Good afternoon and welcome to Dollarama's conference call regarding today's announcement. Neil Rossy, President and CEO, and Patrick Bui, CFO, will make a short presentation followed by a question-and-answer period open exclusively to financial analysts. Please note that the presenters will only take one question per analyst. The press release is available at dollarama.com in the Investor Relations section as well as on SEDAR+ , and accompanying investor presentation is also available under Events in the Investor Relations section of the website. Before we start, I have been asked by Dollarama to read the following message regarding forward-looking statements. Dollarama's remarks today may contain forward-looking statements about its current and future plans, expectations, intentions, results, level of activity, performance, goals, or achievements, or any other future events or developments.
Forward-looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results, levels of activity, performance, achievements, future events, or developments to differ materially from those expressed or implied by the forward-looking statements. As a result, Dollarama cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. For additional information on the assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in Dollarama's MD&A dated December 4th, 2024, available on SEDAR+ . Forward-looking statements represent management's expectations as at March 26th, 2025, except as may be required by law.
Dollarama has no intention and undertakes no Dollarama Lennox conference call on Wednesday, March 26, 2025, 6:00 P.M. Eastern Standard Time, page two of eight, obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. I would now like to turn the conference over to Neil Rossy. Please go ahead.
Thank you, Operator, and good evening, everyone. Earlier today, we announced that we have entered into a definitive agreement to acquire Australian discount retailer, The Reject Shop, or TRS, as we pursue further opportunities for Dollarama. Identifying the right opportunity to enter a new geography and build upon our track record as a leading value retailer in Canada and Latin America has been a key objective for the Dollarama team. With TRS in Australia, we have an opportunity to bring our value proposition to a market that presents a clear path for growth and through an established platform. We are confident in our ability to generate value for our shareholders in the long term by scaling this platform in a disciplined and measured manner. Headquartered in Melbourne, TRS is Australia's largest pure-play discount retailer with a nationwide presence.
It has a well-located network of more than 390 stores spanning every Australian state and approximately 5,000 employees, including a strong management team. Founded in 1981, its mission is to help all Australians save money every day. Through its brick-and-mortar footprint, it offers a broad product offering comprised of both discounted private label and recognized national brands. Their business model and structure are aligned with Dollarama's, and our interactions with their management team have shown that we have compatible corporate cultures and values. From a scale perspective, it is a well-established player within the country's value retail landscape and has no national direct competitor. There are no major pure-play dollar store chains similar to Dollarama in Australia, and overall, the discount segment remains under-penetrated compared to Canada. The Australian market also holds parallels with our market in Canada from a consumer behavior and macroeconomic perspective.
We have identified opportunities to unlock TRS's margin and growth potential by extending our value proposition through their platform. We expect this conversion to take several years and strongly believe that Dollarama's slow and steady approach will win the discount race in Australia. With just under 400 stores, we also feel that their current size is a manageable one through which we can efficiently implement our vision for the business and then grow from there. It is this combination of factors that makes this acquisition an appropriate one to establish our next growth platform and a strong use of capital for our investors. There are several areas where we believe we can optimize their business over the medium term and deploy our value proposition. This includes through the merchandise mix and price point strategy, as well as through the store layout and overall shopping experience.
Optimizing tech infrastructure, store, and logistics operations will be equally important to the future success of this business. We look forward to executing our vision for the business alongside the local management team and the employees across Australia. With the support of an Australian leadership team, we will stay mindful of local considerations and preferences, an approach which has served us well with Dollarcity across Central and South America. We also believe that once converted to our business model, the TRS platform will provide a strong foundation for future growth. This is reflected in our objective to grow their network to approximately 700 stores by 2034. Today's announcement marks a turning point for Dollarama and its expansion.
This represents a strategic acquisition that will enable us to establish a new and complementary growth platform for the future, one that will contribute to creating value for all stakeholders in the long term. While we are optimistic about this acquisition, we remain fully focused on our business in Canada and our partnership with Dollar city. I'll now pass it over to Patrick for more details on the transaction.
