Dollarama Inc.

Good morning and welcome to the Dollarama Fiscal 2023 Fourth Quarter Full Year Results Conference Call. Neil Rossi, President and CEO of NGP Towner CFO, will make a short presentation followed by a question and answer period open exclusively to financial analysts. The press release, financial statements, and management 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. Forelooking 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 be proved 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 forelooking statements. As a result, Dollarama cannot guarantee that any forward-looking statement will materialize, and you are cautioned to not place undue reliance on these forward-looking statements. For additional information on the assumptions and risks, please consult the cautionary statements regarding forward-looking information contained in Dollarama's MD&A dated March 29, 2023, available on CDAR. Forward-looking statements represent management's expectations as at March 29, 2023, And except as may be required by law, Dollarama has no intention, 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. Thank you, operator, and good morning, everyone. This morning, Dollarama released outstanding full-year fiscal 2023 results. meeting or exceeding annual guidance across all key metrics. We capped off the year on a particularly high note, delivering exceptional performance in the fourth quarter. Our strong operational and financial results reflect the continued positive consumer response to our year-round value proposition, which has only been reinforced in the context of high inflation. Our resilient and flexible business model enabled us to deliver from a procurement, operational, and cost management perspective while navigating a dynamic environment. That dynamic environment included lingering supply chain dislocations, which had to be carefully managed. Through fiscal 2023, we were very proactive in rebuilding our inventory to pre-pandemic levels and in circumventing some of the delays in the system impacting all retailers, all while mitigating the impacts of rising freight and logistics costs. Working through this was no easy feat, and I'm proud of the flexibility and capacity demonstrated by our procurement and logistics operations as we accomplished what we set out to do. We kept the goods flowing to our stores throughout the year, including for key seasons, and we successfully brought our inventory and in stock positions back to acceptable levels by year end. Our inventory position has also grown in tandem with our continued store network growth. Strong same store sales performance and the introduction of higher price points. Fiscal 2023 marked the gradual rollout of new price points up to $5 beginning last summer, more than six years after our $4 price point introduction. To date, This new retail offering has been very well received by customers coast to coast. It has enabled us to offer new compelling SKUs. It has allowed us to bring back SKUs that were appreciated in the past but discontinued because of prohibitive costs. In addition, it has enabled us to continue offering several SKUs despite rising costs. We will continue to provide a wide array of compelling products at each of our price points. ranging from $1 or less up to $5, and to refresh our products throughout the year as we always have. We remain extremely disciplined in our pricing strategy across all price points, item by item, to preserve our year-round relative value. Turning now to our Canadian footprint, we opened 65 net new stores in fiscal 2023, consistent with the prior six years. bringing our Dollarama store count to 1,486 stores, as at January 29, 2023. Going into fiscal 2024, we have a solid real estate pipeline with site opportunities across the country. Near term, we are looking forward to the opening of our 1,500th net new store, making a significant milestone along our roadmap to reaching our long-term target of 2,000 stores in Canada by 2031. From a logistics perspective, and in support of our long-term Canadian growth plans, we commissioned our seventh warehouse just before fiscal year-end. At approximately 500,000 square feet and located near our existing logistics operations, the Laval facility significantly increases our warehousing capacity. Finally, as discussed on our last earnings call, we intend to purchase strategically located industrial properties adjacent to our distribution center in TMR, providing us with additional flexibility to support our long-term logistics needs. That transaction is expected to close in the second quarter of fiscal 2024. On the technology front, we continue to deploy capital towards transformational IT projects to the benefit of the business. One notable example this year has been the digitization and centralization of our recruitment platform for our store operations, which we believe will increase our efficiency and recruitment efforts as we continue to open new stores across Canada and keep our stores staffed in a tight labor market. I am also pleased with our progress on the ESG front throughout the year, including the publication of our climate strategy last June. This included our first generation climate goal of a 25% GHG intensity reduction for Scope 1 and 2 emissions by 2030. This represents the first major step in our climate roadmap in the last year. We have already made very good progress towards achieving this goal, which we are tracking closely. We look forward to providing our next annual ESG update in just a few months. Turning to Latin America. Dollar City continues to perform well, meeting or exceeding our expectations in key performance metrics. Like Dollarama, the Dollar City value proposition resonates with consumers in their Latam markets, resulting in strong store sales growth and store opening cadence. With the opening of 90 net new stores in calendar 2022, their total store count is now 440. Dollar City is making excellent progress towards its recently revised long-term store target of 850 stores by 2029 in its four current markets of operation. In conclusion, our outstanding performance in fiscal 2023 only reinforces the relevance of our value retail concept for consumers, the enduring strength of our unique business model, and our disciplined execution. This is true for Dollarama in Canada and Dollar City in Latin America. I would like to recognize and thank every Dollarama team member from our stores to our logistics operations and head office for their continued commitment to providing consumers with convenience and the best relative value on every dollar they spend in our stores. In the context of continued macroeconomic uncertainty and inflationary pressures on consumers, Our priority is to remain and maintain our value promise to Canadians from all walks of life in fiscal 2024. Our customers can continue to count on us. JP, over to you to review our financial results in more detail.

