Larry Rossy - Chief Executive Officer Michael Ross - Chief Financial Officer Neil Rossy - Chief Merchandising Officer Johanne Choinire - Chief Operating Officer

Perry Caicco - CIBC World Markets Irene Nattel - RBC Capital Markets Kenric Tyghe - Raymond James Jim Durran - Barclays Peter Sklar - BMO Capital Markets Derek Dley - Canaccord Genuity David Hartley - Credit Suisse Vishal Shreedhar - National Bank Keith Howlett - Desjardins Securities Brian Morrison - TD Securities Chris Li - Bank of America Merrill Lynch

All participants, please standby, your meeting is about to begin. Good morning. And welcome to the Dollarama Conference Call for the Fiscal 2016 Second Quarter Results. Today's call will be led by Mr. Larry Rossy, Chief Executive Officer. Also with Mr. Rossy on the phone today is, Mr. Michael Ross, Chief Financial Officer. Furthermore, during the question period, Mr. Neil Rossy, Chief Merchandising Officer; and Johanne Choinire, Chief Operating Officer will also be available for questions. They will begin with a short presentation followed by a question-and-answer period open exclusively to investors and financial analysts. For your convenience, the press release along with the second quarter Financial Statements and Management's Discussion and Analysis are available on the Investor Relations section of the website at dollarama.com. They are also available on SEDAR. 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, levels 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 statements 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 September 10, 2015, available at www.sedar.com. Forward-looking statements represent management's expectations as of September 10, 2015, and except as maybe 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 over to Mr. Rossy.

Okay. Thank you, Operator, and good morning everyone. Today, we reported our financial results for the second quarter of fiscal 2016. I will briefly go over sales and store growth highlights for the second quarter before turning it over to Michael, who will provide with you more detailed update on our financial results and key operating initiatives. The results being report this quarter reflect the exceptional performance of our business as all key financial and operating metrics were met or exceeded. This performance is a direct consequence of our attention to details, rigorous cost controls and the successful execution of our merchandising strategy. In this quarter our sales increased by 14.1% as a result of strong organic sales growth, driven by high comparable store sales. Sales were also driven by the continued expansion of our store network. In this quarter, we achieved the 7.9% increase in same-store sales through an increase in the average basket size and an increase in the number of transactions. We continue to attract new and existing customers to our broad assortment of merchandise offered at exceptional value. Sales growth is consistent across all regions of the country, which testifies to the consistent shopping experience in all our stores. During the quarter we opened 17 net new stores, compared to 18 net new stores opened in Q2 last year. Our total store count across Canada is now 989 stores, compared to 917 stores as at August 3, 2014. We can expect to hit a new milestone soon as we reach to 1,000 stores in the upcoming quarter. So far this year we have opened 34 net new stores and we still expect to open 70 to 80 net new stores in fiscal 2016. EBITDA grew 35.3% this quarter, which is attributable to strong sales and margins, general and administrative costs that benefited from the scaling impact of our sales and continued focus on operational efficiencies. On the purchasing side before you ask the question, I can tell you that we have not been adversely impacted by the recent developments reported in news about China and its economy, its business as usual on that front. From a merchandising point of view, summer sales were very strong as customers and consumers responded well to our line of gardening and summer products. The careful execution of our merchandising strategy and the implementation of operational improvements had made us stronger as we grow. We continue to reach new customers in an efficient manner all the while providing a consistent shopping experience in all our stores. With that, I will turn this call over to Michael.

