Dollarama Inc.

Good morning, and welcome to the Dollarama 4th Quarter and Fiscal 2022 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 SIDAR, 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 such that management beliefs 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, level 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 assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in Dollarama's MDNA dated March 30, 2022, available on SIDAR. Forward-looking statements represent management's expectations of that March 30, 2022 and And except 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. Dollarama delivered a strong operational and financial performance in fiscal 2022. We achieved this while navigating the ebb and flow of the pandemic's impacts on retailers and consumers, the fourth quarter being no exception. This remarkable performance speaks to the resilience of our business model, the adaptability and flexibility of our people and our operations, and the relevance of our compelling value proposition. Same store sales for the full year grew 1.7%. This is despite the restrictions impacting sales at various times throughout the year. Among those, the nine-week ban on the sale of non-essential items in Ontario last spring was by far the most significant. It came at a critical time for our spring sales and impacted 40% of our network. For the full year, SSS consisted of a nearly 4% increase in store traffic and a 2% decrease in average transaction size. This is a reversal from the first pandemic year, when consumers were buying more with each trip, but visiting less frequently. A return to positive traffic is a very welcome trend for the business as we enter fiscal 2023. This once again speaks to Dollarama's relevance in the shopping habits of Canadian consumers. Looking at our bottom line, In fiscal 2022, our team did an excellent job mitigating dynamic global supply chain and other inflationary pressures, and that work is ongoing. Sourcing is one of our key strengths and something we manage tightly, both from a cost and flow of goods perspective. Our procurement and logistics teams have been working relentlessly to ensure that stores are well-stocked, especially from a seasonal perspective. We delivered on that throughout the two years of pandemic, including this past Christmas. As we plan our fiscal 2023 sales cycle, we continue to manage our inventory carefully. We are prioritizing goods where needed, working closely with our partners throughout the supply chain, and ordering stock even earlier than we have historically. To date, I'm satisfied with our performance in tackling these industry-wide challenges. We are also more focused than ever on maintaining our brand promise and preserving our year-round competitiveness across our product assortments. This is in line with our price follower strategy. Our pricing strategy also enables us to manage some of the margin pressures, including through the regular refresh of our assortment and by leveraging our multiple price points. With regards to the introduction of additional price points up to $5, This has long been the natural next step in our multi-price point strategy. It is also fundamental to our business model since its introduction in 2009. Our strategy when it comes to new price points has always been and remains to proceed carefully and gradually. The objective at all times is to both maintain and enhance our ability to offer compelling value for each item and the best relative value on the market. Over six years since we last added higher price points, we feel that fiscal 2023 is the right time to proceed with the introduction of items up to $5. That process is now underway. It will be a gradual ramp up starting mid-year and becoming more noticeable through the second half of the year. In the near term, This brings additional flexibility to manage cost pressures in a heightened inflationary environment. Over the medium term, it enables us to deepen our broad and compelling product assortment, and at $5, we also remain firmly aligned with our unique and compelling value retail concepts. Turning now to our growing Canadian footprint. With the opening of 24 net new stores in the last quarter of the fiscal year, We've met our annual target coming in at 65, consistent with the prior year. This brings our year-end count across Canada to 1,421 stores. Going into fiscal 2023, we have a solid real estate pipeline with site opportunities across the country. Another notable development on the real estate front in fiscal 2022 is the execution of a long-term lease for a seventh warehouse located in Laval, Quebec. The 500,000 square foot built to suit facility is currently under construction and is expected to be operational by the end of fiscal 2023. This will enable us to increase our warehousing capacity near our existing logistics operations in support of our target 2,000 stores by 2031. For its part, Dollar City had another solid year as reflected in the acceleration of its store opening cadence and its strong earnings contribution to our fiscal 2022. In 2020, their net new store openings were slowed down by the pandemic, coming in at 36. But Dollar City made up lost ground in 2021 with the opening of 86 net new stores. This brings their total store count to 350 at calendar year end. Entry into Peru is still in its early stages with nine stores, but proceeding well and as planned. There is no doubt that Dollar City and its value proposition continue to be well received in all countries of operation and gaining more traction as store density increases. In 2022, Dollar City will ramp up investments in the optimization of its logistics network while continuing to scale its Peru operations. Real estate activity levels are also expected to remain healthy with Dollar City recognized as a solid tenant and with quality real estate sites available. Looking ahead for Dollarama, in what is expected to remain a challenging environment, we are well positioned to continue along the path of profitable growth while staying true to our purpose. We are uniquely positioned to provide Canadians from all walks of life with compelling value on every dollar they spend with convenient access from coast to coast. We will achieve this by maintaining our value proposition and using the levers at our disposal to mitigate, where possible, the various inflationary pressures our industry will continue to face throughout fiscal 2023. I would like to take this opportunity to sincerely thank all of our employees for their incredible dedication and solution-oriented mindset and their entrepreneurial spirit. I also wish to thank our customers for their support and continued loyalty. I'll now hand it over to JP to discuss our results in more detail.

