Dollarama Inc.

Thank you, operator, and good morning, everyone. In the second quarter of fiscal 2026, Dollarama delivered strong financial results and achieved several international milestones.

Let me start with international expansion. In the middle of the quarter, we celebrated the opening of Dollarcity's first store in Mexico, a large and high potential market.

Later in the quarter, we completed our acquisition of Australia's largest discount retailer welcoming the local management team and 5,000 new colleagues. While vastly different in approach, both market entries are the culmination of strategic objectives that have long been in motion.

They represent two additional complementary growth platforms, which only strengthen and diversify our long-term strategy. They also broadened the strength of our team with a greenfield entry into a huge market and our first transformation of a large existing business.

This is all made possible by our successful core Canadian business, which serves as the foundation that fuels our broader ambitions. Let's now look at our performance in Canada.

We generated healthy same-store sales, both in the quarter and since the beginning of the year. This reflects the underlying strength of our business model, the relevance of our value proposition for Canadian consumers and the team's impeccable execution.

Consumables were once again a driver behind our sales with general merchandise and seasonal remaining stable. This speaks to the appeal of our overall assortment at any given time of year.

It also shows that Dollarama continues to cement its place in the regular shopping habits of Canadians, whether for everyday essentials or discretionary goods. To achieve this, we work incredibly hard day in, day out to offer products at compelling value by maintaining our pricing when possible for our customers in this volatile trade environment.

We will stay the course in our efforts, relying on our agility and expertise as buyers to maintain our relative value in the market to the benefit of consumers. On the real estate front, we opened 27 net new stores in Q2, bringing the total number of net new stores year-to-date to 49.

And our footprint in Canada to 1,665 locations. Halfway through the year, we are well on our way to achieving this fiscal year's target of between 70 to 80 net new store openings, which, as a reminder, is exceptionally higher than in previous years.

The development of our future Western logistics hub situated just north of Calgary, also continues to progress well. Site preparation activities began during the quarter with construction scheduled to start in September.

We are pleased to be on plan and on budget at this stage of the project with the site expected to be operational by the end of 2027. Turning now to Dollarcity, which generated another strong performance, both operationally and financially in the second quarter.

The business is experiencing similar underlying trends as Canada in terms of customer appeal, reinforcing the relevance of our business model across geographies and demographics. During the second quarter, Dollarcity continued to add stores at a healthy clip, opening 14 net new locations.

This brings their total store count in all 5 countries of operation in Latin America to 658. That number includes our first Dollarcity in Mexico, located in Guadalajara, Jalisco.

While it is still very early days, we are quite pleased and encouraged by the initial reception from customers. We look forward to opening several additional locations in Mexico by fiscal year-end.

Finally, I'd like to turn to Australia. Since closing the acquisition of TRS, priority #1 has been the onboarding of our new colleagues, sharing our vision for the future and mobilizing the right people and teams to kickstart a multiyear transformation journey.

This work is being led by a strong local management team based in Melbourne, supported by a cross-functional integration office. The teams will be working on multiple fronts to thoughtfully deploy the Dollarama business model over the coming years.

I'm pleased to say that the TRS team is ready and motivated and that this work has already begun. On the merchandising front, we are now starting to selectively phase in Dollarama products across categories.

This will be a gradual process, which will continue through to the end of fiscal 2027. Along the way, we will be simplifying the price point structure, including lowering the current pricing ceiling.

In parallel, our plan is to convert store layouts to deliver that convenient and consistent shopping experience we are recognized for, and which directly supports our merchandising strategy. Conversion projects are already underway, representing an important step towards laying the groundwork before we can rank ramp-up conversions in fiscal 2027 and over an approximately 3-year period.

The gradual phase-in of our merchandise and store format will introduce elements of the Dollarama brand to our stores in Australia. Once stores contain a critical mass of Dollarama products, we intend to bring them under the Dollarama banner.

We will also leverage our operational excellence to level up IT infrastructure, store and logistics operations and processes. Work on all these fronts will allow us to get the most out of what is from a real estate standpoint, a high-quality existing store network across Australia.

