to add price point until we really feel pressured that to offer the proper assortment to our customer we pretty much.

We have two to give a great shopping experience and to <unk>.

Each time, we do that because we wait so long and we spend so much time preparing.

It's been well accepted and so.

Our price brand introduction has been well accepted because we use the same philosophy as we do for the other existing price points, which is great relative value. We try to ensure that it's an additional sale and not just a multiple so if we had a 10 pack pencil a number we're not making a five.

Irene Nattel: Last year. And then, so far and two-three, as I mentioned in my remarks, we're seeing to your stack of 21%. So, definitely pleased with how our value proposition is positioned, very pleased with the traction we're seeing and the guidance is what it is, but there's no red flags. But our conservatism often comes from things that have nothing to do with our execution, obviously. And so, we're also just weary of, you know, contextually the situation with coming out of the pandemic, recovering, and now there's a sensitivity you see in schools and this and that.

Dollar item of 50 pack pencil, because that's not adding anything to our offering to the customers. So we want it to be something that we could not otherwise offer before and so really a new customer or a new sale.

That makes the shopping experience more interesting.

Okay. Thanks, Neil and JP, Let me also add best wishes to you as well thank you.

Thanks, Chris.

Our next question comes from the line of George <unk> with Scotiabank.

Irene Nattel: And so, just we want to, we want to remain conservative for reasons that may have nothing to do with internal red flags. I understood it. Thank you. And then, just sort of thinking through kind of what the cadence of what happened during Q2. So, when we had the call in June, I think you said things to ourselves are running by 11%, you entered quarter 15 and a half. So, can you talk about performance, you know, through, I guess June and July, you know, what you're seeing in back to school?

Yes, hi, congrats on a strong quarter and JP just wanted to wish you continued success of your future role.

I am just wondering get started maybe Neil you mentioned product refreshes could you talk a little bit about any themes there.

How should we think of maybe that quantum.

This historical historically, how it's been.

Product refreshes are in line with historical Nothing's changed I don't think there is a cadence.

Increase our slowdown.

We are seeing over the last few years there is certainly on the <unk> on the import side.

Irene Nattel: And then, if I may, just as we think about the assortment for, you know, the holiday season, where are you in terms of price point penetration versus where you might have been a year ago? Thank you. So, historically, with the introduction of price points over the course of time, the mix itself has not really shifted very much, not just the last few years, but many, many years. And so, the mix within any given department may shift yearly to some stuff that's a little, you know, on the lower end of our price range and other years a little higher, depending on what's available to the buyers.

Or overseas sourcing side.

A slowdown in creativity and the desire of manufacturers to spend money on new molds and creation. So the onus shifted to the retailer in our case to ensure that we were either creating we're finding.

With more effort than before new and exciting items that still remains the case.

The world is not.

Pouring creativity and orders into.

Our overseas.

Irene Nattel: But the amount of space we allocate per section and the amount of cues we list in any given department is extremely consistent. So, when you see slight changes in sales patterns, they have more to do with volume than they do with a change in our offering. That's really important because I know that the flavor of the day is all of these YouTube things about grocery and food and dollar-amma, but the reality is, you know, we haven't grown our food sections or grocery sections.

Manufacturers, yet I think it's all cyclical and will likely come back at some point in the near future, but for now our team has to keep doing what it's done for the last two or three years, which is to spend more of his time.

Being creative as opposed to shopping what's being created by the manufacturers.

Okay, Thanks, and based on the midpoint of the guidance. It looks like you guys are looking for 80 ish basis points of expansion in gross margins in the second half how should we maybe think of the cadence between Q3 and Q4 and in the lower versus the upper end, just predicated on kind of where consumers sorry consumables for the year or maybe other factors in there to consider.

Irene Nattel: We have, it still remains a small piece of our offering, just one of the many things we offer. And it's important to, you know, just keep things fact-based, as opposed to notionally-based when we're having these discussions. For the question about the season coming up, our mix of goods is the same as it has been in the past with the introduction of the new price point, which will be scattered throughout our Halloween and Christmas offerings. In the same percentages, approximately, as they have been in our everyday lives. That's great.

