Dollarama Inc./ADR (DLMAY) Q4 2025 Earnings Call Transcript

Good morning, and welcome to the Dollarama's fourth quarter and fiscal year 2026 results conference call. On today's call is Neal 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 obligations to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. You are invited to consult the cautionary statement on forelooking statements in Dollarama's management's discussion and analysis dated March 24, 2026. All forelooking 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-GAAP and other financial measures section of Dollarama'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 Dollarama.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 ambition. 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 Canada, our compelling value continued to resonate in an economic environment that is weighed on consumer sentiment and discretion as Canadians face they turn to Dollarama for a year-round value and throughout the year our full assortment contributed to solidifying Dollarama as a destination for affordable goods across our product category we experienced solid demand for general merchandise and seasonal items which speaks to the strength of our buying team and direct sourcing platform a continued sustained demand for consumable products which speaks to our ability to offer strong value for seeing the weather did hamper our favorable weather conditions across canada directly impacted both store traffic and peak sale period through to the end of january we nonetheless generated 1.5 percent same store sales growth in the quarter with basket growth driven by a positive season we opened an exceptional 75 net new stores. 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 1,700th. We are making steady progress towards our long-term target of 2,200 stores by 23rd. 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 having a two-node logistics model support our long-term growth in Canada and bring added resilience to our logistics. By applying our proven business model, Dollar City continues to generate strong top-line momentum, margin expansion for 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 2020. Store count to just over the 700 stores. 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 been in 2017. Dollar City will continue to grow in its focus on growth in Colombia and 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. 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 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. The strategy is the most important merchandise in the season. The target is to have about a half of the Dollarama imports experience in network growth. Our goal is to renovate the layout and change fixture infrastructure and optimising various processes. Notably, we are working on migrating Australia's ERP system to ours. To get all our business processes integrated to this front, we are finalising our plan to optimize optimize operations and support long-term growth. We're also adding team members as we build the bench strength of the line. 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 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 consumer market where we operate and to create long-term value for enter fiscal 2027 the political backdrop is evolving rapidly and remains on considering the current economic environment in Canada we expect that consumers will continue to be cautious and looking at the broader geopolitical environment the conflict in the Middle East is beginning to have ripple effects on transportation and prefers to help mitigate 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 disciplined execution of our plan maintaining our strong value proposition for our customers thank you Neil and good morning everyone diluted EPS increased by 2.1% in Q4 to $1 and

positive three between shopping days in the calendar shift second factor was the weather as mentioned by Neil a high volume of weather conditions in same time, we also remain mindful of the macro environment. The growth margin for the Canadian segment came in at 46. Finally, CAPEX for fiscal 2027 in Canada, the year-over-year increase primarily reflects capital $1 million, a dividend of U.S. $125 million, with our share coming in the doubling of the dividend. In fiscal 2027, we made a capital contribution of U.S. $38 million has had a neutral impact on consolidated net earnings for NIO spoke to financial documents and in our investor presentation, which is available on the event page. But I'd like to call out the main ones. Most significant is the anticipated negative impact from the merchandise changeover and transition. As you can appreciate, it is also the hardest as it will depend. These include the timing, the speed at which we anticipate a negative impact. The second is related to capital and net new store openings. These are estimated at between 400 and 600,000 Australian dollars, expect to include 45 million dollars in related to integration, IT transformation, additional headcount. These transformational changes are 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 is to build a leading value retailer with a strong and favorable margin profile. Work we are undertaking in fiscal 2027 will represent a critical first step in our multi-year path to deliver a trend. In terms of returning capital, 4 million shares for Council. We also announced today that the board has approved a 13.4 cash dividend, bringing it to 12 cents. Looking ahead, and as we embark on the transformation We also intend to allocate the majority of excess cash towards share buybacks and a dividend subject. While the broader economic environment remains uncertain, the underlying fundamentals as we enter the next fiscal discipline execution initiatives across multiple geographies and support long-term to the operator.

Thank you. To ensure we hear from as many participants as possible, we ask that you please limit yourself to one question. To ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question is from Irene Nadel with RBC Capital Markets. Your line is now open.

Thanks, and good morning, everyone. I was wondering if we could spend a minute just unpacking that same store sales number. You called out weather. You called out strong seasonal. Can you give us an idea of, you know, what the cadence was through the quarter, what the exit rate was, where we are quarter to date, and what the demand is like across the store? Please, and thank you.

Look, starting at high level, you know, we believe the overall, if you look at it, strong momentum, that strong momentum.

Thank you. Our next question comes from the line of Brian Morrison with TD Cowan. Your line is now open.

Thanks. The second focus, I think, this morning is Dollar City leverage with your sales up 28% and equity income up 22%. But when you look at the disclosure, the Mexico loss, I think you even called it in the call. Would the LATAM growth have been 30% to 35% illustrating leverage, Patrick? Is that correct? And I know there was a pricing structure in Colombia was a positive driver last year that will be LAT. But looking forward, how should we think about leverage drivers at LATAM and what your break-even store target is for Mexico?

Sure. After that, you know, hopefully, you know.

Thank you. Our next question comes from the line of Chris Lee with Dayjarden. Your line is now open.

All right. Good morning. Maybe just a two-part question on Australia. First, I know it's still super early, but for the stores that have been renovated so far, what's been the sales lift? then is it training in line or better than your expectation?

Yeah, and just to take a step back, so what we're doing when we're converting stores, right? So we talked about renovating, flow of, it also provides a higher in the stores, which is an important condition when you're selling low. One would expect, and even if all the products are currently all, you know, TRS products, if I could say, we did see a pickup in unit sales. That being said, you combine a good density of Dollarama skew.

Thank you. Our next question comes from the line of Mark Petrie with CIBC. Your line is now open.

