Good morning, and welcome to the Dollarama Fiscal 20 22 First Quarter Results Conference Call. Neil Rossy, President and CEO and J. P. Towner, CFO, we'll make a short presentation, which will be followed by a question and answer period, open exclusively to financial analysts. The press release, financial statements and management's discussion and analysis are available at dollarama dotcom in the Investor Relations section as well as on SEDAR.
Before we start, I have been asked by Dollarama to read following message regarding forward looking statements. Dollarama's remarks today may contain forward looking statements about its nineteen future plans, expectations, intentions, results, level of activity, performance, goals or achievements and any other future events or developments. Forward looking statements are based on information currently available to management and on estimates and assumptions made based 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. 19. For additional information on the assumptions and risks, please contact consult the cautionary statement regarding forward looking information contained in Dollarama's MD and A dated June 9, 2021, available on SEDAR. Forward looking statements represent management's expectations as at June 9, 2021, and except as may be required by law. Dollarama has no intention and undertakes no obligation to update or revise any forward looking statement, whether as a result of new information, future events or otherwise.
I would now like to turn the conference call over to Neil Rossy. Please go ahead, sir.
Thank you, operator, and good morning, everyone. The Dollarama team continues to demonstrate its nineteen's ability to adapt in order to serve Canadians safely and with purpose. We delivered another solid performance for the Q1 fiscal 2022. We generated a double digit increase in sales, along with strong same store sales growth nineteen. This is despite additional COVID-nineteen restrictions implemented across Canada in early April.
Nineteen. These included strict measures directly impacting select retailers in Ontario, where we have 40% of our stores. Nineteen. The COVID impact in the Q1 was similar to what we experienced in the Q4. That is, we entered the quarter with solid momentum, 18.
In this case, right through early April, with same store sales growth in the mid teens. 19. Then in the last month of the quarter, our sales were negatively impacted by additional measures taken by and 2021. The ban on the sale of non essential goods in Ontario, nineteen, which is the most significant of these measures, was in place for the last 23 days of the Q1
nineteen and
it currently remains in place today and is set to expire on June 11. 18. Again, this backdrop, sales nonetheless increased by 13% year over year. Same store sales were up nearly 6%, driven by higher sales of seasonal items, including Easter, holiday and springsummer products. Nineteen.
The opposite occurred in the same period last year, with customers buying large quantities of household and cleaning products, not Easter decorations. Nineteen. Looking at real estate, we have started off the year with a good new store opening rhythm, having opened 12 net new stores this quarter. Nineteen. This is compared to 10 in the same period last year.
As a result, you can expect an uptick in the quarterly number of net new stores openings as we reach the second half of the year. Turning to Dollar City, as planned, nineteen. They opened their 1st store in Peru last month, thereby entering a new and 4th market of growth in Latin America. Nineteen. Like Colombia, the product offering in Peru includes products up to US4 dollars price point adjusted nineteen.
Our local management team continues to deliver a solid operational performance nineteen. We're pleased with their progress and ability to execute on the business' growth strategy. Nineteen. On the ESG front, I am pleased with the progress we have made integrating sustainability initiatives company wide over the last 2 years and during nineteen. We published our 2nd ESG report this morning, now available on our corporate website.
18. As a team, we are more committed than ever to managing our operations and resources responsibly nineteen and to serving our customers with purpose. Looking ahead and despite near term impact nineteen restrictions, which remain in place, our solid momentum in the 1st 2 months of the fiscal year nineteen reflects the relevance of our unique business model and the compelling product offering to Canadian consumers from all walks of life. Nineteen. I would like to thank our customers for navigating the situation with us and for their continued loyalty.
Nineteen. Our customers have been very supportive and at times quite vocal about their desire to shop at Dollarama during the pandemic. Nineteen and we appreciate that enormously. This has only further reinforced the role we play in the Canadian retail ecosystem. Nineteen.
With that, I'll hand it over to JP to discuss our results in more detail. JP, over to you.
Thank you, Neil, and good morning, everyone. Nineteen. Let's start by taking a closer look at sales. Total sales for the Q1 of fiscal 2022 nineteen. Increased by 13% to $954,000,000 driven by an increase in the total number of stores as well as SSS growth.