Thank you, Larry, and good morning, everyone. So during the second quarter we increased our sales by 14.1% to $653.3 million from $572.6 million in the prior year. The increase in sale was fueled by the opening of 72 net new stores over the past 12 months and a same-store sales increase of 7.9% during the quarter. The same-store sales growth consisted of 6.2% increase in basket size, which reflect the consumer demand for higher price point items and a 1.5% increase in the number of transactions driven by higher traffic in our stores. This quarter 76% of our sales originated from products priced higher than the dollar compared to 67% in the corresponding quarter last year. Debit card penetration also increased as 46% of sales were paid with credit -- debit card, sorry, compared to 43% in the corresponding period of the previous fiscal year. In the second quarter our gross margin was 38.4% of sales, compared to 36% of sales in Q2 last year. Our higher than expected gross margin this quarter was driven by the positive scaling impact of the stronger than anticipated same-store sales growth and higher product margins in anticipation of an increase in the average forward exchange contract rate. In other words, we made select changes to our product offering and price mix, while we are still hedged at favorable rates in anticipation of the next year’s currency headwind when those hedges rollout. The increased gross margin is also attributable to lower logistics and transportation costs as a percentage of sales as a result of operational improvements, as well as reductions in rates and fuel surcharges. As a result of these factors, we’ve revised our fiscal 2016 gross margin target range from 36% to 37%, to 37% to 38% for the full year. However, beyond fiscal 2016, the gross margin should fallback within the 36% to 37% range as we factor in the headwinds related to the weakening Canadian dollar. As we have stated in the past, we actively manage our gross margin by continually reinvesting in value proposition offered to consumers and by refreshing up to 30% of our product offering on a yearly basis. In the longer term the goal remains to target margin that will sustain reasonable profitability while ensuring that our customers are getting the value proposition expected to stimulate continued sales growth. Our Q2 G&A as percentage of sale was 15.9% compared to 17.1% last year. This progression is the result of continued improvements in labor productivity achieved through initiatives implemented at the store level as well as the positive scaling effect of higher sales on fixed cost. Overall, we still expect an improvement in the G&A margin for the full fiscal 2016 year compared to fiscal 2015 as we continue to target a margin between 16.5% and 17% for fiscal 2016. With higher sales on margins and lower G&A costs, our EBITDA in Q2 grew 35.3% to $146.9 million or 22.5% of sales. Q2 net earnings increased to $95.5 million or $0.74 per diluted share compared to $68.9 million or $0.51 per diluted share in the second quarter of fiscal 2015. Cash flows from operations increased to $124.8 million in Q2 from $106.9 million in the corresponding quarters of previous fiscal year. This increase is due to the higher earnings during the current quarter. We spent $21.5 million on capital expenditures in Q2 compared to $17.1 million last year. These expenditures relate primarily to new store openings as well as investments in information technology. In fiscal 2016, we still expect to incur capital expenditures in the range of $95 million to $100 million depending on the number of new stores that we open. On June 10, 2015, we announced the renewal of our normal course issuer bid. The 2015-2016 NCIB program will allow us to purchase for cancellation up to 3.5% of issued and outstanding shares at June 9, 2015 or up to 4.5 million shares over the 12 month period from June 17, 2015 to June 16, 2016. In Q2, F‘16, we repurchased for cancellation under the 214-215 [sic] (2014-2015) NCIB program and under 215-216 [sic] (2015-2016) NCIB program, a total of 11,531,154 shares at an average cost of $72.82 per share for total cash consideration of $111.5 million. From an operational perspective, we have made significant investments in stores over the past few years to continuously improve our operational efficiencies. And we are seeing the results in our G&A margin that has steadily improved over the years. Investments in advanced labor scheduling tool have provided better control over labor time and attendance and the allocation of labor hours at the stores, which has positively contributed to the productivity increases we've seen. Also the continuous improvement of replenishment models has allowed better in-stock inventory position and we believe this as a positive impact on sales. These investments are part of the initiatives that provide ongoing benefits to our operations. Additional productivity investments in fiscal 2016 include the rollout of Wi-Fi that has just been successfully completed in terms of hardware rollout. All of these initiatives have laid down the foundations for mobile technology that is currently being piloted. These initiatives are intended to reduce non-value added task at the store level optimize inventory levels in the store and reduce wait times at the cash registers. We expect to start seeing the benefits of these new operational efficiencies by the end of next year in fiscal 2017. Overall, we are very pleased with the financial and operating performance of the company this quarter and the continued progress being made on our key initiatives. So this ends our formal remarks and we can now take questions. So operator, I’ll turn the call over to you.

[Operator Instructions] First question is from Perry Caicco from CIBC World Markets. Please go ahead.

Thank you. You said that in anticipation of the changing FX rates, you made some changes to your merchandising programs. Can you tell us exactly the kinds of changes that you made?

Well, not exactly then I will take too long. But in the process of that Perry is that, as you know, we've hedge out anywhere between six months to a year, so that the buyers when they commit, know at what currency they are committing to, but knowing that the currency continues to increase and that eventually your hedge costs if the currency stabilized, finishes by reaching the level of the currency that we see today at the spot rate. So in anticipation of that, you don't want to modify your prices every six months, so you set the price point and the return in conserving that future costs that’s going to be a factor in determining the return. So that’s basically it.

