Neil Rossy - President and Chief Executive Officer Michael Ross - Chief Financial Officer

Irene Nattel - RBC Capital Markets Emily Foo - BMO Mark Petrie - CIBC Jim Durran - Barclays Derek Dley - Canaccord Genuity Brian Morrison - TD Securities Vishal Shreedhar - National Bank Financial Keith Howlett - Desjardins Securities Chris Li - Bank of America Edward Kelly - Credit Suisse

Good morning, and welcome to the Dollarama Conference Call for the Fiscal 2017 Third Quarter Results. Mr. Neil Rossy, President and Chief Executive Officer and Mr. Michael Ross, Chief Financial Officer, will make a short presentation, which will be followed by a question-and-answer period open exclusively to investors and financial analysts. For your convenience, the press release, along with the third quarter financial statements and management’s discussion and analysis are available at dollarama.com in the Investor Relations section and 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 these assumptions and risks, please consult the cautionary statement regarding forward-looking information contained on Dollarama’s MD&A dated December 7, 2016 available at www.sedar.com. Forward-looking statements represent management’s expectations as of December 7, 2016. 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. Neil Rossy.

Thank you, operator and good morning everyone. Our financial results for the third quarter of fiscal 2017 reflect continued improvements in our financial and operating results, characterized by growth in sales, earnings and earnings per share. We are pleased with a strong sales growth and improved bottom line results as we continue to adapt to the weak and fluctuating Canadian dollar and to the competitive environment. Our goal is to maintain a product offering with compelling value while managing our margins and costs. Sales growth was stimulated by the expansion of our store network across Canada. We opened 64 net new stores over the last 12 months, bringing our total count to 1,069 at quarter end. During Q3, we opened 18 net new stores compared to 16 in Q3 last year. We expect to open more net new stores in Q4 than we did in Q3 and to reach our target of 60 to 70 net new stores for fiscal 2017. Growth in sales this quarter were also driven by a 5.1% increase in SSS, over and above the 6.4% same-store sales reported in the same quarter last year. We are pleased with our sales results this quarter given that we are comparing against strong SSS last year and Halloween fell on the first day of Q4, therefore, 1 day less of sales compared to last year. In August, we began introducing items at the $3.50 and $4 price points. Customers are responding positively to the offering. However, we do not expect these new price points to have a significant impact on current year results. We continue to contend with the weak Canadian dollar and we anticipate an increase in inbound freight costs over the next year. However, the Chinese economy does remain soft from our perspective, which provides us with some opportunities to purchase goods at favorable prices to offset some of these headwinds. On the logistics front, we are pleased to confirm the construction of our new 500,000 square foot warehouse on 1 million square feet of land in the Montréal area is finished and has been delivered on time and under budget. And for a little color, the total budget of $60 million for land and building, the project was completed for $55 million, and the $5 million balance has been used to commence some of the projects that we were pushing off till next year a little earlier than expected. On the logistics front, the installation – sorry, the installation of racking systems is underway and the facility is expected to be operational by the end of the fiscal year. This new facility provides the additional capacity needed to absorb the continued growth and expansion of our business. It also enabled the consolidation of inventory that was being held in several temporary facilities in the area. Now, I will pass it over to Michael to discuss our financial and operational results in more detail.