As a reminder, we currently have 395 locations and our long-term target is to reach 700 stores in Australia by 2034. The goal of the transformation road map is to optimize the business and set it up for accelerated growth.

Over the next 3 to 4 years, we will be implementing major changes across the business. We will proceed methodically, maintaining a slow and steady approach to ensure execution.

As this is a multiyear journey, we don't expect the business to materially contribute to our profitability until a few years down the road when the heavy lifting is behind us. As a team, we are very excited about these projects and the opportunities that lie ahead across our growth platforms in Canada and Latin America and now Australia to the benefit of all our stakeholders.

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

Thank you, Neil, and good morning, everyone. Some housekeeping before we get into our second quarter performance, which includes 13 days of results from Australia.

Following the TRS acquisition, we now have 2 reportable segments: the Canadian one, which continues to include our Canadian operations and equity investments in Dollarcity and now an Australian one to cover our newly minted Australian operations. This will allow for the tracking of our performance in Canada as before.

Note that we won't be providing guidance for the Australian segment for fiscal 2026 nor will we be disclosing SSS in Australia, since we are in the process of developing and implementing an extensive road map to transform the business. That said, we don't expect any bottom line contribution from the Australian segment for fiscal 2026, once integration costs are factored in.

Our previously issued guidance for fiscal 2026 applies exclusively to our Canadian segment. And with these clarifications, let's turn now to our second quarter results.

In Q2, sales increased 10.3% compared with the same period last year, coming in at over $1.7 billion. This was primarily driven by 4.9% growth in same-store sales in Canada as well as additional revenue from a growing number of stores.

As explained earlier, revenue also included contributions from the Australian segment for 13 days, amounting to $25.7 million. Drilling down on same-store sales in Canada, these consisted of a 3.9% increase in the number of transactions and a 0.9% increase in average transaction size.

Strong traffic and demand for consumables were the primary drivers behind this performance in an environment where consumers continue to seek value and to deploy discretionary spend carefully. Our full year guidance for SSS in Canada remains unchanged at between 3% to 4%.

However, given our strong performance through the first half of the year, we now expect to be in the upper end of that range. The Canadian consumer remains fragile and cautious on discretionary spending in a context of continued economic uncertainty.

We are mindful that this may have an impact on SSS in the second half of the year, a period of historically strong seasonal sales. Also, remember that we are lapping a 53-week year, which happens every 5 to 6 years and causes a shift in the days that fall into any given quarter.

That impact will be felt in Q4, when we will be up against a quarter that included Halloween last year, whereas Halloween falls in Q3 this year. The last time that happened was in fiscal 2020.

Consolidated Q2 gross margin was 45.5% of sales in Q2 compared to 45.2% in Q2 last year. The improvement is primarily explained by lower logistics costs.

We continue to expect some headwind pressure on margins through the second half of the year, namely from mix and higher shipping costs. We do, however, now anticipate ending up in the upper end of our annual gross margin guidance range for the Canadian segment of between 44.2% to 45.2% of sales.

SG&A represented 14% of sales in Q2 compared to 13.6% for Q2 of fiscal 2025. The increase versus last year is primarily driven by SG&A from the Australian segment, which had a 20 basis point impact.

Labor costs are one of the structural differences between our Canadian and Australian segments as these are higher in Australia than in Canada. SG&A in Q2 also included a 20 basis point impact related to a onetime transaction cost.

Guidance expectation for fiscal 2026 SG&A for the Canadian segment remains unchanged at between 14.2% and 14.7% of sales. EBITDA was $588.5 million compared to $524.3 million in the second quarter of fiscal 2025.

Q2 net earnings increased by 12.5% to $321.5 million, resulting in an increase in diluted EPS of 13.7% to $1.16. The Australian segment had a slightly negative but immaterial impact on net earnings and diluted EPS in the quarter.

With our now increasingly global operations, you'll see an uptick in our effective tax rate of roughly 100 basis points going forward. Following the TRS acquisition, we are now subject to Pillar Two and we operate in higher tax rate jurisdictions.

For Q2, the year-over-year increased to 27% from 25.1% in Q2 of last year, is also explained by a nonrecurring impact of $6.7 million related to a licensing agreement entered into with Dollarcity for the expansion of the business in Mexico. Dollarcity continues to deliver impressive earnings growth.