Good morning. Neil, you touched on this in your prepared remarks, but obviously the macro picture has gotten significantly murkier in the last month or so. Can you just add some color to what you said already with regards to the impacts that you've seen on your supply chain costing and consumer demand and you know obviously as you said the longer this goes on the higher the risk is to to affecting costs more materially but you know what's the sort of over under on on when you would expect this to to to affect your outlook and guidance so it's still early days and unfortunately energy costs will will permeate you know throughout The duration of the conflict will decide, you know, the scale of the amount of costs of production.

Thank you.

Our next question comes from the line of John Zamparo with Scotiabank. Your line is now open.

Thank you. Good morning. Perhaps a follow-up or two on that same topic. I wonder if you can elaborate on the ripple effect you've seen. It would be helpful to get a sense of some magnitude on how impactful you expect this to be. In other words, what the gross margin guide would have been prior to the start of the war. And just to clarify, have you seen any deceleration in Samstar sales subsequent to the start of the war?

Look, I mean, as Neil alluded to, this is early days, right? So we are seeing some increased costs in transportation. You know, if we're under the context of this, some of it is prolonged and or deepens, well, there will be, you know, potentially over time consequences on gross margins that we may or may not be able to pass. We have a resilient business model included. Some of what we're seeing, you know, ripple effect.

Thank you. Our next question comes from the line of Eddie and Ricard with BMO Capital Markets. Your line is now open.

Thank you and good morning. Patrick to circle back on Mexico if you look at your experience in other markets for Dollar City at what level of scale from a store count perspective do you typically reach breakeven levels in in a given country thank you yeah you know every I would start off by saying you know we're following a recipe you know in all countries we open so this is arguably the fifth time but there are are some nuances, right?

Like certainly in this case, Mexico might take, you know, bigger investment. Just to give you some elements, you know, think of, you know, Mexico to be, you know, pretty much in line with the experience. So it gives us, we'll give you a sense of what we're thinking in terms of related to that next year. So maybe in the following year, we might be starting to curb EBITDA losses, but this is not bottom line, right? So you would need incremental time on the net income. But like I said, a little too early to say. Have a look at the other countries. We'll give you a sense.

Thank you. Our next question comes from the line of Ed Kelly with Wells Fargo. Your line is now open.

Hi. Good morning. Thank you for taking my question. I wanted to dig in on, you know, Australia. I've heard you say a couple of things this morning around sounds like a little bit of a comp headwind. You're going to be doing remodels there's some transition costs i'm not sure about the gross margin opportunity but you know when you put all this together you know for a business that you know i don't know maybe it was a small loss and in in fiscal 26 does the loss in this business grow to a range of sort of you know 30 to 40 million dollars in ebit um i'm just kind of curious if you could help us you know frame that because it it does look like it maybe could matter from an earnings perspective sure so um so let's take it uh piece by piece um as we think about the potential impact to first

point is the business on a saddle this was at a long there are then you move to second bucket is a lot about capping but that's how i would think about thank you our next question comes

from the line of mark carden with ubs your line is now open good morning thanks for taking the question.

So I wanted to touch quickly on the competitive backdrop. Are you guys seeing any shifts in intensity, particularly from some of the mass merchants? And then population growth has also pulled in meaningfully. Any shifts in how you approach unit growth placement going forward and same-store sales, just given the changing dynamics there? Thanks.

No, I think the market in Canada is quite stable. Competition remains stable. real new entrant. Overall, I would say it's...

Thank you. Our next question comes from the line of Martin Landry with Stiefel. Your line is now open.

Hi, good morning. I would like to touch on your same-store sales guidance for fiscal 27. I would like to know a little bit what assumptions you've used in terms of traffic and basket size and also if you can talk a little bit about price increases you know, quantify maybe what you've done in terms of price increases in 26 and what's implied in your guidance for 27. Thank you.

Taking from a high level, when we think about the slight nuance perhaps Thank you.

Our next question comes from the line of Zihan Ma with Bernstein.

Your line is now open. hi thank you I wanted to circle back on the Australia side I think initially you were kind of saying that it probably takes three to four years in our range to turn profitable in Australia wondering if that's still the right timeline to think about it and I'm assuming that probably means you'll have enough time to convert all the merchandising in stores but probably not remodel all the stores how should we think about what it is what does it take to turn profitable on the ground. Thank you.

Yeah, thanks for the question. So, you know, consistent with what we said in the IE4, being an important transformation is complete. We need to complete it.

Thank you. Our next question comes from the line of Luke Hannon with Canaccord Genuity. Your line is now open.

Thanks. Good morning, Patrick. You touched on the first bucket as it relates to Australian business transformation as being the most important and talked about refreshing the assortment through the balance of this year just curious to know how did you target that initial cohort of skews that you're looking to swap out and put in your own are they concentrated within any particular price points or category as we think about your assortment so the the initial Well, study was on, of course, Dollarama's strongest cues, taking into cues that are compliance rules, different standards in different products, different voltages in their electricity grid, different, you know, sizing in their notepads that they follow a UK, you know, standard on the stationary lines. So, barring the exceptions that are different between Canada and the strong to the items, we compliance and foremost, the items that we were able to do compliance quickly on, an entire compliance study. The goal is to get all...

Thank you. Our next question comes from the line of Corey Tarlow with Jeffries. Your line is now open.

Patrick, you made a comment that around a $10 million loss from Australia, and then I think building to like $35 to $45 million as an investment or starting point, I think that's like $0.15 to $0.25. Can you just clarify kind of the glide path on that and on the investments? Just wanted to double-click on that. Thanks so much.

And you would need to factor. You would need to.

I just wanted to ask.

Thank you. And I'm sure I know for the questions at this time. This does conclude today's call. Thank you all for your participation. You may now disconnect.