Thank you, Neil. Let me begin with an overview of the key transaction details and next steps. Our offer is to acquire all of the issued and outstanding ordinary shares of TRS for an all-cash consideration of AUD 6.68 per ordinary share. The cash consideration per share represents a 108% premium to their 20-day volume-weighted average price of AUD 3.21. This sets TRS's equity value at approximately CAD 233 million. It implies an enterprise value of approximately CAD 170 million on a pre-IFRS 16 basis, which excludes lease liabilities, and an enterprise value of approximately CAD 379 million on a post-IFRS 16 basis, which includes lease liabilities consistent with IFRS 16. The enterprise value implies an 8.9x multiple on their EBITDA on a pre-IFRS 16 basis and a 3.3x multiple on a post-IFRS 16 basis. This is based on their last 12-month period ended December 29, 2024.
A fully franked special dividend of up to AUD 0.77 per ordinary share is intended to be paid by TRS to its shareholders, subject to the terms of the agreement. This is a common mechanism in the context of M&A in Australia, providing tax benefits for some shareholders. If a special dividend is paid, its amount will be deducted from the cash consideration to be paid by Dollarama. The purchase price will be satisfied with a mix of cash on hand and available liquidities under our revolving credit facility. The acquisition is expected to have a minimal immediate impact on our net earnings per share, as well as a limited impact on our leverage ratio. Notwithstanding the relatively small transaction size for Dollarama from a financial standpoint, the acquisition provides an opportunity to deploy capital with an attractive long-term return profile, adding a future leg to our growth strategy.
We have a strong Canadian pillar, a growing presence in LatAm, plans to enter Mexico in the near term, and now another market of opportunity in Australia. As outlined by Neil, we believe this business presents a good combination of similarities and potential. Their current business model and operating context hold a number of parallels with ours. It is important to keep in mind that there are also some structural differences, such as labor and real estate costs, which are higher than Canada. Overall, we believe that we can leverage our business model and core strengths to unlock their margin and growth potential over the long term. The decision to move ahead with this acquisition follows a careful and thorough evaluation of various markets and opportunities globally, looking at specific criteria.
This includes, but is not limited to, retail and market dynamics, consumer preferences, competitive environment, macroeconomic stability, and growth potential. We are confident that this is an opportunity that will eventually generate compelling return on invested capital for Dollarama shareholders. Importantly, the purchase price and capital we anticipate deploying judiciously over time to optimize and scale the business will not impact our shareholder capital return strategy. Our capital allocation approach will continue to balance investing in the growth of our platforms while returning capital to shareholders through share buybacks and a dividend subject to quarterly approval. In terms of the mechanics of the transaction, it will be implemented by way of an Australian scheme of arrangement and is subject to customary closing conditions. This includes an independent expert concluding that the transaction is in the best interest of TRS shareholders to be obtained by their board.
As a publicly traded company listed on the Australian Stock Exchange, the transaction is also subject to the approval of TRS shareholders and finally, the receipt of necessary regulatory and court approvals. Their board of directors has unanimously recommended that shareholders vote in favor of the transaction, subject to customary conditions. Kin Group, which owns 20.8% of TRS ordinary shares outstanding, has also publicly announced their support. We believe that this transaction is beneficial to both TRS and Dollarama stakeholders, and we look forward to a successful closing. We estimate closing to occur during the second half of calendar 2025, during our fiscal 2026. As a growth-oriented value retailer with an unwavering commitment to delivering value and convenience to consumers from all walks of life, we look forward to extending our international reach and welcoming TRS into the fold. Neil, back to you for concluding remarks.
Thank you, Pat. Our ambition as a team to expand our business in a thoughtful manner goes beyond Canada and Latin America. Our track record to date demonstrates the relevance of our business model across demographics and geographies, as well as our ability to successfully execute our long-term growth plans and create value for our shareholders. With TRS, the conditions are optimal for us to leverage our best-in-class retail sourcing and operational expertise to enter a new market. We will do so through an at-scale platform with a well-located store network and a team that is already 5,000 strong. While we must let the acquisition process follow its course, we are all looking forward to embarking on this new chapter of our growth with the TRS team.
We are confident that this long-established business with a compatible focus on customer convenience and value will have an exciting future as Dollarama's newest growth platform. With that, I'll now turn the call back to the operator for the Q&A.
Thank you. To ask a question, you will need to press star one one on your telephone. To withdraw your question, press star one one again. Due to time restraints, we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. Our first question will come from the line of Irene Nattel with RBC Capital Markets. Your line is open.
Thank you. Good evening, everyone. I guess the question investors are going to be asking themselves is, why this acquisition? Why now? Is there any read-through to your anticipated growth from either the Canadian or the LatAm businesses?
