Dollarama (DOL:TSX) Q4 2026 earnings call transcript

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 ambitions. 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 Australia. In Canada, our compelling value continued to resonate in an economic environment that is weighed on consumer sentiment and discretionary spending. As Canadians face pressures on their household budgets, they turn to Dollarama for year-round value and everyday convenience.

Throughout the year, our full assortment contributed to solidifying Dollarama as a destination for affordable goods across our product categories. We experienced solid demand for general merchandise and seasonal items, which speaks to the strength of our buying team and direct sourcing platform. We also saw continued sustained demand for consumable products, which speaks to our ability to offer strong value for sought-after everyday essentials. Unfortunately, the weather did hamper our fourth quarter performance, which was off to a good start. weather conditions across Canada directly impacted both store traffic and peak sale periods through to the end of January. However, we nonetheless generated 1.5% same-store sales growth in the quarter with basket growth driven by a positive seasonal performance.

In Canada, we successfully opened an exceptional 75 net new stores in fiscal 2026. 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 store in Canada. We are making steady progress towards our long-term target of 2,200 stores by 2034. 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 the end of 2027. Having a two-node logistics model support our long-term growth in Canada and bring added resilience to our logistics through redundancy.

By applying our proven business model, Dollar City continues to generate strong top-line momentum, margin expansion, and footprint growth across our core 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 2025, bringing its total store count to just over the 700 store threshold at year end.

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 set a long-term target. In fiscal 2027, Dollar City will continue to grow in its first four countries of operation in LATAM, with a focus on growth in Colombia and Peru. At the same time, we will be carefully 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 reception. 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, store experience and network growth, and operational excellence.

Deploying 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 for future success.

Changing the merchandising strategy is the most important pillar of the transformation and the most complex to implement. We expect our first Dollarama import SKUs to start hitting shells during the second quarter of fiscal 2027, with imports primarily comprised of general merchandise and seasonal items. The target is to have about a half of the Dollarama import SKUs sourced by the end of fiscal 2027. On the domestic side, which is primarily consumables, we are also looking at products SKU by SKU to deliver increased value to our customers. Under Store Experience and Network Growth, our goal is to renovate the layout and change fixtures in 60 to 80 stores this year, having done four last year. We also aim to open 15 to 25 net new stores, all with the Dollarama layout and fixtures, having opened seven in fiscal 2026.

On Operational Excellence, we are strengthening the IT infrastructure and optimizing various processes. Notably, we are working on migrating Australia's ERP system to ours to get all our business processes integrated to the same platform. On the logistics front, we are finalizing our plan to optimize operations and support long-term growth. We are also adding team members as we build the bench strength of the local team. 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 convenience positioning, as we have done over time in all of our other markets. As you can see, the year ahead is shaping up to be both busy and exciting for Dollarama. 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 consumers in every market where we operate and to create long-term value for our shareholders.

As we enter fiscal 2027, the macroeconomic and geopolitical backdrop is evolving rapidly and remains uncertain. Considering the current economic environment in Canada, we expect that consumers will continue to be cautious and deliberate in their spending. In this context, the importance of value is only increasing, And we believe that the value, convenience and affordability we offer will continue resonating with consumers. Looking at the broader geopolitical environment, the conflict in the Middle East is beginning to have ripple effects on transportation and production costs. Our business model is resilient and provides us with a number of levers to help mitigate these impacts in the near term. 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 as price followers. We will only pass on price increases where absolutely necessary and while staying true to our year-round value proposition. Across the business, our focus is on the disciplined execution of our plans, maintaining our strong value proposition and leveraging the strengths of our business model to deliver for customers and our shareholders.

With that I'll pass it over to Patrick.

Thank you Neil and good morning everyone. Let's start with a brief overview of our consolidated results before turning to segment performance. Q4 sales which included one less week compared to last year increased by 11.7% to $2.1 billion. For fiscal 2026, sales increased by 13.1% to $7.3 billion, positively impacted by contributions from Australia as well as greater number of stores and SSS growth in Canada. Diluted EPS increased by 2 in Q4 to This included a positive 3 cent impact from Australia For the full fiscal year, EPS rose by 13.7% year-on-year to $4.73. Our Canadian segment met or exceeded all financial guidance targets. SSS came in at 1.5% for Q4, over and above SSS of 4.9% in Q4 last year.

