Q3 2025 Dollarama Inc Earnings Call
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Speaker Change: All participants, please stand by. Your meeting is about to begin. Good morning, and welcome to the Dollarama Fiscal 2025 Third Quarter Results Conference Call. Neil Rossy, President and CEO, and Patrick Bui, CFO, will make a short presentation, followed by a question and answer period open exclusively to financial analysts.
Speaker Change: 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 CDAR Plus.
Speaker Change: Valorama'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.
Speaker Change: 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 circumstances.
Speaker Change: 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.
or implied by the forward-looking statements.
Speaker Change: As a result, Dalai Lama cannot guarantee that any forelooking statement will materialize, and you are cautioned not to place undue reliance on these forelooking statements.
Speaker Change: For additional information on the Assumptions and Risk, please consult the Cautionary Statement regarding forward-looking information contained in Dalarama's MD&A dated December 4, 2024, available on CDAR Plus.
Speaker Change: Forward-looking statements represent management's expectations as at December 4th, 2024, and accept as may be required by law. Dalarama 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.
Neil Rossy: Thank you operator and good morning everyone. This morning we reported our third quarter fiscal 2025 results with EPS of 98 cents representing a 6.5% increase over the same quarter last year.
Neil Rossy: Comparable store sales increased by 3.3 percent, reflecting the same trends we have seen since the beginning of the year. Continued SSS normalization and a cautious consumer who continues to appreciate and seek out our value proposition.
Neil Rossy: Our performance in the context of careful discretionary spending by consumers only strengthens our conviction in the relevance of our value model within the Canadian retail landscape, across geographies and demographics, and through the economic cycle.
Neil Rossy: In this vein, we also announced this morning an increase in our long-term growth plans in Canada. We have increased our target to 2,200 stores by 2034.
Neil Rossy: This is up from our previous target of 2,000 stores by 2031. Our updated market analysis confirmed that there is continued opportunity to profitably grow in Canada over the next decade, maintaining our average new store capital payback period of about two years.
Neil Rossy: For the year underway, we've opened 50 net new stores and are well on track to open a total of 60 to 70 net new stores by fiscal year end.
Neil Rossy: Just before we closed the corridor, we reached another real estate milestone with the opening of our 1600th store in Canada located in Edmonton, Alberta.
Neil Rossy: In parallel to growing our store network, we are also constantly working on the optimization of our logistics operations to match this growth.
Neil Rossy: Up until now, we have relied on a centralized approach. While our current operations have served us well, given our Western store base and future growth plans across the country, the time is right to put in motion plans to develop a two-node logistics operation.
Neil Rossy: This will enable us to better service our network across Canada over the long term while bringing more agility and resilience to our logistics operations through redundancy.
Neil Rossy: With such a system in place, we will be even better positioned than we are now to ensure the smooth flow of goods to our stores in all situations.
Neil Rossy: The Calgary region was identified as the optimal location to host our future Western Hub. We have found a well-located parcel of land in Balzac, just north of the city, where we can develop exactly what we need.
Neil Rossy: Following the closing of the land acquisition and over a three-year period we intend to build a distribution center along with warehousing integrated in the same complex.
Neil Rossy: Once built, this hub will service our stores across Western Canada, which are currently serviced out of Montreal. The plan is for the two-node logistics network to meet the distribution capacity requirements for our updated growth plans in Canada.
Neil Rossy: Having this in place will also allow us to optimize our Montreal logistics operations.
Neil Rossy: Once the Western Hub is up and running, the Montreal, D.C. and area warehousing centres will focus on servicing stores in eastern Canada. The property we purchased in Town of Mount Royal in fiscal 2024, located right next to our Montreal, D.C., will provide us with optionality with future optimization of the Montreal Hub.
Neil Rossy: Turning to Latin America. During their calendar third quarter, Dollar City continued on their growth plan with the opening of 18 net new stores. This brings their total store count at September 30th to 588, up from 532 at the end of 2023.
Neil Rossy: This includes 349 stores in Colombia, 103 stores in Guatemala, 75 in El Salvador, and 61 in Peru.
Neil Rossy: As mentioned last quarter, the team is also continuing to progress with its work to open the first Dollar City stores in Mexico in 2026.