Our 60.1% share of Dollarcity's net earnings amounted to $38.3 million this quarter, compared to $22.7 million in the second quarter last year. The year-over-year increase is driven by strong same-store sales, a growing store network, gross margin expansion, an increased stake compared to last year.

During the quarter, we used proceeds from our USD 37.6 million share of the Dollarcity dividend from December to make an initial capital contribution of USD 18 million for Mexico expansion plans. And just after Q2 ended, the Dollarcity Board approved a second cash dividend of USD 62.5 million, an amount consistent with the previous dividend.

Our share of that dividend again corresponds to USD 37.6 million and is expected to be received in the third quarter. In Q2, we repurchased just over 932,000 shares for a total cash consideration of $174.8 million.

We also announced today that the Board approved a quarterly cash dividend of $10.58 per share. We intend to continue prioritizing allocating cash to share buybacks to maximize shareholder value, subject to market conditions along with consistent quarterly dividend as part of our balanced capital allocation strategy.

In terms of our debt structure, we completed a $600 million bond offering back in June, the proceeds will notably be used to repay the $250 million bond that comes due this fall. In conclusion, we are pleased with the underlying trends driving our performance so far this year and with our capacity to unlock even more value for our shareholders as we expand internationally.

We approached this while remaining mindful of the shifting macro environment and how consumers are adapting to it with a focus on delivering compelling value. Our core Canadian business is strong, growing and profitable.

And with our free cash flow generation and multiple complementary expansion platforms, we have valuable optionality to effectively deploy capital. Through sound capital deployment and disciplined execution across our platforms, we look forward to driving long-term growth and value creation for our shareholders.

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

Looking at your same-store sales performance year-to-date of 4.9% versus the guidance. So let's -- we can ignore -- or let's put aside for the moment, the low end of 3%, let's say, for the full year, 3.5% to 4% implies a deceleration in the back half of the year.

Can you talk about what you're seeing in terms of consumer behavior? And why you're not sort of more optimistic, I guess, for lack of a better way of putting it.

Thanks for the question, Irene. During the first quarter, we've seen an inconsistent -- or we've seen inconsistent behavior from the consumer.

I mean there were moments of resilience, but there were also moments of fragility. For example, if we look at our seasonal assortment, I mean, summer is not over, but the performance was essentially flat.

And we expect this, if I could say, unpredictability to continue in the back half of the year. But you're correct in saying that with the performance we've had in the first half, we were comfortable or we're comfortable pointing towards the high end of our guidance.

I want to focus on TRS and maybe I appreciate the details in it's early days, but I want you to share with us how we should think about this transition? Should we think about it as the conversion of 100 stores per year?

And then can you go into more detail on the merchandise transition? Should we think about it as the non-converted stores will also be housing Dollarama merchandise a combo of the two or maintain the TRS sourcing?

Just maybe some details how we should think about that, please?

Good morning, Brian. So on the merchandising front, it will be a gradual phase-in.

The merchants in Canada are working closely with our colleagues in Australia to phase in Dollarama's import merchandise and to revamp and rework the current domestic offering as well. It will take some time between now and fiscal -- end of fiscal 2027 to really start feeling more like you're walking into a Dollarama store is our expectation.

Conversions have begun in four stores. It will be a gradual phase-in, again over the next several years, each year, ramping up the number of store conversions that we're able to execute.

As the team gets better as our bandwidth grows in the country and that expertise is on the ground. We also continue to work on the IT infrastructure and logistics, which have begun to ramp up.

But it's early days, as you know, we're 13 days in. So that's about all the color we can share at this point in time.

To circle back on Dollarcity, so strong earnings growth with better gross margins, but higher SG&A. Looking forward, how should we think about operating leverage drivers between gross margin and SG&A.

And I mean, in other words, how much more head count do you plan to adding as you continue to expand in new geographies?

Yes. I'd say at a high level, I mean, it's still a business that has a lot of scaling potential.