The increase was primarily driven by demand for seasonal products, offset by two important factors. The first is a calendar shift caused by a 52-week fiscal year following a 53-week fiscal year. In the quarter, this resulted in one less historically strong pre-holiday sales week and an additional historically low sales week at the end of January. It also included four less pre-Halloween shopping days compared to Q4 last year, which we recorded in Q3. Excluding the calendar shift, SSS would have been 3.5%. The second factor was the weather.

As mentioned by Neil, a high volume of weather events, including cold temperatures and precipitation, impacted store traffic and resulted in lost sales. This is reflected in the 1.6% decrease in the number of transactions. Despite this, basket growth was healthy, growing 3.1%, and we met our annual SSS guidance for the year, coming in at 4.2%. While the weather resulted in softer than anticipated SSS, as weather conditions improved, so did traffic patterns.

Store traffic continued to recover nicely as we entered fiscal 2027. Looking ahead to fiscal 2027, we anticipate generating SSS growth in Canada of between 3 and 4%. Consistent with our outlook last year, we continue to expect sustained demand for the compelling value we offer, which remains particularly relevant in the current environment. At the same time, we also remain mindful of the macro environment and the uncertainty it creates.

Gross margin for the Canadian segment came in at 46.6% of sales in Q4, compared to 46.8% last year. The variance is primarily due to the 53rd week in fiscal 2025, with the 14th week in fiscal 2025 providing additional scaling benefits. Full year gross margin was 45.6% of sales, slightly exceeding the top end of our guidance. For fiscal 2027, our guidance range for gross margin in Canada is in line with last year, at between 45 to 45.5% of sales, based on our ability to actively manage product margins.

Looking at early fiscal 2027, and given the current macro context, we are closely monitoring pressures in the global supply chain, which may negatively impact gross margin during the year.

SG&A for the Canadian segment in Q4 was 14.5% of sales compared to 14.7% last year. The improvement reflects the positive impact of scaling. Full-year SG&A came in within guidance at 14.4%. For fiscal 2027, we expect scaling to help offset the impact of higher store labor and operating costs. As a result, our annual guidance range for SG&A in Canada is slightly better than in the prior year at between 14.1% and 14.6% of sales.

Finally, CAPEX for fiscal 2027 in Canada is between $420 to $470 million. The year-over-year increase primarily reflects capital spend for our logistics hub project, a portion of which shifted over from last year.

Turning to Dollar City, our share of their net earnings in Q4 increased by 22% to $70.5 million. For the year, our share reached $191.5 million, an over 47% increase. This was driven by SSS and store network growth, offset by the ramp-up of operations in Mexico. On a 100% basis, the Mexico business realized a net loss of U. S. $5.4 million and U. S. $11.7 million dollars for Q4 and the full year respectively. As the business is still in ramp-up mode we expect a loss in fiscal 2027 consistent with the range provided last year of between US 10 to 20 million dollars for 100% of the business. On February 5th, Dollar City declared a dividend of US 125 million dollars with our share coming in at U. S. $75.1 million.

The doubling of the dividend compared to the previous one declared speaks to Dollar City's strong free cash flow generation, with its profitable growth trajectory continuing to mirror Dollarama. In early fiscal 2027, we made a capital contribution of U. S. $38 million towards Mexico expansion plans. This was a follows two US $18 million contributions made last year. As with previous capital contributions, we allocated a portion of our share of the latest Dollar City dividend.

Looking now at Australia, for the approximately six-month period since our acquisition in late July, the business had a neutral impact on consolidated net earnings for fiscal 2026. For perspective, looking at the full year and on a pro forma basis, Australia generated approximately $916 million in sales and a net loss of $10.6 million, all in Australian currency.

Turning to fiscal 2027, it is expected to be an investment year as we ramp up the integration process. Neil spoke to our priorities across our strategic pillars. As a result, the Australian segment is expected to generate a net loss in fiscal 2027. These impacts are presented in our financial documents and in our investor presentation, which is available on the event page, but I'd like to call out the main ones.

First and most significant is the anticipated negative impact from the merchandise changeover and transition to lower price items. As you can appreciate, it is also the hardest to quantify at this stage of the transformation as it will depend on several factors. These include the timing of the product transition, the speed at which sales of incumbent higher price SKUs will be compensated by sales of the lower priced Dollarama SKUs, and impact on store traffic. That said, we anticipate a negative impact on sales for the year. The second is related to capital expenditures for store renovations and net new store openings. These are estimated at between 400 and 600,000 Australian dollars per renovated store and between 800,000 and a million Australian dollars per net new store.

