Dollarama Stock

Good morning, and welcome to Dollarama's Second Quarter Fiscal 2027 Results Conference Call. On today's call are Neil Rossy, President and CEO; and Patrick Bui, CFO. They will begin with brief remarks followed by a Q&A with financial analysts. Before we begin, please note that today's remarks may contain forward-looking statements about Dollarama's current and future plans, expectations, intentions, results or any other future events or developments. Forward-looking statements are based on information currently available to management and on reasonable estimates and assumptions made by management. Many factors could cause actual results, future events or developments to differ materially from those expressed or implied.

You are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements represent management's expectations as at September 16, 2026. Except as may be required by law, Dollarama has no intention and undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You are invited to consult the cautionary statement on forward-looking statements in Dollarama's management's discussion and analysis dated September 16, 2026.

All forward-looking statements on today's call are expressly qualified by this cautionary statement. In addition, Dollarama may refer to certain non-GAAP and other financial measures during the call. Please consult the non-GAAP and other financial measures section of Dollarama's MD&A dated September 16, 2026, for definitions, reconciliations with appropriate GAAP measures and other information. The disclosure documents related to this call are available in the Investor Relations section of dollarama.com and on SEDAR+. I will now turn the call over to Neil Rossy.

Thank you, Shannon. Good morning, everyone, and thank you for joining us. We delivered a strong second quarter and first half of fiscal 2027. Two things stand out, the continued strength of our value proposition and the execution of our teams across markets. At a time when consumers are making careful spending decisions, customers are counting on Dollarama for dependable value. Our brand promise continues to resonate across a broad customer base, reinforcing our relevance as a destination for everyday and seasonal goods. We are also moving our strategic priorities forward with discipline. We are driving profitable growth in Canada and in Central and South America, thoughtfully building our presence in Mexico and gaining momentum on our transformation road map in Australia.

In Canada, despite a cautious consumer and continued pressure on household budgets, customers turned to Dollarama for their everyday needs during the second quarter. Same-store sales were strong, supported by an increase in customer traffic and basket growth, bringing our SSS year-to-date above our expectations for the first half of the year. Demand for consumables and general merchandise was sustained, while demand for seasonal products remained stable year-over-year. This performance reflects the strength of our merchandising approach. We continue to carefully manage our assortment across our established product categories and fix price points to deliver compelling relative value.

It also speaks to the proximity and convenience we provide through our growing national network of well-located stores. We opened 15 net new stores across Canada during the quarter. This brought year-to-date net new openings to 43 and our total Canadian store count to 1,734 stores. Given our strong pace of openings through the first half and our pipeline for the balance of the year, we have increased our fiscal 2027 guidance to between 65 and 75 net new stores, up from the previous range of 60 to 70. Construction of our future logistics hub in Western Canada also progressed on plan. The hub is expected to be fully operational by the end of calendar 2027, enabling us to move to a distribution model in Canada in the near term.

Turning to Latin America. Dollarcity delivered another solid performance in the second quarter and first half, generating strong same-store sales and store network growth. During the second quarter, Dollarcity opened 19 net new stores across our 4 Central and South American markets. This brought total store count in the region to 760 locations. In mid-August, subsequent to quarter end, the earthquake in Colombia temporarily affected a limited number of Dollarcity stores. I want to recognize the Dollarcity team for responding with care and urgency to support colleagues while restoring affected locations. Operations have since largely returned to normal and the financial impact is expected to be minimal. Turning to Mexico. We opened 10 stores during the second quarter, bringing the total count in the country to 21 by quarter end.

The ramp-up of operations and network growth in Mexico remains on plan as the team continues to build density in the Guadalajara region. We also continue to be pleased with the initial customer response to our value and convenience proposition. In Australia, our multiyear transformation road map gained momentum during the quarter, supported by the team's continued execution of our fiscal 2027 initiatives. We renovated 25 stores during the quarter, up from 13 in Q1, improving store layout and navigation while allowing for greater SKU density. We also opened 4 net new stores on top of the 8 net new stores opened in the first quarter. We remain on track to renovate between 60 and 80 stores and open between 15 and 25 net new stores in fiscal 2027.

Halfway through the year, we now have 60 stores operating with the Dollarama layout in fixtures, up from 28 at the end of Q1 out of a total of 414 locations nationally. It is encouraging to see the store transformations gradually taking shape as we work diligently in parallel to introduce Dollarama sourced products. On that front, the first Dollarama sourced import products started to reach shelves across the store network during the second quarter, and we expect that rollout to continue. While the number of new products currently available is too limited to provide a meaningful read on customer response, we are confident that our import assortment will be highly attractive once we have greater density. As a reminder, the product transition will remain gradual and disciplined. The team is working SKU by SKU to introduce more compelling value while aligning the required logistics support. We aim to have about half of our import products transitioned by fiscal year-end. This work will continue into fiscal 2028.

Looking more broadly, we continue to operate in an uncertain environment. In Canada, economic conditions remain challenging, continued trade tensions and elevated living costs are pressuring consumers and weighing on the economic outlook. In this context, we expect consumers to remain thoughtful about their spending while continuing to seek value. For our business, the direct tariff impact comes from Canadian counter tariffs on a portion of the goods we purchased from the U.S. As discussed during the last round of counter tariffs over a year ago, we have the agility to navigate these measures and their financial impact remains manageable.

Geopolitical conflict also continues to create cost pressures across global supply chains. The adaptability of our business model has enabled us to mitigate these in Q2, and we are actively working to manage potential impacts through the second half of the year. In this evolving environment, we will continue to make disciplined choices across sourcing, merchandising and operations. We will also stay true to our price follower philosophy to protect relative value for consumers through our product offering and within our fixed price points. Across our markets, our teams remain focused on earning every customer visit with strong value, convenient locations, compelling assortment and a consistent shopping experience. With that, I'll pass it over to Patrick.