Thank you, Neil and good morning everyone. Dollarama reported 17.9% increase in diluted earnings per share compared to the corresponding quarter of previous fiscal year. EPS increased from $0.78 to $0.92. Our strong financial performance was driven by continued improvements across all key financial and operating metrics. Total sales were up 11.2% to $739 million. Same-store sales increased by 5.1%, over and above the 6.4% increase reported last year, as Neil said earlier. Transaction size increased by 5.8%, reflecting consumer demand for our higher price point items. There was a 0.6% decrease in the number of transactions, but mainly attributable to the fact that the last day of Halloween, as Neil mentioned, the shopping fell into Q4 whereas last year it was in Q3. Finally, our store count grew 6.4% over the past 12 months with the opening of 64 net new stores. Cash flows from operations decreased to $98.7 million in Q3 from $114.2 million in the corresponding quarter of the previous fiscal year. Earnings continue to drive high cash flows. However, cash flow this quarter, were slightly lower as a result of the higher use of working capital related mainly to the timing of tax payments. Capital expenditures increased by $21.2 million in Q3 F ‘16 to $42.7 million in Q3 F ‘17. This increase is mainly attributable to the warehouse construction cost mentioned by Neil earlier. We also continue to repurchase shares under our NCIB. We bought back 1,571,500 shares during Q3 at a weighted average share price of $100.41 for a total consideration of $150.8 million. Looking now at some of our in-store initiatives, as mentioned in previous quarter, we completed the rollout of new IT infrastructure in stores, including WiFi technology and handle mobile scanners that will further improve store labor productivity by eliminating manual activities. This new infrastructure will allow us to potentially rollout other technology initiatives aimed at enhancing in-store efficiency, reducing cost and improving customer service. We are now little over 9 months into our credit card pilot. We continue to measure and monitor impact on sales in BC and we are satisfied with the direction today. We look forward to monitoring the impact of [indiscernible] sales over the winter holidays before making a decision on general acceptance of credit cards across the store network sometime early in the next fiscal year. Looking at our outlook for this year, as mentioned by Neil, we are maintaining our 60 to 70 net new stores target for the fiscal year. We opened 18 net new stores in Q3 and expect to exceed this number, obviously, in Q4. Although the gross margin of 39.5% for the quarter is slightly lower than the prior year, it is still higher than expected. We are increasing guidance for fiscal 2017 to a range of 38% to 39% compared to the previous range of 37% to 38%. Gross margin this quarter benefited from better-than-anticipated market conditions and the positive scaling impact of higher-than-expected sales. G&A for the quarter represented 15.8% of sales compared to 16.7% last year. The improvement reflects the positive impact of store labor productivity initiatives, the benefits of certain cost reduction initiatives and the positive scaling impact of higher sales. For fiscal 2017, we are maintaining our outlook on G&A in the range of 15.5% to 16%. These guidance ranges are based on a revised assumption for same-store sales, which are expected to be in the range of 4.5% to 5.5%, following stronger than expected same-store sales in Q3. Our guidance on the CapEx for the year is unchanged in the $162 million to $170 million range. Now, looking at our guidance for fiscal 2018, our net new stores target is the same as for fiscal 2017 at 60 to 70. As usual, we will focus on location in markets where we can achieve our targeted returns on investments. Gross margin guidance for fiscal ‘18 is in the range of 37% to 38%. We want to reinvest savings from G&A into the product offering, thereby continuing to provide products with compelling value our customers expect to find at Dollarama. G&A is expected to improve to a range of 15% to 15.5% for fiscal 2018, with the benefit from our various productivity initiatives and the positive scaling impact of sales. At the EBITDA level, guidance is in the range of 21.5% to 23%. All of these guidance ranges are based on the assumption that same-store sales will be in the range of 4% to 5%. Finally, the CapEx outlook for fiscal 2018 is in the range of $90 million to $100 million, mainly for investments in new stores, upgrades of existing stores and further development of technology throughout the network to further improve efficiency or reduce costs. So that wraps up our call. I will now turn the call over to the operator to take questions from analysts.

Thank you. We will now take questions from the telephone lines. [Operator Instructions] And the first question is from Irene Nattel from RBC Capital Markets. Please go ahead.

Thanks and good morning everyone. I was wondering if we could please start with the traffic trends during the quarter, certainly understand the shift in timing on October 31 into Q4, but can you talk about the cadence of traffic trends through the quarter?

Hi, good morning Irene, it’s Michael. So one of the – definitely, one of the big impact was the day difference in Halloween that was pushed to Q4. The other thing too, is the Halloween season this year was against double digit same-store sales for the – only for Halloween season in the two prior years. So we were comping against very strong 2 years behind us, so all of that definitely had an impact on the traffic. So the majority of that relates to that situation. Now as I mentioned in the last quarter, I told – I mentioned to the investment community to factor for Q3 and also for Q4 the great results we had in prior years and those specific quarters and so to expect that traffic would be slowing down further. And in Q4 again, just looking at Q4, we had 7.9%, with I believe above 4% transaction last year. And that was against 8.5% the year before with above 3% traffic also. So we are not surprised. We expect this and we expect traffic to continue being – to reduce or be stable compared to what we have this year. But comparing to last year, we are expecting it to be much lower.