Thank you, Neil, and good morning, everyone. Let's start by drilling down on our fourth quarter results. We delivered a strong quarterly performance across all key metrics. Sales in Q4 grew 11%, reaching over $1.2 billion, and SSS grew 5.7%. Our sales were impacted by the new wave of restrictions implemented in response to COVID-19 in the critical weeks leading up to the holidays and into the month of January. Gross margin was 45.2% of sales compared to 45.5% in Q4 last year. The slightly lower margin reflects a change in the sales mix as anticipated. SG&A came in at 14.5% of sales for the quarter compared to 16.9%. While we did have $4.4 million in COVID costs, these were low compared to the $23.8 million incurred in Q4 last year. SG&A also benefited from the positive scaling impact of strong sales. Q4 COVID costs are mainly additional hours to manage restrictions implemented in the quarter, notably store capacity limits. As previously mentioned, health and safety measures and cleaning protocols have now become part of our day-to-day store operations. Earnings growth in Q4 was exceptional. EBITDA increased by over 20% and diluted EPS increased by over 30% to $0.74 a share. Our strong earnings growth reflects our excellent top line performance, active gross margin management, lower SG&A, and a higher equity pickup from Dollar City. A few comments on full year results before turning to fiscal 2023 outlook. To echo Neil, Valrama's performance in fiscal 2022 was remarkable, reflecting our strong fundamentals. I'm also pleased that we met the guidance we provided across the board. we delivered a solid performance on network and same-store sales growth in the context of a roller coaster. poster of measures implemented and lifted through successive waves of COVID variants. We maintain our industry leading gross margin year over year coming in at 43.9% of sales in fiscal 2022 in line with the guidance provided. SG&E as a percentage of sales came in at 15.1% of sales compared to 16.2% for fiscal 2021. Excluding direct COVID costs, SG&E as a percentage of sales was flat year over year, also in line with guidance provided. Looking now at fiscal 2023, there is no doubt that we continue to operate in a complex and volatile environment for consumers and businesses alike. It also remains to be seen how the future path of the pandemic will play out. Under these circumstances, providing guidance can prove challenging. but we felt it was important for investors to have some visibility on our expectation for fiscal 2023 and guidance in select metrics. We are maintaining our annual store target at 60 to 70 net new stores. Note that based on most recent store cohorts, new store performance remains in line with historical payback thresholds. We will also remain highly focused on maintaining our relative value in the market, In the first half of fiscal 2023, we should benefit from a favorable sales environment as we lap COVID-19 restrictions during the same period last year. Our SSS assumption for the full year is in the range of 4% to 5%. Turning to the bottom line, rising freight and input costs are expected to be felt more in fiscal 2023 than last year. We do have good visibility on raw material and shipping costs for the next several months, and we are confident that we have levers at our disposal to help mitigate some of the pressures on gross margin. The stronger Canadian dollar is also expected to be a tailwind. Based on this, gross margin as a percentage of sales is expected to be in the range of 42.9% to 43.9% for fiscal 2023. This guidance range reflects the gradual introduction of additional price points up to $5 throughout the year. SG&E as a percentage of sales should benefit from scaling on higher sales and labor productivity. Assuming we won't see the implementation of strict restrictions like we did in fiscal 2022 and 2021, we expect minimal to no COVID costs in fiscal 2023. So far this year, wage growth has been manageable. As such, SG&A as a percentage of sales is expected to be in the range of 13.8% to 14.3% for fiscal 2023. Our annual CAPEX budget remains in the range of $160 to $170 million. The new warehouse in Laval being leased, only minimal CAPEX associated with this project. Dorama continues to benefit from its capital light model, which drives significant free cash flow generation. When it comes to returning capital to shareholders, we will stay the course and continue to prioritize share purchases. In fiscal 2022, we repurchased more than 18 million shares under our NCIB. At fiscal year end, our adjusted net debt to EBITDA ratio was 2.77 times. we remain well within our comfort zone of between two and a half to three times and expect our active buyback strategy to continue contributing to our earnings growth in fiscal 2023. This morning, we also announced Dalrama's 11th consecutive annual dividend increase. The board approved a 10% increase to 5.53 cents per share. Turning now to the first quarter underway. From an SSS perspective, quarter to date, we're pacing at the two-year average of approximately 4%. On gross margin, keep in mind that last year's Q1 mix was exceptionally impacted by the beginning of the ban on the sale of non-essential goods in Ontario. As a result, we expect our Q1 gross margin to be in line with fiscal 2021 levels. When not restricted, Canadian shoppers recognize and appreciate the affordability value and convenience we offer. That's our brand promise, and there's no doubt that these enduring strengths will continue to resonate with consumers throughout fiscal 2023. Thank you. That concludes our formal remarks, and I'll turn it over to the operator for the Q&A. Thank you.

