Good morning, and welcome to the Dollarama Fiscal 2020 Second Quarter Results Conference Call. Neil Rossy, President and CEO; and Michael Ross, CFO will make a short presentation, which will be followed by a question-and-answer period, opened exclusively to financial analysts. The press release, financial statements and management discussion and analysis are available at dollarama.com in the Investor Relations section, as well as 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 of Dollarama or Dollarcity or any other future events or developments that may affect Dollarama or Dollarcity. Forward-looking statements are based on the 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 underlying assumptions and risks, please consult the cautionary statements regarding forward-looking information contained in Dollarama's MD&A dated September 12, 2019, and in Dollarama’s press release announcing the Dollarcity transaction dated July 2, 2019, both available on SEDAR. Forward-looking statements represent management's expectations as at September 12, 2019, and except as maybe required by law, Dollarama has no intention and undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. I would now like to turn the conference call over to Neil Rossy.

Thank you, operator, and good morning everyone. This morning, we released our second quarter financial results and we are very pleased with our sustained top-line performance throughout the first half of the fiscal year. These results are particularly encouraging given the current Canadian economic and retail environment. Factors contributing to this solid performance include, our continued focus on category management and various merchandising tactics, supported by strong execution by our stores. We are very focused on stimulating traffic and increasing basket size and pleased with consumer response to-date. We continue to survey our customers to ensure that our offering and our concept resonates. While we continue to hear that Dollarama is a destination for a broad range of Canadian consumers who recognize our compelling value and this is a testament to the strength of our business model. This year has been all about fine tuning that model and about leveraging our strengths and we are pleased with our progress. We have been carefully expanding our product offering where we see opportunity to provide customers with new, exciting products at compelling value across distinct categories. We believe that positive consumer response to this expanded offering has contributed to SSS growth of 4.7% this quarter. As a reminder, the official numbers we disclose annually are over 4,000 active year round SKUs and over 700 active seasonal SKUs at any one time. An increase in our SKU count is very manageable for us from an inventory and merchandizing perspective, in addition, to providing customers with even more variety. Based on our strong top-line performance to-date, the result of a varied and compelling offering, coupled with several successful merchandizing tactics, we have revised our full year same-store sales assumption upwards. Looking now at the bottom-line, we do expect margins to continue to be impacted by a slight decrease in the product margin. Higher sales of the lower margin items, and higher logistics costs wrote the remainder of the year. As a result, we have narrowed our previously disclosed guidance range for the full fiscal year to the lower half. We are confident that our sustained focus on stimulating top-line growth, while still maintaining industry-leading margins is the right approach in what continues to be a competitive retail environment. On the operational front, we opened 14 net new stores in Q2, compared to eight in Q2 last year. Total store count rose to 1250 stores. Our store pipeline is strong and we are on track to meet our target of 60 to 70 net new stores for fiscal 2020. Our distribution center expansion project is almost completed and remains on time and on budget. As previously discussed, the current phase consists of the integration of the new building extension with the existing facility and the installation of equipment. This work is ongoing since last quarter and is expected to be completed before the end of the current calendar year. Once completed, our expanded distribution center will enable us to easily support our long-term growth plan of 1700 stores across Canada by 2027. Finally, before I pass it over to Michael, a few words on Dollarcity. Subsequent to quarter end, we officially closed our previously announced transaction to acquire a 50.1% interest in Dollarcity, which is expected to be immediately accretive to earnings and made an upfront payment of US$40 million. As per transaction terms, this represents just under half of the total estimated purchase price, which will be calculated based on Dollarcity’s audited financial statements for the 12 month period ending June 30, 2020. This truly marks the beginning of a new phase in Dollarama’s growth trajectory by establishing a second growth platform in Latin America and complement to our existing Canadian growth strategy, we are excited about this market’s potential and confident in the Dollarcity management team ability to execute on its growth objectives. As previously disclosed, the objective is to reach 600 Dollarcity stores by 2029 in the three current countries of operation with the majority of store growth to be focused in Colombia. The target for the 2019 calendar year is to open 40 to 50 net new stores. Dollarcity opened eleven net new stores in its Q1 and an additional twelve stores in its Q2. This brings its total store count to 192 stores with the 91 locations in Colombia, 45 in El Salvador, and 56 in Guatemala as at June 30, 2019 and nearly at the halfway mark of its annual target. Michael, over to you.