Eighteen. Looking at same store sales for the 1st 9 weeks of the quarter or the 9 week period ended April 4, 2021, we recorded same store sales of 15.2% compared to the corresponding period 18.2% compared to the corresponding period of the previous fiscal year, driven by strong seasonal sales, Easter Holiday and SpringSummer Products. However, various provinces across Canada nineteen. This included a stay at home order and abandon the sale of nonessential goods across Ontario, nineteen, which went into effect on April 8, 2021. This had an immediate and nineteen.
Impact on sales for the remainder of the quarter. As a result, comparable store sales growth receded 18% for the full Q1 of fiscal 'twenty 2. Same store sales growth nineteen. Consisted of a 9.3% increase in average transaction size and a 3.2% decrease in the number of transactions. Nineteen.
The basket consolidation trend has continued, although the increase is more modest than last year. 2019. As a reminder, while only a limited number of stores were closed in Q1 fiscal 2022, nineteen. As many as 104 stores were closed during the same period last year, primarily Quebec Mall stores. Nineteen as we're now lapping the pandemic as of the second half of the first quarter last year.
This adds a 18.5% to our year over year comparisons for this quarter and in the coming quarters. You'll recall that at the onset of the pandemic, 20. 2019. Turning now to gross margin. 20.
We recorded a notable increase in Q1 fiscal 2022 with gross margin as a percentage of sales 18.2%, up from 41.3% last year, as anticipated nineteen and discussed during our last quarterly call. This is as a result of increased sales of higher margin seasonal products. SG and A was 16.6 percent of sales in Q1 fiscal 2022 compared to 16.3% in Q1 last year. SG and A reflects incremental costs related to COVID-nineteen, nineteen, including hours for in store cleaning, sanitizing measures to protect the health and safety of staff and customers. Nineteen.
These costs amounted to $18,000,000 in the Q1 compared to $14,000,000 last year. Nineteen. In that case, all incurred in the last 6 weeks of the quarter. Excluding COVID-nineteen costs, 22. SG and A would have been 14.7 percent of sales in Q1 fiscal 2022 and 14 point 6 percent of sales last year.
So generally flat year over year as expected. Nineteen. EBITDA was $248,000,000 representing 26 percent of sales. Nineteen. Net earnings were $113,000,000 and diluted EPS was $0.37 19.
Our equity pickup of Dollar City's net earnings was $3,400,000 in Q1 fiscal 'twenty two compared to $2,400,000 in 21 fiscal 2021. Dollar City continues to perform well and opened 15 net new stores in its quarter ended 18, March 31, bringing its total store count to 279 stores. The first store in Peru was sequent to their quarter end, so it is not reflected in this total. Our long term store target for Dollar City is 600 stores by 2029, nineteen. Keep in mind that this target excludes Peru, which is still in its very early stages.
2019. In terms of our capital allocation, the Board approved a quarterly dividend of $0.0503 per share. We also nineteen. Actively resume activity under our share buyback program in the quarter. We repurchased 4,900,000 shares for a total of 283,000,000 2019.
Our leverage ratio stood at 2.82x adjusted net debt to EBITDA at quarter end. Barring factors outside of our control due nineteen. It is our intention to continue share repurchases under the NCIB throughout fiscal 2022, while maintaining our leverage ratio between 19.75x and 3x adjusted net debt to EBITDA. Before turning to our outlook, Neil mentioned the publication of 2021 ESG report, which is based around 4 pillars: our people, products, supply chain and operations. Nineteen.
This year, we've aligned our ESG disclosure with SASB, which is the standard for our industry and areas of activity. Nineteen. On the people front, we provide a comprehensive overview of our talent training and retention programs, nineteen, which are resulting in lower turnover and an increase in internal promotions at store level. Regarding products, nineteen. We outlined our achievements and commitments under a robust product quality and compliance programs.
Nineteen. We're also reporting on our progress following the full implementation of our 3 pronged approach to vendor compliance in our extended supply chain. Nineteen. And regarding our operations, we provide an update on the measurable initiatives underway to minimize our energy consumption and environmental footprint. Nineteen.
We've also committed to building a road map to align with TCFD recommendations in the future. Nineteen. The objective is to further enhance climate change disclosure and have a plan to reduce or mitigate our Carbon Impact. We have made great strides since the publication of our last report 2 years ago and remain committed to continuing to integrate TSG nineteen. Turning now to our outlook.