Thank you, Neil, and good morning, everyone. We delivered strong financial and operating results in the second quarter, supported by sustained customer demand in Canada and Latin America and disciplined execution in Australia. We also continue to advance our growth ambitions while returning excess cash to shareholders. Starting with consolidated results, let me first highlight one point of comparability. Q2 of fiscal 2027 includes 3 full months of Australian results compared with only 13 days in the corresponding period of the prior fiscal year.

In that context, consolidated sales for the second quarter of fiscal 2027 increased by 17.6% to more than $2 billion. The increase reflects network and same-store sales growth in Canada as well as the sales contribution from Australia. EBITDA increased 11%, coming in at $653 million for Q2, representing an EBITDA margin of 32.2%. Net earnings totaled $349.3 million, while diluted EPS increased 11.2%, reaching $1.29. This is compared to diluted EPS of $1.16 last year. Turning to our Canadian segment. Same-store sales increased by 5.4% over and above 4.9% growth last year. While consumer confidence remained weak, customers continue to turn to Dollarama for everyday value.

Based on our first half performance and current outlook, we are increasing our fiscal 2027 same-store sales guidance range to between 4% and 4.5%, up from our previous range of 3% to 4%. Our updated guidance reflects a prudent view of the balance of the year. While our performance demonstrates the enduring relevance of our value proposition, we remain mindful that sustained pressure on household budgets and the uncertainty created by the current trade environment can affect consumer sentiment and overall spending.

Still in Canada, gross margin came in at 45.7% of sales compared to 45.6% in the second quarter of fiscal 2026. The year-over-year increase primarily reflects the positive impact of scaling. Supply chain pressures, including the impact of higher oil prices on raw material and transportation costs were effectively managed in Q2. However, given the lag before these costs flow through our P&L, we expect their impact to become more pronounced as of Q3.

We are confident we can mitigate a significant portion of these pressures through the second half of the year by leveraging the tools at our disposal while protecting relative value for customers. As a result and supported by our strong first half performance, we are maintaining our full year Canadian segment gross margin guidance of 45.0% to 45.5% despite anticipating higher costs for the balance of the year. SG&A for the Canadian segment was 13.8% of sales in Q2, in line with the prior year. Accordingly, our full year SG&A guidance remains unchanged at between 14.1% and 14.6% of sales. Scaling is expected to continue providing some leverage to help offset the higher store labor and operating costs.

Turning to Dollarcity. Our share of their net earnings increased by 30.3% to CAD 49.9 million for Q2. This reflects a 39.7% year-over-year increase in our 60% share of net earnings from Dollarcity's Central and South American operations, partially offset by a CAD 5.7 million loss, representing our 80% share of the net loss related to the Mexico ramp-up. These losses remain in line with our expectations. Subsequent to quarter end, Dollarcity declared a cash dividend of USD 125 million, its second dividend this fiscal year. Our share amounts to USD 75.1 million. Once again, a portion of these proceeds is being used to fund our USD 38 million share of the net capital contribution towards expansion activities in Mexico. Both the dividend and the capital injection will be recorded in the third quarter of fiscal 2027.

Turning to Australia. The transformation initiatives outlined by Neil are progressing according to plan. Our full year expectations for both transformation-related costs and segment earnings performance remain unchanged. As previously discussed, the ongoing transition to lower-priced merchandise is expected to continue weighing on sales in fiscal 2027 with the impact expected to be more pronounced through the second half of the year as the pace increases. We view this as a rebasing of sales, resetting the merchandising mix and price point structure, which are key elements of our proven value retail model will create near-term pressure. However, this transition is necessary to strengthen the value proposition and position the business for improved performance over time and for the long term. Turning to capital allocation. We continue to return excess cash to shareholders through share repurchases and a quarterly dividend. During the quarter, we repurchased more than 1.5 million common shares for cancellation under our normal course issuer bid, which was renewed in July for a total consideration of $300.4 million.

We also announced today that the Board approved a quarterly cash dividend of $0.12 per share. As we enter the second half of the fiscal year, our priorities remain unchanged, and our plans are all on track. Our teams are focused on execution across each of our markets, serving customers with value and convenience and allocating capital in support of long-term value creation. We also recognize that the environment remains challenging for consumers and that trade tensions and geopolitical uncertainty persist. Against this backdrop, our value proposition remains highly relevant while our business model provides flexibility and tools to help manage some of the external pressures. We are proud that Dollarama is a trusted destination for consumers seeking compelling value, convenience and a broad assortment of everyday products. Our focus is continuing to deliver on that brand promise. With that, I'll now turn the call back to the operator for the Q&A.

[Operator Instructions] Our first question is from Irene Nattel with RBC Capital Markets.

Great quarter and stable momentum, which brings me to my question, which is if we look at the full year guide on same-store sales, it implies a quite reasonable deceleration in the back half of the year, looks -- takes you below 4% on same-store sales and particularly considering last year's Q4. So wondering what you're actually seeing kind of at a more granular consumer demand level? And is there really that much more caution in what you're seeing?

Yes. Thanks for your question, Irene. So just with respect to same-store sales, I think, first of all, we're pleased with the strong SSS of 5.4% in the quarter. We saw consistent strength throughout the quarter, including as we exited Q2 with clearly traffic remaining strong. So when it comes to guidance, I would say, on the one hand, our strong performance in the first half supports the positive revision to the full year outlook. But on the other hand, I think it's important to remain prudent for the balance of the year, given the ongoing uncertainties in the macro environment we all know about, whether that's higher oil prices and/or trade headlines. But overall, I think we're encouraged by the continued momentum reflected in our Q2 results.

Our next question comes from the line of Brian Morrison with TD Cowen.