Thank you, Neil, and good morning everyone. So, looking now at our financial results and updates to our annual guidance. Sales were up 9% to over $946 million and same-store sales growth was also very strong at 4.7% as explained by Neil a moment ago. So, comparable store sales growth for the second quarter of fiscal 2020 consisted of a 3.8% increase in average transaction size, primarily driven by an increase in the number of units per basket and a 0.9% increase in the number of transaction. This is the second consecutive quarter of strong same-store sales. As a result of our performance to-date this year, we are revising upwards our full year same-store sales assumption to a range of 3.5% to 4.5% from a previous range of 3% to 4%. Neil also touched on gross margin which stood at 43.7% of sales coming in lower year-over-year. Based on performance to-date and on the visibility on open orders and product margins for the next three months, we are narrowing our previously disclosed guidance range on gross margin as a percentage of sales to 43.25% to 43.75% from 43.25% to 44.25%. SG&A represented 13.9% of sales this quarter, just slightly higher year-over-year as a percentage of sales due to timing of certain expenses. Annual guidance remains unchanged and in the range of 14.25% to 14.75%. EBITDA was up 3.5% to $281.6 million representing 29.8% of sales. Net earnings were $143.2 million, a 2% increase over the prior year and diluted earnings per share grew 7.1% to $0.45. Note that, annual guidance on EBITDA has also been adjusted to reflect adjustments to the annual gross margin guidance. CapEx for Q2 of fiscal 2020 totaled $30.4 million, compared to $26.8 million in the prior year with the increase attributed to more store openings. Annual guidance here remains unchanged in the range of $130 million to $140 million. Looking at capital allocation, our Board approved a quarterly dividend of f $0.044 per share. During the quarter, we also announced the renewal of our normal course issuer bid allowing us to repurchase for cancelation up to 15,737,468 common shares during the twelve month period from July 5, 2019 to July 4th, 2020. This represents 5% of the common shares issued in outstanding as of the close of markets on July 2, 2019. During Q2, a total of 314,223 common shares were repurchased for cancellation under the NCIB program for a total cash consideration of $15.5 million. Finally a few comments on Dollarcity accounting before we turn to the Q&A. As per the stockholder agreement, we entered into with the Dollarcity founding group while we have a majority stake of 50.1% certain strategic and operational decisions require 100% stockholder approval. As such, we will not be consolidating Dollarcity results. Dollarcity is considered an equity investee and this investment will be accounted for using the equity method. The closing, as well as the upfront payment of US$40 million took place on August 14, and so subsequent to Q2 quarter end. As a result, this payment, along with Dollarama’s share of Dollarcity’s net income for the period of August 14, 2019 to September 30, 2019, the end of Dollarcity’s third quarter will be reflected in our third quarter fiscal 2020 financial results, so next quarter. We will also record the balance of the purchase price currently estimated between US$45 million and US$55 million as a liability in Q3. As a reminder, the total purchase price for this 50.1% equity interest is estimated at between US$85 million and $US$95 million based on a five times multiple of Dollarcity’s estimated EBITDA for the twelve month period ending June 30, 2020 minus net debt and subject to other adjustments as per the terms of the stock purchase agreement entered into on July 2, 2019. The current purchase price estimate is based on financial projections whereas the final purchase price will be calculated based on audited financial statements for the twelve month period ending June 30, 2020. The balance will be settled in the third quarter of Dollarama’s fiscal year 2021. So that concludes our formal remarks. I will now turn it over to the operator to take questions from financial analysts.

Thank you, Mr. Ross. We will now take questions from the telephone lines. [Operator Instructions] Our first question is from Karen Short with Barclays. Please go ahead.

Hi, this is actually Renato Basanta on the line for Karen. Morning.

Good morning.

So, my first question is really on the comp. I was just wondering if you could talk a little bit about the cadence of comps in the quarter and then potentially into 3Q. And then also if there was any impact of weather on the comp as well?

Okay. So, well, it was the company was steady throughout the quarter. So it’s been continuing the momentum since Q1. As to the weather, I think you’ve heard from others that weather impacted them. So, it had an impact also if we would have had nicer weather we think it would have certainly helped out a bit more. But essentially, I mean, we are very happy with the results we got throughout the whole three months.

