Dollarama Inc.

Good morning and welcome to Dollarama's first quarter fiscal 2027 results conference call. On today's call are Neil Rossi, President and CEO, and Patrick Boyd, 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 other future events or developments. Forward-looking statements are based on information currently available to management 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 June 11, 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 statements on forward-looking statements in Dollarama's management discussion and analysts dated June 11, 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 this call. Please consult the Non-GAAP and Other Financial Measures section of Dollarama's MDNA dated June 11, 2026 for definitions, reconciliations, and appropriate GAAP measures and other information. The disclosure documents related to this call are available in the investor relations section of dollarama.com. And on CDAR+, I will now turn the call over to Neil Rossi.

Good morning, everyone, and thank you for joining us. We delivered a strong performance in the first quarter of fiscal 2027 as we pursued profitable growth in our core Canadian market. while advancing our priorities across our international growth platforms. Starting in Canada, our value proposition continued to resonate with consumers as affordability and everyday value remained top of mind in an uncertain economic environment. We generated an impressive 5.6% same store sales increase in Q1, supported by both traffic and basket growth, reflecting once again the relevance of our offering and year-round value proposition for Canadian consumers. On the real estate front, we opened 28 net new stores during the quarter, bringing our total store count in Canada to 1,719 stores at quarter end. We remain on track to achieve our fiscal 2027 target, which is to open between 60 and 70 net new stores this year. As previously discussed, Front-loading store openings during the fiscal year is always the objective given that the back half historically represents our seasonally busiest sales period. This ensures that we can maximize focus on store operations and serving customers. Congratulations to the operations and real estate teams on the strong execution early in the year. Work also progressed well on the construction of our future logistics hub in Western Canada. This project is an important component of our long-term growth and future two-node distribution model in Canada. I am pleased that we remain on budget and on schedule, with the facility expected to be fully operational by the end of calendar 2027. Turning to Latin America, Dollar City also had a solid start to the year, generating continued profitable growth, supported by strong same-store sales and ongoing network expansion. while the team simultaneously executes the ramp-up of the Mexico business. During the quarter, Dollar City opened 20 net new stores across our Central and South American markets, bringing the total store count in the region to 741 locations. In Mexico, we ended the quarter with 11 stores consistent with prior period end and opened two new stores earlier this month. As with previous Dollar City market entries, We are scaling this new growth platform carefully and progressively over time. In Australia, we have now begun advancing our transformation roadmap in earnest. On the merchandising front, the first Dollarama source products started reaching shelves after quarter end. As a reminder, this will be a gradual rollout as we work SKU by SKU to introduce even more compelling value to Australian consumers. leveraging our proven low price point value oriented product offering. We don't expect to reach a critical mass of Dollarama import products before year end, by which time we expect to have about half of our import products transitioned. In terms of shopping experience, we've fully renovated 13 stores during the quarter and opened eight net new stores. By quarter end, 28 of our 410 locations in Australia We're operating with the Dollarama layout and fixtures. Beyond improving store navigation for the consumer, the updated format allows for greater SKU density. Although these customer-facing changes remain preliminary, we have seen encouraging signs in terms of customer interest and reception to the new layouts and to our import SKUs as they gradually make their way across Australia. While it remains far too early to draw conclusions with such a small sample size, these initial indicators are certainly motivating the team as we continue to execute our roadmap. Looking more broadly, uncertainty persists across the global economy, driven by ongoing geopolitical developments which are driving further inflationary pressures for consumers and businesses. From a retail operating perspective, These conditions are impacting global supply chains and costs related to raw materials and transportation. The duration of the conflict in the Middle East and its ripple effects will ultimately determine the magnitude of these pressures. In this context, and as always, we remain focused on the elements within our control. Our business model continues to provide flexibility and resilience to mitigate some of those pressures supported by our direct sourcing capabilities, operational excellence, disciplined approach to pricing, and multi-price point strategy. Looking ahead, we expect our strong value positioning to continue resonating with consumers as they remain mindful of their spending. Our job is to leverage our agile business model, sourcing expertise, and retail execution to continue delivering affordable everyday value and convenience across our markets. With that, I'll pass it over to Patrick.