Okay. Well, then which brings us to the question of the basket size, so to the extent that basket was up 5.8%, which is exceptionally strong, is it really a reflection of migration within price points, are people buying just a little bit more each time they go in the store, I mean kind of what’s behind the basket growth?

Yes. There has definitely been basket impact from the increased penetration of higher price point. And like – it also happened back in FY ‘13. In other words, in August 2012, when we introduced $2.53, you saw an increase in SAP shortly following that. So there is definitely an impact from the increased penetration of higher price points. And we expect that to continue on.

And even among – if we put aside for a moment the higher sort of the new price points, are we continuing to see a migration within the older price points more towards the $1.50, $2, $2.50 items?

Yes, it continues to grow. You are absolutely right.

Okay, that’s very helpful. Thank you. And can you provide us any color whatsoever on what you are seeing so far in Q4 on traffic trends or basket size?

Not really. I am sorry, Irene.

I will pass it on just someone else to bang the drum.

Okay. Thank you, Irene.

Thank you.

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

Hi, good morning. It’s Emily filling in for Peter.

Good morning.

Good morning. Are you able to quantify how that one day shift of Halloween impacted SSS?

Well, internally, we do know. But we are not communicating that.

Okay and that’s fair. So for this quarter gross margin, like you said was down year-over-year, but still substantially higher than your previous guidance, can you just – I know you touched on it a little bit in your commentary, can you give us a little bit more color, more reasons as to why it’s so much higher than your previous guidance?

Yes. Well, I mean market conditions as I mentioned a bit earlier on, were favorable to maintain that type of margin. There is the scaling. As I had mentioned back in Q2, we didn’t expect same-store sales to be at the level they were. We expected them to be lower. And so given the great results we had, scaling also had an impact. But overall, it’s market conditions also that are still very good out there.

Okay, I see. Can you give us an update on Dollar City?

Dollar City – it’s Neal, good morning.

Good morning.

Dollar City continues to execute on its plans of expansion in El Salvador, Guatemala. And we know that they have currently opened two stores in Colombia. And their plans are going very well and the execution is excellent and we will keep you posted as things become more relevant to this business.

Great. Thank you. Those are my questions.

Thank you.

Thank you.

Thank you. The next question is from Mark Petrie from CIBC. Please go ahead.

Hi, good morning. I wanted to ask about the fiscal 2018 gross margin percentage range and clearly, it’s lower than where you will wrap up for fiscal 2017, but it’s higher than the 36% to 37% range that you have generally targeted over the years and so is 37% to 38% kind of your new baseline and is that based strictly just on being a larger organization and scaling up fixed costs?

Yes. So I will stick to the target we gave you over next year without talking about was that long-term tendency or not. As I explained, things can change quickly in a given year. Right now, we are comfortable with that target. Scaling this year, the great sales we have had to-date and with the 4% to 5% same-store sales next year reassures us in terms of this new level, but certainly, no guarantee for sustainability in the future. So, I think it’s wiser to look at it on a year-to-year basis.

Okay. And are you seeing any change in your cost of leasing broadly across the network as you rollout new stores?

If we see a change? I am sorry, Mark.

Sorry, in the cost of leasing in your occupancy cost?

Yes. No – occupancy cost is as steady as she goes. So, you do have years where the new sort of normal inflation. So, you do see some years where the new stores have higher cost per square foot, but it depends on the potential revenues generated by that store. But with a store base of 1,000, the impact of newer stores is not significant. So all-in-all, if you are modeling out, I think that normal inflation fits very well.

Okay, that’s helpful. And then my other question was just related to the warehouse and I mean it’s really about adding capacity for the growing network. But should we be expecting any sort of benefit in terms of margin leverage or any period of excess costs as you load that up or ramp that up?

Yes, it’s normal. I’d say, it’s – no, you won’t see any significant difference once we move into the warehouse, which is shortly. And we were, because overcapacity and we were already using up some lease space up-to-date. Now, we are going to transfer so there is one-time transfer costs, which are capitalized, but once you start operating them, things fall back into normality. So, you won’t see anything significant there.