Okay. That’s helpful. And then just on the traffic, I am curious if this was – if your result was in line with your internal expectations, you are clearly showing some good growth in consumables categories. So I am wondering if the consumables growth is driving the type of traffic that you would have expected.

So, the – so first of all, as we said since the beginning of the year, we are working hard on – because we don’t have the benefit of the recent introduction of higher price point or inflation. So, we are definitely working on stimulating more traffic and more units selling that has been our tactic. So, yes, we are happy to see that the results support the efforts that we’ve been putting and that’s what we are definitely looking to do and it’s not just in consumables. It’s many of our – the majority of our categories, consumables, definitely as we said, picked up in the mix and that’s because of initiatives that we had internally, but just so that is clear with everyone. It’s not just consumables.

Okay. And then, just last one for me. Can you just talk a little bit about the queue line of rollout to the rest of the stores? I think you said that you do about 200 of them a year. But I am just wondering, why that rollout can’t be accelerated given it looks like it’s been and it could be a pretty decent comp driver. Thanks.

Yes, so, you are right, that’s about the pace that we have it is. We open it up as quickly as we can. We have other initiatives also that benefit us and so, we are doing the maximum to deploy all these initiatives and we will be looking to fill up the capital – the CapEx envelope this year to make sure that we do so. So, you can be assured that that we are maximizing on that aspect.

All right. That’s very helpful. Best of luck.

Thank you.

Thank you. Our next question is from Edward Kelly with Wells Fargo. Please go ahead.

Yes, hey guys. Thanks for taking our questions. This is Anthony Bonadio on for Ed. So just quickly on gross margin guide, can you just help us understand more fully your decision to tripping the top-end of the guide. I know you had mentioned some improvement in product mix coming through the remainder of the year in the last call, was that is not it was expected or has there been a change in the competitive environment we should be thinking about? Thanks.

Okay. So, you are talking about the margin? Did I miss the beginning?

Net gains.

Yes, yes, okay. So – so that, you know, we explained to you last quarter there are three pieces that impact gross margin this year. There is one that’s a one-timer this year which is related to logistics cost. The impact being greater in Q1 and Q2 and not as much in Q3, Q4, because of the scaling impact, because sales are strong – stronger in Q3 and then Q4. So that remains exactly like we have the thought and estimated. The other one, the mix that we just talked about, in other words, that the Q line stimulating more in pulse sales and things like that. So the higher sales of lower margin items, so that’s in line with what we had expected. So that continues. The third one which had an impact relates to the compelling value, in other words, that other 70%. So, we’ve decided because of the momentum and what we are seeing right now, in other words, stimulating that top-line that we decided to be extra careful if you want or to be strategic in not marking up products. Again, as you told you, we analyze more and more our products and the impact they have and we decide to maintain the course given the results were failing. So that, we talked last year that – compared to the prior year, we have reduced significantly the markups well. This is continuing this year. So we had anticipated, maybe having that higher margins, but given the momentum we are seeing, we’ve decided to be more cautious on that side and to keep on with the top-line momentum building.

Got it. It’s really helpful. And then just real quick on the U.S. China trade situation given tensions have escalated a little bit. What are you hearing from your overseas partners in China? And do you expect to see any kind of purchasing opportunity going forward toward the end of the year?

It’s a complicated question and honestly, it changes day-by-day, the answer to that question. But certainly, instability whether caused by nations other than the relationship between Canada and China are not good for the marketplace as a whole and factories that would be creating new modes and putting money into R&D for the U.S. market are in standby right now. And that has an impact on the retailers of the balance of the world, whether it’s Europe or Canada or everywhere else, because we all benefit from each others’ creativity and productivity. They benefit from ours. We benefit from theirs and in the end, all retailers prefer that the environment is one of stimulation and excitement. So, it really depends on where that goes and how long it’s for. If it’s short, it’s not a big deal. If it’s sustained, it will just make it more challenging for us to source goods. Not so much cost issue as a new item issue, but to-date, it’s still very stable and I don’t foresee there being any really big challenges unless it goes on for a year plus.

And Neil, is it fair to add, we are on same level playing field, so if it is…

Yes, it’s a very valid point, which is if it impacts us, it impacts every other Canadian retailer equally. And so, in our market, it’s all about relative value and relative creativity. And so we are all in a level playing field regardless of what happens with the China, U.S. tariff discussions.

