Dollarama Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Irene Nattel - RBC Capital Markets - Analyst : Thanks, and good morning, everyone. Just if we could please start with Dollarcity. I guess the first question is how did you arrive at the value for the 10% that you are acquiring? And I guess the related question is how to think about the growth trajectory in earnings from Dollarcity now that the mature stores are larger portion of the total store base?

Question: Irene Nattel - RBC Capital Markets - Analyst : Okay. Understood. Did you -- is it -- I'm being asked a lot of questions about the multiple that you might have paid? Or did you approach it on a DCF basis or multiple basis? What's the best way for us to think about it?

Question: Irene Nattel - RBC Capital Markets - Analyst : Fair enough. Certainly, it drives with our assessment of value of Dollarcity. And I guess the final question on Dollarcity is, can we or should we expect you to disclose incremental color around the Dollarcity performance metrics or KPIs because we really haven't had anything until -- since you exercised the call option. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 12, 2024 / 3:00PM, DOL.TO - Q1 2025 Dollarama Inc Earnings Call

Question: Irene Nattel - RBC Capital Markets - Analyst : That's great. Thank you. And then just turning to the rest of the business, you did note strong demand essentials and consumables. But can you talk a little bit about what you're seeing in consumer behavior that sort of leads you to conclude that people are being more cautious even in your store and I guess overall demand profile.

Question: Chris Li - Desjardins Securities Inc. - Analyst : Good morning, everyone. Just maybe a quick follow-up to Irene's question. So I just wanted to maybe ask or say differently, is it fair to say that same-store sales kind of gradually moderate as the quarter progressed? And then, Patrick, are you willing to share with us sort of what is the Q2 to date same-store sales trending so far? Thank you.

Question: Chris Li - Desjardins Securities Inc. - Analyst : Okay, that's good. Thank you. And then related to (technical difficulty) are you seeing any notable changes in competition? I'm thinking, especially maybe on the discretionary side, as you noted that the spending there is starting to maybe pare back a little bit. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 12, 2024 / 3:00PM, DOL.TO - Q1 2025 Dollarama Inc Earnings Call

Question: Chris Li - Desjardins Securities Inc. - Analyst : Okay. That's helpful. And then maybe a couple of quick ones on Dollarcity. Just wondering the way the transaction is funded is through the share issuance. Was that from the founders that own the shares or like versus just cash, can you just give a sense of like what was the rationale for the shares versus cash?

Question: Chris Li - Desjardins Securities Inc. - Analyst : Okay. And my last question is just I know this is probably a tough one to answer because you're not there yet. But in Mexico, as you start to look at expansion into that country. What are the opportunities perhaps to leverage maybe your existing infrastructure you have in LatAm? Do you have to be more efficient to get into the country? Or would the expansion be similar to any other country where there's going to be a period of ramp-up in investment, and we hope that you can fund that with free cash flow and that will gradually improve, just one, get a sense of bigger opportunities for synergies on average, given you have already have existing platform in LatAm.

Question: Tamy Chen - BMO Capital Markets - Analyst : Hi, thanks for the question. I wanted to start with the Canadian business. So this is the second quarter where your traffic is up, but the basket is smaller. Could you just talk a little bit more about that? Like why do you think that is -- because I get the sense your expectations through this year's that you're assuming you'll retain most of the gain market share and you'll be using your playbook for increasing basket size, but it's kind of the opposite right now. So just curious what theories or perspective you have as to why we're seeing this trend right now between traffic and basket? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 12, 2024 / 3:00PM, DOL.TO - Q1 2025 Dollarama Inc Earnings Call

Question: Tamy Chen - BMO Capital Markets - Analyst : Right. Okay. And then on Dollarcity, first I'm just curious with respect to increasing the stake? Why now -- how do you think about the timing for doing this now?

Question: Tamy Chen - BMO Capital Markets - Analyst : And can you talk about why Mexico because in your existing arrangement with the founding shareholders of Dollarcity, Mexico wasn't one of the markets, there were a number of other markets that were already included in that existing partnership. So this is a new one. Why specifically Mexico rather than some of the other countries that were already in your arrangement, and this different JV structure as well for Mexico. Thanks.

Question: Vishal Shreedhar - National Bank Financial, Inc. - Analyst : Hi. Thanks for taking my questions. Given Dollarama's ongoing balance sheet strength and cash generation, would these investments in LatAm and Mexico does preclude you from investigating other acquisition opportunities?

Question: Vishal Shreedhar - National Bank Financial, Inc. - Analyst : Would Dollarama have to put in capital to fund Mexico's growth or is that self-financing?

