Dollarama (DOL:TSX) Q3 2026 earnings call transcript

Good morning, and welcome to Dollarama's third quarter fiscal 2026 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 that 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 December 11, 2025, except those 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 December 11, 2025. 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 the call. Please consult the Non-GAAP and Other Financial Measures section of Valorama's MD&A dated December 11th for definitions, reconciliations, with appropriate GAAP measures, and other information.

The quarterly disclosure documents related to this call are available in the Investor Relations section of Valorama. com and on CR+.

I will now turn the call over to Neil Rossi. Thank you, Operator, and good morning, everyone. For the third quarter, we delivered a strong top-line performance and double-digit earnings growth, including a nearly 20% increase in EPS. In an economic environment that has remained unpredictable, our business model has continued to prove its enduring relevance and resilience. Starting in Canada, we generated 6% same-store sales growth with sustained demand for consumables consumables and higher seasonal product sales thanks to the full Halloween shopping period falling within the quarter.

We saw strong store traffic trends and contributions from our full product mix, demonstrating once again that Dollarama is a reliable and sought-after destination across product categories. Amid economic uncertainty, the certainty of our low prices and year-round value keeps bringing consumers back. We are always working hard to hold on pricing for our customers and to be a price follower.

In Q3, we continue to leverage our agility and expertise as buyers to limit price increases across our product offerings. Retail increases on domestic brand names were unavoidable this quarter due to higher domestic supplier costs, but they did not impact our relative value. On the real estate front, we opened 19 net new stores in Q3, bringing our total number of stores in Canada to 1,684 locations.

With 68 net new store openings in the first nine months of fiscal 2026, we have already opened more stores than we typically do in a year. We are on track to achieve our exceptionally higher target of between 70 to 80 net new stores for the full fiscal year. The development of our future Western Logistics Hub north of Calgary also continues to progress.

Construction is underway since the fall and the project remains on budget and on time. Turning now to Latin America, where we continue to demonstrate the portability of our business model. Dollar City delivered strong financial results for its third quarter and opened another 25 net new locations. This brought the total Dollar City store count to 683 at the end of September. Since then, we have been busy opening several more stores, including our 700th location in Latin America last month. With five countries of operation and a strong presence in four of those countries, the Dollar City team deserves recognition for reaching this latest milestone and for their outstanding execution. Dollar City's 700th store was also our fifth location in Mexico.

With just a handful of stores concentrated in the Guadalajara area, is still early days. However, we are pleased with how our market entry is progressing and look forward to opening many more stores by year end. We continue to see meaningful long-term potential in this new market by applying the discipline playbook that has worked across our four current LATAM countries of operation. In Australia, we have begun laying the groundwork for the reject shop's multi-year transformation. On the merchandising front, updating the product offering is a deliberately thorough undertaking, which requires planning on the procurement, logistics and inbound shipping side. The process of reviewing all SKUs takes time because of the volume and related complexities, as well as the initial legwork involved on the compliance side.

It's also the most important aspect of this transformation in terms of delivering our value proposition to the Australian consumer. We continue to be on plan to have select Dollarama SKUs starting to hit shelves next year, with penetration gradually increasing throughout fiscal 2027 and fiscal 2028. Once stores better reflect the Dollarama value proposition, we will start putting our name on the outside of the store. On the store format front, we have begun introducing the Dollarama layout through the store renovations and new store openings. Renovating an existing store entails rehauling the floor plan, new fixtures, racking, lighting, etc. We have renovated four stores since the beginning of the year. We expect to ramp up in fiscal 2027 as we fine tune the process and to renovate all existing stores over a four-year period.

forward new stores will have the Dollarama fixtures and layout which enables more skewed density among other improvements. This will be very impactful once we are further along with the Dollarama merchandise rollout. As we work through these more customer facing aspects of the transformation we are also actively working on optimizing our IT infrastructure, store processes and logistics operations. While we are only at the beginning of this journey, I am motivated by the strong alignment with across the business and by the local team's drive to get things rolling.