Neil and/or Patrick, I get a lot of questions on inflation recently. And I wonder where this most benefits you? Is it accelerating trade down? Where it most impacts you? Is it higher fuel prices? And how this nets out positive and negative and whether this moves forward your view of the potential for a higher price point since it's been about 5 years since the introduction of a $5 price point.

Brian, thank you for the question. So the -- during difficult times, the consumer has less money to spend. It's that simple. By the same token during difficult times, the consumer trades down and that can benefit Dollarama. It's very hard to tell how much trading down there is, how much consumer reduction in noncore spending there is. At the end of the day, the true and only facts we have are our results. And so I think it's our job to continue to stay focused on being the best relative value that we can be in our category of goods and to make the shopping experience as pleasant as possible and to have as many convenient locations as we can across each of our markets, and that's our job.

With respect to the $6 price point, as a reminder, our fixed price point strategy is a core element of our business model, and we would only introduce a higher price point if warranted. The key trigger would be cost inflation reaching a level where we can no longer sustainably support the current $5 max price point. However, based on what we're seeing today, we don't believe that an additional price point is necessary. And if the business continues to perform at a high level under our current pricing strategy, we will do what we've always done, which is to push off any additional price points as long as we can.

Our next question is from Chris Li with Desjardins.

Just wondering what are you seeing on spending on products that are more discretionary in nature at Dollarama? I think you mentioned seasonal was stable. I'm not sure if that's related to consumer being a bit more cautious? Or was it weather? Yes, just overall, just spending on more discretionary products.

Yes. Thanks for the question, Chris. I think what we've seen this quarter is really nothing more than a continuation of the trends that we've seen in the past few quarters. I mean I think we've commented that consumables has been performing well. We're seeing incremental strength in the general merchandise category. And when it comes to seasonal products, I mean, if you look at the past few quarters, it's anywhere between slightly negative, flat, slightly positive year-over-year. This quarter, summer seasonal sales performed well in positive territory. That's an indication a little bit more to the discretionary side. But it's the same trend that we've been seeing, I would say, exiting the pandemic and in the past few quarters.

Our next question is from Tamy Chen with BMO.

I wanted to ask on Australia. The operating expenses or SG&A this quarter, similar to Q1, how do we think about the -- those incremental integration costs? Like should they be rolling through now and thus, we should expect an uptick in the SG&A there? And Patrick, how do you guys think about overall the trajectory of the operating losses at Australia? Like what's the key gating factor to flip to profit? Is it just continuing to get those packaging product approvals and then you'll just kind of have this wave of Dollarama products building that density in the shelf?

Yes. Thanks, Tamy. So when it comes to the integration costs, the way to think about it is that they will be more heavily weighted through the second half. And the reason for that is there's an acceleration from the first half of introduction of products into the stores. I think notably of the seasons that are coming, there will be quite a bit of transition in the merchandise. We're ramping up and following the plan, but more costs to be expected in the second half. So when you think about the overall operating losses for the year, you would notice that at midyear point, we're about at a loss of $25 million. And so that would imply a certain acceleration in the third quarter. Recall that the third quarter is a seasonally weak period in Australia. So keep that in mind as you model the remainder of the year.

And generally, the fourth quarter seasonally as well is a stronger period. I mean to your question about whether factors turning to profitability, I mean, it comes back to executing on our plan on 3 points, right? It's on the merchandising front of transitioning to dollar SKUs. It's about converting the stores, which we made great progress during the quarter. It's densifying the store count, making sure that we have great density and great product in the stores. It's working on the second and third levers on everything that is systems, logistics, back office and making sure that the real estate front follows the growth. So it's a combination of all those factors that we've laid out on Page 25 that will lead the business to a better financial outlook.

Our next question is from Vishal Shreedhar with National Bank.

Can you give us perspective on Mexico, a big acceleration there and how you feel about the reception? And maybe you can also give us a thought process, if you can, and as to why you feel so confident about Australia and if you're seeing any similarities between when you ramped up the other countries in LatAm or in Mexico that's giving you confidence in Australia that will ultimately become a profitable strong business?

So it's a two-pronged question. So if I start with Mexico, look, the -- I would say we're pleased with the ramp-up that we're seeing in Mexico. You're correctly to point out that we went from 11 stores to 21 in the space of 1 quarter, and we're continuing to ramp that up. I mean the reception of the Mexican consumer, I mean, it's the same comments as last quarter. I mean we're pleased with what we're seeing, and it gives the confidence that we should be ramping up the store network, and we're doing exactly that. We're accelerating the pace. Now how do we get comfortable with that is we've opened, like this is arguably the fifth country that we're opening. So we have a pretty good pattern and road map of how things play out.

And as long as the rollout in Mexico is consistent with what the team has done 4 times in a row, gives us comfort that we're on the right path. Look, when it comes to Australia, I mean, nothing more to add than we've analyzed the market very well, and we think there's an opportunity there. There's a place for Dollarama for a value retailer, a convenient retailer. And nothing has changed since we've acquired the business. It's been a year as we've rolled out our integration plan. None of that vision has changed. And the ultimate goal remains the same, which is building the leading value retailer in the Australian market.

Our next question is from Mark Carden of UBS.

So to start, you talked about anticipating higher freight costs for the balance of the year. Just wanted to clarify there. Is that purely related to the lag, does it also build in oil prices remaining higher for an extended period of time versus the near-term resolution? And just how should we think about how changes in that front could impact your guidance?

Yes. So I think you're referring specifically to Canada. So we are anticipating higher costs or impact in the second half. These things take time for it to funnel through our P&L. Look, our guide, if I look at gross margins as an indicator of profitability, it has not changed. It's the same 45.0% to 45.5% that we've had since the beginning of the year. I would just say the slight nuance this quarter is that we're saying that we can maintain this guide despite assuming that there will be elevated oil prices for the remainder of the year.

