Dollarama Inc.

Good morning, and welcome to Dollarama Fiscal 2025 Second 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 Investors 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. 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 any assumptions of risk, please consult the cautionary statement regarding forward-looking information contained in Dollarama's MD&A, dated September 11, 2024, Available on CDAR+. Forward-looking statements represent management's expectations as at September 11, 2024, and accept as may be required by law. Bellaroma 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. This morning we reported strong second quarter fiscal 2025 results across our key performance indicators translating into an EPS of $1.02. Same store sales grew by 4.7% in Q2 as they continue to normalize as anticipated. This is an impressive result when stacked up against the 15.5% SSS growth in the same period last year and given the cautious consumer spending backdrop. In Q2, demand for consumable products, which are primarily comprised of everyday essentials, drove the bulk of the increase in same-store sales. General merchandise sales remained stable, while seasonal products were softer. This is consistent with prior quarters. Customers continue to seek out everyday essentials and deploy their discretionary spending prudently in the current economic environment. Our strong results in this context reinforce the fact that Canadian consumers recognize and consistently rely on our convenience and compelling value. The breadth of our offering across consumables, general merchandise, and seasonal is allowing us to meet the current and evolving needs of the Canadian consumer at any given time. Our traffic trends quarter after quarter confirm that our work is hitting the mark. Turning to LATAM, During their second quarter, Dollar City opened 23 net new stores compared to 10 in the same period last year. This brings their total store count as at June 30th to 570 stores with 338 locations in Colombia, 101 in Guatemala, 74 in El Salvador, and 57 in Peru. Dollar City's pace of new store openings and increasing earnings contribution reflects the strong consumer response in these markets and the team's disciplined execution of our long-term growth plans in our current countries of operation. In parallel, the team is also actively working on our plans to enter Mexico by 2026, as announced last quarter along with our increased ownership stake. While it is still early days for Mexico, our work on this front is progressing well and on plan. As we look to the second half of the year, our team will continue to work diligently to keep delivering convenience and great value to all Canadian consumers. We remain focused on our product offering while staying true to our price follower philosophy. Our aim is to provide customers with a broad selection of compelling everyday and seasonal products at the best relative value in all departments and with a consistent shopping experience.

With that, I'll pass it over to Patrick. Thank you, Neil, and good morning, everyone. Let's start with an overview of our KPIs for Q2 of fiscal 2025. Sales increased by 7.4% after Q2 of fiscal 2024, coming in at nearly $1.6 billion, while same-store sales grew 4.7% for an impressive two-year stack of 20.2% SSS growth. Looking at our sales mix, We continue to experience strong demand for consumable products, while seasonal sales experience softer demand, impacted by unfavorable weather in many parts of the country, particularly during the key spring and early summer season, and a cautious consumer. Same-store sales consisted of a 7% increase in the number of transactions and a 2.2% decrease in basket size. our strong traffic reflects the underlying strength of our value proposition and all-around product offering. We continue to be comfortable with our previously disclosed SSS guidance range of between 3.5% and 4.5% for the full fiscal year, which implies a continued normalization in SSS growth through the second half. This range remains an appropriate target given the strong comps we will continue to face and the cautious consumer backdrop. Looking at Q3, also note that two historically key Halloween sales days will fall to Q4, which should skew SSS in favor of Q4. Gross margin came in at 45.2% compared to 43.9% in Q2 of fiscal 2024. The increase is mainly driven by more favorable contracted shipping rates and lower logistics costs. Full-year guidance remains between 44% and 45%, with higher logistics costs expected in the second half of the year compared to the same period last year. SG&E as a percentage of sales remained flat compared to Q2 last year at 13.6%, despite an increase in store labor and operating costs. We continue to actively work on offsetting these costs through ongoing efficiency and labor productivity initiatives, but expect more pressure in the second half of the year. Annual guidance for SG&E remains unchanged at between 14.5% to 15% of sales. With respect to Dollar City, their net earnings contribution for the quarter almost doubled compared to the same quarter last year to $22.7 million. This was a transition quarter for our increase in ownership stake from 50.1% to 60.1%, which occurred towards the end of this reporting period. Their Q3 contribution will fully reflect our increased ownership stake. With a solid KPI performance across the board, Dollarama's Q2 EBITDA increased by 14.7% to $524.3 million, and EPS increased by 18.6% to $1.02 per share. Turning to capital allocation, on the NCIB front, we remained active in Q2 with the repurchase of over 2.1 million common shares for cancellation for a total consideration of $263.1 million. This excludes the tax on share repurchases enacted during the second quarter. The Board also approved a quarterly cash dividend of 7.2 cents per share. Our second quarter and year-to-date performance once again proves the resilience of our robust business model and the enduring relevance of our value proposition to consumers, both across geographies and through any type of macroeconomic environment. Our focus, as ever, is on continuing to deliver convenience and the best relative value we can for our customers. With that, I'll now turn the call back to the operator for Q&A.