Well as we said since the beginning of the year.

We think that second half gross margin is going to be stronger than first half in terms of year over year improvement.

Irene Nattel: Thank you.

And then and then the question is really a question of mix George depending on what we see on the mix side in terms of general merchandise versus consumables versus seasonal which we can't predict.

But so far what we're seeing is a well balanced mix as I mentioned and Neil mentioned.

Our three main product categories.

Okay. That's helpful and just one last one if I may can you maybe talk a little bit about the appetite for M&A.

When it comes to potentially another acquisition kind of outside of the Americas are our core markets, where you can share best practices.

We are looking.

And have always looked at what.

Chris Lee: Our next question comes from a line of Chris Lee with Desjardins.

Other markets in the World, we are doing with regards to our sector.

We will continue to do so and when an opportunity makes sense.

Unknown Executive: Chris, your line is now open.

And would be.

Additive.

We will jump on that opportunity as we did in creating the dollar city business with our partners there but for the moment.

Brian Morrison: Our next question will come from the line of Brian Morrison with PD. Morning, thank you.

It's business as usual and we continue to keep our eyes on the world.

Brian Morrison: JP, it's been a pleasure and I certainly wish you all on your future endeavors.

Okay. Thank you.

JP Counter: I want to turn to price checks. We're starting to see a slowdown in your degree of pricing increases that are being put through. Just wondering if you can talk through with the flowing inflation, what you're seeing in terms of pricing with respect to the competition. So you're correct. We feel that even though domestically we're still feeling inflationary pressures on costs on the on the import side costs are fairly stable and controlled. And we're always, as you know, a price follower. And so we just following the market, making sure that we're best value all year long and the same story, nothing's changed.

Thank you.

Our next question comes from the line of Vishal Schrader with National Bank.

Hi, Thanks for taking my question.

Best of luck and congrats on the quarter.

Regarding shrink what are you seeing and how do you expect that to unfold over the quarters ahead do you expect that to become.

And increased the pressure or is it largely stable.

So I think it's largely largely stable we've.

Completed the vast majority of our accounts.

And so we're I would say in the gross margin comments that I made earlier.

<unk> trends are included in there.

So yes, we're comfortable with the shrink a position that we have.

The reality.

JP Counter: Okay, I guess, you know, JP, can you just talk about the timing of new store openings? I know you're looking to even them out throughout the year, but the second half typically has more ability. And with the economic challenges, I assume your phone has to be reading. So what's on your view on this? And is there obviously potential upside to your annual target? I think it's 3.9 to date. Well, I wish you were right, but the phone never rings.

Has it gotten worse over the past 12 months to 18 months, but we knew it going in the year. So we were able to factor it into our guidance.

Okay.

Thank you and with respect to <unk>.

Dollar on this performance obviously.

The same store sales growth has been outsized FERC for for many quarters now wondering if management sees that same store sales growth and as is.

JP Counter: Real estate, real estate is something that we must always chase down and stay on top of and manage. And so the amount of availability hasn't changed from years past to now. The difference is, we've always wanted to open the bulk of our new store openings at the beginning of the year. And it's always been something that escaped us even, you know, though we've tried just to help our operations, be able to focus on the fourth quarter sales.

Its discerning and customer messages from it and that maybe there is opportunity to increase store sizes and that may be the capacity plans that you have to deal with clients earlier than anticipated what should the market and look into.

To be accelerated trends.

So so.

Obviously, we're all very satisfied with all the hard work, we always put in and we're grateful that our customers recognize that hard work and the value and shopping experience, we try to present them.

JP Counter: And the change is nothing more, or the other way to look at it, is it's an incredible achievement by our real estate and operations team to just keep pushing the landlords, keep pushing our construction teams and our store executions to frontload it because the world has not changed. The real estate market has not changed. The availability has not changed. It's purely just a question of effort to get them opened at the beginning of the year, even though we've always wanted to.

