Dollarama Inc./ADR (DLMAY) Q2 2026 Earnings Call Transcript

Good morning, and welcome to Dollarama's second quarter Fiscal 2027 Results Conference Call. On today's call are 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 September 16, 2026. Except 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. You are invited to consult the cautionary statement on forward-looking statements in Dollarama's management's discussion and analysis dated September 16, 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 on the call. Please consult the non-GAAP and other financial measures section of Dollarama's MD&A dated September 16, 2026 for definitions, reconciliations with 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 CIR+. I will now turn the call over to Neil Rossi.

Thank you, Shannon. Good morning, everyone, and thank you for joining. We delivered a strong second quarter and first half of fiscal 2027 two things stand out the continued strength of our value proposition and the execution of our teams across markets at a time when consumers are making careful spending decisions customers are counting on dollarama for dependable value our brand promise continues to resonate across a broad customer base reinforcing our relevance as a destination for everyday and seasonal good. We are also moving our strategic priorities forward with discipline. We are driving profitable growth in Canada and in Central and South America, thoughtfully building our presence in Mexico and gaining momentum on our transformation roadmap in Australia. In Canada, despite a cautious consumer and continued pressure on household budgets, Customers turned to Dollarama for their everyday needs during the second quarter. Same-store sales were strong, supported by an increase in customer traffic and basket growth, bringing our SSS year-to-date above our expectations for the first half of the year. Demand for consumables and general merchandise was sustained, while demand for seasonal products remained stable year-over-year. This performance reflects the strength of our merchandising approach. We continue to carefully manage our assortment across our established product categories and fixed price points to deliver compelling relative value. It also speaks to the proximity and convenience we provide through our growing national network of well-located stores. We opened 15 net new stores across Canada during the quarter. This brought year-to-date net new openings to 43 and our total Canadian store count to 1,734 stores. Given our strong pace of openings through the first half and our pipeline for the balance of the year, we have increased our fiscal 2027 guidance to between 65 and 75 net new stores, up from the previous range of 60 to 70. Construction of our future logistics hub in Western Canada also progressed on plan. The hub is expected to be fully operational by the end of calendar 2027 enabling us to move to a two-note distribution model in canada in the near term turning to latin america dollar city delivered another solid performance in the second quarter and first half generating strong same store sales and store network growth during its second quarter dollar city opened 19 net new stores across our four Central and South American markets. This brought total store count in the region to 760 locations. In mid-August, subsequent to quarter end, the earthquake in Columbia temporarily affected a limited number of Dollar City stores. I want to recognize the Dollar City team for responding with care and urgency to support colleagues while restoring affected locations. Operations have since largely returned to normal and the financial impact is expected to be minimal. Turning to Mexico, we opened 10 stores during the second quarter, bringing the total count in the country to 21 by quarter end. The ramp-up of operations and network growth in Mexico remains on plan as the team continues to build density in the Guadalajara region. We also continue to be pleased with the initial customer response to our value and convenience problems. In Australia, our multi-year transformation roadmap gained momentum during the quarter, supported by the team's continued execution of our fiscal 2027 initiatives. We renovated 25 stores during the quarter, up from 13 in Q1, improving store layout and navigation while allowing for greater skewed density. We also opened four net new stores on top of the eight net new stores opened in the first quarter. We remain on track to renovate between 60 and 80 stores and open between 15 and 25 net new stores in fiscal 2027. Halfway through the year we now have 60 stores operating with the Dollarama layout and fixtures up from 28 at the end of Q1 out of a total of 414 locations nationally. It is encouraging to see the store transformations gradually taking shape as we work diligently in parallel to introduce Dollarama-sourced products. First, Dollarama-sourced import products started to reach shelves across the store network during the second quarter, and we expect that rollout to continue. While the number of new products currently available is too limited to provide a meaningful read on customer response, we are confident that our import assortment will be highly attractive once we have greater density. As a reminder, the product transition will remain gradual and disciplined. The team is working skew-by-skew to introduce more compelling value while aligning the required logistics support. We aim to have about half of our import products transition by fiscal year end. This work will continue into fiscal 2020. Looking more broadly, we continue to operate in an uncertain environment. In Canada, economic conditions remain challenging, continued trade tensions and elevated living costs are pressuring consumers and weighing on the economic outlook. In this context, we expect consumers to remain thoughtful about their spending while continuing to seek value. For our business, the direct tariff impact comes from Canadian counter tariffs on a portion of the goods we purchased from the U.S. As discussed during the last round of counter-tyres over a year ago, we have the agility to navigate these measures and their financial impact remains manageable. Geopolitical conflict also continues to create cost pressures across global supply chains. The adaptability of our business model has enabled us to mitigate these in Q2, and we are actively working to manage potential impacts through the second half of the year. In this evolving environment, we will continue to make disciplined choices across sourcing, merchandising, and operations. We will also stay true to our price follower philosophy to protect relative value for consumers through our product offering and within our fixed price points. Across our markets, our teams remain focused on earning every customer visit with strong value, convenient locations, compelling assortment, and a consistent shopping experience. With that, I'll pass it over to you.