Neil Rossy: The Dollarama team is not resting on its laurels, but building on our successes and forging ahead with our multi-pronged growth plan.
Neil Rossy: Earlier this year, we reiterated our confidence in Dollar City by increasing our ownership and their long-term store targets in their current countries of operation.
Neil Rossy: We also announced plans to enter Mexico. Today we are announcing plans for another decade of growth in Canada and an evolution in our logistics network, which speaks to the role we have carved out for Dollarama as a leading value retailer.
Neil Rossy: With our growth platforms and a business model that can deliver for today and tomorrow's value-oriented customer across geographies, we look forward to executing on our plans with our usual focus and discipline.
With that, I'll pass it over to Patrick.
Patrick Bui: Thank you, Neil, and good morning, everyone. Let's start with an overview of our Q3 results.
Patrick Bui: Sales increased by 5.7% over Q3 of fiscal 2024, coming in at over $1.5 billion. We generated same-source sales growth of 3.3% for a two-year stack of 14.4%.
Patrick Bui: Q3 performance was primarily driven by strong demand for everyday essentials.
Patrick Bui: As mentioned last quarter, we also had two Halloween sales days fall in Q4.
Patrick Bui: In this context, SSS is behaving as anticipated and continues to progressively normalize.
Patrick Bui: In terms of our annual guidance of three and a half to four and a half percent
Patrick Bui: We expect SSS growth to be anchored around the midpoint of this range, with the next few weeks leading to Christmas being important.
Patrick Bui: Gross margin came in at 44.7% compared to 45.4% in Q3 of last year. The decrease is mainly due to stronger sales of consumable products and higher logistics costs.
Patrick Bui: For the full year, we expect gross margin to fall within the top half of our guidance range of between 44 and 45 percent of sales.
Patrick Bui: SG&A decreased the 14.3% of sales for Q3 compared to 14.5% for Q3 of fiscal 2024 due to the positive impact of scaling.
Patrick Bui: For the full year, we expect SG&E as a percentage of sales to come in towards the bottom end of the 14.5% to 15% annual guidance range.
Patrick Bui: Dollar City's net earnings contribution for the quarter was $27.1 million compared to the $18 million last year. This is the first quarter to fully reflect our 80.1% ownership stake.
Patrick Bui: Back to Dollarama earnings, Q3 EBITDA came in at $509.7 million compared to $478.8 million last year.
EPS increased by 6.5% to $0.98 per share.
Patrick Bui: On the NCIB front, we remained active with the repurchase of nearly 1.4 million common shares for cancellation in Q3 for a total consideration of $186.2 million.
Patrick Bui: The board also approved a quarterly cash dividend of 9.2 cents per share.
Patrick Bui: Turning now to our new long-term target in Canada, our update to 2,200 stores by 2034 was based on a thorough revaluation of the market potential for Dollarama stores and corroborated by third-party analysis.
Patrick Bui: Several factors came into play in this exercise including demographics, now projected, Dollarama's role and relevance in the everyday shopping habits of Canadian consumers, our capabilities as operators,
Patrick Bui: the evolution of the retail landscape, and the environment we expect to operate in over the next 10 years.
Patrick Bui: Taking these factors into consideration, we believe that we can continue to pursue our growth at a healthy pace and by maintaining our two-year new store capital payback period.
Patrick Bui: The cost savings is not the only driver, this is also about optimizing and putting in place the right infrastructure to support the business, including growth to our new store target in 2034.
Patrick Bui: Excluding land acquisition costs of 46.7 million, the estimated capex for the construction of our future Western Hub is approximately 450 million. We plan to have distribution and warehousing operations similar in nature to those in Montreal, so primarily an automated.
Patrick Bui: With the land acquisition anticipated to close by the end of the fiscal year, we should break ground on construction in the spring of next year, aiming for project commissioning by the end of calendar 2027.
Patrick Bui: The capex for this project will be distributed over a three-year period, and we do not expect it to impact our shareholder capital return strategy. We intend to remain active on the share buyback front, in addition to maintaining our dividends subject to quarterly approval.
