Dollarama Inc Q3 2025 Earnings Call Transcript

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

Question: Irene Nattel - RBC Capital Markets (Canada) - Analyst : My first question is for the CEO of the year. Congratulations, Neil. And as always, it's -- really want to focus for a moment, if possible, on consumer spending trends. We've been hearing a lot from other retailers about sequential deceleration during calendar Q3. Can you walk us through what you saw in terms of seasonal -- how is Halloween as a season overall? And I know it's early, but any early read on Christmas demand?

Question: Irene Nattel - RBC Capital Markets (Canada) - Analyst : That's helpful. And just to continue to beat this horse. Within the essentials, have you seen any kind of shift in demand by category or anything like that, or that's been relatively stable?

Question: Irene Nattel - RBC Capital Markets (Canada) - Analyst : Okay, excellent. And then just one question on the DC warehouse. You mentioned, I think, Patrick, that the automation is going to look fairly similar to Montreal. Can you walk us through what the thought process was, whether there are any concerns about labor availability and things like that?

Question: Chris Li - Desjardins Securities - Analyst : I have two questions. First, on Dollar City, and then the second one will be on gross margin. Just on Dollar City, the pace of earnings growth seems to have slowed down a little bit compared to recent quarters. I know it tends to fluctuate on a quarterly basis and there's probably some noise from FX and interest costs, et cetera. So my question is, was the slowing in earnings were part of the normal growth normalization that is also happening in Canada or are there other factors that you would like to call out?

Question: Chris Li - Desjardins Securities - Analyst : Okay, that's helpful. Maybe just a quick follow-up, Patrick. In the past, I think we've talked about maybe the possibility of the company providing some incremental disclosures around Dollar City in the future. Is that still on the table to be considered?

Question: Chris Li - Desjardins Securities - Analyst : Okay, that's helpful. And my other question, just on the gross margin. As we look out into next year, the industry might be facing higher product costs with potential tariffs and the weaker Canadian dollar. And given that the industry has gone through, obviously, a high cycle of high inflation, do you expect there will be maybe less flexibility for the industry to pass on higher cost, maybe resulting in some margin pressure next year? And maybe on the flip side, what are some of the key margin levers that you can pull to offset some of these potentially higher cost pressure for next year?

Question: Brian Morrison - TD Cowen - Analyst : Maybe I can just follow up on that question, with respect to -- is there any changes in terms of pricing behavior from your competitors or does it remain pretty much flat right now?

Question: Brian Morrison - TD Cowen - Analyst : Okay. And then with respect to the expansions -- for Patrick, I guess. But with respect to the expansion to Western Canada with respect to your logistics facility, should we expect that all of the costs there will be capitalized? Or could some of that be expensed?

Question: Brian Morrison - TD Cowen - Analyst : Exactly.

Question: Brian Morrison - TD Cowen - Analyst : Okay. And then last question, if I can. I've noticed in prior years that Q4, you typically have a big uplift in Dollar City store additions. And I'm wondering if we're going to see that again this year. And what is the reason for that?

Question: Brian Morrison - TD Cowen - Analyst : In Q4, typically, there's been a big uplift with respect to Dollar City new store additions. I'm wondering the reason for that. We should probably -- [or per me] if we can expect to see that again this year.

Question: Brian Morrison - TD Cowen - Analyst : With all due respect, you've been well in excess of that over the past four quarters, though.

Question: Mark Petrie - CIBC Capital Markets - Analyst : Just given the consumer context that you described, I'm curious to hear your latest thoughts on how you think about managing your assortment and your merchandising just given the emphasis on value. And I guess I'm thinking specifically of sort of the balance of SKUs across price points, particularly as you introduce new SKUs, and then also the merchandising in the store.

Question: Mark Petrie - CIBC Capital Markets - Analyst : Yeah, understood. Understood. And I guess specifically, the balance of products across price points, that's all relatively stable, I would assume, as well.

Question: Mark Petrie - CIBC Capital Markets - Analyst : Yeah, okay. And I wanted to ask just about your self checkouts. And I'm just curious if you could give us an update about the current penetration in the network, your satisfaction with the consumer adoption and your execution with those, and then the overall net impact on the business and consumer perception.

Question: Mark Petrie - CIBC Capital Markets - Analyst : Yeah, okay. And maybe if I could just ask one more, just back to the whole distribution facility or logistics hub in Calgary. You called out a number of different variables that drove the decision now. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 3:30PM, DOL.TO - Q3 2025 Dollarama Inc Earnings Call And I'm just curious if what the tipping point for the decision was any shifting in the prioritization of those different variables, the financial but also the importance of redundancy? Or if it really was -- the vast majority of the decision was just ultimately about growth and the need for capacity on -- in another region.

Question: John Zamparo - Scotiabank GBM - Analyst : I wanted to start on the DC as well. I wonder how we should think about the impact to consolidated operating costs once that's up and running. Is there anything you can say to help quantify the cost savings on a net basis? Or just comment on how you approach your returns requirement on projects like this.

Question: John Zamparo - Scotiabank GBM - Analyst : Okay, understood. And is it fair to say that those savings would phase in over time? Or would we see a notable amount in '28 once it's up and running?

