Dollarama Inc.

Good morning, and welcome to the Dollarama Fourth Quarter and Fiscal 2021 Results Conference Call. Neil Rossi, President and CEO, and J.P. Towner, CFO, will make a short presentation, which will be followed by a question-and-answer period, open exclusively to financial analysts. The press release, financial statements, and management's discussion and analysis are available at Dollarama.com in the Investor Relations section, as well as on CDAR. Before we start, I have been asked by Dollarama to read the following message regarding forward-looking statements. 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 and assumptions made based on factors that management believes are appropriate and reasonable in 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. 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. For additional information on the assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in Dollarama's MD&A, dated March 31, 2021, available on CDAR. Forward-looking statements represent management's expectations as at March 31, 2021, and accept as may be required by law. 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. I would now like to turn the conference call over to Neil Rossi.

Thank you, Operator, and good morning, everyone. We've just completed a truly unprecedented year. There is no question that Dollarama, like so many businesses, was put to the test. Through the strength and dedication of our team, the resilience of our business model, and the relevance of our brand to Canadians from all walks of life, I believe we have emerged stronger. At the outset of the pandemic, our team responded quickly and efficiently to implement a vast array of new operating procedures that protect customers and staff, so that we can continue providing Canadians with convenient access to affordable everyday essentials. From head office to our warehouses, from our distribution center to our stores, coast to coast, every team member contributed to our ability to adapt and evolve in a rapidly changing environment. The same can be said of our Dollar City team in Latin America. Early in the pandemic, Dollar City, just like Dollarama, was recognized as an essential business. The team on the ground acted quickly to support employees and adapt to strict and evolving measures put in place by the governments of Colombia, Guatemala, and El Salvador. By their performance, Dollar City demonstrated both their agility in a time of crisis and their growing relevance to Latin American consumers looking for convenience and value. This bodes well for our long-term growth plans in Latin America, including the expansion of Dollar City's footprint into Peru. where our market entry is imminent. As President and CEO, I am truly proud of our entire team for the solid financial and operational performance we achieved in fiscal 2021 ended January 31st. Despite the roller coaster of events over the last 12 months, our annual sales increased 6.3% and same store sales were up 3.2%. We delivered solid EBITDA and gross margin both in terms of absolute dollars and as a percentage of sales. This reflects Dollarama's attractive positioning as a destination both for essential goods and seasonal items. These results were achieved despite operating restrictions throughout the fiscal year and during our fourth quarter, which is historically our peak sales period of the year. For fiscal 2021, we invested $84 million in COVID-related measures, primarily impacting SG&A. Labor hours in stores were increased to allow the execution of daily cleaning and sanitization protocols, and we rewarded our staff both in stores and in RDC and warehousing facilities on a number of occasions. This included a four-month wage increase for store and logistics employees, and the equivalent for agency workers as well as a one-time gratitude bonus for store employees. Over and above COVID related costs, we increased our logistics seasonal bonuses in fiscal 2021 and permanently increased base hourly wages for all workers in our logistics operations. Despite these incremental costs, we reported solid net earnings and earnings per share. As restrictions are gradually lifted, our team is squarely focused on safely and profitably growing our sales and our footprint across Canada in select Latin American markets. We were pleased to announce this morning that we are increasing our long-term growth target in Canada to 2,000 stores by 2031. This is up from our previous target of 1,700 stores by 2027. Our hard earned position as a weekly shopping destination for millions of Canadian families has been reconfirmed and strengthened by the pandemic. Our stores continue to deliver an exceptional payback period and perform consistently from coast to coast, whether they are older stores or more recently opened locations. And despite the pandemic, we opened 65 net new stores in fiscal 2021, consistent with prior years. Based on our experience, our historical performance, and what we see going forward, we feel very confident in raising our long-term store target at this time. We expect to achieve our growth objective by maintaining our current rate of annual net new store openings. Before I turn it over to JP, I would like to formally welcome him to the team. He joined us a few weeks ago, but I can assure you he has hit the ground running, and we couldn't be more pleased to have him on board. As you know, Michael has stayed on in an advisory capacity to ensure a smooth transition for JP, and we thank him for delaying his well-deserved retirement. We appreciate being able to count on Michael for a little longer, including on the call this morning, and as a mentor to many at Dollarama. JP, over to you.