Okay, that’s helpful. Thank you very much.

Alright. You’re welcome.

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

I just wanted to go back to your transaction volume. I guess, one of the questions that I know a number of investors have is, is there any risk that we are seeing some resistance to higher price points partly driven by FX and partly driven by introduction of new price points? When you look at your transaction volume, the slowing or the difficulty of comping two years of strong results, how much of that is coming out of the change and less lift in number of units per transaction versus traffic?

Okay. So first of all, again, we know the levels we are at right now, we kind of expected due to the fact that we are comping against very strong quarters. So to maintain high traffic growth in itself is difficult. So, we try to average that out. We – our historical traffic growth per year hovers around 1%. And then you have to sometimes average out 2 years or 3 years to get to that. Right now it’s 2 – what you mentioned is a possibility, but there is nothing that has us concluding on that right now. We are going to let time go by and see what happens. But we are not – again, we feel that everything that’s going on right now is more or less in line with what we expected. And we will see as the penetration of higher price point continues. In the past, we didn’t see any resistance to increasing our price points. The value proposition is there at the new price points. And as we discussed earlier with Irene, the majority of the increased price point is not the $3.54, because those have just been introduced and are newer, but more of the other [indiscernible] that have been increasing. But also, I would like to say that the majority in units of price points are still $1.25 and lower in terms of units. So, here is, yes.

And so do you feel like the average customer coming into your stores, do you feel that they are spending in total dollars more or as your price points move up, the unit volume can come under some pressure, because they have got a constrained amount they can spend on any one trip?

Yes. I mean, we have seen that in the past, too. So, we don’t disclose the specifics in terms of basket units. But we said that it does have an impact obviously. At the end of the day, we gained 5.11% more sales year-over-year and it’s a mix of pricing in – price and units.

Okay, that’s great. Thank you.

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

Yes, thanks. Just a couple of questions. Looking at to 2018, I mean, you mentioned in your script that the weak Canadian dollar maybe a bit of a headwind although I think you can offset that. Is there anything else on the horizon in terms of potential headwinds that you are looking at?

Yes. Well, there is always headwinds coming from wage increases. I mean, there is nothing significant that we are expecting upfront. So for us, it’s business as usual. So you have got – we expect headwinds from freight in costs where wage increases currently see as we mentioned. And so that is all factored when we set the margins going forward. And what influences the setting of the margin is that competitive dynamic or landscape out there.

Right. It seems like that continues to be very favorable for you guys to sort of slowdown, if you will, in China.

Right. To-date, no guarantee that it’s going to remain like that, but to-date, it’s been favorable.

Okay, great. And then just regionally, have you guys witnessed – exciting that we ask you this every quarter, but have you witnessed a slowdown at all in any of your Alberta-based stores or anywhere recently that’s outperforming or underperforming?

No, no. It’s steady as she goes in all provinces.

Okay. And can you comment on roughly the new price point level of $3.50 to $4, I mean is it still sort of sub 10% of your SKUs are priced at those levels?

No, it’s much less. It’s very small. Very small. Yes.

Okay, great. Thank you very much.

You’re welcome.

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

Yes, good morning. Question for Neil, if I look at the gross margin and this ties into the gross deposit margin outlook seeing this is essentially locked down at the time of buying. When you do a price move in intra-quarter, let’s say for example, candy back in September. Could you just walk us through the rationale both from a timing perspective and say the process how you landed at say $0.82 on that item?

Sure. The candy that you are referring to, for the most part, is domestic. So, it doesn’t have the same hedge policy that has to be considered. So, it’s much less complicated. When it comes to buying goods that are coming from overseas, depending on the delay of production from the factory in question, the hedge rate that we have bought out to at the time period which those goods will be shipped is what’s considered by the buyer. And the buyer will then adjust the price or cost point that he can afford to buy the goods at. And he will basically target landed margin based on that exchange at the time of delivery for when the goods will arrive and be sent to the stores. And so they are taking into account the time of production, the time of transportation and the gross margin percentage target that they are trying to buy the whole category for. And so on some of the items they will work a little tighter and others a little less tight. And in the end, they are trying to get to the specific number that’s been given to them. And so far thankfully, it’s been executable over the course of our history.