So that is a little bit different than last quarter where we said our guide remains as long as prices normalize. So I think on the back of a strong first and second half, we've qualitatively updated that guidance to embed an assumption that costs will remain elevated in the second half. That being said, I mean, obviously, if costs increase from here and everything gets elevated, well in that context, I mean, you wouldn't be surprised that we would need to revise the outlook in that situation. But if things stay as we see today, we think we feel comfortable with that guide because like, as Neil mentioned, we have an adaptable business model, and we worked through a bunch of different items that makes us comfortable that we can maintain that gross profit for the full year.

Our next question is from Martin Landry of Stifel.

I would like to touch on your traffic in Canada. It was up 3.7%, the best performance of the last 3 quarters and certainly notable given the slowing population growth. So I was wondering if you can discuss a little bit this traffic growth. Is it coming from your existing customer base or from new customers? I know it's tough for you to answer that question, but any color would be super helpful.

Yes. You hit it on the mark. It's very difficult to tell. At the end of the day, what we track is overall as I said, we're very pleased with the 5.4%. Yes, we also track traffic and share with you, 3.7% is a good result, but it's a continued momentum of what we've seen in Q1. Q1, we had 3.5%, slightly higher in Q2, 3.7%. But for us, it's just a reflection of the continued momentum and perhaps the great value that people find in our stores and the pleasant experience that they have and they return to our stores. But to disaggregate it between repeat and new, it's not something that we track or have, but we're very pleased with the momentum that we've built.

Our next question is from Robert Ohmes of Bank of America.

Just actually 2 quick follow-ups. The first, just maybe a follow-up on Chris Li's question on category commentary. Can you give a little more beyond seasonal? Like in the U.S., things like toys are doing a lot better for like the Dollar General and Five Below's of the world. Any other -- any categories that might give us insight what's going on with your customer, like home improvement, any kitchen, anything else to tell us?

Sure. So you nailed it on the head again, which is to say toys was an outlier, performed much better than it has historically. The balance of the categories are within the norm of what we've been seeing over the last few quarters, but toys was extra strong this quarter. And the reason for it, I'm not smart enough to tell you.

Our next question is from Zhihan Ma of Bernstein.

I wanted to ask about the pace of store opening in Canada, which this seems to be the second year where you're growing above the historical 60 to 70 range based on the updated guide. Is this kind of the new run rate from here? And could you share a bit more about what you're seeing on the new store productivity and economics side?

Thank you for the question. So 60 to 70 remains the guidance generally. Last year, it was an exceptional year, and we raised that guidance and opened 10 more stores. This year, again, I've just changed the guidance exceptionally. And the reasons for that are really very much what we've described in the past as the reasons to change the guidance, which are if we get more opportunity than the pace we've had historically, and the team is able to execute those leases within a time frame that happens to fall within fiscal year as opposed to the next, we're not going to leave stores with the lights off and pay rent.

So we will adapt our guidance based on the realities of our execution and the execution, quite honestly, by our partners, our landlords. So that is the reason for the change in guidance. It's not a commitment to a change in guidance in the future. It will go back to the 60 to 70 unless, again, we see that there is an exceptional reason to change it, at which point, we will tell you right away, and you will have visibility.

Our next question is from George Doumet with Ventum Financial.

The Canadian SG&A held at 13.8% of sales on a 5.4% comp and an expanded store base. So just wondering what does it take to lever that SG&A today? And are there maybe perhaps any line items that we need to anniversary before we start to see that leverage on SG&A? Any commentary would be appreciated.

So I would think about leverage, not just from an SG&A perspective, but other line items in the P&L. And this quarter, specifically, you would see leverage in the gross margin percentage, right? There are fixed costs embedded in gross margins as well. And so taken together with cost of goods sold, you would have seen some leverage. Now obviously, we continue to optimize the business model. But I repeat that the bigger projects and the step changes with respect to scaling the business are done. Business does have variable costs when you think about product costs and store labor. But we do think that there's still some scaling opportunity just by increasing the size. I would also caution that when you think about SG&A, there's other line items that are growing faster than inflation. I think about funding recycling programs. And so for us to maintain SG&A as a percentage of sales and slightly increase it and looking also at your cost of goods sold is positive and remains our objective.

Our next question is from Edward Kelly of Wells Fargo.

This is John Parke, on for Ed. I guess just on Dollarcity, seems like another good quarter of both comp growth and margin expansion. Can you just talk a little bit about your expectations for the second half there?

Yes look, you're right to point out that the strong momentum in Dollarcity. It's a continuation of what we've seen in the prior quarters. 40% year-over-year bottom line growth in the 4 Central and South American countries is a great result. During this quarter, just like in last quarter, you have the same dynamics. When you think about going top down, the pace of store openings on a smaller base leads to higher percentage growth.

The business from an SSS perspective, just as in Canada is at a good level. And what they also benefit from, they have a much smaller store base is natural scaling, and you see that in their gross margin and SG&A. So I do mention often that it's not reasonable to assume that the business could grow 40%, 50% year after year just by simple math, at some point, this does come down. But it does not reflect -- it does reflect our view that the business is getting better, but it is strong, and that is our expectation in the near future.

Our next question is from Luke Hannan of Canaccord Genuity.

I wanted to go back to the conversation around the higher fuel dynamics. And you've mentioned several times now that you have mitigating factors in place for the balance of the year in order to be able to offset that and also the scale benefits within the Canadian business should provide offsets there as well. But I'm just curious to know what specifically or can you shed some light on what those mitigating measures are? And then also, should we get a resolution to the conflict and by extension, we get lower energy prices, is it going to be relatively easy to unwind, we'll say, those mitigating measures as well?

