Q1 2026 Dollarama Inc Earnings Call
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Okay.
Operator: All participants please stand by. Your meeting is about to begin.
All participants please standby your meeting is about to begin.
Operator: Good morning, and welcome to the Dollarama first quarter fiscal 2026 results conference call.
Speaker Change: Good morning, and welcome to the dollar from a first quarter of fiscal 2026 results conference call, Neil Rossy, President and CEO and Patrick Buoy CFO will make a short presentation, followed by a question and answer period open exclusively to financial analysts.
Operator: 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.
Operator: The press release, financial statements, and management discussions and analysis are available at Dollarama.com and the Investor Relations section, as well as on CDAR Plus.
Speaker Change: The press release financial statements the managements discussions and analysis are available at the Alabama Dot Com and the Investor Relations section as well as on SEDAR plus.
Operator: Before we start, I have been asked by Dollarama to read the following message regarding forward-looking statements.
Speaker Change: Before we start I've been excellent all around or to read the following message regarding forward looking statements.
Operator: 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 of assumptions made based on factors that management believes are appropriate and reasonable under 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.
Speaker Change: Alabama 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 our estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances.
Speaker Change: However, there can be no assurance that such estimates and assumptions will prove to be correct.
Speaker Change: 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.
Operator: As a result, Dollarama cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements.
Speaker Change: As a result, all over them I cannot guarantee that any forward looking statement will materialize and you're 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 a dollar almost MD&A dated June 11th 2025 lovable on SEDAR plus.
Operator: For additional information on the assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in Dollarama's MD&A dated June 11, 2025, available on CDAR Plus. Forward-looking statements represent management's expectations as at June 11th, 2025, and accept as may be required by law.
Speaker Change: Forward looking statements represent management's expectations as at June 11th 2025, and except as May be required by law, Alabama 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.
Operator: 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.
Neil Rossy: I would now like to turn the conference call over to Neil Rossy. Thank you, operator, and good morning, everyone. We're off to a strong start in Fiscal 2026 across our key financial and operating metrics, posting 4.9% same-store sales growth as we pursue our Canadian growth plan. The increase in SSS was supported by sustained demand for consumables, but also positive seasonal performance, notably Eastern. Looking at the last few quarters, we are pleased with the performance of our overall mix in the context of generally lower consumer discretionary spending in the current macro context. and what continued to be an unpredictable trade environment, we focused on our value proposition and delivered for our customers.
Neil Rossy: I'd now like to turn the conference call over to Neil Rossy.
Neil Rossy: Thank you operator, and good morning, everyone.
Neil Rossy: We are off to a strong start in fiscal 2026 across our key financial and operating metrics posting four 9% same store sales growth as we pursue our Canadian growth plan.
Neil Rossy: The increase in Sss was supported by sustained demand for consumables, but also positive seasonal performance, notably Easter.
Neil Rossy: Looking at the last few quarters, we are pleased with the performance of our overall mix in the context of generally lower consumer discretionary spending in the current macro context.
Neil Rossy: And we will continue to be an unpredictable trade environment, we focused on our value proposition and delivered for our customers.
Neil Rossy: It speaks to our fundamentals and that we are hitting the mark with an offering that is meeting customer expectations. On the real estate front, we opened 22 net new stores in Q1, bringing our total store count across Canada to 1,638 stores a quarter. As a reminder, we intend to open between 70 and 80 net new stores this year, up from our usual target between 60 and 70. With the work accomplished by our real estate team in the first quarter and our robust pipeline, we remain on track to achieve this year's higher target.
Neil Rossy: This speaks to our fundamentals and that we are hitting the mark with an offering that is meeting customer expectations.
Neil Rossy: On the real estate front, we opened 22 net new stores in Q1, bringing our total store count across Canada to 1638 stores at quarter end.
Neil Rossy: As a reminder, we intend to open between 70 and 80 net new stores. This year up from our usual target between 60 and 70 with the work accomplished by our real estate team in the first quarter and our robust pipeline, we remain on track to achieve this year's higher target.
Neil Rossy: The Dollar City team also continued to deliver value to consumers in Latin America and to advance its expansion. Dollar City opened 12 new stores in the first three months of the calendar year, bringing their total number of stores in Colombia, Peru, El Salvador, and Guatemala to 644. As confirmed last quarter, we are investing in our Mexico market entry starting this year with the first dollar city stores in Mexico slated to open imminently. This will mark a big milestone for the Dollar City team, with our last new market entries being in Peru in 2021 and Colombia in 2017.
Neil Rossy: The dollar city team also continued to deliver value to consumers in Latin America and to advance its expansion plans.
Neil Rossy: The only city opened 12 net new stores in the first three months of the calendar year, bringing their total number of stores in Colombia, Peru, El Salvador, and Guatemala to 644.
Neil Rossy: As confirmed last quarter, we are investing in our Mexico market entry starting this year with the first dollar city stores in Mexico slated to open imminently.
Neil Rossy: This will mark a big milestone for the dollar city team with our last new market entries being in Peru in 2021, and Colombia in 2017, the team on a strong track record of success entering new markets and I'd like to recognize their efforts and strong execution as it pertains to our entry into Mexico.
Neil Rossy: team has a strong track record of success entering new markets, and I'd like to recognize their efforts and strong execution as it pertains to our We look forward to testing our concepts in this large, high potential.
Neil Rossy: Look forward to testing our concept in this large high potential markets.
Neil Rossy: Now for a quick update on our proposed acquisition of Australia's largest discount retailer as we pursue a new international opportunity for Dollarama. We are looking forward to a successful transaction closing in the next month given the excellent progress since we announced in late March. The meeting for TRS shareholders to approve the transaction will be held later this month. Following this important step and assuming that the subsequent Australian court approvals proceed as currently scheduled, we expect to close toward the back half of July. The dedicated team has been working actively in the background on our integration plans so that we can hit the ground running when the time comes.
Neil Rossy: Now for a quick update on our proposed acquisition of Australia's largest discount retailer as we pursue a new international opportunity for dollar out.
Neil Rossy: We are looking forward to a successful transaction closing in the next months given the excellent progress since we announced in late March.
Neil Rossy: For Trs shareholders to approve the transaction will be held later this month.
Neil Rossy: Following this important step and assuming that the subsequent Australian quite approvals proceed as currently scheduled we expect to close towards the back half of July.
Neil Rossy: A dedicated team that's been working actively in the background on our integration plans. So that we can hit the ground running when the time comes on.
Neil Rossy: Onboarding the TRS team will be our first priority. We are all very excited to get started on this new chapter of growth.
Neil Rossy: Onboarding the Trs team will be our first priority.
Neil Rossy: We're all very excited to get started on this new chapter of growth that being said management remains focused on our core Canadian business and the continued success of dollar city.
Neil Rossy: That being said, management remains focused on our core Canadian business and the continued success of Dollarama. Finally, the current and rapidly evolving trade environment continues to impact many industries, including the retail. As discussed last quarter, the direct impacts for Dollarama are the counter-terrorists imposed by Canada on a portion of the goods we import from the U.S. These are primarily national brand consumable products. We've been managing this process with the tools at our disposal, including our flexible and agile business model. Our objective is to hold on price for as long as possible for our customers. And we are working extremely hard on this front.
Neil Rossy: Finally, the current and rapidly evolving trade environment continues to impact many industries, including the retail sector.
Neil Rossy: Just last quarter, the direct impacts for dollar amount or the counter tariffs imposed by Canada on a portion of the goods, we import from the U S.
Neil Rossy: These are primarily national brand consumable products, we have been managing this process with the tools at our disposal, including our flesh.
Neil Rossy: Flexible and agile business model.
Neil Rossy: Our objective is to hold on price for as long as possible for our customers and we're working extremely hard on this front.
Neil Rossy: Price adjustments are always a last resort. We will continue to maintain our relative value proposition and existing price. quarter of the way into the year, macro uncertainties persist, but we are holding our own and effectively managing the current challenge. We continue to focus on the elements within our... Leveraging our strengths to provide everyday value and convenience to our customers.
Neil Rossy: Adjustments are always the last resort for US we will continue to maintain our relative value proposition and existing price point range.
Neil Rossy: A quarter of the way into the year macro uncertainties persist, but we are holding our own and effectively managing the current challenge.
