News Release - Dollarama

Dollarama reports third quarter results

MONTREAL, Dec. 6, 2017 /CNW Telbec/ - Dollarama Inc. (TSX: DOL) ("Dollarama" or the "Corporation") today reported year over year increases in sales, net earnings and earnings per common share for the third quarter ended October 29, 2017. Diluted net earnings per common share rose 25.0% to $1.15.

Financial and Operating Highlights

All comparative figures that follow are for the third quarter ended October 29, 2017 compared to the third quarter ended October 30, 2016. All financial information presented in this press release has been prepared in accordance with generally accepted accounting principles in Canada ("GAAP") as set out in the CPA Canada Handbook – Accounting under Part I, which incorporates International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). Throughout this press release, EBITDA, EBITDA margin, total debt and net debt, which are referred to as "non-GAAP measures", are used to provide a better understanding of the Corporation's financial results. For a full explanation of the Corporation's use of non-GAAP measures, please refer to footnote 1 of the "Selected Consolidated Financial Information" section of this press release.

Throughout this press release, all references to "Fiscal 2017" are to the Corporation's fiscal year ended January 29, 2017, to "Fiscal 2018" are to the Corporation's fiscal year ending January 28, 2018, and to "Fiscal 2019" are to the Corporation's fiscal year ending February 3, 2019. The Corporation's fiscal year ends on the Sunday closest to January 31 of each year and usually has 52 weeks. However, as is traditional with the retail calendar, every five to six years, a week is added to the fiscal year. As such, Fiscal 2019 will be comprised of 53 weeks.

Compared to the third quarter of Fiscal 2017:

Sales increased by 9.7% to $810.6 million;
Comparable store sales⁽¹⁾ grew 4.6%, over and above a 5.1% growth the previous year;
Gross margin⁽¹⁾ was 40.1% of sales, compared to 39.5% of sales;
EBITDA⁽¹⁾ grew 18.8% to $207.3 million, or 25.6% of sales, compared to 23.6% of sales;
Operating income grew 18.4% to $189.3 million, or 23.3% of sales, compared to 21.6% of sales; and
Diluted net earnings per common share increased by 25.0%, from $0.92 to $1.15.

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⁽¹⁾ We refer the reader to the notes in the section entitled "Selected Consolidated Financial Information" of this press release for the definition of these items and, when applicable, their reconciliation with the most directly comparable GAAP measure.

During the third quarter of Fiscal 2018, the Corporation opened 10 net new stores, compared to 18 net new stores during the corresponding period of the previous fiscal year.

"We are pleased to announce that Fiscal 2018 guidance has been enhanced on gross margin and general, administrative and store operating expenses. This is attributable to our strong results and consistent performance through the first nine months of the current fiscal year," said Dollarama's President and Chief Executive Officer, Neil Rossy. "We are focused on executing our growth strategy and providing compelling value to our customers. We are also on track to meet our Fiscal 2018 net new store target."

Financial Results

Sales for the third quarter of Fiscal 2018 increased by 9.7% to $810.6 million, compared to $738.7 million in the corresponding period of the prior fiscal year. The increase in sales was driven by continued organic sales growth fuelled by comparable store sales growth of 4.6%, over and above comparable store sales growth of 5.1% in the third quarter of Fiscal 2017, and the growth in the total number of stores over the past twelve months, from 1,069 stores on October 30, 2016 to 1,135 stores on October 29, 2017.

Comparable store sales growth for the third quarter of Fiscal 2018 consisted of a 4.5% increase in the average transaction size, over and above a 5.8% increase in the corresponding quarter of Fiscal 2017, and a 0.1% increase in the number of transactions.

Gross margin was 40.1% of sales in the third quarter of Fiscal 2018, compared to 39.5% of sales in the third quarter of Fiscal 2017. The increase in the gross margin is mainly attributable to higher product margins, the positive scaling impact of strong comparable store sales as well as lower occupancy costs as a percentage of sales. Gross margin includes sales made by the Corporation to Dollarcity, as principal, which represent approximately 1% of the Corporation's total sales, and a nominal markup margin.

General, administrative and store operating expenses ("SG&A") for the third quarter of Fiscal 2018 was $117.6 million, a 0.6% increase over $117.0 million for the third quarter of Fiscal 2017. The increase is primarily related to the continued growth in the total number of stores. SG&A for the third quarter of Fiscal 2018 represented 14.5% of sales, compared to 15.8% of sales for the third quarter of Fiscal 2017. The improvement of 1.3% in SG&A as a percentage of sales is mainly the result of labour productivity improvements as well as the positive scaling impact of strong comparable store sales.