Patrick Bui: Next quarter, when we provide guidance for fiscal 2026, we will be able to provide visibility on the anticipated pace of capital spend, although we already foresee the capital outlay to be more front-loaded.
Patrick Bui: Our updated 10-year growth target and plans to strengthen the backbone of our Canadian business
Patrick Bui: demonstrate our conviction in the continued potential of our core market. At the same time, we are also tapping into more growth in LATAM, both in Dollar City's current countries and eventually in Mexico.
Patrick Bui: Our focus across all teams and markets is on leveraging our strength and agility as buyers, importers, retailers, operators, and as judicious capital allocators.
Patrick Bui: We are confident that delivering on our value and convenience promise to consumers will continue to translate into sustained profitable growth and long-term value creation for our shareholders.
Speaker Change: With that, I'll now turn the call back to the operator for the Q&A.
Speaker Change: Thank you. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
Speaker Change: Our first question comes from the line of Irene Natel with RBC Capital Markets. Your line is now open.
Speaker Change: Thanks and good morning everyone. My first question is for the CEO of the Year. Congratulations Neil. And as always, I really want to focus for a moment, if possible, on consumer spending trends. We've been hearing a lot from other retailers about sequential deceleration during calendar Q3.
Speaker Change: Can you walk us through what you saw in terms of, you know, seasonal, how is Halloween as a season overall? And I know it's early, but, you know, any early read on Christmas demand?
Speaker Change: So it's too early for Christmas, but we were generally satisfied with Halloween's performance in the context of last year's.
Very strong Halloween performance.
Speaker Change: I guess it's completely to be expected when people worry about the economy in general.
Speaker Change: That's helpful. Thank you, Neil. And just sort of to continue to beat this horse, within the essentials, have you seen any kind of shift in demand by category or anything like that, or that's been relatively stable? No, it's been very stable, actually.
Okay, excellent.
Speaker Change: And then just one question on the D.C. warehouse. You mentioned, I think, Patrick, that the automation is going to look fairly similar to Montreal. Can you walk us through what the thought process was, whether there were any concerns about labour availability and things like that?
Speaker Change: So I'll take this one, Irene. The thought process was after, you know, doing our diligence,
Speaker Change: in Montreal today seem to be the most efficient and most flexible way to start with our operations in Calgary. We did not want to
start testing new concepts.
Speaker Change: you know, away from Montreal, so the process would look more like...
Speaker Change: Montreal and then over the course of time as we continue to test you know new types of automation that will happen in the Montreal warehouse and then if they're successful the next you know phase would be to start implementing some of those in Calgary at some later point in time.
That's really helpful. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Chris Lee with the Jordan. Your line is now open.
Chris Lee: Hi, good morning Neil and Patrick. I have two questions. First on Dollar City and then the second one will be on gross margin. Just on Dollar City, the pace of earnings growth seems to have slowed down a little bit.
Chris Lee: compared to recent quarters. I know it tends to fluctuate on a quarterly basis and there's probably some noise from FX.
Chris Lee: and interest costs and etc. So my question is, you know, was the slowing in earnings growth part of the normal growth normalization that is also happening in Canada or are there other factors that you would like to to call out? Thanks.
Speaker Change: Thanks Chris, you're spot on. We mentioned in the past that the trends that we're seeing at Dollar City are very similar to those at Dollarama.
Speaker Change: So, you know, ultimately, I think we're pleased with the growth at Dollar City, but it is also true that we're seeing some normalization in terms of SSS trends, still very healthy, but there is normalization.
Speaker Change: in LATAM as well. There's one item that I would point out as well is as we ramp up our operations in Mexico there may be some additional costs that trickle through the equity pickup line as well.
Okay, that's helpful. Maybe just a quick follow-up, Patrick.
Patrick Bui: In the past, I think we've talked about maybe the possibility of the company providing some incremental disclosures around Dollar City in the future. Is that still on the table to be considered?
Speaker Change: Well, just from an accounting standards standpoint, we will likely provide some more color in Q4 with our annual report.
Speaker Change: Okay, that's helpful. And my other question just on the gross margin, you know, as we look out into next year, you know, the industry might be facing higher product costs, you know, with potential tariffs and a weaker Canadian dollar. And given that the industry has gone through, obviously, a high cycle of high inflation, do you expect there will be maybe less flexibility for the industry to pass on higher costs?