Neil Rossy: We continue to focus on the elements within our control.
Neil Rossy: Virginia restaurants to provide everyday value and convenience to our customers. We will continue executing on our multiple growth plan strategy with our usual discipline.
Neil Rossy: We will continue advocating on our multiple growth plan strategy with our usual.
Patrick Bui: With that, I'll pass it over to Patrick. Thank you, Neil. And good morning, everyone. In Q1, sales increased 8.2% compared to the same period last year, coming in at over $1.5 billion. Same-source sales grew 4.9%, consisting of 3.7% increase in the number of transactions and a 1.2% increase in average transaction size. That's on top of 5.6% SSS in Q1 last year. Looking at SSS trends through the quarter, there was a fair amount of noise during the months of February and March, with SSS then picking up through April. A lot of uncertainty remains that could continue to impact consumer confidence over the coming months.
Neil Rossy: With that I'll pass it over to Patrick.
Patrick Buoy: Thank you Neal and good morning, everyone. In Q1 sales increased eight 2% compared to the same period last year coming in at over $1 5 billion.
Patrick Buoy: Same store sales grew four 9% consisting of three 7% increase in the number of transactions and a one 2% increase in average transaction size. That's on top of five 6% FSS in Q1 last year.
Patrick Buoy: Looking at Sss trends through the quarter. There was a fair amount of noise. During the months of February and March with Sss than picking up through April a lot of uncertainty remains that could continue to impact consumer confidence over the coming months.
Patrick Bui: And with the continued normalization of SSS trend, our full year guidance remains unchanged at between 3% and 4% SSS.
Patrick Buoy: And with the continued normalization of Sss trend, our full year guidance remains unchanged at between three and 4% Sss.
Patrick Bui: Also note that we are lapping a 53-week year. As a result, we expect a negative impact in Q4, as the prior year's Q4 included Halloween sales. This is similar to fiscal 2020, the last time we lapped a 53-week year. Q1 gross margin was 44.2% of sales compared to 43.2% in Q1 of fiscal 2025. The improvement primarily reflects lower logistics costs. We are also seeing lower inventory shrink, notably due to our loss prevention initiatives. Our annual guidance range for gross margin of between 44.2% and 45.2% of sales remains unchanged. We expect further positive momentum in our logistics operations, which may be offset by headwind pressure compared to last year, notably from continuing mixed-shift effects and shipping.
Patrick Buoy: Also note that we are lapping a 53 week year as a result, we expect a negative impact in Q4 as the prior year's Q4 included Halloween sales. This is similar to fiscal 2020. The last time, we lapped a 53 week year.
Patrick Buoy: Q1 gross margin was 44, 2% of sales compared to 43, 2% in Q1 of fiscal 2025 the.
Patrick Buoy: The improvement primarily reflects lower logistics costs. We are also seeing lower inventory shrink, notably due to our loss prevention initiatives.
Patrick Buoy: Our annual guidance range for gross margin of between 44, 2% and 45, 2% of sales remains unchanged.
Patrick Buoy: We expect further positive momentum in our logistics operations, which may be offset by headwind pressure compared to last year, notably from continuing mix shift effects and shipping rates.
Patrick Bui: SG&A represented 15.3% of sales in Q1, compared to 15.4% of sales for the first quarter of fiscal 2025, with better labor productivity. This was partially offset by higher store expenses, and we absorbed costs related to the TRS transaction. Guidance expectation for SG&A as a percentage of sales of 14.2 to 14.7% for fiscal 2026 remain unchanged. EBITDA was $496.2 million, representing an EBITDA margin of 32.6% for Q1. compared to $417.7 million and a margin of 29.7% in Q1 last year. It's important to note that this quarter we recorded a $10.4 million unrealized gain relating to the derivative on our equity-accounted investment in Dollar City.
Patrick Buoy: SG&A represented 15, 3% of sales in Q1 compared to 15, 4% of sales for the first quarter of fiscal 2025 with better labor productivity. This was partially offset by higher store expenses and we absorbed costs related to the Trs transaction.
Patrick Buoy: Guidance expectation for SG&A as a percentage of sales of 14, two to 14, 7% for fiscal 2026 remained unchanged.
Patrick Buoy: EBITDA was $496 2 million, representing an EBITDA margin of 32, 6% for Q1.
Patrick Buoy: This is compared to $417 7 million and a margin of 29, 7% in Q1 last year.
Patrick Buoy: It is important to note that this quarter, we recorded a $10 $4 million unrealized gain relating to the derivative on our equity accounted investments in dollar city.
Patrick Bui: This is purely an accounting impact as a result of the fair value adjustment on the dollar city call option. which is likely to fluctuate over time. Excluding the gain this quarter, EBITDA came in at $485.8 million, and the EBITDA margin at 31.9%, which is more reflective of our actual profitability this quarter. Diluted net earnings per share increased by 27.3% to $0.98 in the first quarter of fiscal 2026. The impact of the unrealized gain represents 3 cents of Q1 EPS. Our share of Dollar City's net earnings amounted to $40.3 million compared to $22.1 million. This increase is primarily attributable to strong operational performance in our increased equity state since June of last year.
Patrick Buoy: This is purely an accounting impact as a result of the fair value adjustment on the dollar city call option, which is likely to fluctuate over time.
Patrick Buoy: Excluding the gain this quarter EBITDA came in at $485 8 million and the EBITDA margin at 31, 9%, which is more reflective of our actual profitability this quarter.
Patrick Buoy: Diluted net earnings per share increased by 27, 3% to 98.
Patrick Buoy: In the first quarter of fiscal 2026, the impact of the unrealized gain represents three of Q1 EPS.
Patrick Buoy: Our share of dollar city's net earnings amounted to $40 3 million compared to $22 1 million.
Patrick Buoy: This increase was primarily attributable to strong operational performance and our increased equity stake since June of last year.
Patrick Bui: Now on to capital allocation, there were no buybacks in Q1 due, in part, to our shortest quarterly buyback window coinciding with heightened market uncertainty and upcoming capital needs. We intend to continue allocating a significant portion of cash towards NCIB through the remainder of the year in line with our balanced capital allocation strategy. We also announced today that the board approved a quarterly cash dividend of $0.1058 per share. Our CapEx range for fiscal 2026 has been updated to include estimated spend on the logistics hub in Western Canada this year. based on the anticipated timing of certain expenditures.
Patrick Buoy: Now on to capital allocation there were no buybacks in Q1 due in part to our shortest quarterly buyback window, coinciding with heightened market uncertainty and upcoming capital needs.
Patrick Buoy: We intend to continue allocating a significant portion of cash towards NCI.
Patrick Buoy: Through the remainder of the year in line with our balanced capital allocation strategy.
Patrick Buoy: We also announced today that the board approved a quarterly cash dividend of $10 58 per share.
Patrick Buoy: Our Capex range for fiscal 2026 has been updated to include estimated spend on the logistics hub in Western Canada. This year.
Patrick Buoy: Based on the anticipated timing of certain expenditures.
Patrick Bui: It is now in the range of $285 to $330 million. Year to date, expenditures related to the project have not been material. As a result of this shift, we expect capital outlay for this project to be more concentrated in fiscal 2027. Timeline to commissioning by the end of calendar 2027 remains unchanged.
Patrick Buoy: It is now in the range of $285 million to $330 million year to date expenditures related to the project have not been material.
Patrick Buoy: As a result of this shift we expect capital outlay for this project to be more concentrated in fiscal 2027 timely.
Patrick Buoy: Timeline to commissioning by the end of calendar 2027 remains unchanged.
Patrick Bui: In conclusion, we are pleased with our Q1 performance in the context of a complex environment and while SSS continues to normalize. We remain attentive to continued tariff-related and broader economic uncertainty and its potential impacts on the future path of consumer sentiment. As always, we will stay focused on delivering compelling value for customers and strong execution across the business to the benefit of our shareholders.
Patrick Buoy: In conclusion, we are pleased with our Q1 performance in the context of a complex environment and.
Patrick Buoy: While Sss continues to normalize we remain attentive to continued tariff related and broader economic uncertainty and its potential impacts on the future path of consumer sentiment.
Patrick Buoy: As always we will stay focused on delivering compelling value for customers and strong execution across the business to the benefit of our shareholders.