And did you make these changes before the quarter or during the quarter?

During the quarter.

No, while it’s done before, the commitments are made before. You receive the goods afterwards and when you start receiving it, you start selling them. But because you paid them at a hedged rate, which is lower than the spot that’s coming up or the hedge rate that we will have in the future you already have that activity going on.

And do you expect to do more of this in the next couple months?

Yes. As we roll out, we have that visibility and that’s how we look at it.

But it will come to an end.

But it comes to an end. I mean, it’s a timing. Because of the sharp increase, you haven’t seen that in the past because you didn’t have any sharp increase, so it just melted in whereas now you have the sharp increase in the currency and so you forecast that and you take it into account when you determine the mix and the return on your products.

Okay. And on a slightly different topic. The 6.2% increase in transaction size, was that mostly higher-priced items in the basket or where there more items in the basket?

No, we don’t disclose the content of the basket. But obviously, the price has -- the higher price point penetration has an impact.

Okay. And my last question. Just wondering how you are offsetting the minimum wage increases this year and how concerned are you about minimum wage increases over the next year or so.

I mean, the biggest impact was last year with the Ontario increase, now it’s lower. So, we are not -- we don’t have major concerns as to the any major increase. Well, this year we know it and next year we don't anticipate major increase.

Okay. That’s good for me. Thank you.

Thank you. The following question is from Irene Nattel from RBC Capital Markets. Please go ahead.

Thanks, and good morning, everyone. Sorry to continue -- good morning, guys. Sorry to continue to beat this horse, so I just want to make sure that I am understanding what you are saying. So, you don’t want to keep raising or adjusting your price points. So let’s just say there is a certain gardening tool that you have the benefit of buying with the currency hedged to the higher price. You introduced it this summer $2, but you know that looking out it would have to be a $2.20 -- a $2.50 in order to protect your margins. So you just introduced it at $2.50, so that it will be a same price. Is that kind of what we are talking about here?

I mean, yes. A, it’s not necessarily mark-up. We refreshed 25% to 30% of the items, so it could be new items coming in and where you would say exactly the logic is there. I mean, you are right. So you know that the cost of the currency go up three months later because you know you have job, but the spreads get tighter and tighter or higher and higher as you move out. So you know that eventually you’re going to catch up to the 125 or whatever level is it, but it’s higher than the hedge rate. So in anticipation of that, obviously you take that into account and you factor it into your price point and the item that you’re presenting.

Yes. Let me give you another crack at that question. Let’s say at one point, the spot was 125 and you’re hedged at 108. While the buyers are looking at, certainly I am looking more at the 125 than the 108. So we are costing at -- whether it’s a new item or an old item, we are crossing at that 125. So our retail prices indicate that margin of costing, yet our spot is at 108 or 110 or 112. So that differences is creating that difference in the margins.

That’s very helpful. Thank you, Larry. So just continuing on within subject of FX, on the last call you said that at this point in time there are no plans to introduce higher price points. But that if the dollar continues to weaken, that could be something that you would look at in future. Could you update us on your current thinking?

I mean, who said that. Okay. I did. You are right. Okay. So basically, we will do nothing like I said for FY'16, nor will we do anything for Q1 and Q2. Now for Q3 and Q4, I think we will get a better indication from our trip to the Orient in October. And the new price points if indeed we decided to go that way would be $3.50 and $4, but we will at all times maintain and that’s important to note the maximum price point on food stuffs at $2. So food stuffs will continue as they have to maintain the $2 price point. Now what are we going to find in New Orient? We will probably find that prices generally speaking are stable. I don’t think we may get the occasional discount for that devaluation of the renminbi, but not always because they have hedged out and they claim that they can’t give us that 2%. Now 2% is meaningless compared to the 30% we’ve lost in the Canadian dollar and we should remember that more than anything else. So what are we going to see in New Orient? Well, we’re certainly not going to be able to solve the Canadian dollar versus the American dollar decrease or the weakening of the Canadian dollar. But in different areas, we may have to treat the retail prices in different ways that we may see. But the probability is in Q3 and Q4 of next year, we will have to move our price points up. That would be the probability. But I think the clarity we are going to see when we make our trip in October will give us a little bit more, well, confidence as to the fact that we’re doing the right thing. We would be doing the right thing. I just don’t like. In general, we like to maintain our prices as long as we can, but this is really an exceptional time where the Canadian dollar has gone so poorly against the US dollar and everything is bought in U.S. dollars. So to absorb 25% to 35% is almost impossible. So go ahead, Irene.

