Dollarama Inc.

Good morning and welcome to the Dollarama fourth quarter and fiscal year 2024 results conference call. Neil Rossi, President and CEO, and Patrick Bowie, CFO, will make a short presentation followed by a question and answer period upon 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 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 April 4, 2024, available on CDAR+. Forward-looking statements represent management's expectations as at April 4, 2024, 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 for that exceptional introduction, operator, and good morning, everyone. This morning, Dollarama released impressive fourth quarter and fiscal 2024 results. For the quarter, comparable store sales growth came in higher than expected at 8.7%, and EPS increased by over 26%. For the full fiscal year, SSS came in at 12.8%, and EPS increased 29%. On the back of these results, we met or exceeded our annual guidance targets for all our key performance metrics. Our strong financial and operational performance once again demonstrates the enduring strength of our business model. Our compelling value proposition continues to resonate with consumers, and that keeps us motivated every day to exceed their expectations in what continues to be an uncertain economic context. I would like to recognize and thank every Dollarama employee for their contributions this year. Whether working in our stores, in the field, in our logistics operations, or at head office, your passion, entrepreneurial spirit, and solution-oriented mindsets are key to our continued success. On the real estate front, we opened 65 net new stores in fiscal 2024, bringing our total store count to 1,551 at year end. I'm very proud that we have now hit this annual net new store number for seven consecutive fiscal years, which speaks volumes to our team's execution. We will continue our efforts to front load store openings in this fiscal year while maintaining the same pace of annual net new stores of between 60 and 70. Heading into fiscal 2025, we have a solid pipeline of site opportunities across the country as we work towards our long-term target of 2,000 stores in Canada by 2031. Turning to Latin America, Dollar City continues to generate strong results, demonstrating solid execution on the financial and operational front as they continue to scale up. This is reflected both in their pace of new store openings and in their growing earnings contribution. They opened 92 net new stores in calendar 2023 ending the year with over 530 stores. This puts them in a very strong position to achieve their store target of 850 by 2029 in their four current markets of operation. On the ESG front, I am pleased with our progress for the year, advancing meaningful projects across our priority areas. For example, on climate, we continue to increase our alignment with recognized standards and best practices From a talent perspective, we invested in new technologies and programs to streamline our recruitment efforts, among other priorities. In supply chain, we continue to enroll eligible vendors into our social audit program. We also began pursuing additional engagement work to gain better visibility on indirect vendors. We look forward to providing a comprehensive update on our progress across all our ESG priority areas, with the publication of our FY24 ESG report ahead of our Q1 results in June. Over the last few years, Dollarama has truly solidified its position as an indispensable shopping destination for consumers across Canada. This is thanks to our ability to deliver compelling value and convenience year-round on a broad range of everyday and seasonal products within our low fixed price range. Looking ahead, the path of the economy remains uncertain, both for businesses and consumers. This makes it all the more difficult to predict future consumer behavior. In this context, our objective is to preserve and strengthen our role in the shopping habits of consumers by continuing to focus on our fundamentals and the elements we control. For example, the ongoing refresh of our merchandise and careful execution on our pricing strategy are key to keeping customers coming back as the economy evolves. Our objective is reflected in our fiscal 2025 annual same store sales growth target. We are setting a high bar on a key retail metric over and above two years of exceptional double digit same store sales growth. Our ability to achieve this target will once again be dependent on the continued execution by every member of the Dollarama team. I am very confident that we will once again meet our objectives, and deliver on our value and convenience promise to consumers this year. Before I turn the call over, I would like to welcome our new CFO, Patrick, to his first earnings call with us. Patrick is a seasoned executive with extensive capital markets expertise and is already making his mark at Dollarama. We're glad to have him on board. So with that, Patrick, over to you.

