Dollarama Inc.

Good morning and welcome to the Dollarama fiscal 2025 first quarter results conference call. Neil Rossi, President and CEO, and Patrick Bowie, 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 and the investor relations section, as well as on CDAR+. Before we start, I've 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, and any other future events or developments. Forward-looking statements are based on information currently available to the 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 June 12, 2024, available on CDAR+. Forward-looking statements represent management's expectations as at June 12, 2024, and acceptance may be required by law. Dollarama has no intention and undertakes no obligation to update or revise any forward lucky 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. If you joined us for our AGM this morning, welcome back. Earlier today, Dollarama reported solid first quarter fiscal 2025 financial results. Concurrently, we made announcements regarding Dollar City, including an increase in our ownership interest. Starting with our first quarter results, we delivered another quarter of strong top line growth and a 22.2% increase in earnings per share. As anticipated, we are seeing a progressive normalization in same store sales growth, a trend which we expect will carry through the coming quarters, and as reflected in our SSS guidance for the full fiscal year. Consistent with the last two years, we continue to experience higher than historical demand for core consumables and other everyday essentials. While demand for general merchandise and seasonal products remain stable overall, customers are deploying their discretionary spending prudently. On the real estate front, we opened 18 net new Dollarama stores in the quarter, bringing our total store count to 1,569. This marks a good pace out of the gate as we look to open more stores than historically in the first half of the year, which we did successfully last year. Looking ahead, the path of the Canadian economy and future consumer behavior remains hard to predict, but one thing that is clear is the strength of our value proposition. As Canadian consumers seek out convenience and compelling value for their hard-earned money, we will remain laser-focused, executing on our value and convenience promise. We will do so across all product categories, including consumable products, general merchandise, and seasonal items. Turning to Dollar City, this morning we announced the expansion of our partnership in Latin America, as well as an increased equity stake. Like Dollarama in Canada, the Dollar City value proposition is resonating with consumers in LATAM, which speaks to the relevance of our retail model across geographies and demographics. A key component of our long-term growth strategy, Dollar City has generated impressive results year after year. The business is led by a strong leadership team who has been successfully executing our strategy throughout the course of our over decade-long partnership. This is reflected both in Dollar City's pace of new store openings and growing earnings contribution through the years. In this context, this morning's announcement marks a natural next step for our partnership and includes three key components. First, we've acquired an additional 10% interest in the business for a total implied value of $554 million, satisfied in Dollarama common shares. This brings our ownership in the Dollar City business to 60%. Second, we negotiated a call option to purchase an additional 10% interest by no later than December 31st, 2027. Third, we confirm that Mexico will be Dollar City's next country of entry, planned for 2026. Dollarama will own an 80% equity interest in Mexico, which represents a new country of operation under our partnership. Mexico has a population of close to 130 million people, as well as a dynamic retail market. We believe the local consumer will have an appetite for the dollar city value proposition, as has been the case in our current Latin countries of operation. We will enter Mexico with the same care and discipline as we did in Colombia in 2017 and Peru in 2021. As for dollar cities growth in its current markets, we also see further potential. Today, we confirm that Dollar City has increased its long-term store target in its four current countries of operation from 850 stores by 2029 to 1,050 stores by 2031. As at their latest quarter end, they had a total of 547 stores located in El Salvador, Guatemala, Colombia, and Peru. This is up from 532 as at December 31st, 2023. The vast majority of this anticipated growth will come from Colombia and Peru. This target excludes the future Mexico business for which it is too early to set such an objective. As demonstrated by our increased ownership interest in Dollar City, we have confidence in the business's long-term potential as they pursue our growth strategy in key LATAM markets. At the same time, we are pursuing our growth plans in Canada as a leading value retailer in the country. Combined, Dollarama today benefits from a strong growth platform with more opportunity to serve today's value-oriented customer and ultimately create long-term sustainable value for our shareholders. None of this would be possible without the incredible efforts deployed by everyone on the Dollarama and DollarCity teams. With that, I'll pass it over to Patrick to discuss our financial results and the DollarCity transaction in more detail.

Thank you, Neil, and good morning, everyone. Let's start with an overview of our KPIs for Q1 of fiscal 2025 before turning to the Dollar City transaction details. Sales increased by 8.6% over Q1 of fiscal 24, coming in at $1.4 billion. Same-source sales grew 5.6%, lapping 17.1% growth in the same period last year, demonstrating strong consumer demand. SSS consisted of an 8.7% increase in traffic and a 2.8% decrease in basket size. We continue to expect comparable store sales to grow at a pace of between 3.5% and 4.5% for the full fiscal year. Gross margin came in at 43.2% compared to 42.2% in Q1 of 24. The increase is mainly driven by the positive impact of renewed shipping contracts and lower logistics costs. Guidance for the full year remains between 44 and 45% of sales. SG&E represented 15.4% of sales for Q1 of fiscal 25 compared to 15.1% in the same quarter last year. We are actively working on offsetting SG&E pressures from hires to our labor and operating costs through our ongoing efficiency and labor productivity initiatives. In this context, we are reiterating our annual guidance range for SG&A as a percentage of sales of between 14.5% to 15%. With respect to our share of Dollar City, which still stood at 50.1% for the Q1 reporting period, their net earnings contribution for the quarter increased by 68.3% compared to the same quarter last year to $22.1 million. We will continue to account for this investment, including the New Mexico Partnership, as a joint arrangement using the equity method. Back to Dollarama, our Q1 diluted net earnings per share increased by 22.2% to $0.77 per share. On the NCID front, We remained active in Q1 with the repurchase of just under 1.3 million common shares for cancellation for a total consideration of 145.5 million. The Board approved a quarterly cash dividend of 9.2 cents per share. Turning now to the Dollar City transaction. Neil walked you through the key highlights. Let's take a look at the details. First, on the acquisition of an additional 10% equity interest in the Dollar City business. The transaction was satisfied by the issuance of approximately 6.1 million common shares of Dollarama for a total implied value of $554 million. The shares were issued via private placement and represent approximately 2.1% of our total issued and outstanding shares. the transaction is expected to be neutral to our net earnings per share for fiscal 2025. By satisfying the purchase price through the issuance of common shares, there is no near-term impact on capital allocation strategy, both in terms of investing in organic growth and optimizing shareholder returns through share repurchases and a modest quarterly dividend. Another component of the transaction is the additional call option enabling us to purchase a 10% ownership interest in the current business and a corresponding 5% interest in the future Mexico business. The option window will remain in place until December 31st, 2027. The call option provides a more established path to increased ownership should we choose to exercise it. Overall, beyond the addition of the call option, Our existing governance and modus operandi with the Dollar City founding group remain largely intact, and we have approached the Mexico partnership in the same spirit. The pre-existing Dollar City put option also remains in place, but obviously at a lower percentage given our increased ownership. We have strong local partners who know the Latin America market well. Our long-term partnership has only strengthened our relationship and we look forward to staying on this path of strong execution and profitable growth. This transaction simply solidifies our commitment to the growth platform and its long-term potential, while in parallel pursuing our profitable growth in Canada. With that, I will now turn the call back to the operator for the Q&A with financial analysts.