Customer demand in Canada and Latin America. And discipline execution will continue to advance our growth ambitions while returning excess. With consolidated results, let me first highlight one point. Q2 of fiscal. In that context, consolidated sales in 2020 in Canada is effectively managed in capital injection. Initiatives outlined by Neal are progressing and creating capital. It also recognizes that the environment remains challenging for consumers. We are proud that Dalarama is a trusted destination for consumers. 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, press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, press star 1-1 again. Please stand by while we compel the Q&A roster. Our first question is from Irene Nadel with RBC Capital Markets. Your line is now open.

Thanks, good morning, everyone. Great quarter and stable momentum, which brings me to my question, which is if we look at the full year guide on same-store sales, it implies a quite reasonable deceleration in the back half of the year. looks you know it takes you below four percent on same store sales and particularly considering you know last year's q4 so wondering what you're actually seeing kind of at a more granular consumer demand level and and you know is there really that much more caution in what you're seeing thank you yeah thanks for your question uh irene so so just with respect i think you know

First of all, we're pleased with the strike in the quarter. We saw consistency, including as we exited, with clearly traffic remaining strong. So when it comes to guidance, I would say on the one hand, our strong performance in the firm, but on the other hand, I think it's important, given the ongoing uncertainties in the macro environment, we all know about whether that's higher oil prices. But overall, I think we're in crisis.

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

Neil and or Patrick, I get a lot of questions on inflation recently, and I wonder where this most benefits you.

Is it accelerating trade down? Where it most impacts you? Is it higher fuel prices? And how this nets out positive and negative, and whether this moves forward your view of the potential for a higher price point, seeing it's been about five years since the introduction of a $5 price point.

Morning, Brian. Thank you for the question. So, you know, during difficult times, the consumer has less money to spend. It's that simple. By the same token, during difficult times, the consumer trades down, and that can benefit Dollarama. It's very hard to tell, you know, how much trading down there is, how much consumer reduction, you know, in non-core spending there is. at the end of the day, the true, you know, and only facts we have are our results. And so, you know, I think it's our job to continue to stay focused on being the best relative value that we can be in our category of goods and to make the shopping experience as pleasant as possible and to have as many convenient locations as we can across each of our markets. And that's our job. With respect to the $6 price point, as a reminder, our fixed price point strategy is a core element of our business model, and we would only introduce a higher price point if warranted. The key trigger would be cost inflation, reaching a level where we can no longer sustainably support the current $5 max price. However, based on what we're seeing today, we don't believe that an additional price point is necessary, and as the business continues to perform at a high level under our current pricing strategy, we will do what we've always done, which is to push off any additional price points.

Thank you. Our next question is from Chris Lee with Desjardins. Your line is now open.

Hi, good morning, Neil and Patrick. I'm just wondering, what are you seeing on spending on products that are more discretionary in nature at Dollarama. I think you mentioned seasonal was stable. I'm not sure if that's related to consumer being a bit more cautious or was it weather. Yeah, just overall, just spending on more discretionary products. Thank you.

Yeah, thanks for the question. I think what we've seen this quarter is really nothing more than a continuation.

Thank you. Our next question is from Tammy Chen with BMO. Your line is now open.