I think we all feel.

<unk> and the rest of the leadership team, particularly the ones who spend the most time at store level that our store size feels like a good size to us that 10000 square feet box.

JP Counter: And failed in the past, we've succeeded this year and we're all very proud. So Neil, does the effort translate an upside-year annual target? So we're still very comfortable with our annual guidance, and we don't see any upside. So you should expect 60-70 in that new store this year. All right, thanks very much, JP.

There is always going to be exceptions, where we have truly.

Strong stores in smaller locations and as always our real estate team works on trying to grow the size of those stores, but corporately I don't think we have any any change in our and our and our philosophy our outlook on what the right box looks like as a whole and.

Brian Morrison: Thanks, Brian.

I think it's that simple.

Okay. Thank you for your comments.

Thanks Vishal.

Chris Lee: Our next question comes from a line of Chris Lee with Desjardins. Hi there. I hope you can hear me now. Yes, we can hear you Chris. Yeah, sorry about that.

Our next question comes from the line of Luke Hannan with Canaccord Genuity.

Thanks, and good morning, JP, maybe one for you I may have missed this in the discussion earlier, but as far as the mix assumption for H. Two is the assumption that demand remains well balanced for the rest of the year or I seem to remember on a prior call. You had mentioned that there was a view that potentially mix could.

Chris Lee: I know it's probably too early to talk about next year, but you know, just at a high level, what do you think are some of the key put and takes for same social schools for next year? Because on one hand, you'll likely still have the benefits from good demands, skill refresh, you know, high penetration of higher price points, but on the other hand, you know, maybe some reversal from discount inflation, that's moderating and macro conditions improve.

To normalize towards general merchandise and seasonal products.

As we mentioned I think so far.

Chris Lee: So just wanted to seek out your thoughts out, you know, do you think positive things are sales is that reasonable expectation for next year? And again, what are some of the key put and takes we should be thinking about for next year? Thank you. So I think you started your question the right way. It's too early to talk about next year's same store sales as we're just in September. So, but the put and takes are all the put and takes that we would have in any year.

Unfortunately, I can't predict the future.

But so far the what we're seeing is a well balanced mix I wouldn't say there is.

A major major shift from consumable to general merchandise or seasonal.

We're continuing to see all of the categories performing strongly and were pleased with the results.

Okay, and then for my follow up here.

The labor environment and more specifically, what you guys have done internally to be able to be more efficient when it comes to staffing and sourcing labor.

Chris Lee: So our business hasn't changed. Fundamentals are the same. And so as your progress is, we'll start to have better visibility on next year's same store sales, and that will translate into our guidance and March. But at this point, I mean, our focus is on delivering Halloween, delivering Christmas, delivering on our annual guidance that we just raised. So it's it's too early to talk about what will happen 12 months from now. Okay, that's fair.

Made some investments in the past from an IP perspective on improving what Youre doing there I'm curious to know if the full benefit of those investments have begun flowing through the P&L, yet or if that's a multi quarter.

Expectation for for benefits that you expect to see on the SG&A line.

I'd say.

As always.

When you think about our SG&A line, we're always looking for ways to be as efficient as we can be.

Neil Rossy: And maybe a follow-up, it's just, you know, on the higher price point, it's been more than a year since you launched them, you know, in our pricing surveys, we noticed that only a small percentage of products have been discontinued and this is probably a rhetorical question. But does that mean that you're generally happy with how the consumer acceptance is being with the higher price points? And then secondly, what are some of the key learning so far from the higher price points that you can share with us?

We're in the labor market that.

Where we have to always splits our best foot forward and be.

Competitive.

And so far we're pleased with the results, we're seeing from our ability to attract talent and to retain talent as much as possible in the current environment and we haven't had to curtail opening hours or any major disruptions to our operations like you may have heard.

Neil Rossy: Thanks. I think the learnings are the same as they have been for every price point introduction, which is one, we don't like to add price points until we really feel pressured that to offer the proper assortment to our customer, we we pretty much feel we have to to give a great job and experience. And two, each time we do that because we weigh so long and we spend so much time preparing, it's been well accepted.