Okay. That’s extremely helpful, Larry.

Okay. Anything else.

Just one last question if I may which goes to performance across the country. Are you seeing any weakness at all in the oil producing regions, even in micro markets like Fort McMurray?

Well, we are not going to open the store in Fort McMurray and we are not seeing -- I could get a better rental rate there than I did about a year or two ago. Having said that, we don’t have any plans to go to Fort McMurray, but that was an example you’re using. We’re not seeing with -- to answer your question we’re not seeing any of that, as far as our sales go. So I think our sales are pretty consistent across the country.

Yeah. That’s the case.

I mean, where we have more mature, even where we have more mature markets like Ontario and Québec. We’re seeing some nice increases in both of those markets, so it’s pretty steady across the country.

Thank you very much.

Very welcome.

Thank you. The next question is from Kenric Tyghe from Raymond James. Please go ahead.

Good morning, Ken.

Thank you and good morning. Michael, you’ve answered in your gross margin guidance higher, but I noticed you maintaining your line of $16.5 to $17 on G&A. Could you give us some indication or just discuss what it is that sort of keeps your cautious guide on G&A despite the traction of these initiatives? You’ve highlight there’s no any major wage inflation expected down the path? Certainly, a lot of the initiatives seem to be tracking very well? Could you sort of walk us through sort of how and why that line is being held?

Well, I mean, generally ….

Generally, very importantly.

Yeah. The reason is, as we get into Q3, Q4, we’re against bigger same-store sales. Last year Q3 was $5.9 and Q4 $8.5 in terms of scaling and I think the range is large enough that we're still comfortable with what we gave out last quarter and it just hasn't changed. So, I mean, it’s -- those are the principally the element that we look at when we gave out the guidance.

Fair enough. And just one other quick question, just in terms of the competitive intensity in specifically Western Canada, have you noticed any change with perhaps a competitor or two of yours being a little distracted or otherwise? And could you just speak to the Western Canadian competitive intensity more broadly?

Well, West there is certainly, if you’re talking about Dollar Tree, they certainly are there. I'm not counting the number of stores they’re opening or closing. There is more competition at West with Dollar Tree being there. They have about 200 stores and they’re all from Ontario West. But our numbers show that -- across the country they’re about the same so.

Yeah. I think you’re right, Larry.

I don’t know what that beside that.

There is no, there -- I mean, if we look at what we do is from coast to coast in every province or region, we have reports on how the stores do compared to the chain and compared to previous year. And there is no real movement going on, whether its BC Alberta and Newfoundland, Québec, Ontario, so its pretty steady across. The competitive landscape is a bit different out West as that’s where you have for instance most of the dollar store chains, the other four dollar’s store chains, including Dollar Tree. But in essence there’s not more going out -- going on out West than there is out East.

But Kenric, if I were Dollar Tree and I just took over 8,000 stores in the states, I would be distracted. I can say that. I would be, but maybe they’re not, but I would be. They say, it’s quite a challenge.

Thanks very much. I leave you there. Appreciate that.

Okay.

Thank you. The next question is from Jim Durran from Barclays. Please go ahead.

Good morning, Jim.

Good morning. So sorry to stay with the same issues but with obviously we’re all focused on. So understand what you’ve done in terms of moving price up to keep it simple for the consumer and maybe gaining some gross margin temporarily in advance? When you look into next year in the first half of the year, are you concerned that you'll just by national progression of COGS see gross margin deteriorate and that’s why you’re maintaining your guidance for next year or is the 36%...

Yes. Absolutely.

Yeah.

I mean its simple as that.

Yeah. You hit on it.

One of the factors that’s going to kick-in in F‘17 is the increase cost of the currency and that’s going to impact my margin down and back into their 36% to 37% range.

How much pro activity have you been able to apply to changing the actual nature of the product as a way of containing the cost of goods sold inflation? Has that been a real focus for you or has it been more of just trying to figure out what items you can take price up on?