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 before 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 Irene Nettel with RBC Capital Markets. Please go ahead.

Thanks and good morning everyone. Before I ask my question, I really want to thank you for the detailed guidance that you provided. It's a best in class practice, so thank you. But a couple of questions nonetheless. First of all, on the supply chain and availability of items, you mentioned that you're ordering earlier, but looking at the inventory levels, they've actually come off a little bit. So wondering where you stand now within stock and how we should be thinking about pressures in the system and how you're managing them.

So It's an excellent question, and your observation, as always, is very astute. The answer is that those goods are, I'd love to say planes, trains, and automobiles, because it would be more fun, but the reality is they're at ports, boats, and ports, and trucks. So the real challenge for everybody who imports a large quantity of goods across the entire retail platform is a logistics challenge for the last six months to a year and will continue for the unforeseen future. So the answer to your question is those goods are en route and we have enough goods that it's a non-issue, but certainly it is more of a challenge than it's ever been.

That's very helpful. Thank you. So as we think about it, certainly in the stores, it looked like you had all the spring merchandise or rather the Easter merchandise, and it sold through very well. So the stuff that's in transit now is for later in the year, sort of summer merchandise?

That's right. It's summer. It's all-year goods. It's Halloween. It's all the things that normally would be coming in you know, a month or two or three earlier, that's just the supply chain is slower. And so because we have a business where we have a buffer built into the way we run our business with our warehousing, et cetera, we can cover these issues and mitigate those risks better than most. So there's something to be said at times for not just in time delivery.

Absolutely. And just thinking about demand across categories, obviously a lot of distortions last year, hopefully not this year, just around sort of categories. But what are you seeing when conditions are normal? What are you seeing in terms of consumer demand levels relative to pre-pandemic?

Yeah, so... Irene, it's JP. I'll give you maybe some color on our SSS guidance and at the same time I think it'll answer your question of how we're thinking about traffic and categories. The way we're seeing the environment evolve right now is there's actually good traffic levels in our stores. strong demand in consumables, and so we're very pleased that consumers across the country recognize that. And then when you look later in the year, I mean, we'll be comping very favorable comps in Q2, and then the back half of the year where, I mean, the guidance reflects the volatility of the environment and acknowledging that things could change rapidly like we saw last year. So, I mean, just stepping back, what we're seeing is good traffic, good consumer demand. We're pleased with the pace and the cadence, strong demand and consumables, generally speaking. And then when you think about later in the year and the guidance, There's the comping in Q2, which will distort this year's SSS, and then acknowledging the environment and the volatility in the back half, which, I mean, it's hard to predict at this point.

