Dollarama Inc.

Good morning, and welcome to the Dollarama's fourth quarter and fiscal year 2026 results conference call. On today's call is Neil Rossi, President and CEO, and Patrick Bowie, CFO. They will begin with brief remarks followed by a Q&A with financial analysts. Before we begin, please note that today's remarks may contain forward-looking statements about Dollarama's current and future plans, expectations, intentions, results, or any other future events or developments. Forward-looking statements are based on information currently available to management and on reasonable estimates and assumptions made by management. Many factors could cause actual results, future events, or developments to differ materially from those expressed or implied. You are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements represent management's expectations as at March 24, 2026. Except as may be required by law, Dollarama has no intention and undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. You are invited to consult the cautionary statement on forward-looking statements in Dollarama's management discussion and analysis dated March 24, 2026. All forward-looking statements on today's call are expressly qualified by this cautionary statement. In addition, Dollarama may refer to certain non-GAAP and other financial measures during the call. Please consult the Non-Gap and Other Financial Measures section of Valorama's MD&A, dated March 24, 2026, for definitions, reconciliations with appropriate gap measures, and other information. The disclosure documents related to this call are available in the Investor Relations section of Valorama.com and on CDAR+. I will now turn the call over to Neil Rossi.

Thank you, Operator, and good morning, everyone. For fiscal 2026, we are pleased to have met or exceeded our financial guidance on all metrics, while we also advanced our growth ambitions. We generated same store sales of 4.2% in Canada for the year and delivered strong earnings growth with EPS increasing nearly 14% year over year. Fiscal 2026 also marked a significant milestone in our international expansion. with Dollar City entry into Mexico and our acquisition of a national discount chain in Australia. In Canada, our compelling value continued to resonate in an economic environment that is weighed on consumer sentiment and discretionary spending. As Canadians face pressures on their household budgets, they turn to Dollarama for year-round value and everyday convenience. Throughout the year, our full assortment contributed to solidifying Dollarama as a destination for affordable goods across our product categories. We experienced solid demand for general merchandise and seasonal items, which speaks to the strength of our buying team and direct sourcing platform. We also saw continued sustained demand for consumable products, which speaks to our ability to offer strong value for sought-after everyday essentials. Unfortunately, the weather did hamper our fourth quarter performance, which was off to a good start. Unfavorable weather conditions across Canada directly impacted both store traffic and peak sale periods through to the end of January. However, we nonetheless generated 1.5% same-store sales growth in the quarter, with basket growth driven by a positive seasonal performance. In Canada, we successfully opened an exceptional 75 net new stores in fiscal 2026. This brought our network across the country to 1,691 stores by the end of January. For fiscal 2027, we are returning to our historical cadence of annual net new store openings in the range of 60 to 70. This past February, we hit another real estate milestone with the opening of our 1700th store in Canada. We are making steady progress towards our long-term target of 2,200 stores by 2034. Reaching this threshold of stores requires us to grow our distribution and warehousing capacity in tandem. The development of our logistics hub in Western Canada is moving along well. Having made significant progress building the structure, with everything moving along on time and on budget, we are on track to have our Calgary hub operational by the end of 2027. Having a two node logistics model support our long term growth in Canada and bring added resilience to our logistics through redundancy. By applying our proven business model, Dollar City continues to generate strong top line momentum, margin expansion and footprint growth across our core markets in Latin America. This is translating into impressive year-over-year network and earnings growth. Consistent with the prior year, Dollar City opened 100 net new stores in 2025, bringing its total store count to just over the 700 store threshold at year end. This includes 11 stores in Mexico since entry last summer, where we are now building a new growth platform. Dollar City is well on its way to achieving its store target of 1,050 stores by 2034. As a reminder, this excludes Mexico, for which we have not yet set a long-term target. In fiscal 2027, Dollar City will continue to grow in its first four countries of operation in LATAM, with a focus on growth in Colombia and Peru. At the same time, we will be carefully scaling our presence and operations in Mexico. While it is still early days, we continue to be pleased with the team's execution and initial customer reception. Over the last few months, we have been firming up our plans in fiscal 2027 priorities for our multi-year transformation of our retail platform in Australia. We have several initiatives underway across three main pillars, merchandising, store experience and network growth, and operational excellence. Deploying aspects of our model is impacting just about every facet of the business. In the near term and through fiscal 2027, this work will be both gradual and disruptive, but it is a prerequisite to setting up