Well, I think nothing has change. In other words, we continue to replenish 25% to 30% of our items year round. And the example Larry gave is that I’m accurate. So you tell the buyer here is the short-term hedge rate when we are actually going to pay but here is the in three, six months later hedge rate, if we are hedged or the spot if we are not and that’s what we’ll have to deal with. So do we increase at once now and back three months later, I don’t think so. So the buyer just takes into account the 125 in the example that Larry gave out earlier instead of the 108. And the buyer is just buy and select with that in mind -- with that factor in mind. That’s all. Nothing in the process or in the flow changes. It’s just the discussion as to the timing of the currency and what currency you take.

Yeah. So, Michael, I think it is the combination of both. You said its combination of where you can change packaging. I mean, if you have a food container, its one food container. You can't make a half of food container. You can make it smaller but if you want to have that size food container, you have to make a decision whether to you’re your markup on it or not. Where -- if you have a package of 20 pencils and you decide to go to 15, well that’s another decision. And that’s been going on for a long time. It could have gone from 10 to 20 when the dollar was going the other way. So we're always playing with that dynamic and depending where the dollar -- it's a lot more uncomfortable going the way the dollars has been going obviously. We like to give better value but the value is relative to the rest of the country, and the rest of the country has to do the same thing, all the rest of the retailers. So as the consumer, I guess next year will not be a pleasant year from a purchasing point of view, because you'll probably be seeing some inflation in all likelihood or getting 15 pencils instead of 20, but that’s right. I mean people understand or should understand that if you lose a third of your value of your currency. Well, if you travel to Florida you have the same problem. So we are dealing with that on it on a daily basis. It's a struggle. You want to give value, yet you have this squeeze on margins which you guys are going to keep us too. So we're doing the best we can.

Okay.

But again we are on the same level of playing field and it’s been the model forever. And as long as your relative value to competition is better that's what we're working towards.

Yeah. On the cost saving side like, a lot of talk about in-store initiatives, but wondering about the distribution center like, are there chunky opportunities still on the DC? I mean, obviously your revenue growth is providing a fair amount of leverage there. But is there a cost reductions initiatives, further automation or other initiatives that we should be thinking about as you looked into 2017 and beyond?

Yes. We have some going on now and have for the past year and which have contributed to the -- also to the reduction or the improvement at the margin this quarter, which can be pallet optimization, delivery consolidation and things of that nature.

And to those from a dollar standpoint, do those pale in comparison to what we’re seeing from labor scheduling standpoint and what you think you’ll get out of the Wi-Fi deployment?

No. I think it’s a slower and smaller impact.

Yeah. I -- we agree with you, Jim.

And new DC and Western Canada still several years off, if you continue to squeeze more productivity out of the existing facility?

Yeah. Again our warehouse in DC out West depends on, if it makes economic sense in fact with oil at its present rate or costs, it makes less sense every day. So if we are going to going to need, which will probably happen shortly, more space to run this business whether it’s DC or warehousing, we will probably do it out East, because that's what makes sense today.

Yeah.

By a long shot, it’s and we have better controls by having it in Montréal around us and it is whole other thing to go to have another warehouse out West. And if it makes huge economic sense we will do it, but it doesn’t make any economic sense at the moment.

Okay. Thank you very much.

You’re very welcome.

Thank you. The next question is from Peter Sklar from BMO Capital Markets. Please go ahead.

Thank you. Just had a question about the -- there was an acceleration in the proportion of products that are priced at a dollar or more? And I am just wondering what the underlying dynamics of that are? Are you continuing to increase the mix of SKUs that are priced higher than a dollar or just people buying more of existing higher priced SKUs or just give some flavor on what's going on there, because you did a quite a leap in that?

I think it happens by default. When you are out buying today, we are not talking 20 years ago, we are talking today. You are being offered less and less items that could sell for $1 to $1.25. So the tendency is for the buyers and subconsciously or consciously that you're being offered nicer products at to sell for $2 and $3 and whatever. And you are going to as a buyer tend to move in that direction, just not by design but just that of human nature by saying. And you're not being offered and the stuff you are being offered at to sell for a $1 to $1.25 is certainly not the value that you used to get 20 years ago. So almost by default, it's not by design. We're not saying we want to sell more product at the higher price points. My god I sat higher growth of the other retailers, okay, we will say higher. So, I think, it’s just one year out there selecting and being presented whether you're there or here you are always getting new items being offered. The likelihood for the buyer is to buy something that is nicer and more -- therefore more expensive and therefore will increase your variety at the higher price points. To sell something at a $1 today and a $1.25, you’ve got to pay between $0.25 and $0.35. Well, then China is not concentrating on that price level anymore. They are not concentrating like they used to 20 years ago. I mean there was a huge concentration of effort and numerals and just item is being created for that price point, that price point seems to other than Dollar Tree in the states have gone -- has gone away to a larger extent. It’s gone, bye-bye. So I don't think we are by consciously saying we want buy more items at $2.50 and $3. We just do and I think that's the best answer, unless someone around the table has a better answer, no. That’s all you are getting for today on that.