Thank you, Neil, and good morning, everyone. I'm excited to join a very dynamic team and for the journey ahead. As part of my responsibilities, I look forward to meeting analysts and investors in person as soon as conditions allow. My goal is to maintain the high level of transparency and availability that have been the trademarks of Dollarama's investor relations practice. I've been getting to know my colleagues during the past few weeks, and I would like to thank the team for their welcome and support. I'm grateful for Michael's counsel and fortunate to share in these great results for my first conference call with him by my side. So let's dive right in, beginning with a review of the fourth quarter. Dalram achieved solid financial results despite many new and stricter government-imposed measures in response to the second wave of the pandemic. We began the fiscal 2021 fourth quarter with very strong momentum, posting 7% same-store sales growth for the first five weeks of the quarter, covering the months of November and the first week of December. Seasonal merchandise performed extremely well, taking off earlier in the quarter than historically. But within a matter of days and following the announcement of additional restrictions across Canada, this momentum was abruptly interrupted. It is important to understand that these new restrictions coincided with not just our peak sales quarter of the year, but with the peak sales month December. Lockdowns and stricter in store capacity limits were imposed in several provinces including Alberta, Ontario and Quebec in early December. New restrictions included a ban on the sale of non-essential items in Quebec where we have approximately 30% of our stores. Even though the ban started on December 26th, its impact on store traffic began to be felt quickly following its announcement in mid-December. As a result of these measures, same-store sales for the quarter declined by 0.2%, while total sales increased 3.6% and exceeded $1.1 billion, driven by the increase in the total number of stores compared to the same period last year. Average transaction size increased by 27% while the number of transactions or store traffic decreased by 21.4%. We are pleased to inform you that sales momentum picked up as soon as the stricter measures were lifted in the second week in the fiscal 2022 first quarter that is still underway. Gross margin was strong at 45.5% of sales primarily driven by the performance of higher margin seasonal items. SG&A was 16.9% of sales and included $23.8 million of COVID-19 costs, representing 215 basis point impact. This reflects additional in-store hours and the December 2020 gratitude bonus for store employees. EBITDA was 326.9 million, or 29.6% of sales. Net earnings were 173.9 million, and diluted EPS was 56 cents. Earnings were negatively impacted by lower SSS and COVID-19 costs, but positively impacted by higher margins, lower financing costs, and a higher equity pickup of Dollar City net earnings. Looking now at full year results, sales increased by 6.3% to over $4 billion. SSS was up 3.2% over and above the 4.3% growth recorded in fiscal 2020. SSS growth for the year consisted of a 29.1% increase in average transaction size, and a 20.1% decrease in the number of transactions. Throughout the pandemic, consumer shopping patterns evolved in line with public health restrictions, which generally resulted in fewer trips but higher spending per store visit. SSS growth was driven by increased demand for seasonal items, as well as various essential goods categories, including household and cleaning, health and hygiene, and food. SSS for both the quarter and the year exclude temporarily closed store. As you will recall, a number of stores were closed during the first and second quarters as a direct result of government measures, mainly the closure of malls, primarily in Quebec. No stores were closed due to the pandemic in the third quarter. During the fourth quarter, and more specifically in January, Dollarama temporarily closed a limited number of stores, mostly in Quebec and in enclosed shopping malls where the majority of other businesses were closed at the time and where another Dollarama location in close proximity was open. These stores have since reopened. Gross margin for the year was strong at 43.8% of sales and up 20 basis points due to higher sales of higher margin products. A small portion of COVID-19 costs are included in gross margin, namely for measures implemented throughout our operations, including in the logistics chains. SG&A was 16.2% of sales, which includes the bulk of our direct COVID-19 costs, or $81.1 million. This represents 200 basis point impact. EBITDA was 28.1% of sales. Net earnings were up 0.1% to $564.3 million. And EPS increased by 1.7%. to 181 per share, reflecting slightly improved earnings and the accretive effect of our share buyback program. Turning to Latin America, our equity pickup of Dollar City earnings in fiscal 2021 came in at 19.7 million. Despite disruptions to new store opening plans through the first half of 2020 due to the pandemic, Dollar City opened 36 net new stores, bringing their total store count to 264 at December 31, 2020. Dollar City's