In the industry in general so so far from a sharp perspective, I think we've done a good job of being efficient.

While making sure that we offer the best service possible to our customers and we have stores that are well Merchandised day in day out.

Okay.

Okay I appreciate it all the best JP.

Neil Rossy: And so our price point introduction has been well accepted because we use the same philosophy as we do for the other existing price points, which is great relative value. We try to ensure that it's an additional sale and not just a multiple. So, you know, if we had a 10 pack pencil, we're not making the $5 item, a 50 pack pencil because that's not adding anything to our offer and to the customer. So, we wanted to be something that we could not otherwise offer before. And so, really a new customer or a new sale that makes the shop in the experience more.

Yeah.

Our next question comes from the line of Martin Landry with Stifel, Canada.

Hi, Good morning can you hear me.

Yes.

Hey, good morning.

My first question.

Is on your.

The rollout of your $5 price points.

I was wondering.

Where you're at in that process.

Our analysis would suggest that.

Roughly 15% of your Skus are above $4.

And I was wondering.

Are you done with that process or there is more to come.

Unknown Executive: Okay, thanks Neil and JP, let me also add the best wishes to you as well. Thank you.

Yeah.

There is no target just to clarify the situation.

There never was a target and there won't be a target with regards to how many skus are in any given price point.

George Doumet: Our next question comes from a line of George Doumet with Scotia Bank. Yeah, hi, congrats on a strong quarter.

It's fluid and it really is dependent on the offering so if the next six months presents.

George Doumet: I'm JP, just my question you continued to question your future role. I just want to get started.

Neil Rossy: Maybe Neil, you mentioned product refreshes.

<unk>.

Greater percentage of truly amazing $5 items, we will have more a five dollar items and if the next six months.

Neil Rossy: Can you talk a little bit about any themes there and how should we think of maybe that quantum versus historical, historically how it's been? Product refreshes are in line with historical nothing's changed. I don't think there's a cadence increase or slowdown. We're seeing over the last few years, there's certainly on the import side or overseas sourcing side, a slowdown in creativity and the desire of manufacturers to spend money on new molds and creation.

Producers are.

Fantastic.

Let's say that.

Offering of $2 250 items then that's the.

Price point range that will grow it's really a truly dependent on them.

The items, we create and the items presented to us and the costs associated with those items as.

As the raw materials, and the and the other things that affect those items.

Neil Rossy: So the owners shifted to the retailer in our case to ensure that we were either creating or finding, you know, with more effort than before, new and exciting items. That still remains the case. The world is not pouring creativity and orders into our overseas manufacturers yet.

Cube size, so if they're large.

Then clearly.

They're they're going to be.

Pushed to the highest end of our price point range, because freight we'll have a much greater factor, but again, its all really dependent on the offering and if you see ebbs and flows of price point is purely just a question of opportunity.

Okay. That's helpful.

Neil Rossy: I think it's all cyclical and will likely come back at some point in the near future. But for now, our team has to keep doing what is done for the last two, three years, which is to spend more of its time being creative as opposed to shopping, what's being created by the manufacturers.

Then just in terms of my second question I'm trying to understand better the magnitude of your success.

JP Counter: Okay, thanks.

Trying to look at past recession, and if we look at that too.

8009 recession.

I believe that your same store sales growth were increasing by seven 8%.

JP Counter: And based on the midpoint of the guidance, it looks like you guys are looking for 80 issue basis points of expansion and gross margins in the second half. How should we maybe think of the cadence between Q3 and Q4 and in the lower versus the upper end, just predicate on kind of where consumers, sorry, consumables man for the year or maybe other factors in there to consider? Well, as we said since the beginning of the year, we think that the second half of gross margins going to be stronger than first half in terms of year over year improvement.

And in the last year now you've been growing.

Twice as fast.

Same store sales right.

I'm wondering if you can compare and contrast, a little bit the situation of 2008 nine versus.