No. That was a good explanation. Thank Larry.

All right.

Is there any update on Dollar City or just kind of steady as she goes?

Steady as she goes, yeah.

Okay.

We are happy with the progress.

Okay. Thank you.

You're welcome.

Thank you. The next question is from Derek Dley from Canaccord Genuity. Please go ahead.

Yeah. Hi, guys. Can you just give us an update on some of your new cost initiatives like Wi-Fi, for example, where are you guys at on that?

Essentially we have got antennas and the hardware setup. There is still connection to do, programming to do and a lot of training to do. So that’s why we only expect the benefits in order to kick in next year in the latter part but everything is growing on track, on budget and it’s going very well.

Okay. Great. And I think I asked you guys this on the last call but just given the slowdown that we have seen in China. Are you guys seeing any more sort of weakness in actual cost in China? I mean, obviously the currency is going to offset the portion of that but have you seen any of the costs relent?

Again, it goes by product category but the answer is no. Just to maintain prices -- I mean, they are still dealing with increases in labor costs. And all of a sudden, they say when you say when oil is going up, they say, well we have to increase the price of our plastics but when that goes down, all of a sudden oil is the small part of the product. So -- and how are you going to fight that. There is still the best source of supply and I wish I could say that we are getting 10% decreases but it’s far from that. We’re maintaining our cost or in certain categories, getting a bit of a break but that break would be 2%, 3%, 5% at most. So generally speaking, it’s business as usual in the sense that we’re not getting price decreases, not nearly enough to compensate what’s happening with our Canadian dollar, not in the same league.

Yeah. Okay. Understood. And just regionally, were any area stronger in terms of same-store sales this quarter or traffic into the stores?

Across the country, we’re doing -- we're doing well across the country thankfully. It’s the same across the country.

Okay. Great. Thanks.

Thank you.

Thank you. The next question is from David Hartley from Credit Suisse. Please go ahead.

Good morning Dave.

Good morning. Larry, thank you. Just one question to round it all out, your average traffic counts per store, how are they looking? I mean, has -- have you seen changes with that? I guess, this is another key way of getting at your basket size?

Yeah.

Yeah. So the basket we don’t disclose and so traffic is again coast-to-coast and it’s pretty stable and yes, there is not much more we can say about that.

We’re happy -- we're happy. We seem to be getting our share.

Fair enough. That’s great. And store sizes, are you still planning to look at similar size stores on average as you continue to roll through 70, 80 stores per year?

Well, haven’t you’ve heard that we have taken over 30 Target stores.

Yes.

I’m just kidding you. I’m just kidding. I’m just kidding. No, I think still 10,000 feet is ideal. Doesn’t mean that if the opportunity present itself we won’t go higher and if the opportunity present itself we won’t go down to let’s say 6,000, 7,000 feet. It’s more difficult to operate but when you are in middle of Toronto or the middle of Vancouver, we don’t expect to be able to get 10,000-foot boxes that easily. So we usually take smaller size stores, which is okay. They usually have basements. So the operations are a little bit more costly but it’s okay. I don’t if I’ve answered your question.

It’s okay. I was just wondering, last question, could you remind me and all of us about where you are opening up stores over the coming 12 months, urban, suburban, rural, east-west, that kind of thing?

Yeah. There is no direction. In other words, we don’t say like we got to open some urban stores. It’s just -- again it’s opportunity driven. It’s opportunity driven across the country. It seems that as things turn out that we’re still opening two thirds of our stores in Quebec and Ontario as intensified as we think they are. They are still, that’s where the people are and when we bring our stores to the people, they seem to react positively. The other areas are very -- the Maritimes, the Newfoundland, out west is a very good areas for us. But at the end of the day, it’s still about two-thirds Quebec and Ontario.

Let me sneak one more in. Just given this is a bit of, I will call it a windfall year argue against that if you will. But given your gross margin gains this year, temporary as it may be, but will that suggest you, all of us that your buybacks will perhaps increase year-over-year.