So just from a domestic perspective though, why the timing with respect to candy in September, was it just from a holistic approach to balance things out?

If you are – are you specifically referring to the cost of chocolate bars, just so I can understand?

Yes. I am just wondering why the movement, I mean the gross margin is going up and it looks better, I am wondering from a timing perspective?

So for that specific category of goods, there was a cost increase and the cost of raw materials of that specific category of goods. And the raw material costs had to be passed on to the entire trade. And so the cost of those goods went up for North America as a whole. And so we can’t escape a raw material cost or industry costs as they rise. And so at some point – as a retailer, we have to either decide can we afford to absorb or does the cost that we are having to pay has to be transferred to the customer. And we like to push as long as we can and be the last to move. But at some point, you have to move in order to still be a productive company.

Okay. A question for Michael please, Michael, on the hedge book, the nominal value of your exposure it’s now down to about $448 million, I realized that there is some seasonality around this figure, however it’s the lowest it’s been in sometime going back the last seven quarters to eight quarters, so was this simply a timing issue or are you taking a bit of a directional call here on the currency?

No. It’s purely timing issue. And so – and as I said in the past, the minimum is six months, but typically we are between 9 months and 12 months. And so it’s purely timing.

Okay, thank you.

Thank you. Your next question is from Vishal Shreedhar from National Bank Financial. Please go ahead.

Hi, just a few quick ones here. On real state growth, the next fiscal year is at 50 stores to 70 stores, just wondering if that could be increased as you go through the next fiscal year or if you have a pretty good line of sight on those 60 stores to 70 stores?

No. We have a pretty good sign of – sight of – anyway, you understand. We have a good sight on it, but again as I have mentioned in the past, there is always a question of timing. Can you open it up within the period or not, so unfortunately we are a bit more than 1 year away, so hard to say. But yes, we have got line of sight.

Okay, so possible to obviously be within that range, but possible to exceed it as well?

Well, it is.

Anything is possible.

Yes. It’s in that range. And yes, it could be possible.

Got it. I just wanted to just dig a little bit deeper on the traffic trend, so understand that’s the shift of Halloween into Q4 impacted a little bit this quarter or the bulk of that negative 0.6 there, so a few things we have to factor in as we are looking into the next quarter, last quarter the traffic was unusually strong than you have this Halloween traffic shift as well and then we had your commentary where you said think flat to negative, so I guess with all those points, just wanted to get that 4.2 that you had last year, was that driven by unusual factors or was that a sustainable kind of growth there?

No unusual, because we had unusually perfect weather against the year before that, which was unusually good weather. And like I said, last year’s traffic was above 4. And the year before that was above 3. So I mean we are going against two extremely strong traffic years. And if I were to bet on Q4, it would be that we are not going to hold that trend. And it’s going to be in my mind, lower than the prior year’s. We do our best to keep it up there. But we have to be realistic also and I expected to be down in Q4 because of the high traffic quarters the two past years, the two past Q4s.

Okay, great. Thanks for that color.

You’re welcome.

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

Yes. So I just want to make sure I understood what favorable market conditions mean, does that mean buying in China’s favorable or the freight cost is favorable or...?

No. I mean as we said in the past, we are on the same level of playing field as others. So as others are impacted by energy, wages, currency and all of that, we are okay. Now, favorable market conditions in the sense that we were able to maintain the strong margins compared – influenced by our competitors or impacted by our competitors. So market conditions allowed us to maintain that higher margin than we had initially expected.

And a question about the higher price point of goods, you experienced any higher markdown rate on those, I know your overall markdown rate is very small, but do you have a higher markdown rate on the higher price point goods?

Not to-date. To-date that has not been the case. To-date, markdown rate is the same for the higher price points as the lower price points.

And it appeared that you have got quite a lot of – well, relatively speaking, a fair items of items of $4 in the toy area, I don’t know if you can speak to that, is that an area of particular opportunity or...?

