Dollarama Inc.

Good morning, and welcome to the Dollarama Fiscal 2024 Second Quarter Results Conference Call. Neil Rossi, President and CEO, and J.P. 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's discussion and analysis are available at Dollarama.com in the Investor Relations section, as well as on CDAR. Before we begin, 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 statement. 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 September 13, 2023, available on CDAR. Forward-looking statements represent management's expectations as of September 13, 2023, and, except as may be required by law, Solorama 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. For the second quarter of fiscal 2024, we delivered excellent operational and financial results, including a 15.5% increase in comparable store sales, a nearly 24% increase in EBITDA, and an over 30% increase in earnings per share. More broadly, our performance through the first two quarters of the year reflects our ability to execute on our long-standing commitment to providing convenience and compelling value across our product mix. Clearly, day in and day out, Dollarama continues to solidify its position in the shopping habits of consumers and as a key destination for a broad range of affordable everyday goods. We are extremely pleased by the sales momentum we are seeing across our product categories. In addition to the sustained value seeking behavior from Canadian consumers. We are staying true to our price follower strategy to remain competitive and sparing no effort to help our customers get the most for their hard earned money. Through our ongoing merchandising activities, product refreshes, and disciplined pricing actions, we are successfully delivering year-round value to our customers on every product we sell, while also maintaining strong margins. In the current macroeconomic context, and based on what we have been seeing year to date, including the quarter currently underway, we expect strong customer demand to continue through the second half of the fiscal year. This is reflected in the upward revision of our same store sales guidance range for the full year. On the real estate front, we opened 18 net new stores this quarter. This is compared to 13 in the same quarter last year and 21 last quarter. This year, our team worked hard to front load net new store openings to take some of the pressure off our fourth and historically busiest quarter of the year. These results speak to the execution of that plan. As mentioned last quarter, this acceleration has no impact on our annual target of between 60 and 70 net new stores. Subsequent to quarter end, we completed the previously announced acquisition of industrial properties adjacent to our centralized logistics operations in TMR in the Montreal area. As a reminder, the objective is to leverage these strategically located properties to the benefit of our logistics operations as we continue to move toward our 2,000 store target for Canada by 2031. In LATAM, the team at Dollar City also continues to execute on its long-term growth plans and consistently delivering strong financial and operational results. In their second quarter, They opened 10 net new stores, bringing the total number of Dollar City locations to 458. They are seeing and experiencing many of the same trends in their four markets of operation as we are here in Canada. That is to say, strong traction from their customers on the value and convenience they are offering in the current economic context. This, coupled with the team's solid execution of its growth strategy, is resulting in strong performance quarter after quarter. Finally, on our CFO search, we launched a robust search process earlier this summer, and I am pleased to say that it has been moving along well. We will, of course, provide the market with an update in due time. In the meantime, JP is still very much in the chair until the end of the month, and we have a skilled team to lead this function in the interim until an announcement is made. I'd like to take this opportunity to acknowledge JP's outstanding contributions to Dollarama during his tenure with us, and I wish him the very best in his new endeavor. JP, over to you to review our Q2 financial results in more detail.

Thank you, Neil, and thank you for your kind words. It's been a real pleasure for me to work alongside such a talented team and for such an outstanding business. But now, let's take a look at our KPI performance and expectations for the remainder of the fiscal year. Dalrama delivered strong top line growth with a nearly 20% increase in sales and a 15.5% increase in same store sales in the second quarter. This is all the more notable because this SSS growth is over and above our 13.2% in the same quarter last year. We are seeing robust performance across the board in terms of our three main product categories and their departments. We generated a strong gross margin representing 43.9% of sales compared to 43.6% of sales in the same quarter last year, driven by lower inbound shipping costs, partly offset by higher logistics costs. SG&A as a percentage of sales was 13.6% compared to 13.8% in the same quarter last year. This improvement year-over-year reflects our strong top-line performance and the scaling benefits it is generating, which have enabled us to absorb increased labor costs. Our 50.1% share of Dollar City's net earnings was $11.4 million compared to $7.7 million for the same period last year. continuing to reflect their strong execution. On the back of our strong KPI performance, EBITDA increased by 24% to 457 million, representing 31.4% of sales, and APS was 86 cents, representing a 30% increase over last year. On the capital deployment front, we were active on the NCIB in the quarter, We renewed our program in July, allowing for the repurchase of up to 4.8% of our public float over the next 12-month period. Utilizing our former and renewed NCIB, we repurchased nearly 2.9 million shares in Q2 for $248 million. The board also approved a quarterly cash dividend of 7.08 cents per share. We expect to remain active on our NCIB and to allocate excess free cash flows towards our share of purchases. Some housekeeping regarding cash on hand. Our Q2 cash balance is inflated by the $88 million, which was subsequently used to settle the land acquisition in August. As a reminder, this capital expenditure is over and above our previously disclosed annual CapEx range outflows. Turning now to our expectations for the remainder of the year. Last quarter, we were cautious on same-store sales growth in upcoming quarters as we wanted to see how the consumer would lap last year's strong performance. But that value-seeking behavior has held strong and across all our product categories. Based on that performance and what we're seeing so far in the third quarter, we have revised our full-year SSS guidance to a range of between 10, and 11%. This will be over and above 12% annual SSS last year. So far in Q3, SSS cadence is facing at the two-year stack of approximately 21%. While the last mile of supply chain normalization is now behind us, we continue to expect additional margin expansion in the second half of the fiscal year. This will bring us in line with our annual guidance range for a gross margin of 43.5% to 44.5% of sales. On SG&E, we also continue to expect to meet our guidance range of between 14.7% to 15.2%, given that our strong sales performance is enabling us to scale SG&E as a percentage of sales. So all in all, a stellar performance through the first half of the year. This is thanks to the team's ability to deliver on our value promise to Canadian consumers who appreciate it more than ever in what remains a challenging economic context. That concludes our formal remarks. Now I'll turn it over to the operator for the Q&A.