Yes. When it comes to levers, I mean, you need to think about levers in a broad sense, right? It's not necessarily levers pushing back on fuel surcharges. I mean those are facts and oil prices are higher and those are sticky. But when we refer to levers, I mean, we look -- I mean, we doubled down on our commitment to making sure that we operate in the leanest way such that we offset costs that are going higher, such as fuel surcharges in our network. So there's always a continuous evaluation of the effectiveness of our operations, whether in logistics, in store operations, there's a review of the merchandising team in terms of the appropriate mix. So think of levers as more holistically and things that we try to improve to really offset when it comes down to higher fuel costs. And at last resort is making pricing adjustments, but that is really the last resort once we've reviewed our operations.

Thank you. This concludes the question-and-answer session. Thank you all for your participation. This does conclude today's call. You may now disconnect.

Good morning, and welcome to Dollarama's First Quarter Fiscal 2027 Results Conference Call. On today's call are Neil Rossy, President and CEO; and Patrick Bui, CFO. They will begin with brief remarks, followed by a Q&A with financial analysts.

Before we begin, please note that today's remarks may contain forward-looking statements about Dollarama's current and future plans, expectations, intentions, results or other future events or developments. Forward-looking statements are based on information currently available to management, on reasonable estimates and assumptions made by management. Many factors could cause actual results, future events or developments to differ materially from those expressed or implied. You are cautioned not to place undue reliance on these forward-looking statements.

Forward-looking statements represent management's expectations as at June 11, 2026. Except as may be 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. You are invited to consult the cautionary statements on forward-looking statements in Dollarama's Management Discussion and Analysis dated June 11, 2026. All forward-looking statements on today's call are expressly qualified by this cautionary statement.

In addition, Dollarama may refer to certain non-GAAP and other financial measures during this call. Please consult the Non-GAAP and Other Financial Measures section of Dollarama's MD&A dated June 11, 2026, for definitions, reconciliations and appropriate GAAP measures and other information. The disclosure documents related to this call are available in the Investor Relations section of dollarama.com and on SEDAR+.

I will now turn the call over to Neil Rossy.

Good morning, everyone, and thank you for joining us. We delivered a strong performance in the first quarter of fiscal 2027, as we pursued profitable growth in our core Canadian market while advancing our priorities across our international growth platforms.

Starting in Canada, our value proposition continued to resonate with consumers as affordability and everyday value remain top of mind in an uncertain economic environment. We generated an impressive 5.6% same-store sales increase in Q1, supported by both traffic and basket growth, reflecting once again the relevance of our offering and year-round value proposition for Canadian consumers.

On the real estate front, we opened 28 net new stores during the quarter, bringing our total store count in Canada to 1,719 stores at quarter end. We remain on track to achieve our fiscal 2027 target, which is to open between 60 and 70 net new stores this year. As previously discussed, front-loading store openings during the fiscal year is always the objective given that the back half historically represents our seasonally busiest sales period. This ensures that we can maximize focus on store operations and serving customers. Congratulations to the operations and real estate teams on the strong execution early in the year.

Work also progressed well on the construction of our future logistics hub in Western Canada. This project is an important component of our long-term growth and future 2-node distribution model in Canada. I'm pleased that we remain on budget and on schedule with the facility expected to be fully operational by the end of calendar 2027.

Turning to Latin America. Dollarcity also had a solid start to the year, generating continued profitable growth, supported by strong same-store sales and ongoing network expansion, while the team simultaneously executes the ramp-up of the Mexico business. During the quarter, Dollarcity opened 20 net new stores across our Central and South American markets, bringing the total store count in the region to 741 locations. In Mexico, we ended the quarter with 11 stores, consistent with prior period end and opened 2 new stores earlier this month. As with previous Dollarcity market entries, we are scaling this new growth platform carefully and progressively over time.

In Australia, we have now begun advancing our transformation road map in earnest. On the merchandising front, the first Dollarama-sourced products started reaching shelves after quarter end. As a reminder, this will be a gradual rollout as we work SKU by SKU to introduce even more compelling value to Australian consumers, leveraging our proven low price point value-oriented product offering. We don't expect to reach a critical mass of Dollarama import products before year-end, by which time we expect to have about half of our import products transitioned.

In terms of shopping experience, we fully renovated 13 stores during the quarter and opened 8 net new stores. By quarter end, 28 of our 410 locations in Australia were operating with the Dollarama layout and fixtures. Beyond improving store navigation for the consumer, the updated format allows for greater SKU density. Although these customer-facing changes remain preliminary, we have seen encouraging signs in terms of customer interest and reception to the new layouts and to our import SKUs as they gradually make their way across Australia. While it remains far too early to draw conclusions with such a small sample size, these initial indicators are certainly motivating the team as we continue to execute our road map.

Looking more broadly, uncertainty persists across the global economy, driven by ongoing geopolitical developments, which are driving further inflationary pressures for consumers and businesses. From a retail operating perspective, these conditions are impacting global supply chains and costs related to raw materials and transportation. The duration of the conflict in the Middle East and its ripple effects will ultimately determine the magnitude of these pressures.

In this context, and as always, we remain focused on the elements within our control. Our business model continues to provide flexibility and resilience to mitigate some of those pressures, supported by our direct sourcing capabilities, operational excellence, disciplined approach to pricing and multi-price point strategy. Looking ahead, we expect our strong value positioning to continue resonating with consumers as they remain mindful of their spending. Our job is to leverage our agile business model, sourcing expertise and retail execution to continue delivering affordable everyday value and convenience across our markets.

With that, I'll pass it over to Patrick.

Thank you, Neil, and good morning, everyone. Starting with our consolidated results. Sales for the first quarter of fiscal 2027 increased by 21.4% to nearly $1.9 billion. The increase reflects network and same-store sales growth in Canada as well as the sales contribution from Australia. EBITDA increased 17.4%, coming in at $583 million for Q1, representing an EBITDA margin of 31.6%. Net earnings totaled $302 million and diluted EPS increased 13.3%, reaching $1.11, compared to diluted EPS of $0.98 last year. Similar to Q1 of last year, we recorded an unrealized gain during the quarter on the fair value of the Dollarcity call option, positively impacting EBITDA margin by 90 basis points and EPS by $0.06. While this represents an accounting adjustment rather than an operating item, it reflects the strong underlying performance of Dollarcity.