our Australian operations for future success. Changing the merchandising strategy is the most important pillar of the transformation and the most complex to implement. We expect our first Dollarama import SKUs to start hitting shelves during the second quarter of fiscal 2027, with imports primarily comprised of general merchandise and seasonal items. The target is to have about a half of the Dollarama import SKUs sourced by the end of fiscal 2027. On the domestic side, which is primarily consumables, we are also looking at products SKU by SKU to deliver increased value to our customers. Under store experience and network growth, Our goal is to renovate the layout and change fixtures in 60 to 80 stores this year, having done four last year. We also aim to open 15 to 25 net new stores, all with the Dollarama layout and fixtures, having opened seven in fiscal 2026. On operational excellence, we are strengthening the IT infrastructure and optimizing various processes. Notably, we are working on migrating Australia's ERP system to ours, to get all our business processes integrated to the same platform. On the logistics front, we are finalizing our plan to optimize operations and support long-term growth. We are also adding team members as we build the bench strength of the local team. Once a store feels like a Dollarama shop and reflects our value proposition through both the offering and shopping experience, we will convert that store to the Dollarama banner. By fiscal year end, we will be in a better position to evaluate our progress on this front and initial customer reception. The objective is to build our brand equity in the market by introducing our strong and differentiated value and convenience positioning, as we have done over time in all of our other markets. As you can see, the year ahead is shaping up to be both busy and exciting for Dollar M. Today, we have strong teams across three continents, working to execute on their respective growth plans with each market bringing its own unique set of characteristics, priorities, and opportunities. While the paths may differ from one market to the next, the long-term vision guiding our efforts remains the same, to deliver unbeatable value to consumers in every market where we operate and to create long-term value for our shareholders. As we enter fiscal 2027, the macroeconomic and geopolitical backdrop is evolving rapidly and remains uncertain. Considering the current economic environment in Canada, we expect that consumers will continue to be cautious and deliberate in their spending. In this context, the importance of value is only increasing, and we believe that the value, convenience, and affordability we offer will continue resonating with consumers. Looking at the broader geopolitical environment, the conflict in the Middle East is beginning to have ripple effects on transportation and production costs. Our business model is resilient and provides us with a number of levers to help mitigate these impacts in the near term. The key variable will be the duration of the conflict, which will determine how persistent these cost pressures will be. As always, we remain highly disciplined as price followers. we will only pass on price increases where absolutely necessary and while staying true to our year-round value proposition. Across the business, our focus is on the disciplined execution of our plans, maintaining our strong value proposition, and leveraging the strengths of our business model to deliver for our customers and our shareholders. With that, I'll pass it over to Patrick.

Thank you, Neil, and good morning, everyone. Let's start with a brief overview of our consolidated results before turning to segment performance. Q4 sales, which included one less week compared to last year, increased by 11.7% to $2.1 billion. For fiscal 2026, sales increased by 13.1% to $7.3 billion, positively impacted by contributions from Australia as well as greater number of stores and SSS growth in Canada. Diluted EPS increased by 2.1% in Q4 to $1.43. This included a positive 3 cent impact from Australia. For the full fiscal year, EPS rose by 13.7% year-on-year to $4.73. Our Canadian segment met or exceeded all financial guidance targets SSS came in at 1.5% for Q4, over and above SSS of 4.9% in Q4 last year. The increase was primarily driven by demand for seasonal products, offset by two important factors. The first is a calendar shift caused by a 52-week fiscal year following a 53-week fiscal year. In the quarter, This resulted in one less historically strong pre-holiday sales week and an additional historically low sales week at the end of January. It also included four less pre-Halloween shopping days compared to Q4 last year, which we recorded in Q3. Excluding the calendar shift, SSS would have been 3.5%. The second factor was the weather. As mentioned by Neil, a high volume of weather events, including cold temperatures and precipitation, impacted store traffic and resulted in lost sales. This is reflected in the 1.6% decrease in the number of transactions. Despite this, basket growth was healthy, growing 3.1%, and we met our annual SSS guidance for the year, coming in at 4.2%. While the weather resulted in softer than anticipated SSS, as weather conditions improved, so did traffic patterns. Store traffic continued to recover nicely as we entered fiscal 2027. Looking ahead to fiscal 2027, we anticipate generating SSS growth in Canada of between 3 and 4%. Consistent with our outlook last year, we continue to expect sustained demand for the compelling value we offer, which remains particularly relevant in the current environment. At the same time, we also remain mindful of the macro environment and the uncertainty it creates. Gross margin for the Canadian segment came in at 46.6% of sales in Q4 compared to 46.8% last