Thank you, Neil, and good morning, everyone. Starting with our consolidated results, sales for the first quarter of fiscal 2027 increased by 21.4% to nearly $1.9 billion. The increase reflects network and same-source sales growth in Canada, as well as the sales contribution from Australia. EBITDA increased 17.4%, coming in at $583 million for Q1, representing an EBITDA margin of 31.6%. Net earnings totaled $302 million, and diluted EPS increased 13.3%, reaching $1.11, compared to diluted EPS of $0.98 last year. Similar to Q1 of last year, we recorded an unrealized gain during the quarter on the fair value of the Dollar City call option, positively impacting EBITDA margin by 90 basis points and EPS by $0.06. While this represents an accounting adjustment rather than an operating item, it reflects the strong underlying performance of Dollar City. Our core Canadian business generated a strong financial performance in the first quarter of fiscal 2027 across our KPIs. Same-source sales increased by 5.6% over and above 4.9% growth last year, with sustained demand for our everyday products. Elevated same-store sales in Q1 also reflect the recovery in demand following the weather-related disruptions that impacted traffic in Q4 of last year. Following years of inflation, consumers continue to face more inflation and rising costs, including on fuel and everyday goods. While this reinforces the importance of affordability and value in purchasing decisions, overall consumer confidence appears to be weakening. As a result, we remain cautious and our outlook for SSS is unchanged at 3 to 4% for the full year. Still in Canada, gross margin came in at 45% of sales compared to 44.2% in the first quarter of fiscal 2026 with the increase primarily reflecting lower logistics costs as well as the positive impact of scaling. We do expect an uptick in supply chain related pressures in subsequent quarters but we believe we have the tools to partially mitigate these impacts, assuming they level off over the near term. As such, we remain cautious on gross margin and our guidance is unchanged at 45 and 45.5% for the full year. SG&A for the Canadian segment in Q1 was 15.1% of sales compared to 15.3% last year. The slight improvement primarily reflects the absence of transaction related costs in Q1 of this year. Full year SG&E guidance remains unchanged at between 14.1 and 14.6% of sales with a positive impact of scaling expected to help offset higher store labor and operating costs. Our share of Dollar City's net earnings grew 27.1% to $51.2 million for Q1. This reflects a 37.7% year-over-year increase in net earnings from our Central and South American operations, partially offset by a $4.3 million loss related to the Mexico ramp-up in line with expectations. As disclosed last March, we made a capital contribution of US$38 million towards Mexico expansion plans in Q1. Our contribution was again funded using a portion of our US $75.1 million share of the dollar city dividend declared in February. Mexico will remain in investment mode through fiscal 2027. Looking now at Australia, the work underway represents a critical first step in our multi-year plan to deliver an attractive return on investment over time, and we are pleased with progress so far. From a financial performance perspective, results are tracking in line with our expectations, which remain unchanged for the full year. We continue to anticipate the merchandise changeover to lower price items, as well as the pace at which these new products are introduced to weigh on sales in fiscal 2027. We anticipate that impact to be more pronounced in the second and third quarter of fiscal year as we accelerate the pace of the transition to lower-priced SKUs. Capital expenditures related to store renovations and new store openings, as well as expenses related to the deployment of operational initiatives, are also tracking according to plan. As a reminder, we expect to renovate 60 to 80 stores and to open 15 to 25 net new stores in fiscal 2027. As we invest in our growth priorities in Canada and the transformation of our business in Australia, we also continue to deploy excess cash to create immediate shareholder value. During the quarter, we were active on share repurchases. We bought back nearly 2 million common shares for cancellation under our NCIB program for a total consideration of $339.1 million. We also announced today that the Board approved a quarterly cash dividend of $0.12 per share. Despite an uncertain macroeconomic environment, our expectations across our markets remain broadly unchanged and our priorities are clear as we move towards the second half of the year. The fundamentals of our business are strong. Our value proposition continues to resonate with consumers and we believe we have the tools and flexibility to help mitigate some of the external pressures we are seeing today. We will continue to focus on the discipline execution of our priorities in all markets, serving customers with value and convenience, and deploying capital in a matter that supports long-term shareholder value creation. With that, I'll now turn the call back to the operator for the Q&A.