Honestly, I think the $3.50 and $4 price point buying is purely a question of opportunity, as you said. And I know that in our holiday season, we were able to take advantage of finding goods that had amazing perceived value at the quality we are looking for in those price points and toys was another categories where it was I guess easier for to buyers to find goods that made sense. And over time, I am sure that those price points are being looked at by the buyers as along with all the other price points that they have within their arsenal as buyers when they go looking for goods. And it’s going to be easier at certain price points to find certain categories. So I think that’s just purely a question of the ease at which those buyers found goods available quickly and easily and other categories will require more work to develop goods into those price points than possibly simply exist today from their vendors.

And in terms of moving the higher price points into the store, do they go at different times depending on what’s been selling in each individual store or do you move to all the stores at the same time?

As a rule, when an item is bought, if the buyer feels that it has merits across the chain, it goes to all stores from the beginning. If the buyer wants to test the item, they are able to do that as they wish. They can put it in a smaller number of stores and then if the item does very well move it across the chain. But they have that tool available to them as well. But as a rule, when an item is bought, it generally goes across the chain, sorry regardless of price points.

Okay, thank you. And then just on the consumable section, there has been – I know your points – price points are fixed, there has been some deflation across the grocers and I am wondering do you see any impact of say, price competition or deflation in other channels where people could buy the items and you noticed any negative impact on your category?

Well, we really try not to focus overly on food as we have mentioned many times in the past. And we continue to have a policy of restrictive retail policy on our food section in our stores, which is more limited than it is for the balance of our store. We don’t sell goods generally at the higher price points in that category. And so since our offerings are limited to the lower price points, we tend to still be mostly differentiating our food from the balance of the market. So I don’t – although we are always facing competition in all categories, food included. And food in particular is incredibly price sensitive. The buyers are always making sure that his goods are competitive no matter what the category is. But as a whole, I would say that that category hasn’t had any particular influence on what’s happening in the grocery industry because it’s really not a huge part of our offering.

Thanks very much.

Thank you.

Thank you. Your next question is from Chris Li from Bank of America. Please go ahead.

Hi, good morning. Just a few questions here, first is, when you look at the stores that had been in operation for say, 7 years or 10 years or longer, how were their same-store sales performance compared to the new ones, I wanted to just get a sense of how balanced is the same-store sales growth performance coming from the more mature stores versus the newer stores?

Okay. So in general, we look at this every quarter. We will look at performance of all our cohorts. And essentially, except for the last 3 years or 4 years, they performed very well and almost equally. The newer ones, obviously they are still in their maturing phases over the past, especially in the past 2 years or 3 years. So they are performing well but there are still in maturing phase. And so their square footage revenue was a bit lower.

Okay. And just on that Michael, I think in the past you have mentioned still sort of a 2 year payback on the new stores and I thank you mentioned on average after year one, the new store gets about $1.5 million-ish of sales per store and then goes to $2.1 million coming out of year two and then maybe go onto $2.6 million closer to these overall company average, is that still in line with what you are seeing so far?

Yes. Just to correct the first year the average is 1.9, second year is still around 2.1 and the third year is within mature range. But it’s not that 2.6. It might be a bit lower than that. But it’s the same that you have seen tendencies in the past.

Perfect, okay. And my second question is just on gross margin, you have mentioned scaling and favorable conditions from China that all makes sense and I wanted to see if you can comment a bit on how about favorable product mix and I am thinking in terms of both you guys penetrating higher margin categories or launching more of your own private label brands, how are those helping your margins or how are they expected to help your margins going forward?

The mix between private label and national brands has been pretty consistent for many years now. And so there has really not been a shift there per se. The sourcing in general also is something that’s – it’s day-in, day-out study by all the buyers in all their categories trying to find the best source of goods locally. So that really hasn’t changed either. I think what you are seeing is purely the continuous search for the best cost and the best product possible while our off team continues to push, to manage our costs operationally. And the results are the margins you are seeing. But there has no been – been no philosophical change.

And then just maybe on margin as well, I just want to clarify. historically when you launch higher price points, did I hear right, I think you mentioned before that in year one for example that as you experimented with higher price points, there is a little bit of a dilution impact on margins because you are not buying kind of at full strength and therefore, you can expect kind of bit of a margin dilution and then it kind of gets better year two and year three depending on demand, is that – should we expect that for next year with your $3.50 and $4 price points?