I mean the internals of buyback the approach is the same, opportunistic. And the intention as it has been for the past program is to continue buying back share.

Thanks a lot. Thanks.

Thank you, Dave.

Thank you, David.

Thank you. The following question is from Vishal Shreedhar from National Bank. Please go ahead.

Good morning.

Good morning. Thanks for taking my questions. Just wanted to jump back quickly to the gross margin and you said a few times before I understand, there is a transient benefit on product margins related to pricing. But in the disclosure material, it says the increase was slightly higher product margins and your gross margin rate year-over-year was pretty strong increase. So just wondering how large will the other factors like the scaling and logistics of the transportation costs, are those meaningful drivers to benefit?

Yeah. And importance without being going into too much detail, the mark-up have the bigger impact and the transport had a good impact also and then you’ve got scaling and other smarter factors.

Got it. So the transportation benefit, I should have presumed that stick and that’s related to the price of oil?

I’m sorry, Vishal. I have problems hearing you.

Sorry. Can you hear me better now?

Yeah.

Okay. The transportation benefit, presumably at stick and it is related to the price of oil?

Yeah. Part, yes. Yeah.

Okay. Thanks for that. And just lastly on your Latin American expansion, just a quick reminder here. Is this model designed to be similar to Dollarama in terms of the economic? I know it is early days here but just trying to understand.

Yeah. The business model, first, it’s to replicate the Dollarama concept. So as we’ve always said, if we drop-in the store there you thinking the Dollarama store and hopefully, obviously it’s a very small now, so you don’t get the scaling benefit in terms of KPIs. But the intention is to make it an operation that has very strong margins over the long-term.

Yeah. Don’t forget where we have smallest stores there. We can’t find 10,000 foot stores in that area. So you are dealing with stores between two and four, five thousand feet and your labor is less expensive. So you are able to supply those stores more regularly and spend more money on supply because you just don’t see it on -- you don’t have the size stores to put your assortment in. So the assortment has to be better managed and better managed physically which they do. They do very well. They have done very well and we’ve just opened a few more stores or our first stores in Guatemala as a second country in Central America just for your interest. Yeah.

Okay. It sounds great. Thanks a lot for your color. That makes sense.

Thank you.

Thank you. The next question is from Keith Howlett from Desjardins Securities. Please go ahead.

Good morning, Keith.

Good morning. I just wanted to ask on your China purchases, are they all meeting U.S. dollars or do you have any contracts with suppliers in renminbi?

For the moment, it’s all in U.S. dollars and we are evaluating renminbi.

And then I was wondering on the freight, your buyer seemed to be expert at the forward curve of currency. But I am just wondering on freight, do you give them a freight factor to include in their gross margin that you provide them or how do they adjust?

Well, the system provides for that, so we have landed, including freight and other factors.

Yes. The main advantages, and correct me if I am wrong, Michael. The freight advantages are coming from domestic transportation, not from -- we haven’t had serious freight decrease.

No, no, you’re right, that’s outbound transport. You could change the freight. I guess you’re talking about freight in, Keith.

Well, I was wondering both freight in and freight domestically, whether that’s part of your buyers calculation?

Yes. Absolutely.

So do you give them the number that you’re anticipating freight will be and they build that in and then if freight less that sort of boost their performance in that category?

Yes. When we look at gross margin, the 36% to 37%, logistics is a component, definitely the currency, the freight inbound transport, all of that is part of it. So if we anticipate that the gross margin is going to go up because of better outbound transport and/or logistics, we let the buyers know so that they understand that it’s going to improve the margin and they can certainly factor that in when they are buying.

We don’t sleep very well with all this information I will tell you.

Yes. Certainly the numbers are working so far. And just on the Target stores, I know you’re joking, but I ran into a store recently where old Zellers have been carved up in four pieces and you are one piece and there was a winners in another piece. Are there many opportunities like that or they vary one-offish?

God, that was doing more. Those are the old Zellers. Those are the stores that were not taken by Target. The one selected by Target were obviously the better locations and location had nothing to do with their failing in my opinion. So we do have some old Zellers that were not taken by Target. Some of them have been -- by the developer have been cut up. Where were you looking at?

Huntsville?