Got it. Thanks so much guys.

Thank you. Our next question is from Irene Nattel with RBC Capital Markets. Please go ahead.

Thanks, and good morning everyone. Neil, I was intrigued by the commentary around increase in SKU count and I was wondering if you could provide us more color around sort of price points, categories, the objective and what types of products you are adding that are really helping to drive your basket and traffic?

Well, the beauty Irene, is that, it’s not a specific category or a specific price point thankfully, because that would be restrictive. We are simply adding to the mix across the board and what we have a better appreciation of is our ability at store level to handle more SKUs and we have a better understanding of which departments can handle more SKUs at any given price point or at any given category. And truthfully, there is a varied mix and I can’t really pinpoint a category or two that are leading the way. There is some in all of them, which is nice, because it also makes it far easier for operations people to integrate the new SKUs if they were in specific section or do it after we do the entire store plan and that’s not the case.

And presumably Neil, your sort of – your enhanced data analytic capability, there kind of keeps an eye on – I guess, the inventory turns and whether those new SKUs are coming at the expense of existing SKUs? And kind of do you see yourselves maybe rationalizing some of the older SKUs as part of the refresh?

Well, the answer is, yes. It’s always – that’s the day-to-day life of a retailer. So, on a daily basis, one SKU comes, one SKU goes and truthfully, the impact of additional SKUs on that analysis has no real impact on our day-to-day tasks. What’s important is that, and I guess, it’s simplifies the job, the fact that we study our SKUs so frequently and we turn items so quickly and change items so quickly makes the job of adding SKUs and changing SKUs easier on us than it would if you had a more fixed planogram, I guess seems logical.

That’s great. Thank you. And then, also interested in your comments around customer value or the consumer value perception. Obviously, you’ve been working hard to invest in that. Have you recently updated the studies that you do? And any insights you can share with us there?

We have updated those studies and according our incredibly on the ball CFO, I am not able to share the results of those studies –

Details.

Those details, I guess, are proprietary knowledge and what we’ll do with them is to the best of our ability, use them to make our customers and the analysts happy. But when we can, in terms of overall the general comment being that the compelling as the reason they shop at Dollarama is for the compelling value.

Right.

So, but we are not going to give out details on the specifics. But generally, again, I think it’s clear that the consumer base – again like it was in prior years comes to Dollarama because of the value proposition.

That’s great.

And the treasure hunt too.

Right.

That changing of – the changing of SKUs and refresh is a key part of our success.

And just finally, last one for me kind of tying these two questions together. Is it your intention to sort of turn, sort of the SKUs or add more SKUs kind of in and out to really enhance that treasure hunt aspect?

We are always trying to do that. Truthfully, it’s easier at times and harder at other times depending on the creativity of the market as a whole. That comes back a bit to the point of how much the manufacturers of the world are being stimulated by expanding global success in a sense when world markets are having a harder time, there is less creativity and so that makes the buyers’ jobs on a sourcing front, whether domestic or abroad more challenging. But we are always trying to change up our – obviously, our weakest SKUs to – for a stronger SKUs thousands of times a year. So, it’s an ongoing project.

That’s great. Thank you.

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

Hey, good morning. I just had a couple follow-ups and sort of smaller questions. But regarding the increased number of SKUs, I mean, is this really just a reflection of sort of your store level operating efficiency that’s letting you put more items on the shelves with less safety stock? Is that kind of the gist of it?

Certainly, that is a part of the reason, a major part. The fact that our stores are being operated better than they ever have and the fact that our logistics and replenishment is stronger than it’s ever been allows us the luxury to reduce safety stock and to manage the shelf space at store level better than we ever have.

And when did this sort of change or tweak began? And has it sort of run its course in the stores now or is that’s still taking place?

I would say, it began about beginning of the year. The year was already..

At the beginning of the year and I think that particular discussion about additional SKUs will probably run its course in about three to nine months.

Okay. And does this have any…

Specifically.

Okay. And does this have any impact on sort of labor rates and sort of SG&A leverage in the stores? Or is this kind of baked into – I mean, I assume, it’s baked into your guidance, but is this just baked into the ongoing sort of efficiency that you guys are able to extract from the stores?

Yes, the latter.