The COVID-nineteen situation continues to make it difficult to predict nineteen. The environment in which we'll be operating in the near term, given that the Ontario restrictions have yet to be removed. 2019. As such, we continue to only provide limited guidance for fiscal 2022. Looking specifically at Q2 and the near term impacts of COVID restrictions which remain in place.
Strict and store capacity limits are expected to remain across Canada at least until the end of the second quarter and to continue to impact nineteen. The ban on the sale of nonessential goods in Ontario, which impacted Dollarama in the last few weeks of Q1, will be lifted on June 11, 2021. Nineteen. It will have been in place for the 1st full 5 weeks of our Q2, a crucial period during which Canadians usually start planning nineteen. For summer activities and stocking up on related seasonal goods.
Nineteen. Also keep in mind that in Q2, we faced tough comps with a strong performance in Q2 last year, largely driven by strong seasonal sales. Nineteen. But despite the significant impact the Ontario ban will have on our SSS in the second quarter and the fact that we face 18. Our confidence in the underlying fundamentals of our business model remains.
This is a temporary headwind, nineteen. And I can assure you that we're all very eager to be able to once again offer our full product assortment to all of our customers from coast to coast 2019 as soon as we're permitted to do so. Looking at full year metrics provided last quarter on net store openings and capital expenditures. The guidance on these 2 annual metrics remains unchanged. We did not release full year guidance on gross margin or nineteen.
But the color we provided last quarter still stands. Based on results to date and visibility on our open orders, nineteen. We anticipate gross margin as a percentage of sales for the full fiscal year to be relatively flat compared 18 to last year with continued inflation on raw material prices and inbound shipping costs. For SG and A as a percentage of sales, 18. I will now turn it over to the operator for questions from financial analysts.
Thank you.
Thank you. 18. We will now take questions from the telephone lines. And the first question is from Irene Nattel from RBC Capital Markets. Please go ahead.
Your line is now open.
18. Thanks and good morning everyone. Can we start with same store sales please and would you be able to provide us with color nineteen. On what you've seen in terms of same store sales and category demand 18. Ex Ontario versus Ontario.
In other words, in the provinces where there has been less disturbance.
Nineteen. Thanks, Irene. So first of all, I would step back. And if we look at Q2, The first part of Q2, as I mentioned in the script, is impacted by Ontario until June 11. Nineteen.
And we have some capacity limits, notably in Alberta, which we'll have to deal nineteen and are starting to ease up probably in the second half of June. That being said, once you 19. Keeping in mind that we're lapping against strong comps in Q2 last year.
19. What are the expectations with which they are consistent?
Nineteen. We don't provide specific disclosure on that. But what we can say is 18. For the provinces that were not impacted by the restrictions, it is what you would have expected from us based on our historical performance.
Okay. I'm going to just stick with this. I'm going to take one more attempt at this JP. So nineteen. Would it be reasonable to expect that the torrid pace of sort of the first 10 weeks or the 1st 9 weeks of Q1 would not have been maintained, but that nonetheless, underlying same store sales would remain robust.
I mean, it's hard to predict how Ontario will come back
Excluding Ontario. Excluding Ontario.
Excluding Ontario, nineteen. I think there's good momentum in the underlying business, and that's as far as we can go on this.
Nineteen. Okay. In terms of category demand, would there be would we nineteen. We're continuing to see the strong demand for the types of products that we would have seen strong demand for through the pandemic. 18.
So seasonal, outdoor, household basic household goods. What's the category demand like excluding party
nineteen. So when you look at the category demand, first of all, keep in mind that Last year, we had good mix performance in Q2. And for this year, nineteen. For Q2, although we don't provide specific guidance on that, we're seeing a decent performance 18 from our seasonal categories.
Nineteen. Okay. And one last question from me and then I'll hand it over. You mentioned the sort of shipping costs, but are you having any eighteen. We're hearing a lot of discussion obviously around delays in shipping and difficulty in actually accessing containers.
What is your experience currently?
Nineteen. So everybody is having a hard time getting containers, Irene, around the globe. And nineteen. Nobody is an exception to that particular challenge. I would say that Dollarama's nineteen.