Our core Canadian business generated a strong financial performance in the first quarter of fiscal 2027 across our KPIs. Same-store sales increased by 5.6% over and above 4.9% growth last year, with sustained demand for our everyday products. Elevated same-store sales in Q1 also reflects the recovery in demand following the weather-related disruptions that impacted traffic in Q4 of last year. Following years of inflation, consumers continue to face more inflation and rising costs, including on fuel and everyday goods. While this reinforces the importance of affordability and value in purchasing decisions, overall consumer confidence appears to be weakening. As a result, we remain cautious and our outlook for SSS is unchanged at 3% to 4% for the full year.

Still in Canada, gross margin came in at 45% of sales compared to 44.2% in the first quarter of fiscal 2026, with the increase primarily reflecting lower logistics costs as well as the positive impact of scaling. We do expect an uptick in supply chain-related pressures in subsequent quarters, but we believe we have the tools to partially mitigate these impacts, assuming they level off over the near term. As such, we remain cautious on gross margin, and our guidance is unchanged at 45% and 45.5% for the full year.

SG&A for the Canadian segment in Q1 was 15.1% of sales compared to 15.3% last year. The slight improvement primarily reflects the absence of transaction-related costs in Q1 of this year. Full year SG&A guidance remains unchanged at between 14.1% and 14.6% of sales with the positive impact of scaling expected to help offset higher store labor and operating costs. Our share of Dollarcity's net earnings grew 27.1% to $51.2 million for Q1. This reflects a 37.7% year-over-year increase in net earnings from our Central and South American operations, partially offset by a $4.3 million loss related to the Mexico ramp-up in line with expectations.

As disclosed last March, we made a capital contribution of USD 38 million towards Mexico expansion plans in Q1. Our contribution was again funded using a portion of our USD 75.1 million share of the Dollarcity dividend declared in February. Mexico will remain in investment mode through fiscal 2027.

Looking now at Australia. The work underway represents a critical first step in our multiyear plan to deliver an attractive return on investment over time, and we are pleased with progress so far. From a financial performance perspective, results are tracking in line with our expectations, which remain unchanged for the full year. We continue to anticipate the merchandise changeover to lower-priced items as well as the pace at which these new products are introduced, to weigh on sales in fiscal 2027. We anticipate that impact to be more pronounced in the second and third quarter of fiscal year as we accelerate the pace of the transition to lower-priced SKUs.

Capital expenditures related to store renovations and new store openings as well as expenses related to the deployment of operational initiatives are also tracking according to plan. As a reminder, we expect to renovate 60 to 80 stores and to open 15 to 25 net new stores in fiscal 2027.

As we invest in our growth priorities in Canada and the transformation of our business in Australia, we also continue to deploy excess cash to create immediate shareholder value. During the quarter, we were active on share repurchases. We bought back nearly 2 million common shares for cancellation under our NCIB program for a total consideration of $339.1 million. We also announced today that the Board approved a quarterly cash dividend of $0.12 per share.

Despite an uncertain macroeconomic environment, our expectations across our markets remain broadly unchanged, and our priorities are clear as we move towards the second half of the year. The fundamentals of our business are strong. Our value proposition continues to resonate with consumers, and we believe we have the tools and flexibility to help mitigate some of the external pressures we are seeing today. We will continue to focus on the disciplined execution of our priorities in all markets, serving customers with value and convenience and deploying capital in a manner that supports long-term shareholder value creation.

With that, I'll now turn the call back to the operator for the Q&A.

[Operator Instructions] And our first question comes from the line of Irene Nattel from RBC Capital Markets.

Great to see the same-store sales recovering in Q1. Can you give us some more color, Neil or Patrick, just on the cadence of sales, what people are buying, obviously, poor weather had a bad impact, and if you can, what we've seen Q2 to date, again, recognizing that weather just wasn't our friend?

Yes. Look, I can maybe comment more specifically about Q1. I mean, I think in Q1, we saw fairly consistent trends throughout the quarter and including as we exited the quarter. There appears to have been some strength, some pent-up demand in the front end after a softer Q4. And then as we move through the quarter, like other retailers, there was some variability in the back end due to the late arrival of spring and summer.

And our next question comes from the line of Brian Morrison from TD.

I want to ask a question on Australia, maybe, Neil, I appreciate the details you gave, but help me understand the progression of store renovation in your format, to merchandising the store, to putting it under a Dollarama banner. I heard the renovation totals and targets, but did you say half of your imported product will be here by year-end?

And the question I have is, when will there be sufficient imported merchandise to call a store one of your own? Will the new merchandise not be placed in a store until the renovation is complete? And I know it's early, but you stated initial positive reception of the merchandise. What makes you say that?

Thank you, Brian. So our goal is to renovate 400 stores over the next 4 years, so averaging 100 stores a year. In Q1, so far, we've renovated 13. This year, our goal is to renovate between 60 and 80. By the end of the year, we should have about half of our imported SKUs in the stores, as you mentioned. And that will continue to trickle in as time goes on in a very linear fashion.

From the perspective of rebannering, we will never rebanner a store until it has been renovated or unless it's a new store. And there's not going to be a specific SKU count that's going to trigger that. It's going to be more a question of management from Canada, honestly, since we have the experience going to Australia and judging that the overall shop feels like the value that we're trying to portray is Dollarama value. And at that point, we will change the brand. Now as we're building out the new stores, we are building them out in our colors, with the TRS branding so that the capital being spent is being spent in a strategic manner for the long term. But for certain, it will not change until the shop feels like a Dollarama shop.