long-term growth objective of 600 stores by 2029 in its three current countries of operation remains unchanged. Now back in Canada... Following a careful evaluation of the market potential for Dollarama, management believes that the corporation can profitably grow its Canadian store network to approximately 2,000 stores over the next 10 years or by 2031. With an average new store capital payback of approximately two years, which is consistent with our current and historical payback period. Factors taken into consideration in our evaluation, among others, included census and household income data, the current competitive retail landscape, rates of per capita store penetration, historical performance of comparable and new stores, and our current real estate pipelines. Looking at our capital allocation strategy, in fiscal 2021 and in the context of the pandemic, we adopted a conservative approach and did not repurchase any shares in the first three quarters of the year to preserve liquidity. In the fourth quarter, we repurchased 1.6 million shares for a total cash consideration of 87 million at a weighted average price of 53.67 cents per share, leaving ample room in our current NCIB expiring in early July. Our adjusted net debt to EBITDA ratio at fiscal year end was 2.68 times, 29 basis points lower compared to fiscal 2020 year end. As for the quarterly dividend, the Board maintained it at the beginning of fiscal 2021, and announced a 6.8% increase in December 2020. This morning, we are coming back to our regular Q4 dividend increase, and we are announcing another increase of 7%, bringing the quarterly dividend to 5 cents per common share, 5.03 cents per common share, to be precise. Looking at our debt structure, as a reminder, we closed a new seven-year bond financing for $300 million in the third quarter of fiscal 2021 to take advantage of favorable market conditions. This was ahead of the maturity of $300 million of floating rate notes repaid this past February. We continue to actively manage our solid capital structure, and we have a healthy balance sheet. The business continues to consistently generate excess free cash flow, and as a result, bearing factors outside of our control due to COVID-19, we intend to actively resume share repurchases in fiscal 2022, and we expect our adjusted net debt to EBITDA ratio to creep back up and to return to our target range of between 2.75 to 3 times, which we are very comfortable with. Turning now to the outlook. Due to continued uncertainty related to COVID-19, we have not provided guidance ranges for gross margin, SG&A as a percentage of sales, or EBITDA margin for fiscal 2022 at this time. As demonstrated by the events of the fourth quarter, the pandemic scores can change very quickly making its impact on some of our key metrics more difficult to predict and to quantify. But we can provide you with some color based on the first quarter underway, our experience through the first year of the pandemic, and what we do have visibility on. Given our ability to open 65 new stores last year despite the pandemic, we are confident that we will once again meet our 60 to 70 net new store openings range for fiscal 2022. Looking at same-store sales, as mentioned, we had same-store sales of 7% after the first five weeks of the fourth quarter, but ended the quarter at negative 0.2% as a result of suddenly imposed stricter COVID-19 measures, especially in Quebec. As some of these measures were lifted in early February, our Q4 momentum returned in full force, coupled with an additional SSS catch-up from the prior quarter. Two months into the first quarter, same-store sales are in the low to mid-teens. Bearing any COVID-related factors outside of our control, such as what occurred in Q4, we expect a solid performance in terms of SSS for the first quarter. But keep in mind that we will be lapping tougher comps in Q2 and Q3 of fiscal 22. Looking at gross margin as a percentage of sales, gross margin in fiscal 2021 was very strong. And based on results to date and visibility on open orders, we are also expecting a notable improvement in gross margin in the first quarter compared to the same period last year. We expect the gross margin improvement in Q1 to be in the same ballpark as what we saw year over year in Q4 fiscal 2021. This reflects the positive impact of changes in the sales mix. However, it is important to note that assuming raw material prices and inbound shipping costs remain at current levels or continue to increase, this will temper our gross margin performance through the second half of the year. Looking at SG&A as a percentage of sales excluding COVID-19 direct costs, we should be generally in line with the prior year although the first quarter should benefit from additional scaling on higher sales. Finally, our CapEx envelope is between 160 to 170 million, which is in line with fiscal 2021, and will go towards new store openings, regular maintenance, and some transformational CapEx. We will update you on our assumptions and hope to be able to provide more specific guidance across all key metrics concurrently with the results of our Q1 results in June. With that, I will now turn the call back over to Neil.

