Dollarama Inc./ADR (DLMAY) Q1 2026 Earnings Call Transcript

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 MD&A, 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 year 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 in the construction of our future logistics hub in western canada this project is an important component of our long-term growth and pure future two-note 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 product started reaching shelves after quarter end. As a reminder, this will be a gradual rollout as we work skew-by-skew 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 8 net new stores. By quarter end, 28 of our 410 locations in Australia were operating with the Dollarama layout and fixtures. Beyond improving store navigation for the consumer, the updated format allows for greater skew density changes remain preliminary. we have seen encouraging signs in terms of customer interest and reception to the new layouts and to our imports used 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. 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. In this context, focused on the elements within, our business model continues to provide flexibility and resilience to mitigate some of those pressures, leverage our agile business model sourcing expertise to continue delivering affordable everyday value and convenience.

Thank you, Neil, and good morning, everyone. Starting with our consolidated results, EBITDA increased 7% representing an EBITDA margin of 30%. An earnings total $302 million in diluted EPS EBITDA margin by 90 basis. While this represents an accounting adjustment, our core Canadian business generated a strong same-source sales increase by gross margin came in at 45% of sales compared to 44%. primarily reflecting lower logistics costs. We do expect an uptick in supply. We remain cautious on gross margin in our guidance. SG&A for the Canadian segment in Q1 was 15.1%. As this closed last March, we made a capital contribution of U.S. $38 million towards Mexico. The contribution was again funded using a portion of our U.S. Looking now at Australia, from a financial performance perspective, results are tracking in line with our success in our growth priorities in Canada and the transformation of our business in Australia, we also continue to deploy. During the quarter, we were active on share repurchases. We bought back nearly 2 million common shares for cancellation, 39.1%. We also announced today, despite an uncertain macroeconomic environment, our expectations across our markets remain broadly unchanged.

The fundamentals of our business value proposition continues to resonate with consumers. some of the external deploying capital certainly and ladies and gentlemen we ask that you please limit yourself to one question each and our first question comes from the line of

irene from rbc capital markets your question please thanks and good morning everyone um great to see the same store sales recovering in q1 can you give us some more color neil or patrick just on, you know, the cadence of sales, what people are buying, you know, obviously poor weather, how did that impact? And if you can, what we've seen Q2 today, again, recognizing that weather just wasn't our friend.

Yeah, look, I could maybe comment, you know, more specifically about Q1. I mean, I think in Q1...

Thank you. And our next question comes from the line of Brian Morrison from TD. Your question, please.

I want to ask a question in Australia, maybe Neil. I've appreciate the details you gave, but help me understand the progression of store renovation year format to merchandising the store to putting it under a Dollarama banner. I heard the renovation totals and targets, but did you say half of your imported product will be here by year-end? And the question I have is, when will there be sufficient imported merchandise to call a store one of your own? Will the new merchandise not be placed in the store until the renovation is complete?

And I know it's early, but you stated initial positive reception of the merchandise. what makes you say that thank you Brian so our goal is to renovate 400 stores over the next four years so averaging 100 stores a year in Q1 so far we've renovated 13 this year our goal is to renovate between 60 and 80 by the end of the year we should have about half of our imported SKUs in the stores as you mentioned and that will continue to trickle in you know as time goes on in a very linear fashion from the perspective of rebannering we will never rebanner a store until it has been renovated or unless it's a new store and there's not going to be a specific skew count that's going to trigger that it's going to be more a question of management, Australia, and judging that the overall shop feels like the value that we're trying to portray is Dollarama value. And at that point, we will change the brand. Now, as we're building out the new stores, we are building them out in our colors with the TRS branding so that you know the capital being spent is being spent in a strategic manner for the long term but for certain it will not change until the shop builds.

Thank you and our next question comes from the line of Martin Landry from Stiefel. Your question please.

Hi good morning in Canada I was wondering if you can talk a little bit about your product offering is there any categories that you've added recently that are doing well or and can you talk about maybe two categories of interest pet and toys to see you know how these categories are doing for you guys no there hasn't been any new categories added to the store.

The existing categories flex over time, depending on the interest of the customer. So when there are trends in the toy industry that make toys hot, we tend to buy more toys. And when crafting is experiencing a trend, we tend to have more craft items in the store. So as retailers, within the limits of our fixed price points, we're always trying to offer as much as we can in the categories that are hottest. And toys happens to be quite hot right now with a few trends going on. And for certain, that's helping the toy section of our...

Thank you. And our next question comes to the line of Chris Lee from Desjardins. Your question, please.

Good morning, everyone. Sorry if I missed this earlier, but Patrick, can you elaborate on the drivers of the lower logistics costs that help margins during the quarter, and then sort of what are the main puts and takes for the rest of the year as we think about the gross margin things?

Yeah, so in terms of logistics, I mean, we clearly benefited from, but also from a logistics standpoint, did not incur any friction. So none of that actually conflict.

The next question comes from the line of Zhuhun Ma from Bernstein. Your question, please.

Hi, thank you. Back on the Australia side of things, could you talk about the timeline of when some of the TRS assortments are being retired and when you're introducing the new assortment? Is there going to be some sort of a gap in between that may impact sales this year? And broadly speaking, how are you getting the words out to the Australian consumers? Are you going to pass marketing campaigns where this is going to be more of a word of mouth?