Financing costs increased by $1.7 million, from $8.5 million for the third quarter of Fiscal 2017 to $10.2 million for the third quarter of Fiscal 2018. The increase is due to increased borrowings on long-term debt.

Net earnings increased to $130.1 million, or $1.15 per diluted common share, in the third quarter of Fiscal 2018, compared to $110.1 million, or $0.92 per diluted common share, in the third quarter of Fiscal 2017. The increase in net earnings is mainly the result of a 9.7% increase in sales, a stronger gross margin and lower SG&A as a percentage of sales. Earnings per share were also positively impacted by the repurchase of shares through the Corporation's normal course issuer bid.

Dividend

On December 6, 2017, the Corporation announced that the Board of Directors had approved a quarterly cash dividend for holders of common shares of $0.11 per common share. The Corporation's quarterly dividend will be paid on January 31, 2018 to shareholders of record at the close of business on January 5, 2018 and is designated as an "eligible dividend" for Canadian tax purposes.

Normal Course Issuer Bid

On June 7, 2017, the Corporation announced that the Board of Directors had approved the renewal of the normal course issuer bid and that the Corporation had received the approval from the Toronto Stock Exchange to purchase for cancellation up to 5,680,390 common shares, representing 5.0% of the 113,607,809 common shares issued and outstanding as at the close of markets on June 6, 2017, during the 12-month period from June 19, 2017 to June 18, 2018 (the "2017-2018 NCIB").

During the third quarter of Fiscal 2018, a total of 687,700 common shares were repurchased for cancellation under the 2017-2018 NCIB, at a weighted average price of $135.41 per common share, for a total cash consideration of $93.1 million.

Outlook

The table below provides an update to the Corporation's guidance on select financial metrics for Fiscal 2018 as well as some initial guidance for Fiscal 2019.


(as a percentage of sales except net new store openings in units and capital expenditures in millions of dollars)	Fiscal 2018		Fiscal 2019
	September 2017 Guidance	Enhanced Guidance

Net new stores openings	60 to 70	60 to 70	60 to 70
Gross margin	38.0% to 39.0%	38.5% to 39.5%⁽ⁱ⁾	38.0% to 39.0%
SG&A	15.0% to 15.5%	14.5% to 15.0%⁽ⁱⁱ⁾	15.0% to 15.5%⁽ⁱⁱⁱ⁾
EBITDA margin	22.5% to 24.0%	23.5% to 25.0%^(iv)	22.5% to 24.0%
Capital expenditures^(v)	$100.0 to $110.0	$100.0 to $110.0	$110.0 to $120.0

⁽ⁱ⁾ Gross margin was revised upward for Fiscal 2018 as a result of stronger than expected product margins and the sales mix, as well as lower occupancy costs as a percentage of sales.

⁽ⁱⁱ⁾ SG&A as a percentage of sales was revised downward for Fiscal 2018 as a result of in-store labour productivity initiatives and tighter control of operating expenses.

⁽ⁱⁱⁱ⁾SG&A as a percentage of sales is expected to increase in Fiscal 2019, when comparing it with the most recent guidance for Fiscal 2018, as a result of the increase in minimum wage in Ontario.

^(iv) EBITDA margin was revised upward for Fiscal 2018 as a result of the enhanced guidance on gross margin and SG&A as a percentage of sales.

^(v)Includes additions to property, plant and equipment as well as computer hardware and software, but excludes any potential capital expenditures relating to future distribution capacity expansion.

These guidance ranges are based on a number of assumptions for Fiscal 2018 and Fiscal 2019, including the following:

the number of signed offers to lease and store pipeline for the next 18 months;
comparable store sales growth for Fiscal 2018 and Fiscal 2019 in the range of 4.0% to 5.0%;
positive customer response to our product offering, value proposition and in-store merchandising;
the active management of our product margins, including by refreshing between 25% to 30% of our offering on an annual basis;
the visibility of approximately three months on open orders and product margins;
the increase in the minimum wage in Ontario, effective January 1, 2018, which will impact the SG&A for approximately 41% of stores, and the assumption that competitors will absorb this increase for the most part instead of offsetting it by a corresponding increase in the retail price of products;
the entering into of foreign exchange forward contracts to hedge the majority of forecasted purchases of merchandise in U.S. dollars against fluctuations of the Canadian dollar against the U.S. dollar;
the continued execution of in‑store productivity initiatives, including, without limitation, the efficient use of advanced scheduling and the realization of cost savings and benefits aimed at improving operating expenses;
ongoing cost monitoring;
the capital budget for each of Fiscal 2018 and Fiscal 2019 for new store openings, maintenance capital expenditures, and transformational capital expenditures (the latter being mainly related to information technology projects), excluding for greater certainty any potential capital expenditures relating to future distribution capacity expansion;
the successful execution of our business strategy;
the absence of a significant shift in economic conditions or material changes in the retail competitive environment; and
the absence of unusually adverse weather, especially in peak seasons around major holidays and celebrations.

Many factors could cause actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, but not limited to, risks related to: future increases in operating and merchandise costs (including increases in statutory minimum wage), inability to sustain assortment and replenishment of merchandise, increase in the cost or a disruption in the flow of imported goods, failure to maintain brand image and reputation, disruption of distribution infrastructure, inventory shrinkage, inability to renew store, warehouse, distribution center and head office leases on favourable terms, seasonality, market acceptance of private brands, foreign exchange rate fluctuations, competition in the retail industry, current economic conditions, failure to attract and retain quality employees, disruption in information technology systems, unsuccessful execution of the growth strategy, adverse weather, product liability claims and product recalls, litigation and regulatory compliance.

This guidance, including the various underlying assumptions, is forward-looking and should be read in conjunction with the cautionary statement on forward-looking statements.

Forward-Looking Statements

Certain statements in this press release about our current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statements. The words "may", "will", "would", "should", "could", "expects", "plans", "intends", "trends", "indications", "anticipates", "believes", "estimates", "predicts", "likely" or "potential" or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements.

Forward-looking statements are based on information currently available to us and on estimates and assumptions made by us regarding, among other things, general economic conditions and the competitive environment within the retail industry in Canada, in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, but not limited to, the factors discussed in the "Risks and Uncertainties" section of the Corporation's management's discussion and analysis for Fiscal 2017 (available on SEDAR at www.sedar.com).

These factors are not intended to represent a complete list of the factors that could affect us; however, they should be considered carefully. The purpose of the forward-looking statements is to provide the reader with a description of management's expectations regarding the Corporation's financial performance and may not be appropriate for other purposes; readers should not place undue reliance on forward-looking statements made herein. Furthermore, unless otherwise stated, the forward-looking statements contained in this press release are made as at December 6, 2017 and we have no intention and undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

About Dollarama

Dollarama is a recognized Canadian value retailer offering a broad assortment of everyday consumer products, general merchandise and seasonal items. Our 1,135 locations across Canada provide customers with compelling value in convenient locations, including metropolitan areas, mid-sized cities and small towns. Our quality merchandise is sold in individual or multiple units at select, fixed price points up to $4.00.

www.dollarama.com

Selected Consolidated Financial Information

		13-Week Periods Ended		39-Week Periods Ended
(dollars and shares in thousands, except per share amounts)		October 29, 2017	October 30, 2016	October 29, 2017	October 30, 2016
		$	$	$	$

Earnings Data
Sales		810,583	738,708	2,328,015	2,108,688
Cost of sales		485,703	447,239	1,415,816	1,300,779
Gross profit		324,880	291,469	912,199	807,909
SG&A		117,630	116,972	339,887	330,860
Depreciation and amortization		17,999	14,666	51,845	42,199
Operating income		189,251	159,831	520,467	434,850
Financing costs		10,154	8,517	29,621	22,440
Earnings before income taxes		179,097	151,314	490,846	412,410
Income taxes		49,005	41,256	134,264	112,848
Net earnings		130,092	110,058	356,582	299,562

Basic net earnings per common share		$1.16	$0.93	$3.15	$2.50
Diluted net earnings per common share		$1.15	$0.92	$3.11	$2.47

Weighted average number of common shares outstanding during the period:
	Basic	112,191	118,181	113,303	119,864
	Diluted	113,601	119,496	114,667	121,101