Conceptually, you are right. But because the introduction is such a small percentage, it’s insignificant on our number. You will not see that in our number. But as buyers, when we are first buying new price points, there is no question that over time, the ability to source those new goods better happens. But because we started these new price point introductions so slowly and they represent such an insignificant part of our total mix, it doesn’t affect the total number.

Okay, great. And e-commerce on bulk sales you mentioned I think a couple of quarters ago, any update on that initiative?

We continue to study it and work on the project. It’s nowhere close to execution. But as things evolve as they become more significant, we will make sure that you are the first to know.

Okay. My last question is just housekeeping one. Just on the FY ‘18 guidance, does that incorporate the credit card national rollout or is that not mature enough to have really have a big impact on your guidance either way?

No. It doesn’t have the impact on the guidance.

Okay, great. Thanks guys.

Thank you.

Thank you.

The next question is from Edward Kelly from Credit Suisse. Please go ahead.

Yes, hi, guys. Good morning.

Good morning.

My first question I wanted to ask you is about the gross margin. You mentioned in your guidance for next year that you want to invest some of the savings into the product offering. Can you elaborate on what you mean by this? Is this providing better product at those price points? Are there changes in price points in existing product? Just a little bit more color there would be helpful.

Yes, sure. So basically, this is – it’s because we expect to improve our G&A and the message is that’s not necessarily going to be – or it’s not going to be sent to the bottom line, but reinvested into the product offering. So, we take those savings and we have to improve the offering, so that your EBIT think that more or less at the same level and you add to the value proposition. So, as earlier when Neil mentioned that they look at all the costs and we will be [indiscernible] back into the margin, that’s an element that’s factored in. So, in other words, it helps balance the headwinds that we have on the gross margin side. And if we can even offset it, it’s even – it’s better.

But your approach would be to provide even better product at a price point and that’s how the savings will get past here was opposed to changing price points on specific products you currently sell?

Yes.

Okay. And then a second question for you, on the impact of currency related to basket. As we think about the basket, this impressive basket growth that you are favoring over the past year more actually it seems like it’s accelerated to some extent. How much of an impact is the currency-related pricing had on that? And then related to that, as we look forward next year, is the basket comparison actually getting little bit more difficult too in addition to traffic?

Okay. So, first question, the – as we mentioned for the foreign currency where we would be – we have had like a 30% increase over 18 month cost inflation from the currency. We are on the same level playing field as all our competitors. So, everyone got it and so the decision is either you absorb it or you pass it on to the community, to the consumer. And so there has been some balancing going back and forth. And all of that is monitored with the competitive environment that you are in. And so that’s a reality factored in. We are not caught by surprise by currency fluctuations. And we have demonstrated over the past 2 years that we were able to keep our margins healthy with that factor impacting us. Now, going forward, it’s the same thing whether its currency, wages or any other factor that we have to deal with. Again, for the future, we will see. It’s the competitive landscape that really impacts or influences the margin. It’s not any given factor alone.

And when you said that market conditions are good, which is part of the reason that the gross margin was strong this quarter. Do you mean competition being rational? Do you mean consumer being good? Is it some combination of both?

It’s combination of both.

Okay, great. Thank you.

And just – maybe just to add a bit more color on the traffic, because I see there is lot of questions on that this morning on the call. As I mentioned earlier and we have seen this historically, so it’s kind of an ebb and flow reaction. So, if you are comping against a year of lower traffic, the chances are you gained more traffic the year after. If you are comping against very strong traffic, well, it’s just harder that like I mentioned to you for Q3 and Q4 to sustain that type of traffic. Historically, again, the average has been between flat and 1%. And we are comfortable with that. And we don’t to – for our knowledge today, nothing believes we believe is different. So, I just want to make sure that, that’s clear. [Indiscernible]. So, any other questions?

There are no further questions at this time.

Okay, thank you.

Ladies and gentlemen, this will conclude today’s conference call. Please disconnect your lines at this time and thank you for your participation.