Dollarama Inc (DLMAF) (Q2 2027) Earnings Call Highlights: Sales Surge 17. ...

Negative Points

• Australian transformation is expected to weigh on sales in fiscal 2027, with the impact more pronounced in the second half as the pace of transition accelerates.

• Higher oil prices and supply chain pressures are anticipated to increase costs in the second half, with a lag before flowing through the P&L.

• Mexico operations reported a net loss of CAD5.7 million (Dollarama's 80% share) due to ramp-up costs, and losses are expected to continue.

• Canadian SG&A remained at 13.8% of sales, with limited leverage as certain costs grow faster than inflation, such as funding recycling programs.

• Consumer confidence remains weak amid trade tensions and elevated living costs, which could affect spending and lead to a deceleration in same-store sales in the back half.

Q & A Highlights

Q: Same-store sales guidance implies a deceleration in the back half of the year, taking it below 4%. What are you seeing at a more granular consumer demand level, and is there really that much more caution? A: CFO Patrick Bui said the company was pleased with the strong 5.4% same-store sales in the quarter, with consistent strength throughout the quarter and traffic remaining strong as it exited Q2. He noted that while the strong first-half performance supports the positive revision to the full-year outlook, it is important to remain prudent for the balance of the year given ongoing macro uncertainties such as higher oil prices and trade headlines. Overall, the company is encouraged by the continued momentum reflected in Q2 results.

Q: Where does inflation most benefit Dollarama? Is it accelerating trade-down, or higher fuel prices? And does this move forward the potential for a higher price point, given it has been about five years since the introduction of the CAD5 price point? A: CEO Neil Rossy said that during difficult times, consumers have less money to spend and trade down, which can benefit Dollarama, though it is hard to tell how much trading down is occurring. He said the only true facts are the company's results, and its job is to stay focused on being the best relative value in its category, providing a pleasant shopping experience and convenient locations. On the CAD6 price point, he reminded that the fixed price point strategy is a core element of the business model, and a higher price point would only be introduced if cost inflation reached a level where the current CAD5 max could no longer be sustainably supported. Based on what the company sees today, an additional price point is not necessary, and it will push off any additional price points as long as it can.

Q: What are you seeing on spending on more discretionary products at Dollarama? Seasonal was stable is that related to consumer caution or weather? A: CFO Patrick Bui said the quarter was a continuation of trends seen in past quarters. Consumables have been performing well, with incremental strength in general merchandise. Seasonal products have ranged from slightly negative to flat to slightly positive year-over-year in recent quarters, and this quarter summer seasonal sales performed well in positive territory, indicating a bit more strength on the discretionary side. This is the same trend seen exiting the pandemic and in the past few quarters.

Q: On Australia, how should we think about incremental integration costs and SG&A, and what is the key gating factor to flip to profit? A: CFO Patrick Bui said integration costs will be more heavily weighted through the second half due to an acceleration of product introductions into stores, including upcoming seasons, with more transition in merchandise and more cost expected in the second half. At the mid-year point, the operating loss was about CAD25 million, implying a certain acceleration in Q3, which is a seasonally weak period in Australia, while Q4 is seasonally stronger. Turning to profitability depends on executing on three points: transitioning to dollar SKUs on the merchandising front, converting stores, and densifying store count, along with systems, logistics, back office, and real estate growth.

Q: Can you give perspective on Mexico's big acceleration and the reception there, and why you feel confident about Australia ultimately becoming a profitable, strong business? A: CFO Patrick Bui said the company is pleased with the Mexico ramp-up, going from 11 stores to 21 in one quarter and continuing to accelerate. The Mexican consumer reception is consistent with last quarter and gives confidence to ramp up the store network. Mexico is arguably the fifth country the company is opening, so there is a good pattern and roadmap, and as long as the rollout is consistent with what the team has done four times in a row, it provides comfort. On Australia, he said the market was analyzed well and there is an opportunity for a value and convenient retailer, and nothing has changed since acquiring the business a year ago. The ultimate goal remains building the leading value retailer in the Australian market.

Q: You anticipate higher freight costs for the balance of the year. Is that purely related to the lag, or does it also build in oil prices remaining higher for an extended period? How could changes impact guidance? A: CFO Patrick Bui said the company is anticipating higher costs in the second half in Canada, as these take time to funnel through the P&L. The gross margin guide is unchanged at 45.0% to 45.5%, but the nuance this quarter is that the company can maintain this guide despite assuming elevated oil prices for the remainder of the year, versus last quarter when the guide held as long as prices normalized. If costs increase further from here, a revision to the outlook would not be surprising, but if things stay as seen today, the company is comfortable with the guide given its adaptable business model.

Q: Canadian traffic was up 3.7%, the best performance of the last three quarters and notable given slowing population growth. Is this traffic growth coming from the existing customer base or from new customers? A: CFO Patrick Bui said it is very difficult to tell, and the company tracks overall same-store sales, which it is very pleased with at 5.4%. Traffic of 3.7% is a continuation of momentum from Q1's 3.5%, reflecting the great value customers find and the pleasant experience that brings them back. Disaggregating between repeat and new customers is not something the company tracks, but it is very pleased with the momentum built.

Q: Can you give more category commentary beyond seasonal? In the US, toys are doing much better for Dollar General and Five Below. Any categories that give insight into your customer, like home improvement or kitchen? A: CEO Neil Rossy said toys was an outlier and performed much better than it has historically. The balance of the categories are within the norm of what has been seen over the last few quarters, but toys was extra strong this quarter. He added he is not sure exactly why.

Q: The pace of store openings in Canada seems to be above the historical 60 to 70 range for a second year. Is this the new run rate, and what are you seeing on new store productivity and economics? A: CEO Neil Rossy said 60 to 70 remains the general guidance. Last year was exceptional and guidance was raised to open 10 more stores, and this year guidance was again changed exceptionally. The reasons are the same as described in the past: if there is more opportunity than the historical pace and the team can execute leases within one fiscal year rather than the next, the company will not leave stores with the

For the complete transcript of the earnings call, please refer to the full earnings call transcript .