Thank you, JP. COVID-19 pandemic tested our resilience, drove home our purpose and the relevance of our France to Canadians from coast to coast. I don't believe there has been a time in recent history during which the value and importance of proximity and convenient access to affordable everyday goods has ever been more important. This has reinforced the long-standing appeal of our value proposition to Canadians across the country and, ultimately, the enduring strength of our unique business model. This motivates us as a team to continue on our sustainable growth path. As Canada's leading value retailer, we will continue to grow our footprint to reach new customers and provide even greater convenience and to adapt to evolving market dynamics and consumer behaviours. With fiscal 2022 off to a strong start, we look to the future with hope and optimism as vaccination programs continue to roll out while continuing to adapt to the pandemic in order to protect and serve our customers and employees. With that, I'll now turn it over to the operator.

Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press star 1 on your device's keypad. You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Mark Petrie with CIBC. Please go ahead.

Good morning. Thanks for all of the commentary with regard to the outlook. I'm hoping you could just clarify your comments with regards to SG&A for fiscal 22 and just provide a bit more color with regards to the timing and how that plays out through the year.

Hi, Mark. This is Michael. So in terms of GNA, obviously, there's the direct COVID costs that are a part of this. And so going forward in Q1, if you look at Q4, it was 23.8. You had approximately almost $6 million in terms of bonuses. that was given, so you're down to 17, 18 million-ish. So I think that in that range for Q1, I think it's reasonable between 17 and 20. Now for the rest of the year, it's hard to say. It depends on the restrictive measures, if those change or not will impact it. But if you exclude any of the direct COVID costs, which is essentially the additional shift that we have in each store to manage physical distancing and the rest. I think it's safe to say that we've got enough initiatives this year that we'd be able to offset the foreseen inflation. So stable compared to last year. And yeah, so that's kind of where, you know, we think that is.

That's great. Thank you. And then with regards to the comments on gross margin, you highlighted the sort of uncertainty with regards to the impact of inflation in manufacturing and supply chain for the second half of the year. Is that sort of expected to present sort of gross margin headwind, or is there enough flexibility in the business to sort of preserve margin, but maybe just won't be as strong as it is in the first half of the year?

Okay, so maybe just to give you a bit of context, because there's a lot of stuff going on right now, so I think it's worthwhile, you know, nuancing certain things. Let me begin with Q4. In Q4, what we saw is a notable increase year over year. The major part of the explanation is mixed change. In Q1, the same type of situation. In other words, if you recall last year in Q1, the summer season was pushed to Q2, essentially, and Easter performed poorly. This year, summer's performing well to date, and Easter also performing very well, and Easter is a week in advance this year also. And with the catching up we did from non-essentials in Quebec in Q1, so this is why we mentioned that we expect a similar type of notable increase in Q1 like we did in Q4. However, here are the main differences moving forward, two things. One is Q2, Q3, and Q4 of last year had the impact of the positive sales mix. In other words, Q2 had strong summer season sales and even borrowed from the Q1 poor sales. Q3 had strong Halloween sales and Q4 had strong Christmas sales. So seasonal cells are mixed, is already impacted, and in all three quarters, Q2, Q3, and Q4, you had weak impulse cells, which are our lowest margin items. So that's one element that will differentiate those three quarters to Q1. The other one is in Q4 and Q1, the markup margin has improved in most of the categories. And in Q1, we were able to offset those inbound shipping costs and inflation from our suppliers. But going forward, the unknown for now is if those costs remain, what will be the impact of that, and if they even increase. As you know, and that's why we mention a caution here for the second half of the year to make sure that through our refresh and markup strategy that we're able to offset. In an ideal world, we'd be disappointed if we could not maintain the current F21 actual margins, gross margin, and hopefully we're able to do so, but there are still some unknowns in front of us.