The current tariff environment.

I'm much too young to do that so I'll ask J P to do that.

Yeah.

They're not they're not comparable.

If you look at.

JP Counter: And then the question is really question of mix towards depending on what we see on the mix side in terms of general merchandise versus consumables versus seasonal, which we can't predict. But so far, what we're seeing is a well balanced mix, as I mentioned, and you mentioned between our three main product categories. Okay, that's helpful.

OE dollars nine at the time, we're starting to introduce the $2 price points. So first of all we didn't have as a product offering number two from a macro contacts.

We're not in the hyper inflationary scenario with government stimulus.

You didn't have a supply chain driven.

A recession, but a financial crisis.

JP Counter: Just one last one. Can you maybe talk a little bit about the appetite for M&A when it comes to potentially another acquisition kind of outside of the Americas or core markets where you can share best best practices? Thanks. We're looking and have always looked at what other markets in the world we're doing with regard to our sector. We will continue to do so and when an opportunity makes sense and would be additive, we will jump on that opportunity as we did in creating the dollar city business with us. Our partners there. But for the moment, it's business as usual, and we continue to keep our eyes on the world. Okay, thank you. Thank you.

Very hard and almost impossible to compare <unk> to <unk>.

What.

We're going through right now.

And debate as to are we in a recession right now or not I mean someone someone album he can opine on that but just generally speaking if youll look at it.

The Dodge Ram.

Business model today versus OE torn iron and if you look at the macro environment.

They are both very different so hard to draw any parallels from one or the other.

Okay. That's it for me and congrats on your results.

Thanks Martin.

Our next question comes from the line of Jimmy Chen with BMO capital markets.

Hi, good morning, I'll be quick here, just going back to the gross margin improvement year over year. It is quite notable I just wanted to confirm so JP was it all due to the.

Vishal Shreedhar: Our next question comes from a line of Vishal Shreedhar with National Bank. Hi, thanks for taking my question and, you know, best of luck, JP and congrats on the quarter.

Better year over year shipping costs like was there anything else maybe just.

JP Counter: Regarding shrink, what are you seeing? And how do you expect that to unfold over the quarters ahead? Do you expect that to become an increased pressure? Or is it largely stable? Well, I think it's largely stable. We've completed the vast majority of our accounts. And so we're, I would say, in the gross margin comments that I made earlier, the shrink trends are included in there. And so, yeah, we're, we're comfortable with the shrink position that we have. The reality is it's gotten worse over the past 12 to 18 months, but we knew it going in the years. So we were able to factor it in our guidance.

The performance in general merchandize that that contributed as well and did I hear correctly in terms of the shipping cost tailwind, you're expecting that year over year improvement to be greater in the second half of the year.

So you heard correctly on both fronts.

The.

Gross I mean, there are many lines and to go from sales to gross margins, but.

The lion's share of the improvement is a function of our ability to make our cost structure in the supply chain.

More efficient than it was last year and given our inventory turn it over.

Approximately three five times a year.

Neil Rossy: Okay, thank you. And with respect to dollar on this performance, obviously, the, you know, the same sort of sales growth has been outsized for, for, for many quarters now, wondering if management see that same sort of sales growth and is, is discerning and customer messages from it in that maybe there's opportunity to increase store sizes. And that may be the capacity plans that you have need to be revised earlier than anticipated.

Lot of those benefits will be felt more in the second half than in the first half.

Okay understood and I wanted to ask about your.

Earnings pick up from the dollar city the last three quarters been a little volatile like I think.

So Q4, it was 20 million than last quarter and 13 this quarter 11.

Neil Rossy: What should the market look into into these accelerated trends? So, so, you know, obviously we're all very satisfied with all the hard work we always put in. And we're grateful that our customers recognize that hard work and the value and shopping experience we try to present them. And I, I, I think we all feel. And the rest of the leadership team, particularly the ones who spend the most time at store level that our store size feels like a good size to us that 10,000 square feet box.

I don't know if thats from FX translation or something like that.