There is also a direct impact on sales during renovation-related store closures. Third is P&L related. We expect to incur about $35 to $45 million in incremental costs related to integration, IT transformation, additional headcount, and labor costs. These transformational changes are essential to set the business on a path for profitable growth. There is 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 business. Our vision is to build a leading value retailer with a strong and favorable margin profile compared to global peers. The work we are undertaking in fiscal 2027 will represent a critical first step in our multi-year path to deliver attractive return on investment.

Back to Dollarama, in terms of returning capital to shareholders, we repurchased over 4.4 million shares for cancellation during fiscal 2026 for a total cash consideration of $834.2 million. We also announced today that the Board has approved a 13.4% increase to the quarterly cash dividend, bringing it to 12 cents per share.

Looking ahead, our priorities are clear. We will continue to allocate capital in a balanced manner as we pursue our profitable growth in Canada and LATAM, and as we embark on the transformation of our Australian platform. Consistent with past practice, we also intend to allocate the majority of excess cash towards share buybacks and a dividend subject to quarterly approval.

While the broader economic environment remains uncertain, the underlying fundamentals of our business are strong and our value proposition as relevant as ever. As we enter the next fiscal year, we are focused on discipline execution to advance our growth initiatives across multiple geographies and support long-term value creation for our shareholders.

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

We had strong momentum as we started the fourth quarter in November. And then traffic then dropped off when we encountered unfavorable weather conditions in December and in January. But once those conditions were behind us, traffic resumed nicely in February and as we kicked off fiscal 2027. So it seems to suggest that the consumer environment that we've seen in the past few quarters, the past many few quarters, is exactly the same that we're seeing as we start the new fiscal year.

Sure. So it is true when you look at those numbers of top line of 28% and bottom line of 22, that does include Mexico. And so if you were to exclude Mexico, I think you're correct in saying that bottom line growth is over 30%. You need also to consider that when you look at the top-line growth, it includes sales from Mexico this year, and we didn't have those sales, obviously, last year. So you would conclude that the Dollar City business, excluding Mexico, is still benefiting from leverage and scale as we move in time. So I do conclude that the business is still growing at a good pace, and there is still scaling benefits to come in the future.

I believe, before I forget, there was a second part of your question about Mexico. We've provided in our financial statements the loss for 100% of Mexico this year. We've also commented that Mexico, while we're very happy with the progress, is still in ramp-up mode. So we do expect a loss similar, a range similar to last year, so about U. S. $10 million to $20 million. dollars. After that, hopefully EBITDA losses will shrink, but a little too early, Brian, to have a clear view on when that business will break even.

Yeah, and just to think of that back, so what we're doing when we're converting stores, right, so we talked about renovating the layout of the stores, having the appropriate racking, lighting, flow of shopping as well, but it also provides a higher density of products in the stores, which is an important condition when you're selling low-price items and high-volume sales. And so one would expect a positive uplift.

And even if all the products are currently all TRS products, if I could say, we did see a pickup in unit sales. That being said, the real power of the conversion is really when you combine the conversions with a good density of Dollarama SKUs, and we're not there yet. As Neil commented, we're going to start introducing some SKUs in the first part of the second half of the year.

So it's still early days and unfortunately higher energy costs will permeate throughout the supply chain for all retailers and for consumers over the next few months to a year. The duration of the conflict will decide the scale of the effect. But certainly inbound costs, outbound costs, production costs, raw material costs are all being affected by the increased cost of oil. And that will eventually make its way down the supply chain. Our job as low-cost retailers and value retailers is to ensure that we're price-following and to ensure that we are offering the best value, relative value, in the market that we can. But I don't believe that any retailer will escape the reality of global economics.

and we all hope for the consumer and for the world, I would go so far as saying, that the conflict ends as quickly as possible.

Yeah, look, I mean, as Neil alluded to, this is early days, right? So we are seeing some increased costs in transportation. We're seeing some cost increase in, you know, even product costs.

But, you know, if we're under the context of this is short term, all of this is, some of it is included in our guide, right? So if you look at our guide, we're saying 45, 45 and a half, same as last year, recognizing that there might be some incremental costs that we're seeing right now. But very important is, to Neil's point, if this 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 on. But generally speaking, we have a resilient business model and we're in a good position to offset some of those costs. So I would say we've included some of what we're seeing in the guide, but obviously if this gets prolonged and gets worse, well then there might be negative consequences on our gross margins and frankly ripple effects throughout the whole industry and the whole economy.