We think it's a great opportunity to export our business model to a new geography and support our long-term profitable growth, leveraging our experience in Canada and LatAm. We just think it's a great opportunity to deploy capital at attractive returns. I mean, this is completely dissociated from Canada and LatAm, other than we will use all the know-how and expertise and bring that to the Australian market.
Thank you. One moment for our next question. That will come from the line of Vishal Shreedhar with National Bank. Your line is open.
Hi. Thanks for taking my questions. Given that Dollarama has so much on the go with multiple countries in LatAm, plus the Mexico expansion, now the Australian expansion, can you just give us a thought on how Dollarama management will accommodate all this change and if there are requirements at additional management layers to manage the complexity?
How are you, Vishal? The answer is we spent the last 10 years buffering our team and building our team to be able to look at other opportunities for the business. We've also spent those last 10 years bringing our partners at Dollarc ity up to speed on how we do business, the details of the business, the structures, the systems, the processes. At this point, our partners are very capable with less time spent by Dollarama employees in Canada to execute the vision that we share for LatAm. In Mexico, we have a dedicated team, including some specific members in Canada. The Calgary Warehouse Distribution Center, for example, has its own team that has nothing to do with LatAm and will have nothing to do with this particular project.
Various teams will work on these things, and there's not going to be a lot of overlap. The systems and processes that flow through all of those businesses will be used for Australia. We also, when we acquire a business, bring the expertise of the people that are at the business currently. We have a strong leadership team that's coming along with this business. With their support and vision, I think we will be good to go on execution.
Thank you. One moment for our next question. That will come from the line of Tamy Chen with BMO Capital Markets. Your line is open.
Hi. Good evening. Thanks for the question. I'm just curious, looking at TRS here, you're paying over 100% premium. The purchase multiple on the comparable IFRS 16 basis is quite compelling for you. The TRS stock has been, I think, on a down for several years now. You're stepping in now to acquire it. I'm just curious, why do you think that is if the discount opportunity you say is under-penetrated in Australia? This is an established player. The macro trends seem to favor a discount retailer, and there's no true competitor. Sounds great, but I'm just curious why the market hasn't really recognized it for TRS's stock. Thanks.
Yeah, that's a great question, Tammy. We think that with our know-how on one side and our capital, we believe that we can surface significant value, and we think our offer is fair in that context. The management team at TRS has done a fantastic job bringing the business where they are today, but we think we could help them bring it to the next level with our know-how and expertise and the capital necessary to grow the business.
Thank you. One moment for our next question. That will come from the line of Mark Petrie with CIBC. Your line is open.
Yeah. Thanks for the question. Congrats on the deal. I think I heard a comment, Neil, in your prepared remarks that the plans to convert the TRS operations to the Dollarama platform would take several years. I'm hoping you could just sort of expand on that a little bit if I got that right, first of all. Second of all, a rough outline on what that migration would entail. Maybe one part of that that I'm curious about is the logistics operations and the existing distribution network for TRS.
Sure. There is a lot of work to be done, obviously, Mark. This deal will not be concluded officially for three to four months. How exactly each thing will work, I am not going to get into. At a high level, I will say that I am comfortable saying that the transition from the current TRS platform to something more aligned to what you have seen will take four years or less for the current store base over and above new stores opening with the more traditional Dollarama platform. From a logistics perspective, it is to be discussed and decided. We have looked at and studied their existing platforms. We can start with those platforms, but I would say it is three years or less to take those platforms and slowly convert them more in line with the way we do things at Dollarama.
One moment for our next question. That will come from the line of Brian Morrison with TD Cowen. Your line is open.
Hey, good evening. Maybe I can just expand on Mark's question. I mean, one of the reasons that the LATAM business is doing so well is because you've implemented Dollarama's best practices into that business. Can you maybe just address what their strategy is with respect to price points, whether there's any overlap in sourcing, and whether there can be benefits had there by sharing with you? In terms of best practices, can you put in the store footprint? What about merchandising differentials? What about technology in terms of potential to implement best practices and improve your performance?