And then any sort of shift in the underlying business has momentum. Thanks.

No it's more seasonality typically keep in mind that dollar city's year end as of December year end, so they tend to pick up.

Halloween and Christmas in their Q4, whereas we have Halloween, our Q3 and Christmas in our Q4. So there is seasonality tends to be a.

A little bit more skewed towards Q4 and that explains most of.

What youre describing is volatility.

Okay understood. Thank you.

Thanks Tammy.

Neil Rossy: You know, there's always going to be exceptions where we have truly strong strong strong stores and smaller locations. And as always, our real estate team works on trying to grow the size of those stores. But corporately, I don't think we have any, any change in our, in our, in our philosophy or outlook on what the right box looks like as a, as a whole. And I think it's that simple.

Our.

Question comes from the line of Zain Burack with credit Suisse.

Neil Rossy: Okay. Thank you for your comments.

Hi, This is Ann thanks, Thanks, a lot for taking my question and congrats on a great quarter.

Unknown Executive: Thanks, Michelle.

I wanted to go back to traffic can you talk about the strength. There clearly there are some macro pressures that are making the consumer more budget passes.

But beyond that can you point to anything specific of older initiatives stealing dark chocolate.

<unk> versus a discount tiers, whether it be new.

Luke Hannan: Our next question comes from a line of Luke Hannon with Canacorn Genuity. Thanks, and good morning.

Points merchandising carve off label marketing et cetera.

And separately.

When I looked at the model historically.

JP Counter: JP, maybe one for you. I may have missed this in the discussion earlier, but as far as the, the mix assumption for H2 is the assumption that demand remains well balanced for the rest of the year. Or I seem to remember on a prior call you had mentioned that there was a view that potentially mix could continue to normalize towards general merchandise and seasonal products. I mean, as we mentioned, I think so far, and unfortunately I can't predict the future, but so far, what we're seeing is a well-balanced mix. I wouldn't say there's a major, major shift from consumable to general merchandise or to seasonal. We're continuing to see all the categories performing strongly, and we're pleased with the results.

Prior to Covid I should say your comps were largely driven by ticket growth, although transactions also tended to be possible.

I guess with double digit transaction growth over the past seven quarters now do you think the composition of comps going forward will be different than historical trends, meaning more over indexed to chocolate.

How does that affect your long term alcohol.

Going forward.

Sorry, I know, it's a lot better about.

Any color would be helpful.

Well Thats a full question.

So on the first part.

When youre talking about initiatives.

I mean, all of the items, you talked about price points mix value prop merchandising.

JP Counter: Okay, and then for my follow-up here, it's on the labor environment, and more specifically what you guys have done internally to be able to be more efficient when it comes to staffing and sourcing labor. You've made some investments in the past from an IT perspective on improving what you're doing there. I'm curious to know if the full benefit of those investments have begun flowing through the PNL yet, or if that's a multi-quarter expectation for benefits that you expect to see on the SG&A line.

These are not initiatives. This is what we do day in and day out. So the team has done a fantastic job at executing very well on all those fronts and that translated.

In the results that Youre seeing in in Q2. So there is no specific initiative.

That I would point to accept of course, we've introduced a new price point, but that's not in that initiative.

But it's just the combination.

Our value prop in the current environment with good merchandising and making sure we're in stock with the right goods in the right assortment.

JP Counter: I'd say, as always, when you think about our SG&A line, we're always looking for ways to be as efficient as we can be. We're in the labor market where we have to always put our best foot forward and be competitive. We're pleased with the results we're seeing from our ability to track talent and to retain talent as much as possible in the current environment. We haven't had to curtail opening hours or any major disruptions to our operations like you may have heard in the industry in general.

And that's driven our results, but there is no specific initiative.

Good.

Consistent execution then on your second question on the composition of the comps.

For sure we've seen elevated transaction levels as.

Theres been trade down over the past.

18 months, so that's resulted in.

More frequent trips and more transactions, so saying that we were really questioning is what we'd be able to maintain the basket size with the increased transaction and we've been able to maintain an increase even the basket size over the past 18 months. So that's that's really what's driven the comps.