Patrick Bui: With that, I will now turn the call back to the operator for Q&A. Thank you.
Patrick Buoy: With that I'll now turn the call back to the operator for Q&A.
Operator: To ask a question, please press star 11 on your telephone and wait for your name to be announced.
Patrick Buoy: Thank you to ask a question. Please press star one one of your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Operator: To withdraw your question, please press star 11 again.
Irene Nattel: Our first question comes from the line of Irene Nattel with RBC Capital Markets. Your line is now open. Thanks and good morning. Neil, if we could start by talking a little bit about the consumer spending backdrop. It sounds as though maybe this continuation of consumers buying at need, but when the need is there, they're buying. Can you give us any color on category performance timing and that sort of thing?
Speaker Change: Our first question comes from the line of Irene <unk> with RBC capital markets. Your line is now open.
Irene: Thanks, and good morning.
Speaker Change: Bill if we could start by talking a little bit about the consumer spending backdrop. It sounds as though maybe this continuation of consumers buying at need but when the need is there. They are buying can you can you give us any color on.
Speaker Change: Category performance timing and that sort of thing and that helps frame. The guide for F. 'twenty F 'twenty six.
Neil Rossy: And that helps frame the guide for F26. There aren't any particular categories that stand out other than the consumable category. Consumables continue to be strong for us in the context that we're operating in. And, of course, Easter was, you know. Considerably better than last year, which helped. But overall, I would say that the market.
Patrick Buoy: There arent any particular categories that stand out other than the consumable category.
Patrick Buoy: Consumables.
Patrick Buoy: Continue to be strong for us.
Patrick Buoy: In the context that we're operating in and of course.
Patrick Buoy: Easter was.
Patrick Buoy: <unk>.
Patrick Buoy: Considerably better than last year, which helped.
Patrick Buoy: But overall I would say that the market is fairly stable from a.
Neil Rossy: person from the perspective of mix relative to That's helpful, thank you. And can you make any commentary about what we're seeing, sort of Q1 to date, recognizing that May was not very good weather-wise? I mean, it's still, yeah, it's still early, Irene, I mean, you know, May was, you know, tough from a weather perspective, but again, you know, the performance of Q2 will be dictated by, you know, the next few weeks, so we're too early to tell.
Patrick Buoy: From a.
Patrick Buoy: From the perspective of mix relative to the last quarter.
Patrick Buoy: Yeah.
Patrick Buoy: That's helpful. Thank you and.
Speaker Change: Can you make any commentary about what we're seeing for Q1 to date recognizing that maybe was not very good weather wise.
Speaker Change: So yes, it's still it's still early RV.
Speaker Change: May was.
Speaker Change: Tough from a weather perspective, but again.
Speaker Change: The performance of Q2 will be dictated by the next few weeks, so too early to tell and pray for Sunshine.
Neil Rossy: Pray for sunshine. Well, it's sunny outside now, Neil, so yay, and it looks like it's not going to rain on the Grand Prix for once, which is great.
Speaker Change: Well, it's sunny outside now Neil so yeah, and it looks like it's not going to rain on the Grand Prix for wise, which is great.
Neil Rossy: And then just a question, if I might, on Mexico. It sounds as though you used the word imminent. Can you talk through sort of what sort of a, quote, unquote, proof of concept will look like in Mexico, how we should be thinking about number of stores and sort of results over the next 12 to 24 months in that region?
Speaker Change: Then just a question if I might on Mexico.
Speaker Change: It sounds as though you had used the word imminent can you talk through sort of what's sort of the quote unquote proof of concept will look like in Mexico, how we should be thinking about number of stores and sort of results over the next.
Speaker Change: 12 to 24 months in that in that region.
Neil Rossy: The truth is you should be thinking about Mexico like we're thinking about Mexico, which is we haven't got a store open yet in the next, you know, few weeks to a month plus we'll have a store open and we'll have our first true sense of, you know, how Mexicans in that area, at the very least, like our offering, the market's a more competitive environment than the last four countries, I would say, but we think we bring an assortment and a value that's differentiated like it is in our other markets and so truthfully we're super excited, just like you guys are, to see, you know, how the Mexican stores do and if they do well, the exciting part, of course, is somewhat like Colombia but even more so, it's a significantly large market and, you know, has a much longer runway to its lifespan of store openings so we're excited.
Speaker Change: The truth is you should be thinking about Mexico like we're thinking about Mexico, which is we haven't got a store opened yet and the next.
Speaker Change: A few weeks to months plus.
Speaker Change: We will have a store open and we'll have our first true sense.
Speaker Change: How Mexicans in that area at the very least and like our offering.
Speaker Change: It's a more competitive environment than the last four countries I would say, but.
Speaker Change: We think we bring an assortment and have value that's differentiated like it is in our other markets.
Speaker Change: And so truthfully, we're super excited trips like you guys are to see how the Mexican stores do and if they do well the exciting part of course is somewhat like Colombia, but even more so.
Speaker Change: It's a significantly large market and.
Speaker Change: As a much longer runway.
Speaker Change: Two.
Speaker Change: Its lifespan of store openings. So we're excited about that.
Neil Rossy: Thank you.
Neil Rossy: And then just one last question on Mexico. Are you planning to make any significant changes to the mix in Mexico relative to the other countries in LATAM? No, each of the countries that we operate in has a domestic offering, which generally tends to be in health and beauty, cleaning products, and food, for the very limited selection of food that we offer in our stores. And that will be the same case for the domestic offering in Mexico. As always, we try to support the domestic manufacturers as much as we can.
Speaker Change: Thank you and then just one last question on Mexico are you, making any are you planning to make any significant changes to the mix in Mexico relative to the other countries in Latam.
Speaker Change: Each of the countries that we operate in has that has.
Speaker Change: Domestic offering.
Speaker Change: Which generally tends to be.
Speaker Change: In.
Speaker Change: Health and beauty cleaning products and food.
Speaker Change: For the very limited selection of food that we offer in our stores and.
Speaker Change: That will be the same case for the domestic offering in Mexico.
Speaker Change: As always we try to support the domestic.
Speaker Change: Manufacturers as much as we can.
Speaker Change: Thank you.
Brian Morrison: Our next question comes from the line of Brian Morrison with TD Cowen. Your line is now open. Oh, thanks very much. So probably for Patrick, Dollar City sales are up 13% and Net Income up 52%. But if we look at store growth, it was up higher than your sales, so 17%.
Speaker Change: Thank you. Our next question comes from the line of Brian Morrison with TD Cowen. Your line is now open.
Speaker Change: Alright, thanks very much so.
Speaker Change: Probably for Patrick dollar city sales were up 13% and net it'd come up 52% looking at but if you look at store growth. It was up higher than your sales to 17%. So can you touch on the details to the expense extent possible what that means for same store sales growth and leverage like I assume same store sales was positive and then there is there something to call out.
Patrick Bui: So can you touch on the details to the extent possible, what that means for same-store sales growth and leverage? Like, I assume same-store sales was positive. And then is there something to call out on scale or normal increments on, or is this just normal increments on warehousing, DNA and SG&A? So on SSS, obviously SSS was positive so I'm just confirming that. There's a difference with the unit growth and sales growth simply because you need to take into factor the timing of the store openings but also there's a ramp-up period to the stores but SSS was positive.
Speaker Change: On scale or normal increments on or is this just normal increments on warehousing DNA in SG&A.
Speaker Change: So on Sss.
Speaker Change: Obviously sss was positive so I'm just confirming that.
Speaker Change: There is a difference with the unit growth and sales growth simply because you need to take into factor the timing of the store openings, but also there is a ramp up period.
Speaker Change: To the stores, but sss was positive.
Patrick Bui: With respect to scaling, I mean it's the, you know, it's a business that is growing at a heightened pace. We're fairly new in Colombia and Peru and we're seeing great progress in those countries and so as the business is scaling we see every cost line item, you know, scaling. Whether you think of gross margins, you know, there's fixed logistics costs in there that could scale and obviously SG&A. So that explains your, you know, as you go down the P&L. Okay, thank you.
Speaker Change: With respect to scaling.
Speaker Change: The.
Speaker Change: A business that is growing at a heightened pace.