And just one final question, if I might, on that subject. You know, I think that on the last call you mentioned sort of the early sell-through for Christmas was good. But then, of course, we had those last-minute restrictions. So how would you categorize the overall demand or your sell-through for Christmas last year versus, let's call it a normal pre-pandemic level?

Yeah, so what we saw in the Christmas sales was good consumer activity. The sales, generally speaking, were slightly better than the prior year or so. I think we saw good seasonal performance. Really, when you look at our Q4 SSS, it was really the impact of restrictions and the fact that we were closed on Sundays in Quebec, for example, in January, and the store capacity limit that we had to deal with in Q4.

That's great. Thank you. I'll get back into the queue.

Thanks, Irene.

Thank you. The next question is from Brian Morrison with TD Securities. Please go ahead. Mr. Morrison, we cannot hear you at this time.

Sorry about that. I'm wondering if I can just elaborate. Good morning. Can I just elaborate on that same store sales growth question? When I look at the two-year stack for your guidance, it looks like you're in the range of about 6%. I think historically it's been closer to 8%. You've got the new price points coming on. You've got price increases. So I'm wondering if you can just walk me through the derivation behind that.

Yeah. Again, it's Brian recognizing, as I said, number one, on the front half of the year, the favorable comp environment. But then in the back half of the year, like we saw, Last year, we're in a volatile environment. There's good cadence going in the year. It's hard to predict how that will evolve in the second half of fiscal 23. So it's more around the unknowns and the different puts and takes than kind of a clear cut driver of what's going to happen in the back half of the year.

Okay. Can I change to Dollar City, please? When I look at Dollar City, you've added 86 stores this year. It's far in excess of your run rate. I realize it includes Peru. Can you maybe just give us some color on this front? And then I think your EBITDA margin was 16% when you acquired it. Can you maybe just give us a little bit of color on how that's trending as well at this point in time?

Yeah, so look, Dollar City's performing really well. We saw good cadence in store opening. Peru is still early days, so we want to be prudent. We only have line stores there. We're still in a typical Dalrama fashion, making sure that all the angles are covered, that there's good receptivity to our business model in Peru. We're pleased with the early results, If the cadence continues and we continue to like what we see in Peru, then, of course, Peru is not factored in the 600 store target by 2029. One element to keep in mind when we think about bottom line for Dollar City is that as we're scaling Peru, we're investing in the business. So there's kind of the initial J curve investment that you would expect in entering a new country. So this should have somehow an impact on fiscal 23 in terms of a bottom line for Dollar City.

Sorry, are we looking at 50 stores this year or are we looking at 80 stores this year?

We don't provide specific guidance for Dollar City in terms of stores opening. but it will really much depend on the environment. For now, I think anywhere between 50 to 60 stores is more reasonable to start with as an assumption, and we'll see how the year evolves.

All right. Well done. Thank you.

Thank you. The next question is from Mark Petrie with CIBC. Please go ahead.

Yeah, good morning. The announcement of the $5 price point comes a little bit differently than previous announcements. I know you talked about sort of the gradual rollout and that giving you flexibility on gross margin, but I guess I'm just curious, what does that mean? What does this type of rollout mean in terms of how we should expect this to hit the shelves and be marketed to consumers? I guess leveraging learnings from past price increases.

So the answer is that Historically, new price points had one role, which was to bring new and exciting to the table. In the current environment, it will be that combined with the fact that we're living in an inflationary environment, so we would not expect to see the kind of margin expansion that we've seen historically following the introduction of new price points. but we're extremely sensitive to this not simply being a markup tool, and more importantly, allowing the buyers and the business to broaden their assortment and their offering to the customer over the course of time.

Okay, that's helpful. And I guess just a high-level question just with regards to the competitive environment. I mean, I know you're These are focused on relative value. I'm just curious to hear your thoughts with regards to what you're seeing in terms of inflation, your price gaps versus peers, and then also just how you think sort of the constrained supply chain that you talked about earlier is sort of playing into the sort of price and promotional environment.