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 some nuances, right? Like, certainly in this case, Mexico is a bigger country, so does, might take, you know, bigger investments to start off with, and so it's hard to compare with, you know, with other countries. But just to give you some elements, you know, think of, you know, the pace at which we're ramping up Mexico to be, you know, pretty much in line with the experience that we've had in a country like Colombia or Peru. So it gives us, we'll give you a sense of what we're thinking in terms of ramp up.

And related to that, and a little bit to an earlier question, you know we're not break even we weren't break even last year we don't expect to be EBITDA positive 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 to derive you know a break even on the on the net income but like I said a little too early to say have a look at the other countries will give you a sense of direction but every country is slightly different.

Sure. So let's take it piece by piece. as we think about the potential impact to fiscal year 27. So first point is the business on a standalone basis. So without transformation from Dollarama, you look at last year on a full year basis, what at a loss of 10.6 million Australian dollars. So you need to start from that base, to which when you look at the three pillars that we've laid out in our investor presentation, there are incremental integration costs. So we talk about $35 million to $45 million that you would need to factor in.

Then you move to, and I'm moving from third bucket and coming to the first, but the second bucket is a lot about CAPEX. So we provide some color in terms of store renovations and new stores. There is a small P&L impact for the period during which we're going to close the stores for the renovation, so you would need to factor that, potentially a little bit of DNA.

And then the first bucket is really the most uncertain. So this is about transitioning the products, and we talked about all the factors, but this one, as you might appreciate, we barely have a Dalrama product in the country, and so to start guessing the impact of the transition is a little dangerous at this point. But certainly, once we get greater clarity there, we'll be happy to share it with you. But that's how I would think about framing the net income loss for this year.

No, I think the market in Canada is quite stable. Competition remains stable. There's no real new entrance to talk about. Overall, I would say it's business as usual in Canada.

Yeah. You know, taking it from a high level, the 3% to 4%, if you recall, is the same guidance as we provided last year. And so to an earlier comment, when we think about the economic and demand side, it's a very similar setup than what we have seen last year. The slight nuance perhaps compared to last year is towards the end of fiscal 26, we started seeing some price increases from the domestic side, which will trickle into fiscal 27. So there's a little bit of an uplift when we think about the beginning of fiscal 27. But other than that, you know, we expect a context that is very similar to this year. So the last year, sorry.

I mean, certainly as we start the year, there's a lot happening out there and a lot of unknowns. And so, you know, we think it's prudent to start with the same guide as we've had last year at 3% to 4%.

Yeah, thanks for the question. So, you know, consistent with what we said in the past, this is a multi-year transformation, i. e. four years. and what the four years takes into account is think of the conversions being an important part of this transformation. So 400 stores going at average clip of 100 per year, that takes four years. So for us to say the transformation is complete, we need to make sure that we're well advanced if not completed on the conversion side. And once these, hopefully what we'll see in four years is that we'll have our stores converted and a strong assortment of Dollarama SKUs in the stores. And so, yes, we remain consistent with that four-year timeline.

So barring the exceptions that are different between Canada and Australia, the balance of the items we started with a focus on compliance first and foremost, the items that we were able to do compliance quickly on because the Australian compliance standards are entirely different from Canada's. So, you know, an entire compliance study has to be done on every single SKU that goes into the country. But, you know, the goal is to get all Dollarama SKUs into Australia within the next two years or so.

The priority started with our best SKUs and the most transferable SKUs.

Yeah, sorry. Part of your question I cut off, but yes, you're starting from that $10 million base, just as the business operating as normal, and then you would add on top of that $35 to $45 million of incremental integration cost. And then I also talked about the two other buckets, the impact of the store opening. So there is some incremental P&L impact there, but that's mostly CapEx. And then you would need to factor in something. We're guiding that it will lead to a net loss in sales. So that would have an impact on your bottom line. But you would need to add all those pieces.

And so all of that transformation, especially when you think about integration costs, have started as we kicked off the new year and the team is working very hard to transform the business, but also as a necessary condition are also incurring incremental costs.

And I just wanted to add that clearly the Dollarama team, you know, feels strongly that in the long term this is a very exciting project and that bringing value to the Australian consumer has merit both for the consumer and for our shareholders. So while this is a four-year project, once you've established a low-cost retail platform in Australia with, by that point, over 500, 600 stores, stores, we feel very confident that being the 800-pound gorilla in the market will play very well for our shareholders.