And our next question comes from the line of Martin Landry from Stifel.

In Canada, I was wondering if you can talk a little bit about your product offering. Is there any categories that you've added recently that are doing well? And can you talk about maybe 2 categories of interest, pet and toys to see how these categories are doing for you guys?

Sure. No, there hasn't been any new categories added to the store. The existing categories flex over time, depending on the interest of the customer. So when there are trends in the toy industry that make toys hot, we tend to buy more toys. And when crafting is experiencing a trend, we tend to have more craft items in the store. So as retailers within the limits of our fixed price points, we're always trying to offer as much as we can in the categories that are hottest. And toys happens to be quite hot right now with a few trends going on. And for certain, that's helping the toy section of our store perform.

And our next question comes from the line of Chris Li from Desjardins.

Sorry if I missed this earlier, but Patrick, can you elaborate on the drivers of the lower logistics costs that helped margins in the quarter? And then sort of what are the main puts and takes for the rest of the year as we think about the gross margin?

Yes. So in terms of logistics, I mean, we clearly benefited from scaling of having a 5.6% SSS. But also from a logistics standpoint, it was a smooth quarter. So we did not incur any friction or detention costs that we would normally incur in a normal quarter. I would like to point out that when we talk about the impacts of higher fuel and -- so none of that actually impacted the first quarter. And so these costs are to be expected later on in the year and specifically in the second half of the year. That being said, for the time being, we're maintaining the guidance, the 45% to 45.5%. But we do assume that the conflict will end soon and that fuel prices will normalize in short order.

And our next question comes from the line of Zhihan Ma from Bernstein.

Back on the Australia side of things, could you talk about the time line of when some of the TRS assortments are being retired and when you're introducing the new assortment? Is there going to be some sort of a gap in between that may impact sales this year? And broadly speaking, how are you getting the word out to the Australian consumers? Are you going to pass marketing campaigns? Or this is going to be more of a word of mouth?

The transition from TRS goods to Dollarama goods is a progressive transition. So for example, I'll use a very specific example. If we bring in 5 new sponge SKUs in the cleaning department, as we see the timing of those SKUs arriving into Australia, we'll know how many months of inventory we have of the, for example, 5 existing TRS sponge SKUs and we'll have sold down our inventory levels so that the transition doesn't lead to gaps, but also doesn't lead to excess inventory. So timing it perfectly never works, of course, but give or take, you're trying to do a transition that's manageable at store level and inventory level.

And our next question comes from the line of Mark Petrie from CIBC Capital Markets.

I want to ask about Dollarcity. Just curious if you could give some color on what looks like a strong same-store sales performance in LatAm? And then with regards to Mexico, wondering how you think we should look at sort of no new stores in Q1? I think you said you opened 2 early in Q2. And then also just an update maybe on how those Mexico stores are performing?

Yes. Thanks for the question. Look, LatAm, yes, the business continues to perform well. It's very similar trends that we're seeing here in Canada. So we're quite happy with the progress of the business in Latin America. Mexico, at the end of the quarter, we were at 11 stores. It's just the way how the pipeline worked. We were very happy to pull forward a few stores into the end of last year, but we're happy to see the progression. And as Neil mentioned in his prepared remarks, we've already opened another 2 stores. So we're at 13, and a few others to come.

And our next question comes from the line of John Zamparo from Scotiabank.

I wanted to ask about cost of goods inflation, and in particular, inflation in China has accelerated fairly quickly. I wonder what you're seeing on your end? And does that make you want to accelerate or revisit your product refresh rate? Or do you need to get more creative with your suppliers on how to navigate within your $5 price limit? Any color on that would be helpful.

Sure. So there's no question that there's pressure on pricing in China, especially in the plastics. The heavier and larger the item, the more plastic there is, the greater the impact on that item. So much like during COVID, where freight rates were astronomical and we parked a few items, we are parking some very large high cube plastic items, but that's really extreme as a case. In general, we're using our ability as importers to always change the mix throughout the whole year for different -- a multitude of different reasons, to provide a mix that hits the margin percentages we're hoping to achieve while, of course, always keeping the best relative value to the market that we can provide our consumers.

And our next question comes from the line of Vishal Shreedhar from NBCM.

With respect to the same-store sales growth that you saw in Canada, could you give us a sense of -- has inflation in that actual comp accelerated? And is that due to product inflation from your suppliers? Or is that due to Dollarama creating a mix shift within its basket by allocating more items to higher price points?

Yes. So if you recall, towards the end of last year, there were some price increases on the domestic side, which led us to increased pricing as well. So what you see in the SSS is a carryforward from those price increases from last year. And you could assume that those price increases at the end of last year should tail off as we advance throughout the year.

And our next question comes from the line of Ed Kelly from Wells Fargo.

Nice quarter. I wanted to circle back on Australia and how we should be thinking about the impact of all the investments that are being made this year in the business? The Q1 gross margin, at 34.4%, looks a little bit on the low side versus sort of what we saw the rest of the year. I'm just kind of curious, Patrick, as to how much gross margin pressure you might see from here? The investment that you talked about last quarter, is that still the right number? And then as it pertains to the loss that the business might see, it's not hard to get yourself in the neighborhood of like $55 million, $60 million, something like that or more. I'm just curious, is that ballpark?

Yes. So I would say all the comments with respect to how we're thinking about the forecast in Australia that we presented last quarter, nothing has changed. So as we completed Q1, we're exactly on that plan. And so if we go back to the commentary about the 3 pillars, all of that remains the same, and we're happy that we're tracking exactly on plan.

And our next question comes from the line of Mark Carden from UBS.

So I want to circle back on the supply chain. You guys called out the higher costs resulting from the conflict factoring in a resolution in the near term. If the conflict did persist though, over the course of the next few quarters, how much of an impact could it have on your margin structure as those pressures ramp up in the second half of the year? Just how should we think about the sensitivity there?

