Dollarama Inc.

All participants, please stand by. Your meeting is about to begin. Good morning and welcome to the Dollarama first quarter fiscal 2026 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 discussions and analysis are available at dollarama.com and 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 of 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 extra 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 11, 2025, available on CDAR+. Forward-looking statements represent management's expectations as at June 11, 2025, 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. We're off to a strong start in fiscal 2026 across our key financial and operating metrics, posting 4.9% same-store sales growth as we pursue our Canadian growth plan. The increase in SSS was supported by sustained demand for consumables, but also positive seasonal performance, notably Easter. Looking at the last few quarters, we are pleased with the performance of our overall mix in the context of generally lower consumer discretionary spending in the current macro context. In what continued to be an unpredictable trade environment, we focused on our value proposition and delivered for our customers. This speaks to our fundamentals and that we are hitting the mark with an offering that is meeting customer expectations. On the real estate front, we opened 22 net new stores in Q1, bringing our total store count across Canada to 1,638 stores at quarter end. As a reminder, we intend to open between 70 and 80 net new stores this year, up from our usual target between 60 and 70. With the work accomplished by our real estate team in the first quarter and our robust pipeline, we remain on track to achieve this year's higher target. The Dollar City team also continued to deliver value to consumers in Latin America and to advance its expansion plans. Dollar City opened 12 new stores in the first three months of the calendar year, bringing their total number of stores in Colombia, Peru, El Salvador, and Guatemala to 644. As confirmed last quarter, we are investing in our Mexico market entry starting this year with the first Dollar City stores in Mexico slated to open imminently. This will mark a big milestone for the Dollar City team with our last new market entries being in Peru in 2021 and Colombia in 2017. The team has a strong track record of success entering new markets and I'd like to recognize their efforts and strong execution as it pertains to our entry into Mexico. We look forward to testing our concepts in this large high potential market. Now for a quick update on our proposed acquisition of Australia's largest discount retailer as we pursue a new international opportunity for Dollarama. We are looking forward to a successful transaction closing in the next month given the excellent progress since we announced in late March. The meeting for TRS shareholders to approve the transaction will be held later this month. Following this important step, and assuming that the subsequent Australian court approvals proceed as currently scheduled, we expect to close towards the back half of July. A dedicated team has been working actively in the background on our integration plans so that we can hit the ground running when the time comes. Onboarding the TRS team will be our first priority. We are all very excited to get started on this new chapter of growth. That being said, management remains focused on our core Canadian business and the continued success of Dollar City. Finally, the current and rapidly evolving trade environment continues to impact many industries, including the retail sector. As discussed last quarter, the direct impacts for Dollarama are the counter tariffs imposed by Canada on a portion of the goods we import from the US. These are primarily national brand consumable products. We have been managing this process with the tools at our disposal, including our flexible and agile business model. Our objective is to hold on price for as long as possible for our customers, and we are working extremely hard on this front. Price adjustments are always a last resort for us. We will continue to maintain our relative value proposition and existing price point range. A quarter of the way into the year, macro uncertainties persist, but we are holding our own and effectively managing the current challenges. We continue to focus on the elements within our control, leveraging our strengths to provide everyday value and convenience to our customers. We will continue advocating on our multiple growth plan strategy with our usual discipline. With that, I'll pass it over to Patrick.

Thank you, Neil, and good morning, everyone. In Q1, sales increased 8.2% compared to the same period last year, coming in at over 1.5 billion. Same store sales grew 4.9%, consisting of 3.7% increase in the number of transactions and a 1.2% increase in average transaction size. That's on top of 5.6% SSS in Q1 last year. Looking at SSS trends through the quarter, There was a fair amount of noise during the months of February and March, with SSS then picking up through April. A lot of uncertainty remains that could continue to impact consumer confidence over the coming months, and with the continued normalization of SSS trend, our full-year guidance remains unchanged at between 3% and 4% SSS. Also note that we are lapping a 53-week year. As a result, we expect a negative impact in Q4 as the prior year's Q4 included Halloween sales. This is similar to fiscal 2020, the last time we lapped a 53-week year. Q1 gross margin was 44.2% of sales compared to 43.2% in Q1 of fiscal 2025. The improvement primarily reflects lower logistics costs. We are also seeing lower inventory shrink notably due to our loss prevention initiatives. Our annual guidance range for gross margin of between 44.2% and 45.2% of sales remains unchanged. We expect further positive momentum in our logistics operations, which may be offset by headwind pressure compared to last year, notably from continuing mix shift effects and shipping rates. SG&A represented 15.3% of sales in Q1 compared to 15.4% of sales for the first quarter of fiscal 2025 with better labor productivity. This was partially offset by higher store expenses, and we absorbed costs related to the TRS transaction. Guidance expectation for SG&A as a percentage of sales of 14.2% to 14.7% for fiscal 2026 remain unchanged. EBITDA was $496.2 million, representing an EBITDA margin of 32.6% for Q1. This is compared to $417.7 million and a margin of 29.7% in Q1 last year. It's important to note that this quarter we recorded a $10.4 million unrealized gain relating to the derivative on our equity-accounted investment in Dollar City. This is purely an accounting impact as a result of the fair value adjustment on the dollar city call option, which is likely to fluctuate over time. Excluding the gain this quarter, EBITDA came in at $485.8 million and the EBITDA margin at 31.9%, which is more reflective of our actual profitability this quarter. Diluted net earnings per share increased by 27.3% to 98 cents in the first quarter of fiscal 2026. The impact of the unrealized gain represents 3 cents of Q1 EPS. Our share of Dollar City's net earnings amounted to $40.3 million compared to $22.1 million. This increase is primarily attributable to strong operational performance in our increased equity stake since June of last year. Now onto capital allocation. There were no buybacks in Q1 due, in part, to our shortest quarterly buyback window, coinciding with heightened market uncertainty and upcoming capital needs. We intend to continue allocating a significant portion of cash towards NCIB through the remainder of the year in line with our balanced capital allocation strategy. We also announced today that the Board approved a quarterly cash dividend of 10.58 cents per share. Our CapEx range for fiscal 2026 has been updated to include estimated spend on the logistics hub in Western Canada this year, based on the anticipated timing of certain expenditures. It is now in the range of $285 to $330 million. Year to date, expenditures related to the project have not been material. As a result of this shift, we expect capital outlay for this project to be more concentrated in fiscal 2027. Timeline to commissioning by the end of calendar 2027 remains unchanged. In conclusion, we are pleased with our Q1 performance in the context of a complex environment and while SSS continues to normalize. We remain attentive to continued tariff-related and broader economic uncertainty and its potential impacts on the future path of consumer sentiment. As always, we will stay focused on delivering compelling value for customers and strong execution across the business to the benefit of our shareholders. With that, I'll now turn the call back to the operator for Q&A.