Our business model mitigates those risks more than it does for most because the majority of our nineteen. Good. They're proprietary that we import ourselves and therefore we sit on inventory of those goods. That inventory provides a buffer nineteen that most people don't have for those goods. And that buffer allows us to prioritize which containers are going for which goods nineteen.
So to date, the challenges that everybody is nineteen. Experiencing have not impacted our sales and as long as it doesn't go on for a year nineteen. Sure, that will be the case. But certainly, the availability of containers nineteen and the cost of shipping is a major challenge for everyone.
Understood. Thank you, Neil.
2. Thank you. The next question is from Brian Morrison from TD Securities. Please go ahead. Your line is now open.
Yes, good morning. If I can
just stick on that note, I think that FX in the quarter flowed through at about $130,000,000 to $135,000,000 and it looks like it's poised to decline pretty sharply and the coming quarters. So I hear you in terms of the cost inflation, but it's a challenge to see how your gross margin would remain flat. So I'm curious if Cost inflation or inflation going forward for the rest of the year is going to be a headwind or a tailwind.
So nineteen. Brian, it's a mix. First of all, we have our hedges and our hedges nineteen. Make our costs not the same as spot. Spot is built into the hedge and the hedge can be positive nineteen.
When things are going down and look negative when things are going up, but they provide the buyers the tool to know and have visibility on the cost of goods as they're nineteen. With that, we have the same challenges as everybody else with higher FOB costs nineteen due to increased raw material prices. And at their discretion, they have nineteen. A slowly lowering hedge as well as the ability to do some 18. So the guidance we're giving on margins I believe everybody has and nineteen.
That's a mix of using all the tools at the discretion of the buyers, but relatively stable is probably the best way to look at it. Okay. And then I guess one follow-up question. Nineteen. Can you maybe share
with us what percentage of units are non essential in Ontario? It looks to me like same store sales growth in Ontario in the month of April was probably 19% somewhere between 35% 40%.
Yes, we don't provide the exact breakdown of SKUs. However, nineteen. We do provide the breakdown between consumables, general merchandise and seasonal. It's about 42%, 43%, 42% consumables, 43% general merchandise 18% seasonal. You can assume that most of consumables would be essential.
Nineteen. That's the color we've provided in the past on that.
Nineteen. Just walk you into the store, though, it was a shocking number of items that were unavailable. If you can't clarify just the percentage of units that were non essential?
No, it's not a percentage that we've disclosed historically and that we will disclose.
Okay. Thank you very much.
Nineteen. Thank you.
Thank you. The next question is from Mark Petrie from CIBC. Please go ahead. Your line is now open.
Yes. So, I guess just following up on the whole topic of inflation and cost. Nineteen. Can you I don't know if there's a way to help quantify the magnitude of inflation in your system at all and sort of how you have reflected that in pricing nineteen. Thus far and I guess maybe if you can't sort of get into that, what are you seeing in the competitive environment
nineteen. So in terms of inflation, as we've mentioned in the past, we're seeing nineteen increase in inbound shipping costs and product costs. And we're working hard to offset nineteen. Those pressures through our refresh and our markups. And that leads us nineteen.
To be able to provide some color on generally flattish year over year gross margin, nineteen. And that's what we're hoping for, but it's hard to predict how inflation will evolve in 18. We're doing our best so far to offset it through refresh and markups.
Nineteen. And just any comments with regards to the competitive environment? And I guess sort of specifically in times where we've seen nineteen. This type of potential tailwind with regards to FX and your hedging program. We have seen pretty sizable nineteen.
But maybe the competitive environment is somewhat different today and maybe a bit of an offset. I'm not sure. What's your perspective?
The pressures on FOBs and the pressures on costs nineteen. J. Rice:] Are making this a different situation than in the past when you saw a change in the FX. Nineteen.
Okay. And I guess just following up a bit more just on with regards to sort of price increases, nineteen. How do you consider your competitors sort of promotional efforts, be it flyers or rollbacks or loyalty? When you consider your price nineteen. Given those aren't parts of the Dollarama sort of value proposition, does that how does that
nineteen. The answer is it's painful as buyers trying to figure out what game to play, what strategy to take. Nineteen. It's very challenging, but I would tell you that the buying team takes everything into 18. The everyday price, the advertised price, the once a year ridiculous price, and they use their judgment and decide in their nineteen.