And you can see that when you look at the top line growth trickling down to bottom line in coming with 60-plus earnings growth. When we highlighted higher labor costs, it's really a function of higher wages, higher minimum wage increase in those countries, which is still increasing at higher rates than, for example, if compared to Canada.

But aside from that, we continue to expect leverage in every line item, whether in gross margins or in SG&A.

With respect to Australia, Neil, want to get your thoughts on what the biggest risks are? And as you contemplate implementing the Dollarama model, how should we think about transferring the culture of performance into what is a new venture for you guys with this acquisition?

I'm excited by the, I guess, similarity between the two teams and the leadership at what is now, I guess, Dollarama Australia and no longer TRS. They really have bought into what we're trying to achieve.

And I think over the next few years, the culture will unify. And it's not -- it's something that we focus on, and we're excited by.

But I think that the daily work processes and ambitions tend to just become the culture over the course of time. It's not like we're pulling out a manual and the cult -- the Dollarama cult manual where it's a daily sort of process, and I think the Dollarcity experiment for Dollarama in many, many, many years ago, has turned into an incredibly fantastic partnership and the Dollarcity culture is at one with the Dollarama culture.

And I think our goal is to do the very same thing in Australia. There's going to be ups and downs.

And I'm sure as a business, we'll only get better as time goes on. I mean even in the early days at Dollarama, we'd go from guardrail to guardrail on any given topic or subject, but we always managed for the overall performance to work well for our shareholders.

And I'm sure the same lessons that we learned along those paths will apply and help us not make those mistakes in Australia, but it's a new market with a whole bunch of new challenges. So we'll do the best we can to minimize any of the challenges that arise.

But I think we have a great team and I'm quite excited about that business, but it will take time.

I wanted to ask about the tax rates and in particular, Pillar Two. Can you provide some more color here?

Is it fair to assume that's now a permanent feature? And any way you can quantify what that might mean for your tax rate moving forward.

Thanks for the question, John. So I would first say that we're now a global business, and it does come with additional tax complexities.

And despite the tax efficiency of our structure, I would say that we are now subject to a higher effective tax rate of, call it, roughly 100 basis points. So we're operating in higher tax jurisdictions.

And as you pointed out, as a multinational, we're now subject to what is called Pillar Two. But I would also take the opportunity to highlight again that in the tax that you've seen this quarter, there is a nonrecurring impact of $6.7 million just for Q2, related to the granting of an IP license to Mexico, but that should not be assumed in future quarters.

At the end of the day, it's just the cost of doing business as we execute on our ambitions to become a global retailer.

First, Neil, if you ever do put that cult of Dollarama manual into print, I'd love a copy. Maybe just to ask a question just about the supply chain.

Obviously, the industry has had some time to adjust, although the new environment clearly remains uncertain. I'm just curious if you could provide some thoughts on kind of your takeaways for Dollarama from all of that and any risks or opportunities that you see as a result of these shifts?

I mean, look, it's -- as you know, it's quite volatile, right? Any political, any trade issues can easily destabilize the logistics chain.

But we could only comment on what we've seen in Q2. And in Q2, it ran very smoothly.

And that's one of the reasons why we were able to achieve a higher gross margin percentage. It was frictionless.

There was no added costs in the chain. But as you know, we remain vigilant at anything that is, I guess, thrown at the logistics chain and we looked at last year was a good example of strikes and bottlenecks at ports.

But from what we've seen up to now in Q2, none of that has happened, but we need to remain vigilant.

Nice quarter. I have a question for you on just Canadian consumer and behavior.

Curious if you think you are getting any benefit from a buy sort of Canada approach by consumers over here, given the geopolitical backdrop. And then as it pertains to Walmart, Walmart has mentioned that they are ramping price and promotional activity in Canada.

I'm curious if you've experienced that to date or any impact and what a more aggressive Walmart could mean going forward?

Sure. So I'll address the Walmart question.

Walmart, Loblaws, everybody understands how competitive the environment is at this point in time with the instability and customers focused on consumables and their base needs. The landscape remains higher -- a higher level of competition than generally speaking.

But that being said, we continue to stay focused on remaining the best value, relative value in the market. We can only control our actions and not the actions of others.