Speaker Change: may be resulting in some margin pressure next year. And maybe on the flip side is, you know, what are some of the key margin levers that you can pull to offset some of these potentially higher cost pressure for next year? Thank you.
So
Speaker Change: or surtaxes of various kinds. The point is it's going to affect all Canadian retailers equally.
Speaker Change: who are selling, you know, our category of goods and how we react to it is always what's going to decide whether we are competitive or not competitive in the market.
Speaker Change: And, as we've also said many times, we're a price follower, not a price leader, so we will watch what the market does.
And if the market absorbs...
You know inflation were or weaker exchange rates or tariffs
We have to work within the context of.
Speaker Change: Let's say on on our game and every piece of our business Then it's our job to ensure that the customer, you know comes to Dollarama for the best value in the most interesting shop
Okay, that makes sense. Thanks and happy holidays.
Speaker Change: Thank you. Our next question comes from the line of Brian Morrison, ROTC Cowan. Your line is open.
Brian Morrison: Good morning. Maybe I can just follow up on that question, Neil, with respect to is there any changes in terms of pricing behavior from your competitors or does it remain pretty much flat right now?
Speaker Change: Currently it's been pretty flat. Certainly you know terrorists and other things will get everybody very excited and they'll be there'll be a lot to keep an eye on but for the moment in general it's it's pretty flat.
Speaker Change: Okay, and then with respect to the expansion for Patrick, I guess, but with respect to the expansion to Western Canada, with respect to your logistics facility, should we expect that all of the costs there will be capitalized or could some of that be expensed?
in terms of building the logistics network.
You should see it mostly as capital investments.
Speaker Change: Okay and then last question if I can. I've noticed in prior years that Q4 you typically have a big uplift in dollar city store additions and I'm wondering if we're going to see that again this year and what is the reasoning for that?
Speaker Change: Sorry, you repeat that, you mean in Q4? In Q4, typically there's been a big uplift with respect to Dollar City new store additions. I'm wondering for that, we should probably, or pardon me, if we can expect to see that again this year.
Speaker Change: There's nothing particular reason for that. You see the pace that we provided with the guidance, the new target about two quarters ago. So that should give you an idea of what the pace, the average pace by year should be.
Speaker Change: Okay, thank you, Patrick. With all due respect, you've been well in excess of that over the past four quarters, though.
Speaker Change: The teams are working hard and trying to do their best, but that pace is a very, very high pace. We hope they meet their targets, but those are very high-paced years.
I appreciate your comments. Happy holidays.
Speaker Change: Thank you. Our next question comes from the line of Mark Petrie with CIDC. Your line is now open.
Mark Petrie: Yeah, thanks. Good morning. Just given the consumer context that you described, I'm curious to hear your latest thoughts on how you think about
managing your assortment.
Speaker Change: and your merchandising, just given the emphasis on value. And I guess I'm thinking specifically of sort of the balance of SKUs across price points, particularly as you introduce new SKUs, and then also the merchandising in the store.
Speaker Change: I wish it was something that, you know, could switch within a month. But the reality is...
large retailers, you know
Let's call it more traditional retailers
Speaker Change: plan out their stores for the entire year. Dollarama has a much shorter, more flexible, you know, schedule than that for how goods get laid out, etc. But...
Speaker Change: It's still a massive job to start changing the layout of 1,600 stores.
Speaker Change: and so it's not something that gets done you know at a whim and things have to really change drastically to change the overall mix and the overall assortment.
Speaker Change: So, as a rule, we stick to our mix, we stick to our layout in general, and if certain departments are selling more goods out of the same square footage than usual, the buyers will get some flexibility in adding extra SKUs, but we won't generally change the entire, you know, zonogramming or planogramming of a store.
Speaker Change: Yeah, understood, understood. And I guess specifically, the balance of products across price points, that's all relatively stable, I would assume, as well? It is relatively stable.
Speaker Change: I wanted to ask just about your self-checkouts, and I'm just curious if you could give us an update about the current penetration in the network, sort of your satisfaction with the consumer adoption and your execution with those, and then the overall sort of net impact on the business and consumer perception.