JP Counter: So, so far from a sharp perspective, I think we've done a good job of being efficient while making sure that we offer the best service possible to our customers, and we have stores that are well merchandised day in and day out. Okay, appreciate it. All the best JP.

Okay.

Got it thanks for the color J P I guess somewhat related to that.

I know you updated your long term store target in Canada, not so long ago. I think there was a couple of years ago, but I guess given the strength in traffic is there a consideration of accelerating unit growth in the outer years such that.

Martin Landry: Our next question comes from a line of Martin Landry with Stephen Canada. Hi, good morning. Can you hear me? Yes. Okay, good morning.

Maybe there is more of a land grab opportunity than you previously considered.

And Relatedly should we expect an update on the.

Martin Landry: My first question is on your, there were a lot of your five dollar price points. I was wondering where you're at in that process. You know, our analysis would suggest that roughly 15% of years queues are above $4. And that was wondering, you know, are you done with that process or there's more to come?

Long term store target anytime soon.

Can you speak to any work or analysis, you've done on that front recently.

Yeah. So the focus right now well first of all I was updated.

Two years ago.

So the focus right now two years into this just to deliver and execute as we discussed earlier, we frontloaded the growth of stores in the year.

The pipeline in terms of real estate is looking good.

But right now it's just delivering on our on this year and next year and then we'll see what the future holds.

Neil Rossy: There's no target just to clarify the situation. There never was a target and there won't be a target with regards to how many skews are in any given price point. It's fluid and it really is dependent on the offering. So if the next six months presents, you know, a greater percentage of truly amazing five dollar items, we will have more five dollar items. And if the next six months produces a fantastic, let's say, So offering of $2 or $250 items, then that's the price point range that will grow.

Understood and it's been great to work with J P and best of luck, Jamie The next chapter I appreciate it. Thank.

Thank you.

Yeah.

Thank you.

This concludes today's conference call. Thank.

Thank you for participating you may now disconnect.

Okay.

[music].

Okay.

Neil Rossy: It's really truly dependent on the items we create and the items presented to us and the costs associated with those items as, you know, the raw materials and the other things that affect those items, the cube size. So if they're large, you know, then clearly as they're going to be pushed to the highest end of our price point range, because freight will have a much greater factor. But again, it's all truly dependent on the offering and if you see ebbs and flows of price points, it's purely just a question of opportunity.

Okay.

[music].

Martin Landry: Okay, that's helpful.

Neil Rossy: And then in terms of my second question, I'm trying to understand better the magnitude of your success and trying to look at at past recession. And if we look at the 2008, 2009 recession, I believe that your same store sales growth were increasing by 78%. And in the last year now, you've been growing twice as fast your same store sales.

Neil Rossy: You know, I'm wondering if you can compare contrast a little bit of the situation of 2008, 2009 versus, you know, the current environment. I'm much too young to do that. So I'll ask JP to do that. They're not, they're not comfortable. If you look at 2008, 2009 at the time, we're starting to introduce the $2 price points. So first of all, we didn't have a product offering number two from a macro contacts. We were not in the hyperinflationary scenario with government stimulus. You didn't have a supply chain driven a recession, but a financial crisis.

Neil Rossy: So very hard and almost impossible to compare 2008, 2009 to what we're going through right now. And debate is, are we in a recession right now? We're not. I mean, someone, someone has a meat and a pint on that, but just jelly speaking, if you look at the Dalrama business model today versus 2008, and if you look at the macro environment, they're both very different. So hard to draw any parallel from one or the other.

Martin Landry: Okay, that's it for me. Congrats on your results. Thanks, Martin.

Kami Chen: Our next question comes from the line of Kami Chen with BMO capital markets. Hi, good morning. I'll be quick here. Just going back to the gross margin improvement, your rear, because it's quite notable. I just want to confirm. So JP was it all due to the better your shipping cost. Like was there anything else, maybe just the good performance in general merchandise that that contributed as well? And did I hear correctly in terms of the the shipping cost tailwind, you're expecting that your re-improvement to be greater in the second half of the year?