Thank you, Neil, and good morning, everyone. Let's start with a quick overview of our exceptional fourth quarter results. Sales in Q4 grew 20.3%, reaching nearly 1.5 billion. Same-store sales grew 15.9%, supported by a double-digit increase in transaction volumes. Our strong top-line performance was driven by a number of factors, including the absence of pandemic-related restrictions, the introduction of higher price points, and the successful product refreshes across our offering. While the trade down by consumers which accelerated throughout fiscal 2023, certainly boosted our consumable sales, our overall category mix remained quite stable and generally in line with the circle patterns. To illustrate, based on retail sales, consumables represented 42% of our mix in fiscal 2022 and 44% of our mix in fiscal 2023. General merchandise and seasonal together continued to represent the majority of our total sales mix to product categories, which has long made Dollarama a shopping destination. Gross margin was 44.6% of sales compared to 45.2% in Q4 22. The anticipated decrease reflects a slight change in the sales mix as described above and higher logistics costs related to our inventory rebuild. SG&A improved to 14.2% of sales compared to 14.5% the same quarter last year. This improvement primarily reflects the absence of COVID-19 related costs. EBITDA increased by 18.8% and diluted EPS increased by 23%, 2.91 cents for the fourth quarter of fiscal 2023. At year end, inventory stood at 957 million, With a stabilized inventory position from Q3 to Q4, the vast majority of our inventory rebuild is now behind us. A few comments on full year results and the financial metrics guidance we achieved before turning to the outlook for fiscal 24. We delivered an outstanding sales performance throughout the year, delivering on our value proposition, which resonated more than ever in a high inflation environment. This translated into SSS growth of 12% for the full fiscal year, exceeding our expectations of 9.5% to 10.5%. We maintain industry-leading gross margins of 43.5% of sales compared to 43.9% in the prior year, in line with guidance provided. SG&A came in at 14.3% of sales compared to 15.1% for fiscal 2022, an improvement primarily driven by minimal COVID-19 costs and the positive scaling impact of strong sales, also in line with our guidance. On the back of an acceleration in same-store sales, active gross margin management and a higher equity pickup from Dollar City would deliver strong earnings growth with diluted EPS up 27% to $2.76. Turning now to capital allocations. We remained active throughout the year on the NCIB front. In total, we repurchased 8.9 million shares for total cash consideration of $689 million during fiscal 23. A cash dividend was also declared each quarter, and today the board approved a 28% increase of the quarterly cash dividend to $7.08 per share. CapEx came in at $157 million. primarily due to the timing of the delivery of the racking of our new Laval warehouse, which will not fall under fiscal 2024 CapEx. In fiscal 2024, we will maintain a balanced approach to capital allocation by continuing to invest in organic growth and return capital to shareholders. We intend to maintain our pace of net new store openings with the target of 60 to 70 net new stores for fiscal 24. in addition to continued investments in maintenance and transformational capital projects. As such, we expect to deploy between 190 and 200 million in CapEx in fiscal 24. The year-over-year increase primarily reflects the remaining investments in our Laval warehouse. This CapEx budget excludes the $87 million property acquisition agreement anticipated to close by the second quarter. In addition to maintaining a dividend subject to quarterly approval, we intend to allocate our excess free cash flows towards the repurchase of shares through our NCIB. We continue to believe that this represents an appropriate and efficient use of excess cash to increase shareholder value. In the current macroeconomic environment, we will continue to actively manage our capital structure and anticipate that our leverage ratio will be below our historical target range of 2.75 to 3 times throughout fiscal 24. Specifically, in the current interest rate environment, our after-tax cost of debt compared to our earnings yield is not generating meaningful accretion. At your end, our adjusted net debt to EBITDA ratio was 2.71 times. Turning to our financial performance guidance for fiscal 2024, on SSS, we expect that the first half of fiscal 24, we will continue to benefit from strong demand for affordable everyday items in the context of continued inflationary pressures on consumers. Looking at our SSS performance in the first quarter of fiscal 24, two months in, we are pacing at the same two-year SSS average as in Q4 of fiscal 23. However, these demand trends are expected to normalize through the second half of the fiscal year. As a result, our SSS growth expectation for fiscal 24 is in the range of 5% to 6%. While we anticipate higher demand for lower margin consumable products, to carry over into fiscal 24, lower freight costs and logistics costs on imported goods are expected to positively impact gross margins. We've definitely seen a stabilization in global supply chains of late and believe we are in the final stages of its normalization. As such, and based on our current visibility, we expect gross margin as a percentage of sales to improve year over year and to be in the range of 43.5 to 44.5 percent of sales. Wage pressures on SG&E will be more substantial in fiscal 24 compared to the prior year, partially offset by the positive impact of scaling as well as ongoing efficiency initiatives. Accordingly, SG&E guidance for the full year is in the range of 14.7 percent to 15.2 percent of sales. Rotating challenges seem to have been the hallmark of the past few years. Our ability to consistently deliver through the pandemic, persistent supply chain issues, increasing economic and geopolitical instability, and rapid inflation speaks to the relevance of our value promise and the resilience of our business model. These factors position us well for continued growth despite the uncertain economic context. That concludes our formal remarks, and I'll turn it over to the operator for the Q&A.