Hi, good morning. Thanks for the question. I wanted to ask on australia um the operating expenses or sgna this quarter similar to uh q1 um how do we think about the uh those incremental integration costs like should should they be rolling through now and thus we should expect um an uptick in the uh the sgna there and uh patrick how do you guys think about overall the trajectory of the uh operating losses at australia like what's the key gating factor to flip to profit? Is it just, you know, continue to get those packaging product approvals and then you'll just kind of have this wave of Dollarama products building that density in the shelves? Thanks.

Yeah, thanks, Tammy. So when it comes to the integration cost, the way to think about it is that they will be more heavily weighted through. And the reason for that is there's an acceleration from into the stores think notably of you know the seasons that are coming there will be quite a bit of transition in the merchandise we're ramping up and following the plan but you know more cost to be expected in the in the second when you think about the overall you know you would notice that at mid-year point we're at five million dollars and And so that would imply a certain acceleration in the third quarter. Recall, keep that in mind as you model the remainder of the year and generally the fourth quarter. I mean, to your question about, you know, what are the factors turning to profitability? I mean, it comes back to executing on our plan on three points.

Our next question is from Vishal Sridhar with National Bank. Your line is now open.

Thank you for taking my questions. Can you give us perspective on Mexico, you know, big acceleration there, and how you feel about the reception? And maybe you can also give us a thought process if you can, and as to why you feel so confident about Australia, and if you're seeing any similarities between when you ramped up the other countries in LADAM or in Mexico, that's giving you confidence in Australia, that will ultimately become a profitable, strong business.

Look, the 21 in the space, and we're continuing to ramp that up. I mean, the reception of the Mexican consumer, I mean, it's the same comments as last quarter. I mean, you know, we're pleased with what we're seeing, and it gives us the confidence that we should be ramping up the store network. And, you know, we're doing exactly that. We're accelerating the pace. Now, how do we get comfortable with that is, you know, we've opened. Like, this is arguably the fifth country that we're opening. So we have a pretty good pattern of how things play out, and as long as the rollout in Mexico is consistent with what the team has done four times in a row, it gives us comfort that, you know, look, when it comes to nothing more to add than, you know, we've analyzed the market very well, and we think there's an opportunity there. There's place for a Dollarama, for a Valley retailer, a convenient retailer. Nothing has changed. It's been a year as we've rolled out our integration plan. None of that vision has changed.

Thank you. Our next question is from Mark Carden of UBS. Your line is now open.

Thanks so much for taking the question. So to start, you talked about anticipating higher freight costs in the balance of the year. just wanted to clarify there is that surely related to the lag does it also build in oil prices remaining higher for an extended period of time versus a near-term resolution and just how should we think about how changes in that front could impact your guidance thank you yes i think you're referring specifically to canada so we are anticipating higher costs or impacts in the second and a half.

You know, these things take time for it to funnel through our P&L. Look, you know, our guide is an indicator of it has changed. It has not changed. It's the same 45.0 that we've had since the beginning of the year. I would just say the slight nuance this quarter is that despite assuming that, you know, there will be elevated oil. So that is a little bit different And then last quarter where we said our guide remains as long as price is normalized. So I think on the back of a strong first and second half, we've qualitatively updated that guidance to embed costs will remain elevated. That being said, I mean, obviously, if, you know, costs, you know, increase from here and, you know, everything gets elevated, we would need to revise the outlook in that situation. But if things stay as we see today...

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

Hi, good morning. I would like to touch on your traffic in Canada. It was up 3.7%, the best performance of the last three quarters, and certainly notable given the slowing population growth. So, I was wondering if you can discuss a little bit, you know, this traffic growth. Is it coming from your existing customer base or from new customers? I know it's tough for you to answer that question, but any color would be super helpful.

Yeah, you hit it on the mark. It's very difficult to tell. At the end of the day, what we track is, you know, we're very pleased with the 5.4. Yes, we also track, you know, traffic. 3.7 is a good result, but, you know, it's a continued momentum of what we've seen in Q1. Q1 is slightly higher in Q2, 3.7, but, you know, for the continued momentum and perhaps, you know, the great value that people find in our stores, experience that they have and they return to our stores. But to disaggregate it, repeat and new, it's not.