Kami Chen: So you heard correctly on both fronts. I mean, there are many lines to go from sales to gross margins, but the line share of the improvement is a function of our ability to make our cost structure in the supply chain more efficient than it was last year. And given our inventory turns over a probable approximately three and a half times a year, a lot of those benefits will be felt more in the second half than in the first half. Okay, understood.

Kami Chen: And I wanted to ask about your earnings pickup from the dollar city. The last three quarters been a little volatile. Like I think in your fiscal Q4, it was 20 million then last quarter, 13, this quarter, 11. I don't know if that's from a fixed translation or something like that. Has there been any sort of shift in the underlying businesses momentum? Thanks.

Kami Chen: No, it's more seasonality. Keep in mind that dollar cities, year-end, is a December year-end, so they tend to pick up Halloween and Christmas in their Q4, whereas we have Halloween RQ-3 and Christmas in RQ-4. So there are seasonality tends to be a little bit more skewed towards Q4. And that explains most of what you're describing as volatile. Okay, understood. Thank you. Thanks, Tammy.

Zane Burek: Our next question comes from a line of Zane Burek with Credit Suisse. Hi, this is Zane. Thanks, thanks, Scott.

Zane Burek: We're taking a question and congrats on our great quarter. I wanted to go back to traffic. Can you talk about the strength there? Clearly, there are some macro pressures that are making the consumer more budget conscious. But beyond that, can you point to anything specific of all your initiatives, feeling that traffic, especially versus your discount peers, whether it be, you know, new price points, merchandising, private label, marketing, etc. And separately, when I look at the model historically, prior to COVID, I should say, your comps were largely driven by ticket growth, although transactions also tended to be positive.

Zane Burek: I guess with double-visit transaction growth over the past seven quarters now, do you think the composition of comps going forward will be different than historical trends, meaning more over-indexed traffic? And how does that affect your long-term algorithm going forward? Sorry, I know it's a lot there, but any color would be awful.

Neil Rossy: Well, that's a full question. So on the first part, when you're talking about initiatives, I mean, all the items you talked about, price points, mix, value, product, merchandising. These are not initiatives. This is what we do day in and day out. So the team is done a fantastic job at executing very well on all those fronts, and that's translated in the results that you're seeing in Q2. So there is no specific initiative that I would point to except, of course, we've introduced a new price point, but that's not an initiative.

Neil Rossy: But it's just the combination of our value prop in the current environment with good merchandising and making sure we're in stock with the right goods and the right assortment, and that's driven the results. But there's no specific initiative. It's just good consistent execution. Then on your second question on the composition of the comps, for sure we've seen elevated transaction levels as there's been trade down over the past 18 months. So that's resulted in more frequent trips and more transactions.

Neil Rossy: So saying that we were really questioning is will we be able to maintain the basket size with the increased transaction and we've been able to maintain an increase even the basket size over the past 18 months. So that's really what's driven the comps.

Neil Rossy: Thanks for the color of JP and I guess so much related to that. I know you updated your long term store targeting Canada not so long ago. I think it was a couple years ago, but I guess given this strength and traffic is there a consideration of accelerating units growth in outer years, such that maybe there's more of a land grab opportunity than you previously considered. And relatedly should we expect an update on the you know long term store target anytime soon.

Neil Rossy: I just can you speak to any work or analysis you've done on that from recently. Yeah, so to the focus right now, well, first of all, I was updated two years ago. So the focus right now, two years in, it's just to deliver an execute. As we discussed earlier, we've prompted the growth of stores in the year. The pipeline in terms of real estate is looking good, but right now it's just delivering on on this year next year and then we'll see what the future holds.

Luke Hannan: Understood and spend great to work with the JP and best of luck to you in the next chapter. Appreciate it. Thank you.

Unknown Executive: This concludes today's conference call. Thank you for participating. You may now disconnect.

Unknown Executive: Thank you.