Yes, Huntsville, okay. Yes, so we made that move, we didn’t put a second store in Huntsville. We simply moved locations to what we thought was a better location that one being in the Zellers. Some opportunities have come up like that, maybe two, three of them. Some opportunities have come up with respect to carving up the former Target also. And I think more will come about, but it doesn’t mean an extra store unfortunately, probably it means relocating one of our existing stores into what we feel would be a better location. It has happened. But when you have 1000 stores, you are looking at three, four of them.

Right. And just finally, how is the back-to-school merchandise assortment look and do you have any comments on the results there?

Neil, do you have anything to say on back-to-school? Johanne, Neil.

No, it was in line with last year. We’re happy with the results.

Great. Thanks very much.

You are welcome.

Thank you. The next question is from Brian Morrison from TD Securities. Please go ahead.

Good morning, Brian.

Hi, good morning. Just two quick questions if I can. First, when you talk about the introduction potentially of $3.50 and $4 price points, would you keep the same number of items, like the you have seven price points right now, would you keep the same number of prices points or would that be in addition to do you think?

It would be in addition to.

Okay. And the second question. I understand your gross margin is going to normalize back to the 36% to 37% range as the hedges kick in. But just to go one step further, if the dollar were to decline going forward a couple of years to $1.15, prices are now adjusted for current spot rates. Would you still target a 36% to 37% gross margin? Or would that be an opportunity to have the value proposition potentially be at a higher gross margin or in your example earlier go to 17…

I would like that to happen and then we’ll give some serious thought to it. I just can’t speculate that way at this moment. In the past, we’ve given better value when the Canadian dollar was improving versus the U.S. dollar, we tend to give it. But to speculate what will happen if it’s became $1.15 and it’s not $1.30 any longer, I don’t know -- you know things happening in China, where will China be, where will oil, where will fuel be, to speculate that far, I just don’t -- I wouldn’t like to do that.

But again, Brian, it will be all on the same level playing field as others. So, I mean, it’s always -- you’re always comparing and managing it relative to others too.

Yes. I guess the point is if you can throw up robust numbers at a $1.30, you potentially have an opportunity at a $1.15?

Right.

Yes. You can conclude that. I would conclude that if I were you, but I don’t know how -- what things will be like when that happens and if that happens, and hopefully that happens because it’s a lot easier to manage at $1.15 then on $1.30 or $1.35.

In other words, it’s not an automatic gross margin benefit. You adjust to competition.

Thank you very much.

You’re welcome.

You’re welcome.

Thank you. The following question is from Chris Li from Bank of America Merrill Lynch. Please go ahead.

Good morning, Chris.

Hi. Good morning. Just as you contemplate introducing new high price points, will most of the additional SKUs be used to expand the assortment of the existing categories? Or do you see there’s an opportunity to perhaps get into new categories that you’re presently not providing?

I do not see it as a means of introducing new categories. It’s just within the existing categories we know, so that is the answer. It’s existing categories, absolutely.

Okay. And I think it sounds like as you contemplate higher price points, it would suggest that your confidence in your ability to preserve the value proposition for the consumer at a higher price point will still be preserved. How do you kind of balance that against the risk that of that not being able to achieve using the value proposition with the customers as you go out?

I think we add to the higher price points. We hope we can give the same value that we give at every other price point and we are going to make sure we do that. I can only say that much for that question. I think at $3.50 and $4, we will be able to give value. The same value as we give in every other price point. And again, we are competing on the same playing field as everybody else in Canada, so that should be the case.

Got you. Okay. And my last question is when you are looking at your same-store sales growth performance, if you look at say the bottom 25% on the stores, how is the comp store sales growth relative to your company average? Just want to get a sense of what the variance is between your worst performing stores versus the company average?

We don’t go into that detail, Chris. But essentially, as we said in the past, they all contribute and it’s pretty much all well bunched up.

Yes. I’ve never looked at it that way, Chris. And I can only say that we’ve never ever closed a store because of performance. The only reason we close stores is because either better location becomes available or the shopping centers redoing itself and wants us out for a period of time and then launch us back in when they finished their renovations. But we’ve never closed the store but to answer your question directly, I’ve never looked at it that way. Show me my - -the worst performing and so, I can’t answer your question legitimately.

No worries. That’s helpful. Thank you, guys.

Thank you.

Thank you. This concludes the question-and-answer period as well as the conference call for today. We ask that you please disconnect your lines at this time and we thank you for your participation.