Yes, okay. And then, just, Michael, I guess, with regards to the gross margin in Q2 specifically, you’ve called out those three factors, can you give us a sense of the magnitude of the impact of each of those three factors?

No, well, other than what I said, if we mention it, it’s because it’s – it has an impact and the one where I give you some sense would be logistics, because in Q3 and Q4, that should allow the margin to come back in a bit because of the scaling impact and for the others, it clearly has, if you compare to the last year, an impact. So it’s a decrease compared to last year. And now – between now and the end of the year, because we do have some flexibility and as I’ve said earlier, given the momentum and I’d say, we are doing less – for example markups than we did last year and that last year was much less than the year before and so we control that aspect and we go with what we see, what we feel for the moment and that can evolve between now and the end of the year. So, if we feel there is good strong top-line, maybe that will push the margin towards the 38% and or if we can do top-line and margin at the same time, we will. We are not throwing margins out the window. It’s done in a – we talk about it regularly. And, so, but we are comfortable with the ranges we gave to you right now and the aim is to continue stimulating that top-line with the unit and traffic until the – at least the end of this year.

Yes, understood. Appreciate that. And then just last, on the SG&A, you called out sort of a timing, some timing noise. How material was that and is that just recouped in Q3? Or could you just talk about that please?

Yes, so, it’s two things. So, some of that relates to last year. So, last year, Q2 a bit lower, for example than the normal and this year Q2 in other situation it’s been higher. So, it’s a mix, like G&A it always depends on like I’ve said in the past, depends on what products – projects you are working and the timing of those projects expenses related to the DC or to other projects. So – but our revised, well it’s not revised in this case, but the guidance we gave you in terms of G&A reflects this in Q2.

Okay. Thank you very much.

Yes.

Thank you. Our next question is from Vishal Shreedhar with National Bank. Please go ahead.

Hi, thanks for taking my questions. In the past, in prior calls, management commented on industry inflation. Just wondering what your perspective is on that? And, do you think are you starting to see it come in or is it still no inflation?

I think, generally, it’s stabilized in the market is pretty stable right now from that perspective.

So stable at no inflation?

Well, very little. Remember what I’ve said in the past is that, a little inflation. When we do markups, it’s from $1 to $1.25, it’s 25% and the lowest market is 14%. So, there is inflation, but and that’s what we monitor, but to what level and like Neil said, it’s mild for our addressable products. And so, for the time being…

So, we are always talking from a Dollarama perspective.

Right.

Not a general market perspective.

Right. From our perspective, it’s stable.

Okay. And just to be clear, so, the actual guidance reduction on gross margin was not reaction to the environment so much as management thinks some initiatives work well and then, and anything you wanted to continue these initiatives more so and not passing on anticipated price increases. Did I characterize that right?

Yes, in another words, yes. So, in other words, maybe there are items that we could have done markups that we still decided not to markup, because of, we feel that that’s the best long-term decision, because we don’t take decisions just based on short-term. And so, you are right. Or in other case, so we did less than last year, we thought we’d be doing more between for the second half of the year and we decided not to. So, that’s kind of how it’s being worked up. But, because we see some good momentum on the top-line.

Okay. And with respect to how you look at your margins and I know you commented a little bit about this earlier, but the comment is, how should investors think about, whether management is satisfied with the current level of margin? Or is that not the way to look at it? Is it more to look at, are you generating the right amount of sales growth?

Yes, I think, well, it’s always things evolve in time and depends on inflation or how the others react, but for the time being, it’s the balance between what we feel, where we feel it’s competitive and where we feel comfortable in terms of offering that compelling value and that last thing feeling for a customer that we are the best place to go in terms of – because we offer that compelling value. And it’s constantly monitoring as we said, it’s not this thing is done every week. And for the time being we are comfortable at the levels that the ranges that we told you. And, yes.

Okay. That’s it for me. Thanks for the color.

Yes.

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

Michael, in your explanation of the gross margin impact, the declining gross margin, and the fact that you took your guidance down, one of the three factors you mentioned was logistics. So, when you are referring to logistics, are you referring to the DC expansion? Or are you referring to like, broader logistics, trucking cost, things like that?