How they want to remain competitive, but our everyday low price nineteen. The eighteen. It's just not something we've ever undertaken. So I think over the course of time, our customers have come to appreciate that, nineteen. That everyday low price is our strategy and it's a few times a year when people like to give things away, then They'll go buy those items at those stores.
But for 99% of the year, they understand that we are going to be Right in there as far as having the lowest price in
the market. And I would just add that, I mean, our strategy has always been to be a price follower, not a price setter. And so nineteen. If and when we're seeing the level playing field move, we're adjusting accordingly. But it's really with the price following dynamic, not The price setting dynamic.
Yes, understood. Thank you for that. And I also just wanted to just last Just ask sort of a broader question, it's a little bit vague, but just with regards to your store format and then the footprint nineteen. Obviously, the pandemic has changed the landscape significantly, curbside pickup as an example. Obviously, it's going to pull back when stores return to full capacity, but clearly it does have value for consumers and likely remains an option for many companies and your competitors.
18. At the same time, the convenience element of shopping is obviously really important and clearly Dollarama has been really successful with that. So I guess my question is, nineteen. Do you think there's an opportunity to adjust the size and layout of stores or potentially experiment with different formats nineteen. In response to some of these shifts and potential opportunities?
So we do have nineteen. Just because of the realities of the retail and real estate availabilities over the course of all those years nineteen. With 1300 plus stores, we have 3,500 square foot stores like we have 15,000 square foot stores. And so nineteen. Just as a matter of fact that we have to deal with on the real estate side, we have sort of an innate nineteen.
Testing going on at all times on how to handle those different size boxes. As far as the change of strategy, nineteen. We have no current change of strategy planned. We're always open to the ability to adapt nineteen. And we're always studying it, but for the moment, we're happy with the current strategy nineteen.
And we understand how to operate different sized boxes and in different markets, those different and
beyond. Understood. Appreciate all the comments. Thanks a lot.
Nineteen. Thank you.
Thank you. The next question is from Peter Sklar from BMO Capital Markets. Please go ahead. Your line is now open.
Okay. Thank you, operator. Just wanted to ask you a little bit about your SG and A margin, which you explained nineteen. Your commentary was like the percentage margin was flat year over year after taking into account COVID costs. Now nineteen.
There have been times in the past when sales are growing, you do get operating leverage on your SG and A and show a lower margin because there's a fixed cost element to that. But nineteen. Now you're showing a flat margin. So are there cost pressures in SG and A as well? Like I'm thinking labor cost, So if you could just drill down a little bit on SG and A.
Yes. So once as you mentioned, once adjusted for COVID direct costs, our SG and A 18. It's generally flat, which is what we expected. In terms of the scaling benefit in the 18. Yes, Janney, the line, most of it is variable on average.
So nineteen. The only thing to note there is as a result of the Ontario restrictions, we didn't
nineteen. Get the full
productivity that we would have liked in Ontario, and we managed to keep our adjusted SG and A flat
Okay. Thanks, JP. And then the other question I have also addressing Ontario. Nineteen. With the limitation on the sale of non essentials, did you like did you change the planogram in your Ontario stores.
So did you offer more did you change the mix of consumables and food, for example, or any other consumables? Or is it the same planogram?
Nineteen. So we didn't change the mix for certain. However, we did highlight on our end caps and in our 18. At the front of our stores, the items that were most relevant to the consumers looking for a central item, nineteen. Making it as easy as we could for those consumers to find the things that they were legally allowed to buy.
Okay. I get that. Nineteen. And then just finally, I know you get this question every call just on higher price points. But has your language changed around that given that we're 1 quarter closer to higher price points and the inflationary pressures you're seeing?
Nineteen. So I'll answer it twofold. 1, no, nothing's changed. But 2, nineteen. In that nothing's changed, we've always told you and we'll continue to tell you that we're not against adding price points nineteen.
If the relative value required based on inflation and other factors is what's best eighteen for our customers and the offering we can offer them. So for now, there's no guidance to give. That being said, it's always a possibility.
Okay. That's all I have. Thanks, Neil.
Thank you.
Thank you. The next question is from Vishal Shreedhar from National Bank. Please go ahead. Your line is now open.