Question: John Zamparo - Scotiabank GBM - Analyst : Right, okay. Fair enough. On to leverage. The press release stated that with the new DC, you don't anticipate a change to your capital return plans. Presumably, that means you're willing to take on a bit more leverage. I wonder if there's a new target or range that you have in mind?

Question: John Zamparo - Scotiabank GBM - Analyst : Okay, understood. And then one last one on the new store target. Presumably, you're seeing more of your new stores overlap with your existing footprint. I wonder if you're seeing a greater impact of these stores when you execute this fortressing strategy? And should we anticipate that there will be more overlap with new stores of existing stores moving forward?

Question: Martin Landry - Stifel Canada - Analyst : I wanted to go back to the distribution center. The CapEx of $450 million looks high to me at first glance. So I was wondering, can you share what's going to be the size of the complex, both the DC and warehouse? And is there any buckets that you could break down to give us a better sense of what makes up that $450 million?

Question: Martin Landry - Stifel Canada - Analyst : Okay. And what's the return on invested capital that you expect to achieve on that investment?

Question: Martin Landry - Stifel Canada - Analyst : So Patrick, can you refresh me, what's your internal hurdle rate? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 3:30PM, DOL.TO - Q3 2025 Dollarama Inc Earnings Call

Question: Martin Landry - Stifel Canada - Analyst : Yeah. Because I see your return on invested capital is 20% now. So would that be dilutive to that return?

Question: Vishal Shreedhar - National Bank Financial - Analyst : Neil, off the top, you said that you felt comfortable that your business proposition was still resonating with consumers, notwithstanding the slowdown which was called out in advance. But I'm wondering what metrics that you're looking at suggest to you that the slowing -- the sequential slowing of same-store sales growth is related more so to the consumer versus a view that Dollarama has become less competitive, let's say, versus its peer set.

Question: Vishal Shreedhar - National Bank Financial - Analyst : Okay. And with respect to your plans to look further into different geographies for Dollarama, given the larger CapEx spend and the intent to maintain your capital return program, does that suggest that the acquisitions outside of the regions currently indicated would be more of the longer-term consideration? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 3:30PM, DOL.TO - Q3 2025 Dollarama Inc Earnings Call

Question: Vishal Shreedhar - National Bank Financial - Analyst : Okay. With respect to the dividend that Dollar City paid in the past, I understand you flagged that that wasn't a recurring dividend and that was more of a one-time situation. But how should we think about it this year and in the years ahead? Should we anticipate a cash flow back to Dollarama business?

Question: Vishal Shreedhar - National Bank Financial - Analyst : I see. Would it be reasonable to assume, given the Mexico expansion, that cash will be preserved for that?

Question: Emily Foo - BMO Capital Markets - Analyst : So with your new store target announcement and also the opening of the Western DC, I was just wondering like what maybe data or sign that and giving you confidence that maybe you'll be keeping the incremental traffic that you've been getting from the last two blockbuster years. And also secondarily, with the population growth potentially slowing down, what are your thoughts about keeping the top-line momentum?

Question: Emily Foo - BMO Capital Markets - Analyst : I see. And now on the Western DC. Presumably, this will support the growth to your new store target of 2,200. But how do you guys factor in future growth beyond that into the consideration of building out the DC.

Question: Anthony Bonadio - Wells Fargo Securities, LLC - Analyst : This is Anthony Bonadio on for Ed. So first, I wanted to ask about SG&A. I think you guys talked about some SG&A pressure last quarter in the back half of the year, but it looks like cost leverage in was actually pretty strong and better than most were modeling. So maybe just talk us through some of the puts and takes there and then how you're thinking about cost growth in Q4 as we model that?

Question: Anthony Bonadio - Wells Fargo Securities, LLC - Analyst : Got it. And then just on the comp guidance, I think you mentioned the midpoint of the full year comp guide, that would imply something around 3% in Q4. So can you just talk about the puts and takes there and the comp expectation and then how you're thinking about the impact from calendar shift as we think about the timing of Halloween and Black Friday this year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 3:30PM, DOL.TO - Q3 2025 Dollarama Inc Earnings Call

Question: Luke Hannan - Canaccord Genuity - Analyst : I wanted to go back to the Western Canadian logistics hub that you guys are going to be building out. So just from a high level so we understand. Obviously, there's going to be some transportation cost savings as a result of this, and that's why you're going forward with the project. But can you help us understand from a high level, what does the flow of goods look like for those Western Canadian stores to date and then maybe how that changes going forward? Is there going to be some goods brought in from the West Coast ports now that will make its way directly to this DC and into the stores? Is there still going to be staging occurring in Eastern Canada? Just from a high level, what does it look like today versus three, four years from now?

Question: Emily Foo - BMO Capital Markets - Analyst : Okay. That makes sense. And then, Neil, I wanted to follow up on a comment that you made earlier regarding the tariff conversation. So you mentioned you're paying attention to what's going on as far as the price of goods in the market right now because of what could happen or may happen from a tariff perspective. But when it comes to, let's say, the availability of product or the number of vendors that you're speaking to, like, is there greater flexibility when it comes to sourcing inventory because now there's maybe more vendors that are willing to source goods into Canada as opposed to the US since it's relatively less attractive? Are you seeing any of that at all? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 3:30PM, DOL.TO - Q3 2025 Dollarama Inc Earnings Call