To summarize, in Canada we remain cautiously optimistic as we head into Q4 and mindful of the continued economic uncertainty that has been impacting consumer behavior. In Latin America we We look forward to tapping into more growth and gradually ramping up expansion in Mexico. And in Australia, it's all hands on deck to transform the business ahead of deploying our value proposition over the coming years. Across our complimentary globe platforms, from leadership to the shop floor, everyone is focused on execution.

With that, I'll pass it over to Patrick.

Thank you Neil and good morning everyone. In Q3, total sales increased more than 22% to over $1.9 billion. The year-over-year increase was driven by sales from our Australian segment as well as an increase in Canadian same-store sales and store network growth. 6% SSS in Canada consisted of a 4.1% increase in transactions and a 1.9% increase in basket size. SSS was boosted by all Halloween sales days falling in the quarter. This is due to the retail calendar shift as we last a 53-week year, with four of those days falling in the fourth quarter last year. Heading into the second half of the year, our outlook on SSS in Canada was cautious due to consumer fragility and fluctuations in discretionary spending through the first half However given our year performance including stronger Q3 results we are increasing our full-year SSS guidance from between 3 and 4 percent to between 4.2 and 4.7 percent.

This upward revision factors in our expectations for Q4, with the negative impact of the calendar shift and assuming a positive response to our holiday offering from a still pressured consumer. Gross margin increased to 45.8% for the Canadian segment in Q3 compared to 44.7% last year thanks to a more favorable sales mix with higher sales of seasonal products and lower logistics costs. As a result, we are increasing our fiscal 2026 guidance range for this segment's gross margin from between 44.2% and 45.2% of sales to between 45 and 45.5%. Factoring in Australia's lower margin, consolidated gross margin came in at 44.8% of sales for Q3. SG&A for the Canadian segment came in at 14.2%, compared to 14.3% last year.

The increase reflects the positive impact of scaling. Full year guidance on this metric remains unchanged of between 14.2% and 14.7% of sales. Consolidated SG&A was 15.4% of sales in Q3, an increase primarily driven by additional SG&A from the Australian segment.

Turning to Dollar City, our 60.1% share of their net earnings amounted to $42.4 million in Q3, representing a 56.5% increase over last year. The increase is driven by higher sales, both from SSS and store network growth, and margin expansion, partially offset by higher SG&A related to Mexico. During the quarter, we made a second capital contribution of U. S. $18 million towards Mexico expansion plans.

Again, a portion of our share of the latest Dollar City dividend was used as a funding source. Next year, we expect to maintain the pace of two dividends a year, each followed by a Mexico capital contribution.

Based on the strong performance of our Canadian segment, including Dollar City's equity contribution, EBITDA increased by 20.1% to $612 million. Net earnings increased by 16.6% to $321.7 million and diluted EPS grew 19.4% to $1.17. The Australian segment had a negative three-cent impact on EPS.

Regarding Australia, Q3 is usually a soft quarter due to seasonality, while Q4 is historically their strongest, with summer and Christmas occurring at the same time. This should balance out their results through the second half of the year. While immaterial, we expect TRS to have a neutral to slightly negative impact on earnings in fiscal 2026. The Australian business represents a long-term investment and it will be built over the next four years. In this context, it is important to keep in mind that the Australian segment's results will not reflect the performance of our business model in this market, not until our value proposition is meaningfully deployed, which will only occur once we have made significant progress on key aspects of the transformation.

Near term results will instead reflect the investments required to deploy our value proposition in Australia. As we work on implementing the major changes Neil spoke to, we expect fiscal 2027 to be a heavy investment and transition year for the business. As a result, we do not expect the Australian segment to have a positive impact on our overall profitability in the near term, including fiscal 2027. During the capital allocation, we were active on the share buyback in Q3 with the repurchase of over 2.6 million shares for cancellation for a total cash consideration of $884.6 million. We also announced today that the Board approved a quarterly cash dividend of 10.58 cents per share. You will also note that we lowered our capital guidance for fiscal 2026 to a range of between $240 and $285 million.