Nineteen. Hi, thanks for taking my question. Just given all the challenges with shutdowns and changes in nineteen. Wondering how you're positioning yourself for assortments in summer and fall and do nineteen. I know you talked about your deeper inventory relative with the container comment, but nineteen.
No,
we do not 18. Any challenges to ensure that our seasonal goods will be here when they need to be. 18. It's more challenging
to make sure it
happens than it usually is, but it will happen.
Okay. And with respect to addressing the changes in consumer behavior that have happened rapidly, nineteen. For example, more desire for certain seasonal goods. Are you changing the space allocated for certain categories to meet that consumers need? Nineteen.
At the end of the day, aside from the goods bought domestically that are produced domestically that there was a demand for, in particular, COVID nineteen. That there was a demand for, in particular COVID related cleaning and health products. The reality is nineteen. The balance of those goods are for the most part import and import goods take months to get. And so when there is nineteen.
A very quick change to what consumers are looking for. The reality is those things nineteen manufacture of sporting goods and fishing products and camping products nineteen and hunting products who are all out of goods and can't get the goods even though there's tremendous demand at the moment because people are having to stay nineteen. So the reality is you can only do so much beyond the things that are manufactured domestically.
Nineteen. Okay. And just a few general comments on the consumer perception of Dollarama through the pandemic. Nineteen. I saw some grumbling on social media and it wasn't Dollarama's choice obviously, but that they've gone to the store and they weren't able to nineteen.
What they wanted to and you're grumbling about what was available at the store. Are you in your monitoring and beyond. Are you noticing any changes on the brand as a result of all this, you said pandemic restrictions that you have to go through?
18. Well, nothing breaks the heart of a retailer more than not being able to sell something that you have that the customer wants. But the reality is 18. For any given customers anger that they can't buy what's 1 inch from their fingers, we need to follow the laws of the land as everybody else does. Nineteen.
We do what we can to do our part to enforce those things and follow the rules and yet we are sensitive nineteen. And we look forward to the opening as do all businesses that nineteen. Have been limited in any way in the provinces that are currently locked down or banning certain goods. Nineteen. But there's only so much we can do.
Do we worry about our customers? No, I think overall, the vast, vast majority and beyond. And they're super excited, I believe, to get back in the stores and be able to go buy those 18. Gardening and summer and picnic things that they've been staring at and excited to get their hands on and we can't wait for them to get their 1.
Okay. And just a last one here. Given that the consumer is in reasonably good financial shape, do nineteen. Do you think that incrementally dampens the appetite for a value brand like Dollarama? And obviously, your comps aren't I'm just suggesting that, but wondering looking forward if you're seeing any of
that incrementally on the margin. I mean, I think the relative value that we're offering nineteen is realized, as you pointed out, by a lot of our customers. And that relative value, as Neil mentioned, will remain in the future. Nineteen. And we don't anticipate those dynamics to change in the near future, that's for sure.
Okay. Thanks for taking my questions.
Nineteen. Thank you.
Thank you. The next question is from Karen Short from Barclays. Please go ahead. Your line is now open.
Nineteen. Hi, thanks very much. I wanted to just ask about freight, actually two questions. So on freight, nineteen. Would you be able to provide a little color on what percent of your freight and or containers are spot versus contracted?
Nineteen. And then what percent you're actually seeing in terms of a dollar or cost increase year over year?
So in terms of dollar increase, we don't go there, nineteen. As I mentioned earlier, as I said, we were working hard to offset those inflationary pressures and nineteen. Our working hard towards generally flat gross margin year over year. In terms of nineteen. What's contracted versus spot, the exact percentages we've never disclosed, nineteen.
And it's not something we'll provide at this point. But I would go back and fall back on the general
nineteen. Okay. And then, as you eighteen. We're working hard to offset these pressures with the markups. Is there any color you could give in terms of percent of SKUs on markup, say, now versus in like a normal whenever we go back to a more normal time period, just to help frame How you're thinking about that?
No, I mean, the only comment is that We are seeing inflation across both inbound shipping costs nineteen and product cost inflation. And we're always getting back to the relative value proposition, which is we'll adjust to the level playing field. If that level playing field moves, we will move. If nineteen. It stays the same will stay the same.
But for now, we're seeing the level playing field evolve, allowing nineteen. Through a refresh and markups, be able to offset some of those inflationary pressures.
