Dollarama Inc.

All participants, please stand by. Your meeting is about to begin. Good morning, and welcome to the Dollarama Fiscal 2025 Third 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 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. 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 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, 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 December 4th, 2024, available on CDAR+. Forward-looking statements represent management's expectations as at December 4th, 2024, and accept 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, operator, and good morning, everyone. This morning we reported our third quarter fiscal 2025 results with EPS of 98 cents representing a 6.5% increase over the same quarter last year. Comparable store sales increased by 3.3%, reflecting the same trends we have seen since the beginning of the year. Continued SSS normalization and a cautious consumer who continues to appreciate and seek out our value proposition. Our performance in the context of careful discretionary spending by consumers only strengthens our conviction in the relevance of our value model within the Canadian retail landscape, across geographies and demographics, and through the economic cycle. In this vein, we also announced this morning an increase in our long-term growth plans in Canada. We have increased our target to 2,200 stores by 2034. This is up from our previous target of 2,000 stores by 2031. Our updated market analysis confirmed that there is continued opportunity to profitably grow in Canada over the next decade, maintaining our average new store capital payback period of about two years. For the year underway, we've opened 50 net new stores and are well on track to open a total of 60 to 70 net new stores by fiscal year end. Just before we close the corridor, we reached another real estate milestone with the opening of our 1600th store in Canada located in Edmonton, Alberta. In parallel to growing our store network, we are also constantly working on the optimization of our logistics operations to match this growth. Up until now, we have relied on a centralized approach. While our current operations have served us well, given our Western store base and future growth plans across the country, the time is right to put in motion plans to develop a two-node logistics operation. This will enable us to better service our network across Canada over the long term, while bringing more agility and resilience to our logistics operations through redundancy. With such a system in place, we will be even better positioned than we are now to ensure the smooth flow of goods to our stores in all situations. The Calgary region was identified as the optimal location to host our future Western hub. We have found a well-located parcel of land in Balzac, just north of the city, where we can develop exactly what we need. Following the closing of the land acquisition and over a three-year period, we intend to build a distribution centre along with warehousing integrated in the same complex. Once built, this hub will service our stores across Western Canada, which are currently serviced out of Montreal. The plan is for the two-node logistics network to meet the distribution capacity requirements for our updated growth plans in Canada. Having this in place will also allow us to optimize our Montreal logistics operations. Once the Western hub is up and running, the Montreal DC and area warehousing centers will focus on servicing stores in Eastern Canada. The property we purchased in town of Mount Royal in fiscal 2024 located right next to our Montreal DC will provide us with optionality with future optimization of the Montreal Hub. Turning to Latin America, during their calendar third quarter, Dollar City continued on their growth plan with the opening of 18 net new stores. This brings their total store count at September 30th to 588, up from 532 at the end of 2023. This includes 349 stores in Colombia, 103 stores in Guatemala, 75 in El Salvador, and 61 in Peru. As mentioned last quarter, the team is also continuing to progress with its work to open the first Dollar City stores in Mexico in 2026. The Dollarama team is not resting on its laurels, but building on our successes and forging ahead with our multi-pronged growth lens. Earlier this year, we reiterated our confidence in Dollar City by increasing our ownership and their long-term store targets in their current countries of operation. We also announced plans to enter Mexico. Today we are announcing plans for another decade of growth in Canada and an evolution in our logistics network, which speaks to the role we have carved out for Dollarama as a leading value retailer. With our growth platforms and a business model that can deliver for today and tomorrow's value-oriented customer across geographies, we look forward to executing on our plans with our usual focus and discipline. With that, I'll pass it over to Patrick.

Thank you, Neil, and good morning, everyone. Let's start with an overview of our Q3 results. Sales increased by 5.7% over Q3 of fiscal 2024, coming in at over $1.5 billion. We generated same-store sales growth of 3.3% for a two-year stack of 14.4%. Q3 performance was primarily driven by strong demand for everyday essentials. As mentioned last quarter, we also had two Halloween sales days fall in Q4. In this context, SSS is behaving as anticipated and continues to progressively normalize. In terms of our annual guidance of 3.5% to 4.5%, we expect SSS growth to be anchored around the midpoint of this range, with the next few weeks leading to Christmas being important. Growth margin came in at 44.7% compared to 45.4% in Q3 of last year. The decrease is mainly due to stronger sales of consumable products and higher logistics costs. For the full year, We expect gross margin to fall within the top half of our guidance range of between 44 and 45% of sales. SG&A decreased the 14.3% of sales for Q3 compared to 14.5% for Q3 of fiscal 2024 due to the positive impact of scaling. For the full year, we expect SG&A as a percentage of sales to come in towards the bottom end of the 14.5% to 15% annual guidance range. Dollar City's net earnings contribution for the quarter was $27.1 million compared to the $18 million last year. This is the first quarter to fully reflect our 80.1% ownership stake. Back to Dollarama earnings, Q3 EBITDA came in at $509.7 million compared to $478.8 million last year. EPS increased by 6.5% to $0.98 per share. On the NCIB front, we remained active with the repurchase of nearly 1.4 million common shares for cancellation in Q3 for a total consideration of $186.2 million. the Board also approved a quarterly cash dividend of $0.092 per share. Turning now to our new long-term target in Canada. Our update to 2,200 stores by 2034 was based on a thorough revaluation of the market potential for Dollarama stores and corroborated by third-party analysis. Several factors came into play in this exercise, including demographics, now projected, Dollarama's role and relevance in the everyday shopping habits of Canadian consumers, our capabilities as operators, the evolution of the retail landscape, and the environment we expect to operate in over the next 10 years. Taking these factors into consideration, we believe that we can continue to pursue our growth at a healthy pace and by maintaining our two-year new store capital payback period. As it relates to the Western Logistics Hub, operating a two-node system is expected to generate significant annual cost savings that justify the capital investment. But cost savings is not the only driver. This is also about optimizing and putting in place the right infrastructure to support the business, including growth to our new store target in 2034. Excluding land acquisition costs of 46.7 million, the estimated capex for the construction of our future western hub is approximately 450 million. We plan to have distribution and warehousing operations similar in nature to those in Montreal, so primarily unautomated. With the land acquisition anticipated to close by the end of the fiscal year, we should break ground on construction in the spring of next year, aiming for project commissioning by the end of calendar 2027. The capex for this project will be distributed over a three-year period, and we do not expect it to impact our shareholder capital return strategy. We intend to remain active on the share buyback front in addition to maintaining our dividend subject to quarterly approval. Next quarter, when we provide guidance for fiscal 2026, we will be able to provide visibility on the anticipated pace of capital spend, although we already foresee the capital outlay to be more front-loaded. Our updated 10-year growth target and plans to strengthen the backbone of our Canadian business demonstrate our conviction in the continued potential of our core market. At the same time, we are also tapping into more growth in LATAM, both in Dollar City's current countries and eventually in Mexico. Our focus across all teams and markets is on leveraging our strength and agility as buyers, importers, retailers, operators, and as judicious capital allocators. We are confident that delivering on our value and convenience promise to consumers will continue to translate into sustained profitable growth and long-term value creation for our shareholders. With that, I'll now turn the call back to the operator for the Q&A.