year. The variance is primarily due to the 53rd week in fiscal 2025, with the 14th week in fiscal 2025 providing additional scaling benefits. Full year gross margin was 45.6% of sales, slightly exceeding the top end of our guidance. For fiscal 2027, our guidance range for gross margin in Canada is in line with last year. at between 45 to 45.5% of sales based on our ability to actively manage product margins. Looking at early fiscal 2027 and given the current macro context, we are closely monitoring pressures in the global supply chain, which may negatively impact gross margin during the year. SG&A for the Canadian segment in Q4 was 14.5% of sales compared to 14.7% last year. The improvement reflects the positive impact of scaling. Full-year SG&E came in within guidance at 14.4%. For fiscal 2027, we expect scaling to help offset the impact of higher store labour and operating costs. As a result, our annual guidance range for SG&E in Canada is slightly better than in the prior year at between 14.1 and 14.6% of sales. Finally, capex for fiscal 2027 in Canada is between $420 to $470 million. The year-over-year increase primarily reflects capital spend for our logistics hub project, a portion of which shifted over from last year. Turning to Dollar City, Our share of their net earnings in Q4 increased by 22% to $70.5 million. For the year, our share reached $191.5 million, an over 47% increase. This was driven by SSS and store network growth, offset by the ramp-up of operations in Mexico. On a 100% basis, the Mexico business realized a net loss of US $5.4 million, and U.S. $11.7 million for Q4 and the full year, respectively. As the business is still in ramp-up mode, we expect a loss in fiscal 2027 consistent with the range provided last year of between U.S. $10 to $20 million for 100% of the business. On February 5th, Dollar City declared a dividend of U.S. $125 million with our share coming in at US$75.1 million. The doubling of the dividend compared to the previous one declared speaks to Dollar City's strong free cash flow generation, with its profitable growth trajectory continuing to mirror Dollarama's. In early fiscal 2027, we made a capital contribution of US$38 million towards Mexico expansion plans. This follows two U.S. $18 million contributions made last year. As with previous capital contributions, we allocated a portion of our share of the latest dollar city dividend. Looking now at Australia, for the approximately six-month period since our acquisition in late July, the business had a neutral impact on consolidated net earnings for fiscal 2026. For perspective, Looking at the full year and on a pro forma basis, Australia generated approximately $916 million in sales and a net loss of $10.6 million, all in Australian currency. Turning to fiscal 2027, it is expected to be an investment year as we ramp up the integration process. Neil spoke to our priorities across our strategic pillars. As a result, the Australian segment is expected to generate a net loss in fiscal 2027. These impacts are presented in our financial documents and in our investor presentation, which is available on the event page. But I'd like to call out the main ones. First and most significant is the anticipated negative impact from the merchandise changeover and transition to lower price items. As you can appreciate, It is also the hardest to quantify at this stage of the transformation, as it will depend on several factors. These include the timing of the product transition, the speed at which sales of incumbent higher-priced SKUs will be compensated by sales of the lower-priced Dollarama SKUs, and impact on store traffic. That said, we anticipate a negative impact on sales for the year. The second is related to capital expenditures for store renovations and net new store openings. These are estimated at between 400 and 600,000 Australian dollars per renovated store and between 800,000 and a million Australian dollars per net new store. There is also a direct impact on sales during renovation related store closures. Third is P&L related. We expect to incur about $35 to $45 million in incremental costs related to integration, IT transformation, additional headcount, and labor costs. These transformational changes are essential to set the business on a path for profitable growth. There's a lot of work to be done, but we are excited and motivated by the upside potential once we work through some of these major changes to the business. Our vision is to build a leading value retailer with a strong and favorable margin profile compared to global peers. The work we are undertaking in fiscal 2027 will represent a critical first step in our multi-year path to deliver attractive return on investment. Back to Dalarama. In terms of returning capital to shareholders, we repurchased over 4.4 million shares for cancellation during fiscal 2026 for a total cash consideration of $834.2 million. We also announced today that the Board has approved a 13.4% increase to the quarterly cash dividend, bringing it to $0.12 per share. Looking ahead, our priorities are clear. We will continue to allocate capital in a balanced manner as we pursue our profitable growth in Canada and LATAM, and as we embark on the transformation of our Australian platform. Consistent with past practice, we also intend to allocate the majority of excess cash towards share buybacks and a dividend subject to quarterly approval. While the broader economic environment remains uncertain, the underlying fundamentals of our business are strong and our value proposition as relevant as ever. As we enter the next fiscal year, we are focused on discipline execution to advance our growth initiatives across multiple geographies and support long-term value creation for our shareholders. With that, I'll now turn the call back to the operator for the Q&A.