No, just to the DC expansion, because the DC as we said, last year, we built, we bought land and built right beside the current DC and kind of continued operating in the old DC, let’s call it the old DC as usual. So, no disruption from that standpoint. The difference this year and it started at the beginning of the year is, we integrated the old and the new, so you are displacing the conveyor belts. You are setting up racking, so. And we obviously, capitalized as much as we could, but there is also expenses that cannot be capitalized and that will show up. The DC's expansion is expected to end this year and on time and on budget. And so, that’s why I said and the bigger impact was Q1, Q2, because the sales have always lower and there is less scaling whereas Q3, Q4 is going to be a bit lower and therefore the impact is not as strong. But next year, in other words, those costs, you don’t have anymore

Okay. The other thing, Michael, in terms of your disclosure of Dollarcity, which will be the next quarter's financial statements, clearly, there will be an equity income line and I assume you'll continue to provide us with store count information.

Yes.

Have you decided yet? Are you providing any additional information such as comps or anything like that?

No and the reason it’s sounds like Dollarama well established now there. You have to understand that they are moving in to or now we are moving in to areas and negotiating, whether it’s occupancy costs or other and to start disclosing returns and things like that were work against us. So, we’ve decided to – we will give some details that you’ve seen in the AIF and we will revise our AIF. But on a quarterly basis, it will be more 50.1% of net earnings, plus we will give you the basic information we are disclosing right now. But to go into more details we feel will not serve us on a competitive – from a competitive standpoint.

And then, just lastly, Neil I have a question for you if I may. You’ve referred today to the merchandizing tactics that you’ve introduced a couple have surfaced you’ve talked about the queue, the expanded SKU count. Are there other merchandizing tactics that you can point to that are helping your sales efforts?

Definitely there are. Those two are key changes, I guess, that would be obvious as a shopper. But the other ones are more subtle and honestly we don’t disclose that level of information. But I do appreciate the question.

Okay. Thank you. That’s all I have.

Thank you.

Thank you. Our next question is from Patricia Baker with Scotiabank. Please go ahead.

Thank you. Good morning everyone. Three questions here. First of all, Michael, I just want a simple clarification. I know it's been discussed quite a few times in this call the topic of markups. You said you are going to maintain – that you've maintained of course, which to me would imply that you would had the same level of markups this year as last year. But in the answer to a fewer questions, you mentioned that there would have been fewer markups. Is that correct? Is there is fewer markups?

Fewer than last year. You are right. There is fewer than last year, yes.

Okay. That’s helpful. And then, secondly, can you talk a little bit about what you experienced in the seasonal category in Q2?

Yes. Well, I alluded a bit to it, yes, summer was weaker than we would have hoped for in Q2.

You would've seen a bit of a softness there?

Yes.

Okay. And then, thirdly, this actually relates to what Peter was just asking of Neil. So it’s interesting that you’re working very hard to stimulate both traffic and units. It seems – it certainly seems to be working. And I am not asking for what you are doing or what the tactics are. I am just curious, are there specific tactics that are being deployed to traffic and other ones to units? Or is it all of what you are doing is directed at both?

It’s an excellent question. I would say…

Because I'm curious about the traffic piece, mostly.

Right, right, right. I would say that we have tactics to try to stimulate both. Sometimes they are the same tactics and it stimulates both simultaneously and other times, some of our tactics stimulate one or the other. So, I would answer your question by saying all of the above.

Okay. Thanks, Neil.

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

Good morning. Just in terms of price inflations are around your overall impact on your business, I am wondering if you can share your view on tiers expansion and material expansion of Party City. Could it be positive based on how you are positioned with Walmart for the same, or you get positive results, like how you are positioned with Walmart, do you view it as negative or would you view it as neutral to your business?

Good question. I mean, it’s hard you will it come with Party City. We haven’t seen anything to-date anyways. I’d say more neutral and we are more managing for us with our model than really other than when we price or against, but it’s too early to say if there is any impacts from that. But anyways, right now, let’s say it’s neutral.

Do you feel like it could have any impact upon the price inflation environment or no?

Well, I don’t think it – no, not at this stage, I don’t think so.

Michael, just a housekeeping question. When I look at your EBITDA margin, I am wondering if that will include or exclude the equity pickup of Dollarcity.

It includes the equity pickup of Dollarcity and that’s a good point. In other words, it will be in the part of the EBITDA.

Thank you very much.