Speaker Change: We're fairly new in Colombia, and Peru, and we're seeing great progress in those countries and so as a business is scaling we see every <unk>.
Speaker Change: Cost line item.
Speaker Change: Daily whether you think of gross margins.
Speaker Change: Theres fixed logistics costs in there that can scale and obviously SG&A. So that explains your high leverage as you go down the P&L.
Neil Rossy: And then Neil, you had your major spring buying trip between last quarter and this and curious if you've seen any beneficial pricing from your Chinese vendors, based upon your vendor overlap with US dollar stores and the imports they face or the tariffs they face on their imports. So when we were there in April, the vendors were reticent to pass on any discounts or to sell any of the goods that were being held for their American customers. They were waiting to see what would happen and possibly change with U.S. policies. They were right to do so because U.S.
Speaker Change: Okay. Thank you and then Neill you had your major spring buying trip between last quarter and curious if you've seen any dish beneficial pricing from your Chinese vendors based upon your vendor overlap with U S dollar stores any imports they face iceberg tariffs they face on their imports.
Speaker Change: So when we were there in April.
Speaker Change: The vendors were reticent to pass on any discounts.
Speaker Change: Were to sell any of the goods that were being held for their American customers.
Speaker Change: We're waiting to see what would happen and possibly change with U S policies.
Neil Rossy: policies changed and in the end they shipped their goods and it was pretty much back to business as usual.
Speaker Change: They were right to do so because U S policies changed and in the end they ship their goods and it was pretty much back to business as usual so at the very beginning when there was some hesitation in orders where I'm pointing out we were able to negotiate some advantage on some <unk>, but overall.
Neil Rossy: So at the very beginning when there was some hesitation and orders weren't going out, we were able to negotiate some advantage on some FOBs, but overall I would tell you it was We were able to negotiate some advantage on some FOBs, but overall I would tell you it was short-lived and not consequential. Thank you.
Speaker Change: I would tell you was it was it was short lived and not consequential.
Speaker Change: Thank you.
Chris Lee: Our next question comes from the line of Chris Lee with Desjardins.
Speaker Change: Thank you. Our next question comes from the line of Chris Lee with <unk>. Your line is now open.
Chris Lee: Your line is now open. Hi, good morning, everyone. My first question, maybe going back to the same sort of sales during the quarter, I noticed that the basket size or the average transaction turned positive during the quarter. Wondering if you can provide some colors in terms of what drove that? Was that a mix of pricing and also higher unit volumes?
Speaker Change: Hi, good morning, everyone I suppose.
Chris Lee: First question, maybe going back to same store sales during the quarter I noticed that the basket size or the average transaction turned positive during the quarter wondering if you can provide some colors in terms of what drove that was that a mix of pricing and also higher unit volume.
Neil Rossy: Thanks for the question, Chris. You know, we don't manage the business, you know, basket versus traffic. I mean, what's important to us is the overall SSS. And as you know, basket and traffic generally have opposing effects. But certainly this quarter with a stronger Easter than last year, it was certainly helpful on the basket size in Dollarama. Got it. Okay, that's helpful.
Chris Lee: Thanks for the question Chris.
Chris Lee: We don't manage the business basket versus traffic I mean, what's important to us the overall sss and as you know basket and traffic generally have opposing effects, but certainly this quarter with a stronger Easter than last year. It was certainly helpful on the on the basket size.
Chris Lee: In dollar terms.
Patrick Bui: And in my follow up question, just maybe going back to the very strong gross margin performance. I know, Patrick, you gave some helpful colors as to what drove it.
Speaker Change: Got it Okay. That's helpful. And then my follow up question, just maybe going back to the very strong gross margin performance I know Patrick you gave some helpful color as to what drove it.
Patrick Bui: Yeah, I was wondering, the lower logistics cost, can you maybe deep dive a little bit in terms of what's happening there? And how sustainable is that benefit for the rest of the year? You mentioned that will continue to be a bit of a tailwind through the year. Yeah, I would say it's a host of initiatives that have improved the planning and the balancing of volumes going through our warehouse in D.C. And it's something that we've been working for the past few quarters. So those gains, we will continue to benefit from that until we actually lap those stronger, stronger quarters.
Speaker Change: I was wondering did lower logistics costs can you maybe deep dive a little bit in terms of what's happening there and how sustainable is that benefit.
Speaker Change: The rest of it you mentioned that will continue to be a bit of a tailwind.
Speaker Change: Through the year.
Speaker Change: Yes, I would say, it's a host of initiatives that have improved.
Speaker Change: The planning and the balancing of volumes going through our warehouse in D. C and it's something that we've been working for the past few quarters. So those.
Speaker Change: Gains.
Speaker Change: We will continue to benefit from that until we actually lap those.
Patrick Bui: So we do expect some benefits as we move forward in the year. But like I said in my prepared remarks, there's also a counterbalancing elements. I talked about continued mix shift and FX and shipping rates that could counterbalance those. Okay, thanks.
Speaker Change: <unk> stronger quarters. So we do expect some benefits as we move forward.
Speaker Change: In the year, but like I said in my prepared remarks, there's also a counterbalancing.
Speaker Change: Elements I talked about continued mix shift in FX in shipping rates that could counterbalance those games.
Operator: I'll get back to the queue.
Operator: All the best. Thank you.
Speaker Change: Got it okay. Thanks, I'll get back to the queue. Nonetheless.
Tamy Chen: Our next question comes from the line of Tamy Chen with BMO Capital Markets. Your line is now open. Hi, good morning. Thanks for the question. I wanted to go back to the SSS trend through this quarter. So February sounded a bit softer, March kind of like that too, and you said it really picked up in April. And I'm just curious from what you could at least see, I mean, why do you think that is? Was February-March just a bit of a blip because of the tariff rhetoric escalating? And do you feel now we're kind of through that on how consumer sentiment and behavior is and it's a lot more stable now?
Speaker Change: Thank you. Our next question comes from the line of Tami Chen with BMO capital markets. Your line is now open.
Tami Chen: Hi, good morning, Thanks for the question.
Speaker Change: I wanted to go back to the us.
Speaker Change: No such trend to this quarter. So February sounded a bit softer March kind of like that you and you said it really picked up in April.
Speaker Change: I'm just curious from what you could at least <unk> why do you think that is with with February March just a bit of a blip because of the tariffs.
Speaker Change: Roderick escalating and do you feel now where we're kind of through that on how consumer sentiment and behavior is and it's a lot more stable now.
Neil Rossy: Yeah, we still think the consumer is overall fragile. I mean, when you go back to February and March, you know, we all saw the data on consumer confidence, and it was at an all-time low. So that might have had an impact on, you know, consumers' willingness to spend. But as we move through the quarter, we did see a resilient consumer in the back half, which led to better performing user sales as compared to last year. But we do want to highlight that, you know, we do sense the consumer being fragile, and with all the uncertainty in the market, very hard to see how that will evolve.
Speaker Change: Okay.
Speaker Change: Yes, we still think the consumer is overall fragile I mean, when you go back to February and March.
Speaker Change: We all saw the data on consumer confidence than it was at an all time low.
Speaker Change: So that might have had an impact on consumers' willingness to spend but as we move through the quarter we.
Speaker Change: We did see a resilient consumer in the back half which led to.
Speaker Change: Better performing Easter sales as compared to last year.
Speaker Change: But we do want to highlight that we do sense of consumer being fragile and with all the uncertainty in the market.
Speaker Change: Very hard to see how that will evolve.
Neil Rossy: I see.
Neil Rossy: OK, got it.
Speaker Change: I see okay.
Tamy Chen: And two quick ones on Dollar City is in Mexico.
Speaker Change: Got it and two quick ones on dollar city.
Neil Rossy: I'm actually curious how you're thinking about that country over the next couple of quarters. I know you're currently not in there yet. New stores coming imminently. We're seeing some on the macro backdrop for Mexico, a bit soft. So I don't know if you agree with that or if that in any way impacts how you're thinking about cadence of launching the store openings and the offering. You're thinking of having. No, it doesn't change anything. I mean, we're staying the course and, you know, when we enter a country, we're thinking about, you know, the very long term and therefore, you know, periodic changes doesn't impact how we're thinking about it.
Speaker Change: In Mexico, I'm actually curious.