So I think it's important to clarify that The issue is not the supply. The supply is really very stable. It's more a question of logistics challenges between the supply and the store. And that involves mostly overseas challenges and port challenges, a little bit of trucking challenges, but certainly all with inflationary challenges. And on the supply side, it also has inflationary challenges. Not supply challenges, but inflationary challenges. That's the case, of course, for everyone. There's also wage challenges. And all of that goes into the cost of goods. Because at the end of the day, a business can only absorb so much, of course. So eventually, when all of the costs go up, then the retail goes up and we have inflation. So to answer your question, we've seen huge pressure on all retailers to increase their prices and sort of mitigate some of the pressures that are coming from all the multiple points that inputs that create the final retail. And we are doing what we've always done, which is ensuring the gap between us and the balance of the retail market so that we provide our customers with the best relative value we can while also being responsible to our investors and shareholders and employees to run a business that's viable.

That's very helpful, Neil and JP. Thanks a lot. All the best.

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

Hi, thanks for taking my questions. Can you update us on the Dollar City founder put rights and if they've indicated anything about their intentions? And in terms of capital outlay, do you have any comments on how investors should think about that?

So the put option for Dollar City becomes exercisable later this year. in the second half. We really like them as partners. We're working very well together. There are good synergies between the two groups. And I think they see the upside in the business as we see the upside in the business. So it's very hard at this point when you take the synergies, the management teams, and the future growth of the business to speculate on how the put option will play out. In any case, if it were to play out, we have the liquidity and the balance sheet capacity to handle that kind of transaction. The second piece that's important in that discussion is that the put option in general is subject to many restrictions, and we're not in a scenario where they would be in a position to sell their full ownership in dollar cities. So if there were any put options to be exercised, it would be a percentage of what they already own. I hope it helps answer your question.

Okay. And the transformational initiatives referenced in the outlook, can you provide some color on what that relates to?

I mean, it's the usual productivity initiatives that we would have talked in the past in terms of scheduling, energy consumption, shrink management. We've seen very strong performance on our shrink control this year and and we hope that continues next year so the the standard productivity initiatives that that we would have talked about in the past right okay and with respect to jumping back to dollar city the the earnings growth was was very strong

Were there any transient items in there that we should be aware of? And should we just reflect? I understand you gave some hint that Peru is still scaling, but should we reflect that kind of cadence looking forward to look towards 2023?

As we scale Peru, I think there will be further investments in the bottom line. Although we'll see good, healthy store growth, and we like what we see in terms of customer perception, I think we should also acknowledge the investments that need to be made to scale Peru to where we'd like it to be, assuming the business continues to perform as it's been performing so far.

Thanks for the comment.

Thanks, Vishal.

Thank you. The next question is from Patricia Baker with Scotiabank. Please go ahead. Yes, thank you, and good morning, everyone.

Firstly, in your guidance, you provided the assumptions that you're making that support that particular guidance, and one of the things you talked about is an approximate three-month visibility on open orders and product margins, and I'm just curious whether or not historically three months is the visibility that you would normally have had, or is this slightly different than normal times?

In the assumptions, it's a good question, Patricia. In the assumptions, we mentioned at least three months visibility. Right now, the visibility we have on open orders would be in line with historical average and nothing different than what we'd have seen in the past.

Okay, thank you. And then secondly, I just want to clarify, with respect to the seventh warehouse that you'll be opening towards the end of fiscal 23, am I right in assuming that that seventh warehouse will provide the full support that you will need for the 2,000 stores? In other words, we won't be seeing any other incremental warehousing activity between now and 2031?

We won't say yes to your question because we may make changes. So it may not be a question of whether we'll be adding, and it may be a question of whether we'll be adapting. So it's not as simple as we won't add more, but we may make changes, and therefore there may be more CapEx because of changes that we would make. And we would make those changes, of course, if there was a business plan behind it that made sense.

Okay. That makes sense, Neil. Thanks for that. And then My final question, and maybe this is a little difficult to answer, but things are changing dramatically with respect to COVID. It's something that we've been used to for the last two plus years with all this volatility, and currently you have Shanghai under lockdown. I'm just wondering whether you foresee any kind of issues with your vendors if things continue along this way, and whether that could have an impact on trying to get product in the future. I know it's difficult to answer, but Are you concerned about what's happening there in Shanghai being under a lockdown?