So our buying team's job is to stay on top of what market values are and stay ahead of the curve to be the best relative value in our convenient locations in a quicker, easier shop and I think our performance gives us confidence that we're executing on that promise.

I would like to touch on Mexico a little bit. I know it's early days, but just would like to hear what -- some color on the ramp-up of your first store, how does it compare to other stores you've ramped up in Latin America?

How the customer responds. It's a new brand in Mexico that's unknown mostly by most of your consumers.

So just a little color to help us understand how the opening has gone, it would be great.

Marty, you're right. It's really early days.

Look, it's one store and it's only been a few weeks. So very, very hard to draw any trends or conclusions here.

But from the limited amount of days that we've seen, I mean, it seems that it is well received by the Mexican consumer, and we're encouraged by that. But I will reiterate one store and only a few weeks.

So can't draw any conclusions at this point.

I wanted to follow up on the Canadian segment and specifically the comment that the consumables business was strong as it has been in past quarters, but it sounds like also seasonal products and general merchandise were relatively stable as well. So I mean can you just frame that up for us?

It seems like that's a continuation of what happened during Q1 as well? And I mean, is there anything that we can necessarily infer from that?

Is the overall Canadian consumer in a place of stability despite the sentiment? It seems to be depressed.

Just maybe a little bit more detail on that.

Yes. I mean really, what we're seeing in Q2 is a continuation of Q1 and prior quarters.

So consumables, continuing to perform well. The consumer is still seeking value and trying to remain within its budget and Dollarama is there for the consumer.

And on the other side, when you look at seasonal sales and you go back a few quarters, it's anywhere between flat, slightly negative, slightly positive. And so when we look at our summer seasonal, it's really along the same trend.

It's flat. I mean, summer is not over, but it's flat.

And so all we see is a continuation of that. But like I also, I think, mentioned in one of my first -- one of the first questions is there's some inconsistency in what we're seeing from the consumer.

So at some moment, it seems resilient. And others, it seems fragile.

So it's really hard at this point to draw any trends of the health of the Canadian consumer.

So just in terms of sourcing with some more clarity coming into play on U.S. tariffs and global products, are you seeing any incremental shifts on the sourcing front?

Any particular opportunities to boost sourcing from any given geographies?

Not really. We expected this tariff discussion to be relatively short-lived, like we were hoping 2 years or less.

And while we've looked at other markets, you have to be realistic that the importation of goods from almost anywhere, but the U.S. is -- or Canada is a 3- to 6- month project.

And so while we've done our work on the few items that would be alternatives from the goods we buy from the U.S., it hasn't been a huge push because the majority of the goods that we buy from the U.S. are national brands, and those national brands can't be replaced with private label imports.

It's just not the nature of those products. So when you're talking about Pepsi and FritoLay and Nestlé and Hershey, it is what it is.

But where we're talking about plastic molded items or other goods that were made in the U.S., those goods have been transferred to other countries because namely Canada, because the 25% tariff, of course, was highly prohibitive.

Great. I was just curious on The Reject Shop acquisition.

It does seem like there's a lot of exciting plans that you have ahead for the business. But if you were to bucket the initiatives that you have in terms of maybe like layups versus midrange jump shots or contested 3s or how do you think about what's kind of the lower-hanging fruit versus not.

I would just be curious to get kind of your thoughts and as well around, I believe, Neil, you made a comment around the pricing changes that you're looking to make. How should we be thinking about the opportunity there versus what exists in that business today?

So Corey, I think we'd like to think of it as an overall game. So there's no focus on any particular shot.

There's a focus on all the shots, all the plays, all the layups. So what we're doing because it's such a big undertaking as we're commencing the process in all parts of the business.

Some will be easier and faster to execute and others a longer slog. But it all needs to get done.

And so it's all commenced simultaneously. And clearly, having the correct assortment is going to be the true driver of what differentiates us from the retail market or existing retail market in that country.

And I would argue the retail market in all countries we're in. So a focus by the buying teams here and there on getting our assortment into the Australian market is my priority #1.

But regardless of whether it's my priority #1, all the different pieces of the sort of conversion of the existing business into what we wish to see in the future have begun.