Speaker Change: How youre thinking about that country over the next couple of quarters I know you're currently not in there yet new stores coming imminently.
Speaker Change: We're seeing some on the macro backdrop for Mexico, a bit soft. So I don't know if you agree with daughter is in that in any way impact how youre thinking about.
Speaker Change: Cadence of launching the us the store openings and the offering.
Speaker Change: Thinking of having there.
Speaker Change: Okay.
Speaker Change: No it doesn't change anything I mean, we're staying the course.
Speaker Change: We enter a country and we're thinking about the very long term and therefore periodic changes doesn't impact how we're thinking about it. So you are correct in saying that.
Neil Rossy: So, you're correct in saying that, you know, our first store openings are imminent and, you know, we hope to open a handful of stores in year one, assess how that's going and determine at that point whether we want to ramp up, you know, the store openings in the country.
Speaker Change: Our first store openings are imminent.
Speaker Change: We hope to open a handful of stores in year one.
Speaker Change: Assess how thats going and determine at that point, whether we want to ramp up.
Speaker Change: The the store openings in the country.
Tamy Chen: And my last one is for the existing Dollar City business. So it was about 12 new stores this quarter, so a little slower than recently. When you think about your full year plans for those existing four countries, should we think that They'll accelerate in the coming quarters and that will be more back half loaded.
Speaker Change: And my last one is for the existing dollar city business. So it was about 12 new stores this quarter.
Speaker Change: Little slower than recently.
Speaker Change: When you think about your full year plans for those existing four countries should we think that.
Speaker Change: Dell accelerate in the coming quarters and that will be more back half loaded. Thank you.
Patrick Bui: Thank you. I mean, we don't provide annual guidance on store openings at Dollar City, as you know, opening real estate can be lumpy from time to time, and therefore I wouldn't read too much into that.
Speaker Change: Yeah.
Speaker Change: I mean, we don't provide annual guidance on store openings.
Speaker Change: At dollar city.
Speaker Change: Opening real estate can.
Speaker Change: Can be lumpy from time to time.
Speaker Change: And therefore, I wouldn't read too much.
Speaker Change: Into into that.
Tamy Chen: Okay, thank you.
Speaker Change: Okay. Thank you.
John Zamparo: Our next question comes from the line of John Zamparo with Scotiabank. Your line is now open. Thank you very much. Good morning. I wanted to ask about SG&A. And in particular, you mentioned lower labour costs as a favourable driver. I wonder if you can elaborate a bit a bit on this just because presumably you're seeing some increase in wages. So it seems like that implies a meaningful reduction in labour hours.
Speaker Change: Thank you. Our next question comes from the line of John <unk> with Scotiabank. Your line is now open.
John <unk>: Thank you very much good morning, I wanted to ask about SG&A and in particular, you mentioned lower labor costs as a favorable driver I wonder if you can elaborate a bit a bit on this just because presumably you are seeing some increase in wages. So it seems like that.
Patrick Bui: And I wonder where that's coming from, if you could talk about some of your broader initiatives to reduce labour hours. Yeah, so we're really referring to the comparison to last year, where last year, you know, we injected additional hours for some specific add-off replenishment projects, which we didn't have this year, so that's what we were really referring to.
John <unk>: It implies a meaningful reduction in labor hours, and I Wonder, where that's coming from if you could talk about some of your broader initiatives to reduce labor hours.
John <unk>: Yes, so we're really referring to the comparison to last year, where last year.
John <unk>: We injected additional hours for some specific AD off replenishment projects, which we didn't have to do this.
John <unk>: This year. So that's what we were really referring to John.
John Zamparo: Understood. And then secondly, on the traffic number, this continues to be relatively robust. I wonder what level of insight you have on, are you gaining new customers? Or are you seeing existing customers frequent more often?
John <unk>: Understood and then secondly on the traffic number that's continues to be.
John <unk>: Relatively robust I wonder what level of insight do you have on are you gaining new customers or are you seeing.
Neil Rossy: And just what level of visibility you have on We'd love to know, John, but as you know, we don't have data specifically on the consumer. The data that we have is on our products and the throughput of those products, but we don't have full visibility on our activity. Okay, fair enough.
John <unk>: <unk> customers frequent more often and just what level of visibility you have on that.
John <unk>: We'd love to know.
John <unk>: But as you know.
John <unk>: We don't have a date.
John <unk>: Data specifically on the consumer data that we have is on our products and the throughput of those products, but we don't have full visibility on our actual consumers.
John Zamparo: If I could sneak in a modeling one, can you share what the transaction costs were from the reject shop in the quarter?
Speaker Change: Okay fair enough if I could sneak in a modeling one can you share what the transaction costs were from reject shopping during the quarter.
Patrick Bui: We don't disclose it, but you could assume that it's standard for an M&A transaction. Okay. I'll pass it on. Thank you.
Speaker Change: We don't disclose it but you could assume that it is standard for an M&A transaction.
Speaker Change: Understood. Okay I'll pass it on thank you.
Mark Petrie: Our next question comes from the line of Mark Petrie with CIBC. Your line is now open. Hey, good morning. Thank you. I just wanted to follow up more a bit on the on the gross margin and specific to Q1. Did sales mix net out to a positive or a negative, you know, consumables are obviously lower margin and continue to lead the growth, but seasonal was was also better than last year. So was sales mix a headwind or a tailwind in Q1?
Mark Petrie: Thank you. Our next question comes from the line of Mark Petrie with CIBC. Your line is now open.
Mark Petrie: Hey, good morning, Thank you.
Mark Petrie: Wanted to follow up more a bit on the on the gross margin and specific to Q1.
Mark Petrie: Sales mix net out to a positive or a negative.
Mark Petrie: Consumables are obviously lower margin and continue to lead the growth but seasonal.
Mark Petrie: <unk> was also better than last year, so with sales mix, a headwind or a tailwind in Q1.
Patrick Bui: It was actually neutral in Q1. I mean, you know, we call out consumables performing well, but we also called out seasonal performing better than last year. So actually, both essentially neutralized the impact on the growth.
Mark Petrie: It was actually neutral.
Mark Petrie: In Q1, I mean, we call out consumables performing well, but we also called out.
Mark Petrie: Seasonal performing better than last year, so actually both.
Mark Petrie: Essentially neutralized the impact on the gross margin.
Patrick Bui: Okay, great. Thank you. And then I guess just with regards to the outlook, you highlight sales mix as sort of the first of a few factors that could potentially present some challenges to gross margin throughout the balance of the year, because I think the guidance, even at the top end, essentially implies flat year over year for the balance of the year. So I'm just trying to understand that a little bit more. And is that essentially caution on the performance of or how you think seasonal demand could evolve just given consumer uncertainty? I think it reflects the fact that we see more negatives, headwinds, than positives.
Speaker Change: Okay, great. Thank you and then I guess just with regards to the outlook you highlight sales mix is sort of the first of a few factors that could potentially present, some challenges to gross margin throughout the balance of the year, because I think the guidance even at the top end essentially implies flat year over year.
Mark Petrie: For for the balance of the year so.
Speaker Change: Im just trying to understand that a little bit more.
Mark Petrie: And is that essentially caution on the performance of or how you think seasonal demand could evolve just given consumer uncertainty.
Mark Petrie: I think it reflects the fact that we see more negative headwinds than positive.
Patrick Bui: You know, there's still a fair amount of uncertainty when it comes to how the mix is going to evolve. Is it going to continue in this direction or not? You know, even though we're hedged on an FX perspective and we have long-term contracts on the shipping side, you know, heightened spikes and movements over time could have an impact on our overall gross margins. So it's a reflection of a fair amount of unknowns and high volatility in this current context.
Mark Petrie: There is still a fair amount of uncertainty.
Mark Petrie: When it comes to how the.
Mark Petrie: The mix is going to evolve is it going to continue in this direction or not.
Mark Petrie: Even though we're hedged on an FX perspective, and we have long term contracts on the on the shipping side.
Mark Petrie: Heightened spikes and movements.
Mark Petrie: Over time, it could have an impact on our overall gross margin. So it's a reflection of a fair amount of unknowns and high volatility in this current context.
Patrick Bui: Okay, got it.
Patrick Bui: And just following up, I think it was Brian was asking about Dollar City, Seamstress sales trajectory, and actually the sort of pace of ramp up.