We're always concerned about everything globally that affects the business, you know, whether it's geopolitical or otherwise or COVID-based. And it all has an impact. It really comes down to timeframe. If it's, you know, one to three weeks, it's no problem. If it's three months, then it's a challenge. And there are always ways to, you know, work around a problem where 99% of the time there's ways to work around a problem. If the port in Shanghai is closed and the city is closed, you know, first of all, not much production happens around the city. It's mostly in the outskirts. And the goods that we ship out of Shanghai can be trucked down to other ports where there's less flare-ups. you know, that are currently happening in China, there's a cost to that. There's a time factor to all that. But at the moment, we're not concerned. If it goes on for a long period of time, we will be concerned. And what will happen is we will find alternatives that cost more money and that cost anybody who makes goods in those regions more money, of course.

Okay, that's very helpful, Neil. And then just sort of on that same topic, you know, we're hearing you a lot of retailers talking about diversifying their sourcing away from Asia and particularly away from China. Can you just talk strategically or philosophically about what your view is on that and whether or not you're actively seeking to diversify away from China in any way, shape, or form?

Well, philosophically and strategically, we've always tried to diversify as much as we can around the globe, our supply base. But we also have to be realistic to the costs from those alternatives. And if those costs do not allow us to be who we are, which is best relative value in the market, then we take a note of what the alternative supply source is, should something ever happen, and force us to do so. but we continue to buy from the least cost vendor because that's part of our special sauce.

Thank you very much, Neil.

Thank you.

Thank you. The next question is from Chris Lee with Desjardins. Please go ahead.

Hi, good morning, everyone. Hi, Neil. Just I want to clarify. So the reason you are introducing the higher price points now is that you're seeing other competitors raising prices too, and this gives you the comfort to do the same and essentially maintain still a healthy price gap versus your competitors. Is that correct?

That is certainly one factor in the decision. The other factor, so that it's not just a story about charging more, because that would be a horrible story, is that it also allows us to bring in a new range of goods that we could never afford. So it's a mix of both things. I certainly would not tell you that it will only be new goods. There will be some price changes on the goods that at our highest price point we were absorbing cost increases for the last six years because it was our highest price point. Some of those costs will be passed on so that we can continue to offer those goods. But it allows us to bring back goods that were priced out of our price range And it allows us to bring in goods that we've never been able to buy because they weren't in our price range. So it's a combination of both.

Okay, that's helpful. But the point is that your competitors are doing the same thing because you guys are obviously price followers. So unless they're doing it, you wouldn't feel comfortable unless you're seeing similar actions by them.

You are 100% correct.

Okay, that's helpful. And then maybe later, your comment earlier about sort of this is being more of a margin neutral impact. I just want to confirm, I guess you're referring maybe just for this year because there is some cost pressure, but let's assume you're going to make sure cost pressures hopefully normalize. You're still going to have these higher price points. So at that point, is it fair to assume that you should start to see some margin benefits, oils being equal?

That's possible, but it's also possible that some of the retailers will have to go down to stay competitive if our competition does that as well. If our competition does not get less expensive and we remain the best cost supplier, then even if some of the cost pressures in the supply chain are diminished or some of the FOBs are diminished, then it's possible that those will be realized in profit for our shareholders. But our most important focus is always the value to our customers. And we all know that some of our costs will never go down. such as wages, et cetera. There's a whole list. But if FOBs and some of the supply chain goes down, then it remains to be seen how that gets handled.

Okay, that's helpful. Thanks, and all the best.

Thank you, sir.

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

Hi, good morning. It's Emily for Peter. So let's shift to the consumer market. So as a result of the recent inflationary environment, have you seen any changes in the consumer behavior at Dollarama? Like, for example, have the basket or traffic been impacted because, like improved because, you know, Dollarama is viewed as a value destination? Or has baskets been at all impacted because the consumer wallet is now squeezed, you know, with increasing gas prices and etc.? ? And are there any mixed shifts or categories coming in or out of favor as a result of these changing trends?