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

Thanks is Luke stepping in for Derek here. The first question I had is on capital allocation. You mentioned that, it was going to be roughly a US$50 million payments complete the purchase price for Dollarcity. I am just curious how that affects and how you think of approaching the buyback for the rest of the year?

Yes, so, well, first of all, that’s – okay, we made an initial payment from our closing August 14, US$40 million or $53-ish Canadian. The remainder is payable only in the third quarter of next year, because once we get the final price and that will depend on the EBITDA of the results related from June this year to June next year. So, we’ll audit that next year and determine the final price and pay it then. And it’s all going to be within the leverage our comfort zone leverage ratio which is approximately 2.75 times adjusted debt-to-EBITDA. So, in other words, it will reduce the share buyback we will be doing. But that will be next year, not this year.

Okay.

And this year, by the way, the initial payment, it’s the same logic. So, it’s within our CapEx leverage of 2.75 times-ish.

Okay. And then, switching gears, I know it was discussed a little bit before in an earlier question. But you had mentioned part of the SG&A deleveraging from last year, part of that was just basing a bit of a tougher comp. There wasn’t as much SG&A spend last year. What was the remainder of that deleveraging?

I am sorry. The remainder of deleveraging, of the G&A?

Yes, the SG&A.

Yes, well, without going into any detail, I was saying is that, this year the slight increase, we did had some productivity initiatives that worked well for us this year, okay. So, that definitely offset some of the timing differences, in other words, that we had year-over-year. Is that?

Yes, that’s it for me.

Yes. Okay. Cool.

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

Yes, I had some questions on the gross margin and the units per basket. The sales of items priced greater than $1.25 was at a record level of 72%, which seems counterintuitive if you are driving units for the queue line and those smaller, lower priced items in the queue line. I am wondering if you can sort of box how that all fits together?

Yes, without disclosing any details or nuancing between the price points is that, like we said, what’s impacting all this, one, there is the fact that we stimulated more consumable items. So, as you know some are in the queue line would be lower price point items and – but as I said earlier, the unit – the build in unit is not just there. They are some in other categories also. So just to highlight the fact that it’s not just in – it’s not just chart of buyers here. So – and the consolidation of that shows an increase year-over-year of our penetration of this $1.25 price point.

And then, just in terms of the additional SKUs, are these sort of deal purchases given – I don’t know, suppliers having excess inventory or are these permanent SKUs? Or are they somewhere in between?

No, they are all year, they are, like I said, in all categories and it’s not like we’ve zeroed in specifically on an item or a group. It touches everything.

So, is the 4,000 SKUs and the 700 seasonal, the next time you disclose that in your annual documents, is that – are those numbers going to change? Is that…

Yes.

Yes.

Yes. That will behind it. Yes.

But at the moment, we are not going to say how much higher is that?

No, exactly.

Great. And then, just on the stores that you’ve opened in the last sort of six quarters during this period of low inflation and difficult retail environment, have you seen anything different in the numbers generated by those new store openings?

I am sorry, in the new store openings, in terms of sales ramp up and payback and all that economics?

Yes, in the last six quarters, yes.

No, it’s – well, six quarters, no. So, I’d say, F’19 cohorts, what we are seeing is the similar for those that have completed a year for example are tracking the same way that the prior year cohorts were doing. So we have no reason to believe that – and that we are always looking at a two year payback average stores. So we are well into that. We have absolutely no worries about that.

And then just one last question on the Dollarcity. Will you now no longer show the sales to Dollarcity in your revenues?

So the – so we disclosed in the AIF more information including sales on Dollarcity. So – but that would be done in the AIF. On a quarterly basis, we will not disclose sales information or margin information, just store count information and obviously, net earnings information.

And I was thinking of your revenues include about 1% from Dollarcity. Will that disappear once you are the majority owner or?

No, well, no, because it continues to be accounted through Dollarama which is a separate entity. So, but, what we are seeing is normal is, as we grow the store base, there is more and more direct sourcing and less purchase is done through our logistics systems. And the only revenues that are recorded in our books are those that go through our logistics system. So, as that amount decreases and becomes non-material, we will stop disclosing it and so we won’t have to disclose it for that reason.

Great. Thank you.

All right.

Thank you. There are no further questions registered at this time. This concludes today's conference call. Please disconnect your lines at this time and we thank you for your participation.