Speaker Change: Yeah, I mean the penetration, you know, call it roughly, you know, 20% of our 20% of our stores We see tremendous value in the self checkouts
Speaker Change: We might reallocate some of the self-checkouts to other stores, but generally speaking, you know, we think this mix seems fairly appropriate.
Speaker Change: Yeah, okay. And maybe if I could just ask one more, just back to the whole distribution facility or logistics hub in Calgary. You called out a number of different variables that sort of drove the decision now. And I'm just curious if...
Speaker Change: What was the tipping point for the decision was, was any sort of shifting in the prioritization of those different variables, you know, the financial, but also, you know, the importance of redundancy, or if it really was, you know, the vast majority of this, the decision was just ultimately about about growth and and the need for capacity on, on, uh,
in another region.
Speaker Change: Yeah I mean as you would know you know our guiding light when it comes to economics of stores is really payback and so as we see you know strong paybacks for our stores it gives us confidence in a longer a longer target and a better target.
Thanks for watching!
Speaker Change: Okay. Appreciate the comments, guys, and all the best. Happy holidays.
Speaker Change: Thank you. Our next question comes from the line of John Zamparo with Scotiabank. Your line is now open.
Speaker Change: Yeah, you know, all we would say is, you know, there's improved efficiency by having a tune of logistics. So you could assume that there are significant savings on transportation costs. And those savings, based on our analysis, you know, fully justifies the capital outlay.
Speaker Change: Okay understood and is it fair to say that those savings would phase in over time or would we see a notable amount in 28 once it's up and running?
Speaker Change: I mean, there's certainly a ramp-up of the logistics hubs operation, so you would need to assume a ramp-up until full operation and commissioning of that to have the full run rate savings.
Speaker Change: On to leverage, the press release stated that with the new DC, you don't anticipate a change to your capital return plans. Presumably, that means you're willing to take on a bit more leverage. I wonder if there's a new target or range that you have in mind.
Speaker Change: No, I mean, no, we don't have it targeted with respect to leverage. I think what we're alluding to is that the company...
Speaker Change: will continue generating strong free cash flow and we think we could, at the same time, maintain a robust NCIB program and at the same time fund the Catholics for this project.
Speaker Change: Okay, understood. And then one last one on the new store target.
Speaker Change: Presumably you're seeing more of your new stores overlap with your existing footprint. I wonder if you're seeing a greater impact of these stores when when you execute this this sort of fortressing strategy and should we anticipate that there will be more overlap with new stores of existing stores moving forward?
Okay, I appreciate the color. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Martin Landry with Stiefel Canada. Your line is now open.
Speaker Change: And is there any buckets that you could break down to give us a better sense of what makes up that $450 million?
Speaker Change: So the building size will be approximately 1.6 million square feet and so the 450 million is actually a great deal.
Speaker Change: But now you have some context relative to our other buildings. That being said, the other questions I'm going to leave with Patrick.
Patrick Bui: Yeah, I mean we, you know, we're not breaking down the cost but, you know, in there there's obviously the building but you need to, you need to think about what's inside the building as well. So in terms of...
Patrick Bui: you know, racking, conveyor, you know, material handling equipment, so on and so forth. So all of that is included.
in our 450 number.
Speaker Change: Okay, and what's the return on invested capital that you expect to achieve on that investment?
Speaker Change: Look, all we mention is that there's substantial cost savings and it justifies the CapEx, and it easily clears our internal hurdle rates.
Patrick Bui: Okay so Patrick can you refresh me what's your internal hurdle rate?
Speaker Change: I mean think of, you know, this is not something that is new to you. I mean every company has, you know, their own cost of capital and that would be similar to what we view as, you know, a minimal hurdle rate we need to achieve on projects.
Speaker Change: Yeah, because I see your return on invested capital is 20% now, so would that be dilutive to that return?
Speaker Change: So a few things. One, you need to view this as a critical infrastructure. So yes, there is a financial aspect to it, but there's a strategic and operational value as well to this project.
Speaker Change: as years go by, and so a substantial portion of the savings...