Okay, that's great context. Thank you very much, Michael. And then just one more question. With regards to the long-term store target, obviously you've been through a challenging period, particularly with the performance of mall stores. As you think ahead to 2000 stores, can you just share any thoughts with regards to how the portfolio evolves with regard to composition and mix, be it type of development or region, anything like that?

Well, just to keep it very simple, it's going to be more or less like you've seen today. So, You know, the bigger composition of our chain is strip, then standalone, then malls. And it's super urban, urban, suburban, rural. And it more or less follows the population size in terms of opportunities for number of stores. So Ontario has the most to offer in number of stores, then Quebec, then the western provinces and the Maritimes. And so I'd say it's more of what you've seen today, so nothing extraordinary or very different.

Excellent. Appreciate all the comments, and welcome, JP, and all the best. Thank you.

Thank you. The next question is from Brian Morrison with TD Securities. Please go ahead.

Hey, good morning, everybody. Michael, I want to follow up on your gross margin because there is the omission of one key element there in your explanation. If I take a look at your hedge book, you're starting to see your contractual rate decline on your new hedges, and certainly if you take a look relative to Q1, Q2, and Q3, it's a substantial decline. So I hear you on your inflation with respect to shipping and raw materials, but in terms of a Canadian dollar inflationary environment, is it actually inflationary in terms of Canadian dollar terms?

Yeah, so a good question, Brian. So the effect of the currency, as you know, we hedge out typically 8 to 12 months out. So we're going to see the impact of that more towards the end of the year. But that's all part, again, of the refresh approach. So it's all considered by the buyers when they refresh And so when we talk to you about what we see coming up in the year, it factors the currency movements. So there's nothing notable impacting this year and even next year when we do the refresh, that will be a tailwind and we'll consider it, but then you'll have other headwinds which will impact again. And so, you know, it's almost, you know, it's always considered when we give you color on the margins. And we have time to see it coming.

So would you say overall the cost inflation is relatively neutral this year? And then just following up on that, when you talk about your rate of replenishment, when we do our store checks, there seems to be an awful lot of new products that are in there. I'm wondering if your rate of replenishment has increased from your standard rate of 25 to 30%.

No, so it's the same 25 to 30% that we see. And inflation, we're not saying there's no inflation. On the contrary, we're saying that there is some steep inflation from the supply side, from the inbound shipping cost side, And through our refresh strategy and markup strategy, we're able to offset some of that, which we've done very well in Q4 and Q1. As I told you, Q4 and Q1, in most of our categories, our markup is higher than last year. So that's been going well. What we don't know is the rest of the year, especially Q3 and Q4. We've got some color in Q2, but the impact of Q3 and Q4, you know, we'll have to see, you know, as we move ahead.

All right. Thank you for that. And then last question, just your initial feedback. I think you put $3.50 and $4 price points in the Colombian market. Looks like your contribution, your equity pickup was very strong this quarter. Wondered how that was received and whether your early assessment might be to expand that into other countries.

Okay, so yes, you know, Dollar City is doing very well. I mean, they've got challenges like we have here in terms of COVID and restrictive measures, and they fared extremely well. Very happy about that. They opened up just in the last quarter 24 net new stores. And so, you know, very strong performance. Going ahead, we talked to you about Peru, and that's a market that we will be opening up stores shortly, and we will need, as we've done with the other countries, to assess how competition reacts, how we fare, and following that, that will determine if we push ahead or not. So that's the color right there.