So, I mean, generally speaking, I think our value proposition is very well received by Canadians. We're working really hard to maintain the best relative value, and that, of course, translates into good traffic activity levels. So we're pleased with what we're seeing going in the first quarter. How that will evolve over the course of fiscal 2023 remains to be seen. There's a lot of puts and takes to that discussion. And then in terms of mix and categories, I mean, there's good demand on the consumable side, but the general mix overall remains stable and we're in line with what we've seen historically.

Okay, thank you very much.

Thank you.

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

Yeah, thanks. In the outlook, you mentioned that you've got some gross margin levers that you can use to manage inflationary pressures. Can you just outline what some of these are outside of price increases?

So those would be the usual levers that we've talked about in the past. For example, refresh. We refresh 20% to 30% of the store every year, and so that allows us to offer goods that drives traffic and drives sales, but also maintain the margin thresholds that we want. Um, there of course are multi price point strategy. Um, we can optimize, uh, packaging and cube if required. So there's, there are a bunch of levers that, um, that we've used historically that we're continuing to use. And this year, keep in mind, Derek, that we also have the tailwind of a stronger hedged Canadian dollar rate.

Yep. Okay. Understood. And then just on the real estate front, have you witnessed any changes or perhaps any relief in real estate costs just given some of the COVID challenges that many other less well-capitalized retailers have faced over the last two years?

I'd love to say yes, but the answer is no. We haven't seen any relief on the cost side of things. On the real estate front, we're a major tenant across the country. I think landlords in general don't want to set precedents with Dollarama, and so we're not seeing any relief on that front from a cost perspective.

Okay, that's interesting. Thank you very much. Thank you.

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

Hi, good morning. This is actually Renato Basanton for Karen. Thanks for taking our questions. So just first wanted to follow up on the new price points. You know, you talked about a gradual introduction and reference mid-year. So I just wonder if you can provide some details or maybe even quantification on how you're factoring this into the 4% to 5% comp guidance.

In the new price point introduction, keep in mind we'll be very gradual throughout the year. So starting in the back half, June, July, that's when we'll start to see the new price points kicking in. And it will be gradual. So that's been factored in this year's SSS guidance. But I wouldn't say that for fiscal 23, it's a major material driver of SSS performance given the gradual ramp up.

Got it. That's helpful. And then just wondering if you could talk a little bit about the relationship between sales growth and EBIT growth on a more normalized basis going forward. Obviously, there's been some noise over the last couple of years, and this year has also been unusual with the supply chain and the new price points. Um, just wondering, wondering what the sales and eBay relationship should look like excluding some of the factors that have, that have impacted things over the last couple of years. So on a more normalized basis, thanks.

Yeah. I mean, it's the, it's the general growth algorithm that you'd be familiar with when looking at the RMS. So, so we, we strive for good SSS performance. We have the contribution from new stores. We work hard on gross margin management. And we're generally doing a very good job at OPEX management on the SG&A front of things. So all in all, the EBITDA, EBIT growth should reflect revenue growth, keeping in mind that you have Dollar City contribution that's an additional kicker to our growth profile. But it's the usual growth algorithm that you'd be familiar with. So nothing would change in our kind of medium-term growth algorithm going forward. We're going through the supply chain disruptions, navigating the environment, but when things normalize, which they will eventually, it's kind of the normal growth equation that you'd be familiar with for Del Ramos.

Got it. That's helpful. And then just lastly, if I may, just wondering if you can speak to the high gas price environment and any potential impact. If you've seen anything thus far, and if not, at what gas price do you actually start to see an impact historically? And if you think the higher fuel prices benefit you from a convenience or a trade-down standpoint from a consumer perspective. Thank you.

So, higher gas prices from an expense perspective are not good. And so, they've been factored in our guidance. Of course, depending on how it fluctuates over the course of the year, this will impact or will be one of the factors impacting where we will end up in terms of gross margin. From a consumer perspective and SSS, I think as we mentioned before, the value proposition and the relentless focus on having the best value in the market is being recognized by cutting consumers. That's really our focus right now is just making sure that we have the best relative value And if we do that, good things will happen.

Great. Thank you and best of luck.

Thank you.

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