Speaker Change: could be attributed to the part of the building that is the DC. So, a little complex what I just mentioned, but you need to look at the returns, not necessarily on the full project, again, because some of the warehousing was needed anyways, but rather what brings the exact cost savings.
Okay.
Okay, that's it for me. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Vishal Sreedhar with National Bank Financial. Your line is now open.
Hi, thanks for taking my questions.
Speaker Change: Neil, off the top, you said that you felt comfortable that your business proposition was...
Speaker Change: still resonating with consumers, notwithstanding the slowdown, which was called out in advance. But I'm wondering what metrics that you're looking at suggest to you that the sequential slowing of same-source sales growth is related more so to the consumer versus a view that Dollarama has become less competitive, let's say, versus its peers.
Speaker Change: I think just a comp shop answers that question for us, you know, at the end of the day, if we're, if we're still equally competitive within the market, then the only thing that could affect our
Speaker Change: Sales is discretionary spending. I mean, you know, that's the reality. We see the performance of our competitors, we see the offering of our competitors like they see ours, and I think it's those things that allow us to feel that way.
Speaker Change: your plans to look further into different geographies for Dalarama. Given the larger CapEx spend and the intent to maintain your capital return program, does that suggest that
Speaker Change: you know, the acquisitions outside of the regions currently, currently indicated would be more of a longer term consideration.
Speaker Change: I think that the answer to that question is always a question of opportunity. It's much like the question of how many stores are we going to open a year.
Speaker Change: If the opportunity arises like it did, for example, for Dollar City last year, then they'll open more stores than the store target.
Speaker Change: And if that happened to us, for example, next year, then we would have to give a different range of store target and we would take advantage of those opportunities.
Speaker Change: And so the question of international expansion is not one of need, but one of opportunity, and one where we think our team and our systems can handle it and flourish because of that opportunity and that new challenge.
Speaker Change: So really it involves multiple things, but it's never a question of need.
Speaker Change: Okay, with respect to the dividend that Dollar City paid in the past...
Speaker Change: I understand you flagged that that wasn't a recurring dividend and that was more of a one-time situation but how should we think about it this year and in the years ahead should we anticipate a cash flow back to Dollarama business?
Speaker Change: I mean that's a decision by the Board of Directors of Dollar City and it's going to be reviewed from time to time, but there's no policy in place.
Speaker Change: I see. Would it be reasonable to assume that given the Mexico expansion that cash should be preserved for that?
Speaker Change: I mean, again, it's going to be a decision that's going to be reviewed from time to time and certainly Mexico in its beginnings will require some capital. So it will require some capital maintained at the business to fund the opening of Mexico indeed.
Okay, thank you.
Thank you. Our next question comes from
Hi, good morning. Thanks for taking my questions.
Speaker Change: So with your new store target announcements and also the opening of the Western DC, we're just wondering like what maybe data or signs that in giving you confidence that maybe you'll be keeping, you know, the incremental traffic that you've been getting from the last two blockbuster years?
Speaker Change: And also, secondarily, with the population growth potentially slowing down, what are your thoughts about keeping the top line momentum?
Speaker Change: I mean, Emily, you named a few factors, but, you know, as you would have seen in our press release, it's a host of, there's a lot of factors that come into play.
Speaker Change: You mentioned population growth being one, but I think it's also on the positive consumer response, it's on the relevance.
Speaker Change: the relevance of Dollarama within the Canadian retail landscape, there's payback, there's a lot of different factors that go into there. So it's not predicated necessarily on us maintaining the traffic that we've gained in the pandemic only, it's on a bunch of factors that we've listed in the press release.
Thank you.
Speaker Change: I see, thank you. And now on the Western DC, presumably this will support the growth to your new store target of 2200, but how do you guys factor in
Speaker Change: future growth beyond that into the consideration of building out the CC.
Speaker Change: When we're building these DCs and warehouses, we're obviously taking in the context of the trends of our items, the cube of our items, the trends in our sales, and the amount of
cubic footage we need for warehousing and distribution.
Speaker Change: We're looking at the costs, of course, of land and construction. We're looking at...
Speaker Change: what the transportation costs are and how they've changed across the country over the years. So there's a whole lot of factors that go into the decision.