Mark Petrie: Okay got it.
Speaker Change: Just following up I think it was Brian was asking about dollar city's same store sales trajectory.
Mark Petrie: And actually the sort of pace of ramp up.
Patrick Bui: I'm just curious, does the pace of ramp up today look different than the pace of ramp up, you know, maybe three years ago? Sorry, you're talking about all the current lifetime business, you're not referring to... Yes, sir, yes. I don't see any different trends in terms of ramp-up, it's really been the same, you know, steady as we go. Yeah, okay.
Mark Petrie: I'm just curious does the pace of ramp up today look different than the pace of ramp up.
Mark Petrie: Maybe three years ago.
Mark Petrie: Sorry, you are talking about the all the correct youre not referring yes, yes, yes.
Mark Petrie: I wouldn't I.
Mark Petrie: I don't see any differ.
Mark Petrie: Different trends in terms of ramp up its really been the same.
Mark Petrie: Steady as we go frankly.
Patrick Bui: And then just sorry, last one.
Mark Petrie: Okay, and then just last one I know this is small but just curious.
Neil Rossy: I know this is small, but just curious, the decision to exit the sale of case goods for the website, I'm assuming that's just related to, to sort of demand, but maybe just confirm that. And then what kind of savings would you expect in terms of your, your, your supply chain? So the costs of the entire infrastructure were minimal, so I expect nothing to be hitting the bottom line in any way that will. But the reason we did what we did was once we started to offer our goods through third parties by the unit, the volume, which was really concentrated as a service to our customers that wanted to buy by the case, went down even further.
Mark Petrie: The decision to exit the sale of case goods for the website.
Mark Petrie: Assuming that's just related to to sort of demand, but maybe just confirm that and then what kind of savings would you expect in terms of your your supply chain.
Mark Petrie: So the cost of the entire infrastructure of our minimal so I expect nothing to be hitting the bottom line in any way that well that youll see.
Mark Petrie: But the reason we did what we did was once we started to offer our goods through third parties.
Mark Petrie: By the unit.
Mark Petrie: <unk> volume, which was really concentrated as a service to our customers that wanted to buy by the case went down even further and with all of the other projects that we're focused on.
Neil Rossy: And with all of the other projects that we're focused on, and the fact that we have the entire infrastructure now, and if we ever had to put it back up for any reason, like, God forbid, another COVID, it could be up within a week. And so, you know, I wanted that functionality. We have that functionality. At the moment, it wasn't a functionality worth, you know, maintaining. So we took it down because our customers are serviced through our third party platforms for online shopping or e-com shopping.
Mark Petrie: And the fact that we have the entire infrastructure now and if we ever had to put it back up for any reason like Godfrey.
Mark Petrie: God forbid another COVID-19 it could be up within a week and so I wanted that functionality, we have that functionality at the moment it wasn't a functionality worth maintaining so we took it down because.
Mark Petrie: Our customers are serviced through our third party platforms.
Mark Petrie: For online shopping or e-commerce shopping and I want the team focused on Mexico, and Australia, and all the other exciting things the Calgary warehouses et cetera. So that's mostly the reason.
Neil Rossy: And I want the team focused on Mexico and Australia and all the other exciting things. the Calgary Warehouse, etc. So that's most. Yeah, understood. Makes sense.
Operator: Thanks and all the best.
Speaker Change: Yep understood makes sense, thanks, and all the best.
Vishal Shreedhar: Our next question comes from the line of Vishal Shreedhar with National Bank Financial. Your line is now open.
Mark Petrie: Thank you.
Speaker Change: Our next question comes from the line of Vishal <unk> with National Bank Financial Your line is now open.
Vishal Shreedhar: Hi, thanks for taking my questions. Can you comment on DNA and what may have drove a lower DNA, at least versus our expectations? Was there an assessment to review the depreciation lives of your assets and how should we think about that going forward? Yes, so we do highlight that in our MD&A. We did have a modification with respect to the useful life of certain assets. So on an annual basis, we always reassess accounting policies to ensure that they're still appropriate. As such, we updated, like I said, the estimated useful life of certain classes of assets based on the current use of such assets.
Speaker Change: Hi, Thanks for taking my questions can you comment on DNA and what May have drove.
Speaker Change: Yeah.
Speaker Change: Lower DNA at least versus our expectations was there.
Mark Petrie: <unk> to review the.
Mark Petrie: Depreciation lives of your assets and how should we think about that going forward.
Speaker Change: Yes, so we do highlight that in our MD&A.
Speaker Change: We did have a modification.
Speaker Change: With respect to the useful life of certain assets.
Speaker Change: So on an annual basis, we always reassess accounting policies to ensure that there still.
Speaker Change: Still appropriate.
Speaker Change: Such we updated the like I said, the estimated useful life of certain class certain classes of assets based on the current use of such assets.
Patrick Bui: Okay, thank you for that.
Speaker Change: Okay. Thank you for that and.
Patrick Bui: Thinking about the Mexico startup and the 10 to 20 million losses. How much of that was in Q1 and how should we think about that through the year? So there's a ramp up of those costs throughout the year. I would say in Q1 it was fairly minimal, but we do expect it to ramp up in the next few quarters.
Speaker Change: Thinking about the Mexico startup in the $10 million to $20 million losses.
Speaker Change: How much of that was in Q1, and how should we think about that through the year.
Speaker Change: Okay.
Speaker Change: So there is a ramp up of those costs throughout the year I would say in Q1, it was fairly minimal but.
Speaker Change: But we do expect it to ramp up in the next few quarters.
Patrick Bui: Okay, and can you comment on inflation in your basket and at least how that's trending? Unfortunately, we actually don't comment on the pricing aspect or the inflation within our basket.
Speaker Change: Okay and can you comment on inflation on your basket and at least how thats trending.
Speaker Change: We unfortunately, and we actually don't comp.
Speaker Change: Comment on.
Speaker Change: The pricing aspect or the inflation within our basket that Michele as you would know.
Vishal Shreedhar: Okay, and maybe squeezing a quick one here. Easter was stronger. I'm going to say better than expected.
Speaker Change: Okay, and maybe squeeze in a quick one here.
Speaker Change: Easter was was stronger I am going to say better than expected.
Neil Rossy: You can correct me if I'm wrong, but was that due to overall market strength or was that due to your merchandising approach this year? I would comment on whether it was better than we expected. I think what we're commenting on is, if you recall last year, you know, it was a fairly weaker, even weaker environment. But also remember last year that because of the calendar, Easter was at the end of March and this year Easter was on April 20th. So we did benefit from additional sales days. So I would put more emphasis on on that.
Speaker Change: You can correct me, if I'm wrong, but was that due to overall market strength or was that due to your merchandising approach. This this year.
Speaker Change: I wouldn't comment on whether it was better than we expected I think what we're commenting on is if you recall last year.
Speaker Change: It was a fairly weaker even weaker environment, but also remember last year that because of the calendar Easter was at the end of March and this year Easter was on April 20th. So we did benefit from additional sales days, so I would put more emphasis on on that.
Neil Rossy: I feel the timing benefit.
Operator: Okay, thank you. Thank you.
Speaker Change: I feel the timing benefit okay. Thank you.
Edward Kelly: Our next question comes from the line of Edward Kelly with Wells Fargo.
Edward Kelly: Thank you. Our next question comes from the line of Edward Kelly with Wells Fargo. Your line is now open.
Edward Kelly: Your line is now open. Hi, good morning and nice quarter. Starting off question on pricing and how you're thinking about pricing for the year, given some of the puts and takes, including the fragile consumer that you talked about. I'm curious if there's any temptation to sort of play offense from a pricing perspective and maybe look to accelerate some share gains. No, not at all, actually. As you know, our strategy is always a price follower strategy, and we'll go with what the rest of the market does. But there's no direct thought in terms of changing our pricing strategy to gain market share.
Edward Kelly: Hi, good morning, and nice quarter.
Edward Kelly: Start starting off question on pricing and how youre thinking about pricing for the year given some of the puts and takes including the fragile consumer that you talked about I'm curious if there's any temptation to sort of play offense from a pricing perspective, and maybe look to accelerate some share gains.
Edward Kelly: No not at all actually.