Question: Vishal Shreedhar - National Bank Financial, Inc. - Analyst : Okay. Switching gears here to Dollarama's business. The same-store sales growth trajectory through the year, which is anticipated to gradually normalize. The ending points could be something below what Dollarama historically has achieved, call it mid-single digits. Would it be fair to say that -- or was there anything that would point you to have us believe that post 2025 after your normalization that Dollarama would not be able to return to its historical level of same-store sales growth? Or should we look at the cadence that we're seeing to fiscal 2025 and expect that to continue?

Question: Vishal Shreedhar - National Bank Financial, Inc. - Analyst : And lastly, the optionality to acquire additional stakes in the core existing Dollarcity business and Mexico, do you have a capital allocation priority? I know that's longer term but is there one that prioritizes over another or is that to be seen as time unfolds?

Question: Mark Petrie - CIBC Capital Markets - Analyst : Yeah. Good morning. Thanks for all the comments so far. Just a couple of follow-ups specifically on the Dollarcity transaction. Is there a sort of a set multiple with regards to the options or is it fair market value as well? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 12, 2024 / 3:00PM, DOL.TO - Q1 2025 Dollarama Inc Earnings Call

Question: Mark Petrie - CIBC Capital Markets - Analyst : Okay. So the call is one call for both of those states. Okay, got it. And just the way you were speaking about it, it sort of implies that you don't really -- you don't believe you're paying for that option value or the initial stake in Mexico, like the consideration today is for that incremental 10%. Is that the way you're thinking about it? Or are there values assigned to these other pieces?

Question: Mark Petrie - CIBC Capital Markets - Analyst : Understood. Okay. And just coming back to Canada, I just wanted to ask about Easter specifically. Obviously, a crucial period for you. The performance of that relative to previous years and also the sort of competitive landscape around Easter specifically.

Question: Mark Petrie - CIBC Capital Markets - Analyst : Okay. And stable spending like in line with the performance of the quarter -- like it wasn't a tailwind or a headwind specifically to same-store sales growth?

Question: Mark Petrie - CIBC Capital Markets - Analyst : Okay. I'll put okay into the (multiple speakers) and I guess just last, Patrick, on gross margin, you gave a bit of color. But can you just help break down some of the moving parts here specifically. And I'm interested in maybe how freight and logistics impacted you this quarter versus, say, the second half of last year. And then also with regards to sales mix, I mean you highlighted consumables. Is it fair to say that that sales mix has returned to being more of a headwind on gross margin than it was through fiscal '24. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 12, 2024 / 3:00PM, DOL.TO - Q1 2025 Dollarama Inc Earnings Call

Question: Mark Petrie - CIBC Capital Markets - Analyst : Okay. And any comment or color on sales mix and how that's affecting the business versus last year?

Question: Brian Morrison - TD Cowen - Analyst : Good morning. First question on Dollarcity. Patrick, you said that you might provide increased disclosure. Is that because at the end of the year, is that because you'd be hitting a 10% of net income threshold?

Question: Brian Morrison - TD Cowen - Analyst : Okay. And then are you able to provide any color with respect to the growth rate of Dollar City for the rest of this year, just because it's becoming a bigger part of your consolidated income? And secondly, how do you assess the competitiveness of the Mexico market, whether it be Dollar stores or other retail competition relative to Peru and Colombia? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 12, 2024 / 3:00PM, DOL.TO - Q1 2025 Dollarama Inc Earnings Call

Question: Brian Morrison - TD Cowen - Analyst : Okay. Neil, maybe I can follow up on a question with you on Dollarama as well. If you walked through the stores, certainly with the higher price points, you have an impressive increase in your breadth of product assortment, but I'm noticing that specifically in categories such as garden and auto and pet, you're really expanding there. And I know you say the competitive dynamic is stable, but these are key categories of Canadian Tire's and Costcos and mass merchants. I'm just wondering if you expect them to -- I know you compete on relative value, but do you expect their response to be in terms of promotional activity or competitive response to maybe intensify a little bit?

Question: Edward Kelly - Wells Fargo Securities, LLC - Analyst : Hi, good morning, everyone. I want to ask about SG&A. You talked about working on measures to offset what you're seeing from a wage inflation standpoint. I was curious if you could maybe elaborate on what you're doing to help mitigate that? What the outlook for wage inflation is like? And then I guess the guidance would assume that you have less pressure maybe on SG&A as a percentage of sales as you get to the back half. So any kind of color there would be helpful.

Question: Edward Kelly - Wells Fargo Securities, LLC - Analyst : All right. And I wanted to just check in on shrink. It hasn't really been mentioned on the call. Just kind of curious what you're seeing in your accounts. Anything notable there that we should be thinking about?