Other Data
Year-over-year sales growth		9.7%	11.2%	10.4%	11.9%
Comparable store sales growth ⁽²⁾		4.6%	5.1%	5.1%	5.7%
Gross margin ⁽³⁾		40.1%	39.5%	39.2%	38.3%
SG&A as a % of sales ⁽³⁾		14.5%	15.8%	14.6%	15.7%
EBITDA ⁽¹⁾		207,250	174,497	572,312	477,049
Operating margin ⁽³⁾		23.3%	21.6%	22.4%	20.6%
Capital expenditures		31,420	42,708	80,497	128,764
Number of stores ⁽⁴⁾		1,135	1,069	1,135	1,069
Average store size (gross square feet) ⁽⁴⁾		10,099	9,990	10,099	9,990
Declared dividends per common share		$0.11	$0.10	$0.33	$0.30

				As at
				October 29, 2017	January 29, 2017
				$	$
Statement of Financial Position Data
Cash				77,256	62,015
Merchandise inventories				516,636	465,715
Total current assets				616,829	559,065
Property, plant and equipment				460,434	437,089
Total assets				1,948,780	1,863,451
Total current liabilities				253,612	513,402
Total non-current liabilities				1,710,467	1,249,765
Total debt ⁽¹⁾				1,522,775	1,333,643
Net debt ⁽¹⁾				1,445,519	1,271,628
Shareholders' equity (deficit)				(15,299)	100,284

⁽¹⁾

In this press release, EBITDA, EBITDA margin, total debt and net debt are referred to as "non-GAAP measures". Non-GAAP measures are not generally accepted measures under GAAP and do not have a standardized meaning under GAAP. EBITDA, EBITDA margin, total debt and net debt are reconciled below. The non-GAAP measures, as calculated by the Corporation, may not be comparable to those of other issuers and should be considered as a supplement to, not a substitute for, or superior to, the comparable measures calculated in accordance with GAAP.

We have included non-GAAP measures to provide investors with supplemental measures of our operating and financial performance. We believe that non-GAAP measures are important supplemental metrics of operating and financial performance because they eliminate items that have less bearing on our operating and financial performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on GAAP measures. We also believe that securities analysts, investors and other interested parties frequently use non-GAAP measures in the evaluation of issuers, many of which present non-GAAP measures when reporting their results. Our management also uses non-GAAP measures in order to facilitate operating and financial performance comparisons from period to period, to prepare annual budgets, and to assess our ability to meet our future debt service, capital expenditure and working capital requirements.


		13-Week Periods Ended		39-Week Periods Ended
(dollars in thousands)		October 29, 2017	October 30, 2016	October 29, 2017	October 30, 2016
		$	$	$	$
A reconciliation of operating income to EBITDA is included below:

Operating income		189,251	159,831	520,467	434,850
Add: Depreciation and amortization		17,999	14,666	51,845	42,199
EBITDA		207,250	174,497	572,312	477,049
	EBITDA margin ⁽³⁾	25.6%	23.6%	24.6%	22.6%

A reconciliation of long-term debt to total debt is included below:
				As at
(dollars in thousands)				October 29, 2017	January 29, 2017
				$	$

Senior unsecured notes bearing interest at:
	Fixed annual rate of 2.203% payable in equal semi-annual instalments, maturing November 10, 2022			250,000	-
	Fixed annual rate of 2.337% payable in equal semi-annual instalments, maturing July 22, 2021			525,000	525,000
	Fixed annual rate of 3.095% payable in equal semi-annual instalments, maturing November 5, 2018			400,000	400,000
	Variable rate equal to 3‑month bankers' acceptance rate plus 59 basis points payable quarterly, maturing March 16, 2020			300,000	-
	Variable rate equal to 3‑month bankers' acceptance rate plus 54 basis points payable quarterly, matured May 16, 2017			-	274,834
Unsecured revolving credit facility maturing September 29, 2022				35,000	130,000
Accrued interest on senior unsecured notes				12,775	3,809
Total debt				1,522,775	1,333,643

				As at
(dollars in thousands)				October 29, 2017	January 29, 2017
				$	$
A reconciliation of total debt to net debt is included below:
Total debt				1,522,775	1,333,643
Cash				(77,256)	(62,015)
Net debt				1,445,519	1,271,628

⁽²⁾	Comparable store sales growth is a measure of the percentage increase or decrease, as applicable, of the sales of stores, including relocated and expanded stores, open for at least 13 complete fiscal months relative to the same period in the prior fiscal year.
⁽³⁾	Gross margin represents gross profit divided by sales. SG&A as a % of sales represents SG&A divided by sales. Operating margin represents operating income divided by sales. EBITDA margin represents EBITDA divided by sales.
⁽⁴⁾	At the end of the period.

SOURCE Dollarama Inc.