I think you should think of it as an entire integration into the Dollarama systems and way of doing things as well as buying. That includes IT infrastructure. It includes fixturing. It includes everything that you can think of. The way the merchandising will be handled will be very much like we do in Central and South America, which is on the import side of things, it will be very in line with Dollarama. On the domestic side of things, it will be very much like it is at Dollarc ity and in Canada, which is domestic goods will be bought domestically and by the local buying team. The way the buying teams have been set up traditionally is we have a set of buyers who buy domestic products in each country.
That includes all four countries of operation for Dollarc ity have domestic buying teams, each one different for the different country of operation. There is the import buying team that will essentially try to reproduce with Dollarama's guidance, with our assortment, with our vendors, the import goods that are in our stores. It is going to be a slow transition. Slow, not because we want it to be slow, but slow because realistically these things take time to transition from an existing assortment to a different assortment. Price points will change. We have not come to conclusions yet on exactly what price points we want there, but it will be a limited set of price points, much more in line with the Dollarama philosophy. We will follow up with more details over the next few months as we hammer out those details.
One moment for our next question. That will come from the line of Luke Hanna n with Canaccord Genuity. Your line is open.
Yes, thanks. Good evening. I wanted to ask about the store network growth opportunity that you have in front of you. You mentioned 700 stores by 2034. I wanted to ask, do you envision changing the size of the boxes roughly at all? Maybe as a follow-up to that, are the store paybacks that you plan to deliver on those consistent with what you've seen in your legacy businesses? Thanks.
The size of the boxes are currently about 20%-30% smaller than ours. For the moment, we have no intention to change that size even going forward. When we started Dollarama, our average store size was 3,000 sq ft. Then it became 6,000 sq ft average. Then it became 8,000 sq ft average. Today it is 10,000-ish sq ft average. It has been an evolution. I expect that if we are successful the way we hope to be, that evolution will probably be the case in Australia. To start with, the concept is to stay in line with what we currently have in the 392 stores.
One moment for our next question. That will come from the line of John Zamparo with Scotiabank. Your line is open.
Thanks. Good evening. Congrats on the deal. The press release, and I think your prepared remarks referenced the similar characteristics of Canadian and Australian consumers. I wonder if you could give us a sense of some of the differences in consumer behavior that might persist a few years out from this deal and maybe help us better understand the competitive landscape. If there's no large direct competitor, where are these consumers going now? That'd be very helpful. Thank you.
The biggest difference is the weather, to be honest. It will be more in line with our Dollar city business than our Canadian business. Obviously, they do not get the kind of snow and winters we get. It will be a more tropicalized assortment throughout most of the year. With regards to your second question, I need you to just repeat it one more time for me.
Options that consumers have. If there's no direct competitor, we typically talk about Walmart here in Canada. What else can you say about the competitive landscape?
The competitive landscape is much like Canada in the sense that there is a limited amount of single price point or super discount dollar store retailers. In Australia, there are no other real at-scale competitors. Much like Canada and much like you've heard me say on prior calls, who do we think of as our competition? Everybody. It is Dollarama's job to, within each category that we can afford to offer our customer, whether that's hardware, whether it's stationery, whether it's kitchen goods, whether it's HBA, all categories in the store, our job is to offer the best value and a compelling, interesting shop. What that means is we're likely to take a minute amount of business away from all of the existing retailers that have always been there in Australia.
It is Dollarama's job or TRS's job going forward to try to squeeze a little more juice out of each of those categories, which would come from everybody's share, let's say. Just like in Canada, I do not think we ultimately affect any other mass retailer or large retailer in a big way, but we try to nibble away a little bit from everybody and do the best we can in each category. It will be very much like that in Australia.
One moment for our next question. That will come from the line of Chris Li with Desjardins. Your line is open.
Oh, good evening. Neil, I think you partially answered this question already, but I'm just wondering, does TRS in Australia have the same level of brand recognition that you have in Canada, i.e., are they kind of a destination store for a lot of the sort of category-leading products that you guys have in Canada, or is it sort of an opportunity for you to kind of enhance that once you have acquired them? Thanks.
We believe that that's a big opportunity to take them from a store that's more like a variety store, a local variety, general merch store, to a more regular shop for consumables, a more regular shop for the treasure hunt, a more regular shop for great value. It is our intention to change the customer's, I guess, outlook on what traditionally was that box to what Dollarama is in its five current countries of operation with the Dollarcity brand or the Dollarama brand.
Thank you. I'm showing no further questions at this time. This concludes today's program. Thank you all for participating. You may now disconnect.