All right. Thanks very much, Michael. And I echo Mark's comments on welcoming JP. Thank you.

Thank you. The next question is from Vishal Sridhar with National Bank. Please go ahead.

Hi. Thanks for taking my question. Just wondering, with respect to the opening comments that were provided, Management referenced that Dollarama is a stronger company as a result of this pandemic. Wondering, as that was said, is that more of a reflection on management's perception, just given their experience in retail, or are there specific metrics that you could point to, maybe customer perception surveys or indications of better real estate prices, so on and so forth, that you can mention which help us better understand why you said that?

Yeah, well, you know, and we mentioned a bit of that in our last call. We told you about a survey we got back that we do consistently from time to time, almost every year, where we had questions concerning COVID. So the responses were very positive. the value proposition, the convenience of having a bigger chain, more stores, so being closer and closer to our customers. And just recently in a Canadian major survey, we were named 10th most popular brand in Canada. But like we told you too, And just from our results, we had a temporary situation in Q4, imposition of restrictive measures that did not impact the big business model. We told you coming out of it, not only did we immediately take back the momentum we had in Q, at the beginning of Q4 and into Q3, but also caught up. some of the missed sales in Q1. And it talks to our model. The value proposition is still very strong. There's nothing going on structurally around us that would have us change our mix, categories, the competitive dynamics, or anything of that nature. We still come out very strong. and anxious to move out of this pandemic environment to further demonstrate that.

I'd also add that we've also come out stronger from the perspective that based on feedback from our employees at the distribution center, our warehouses, our stores, they've felt like we've had their backs the entire time. that the team is as strong or stronger than it's ever been, that we fought hard to ensure that the business would have all of the products required for both our customers and the protection of our employees, that the measures we put in place were well-received and appreciated and professionally executed. So I think our team... is stronger at all levels because of this pandemic as well. And, you know, they've appreciated the way we've navigated through these challenging times and always had their backs.

Okay, thank you for that. With respect to the strong early Q1 trends, is there a way for us to better understand to what extent maybe isolated and number-wise, what extent that is, some of the pickup from Q4 just shifting into Q1, and how much of the strength is due to strong kind of seasonal sales due to a warmer Q1 so far, or is there any way for us to get a gauge on that?

Yeah, so JP mentioned earlier that we're in the low to mid teens as almost two months into the quarter. Assuming there's no additional restrictive measures like we've seen in January in Quebec, for example, or in Ontario and the other provinces, if things remain more or less the same, You know, we'd be disappointed if we could not maintain that low teen SSS figure. And in terms of gross margin, a bit of the same situation. In other words, we told you that the sales mix is impacting us positively for the time being. We're against a quarter last year where Easter was, you know, almost very low and we're already seeing Easter being strong right now and it's a week in advance also and summer sales are doing very well which they weren't last year. So that means that we should end up with a notable increase like we did in Q4 in terms of gross margin.

Okay, I appreciate that. And just lastly, a fast one here on labor availability. Are you seeing any changes in the market with respect to your ability to get labor in the stores in D.C.?

No. For the moment, it's very stable and not an issue whatsoever. Thank you for the call. Thank you.

Thank you. The next question is from Irene Natal with RBC Capital Markets. Please go ahead.

Thanks, and good morning, everyone. Just to kind of beat this horse on things for sales, it sounds as though essentially what you're saying is that if we move aside all of the COVID noise, items that you couldn't sell, you could sell, shifting from one season to the other, Dollarama is basically back on track with what would have been kind of a normal historical rate of same-store sales growth. Is that a fair comment? Not a good sign, Michael.