Thank you, Neil, and good morning, everyone. I'm pleased to be here this morning to discuss Dollarama's results and outlook for next year. The last three months have given me the opportunity to understand the business and its key drivers, and I am very excited for the future. Dollarama's business model is nothing short of impressive, as are its people. I also look forward to continuing to engage and meet with members of the investment community in the coming weeks and months. Let's start with a review of our fourth quarter and fiscal 2024 results before turning to our guidance for fiscal 2025. For Q4, sales increased by 11.3% over the same period last year to reach more than $1.6 billion. For the year, sales increased 16.1% to nearly $5.9 billion. In Q4, Same-store sales grew 8.7% on top of 15.9% for the same period last year. SSS consisted of an 11.2% increase in the number of transactions and a 2.2% decrease in average transaction size. SSS for the quarter came in higher than expected, such that we exceeded our updated SSS full-year guidance. While consumables continue to benefit from stronger than historical demand, The increase reflects strong demand across all our product categories, including seasonal and general merchandise. SSS for fiscal 2024 came in at 12.8%, consisting of a 12.3% increase in the number of transactions and a 0.4% increase in average transaction size. Annual SSS growth was driven by the same factors as Q4, in addition to the positive impact of ongoing product refreshes. This result is all the more impressive when stacked up against the 12% SSS generated in fiscal 2023. Margin expansion continued into Q4, resulting in a strong gross margin of 46.3%, as we continue to benefit from lower container and logistics costs. For the full year, we generated a gross margin of 44.5%, bringing us to the very top end of our guidance range for fiscal 2024. SG&A represented 14.5% of sales for Q4 compared to 14.2% for the same period last year. The variance primarily reflects higher store labor costs. Looking at the full year, we came in at 14.4% of sales exceeding our annual SG&E cost containment target for fiscal 2024 by 30 basis points. This is primarily because of the positive impact of scaling, which offset some of the cost pressures. With respect to our 50.1% share of Dollar City, net earnings for the quarter were $32.8 million and for the year came in at $75.3 million. periods last year. Based on their strong financial performance, Dollar City's board approved and declared its first dividend in the fourth quarter, which, given our 50.1% share, came in at $40.1 million USD. Returning to Dollarama, Q4 EBITDA grew 19.5% to $558.9 million, representing an EBITDA margin of 34.1%. Full year EBITDA increased by 22.2% to over $1.8 billion, or an EBITDA margin of 31.7%. Our Q4 diluted net earnings increased by 26.4% to $1.15 per share, while our fiscal 2024 EPS grew by 29% to $3.56. On the capital allocation front, Dollarama remained active on the NCIB program throughout fiscal 2024, with a repurchase of over 7.1 million common shares for $665.9 million. This quarter, the Board also approved a 29.9% increase to the quarterly cash dividend to $0.092 per share. At fiscal year-end, compared to 2.71 times at the end of fiscal 2023. The variance reflects strong EBITDA growth and cash flow generation. Turning now to our outlook for fiscal 2025, for the full fiscal year, we expect comparable store sales to grow at a pace of between 3.5 and 4.5%. This is on top of the exceptional SSS generated in the last two fiscal years and in the context of continued economic uncertainty. Our confidence that we can generate this level of SSS growth in fiscal 2025 speaks to our conviction in our fundamentals and value proposition. On gross margin, we expect a lower inbound shipping cost tailwind to carry through the first half of the fiscal year, but on the flip side, we expect to face tougher comps in the costs during the second half of fiscal 2024. Like all retailers, we're also seeing an uptick in shrink, but this continues to be actively managed and is included in our full-year guidance. For fiscal 2025, we expect to maintain our gross margin at a similar level to last year, with a target range of between 44% and 45% of sales. SG&A as a percentage of sales is expected to continue to be pressured by higher store labor and operating costs. We are still facing higher than historical wage inflation, but our goal is to partially offset these cost pressures through ongoing efficiency and labor productivity initiatives. As a result, we anticipate SG&A as a percentage of sales to be in the range of 14.5% to 15%. In fiscal 2025, we will maintain our balanced approach to capital allocation, investing in organic growth while also returning capital to shareholders. In addition to maintaining a dividend subject to quarterly approval, we anticipate allocating the majority of excess cash to share repurchases, consistent with last year. In conclusion, while the path of the economic recovery and its impact on future consumer behavior remains uncertain, clearly continues to resonate. As a result, we expect to benefit from a persistent positive consumer response to our convenience and compelling value in fiscal 2025. This concludes our formal remarks. I'll turn the call back to the operator for the Q&A.