Edward Kelly: As you know our strategy is always a price follower strategy and will.
Edward Kelly: I'll go with what the rest of the market does.
Edward Kelly: And but there's no direct thought in terms of.
Edward Kelly: Changing our pricing strategy to gain market share.
Neil Rossy: Okay, and I wanted to ask you about traffic. You know, historically, Dollarama's comp has been driven a bit more by basket than traffic, but the last few years, traffic's been very strong, obviously, including this quarter, where you're lapping a multi-year hard to compare. Do you think anything's changed with the business? Is this trade-down, value-seeking consumer behavior? Just curious as to how you're thinking about the drivers of traffic and the sustainability of what you're seeing there. Yeah, so we actually were pleased with more Canadians coming into our stores and buying more units. So we think that's a positive sign.
Edward Kelly: Okay, and I wanted to ask you about traffic.
Edward Kelly: Historically dollar Ams comp has been driven more by basket to traffic but.
Edward Kelly: Last few years, Traffics, but very strong obviously, including.
Edward Kelly: This quarter, we're lapping a multiyear harder compare.
Speaker Change: Do you think anything has changed with.
Speaker Change: The business is this trade down.
Speaker Change: Value seeking consumer behavior.
Speaker Change: Just curious as to how youre thinking about the drivers of traffic and the sustainability of what Youre seeing there.
Speaker Change: Yes.
Speaker Change: I would say, we're pleased with more Canadians coming into our stores and buying more units. So we think thats a positive sign certainly the pandemic and coming out of the pandemic was certainly helpful. In the sense that not only to consumers who are looking for best value and we were there for Canadian.
Neil Rossy: Now, certainly the pandemic and coming out of the pandemic was certainly helpful in the sense that not only the consumers were looking for best value and we were there for Canadians, but also helping other demographics of the Canadian population also discover the Dollarama value proposition. So we've said, and this is many quarters ago, but we've also been able to increase our appeal to higher income Canadians as well.
Speaker Change: <unk>.
Speaker Change: But also helping other.
Speaker Change: Demographics became population also discover.
Speaker Change: But the dollar value proposition. So we've said and this is many quarters ago, but we've also been able to.
Speaker Change: Increase our appeal to a higher income Canadians as well.
Neil Rossy: And just one quick follow up on the startup costs on Mexico, when do you think those costs, you know, sort of peak and then, you know, how quickly do you think you can start to recapture that, you know, as we think about, you know, the out year? So we did highlight on the prior call is, you know, we're ramping up from scratch. So we need to be patient with the moment that we will start hitting an inflection point. Now, certainly we do see losses this year, next year, and it may be losses for, you know, a third year before we even think about breaking even.
Speaker Change: Alright, and just one quick follow up on the startup costs on Mexico.
Speaker Change: When do you think those costs sort of peak and then how quickly do you think you can start to recapture that.
Speaker Change: As we think about the out year.
Speaker Change: So we did highlight on the prior call as we're ramping up from scratch, so we need to be patient with.
Speaker Change: The moment that we will start hitting an inflection point now certainly we do see losses this year.
Speaker Change: Next year.
Speaker Change: And it may be losses for a third year before we even think about.
Neil Rossy: So, you know, I'll reiterate that we need to be patient with when and if this business will reverse losses that we're currently in.
Speaker Change: Breaking even so I'll reiterate that we need to be patient with <unk>.
Speaker Change: When and if.
Speaker Change: This business will reverse losses that were currently in.
Operator: Recording. Great, thank you.
Speaker Change: Recordings are.
Speaker Change: Great. Thank you.
Martin Landry: Thank you. Our next question comes from the line of Martin Landry with Stiefel. Your line is now open. Good morning. Congrats on your results. Lots of my questions have been answered.
Speaker Change: Thank you. Our next question comes from the line of Martin Landry with Stifel. Your line is now open.
Martin Landry: Hey, good morning, Congrats on your results.
Speaker Change: Lots of my questions have been answered.
Martin Landry: Looking back at your large investment coming up in Calgary, is there a... I would assume there's going to be some cost savings on transportation that you're going to realize. You know, could you help us maybe frame a little bit, you know, in terms of savings and efficiencies, what you could expect when the project is going to be fully up and running? Yeah, so I would go back to some comments we made in prior quarters. You know, we proceeded with this project, obviously, for some operational considerations, but also from a return of capital perspective. And so when you think about this project as being a $500 million Catholics project, we were able to see a good and acceptable return on this specific project, which mostly stems from savings on the transportation side.
Speaker Change: Maybe.
Speaker Change: Looking back at your large investments coming up in Calgary.
Speaker Change: Is there a.
Speaker Change: I would assume there is going to be some cost savings on transportation.
Speaker Change: We're going to realize.
Speaker Change: Could you help us maybe frame a little bit.
Speaker Change: In terms of savings and efficiencies what you could expect.
Speaker Change: When the project is going to be fully up and running.
Speaker Change: Yes, so I would go back to some comments we made in prior quarters.
Speaker Change: We proceeded with this project.
Speaker Change: Obviously for some.
Speaker Change: Operational considerations, but also from a return of capital perspective, and so when you think about this project as being a $500 million Capex project.
Speaker Change: We were able to see a good an acceptable return.
Speaker Change: On this specific project, which.
Speaker Change: Mostly stems from savings on the transportation side.
Martin Landry: Perfect. Thank you.
Neil Rossy: And maybe on a lighter note, Neil, did you stuck up on your Canada flags for the upcoming Canada Day birthday? I think we should be in good shape for Saint-Jean and for Canada Day. I'm excited for both. Good to hear. Thank you.
Speaker Change: Perfect. Thank you and maybe on a lighter note Neil did U S comped on.
Speaker Change: Your.
Speaker Change: In Canada, our flags for any upcoming Canada.
Speaker Change: Thursday.
Speaker Change: I think we should be in good shape for seizure and for Canada day.
Speaker Change: I'm excited for both.
Speaker Change: Great to hear thank you.
Luke Hannan: Our next question comes from the line of Luke Hannan with Canaccord Genuity. Your line is now open. Thanks. Good morning.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Luke Hannan with Canaccord Genuity. Your line is now open.
Patrick Bui: I wanted to ask about loss prevention or shrink initiatives. Patrick, you mentioned that that was a tailwind during the quarter, though, I mean, probably lower in magnitude than the lower logistics costs. But can you just frame up for us sort of where shrink is as of now and whether or not you have any more initiatives planned or how well rolled out, rather, those initiatives are at this point and whether we should expect more as far as lower shrink in quarters. Look, we certainly have been seeing a notion of plateauing with respect to the shrink figures.
Speaker Change: Thanks, Good morning I wanted.
Speaker Change: To ask about loss prevention or shrink initiatives. Patrick you mentioned that that was a tailwind during the quarter, though I mean, probably lower in magnitude than the lower logistics costs, but can you just frame up for us.
Speaker Change: Drink is as of now and whether or not you have any more initiatives planned or how well rolled out rather those initiatives are at this point and whether we should expect more as far as lower shrink in quarters to come.
Speaker Change: Look we certainly have been seeing.
Speaker Change: Ocean of plateauing with respect to the shrink figures and what we've seen this quarter is a slight decrease in shrink.
Patrick Bui: And what we've seen this quarter is a slight decrease in shrink. So we think it's a little early to determine that it's a lasting trend. Now, certainly, we've been, as a management team, focused on implementing initiatives that go to combat shrink. I mean, we've talked about optimization of self-checkouts in our stores. We've talked about merchandising strategies. But all of this, we think, is bearing fruits. And it's very hard to say the direction of shrink in the future. We certainly all hope for lower figures with respect to shrink in the future. But again, hard to say at this point.
Speaker Change: So we think it's a little early too.
Speaker Change: Determined that it's a it's a lasting trend now certainly we have been as a management team focused on implementing initiatives that go to combat shrink I mean, we've talked about.
Speaker Change: Optimization of.
Speaker Change: Self checkouts in our stores, we've talked about merchandising strategies.
Speaker Change: But all of this.
Speaker Change: We think is bearing fruit and it's very hard to say the direction.
Speaker Change: Shrink in the future, we certainly hope for lower figures with respect to shrink in the future, but again hard to say at this point.