Speaker Change: to, you know, decide to build a second node after holding out on not building that second node for almost 30 years, and we just feel that
Now's the right time because
Speaker Change: We've gotten to the point where everything is pointing at it being the right decision.
Great. Those are my questions. Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Edward Kelly with Wells Fargo. Your line is now open.
Speaker Change: Yeah, hey good morning guys. This is Anthony Bonadio on for Ed. Thanks for taking our questions. So first I wanted to ask about SG&A. I think you guys talked about some SG&A pressure last quarter in the back half of the year but it looks like cost leverage in Q3 was actually pretty strong and better than most for modeling. So maybe just talk us through some of the puts and takes there and then how you're thinking about cost growth in Q4 as we model that.
Speaker Change: So, indeed we flagged that there may have been more hours pushed in the second half and I think, you know, with the numbers you see today is that there were more hours pushed in Q3 but it will be a little bit more tilted towards Q4 than originally thought.
Speaker Change: I mean the rest of the performance is, you know, like we mentioned, relates to scaling impact and overall good cost control.
Speaker Change: Got it. Thank you. And then just on the comp guidance, I think you mentioned the midpoint of the full year comp guide.
Speaker Change: that would imply something around 3% in Q4. So can you just talk about...
Speaker Change: The puts and takes there and the comp expectation. And then how you're thinking about the impact from calendar shift as we think about the timing of Halloween and Black Friday this year.
So if you just isolate the notion of
Impact of Retail Calendar
Speaker Change: such as, you know, the progressive normalization that we're seeing impacting the Q4 numbers. Now, certainly if we have a Halloween season, that is, as per our expectations, we expect to finish somewhere anchored around the middle of that range. If, you know, Christmas does better, well then there's a possibility that we do better than the middle of that range. And if, you know, the holiday season is not as good as we expect, we might end up a little bit below that range. But as you can see, the next three weeks leading to the holidays are very, very important days for us.
Thanks so much, guys.
Speaker Change: Thank you. Our next question comes from the line of Luke Hannon with Canaccord Genuity. Your line is now open.
Speaker Change: Thanks, good morning and thanks for all of the commentary thus far. I want to go back to the Western Canadian Logistics Hub.
Speaker Change: that you guys are going to be building out, so just from a high level, so we understand.
Speaker Change: Obviously there's going to be some transportation cost savings as a result of this and that's why you're going forward with the project.
Speaker Change: But can you help us understand from a high level, what does the flow of goods look like for those Western Canadian stores today? And then maybe how that changes going forward, you know, is there going to be some goods brought in from the West Coast ports now that'll make its way directly to the DC and then to the stores? Is there still going to be staging occurring in Eastern Canada? Just from a high level, what does it look like today versus, you know, three, four years from now?
Speaker Change: So what will change is that there'll be a gradual shift of warehouse goods and distribution for stores call it just
Speaker Change: Just to keep things simple, half the country will be warehoused and distributed from the western D.C., half the country will be warehoused and distributed from the eastern D.C.
Speaker Change: and you know the progression to get to the stage where that's that's the you know the operating you know factual case is is a question of a few years from now but that that is conceptually the idea
Speaker Change: That fact and and the fact that there are cost savings that will come from that efficiency is There will be a redundancy to having the security of two and independently operated
Speaker Change: Facilities that can handle both sides of the country if required.
Speaker Change: Okay, that makes sense. Thanks. And then Neil, I want to follow up on a comment that you made earlier regarding the tariff conversation. So you mentioned you're paying attention to what's going on as far as the price of goods in the market right now because of what could happen or may happen from a tariff perspective. But when it comes to, we'll say, the availability of product or the number of vendors that you're speaking to, like, is there greater flexibility?
Speaker Change: When it comes to sourcing inventory, because now there's maybe more vendors that are willing to source goods into Canada as opposed to the U.S. since it's relatively less attractive. Are you seeing any of that at all?
Neil Rossy: No, I have not seen that. All of this is too new and too fresh to really have changed flows of goods or interest by vendors around the world. So it will play out and everyone will be in the same playing field, but to date we have not seen that be the case.
Okay, appreciate it. Thank you. Thank you so much