Dollarama Inc Q2 2025 Earnings Call Transcript

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

Question: Irene Nattel - RBC Capital Markets - Analyst : I was wondering if you could just please spend a few minutes talking in a little bit more detail about what you're seeing in terms of consumer spending. You did call out the weather, you called out consumables, but what did you see as the quarter evolved and as the weather showed up, can you give us any color on, for example, early back to school and how we should be thinking about spending trends in the back half of the year?

Question: Irene Nattel - RBC Capital Markets - Analyst : That's very helpful. And are you seeing any change whatsoever in the competitive dynamic in terms of perhaps other players trying to sort of drive traffic by playing in your sandbox a little bit more? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 2:30PM, DOL.TO - Q2 2025 Dollarama Inc Earnings Call

Question: Chris Li - Desjardins Securities Inc. - Analyst : Patrick. Maybe I'll start with a question on gross margin. It was quite strong compared to our estimates. I guess two-part question. Can you elaborate a little bit more on sort of what drove the strong performance. Was any sort of onetime factor? And then the second question is on your opening remarks, you did say that you do expect margin to soften up a little bit in the back half, and just wondering if you can also elaborate on what you expect in the second half in terms of softer margins?

Question: Chris Li - Desjardins Securities Inc. - Analyst : Got you. Okay. That's helpful. And then Patrick, maybe just if you are able to provide us with some indication of how Q3 same-store sales you're trending so far? Is it still kind of above your full year range? Or has it kind of now normalized towards that 35% 4.5% range?

Question: Chris Li - Desjardins Securities Inc. - Analyst : Okay. That's great. And my last question, just because you brought up about sort of Loblaw, the box, pilots. I was just wondering, can you share with us just for you guys, roughly what percentage of your sales would be kind of in that overlap in terms of food? What percentage of your total retail sales?

Question: Brian Morrison - TD Cowen - Analyst : A question for Neil or Patrick. When I look at the exceptional growth at Dollarcity continuing, the build-out of your logistics in Colombia and El Salvador, it looks complete, and then the dividend you paid last year. It leads me to believe you're content with the Dollarcity balance sheet and that barring any major CapEx outside of store growth that is throwing off substantial free cash flow. So, excluding Mexico, with the financial position and cash flow comment be correct your LATAM? And then my follow-up question would be, can you utilize the LATAM infrastructure to service the Mexico start-up? And can we expect Dollarcity LATAM to evaluate a potential distribution of more capital similar to what we saw last year?

Question: Brian Morrison - TD Cowen - Analyst : That's very detailed. And the second question I have, maybe for Neil. Is there any reason to think that the LATAM new store growth shouldn't be linear, and the business model now is working in five countries. Mexico is a massive opportunity, but do you have the bandwidth to evaluate other geographies near term or do resource constraints and getting Mexico correct, push that ambition out? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 2:30PM, DOL.TO - Q2 2025 Dollarama Inc Earnings Call

Question: Brian Morrison - TD Cowen - Analyst : Sorry , just in terms of Dollarcity's new store growth being linear, I mean you're trailing new-store growth is like 112 stores now. I'm just curious on that front.

Question: Tamy Chen - BMO Capital Markets - Analyst : My first one is coming back to Canada. So the composition of your same-store sales, 3/4 of the basket is down. I believe, historically, your algorithm is to grow the basket size. Can you talk about in Canada right now, the current competitive landscape with respect to pricing, do you find there's any change? Or is it a bit more difficult than historically to implement the internal levers that you have for basket growth?

Question: Tamy Chen - BMO Capital Markets - Analyst : Okay. And my follow-up is on Dollarcity, I'm just wondering, I guess a two-part question here is for the last number of quarters, I think you said the trends at the consumer level were very similar to Canada. Is that still fair to say? Or are there some differences that you're noticing now in the Dollarcity stores on the part of the consumer? And just thinking to your answer to the previous question on the cash flow generation, is it fair to say we're now at a point where in the existing four markets, Dollarcity is at this inflection point where you're starting to get good operating leverage and margin expansion of the infrastructure that you've built there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 2:30PM, DOL.TO - Q2 2025 Dollarama Inc Earnings Call

Question: Mark Petrie - CIBC Capital Markets - Analyst : Just a follow-up, I guess, on the whole sort of assortment sales shift between different categories and the sort of performance there. I'm curious just with regards to pricing and slower inflation, clearly, is that relatively consistent across the different categories?

Question: Mark Petrie - CIBC Capital Markets - Analyst : Okay. And does this sort of shift in sales mix, does that affect at all how you think about your assortment heading into Halloween and Christmas? You know, seasonal being slower?

Question: Mark Petrie - CIBC Capital Markets - Analyst : Okay. Yes. Understood. And one more, if I could. Just can you just remind us when you start to lock in your ocean freight costs for 2025?

Question: Mark Petrie - CIBC Capital Markets - Analyst : Okay. So you are locked in on your freight costs for 2026 on some basis?

Question: Mark Petrie - CIBC Capital Markets - Analyst : On an above average basis or a typical basis? Or I mean --

Question: Martin Landry - Stifel Nicolaus Canada Inc., Research Division - Analyst : I was wondering if you could touch a little bit on your in-store productivity initiatives. Perhaps maybe the Kronos scheduling tool that you've put in place. Wondering, did that allow you to reduce your labor hours per store? And if so, by how much have you been able to reduce your labor hour per store, let's say, versus last year or two years ago? Any color would be helpful.

Question: Martin Landry - Stifel Nicolaus Canada Inc., Research Division - Analyst : Okay. I thought I tried. Maybe just to wrap up the labor discussion. The government has been tightening immigration policies. And I was wondering if that's having an impact on your business? What is the number of job openings that you have right now? And how does that compare versus historically?

Question: Martin Landry - Stifel Nicolaus Canada Inc., Research Division - Analyst : Okay. So no more openings than historically?

Question: Martin Landry - Stifel Nicolaus Canada Inc., Research Division - Analyst : Okay. And then just lastly, your traffic has been very strong. It continues to grow above historical levels. And you've talked a little bit about the dynamics there, but I'm just wondering if there's a difference in traffic patterns between your urban stores and your rural stores?

Question: Edward Kelly - Wells Fargo Securities, LLC - Analyst : I wanted to ask about the back half comp and just how we should be thinking about a few things. I mean if you look at the calendar, obviously, Q3, Halloween impact. I don't know if you have any color on how much you think that could be. As you get into Q4, Black Friday is a week later, does that matter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 2:30PM, DOL.TO - Q2 2025 Dollarama Inc Earnings Call How should we think about that? And then obviously, you've had some weakness in seasonal and gen merchants a little bit slower in the back half was a bigger events for those categories. And your comp guidance implies roughly 2% to 4% range in the back half. I'm curious as to how you're thinking about all of these dynamics as you look at the back half comp guidance?

Question: Edward Kelly - Wells Fargo Securities, LLC - Analyst : Okay. And just a follow-up. I know we've talked about the gross margin quite a bit. But it seems like you'd have some decent mix pressure just given the difference in the comps by the categories. You haven't really talked about it all that much. I mean have you seen that pressure? And has it just been offset by some of the other benefits in supply chain and freight? And does that potentially become more apparent as you get into the back half?