Thank you the transition from TRS Goods to Dollarama goods is a progressive transition. So for example, I'll use I'll use a very specific example if we bring in Five new sponge skews in the cleaning department. We see the timing of those skews arriving into Australia, we'll know how many months of inventory we have of the, for example, five existing TRS sponge cubes, and we'll have sold down our inventory levels so that the transition doesn't lead to gaps, but also doesn't lead to excess inventory. So timing perfectly never works, of course, but give or take, you're trying to do a transition that's manageable at store level and inventory level.

Thank you. And our next question comes from the line of Mark Petrie from CIBC Capital Markets. Your question, please.

Yeah, thanks. Good morning. I wanted to ask about Dollar City. Just curious if you could give some color on what looks like a strong sales performance in LATAM. And then with regards to Mexico, wondering how you think we should look at sort of no new stores in Q1. I think you said you opened two early in Q2, and then also just an update maybe on how those Mexico stores are performing.

Look, Latam, yes, the business continues to perform well at the end of the quarter regression. Thank you.

And our next question comes from the line of John Zampero from Scotiabank. Your question, please.

Thanks very much. I wanted to ask about cost of goods inflation, and in particular, inflation in China has accelerated fairly quickly. I wonder what you're seeing on your end, and does that make you want to accelerate or revisit your product refresh rate, or do you need to get more creative with your suppliers on how to navigate within your $5 price limit? Any color on that would be helpful. Thank you.

Sure. So there's no question that there's pressure on pricing in China. especially in the plastics, the heavier and larger the item, the more plastic there is, the greater the impact on that item. So much like during COVID, where freight rates were astronomical and we parked a few items, we are parking some very large high-Q plastic items, but that's really extreme as a case. In general, we're using our ability as importers to always change the mix throughout the whole year, you know, for a multitude of different reasons, to provide a mix that hits the margin percentages we're hoping to achieve, while, of course, always keeping the best relative value to the market. Thank you.

And our next question comes from the line of Vishal Sridhar from NBCM. Your question, please.

Hi, thanks for taking my question. With respect to the same sort of sales growth that you saw in Canada, could you give us a sense of, has inflation in that actual comp accelerated? And is that due to product inflation from your suppliers, or is that due to Dollarama creating a mixed shift within its basket by allocating more items to higher price points?

The next question comes from the line of Ed Kelly from Wells Fargo. Your question, please.

Good morning, everyone. A nice quarter, and thanks for taking the question. I wanted to circle back on Australia and how we should be thinking about the impact of all the investments that are being made this year in the business. The Q1 gross margin at 34.4 looks a little bit on the low side versus sort of what we saw the rest of the year. I'm just kind of curious, Patrick, is that how much gross margin pressure you might see from here? The investment that you talked about last quarter, is that still the right number? And then as it pertains to the loss that the business might see, it's not hard to get yourself in the neighborhood of like $55, $60 million, something like that or more. I'm just curious, is that ballpark?

Yeah, so I would say, you know, all the comments with respect to how we're thinking about the forecast in Australia that we presented last quarter, nothing has changed. We completed Q1, the three pillars.

And our next question comes from the line of Mark Carden from UBS. Your question, please.

Good morning. Thanks so much for taking the question. So I want to circle back on the supply chain. You guys called out the higher costs resulting from the conflict factoring in a resolution in the near term. If the conflict did persist, though, over the course of the next few quarters, how much of an impact could it have on your margin structure as those pressures ramp up in the second half of the year? Just how should we think about the sensitivity there? Thanks.

Yeah, that's a really tough one. I mean, you know, who knows what the price of fuel and the impact on the cost of products will be. The only thing that we could say is that after Q1 with the assumption that, you know, things will increase.

And our next question comes from the line of Corey Tarlow from Jefferies. Your question, please.

Great, thanks. Patrick, I wanted to ask on the outlook, is there any consideration around any change in the leverage point? And the reason I ask is that your SG&A guide on a three to four comp embeds both leverage and de-leverage so I'm wondering what the swing factors are or drivers to get to from one end to the other thanks so much yeah look I mean you know leveraging as GNA is you know truthfully a lot of the material and you know continuing to improve and our next

question comes from the line of Lucanen from Canaccord Genuity your question please.

Yeah, thanks. Good morning. I want to ask about the competitive environment as it relates to the three jurisdictions that you participate in, and then more specifically, whether or not the price gaps relative to what you view as your closest competitors in those markets, whether those have changed materially over the course of the quarter. Thanks.

They haven't changed a margin worth discussing but certainly each market has a different competitive set and a competitive situation in Canada you know we consider well I should say in every market we consider everybody competition of course but you know as you would expect there are stronger competitors that we that we focus on in each market. The Australian market is a very competitive market at this point in time. It was less so a couple of years ago, but we've seen that in Canada, we've seen it now in our Central and South American operation. It comes in waves, you know, the level of competitiveness goes up and goes down over the course of time for different reasons but I would say consistently our job regardless of all of that is to ensure that in each market our relative value is you know is the best and that our execution and store level is on par or better than everybody else's and that a customer who comes to a Dollarama means we're in Thank you.

This does conclude the question and answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now just connect. Good day.