Nineteen. Okay. And then just last one for me. I know you've given the color on SG and A, but we've been excluding the color you gave on SG and A being flat, there obviously will be nineteen. COVID costs into the next couple of quarters.
Can you just give us some sense of how you're thinking about that? And or like how much of it is actually now more permanently embedded.
So it's a good question. On COVID costs over the medium to long term, nineteen. The way we've identified them and segmented them, those are costs that for the vast majority will be nineteen. That being said, for the coming quarter, I think you Should expect COVID costs to be in the same range as what we've seen in Q1.
Okay. Thank you.
Nineteen. Thank you.
Thank you. The next question is from Chris Lee from Desjardins. Please go ahead. Your line is now open.
Nineteen. Thank you. Traffic was down only 3.2%. Was that better than your expectation? Because I was expecting traffic to be down more given the restrictions in Ontario.
Do you think this is a reflection of the fact that Dollarama is a destination store nineteen. That's why consumers continue to go there even though roughly half of the store was closed during the part of the quarter.
Yes. Two drivers. There's the first one, as you pointed out and as I mentioned earlier, nineteen. The underlying business is sound and is performing in line with expectations. Now you also have to keep in mind that in Q1 last year, because this is a year over year metric, nineteen.
We're comping against 0.5 quarter or so of restrictions. So that plays into
nineteen. Great. Okay, that's helpful. Thank you. My other question is just on the self checkout kiosk.
Can you give us an update on where you're at? How many have been installed so far? How many more nineteen. And then maybe related to that is when all this sort of implemented, do you think this will help a structural nineteen. Reduction in your labor costs or is this more of a way to alleviate some of the bottlenecks at the tilt so that when demand does come back,
nineteen. Yes. So our focus is on client experience first, nineteen. And that's a key driver of our decision to implement self checkout. Nineteen.
In terms of what you can expect for CapEx and what's been done and what will be done, nineteen. I mean, we've done retrofits on stores that where we thought we would we get the return that we need to get to justified investment going forward. And now that those low hanging fruits have been tackled in terms of return on capital, nineteen. We'll be deploying self checkout in our new stores as they open over the course of the coming year.
Okay. Sorry. And do you have sort of how many stores are with sales checkout right now and what's your target for the end of the year?
We'll get back to you with the exact numbers.
Okay. Thank you.
Nineteen. Thank you. The next question is from Edward Kelly from Wells Fargo. Please go ahead. Your line is now open.
Yes. Hi, guys. Good morning. First off, just a follow-up on freight. Can you talk a bit about the timing nineteen of when you go through and sort of contract ocean rates.
If we look at some of our other companies, 50 seems to have done a 18. Good job of sort of getting at it early. We've seen other things at places like Dollar Tree and the impact of that's actually pretty sizable. Nineteen. Just kind of curious as to how you manage through this process and then if spot rates stay as high as they are, nineteen.
Does that create risk in the out year? Just curious as to how you're thinking about all that.
So it's part of the daily task nineteen. Of the logistics team, literally every day every working day of the year, Which is basically every day of the year. They are negotiating contracts twice in a year nineteen. With the different freight companies, we try to offset the cycles to make it nineteen. And have another sort of insurance in that way that there's different times.
Nineteen. For the most part, of course, we're covered through all of our contracts. And we want to stay away 18 as a rule as most big companies do from spot because spot generally has risks like it would with hedge with FX nineteen. And so that same philosophy is used when we're contracting our freight rates.
Nineteen. So based upon where you are today, do you feel you have pretty good visibility
on ocean spot or sorry, ocean rates Throughout the rest of the year or do as investors do we need to sit here and closely monitor the fact that spot prices just keep going higher?
I don't think you need to closely monitor.
Okay. And then I wanted to ask you just about nineteen. This issue with Ontario and not being able to sell non essential items. What have you seen historically when those restrictions come off? Nineteen.
And how should we think about sort of like pent up demand, I guess, once we get to July 11. I know you talked about Missing some of the critical summer selling season, but I presume everybody's kind of missed that, right? So, how optimistic are you that you're going to be able
The short answer is we don't know. Nineteen. What we've seen in Quebec was a strong comeback from the customer. That being said, we don't know how it will 18 months ago. Take place and shape out in Ontario.
We're very eager to see and look at our nineteen. We're certainly hoping for some level
Okay. Thank you.
