DOL - Dollarama Inc - Q2 2014 Earnings Call Transcript

    From a merchandising point of view we continue to see positive progress with the $2.50 and $3 price point that were introduced in the middle of last year. Our customers have been responding positively to the value offered by these products. The penetration rate of these higher price points continues to slowly, but steadily increase while complimenting the continued value on lower priced items. Overall we're very pleased with the current price mix as it continues to stimulate sales and attract customers into our stores.

    Now from an organizational point of view we have announced in early August that Stéphane Gonthier, our Chief Operating Officer with Dollarama since 2007 will be leaving the company to pursue a new challenge. I would like to take this opportunity to thank him for his contribution. to the company during his tenure. The search for an appropriate replacement is now underway.

    Let me now turn the call over to Michael. Michael?

    Michael Ross, CA

    Chief Financial Officer and Secretary
    Thank you, Larry and good morning everyone. So as Larry mentioned we are reporting strong financial and operational results for our second quarter. Our results reflect ongoing growth and sales earnings and earnings per share achieved mainly through a continued top-line growth and effective cost management.

    During the quarter we increased our sales by 16% to $511 million from $441 million in Q2 last year. The increase in sales was fueled by a 12.7% increase in the number of stores and a 6.2% increase in same-store sales .

    Same-store sales growth was driven by 1.5% increase in number of transactions and 4.6% increase in the average transaction size. We are very pleased with these results which were achieved despite the very strong SSS of 7.3% in the same period last year and the temporary increase and cannibalization of mature stores due to the increased pace of new store openings.

    In this quarter, 62% of our sales were from products priced higher than $1 compared to 56% in the second quarter of last year. Sales of products at these price points have increased as a proportion of our overall price mix every quarter since we introduced this strategy more than four years ago. During the quarter, our gross margin was 36.6% of sales compared to 36.9% sales in Q2 last year.

    As mentioned, last quarter this difference is mainly explained by the temporary cost impact associated with the sharp increase in the number of new store openings. These temporary costs are mainly related to additional occupancy and logistics costs prior to the store being opened and generating revenue . The contribution associated with new stores will eventually offset the above impact as these stores mature.

    Our G&A as a percentage of sales we are 17.9% compared to 18.3% last year. Recently and some store productivity initiatives have had a positive impact on store labor costs. These gains were partially offset by small increase in cost associated with the higher pace of new store openings. which related primarily to the training and labor hours to set up these stores prior to the opening. Despite this natural challenge, our store employees, and management team continue to deliver outstanding results and we except further improvements as we begin to realize the full benefits of productivity initiatives over the next two years to three years.

    The three main productivity initiatives at the store level are first the reduction of manual accounts for store replenishment. Second the use of Kronos advanced labor scheduling tool and third the elimination of -- tasks. Implementation of the advance scheduling module of Kronos is progressing well. In Q2 we completed the rollout of 200 stores so far.

    This implementation will allow us to more accurately project labor needs and ensure more effective labor allocation. We expect to finalize the rollout of this tool and all stores by the beginning of next year. In addition to these initiatives we have just completed the rollout of our new NCR point of sale terminals to all stores. Our next step will be to implement certain new procedures to improve controls, reduce shrink and decrease the time spend by administrating cash at store level.

    We expect to see initial benefits from this initiative in next fiscal year. We remain confident unless an unexpected event should occur to achieve as G&A ranging from 17.5% to 18% of sales for the full fiscal 2014 year.

    Moving to the bottom-line. Q2 net earnings increased 20.1% to 59.8 million compared to 49.8 million while diluted earnings per share increased by 24.2% to $0.82 per diluted share compared to $0.66 per diluted share in the second quarter of fiscal 2013.

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