Patrick Bui: Okay, thanks. And then for a follow-up here on capital allocation, I know in the past that there's been this consideration of the earnings yields of your shares versus the after-tax cost of debt when it comes to your buying back shares or paying down debt. And I appreciate the commentary that you have out there that you will resume share buybacks for the rest of the year and you intend to be active there. But I mean, is it still the thinking of you guys going forward that you'll always keep that in the back of your mind? Or are you at this point now where you're generating plenty of cash between your Canadian operations, Lot M, and then soon-to-be-sold shares?
Speaker Change: Okay. Thanks, and then for a follow up here on capital allocation I know in the past that there's been this consideration of the the earnings yield of your shares versus the after tax cost of debt when it comes to buying back shares or paying down debt and I. Appreciate the commentary that you have out there that you will resume share.
Speaker Change: Buybacks for the rest of the year and you intend to be active there, but I mean is it still the thinking of you guys going forward that you hope you always keep that in the back of your mind or is the point.
Speaker Change: Are you at this point now where you're generating plenty of cash between your Canadian operations Latam and then soon to be Trs that you should be able to sort of hybrid cake and eat it too there.
Patrick Bui: PRS that you should be able to sort of have your cake and eat it too there.
Patrick Bui: Yeah, Luke, I mean, you know, I'd say it's a combination of all the above. I mean, certainly, that rule of thumb is something we have as a KPI in the back of our minds. But it's, I would say it's one of many that come into the decision of deploying cash for share buyback. Okay, appreciate it. Thanks.
Speaker Change: Yes look I mean, I would say, it's a combination of all of the above I mean, certainly.
Speaker Change: That rule of thumb is something we have as a <unk> in the back of our minds, but it's I would say, it's one of many that come into the decision.
Speaker Change: Deploying cash for share buyback.
Speaker Change: Okay I appreciate it thanks.
Corey Tarlow: Our next question comes from the line of Corey Tarlow with Jeffries. Your line is now open. Great, thanks, and good morning.
Speaker Change: Thank you. Our next question comes from the line of Cory <unk> with Jefferies. Your line is now open.
Cory: Great Thanks, and good morning.
Corey Tarlow: I had a question on new store returns within the context of the fact that you're accelerating your new store openings for the year. Could you provide us a little bit more color on what the returns look like and what you're expecting for this year, given the acceleration in trend? And then perhaps maybe some historical context, as well, in terms of what these returns used to look like. That would be helpful. Thank you. Sure, so the guiding light when it comes to store openings is really the payback, the period of payback for the stores, and we publicly disclose that we're at approximately a two-year payback on average for all our stores.
Speaker Change: I had a question on new store returns within the context.
Speaker Change: Fact that youre accelerating your new store openings for the year could you provide us a little bit.
Speaker Change: More color on what the returns look like and what Youre expecting for this year given the acceleration.
Speaker Change: In trend in.
Speaker Change: Perhaps maybe some historical context as well in terms of what the lease returns used to look like.
Speaker Change: That'd be helpful. Thank you.
Speaker Change: Sure. So the guiding light when it comes to store openings is really.
Speaker Change: The payback period of payback for the stores and we publicly disclose that we're at approximately a two year payback on average for all of their stores.
Patrick Bui: So when we look at and build business cases for new stores, that's the guiding light, really. Certainly, if you look in the history of Dollarama, that figure has come down, and today we are around that two-year average pay-per-view. Understood.
Speaker Change: So when we look at and build business cases for new stores.
Speaker Change: The guiding light.
Speaker Change: Really.
Speaker Change: If you look at the history of dollar AMA that figure has come down and today, we are around that three year average payback.
Patrick Bui: And then, Patrick, did you quantify the 53rd week? Apologies if I missed it. We did not, but from a SSS perspective, it has no impact.
Speaker Change: Understood and then.
Speaker Change: Patrick did you quantify the 53rd week apologies if I missed it.
Speaker Change: We did not but from a sss perspective. It has it has no impact I think what I raised in our prepared remarks.
Patrick Bui: I think what I raised in our prepared remarks is, please have a look at fiscal 2020. That was the last time we lapped the 53-week year. It's not so much the additional week that has an impact, but it actually shifts days that are composed in every quarter. So it's a little bit hard to explain, you know, over a conference call, but if you have a look at that calendar and what happened back in fiscal 2020, you'll have a better sense of what's going on.
Speaker Change: Please have a look at fiscal 2020 that was the last time, we lapped a 53 week year, it's not so much the additional week that has an impact but it actually shifts days that are composed in every quarter. So it's a little bit hard to explain over a conference call, but if you have a look at the calendar.
Speaker Change: What happened back in fiscal 2020, you'll have a better sense of it.
Patrick Bui: Okay, thank you very much and best of luck.
Speaker Change: Okay. Thank you very much and best of luck.
Matthew Rothway: Our next question comes from the line of Matthew Rothway with UBS. Your line is now open. Hi, this is Matthew Rothway.
Speaker Change: Alright.
Speaker Change: Thank you. Our next question comes from the line of Matthew <unk> with UBS. Your line is now open.
Matthew Rothway: I'm from Mark Carden. Thanks for taking our question. I was wondering what component of your gross margin improvement was driven by fixed cost leverage. And if so, you know, is there a certain comp level where you tend to see that leverage? Yeah, really, the component that we saw leverage in our gross margins is really all the cost of bringing the product to the stores. So it's really the logistics cost. So think about, you know, warehouse operations, DC operations, and transportation of it. And so there's a lot of fixed costs in there. And as you, you know, grow scale, as you have, you know, strong SSS, well, those line items scale fairly quickly.
Speaker Change: Hi, This is Matthew Rockaway on for Mark Carden, Thanks for taking our question.
Speaker Change: I was wondering what.
Speaker Change: Ponant of your gross margin improvement was driven by fixed cost leverage.
Speaker Change: And if so is there a certain comp level, where you tend to see that leverage.
Speaker Change: Yes.
Speaker Change: The component that we saw leverage in our gross margins is.
Speaker Change: Really all of the cost of bringing the product to the stores. So it's really.
Speaker Change: The logistics cost so think about.
Speaker Change: Warehouse operations DC operations.
Speaker Change: And the transportation of it.
Speaker Change: So there's a lot of fixed costs in there and as you.
Speaker Change: Gross scale as you have.
Speaker Change: Strong Sss will those line items scale fairly quickly.
Patrick Bui: Great. And any comment on kind of what level of comp you tend to see that at? We don't, uh, not really, we don't, I don't, I don't have a rule of thumb for that. Fair enough.
Speaker Change: Great.
Speaker Change: Meant on kind of what level of comp you tend to see that.
Speaker Change: So we don't.
Speaker Change: Not really we don't I don't I don't have a rule of thumb for that really.
Patrick Bui: Moving to your comp performance, any notable differences among the provinces as to strength there? No, nothing that stood out, really. It was pretty, still for the moment, pretty uniform across.
Speaker Change: Fair enough moving to your comp performance any notable differences among the provinces.
Speaker Change: The strength there.
Speaker Change: No not.
Speaker Change: Nothing that stood out really.
Speaker Change: It was pretty.
Speaker Change: Still for the moment pretty uniform across the country.
Patrick Bui: Great.
Patrick Bui: And then last question, as it relates to same-store sales growth in Dollar City, I know you've mentioned that they were normalizing, much like in Canada. Is that still the case? Any notable gaps between SSS down there and Canada? No, actually, this quarter was another quarter where, you know, the trends were very similar to what we're seeing here in Canada.
Speaker Change: Great and then last question.
Speaker Change: As it relates to same store sales growth and dollar city I know you've mentioned that they were normalizing much like in Canada is that still the case any notable gaps between.
Speaker Change: That's down there in Canada.
Speaker Change: No actually this quarter was another quarter, where.
Speaker Change: The trends were very similar to what we're seeing here in Canada.
Operator: Great, thank you. Thank you.
Speaker Change: Great. Thank you.
Speaker Change: Sure.
Operator: This concludes the Q&A session.
Speaker Change: Thank you. This concludes the Q&A session. Thank.
Operator: Thank you all for your participation on today's call. This does conclude today's conference call. You may now disconnect.
Speaker Change: Thank you all for your participation on today's call. This does conclude today's conference call you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.