This simply reflects a shift in timing of certain expenses related to the Western Logistics Hub into next year. Clearly, the everyday value and convenience Dollarama offers continues to resonate. In a challenging economic environment and at a time of softer consumer confidence, Canadians from coast to coast are consistently seeking out our value proposition. We also continue to see similar trends in Latin America. These results only strengthen our results and commitment to our growth plans and to delivering reliable value in what remains an uncertain context. Across the business, we will continue to deploy capital with discipline and always with the aim of creating long-term value for all stakeholders.

With that, I'll now turn the call back to the operator for the Q&A.

Yeah, I mean, in terms of context, I think it's really the same as last quarter, really more of the same. You know, we continue to observe a fragile consumer and, you know, what seems to be an uncertain macro backdrop. And in that context, consumers focus on essentials and on value. What that means on our side is consumable assortment continued to perform, but you're also right in pointing out that one change this quarter is that our seasonal assortment improved and was positive this quarter. So, you know, as of now, we expect that we'll hopefully continue into Q4, but, you know, like all things, we're not immune of trends shifting either.

Thank you.

Yeah, so just a comment on the second part of the question. We agree it's still very early days. Our first store only opened at the end of June. We have nine stores now as of today. And as Neil commented, we're encouraged by the initial customer response.

As for the first part, and apologies, I think the line wasn't very clear. but the business is still in a ramp up phase and requires capital for new store openings and really setting up the business. And as we think about next year we still in that ramp up phase I mean the business is not at scale to absorb fixed costs that we committing in the country and that would lead to more of the same as this year meaning losses. We're not expecting the business to be break-even next year and further capital investments.

Thank you.

Thank you, Chris. Look, I mean, when we think about a LATAM business, you know, you see the top line performance, right? It's a, when you contrast that to Canada, it's a business that continues to grow very quickly with respect to units. It's opening at a higher pace compared to a smaller base. So, you have that increase on the top line. And SSS, just like in Canada, it's the same trends, it's the same consumer trends, and SSS remains healthy. But the thing to keep in mind is given the size of the business, it still benefits from substantial scaling. So when you look at your fixed costs that are included in your gross margins, your fixed costs in your SG&A, those costs are amortized on bigger and greater sales numbers.

So that's how you go from a high sales business on the top line to a business that is capable of scaling the net income.

Thank you.

Look, I mean, it's hard to pinpoint an exact number. You know, we've opened already nine stores, and as we increase the store count, I mean, you would suspect that the level of confidence will increase in time. And like we commented, I think at this point, what we're seeing today is quite encouraging, and we see the initial reception of the Mexican consumer, and hopefully that will continue in time.

Thank you.

Yeah, you're correct in pointing out that, you know, what we hear and understand from a macro perspective, you know, slower population growth is, you know, in theory, a headwind. But if we look at the patterns at our business, traffic remains healthy.

And in the context, as we commented on, of budgets being stretched and people seeking value and essentials, we're clearly hitting the mark and people seem to appreciate that value and continuing coming to our stores. So I would say despite this headwind, I think we're doing pretty well in the retail space.

Thank you.

So China's been relatively soft for the last, I would say, six months or so and favorable for importers. That's leveled off, we feel, and right now it's pretty much stable. No decreases, not really many increases. But we do continue to see aggressive, you know, I wouldn't go so far as to say overly aggressive but certainly domestic producers are being very, very comfortable asking for price increases when we're not seeing the input costs going up on a lot of the products that those prices and increases are being asked for. So I think domestic corporate North America is definitely pushing on costs and that's something that as a retailer when we don't see a proportionate increase in the input cost it's very hard to keep up with why they're doing this other than wanting to make more profit so what our job is is to make sure that our relative value on those domestic products remains ultra competitive for for the imports it's much clearer because it's all based on input costs and nothing more than that not a strategy to make more money per se and so it's much easier to control and much easier to forecast months out.