Thank you. Our next question is from Robert Ohms of Bank of America. Your line is now open.

Oh, hey. Good morning, Neil and Patrick. Thanks for taking my question. Just actually two quick follow-ups. The first, just maybe a follow-up on Chris Lee's question on category commentary. Can you give a little more beyond seasonal? Like in the U.S., things like toys are doing a lot better for the dollar generals and five belows of the world. Any categories that might give us insight what's going on with your customer, like home improvement, kitchen, anything else to tell us?

Sure. So you nailed it on the head again, which is to say toys was an outlier, performed much better than it has historically. The balance of the categories are within the norm of what we've been seeing over the last few quarters, but Toys was extra strong this quarter. And the reason for it, I'm not smart enough to tell you.

Thank you. Our next question is from Zihan Ma of Bernstein. Your line is now open.

Thank you for taking that question. I wanted to ask about the pace of store opening in Canada, which this seems to be the second year where you're growing above the historical 60 to 70 range based on the updated guide. Is this kind of the new run rate from here, and could you share a bit more about what you're seeing on the new store productivity and economics side? Thank you.

Thank you for the question. So 60 to 70 remains the guidance generally. Last year, it was an exceptional year and we raise that guidance and open 10 more stores this year again you know I've just changed the guidance exceptionally and the reasons for that are really very much what we've described in the past as the reasons to change the guidance which are if we get it and then you know more opportunity than the pace we've had historically, and the team is able to execute those leases within a time frame that happens to fall within one fiscal year as opposed to the next, we're not going to leave stores with the lights off and pay rent. So we will adapt our guidance based on the realities of our execution and the execution quite honestly by our partners our landlords so that is the reason for the change in guidance it's not a commitment to a change in guidance in the future it will go back to the 60 to 70 unless again we see that there's an exceptional reason to change it at which point we will we will tell you right away and you will have visibility thank Thank you.

Our next question is from George Dumais with Vintum Financial. Your line is now open.

Hi, good morning. The Canadian SG&A held at 13.8 of sales on a 5.4 comp and an extended store base. So I'm just wondering, what does it take to leverage that SG&A today? And are there maybe perhaps any light items that we need to anniversary before we start to see that leverage on SG&A? Any commentary would be appreciated. Thanks.

So I would think about leverage, not just from this quarter specifically, you would see, you know, leverage embedded in gross margin. So taken together with, you know, cost or line items.

Our next question is from Edward Kelly of Wells Fargo. Your line is open.

Hey, good morning. This is John Park on Fred. Thanks for taking my question. I guess just on Dollar City, seemed like another good quarter of those calm growth and margin expansion. Can you just talk a little bit about your expectations for the second half there?

Yeah, look, you're right to point out that, you know, there's strong momentum in Dollar It's a continuation of what we've seen in the prior quarters. You know, 40% year-over-year bottom line growth is great. You know, during this quarter, just like in last quarter, you know, you have the same dynamic. You know, the pace of store openings on a smaller base, you know, leads to the business from a SSS perspective just as in Canada is that at a good level and what they also benefit from you know they have a much smaller store base is natural scaling and you see that in their gross margin in SG&A. So I do mention often that it's not reasonable to assume that the business could grow 40 50 percent year you know year after year you know just by simple math at some point you know this does come down but it does not reflect you know it does reflect our view that you know the business is getting better but it is strong and that is our expectation thank you our next question is from luke hannon of canaccord genuity your line is now open thanks good morning i wanted to go back to the conversation around the higher fuel dynamics.

And you've mentioned several times now that you have mitigating factors in place for the balance of year in order to be able to offset that. And also the scale benefits within the Canadian business should provide offsets there as well. But I'm just curious to know what specifically, or can you shed some light on what those mitigating measures are? And then also, should we get a resolution to the conflict and by extension, we get lower energy prices? Is it going to be relatively easy to unwind And we'll say those mitigating measures as well. Thanks.

I mean, you need to think about levers in a broad sense, right? It's not necessarily levers, you know, pushing back on, you know, fuel surcharges. I mean, those are key. But when we refer to levers, I mean, we look at our commitment.

Thank you. This concludes the questioning answer session. Thank you all for your participation. This does conclude today's call. You may now disconnect.