No, well, it's because there's so much noise right now, the shifts in sales mix. I mean, yes, you know, post-COVID, You know, for us, it's continuing to perform as well as we've done historically. We don't see anything happening that, you know, would have us think otherwise. Just for the current period, and because, you know, the year we just went through, where you have had a lot of mixed, sales mix changes, So, and I've tried to describe those as accurately or as, you know, reasonably as possible. Obviously, you know, impact the quarter to quarter movements. Like I said, Q1, we're comping against a Q1 last year that was extraordinarily weak, so this year it's extraordinarily high. But if you look at the averages, you know, it's still pretty good. Because of the reduction, you know, the traffic decrease caused by the COVID, that has been impacting impulse cells. So once we're out of this COVID situation and traffic comes back into line, you'll see impulse cells coming back in, which are lower margin, so you'll have more margin dollars, but it will impact your margin percentages. But otherwise, essentially, you know, coming out of the COVID, you know, it should be back to, you know, numbers that we've seen in the past.

That's great. Thank you. Just following on the discussion around inflation, in the past, we've talked about what could trigger higher price points, and certainly inflation has been one of the factors that you guys have pointed to. So just wondering about your current thoughts around, let's say, $455 price points or however you want to describe it.

Yeah, so essentially, again, like we told you in the past, the idea is to, like we say, milk our current price points that we have up to $4, we've seen throughout the whole year, in every quarter, higher $4 sales than the prior year, higher $350 items sales than the prior year. So our penetration of higher price points has continued to perform very well, so there's no rush to move on to the 455, which we told you we will be doing. We're not ready yet to announce anything on that side. It's out there. It's going to happen, and we'll do it when we're ready. But you're right. Inflation also plays a role. It played a role back in August 2016 when we introduced the $354 price point. And it's something that we monitor that can influence the introduction of the $455 price point.

Thank you. And then finally just a question on Dollar City. You know, we're already up to 264 stores. The pace of store opening is accelerating once again. You know, now maybe Peru gets thrown into the mix. So when might we get an update on that store target? Because certainly that seems very reasonable. Or what would trigger you guys to come out and say, yeah, we're increasing that store target?

Yeah, well, for the time being, we're sticking with our plan. target by 2029, which includes El Salvador, Guatemala, and Colombia. It excludes Peru. Peru, we don't know yet. Like we said, we're moving in. We're going to test the market, and if we see potential, then that would impact the the future store target. And when we feel comfortable, we'll update you on that. But for the rest, for the time being, we're still at 600 by 2029. That's great.

Thank you. And welcome, JP.

Thanks, Irene.

Thank you. The next question is from Peter Sklar with BMO Capital Markets. Please go ahead.

I just have one question at this point. So this guidance you've given on potential store footprint across Canada going from 1,700 to 2,000, and I understand like you as a consulting firm who looks at all the demographics and all the factors that you talked about and comes up with the number, but really nothing much has changed in Canada. You know, demographically, if anything, immigration has slowed. Economic growth has slowed. so I'm just wondering what were the, what was the underlying factors that caused them to increase the limit? Like if you go like 2000 stores on 1700, that's like an 18% increase in store footprint, which is a lot. So there must've been something that really changed in their model. And like the only thing I noticed that's changed is that you're going out a few more years. So maybe it's just more years of runway. Can you talk a little bit about, like you would have seen the details of their report.

Yeah, so, yeah, thank you, Peter. So, I mean, when we, each time we give you a store outlook, we talk, you know, it's a 10-year forecast. So we've, and every two or three years we update that forecast. So it's not the saturation point, you know, when we give you, that target, it's where we think we'll be by 2031. We went from 2027 to 2031. All it is is that. It's not saturation. It's simply our best estimate. We go about it like JP mentioned. First, we look at the current store pipeline. Then we look at the addressable market. So that evolved since the IPO. At the IPO, we only had price points that went up to $2. Now we've got price points that go up to $4. So your addressable market is higher. And we look at population size, growth, retail activity. Yes, we use a consulting firm, but we don't pick the consulting firm's number. We use the analysis, but then obviously we've got a very competent real estate team internally that will look at every single site, will look at the potential, look at competitive environment around it, and filter that number to the level that we feel comfortable. And again, we look at two-year average cash-on-cash payback stores, which means that you'll have stores that pay back within one year and stores that pay back within four or five years. And it's the average. So that's how we get to those numbers.