And so for now, it's fairly stable on the import side. Thank you.

Yeah, and just to clarify what we meant by lower logistics costs, I mean, you know, we're seeing, you know, strong productivity gains in our logistics network. We're seeing, you know, good stability in the logistics chain, whether shipping, port, rail, truck, and that essentially negates, you know, friction costs. So that's what we're seeing. And certainly, you know, higher SSS is also very helpful in scaling gross margins. Now, you're asking about the future.

You know, we hope we'll be able to continue in that direction. But, you know, especially as we approach or enter, really, or we're in the middle of winter, sometimes there's our unforeseen events. And that's just the normal course of our business. And there's friction costs that happen in that context. So I think what we've achieved in terms of gross margin this quarter is a really, really high bar, and we're very pleased with the results.

But something to note is as we think about Q4, and if you look sequentially versus last year, you know, last year we also benefited from that 53rd week, so that was helpful in scaling gross margins, and that's not something that we will have as a positive in this Q4.

Thank you.

And, you know, we think there's a lot of room still to grow within the $5 price point. And there's no need at the current time and no reasons for us to change that strategy as we speak. Now, to the first part of your question, on the back of strong inflation from suppliers and them pushing costs or attempting to push costs.

That certainly puts added pressure on the unit costs. But overall, when you look at our results and you look at the relative value we deliver in the stores, I think we are able to fare fine in that context.

Thank you.

Yeah, thanks for the question, and I think it's important to clarify. So we are expecting a material deceleration in SSS in Q4, But if this wasn't evident yet, it has nothing to do with our views on the consumer environment or the macro context that is changing or, you know, we hope that it continues staying the same. The material deceleration is really just mechanical from, you know, a calendar perspective. It's really just that. So, you know, these 52 over 53 happens, you know, once in a while. And the last time it happened, it was in, you know, fiscal 2020 over fiscal 2019.

And if you have a look at what was discussed back then, we were talking about a deceleration just on the mechanics of the calendar of about 180 basis points. So there's the impact of Halloween, but there's also the impact of replacing those Halloween days with days at the end of January, which are typically low sales days. So there's that double impact. So that 180 that we encountered five years ago or so is something to be expected this year as well.

Thank you.

Yeah, thanks for the question. I think it's a little too early to comment on that. I think we are in the middle of our planning work as expected and we're doing everything very, very diligently. And once we feel more comfortable with the plan, well, we'll be happy to provide more color around that. Thank you.

Yeah, thanks, Corey. I mean, I think the one word you need to keep in mind is consistency, right? And it means consistency of what we're seeing with respect to our merchandising strategy. So if you look over time, it has been the same recipe, and gladly, that is well received on the consumer side. Now, when you look at the pattern of our SSS broken down by, you know, traffic and basket, it, I'd say it's more of the same, and we're pleased with the traffic numbers, but traffic has been fairly robust if you look at the past few quarters, so we just think that it's a continuation of that and a clear indicator of a good receptivity of consumers to our consistent and relative value merchandising strategy.

Thank you.

Yeah, on the second part of your question, you know, I think one might suspect that gross margins will be better in Q4 because just like in Canada, you're having more seasonal sales. So there is an improvement, but that being said, gross margins from year to year fluctuate depending on the context. So last year is not necessarily a perfect guide, but directionally it will give you the sense that Q4 could be, because of the seasonality, could be stronger than Q3. In terms of the store renovations, look, I mean, it's very, very early days. There was four conversions.

And to clarify why we do these renovations is really having the fixtures and the layout as per Dollarama. And that gives us the opportunity to having greater skewed density in the stores, which should lead to higher sales, even if you continue selling the same merchandise. So just having more density could lead to more sales. So again, early days, but we're hopeful that that strategy will play out in the industrial market as well.

Thank you.