Thank you.
Thank you. The next question is from Tricia Baker from Scotiabank. Please go ahead. Your line is now open.
Thank you very much and good morning. Most of my questions have been asked and answered. However, I just want to follow-up on the discussion of the self checkout and we did reference the fact that you start first with nineteen. I'm just wondering what your setup is in the stores where you have self checkout. Nineteen.
How are you manning the cash registers? Do you have somebody at the cash register 18, where you have the self checkout so that the consumer makes the choice of what they want to do?
Yes, we always have a cashier and we always have a nineteen. And depending on the level nineteen. We could have more than one monitor at the self checkout and obviously more than one cashier at the cashier. But nineteen. When there are customers and there's a need, we have personnel at both.
Thank you very much, Neil.
Thank you.
Nineteen. Thank you. The next question is from Graeme Kreindler from 8 Capital. Please go ahead. Your line is now open.
Nineteen. Hi, good afternoon and thank you for taking my questions. Just one question. Neil, on past conference calls, you discussed nineteen. The manufacturing environment during COVID, there was definitely some capacity constraints causing some of the producers of goods 18
months
ago. I'm just wondering, does that impacting at all the nineteen. I'm just wondering, does that impacting at all the ability for Dollarama to implement its 18. Mix refresh or potentially implement a new price point given that would feature a lot of new merchandise. Some additional color on that would be appreciated.
Thank you very much.
Nineteen. Sure.
Certainly, the focus on only making masks and hand sanitizers nineteen has evolved into thinking about beyond COVID. So we're starting to see eighteen. Some return to normal at the manufacturing level. The biggest constraint at the moment nineteen. Freight and the movement of goods around the world.
The factories of the world nineteen. Our starting to get ramped back up and capable of producing, but their challenge is getting the goods off the factory floor 18. And so that's the current challenge for the manufacturers of the world and the retailers of the world. Nineteen. As far as generating new and exciting, so to speak, it's starting.
Nineteen. I would tell you there's still a ways to go, but of course we know that consumers focus on what they want to buy has changed a little nineteen. And thankfully, while consumers are more focused on COVID related things nineteen. The gap of new creations or nineteen. New innovation is not having the impact it might in normal times.
So I'm hoping that as things get back to normal nineteen. From a creativity perspective around the world, it will come about the same time when people start focusing on The balance of the goods in the store and it won't be an issue, but that remains to be seen.
Okay, understood. Thank you very much for that. That's it for me.
Thank you. And the last question is from Derek Dley
from Canaccord Genuity. Please go ahead. Your line is
now open. Yes, Accord Genuity. Please go ahead. Your line is now open.
Yes, hi, thanks. I just wanted just to kind of frame nineteen. The new normal, I guess, in Ontario, at least for the period. So with 15% non essential capacity, what does that look like in your stores? Are you going to have
nineteen. So there's 2 questions I think. One was how do we control the number of people in our stores and the other is, is it going to change the offering? Did I understand that correctly?
Yes, that's right. Thanks.
So the offering doesn't change. The offering remains the same. Nineteen. Where in the store and how much we highlight COVID related items may change a bit. And nineteen.
When the reopening starts, if the barbecue is what customers want, then barbecue will be on the end and COVID will shift over a little. Nineteen. But it will certainly both will still be in the store and available for our customers. As far as controlling the traffic 18. We've gotten pretty good at it over the course of this thing.
And we have nineteen. We do count. There's a system in place in all stores to ensure that we're following all the rules of the land nineteen and doing our part to ensure the safety of our customers and our employees.
Okay, great. And I think you guys meant you guys gave us a breakdown of consumable general seasonal as you typically do, which was great. I guess nineteen. Outside of Ontario where you've been able to sell sort of the full suite of products, have you seen that mix return to normal over the last, I don't know, a few months or into Q2.
Yes. So as I mentioned earlier, once you nineteen. Look at the underlying business and you try and remove the restrictions. Nineteen. Our business and our mix is in line with expectations, keeping in mind that we had a strong mix 18 and tailwind from our mix in Q2 last year.
Okay. Thank you very much.
Nineteen. Thank you. Thank you, everyone. That concludes the question and answer session and our conference for Day. Please disconnect your lines at this time, and we thank you for your participation.