And often the difference between two years and four years to give you a revision of our number is based on a question of us getting comfortable that whatever number we can give, we can execute on. So sometimes it's two years. Sometimes we make you wait more years because we want to ensure that the number we give you is a number that we're extremely comfortable that we can execute to the level that we execute.

Okay, and any changes in consumer behavior as a result of what happened over the last year, did that play into it or really COVID and the way the consumer behaves now really wasn't at play in your calculations?

No, it was not a factor whatsoever.

Okay, thanks. That's all I have. Thank you.

Thank you. The next question is from Karen Short with Barclays. Please go ahead.

Hi, good morning. This is actually Renato Basanta on for Karen, and thanks for taking my questions. So, just wondering if you can speak to what you're seeing from a competitive pricing perspective. You know, I know historically you've been a price follower, and you've talked about, you know, additional markups today, but just wondering if you're seeing competitors also take more price given some of the supply chain pressures, and then to what degree are you seeing those price increases?

We're starting to see them and we expect that to continue. And of course, as you said, we're a price follower and therefore we will absorb the impact of the inflation until the new price point that we have to offer if we do a markup is still the most competitive price. So we continue to be a follower. And we're seeing inflation for sure. And as long as we feel comfortable that our next price point is a price point that keeps Dollarama's price extraordinarily competitive, then it becomes an option for the buyers to use as a tool to help combat some of the headwinds that they have on a daily basis.

Okay, that's helpful. And then just my second question is on wages. You mentioned some of the increases in 2020, and I think historically you've talked about a 3% increase in wages as being manageable for the business overall. So just wondering what level of wage inflation you're expecting this year to And then if you can remind us how you're thinking about sort of the comp needed to leverage your overall fixed costs going forward, that would be helpful. Thank you.

Yeah, we don't disclose the specific increases, but only to mention it's nothing out of the normal. So obviously we follow minimum wage increases. across the chain, across the country, and then there are further adjustments if we need to bring them. So that's where we're at in terms of labor. And your other second part of the question?

Just the comp needed to leverage overall fixed costs going forward.

Well, again, we don't disclose the specifics of that either. Sorry.

Okay. Thank you. Thank you.

Thank you. The next question is from Derek DeLay with Canaccord Genuity. Please go ahead.

Yeah, hi. Thanks, guys. Just following up on the new longer-term store target, you mentioned you're still targeting the two-year payback. on new stores, can you comment on what the average store is doing in terms of revenue today and maybe what it was doing in, I guess, 2016, 2017 when you put out your last forecast?

Yeah, so I'd say average sales per store increased from 2017. I don't have it by heart, but it has increased. And today we're approximately average 3.2, 3 million per revenue per store. Yeah. So we've, our average store sales have increased steadily since the IPO. And whereas our, you know, cost to open up a store net of 10 allowance has remained more or less stable since then. So our actual paybacks more recently in the more recent two year, full two year cohorts has improved year over year. So going forward that definitely helps.

Okay, no that's good. I seem to recall a 2.7 million number per store I think.

Yeah, that would make sense by 2017, yes. Yeah.

And then just in terms of the dynamics, and I know it's difficult because you guys don't really have any sort of pure play, you know, quote-unquote dollar store peers, but upsides. But the new, the incremental 300, are you seeing market share gains within your footprint or are you seeing just more demand from consumers for your offering? What is sort of the dynamics that help lead to that 300 increase?

Well, you had the introduction of higher price points, the penetration increase in higher price points, the fact that we've deepened the offer within each category is definitely an element that helped. There's inflation over time by 2016-17 we had the currency inflation steep inflation back then that you know and we had just introduced the higher price point so that helped during that period of time okay great thank you very much

Thank you. This will conclude today's question and answer session as well as the conference call. Please disconnect your lines at this time and we thank you for your participation. Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.