Yes. That's a really tough one. I mean who knows what the price of fuel and the impact on the cost of products will be? The only thing that we could say is that after Q1, it certainly dragged on longer than we had initially anticipated. That being said, we've kept the margin at 45% to 45.5%. We're comfortable reiterating that guidance with the assumption that things will resolve themselves in short order. Now certainly, the conflict and fuel prices increase and drag on for a much longer period, while at that point, we may need to revise our assumptions. But if things calm down very quickly, we feel comfortable reaffirming that guidance on the gross margin.

And our next question comes from the line of Corey Tarlowe from Jefferies.

Patrick, I wanted to ask on the outlook. Is there any consideration around any change in the leverage point? And the reason I ask is that your SG&A guide on a 3% to 4% comp embeds both leverage and deleverage. So I'm wondering what the swing factors are or drivers to get from one end to the other?

Yes. Look, I mean, leveraging SG&A is truthfully a greater challenge in the business. We feel that a lot of the material improvements that we've done in the business, a lot of it is more behind us than ahead of us. So we always remind people that continuing to improve on that SG&A remains a challenge for us. There are certain line items that are increasing at a very, very high rate. You think -- that funding recycling program is a good example of line items that are increasing quite materially year-over-year.

So when you look at the balance of the year and what we had planned when we provided our guidance is that to the extent that we could achieve same-store sales within that range, there should be some incremental leverage in the business. But then again, not to expect any material improvements on that end.

And our next question comes from the line of Luke Hannan from Canaccord Genuity.

I wanted to ask about the competitive environment as it relates to the 3 jurisdictions that you participate in. And then more specifically, whether or not the price gaps relative to what you view as your closest competitors in those markets, whether those have changed materially over the course of the quarter?

So they haven't changed by a margin worth discussing. But certainly, each market has a different competitive set and a competitive situation. In Canada, we consider -- well, I should say, in every market, we consider everybody competition, of course. But as you would expect, there are stronger competitors that we focus on in each market. The Australian market is a very competitive market at this point in time. It was less so a couple of years ago. But we've seen that in Canada. We've seen it now in our Central and South American operation. It comes in waves. The level of competitiveness goes up and goes down over the course of time for different reasons, of course.

But I would say, consistently, our job regardless of all of that, is to ensure that in each market, our relative value is the best and that our execution at store level is on par or better than everybody else's and that a customer who comes to a Dollarama sees great relative value and a nice, clean shopping environment in a very convenient-sized shop and as close to their house as possible over the course of time. So that's what we remain focused on. And of course, to do that, we have to keep an eye on all of the competition in every 1 of the 3 countries or regions we're in, and that will be the case forever.

Thank you. This does conclude the question-and-answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.

Good morning, and welcome to the Dollarama Fourth Quarter and Fiscal Year 2026 Results Conference Call. On today's call is Neil Rossy, President and CEO; and Patrick Bui, CFO. They will begin with brief remarks followed by a Q&A with financial analysts.

Before we begin, please note that today's remarks may contain forward-looking statements about Dollarama's current and future plans, expectations, intentions, results or any other future events or developments.

Forward-looking statements are based on information currently available to management and on reasonable estimates and assumptions made by management. Many factors could cause actual results, future events or developments to differ materially from those expressed or implied.

You are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements represent management's expectations as of March 24, 2026. Except as may be 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.

You are invited to consult the cautionary statement on forward-looking statements and Dollarama's management's discussion and analysis dated March 24, 2026. All forward-looking statements on today's call are expressly qualified by this cautionary statement.

In addition, Dollarama may refer to certain non-GAAP and other financial measures during the call. Please consult the non-GAAP and other financial measures section of Dollarama's with MD&A dated March 24, 2026, for definitions, reconciliations with the appropriate GAAP measures and other information. The disclosure documents related to this call are available in the Investor Relations section of dollarama.com and on SEDAR+.

I will now turn the call over to Neil Rossy.

Thank you, operator, and good morning, everyone. For fiscal 2026, we are pleased to have met or exceeded our financial guidance on all metrics, while we also advanced our growth ambitions. We generated same-store sales of 4.2% in Canada for the year and delivered strong earnings growth with EPS increasing nearly 14% year-over-year.

Fiscal 2026 also marked a significant milestone in our international expansion with Dollarcity entry into Mexico and our acquisition of a national discount chain in Australia. In Canada, our compelling value continued to resonate in a economic environment that is weighed on consumer sentiment and discretionary spending.

As Canadians face pressures on their household budgets, they turn to Dollarama for a year-round value and everyday convenience. Throughout the year, our full assortment contributed to solidifying Dollarama as a destination for affordable goods across our product categories. We experienced solid demand for general merchandise and seasonal items which speaks to the strength of our buying team and direct sourcing platform.

We also saw continued sustained demand for consumable products, which speaks to our ability to offer strong value for sought after every day essentially. Unfortunately, the weather did hamper our fourth quarter performance, which was off to a good start. Unfavorable weather conditions across Canada directly impacted both store traffic and peak sale periods through to the end of January. However, we nonetheless generated 1.5% same-store sales growth in the quarter with basket growth driven by a positive seasonal performance.

In Canada, we successfully opened an exceptional 75 net new stores in fiscal 2026. This brought our network across the country to 1,691 stores by the end of January. For fiscal 2027, we are returning to our historical cadence of annual net new store openings in the range of 60 to 70. This past February, we had another real estate milestone with the opening 1,700 store in Canada.

We are making steady progress towards our long-term target of 2,200 stores by 2034. Reaching this threshold of stores requires us to grow our distribution and warehousing capacity in tandem. The development of our logistics hub in Western Canada is moving along well, having made significant progress building the structure.

With everything moving along on time and on budget, we are on track to have our Calgary hub operational by the end of 2027. Having a 2-node logistics model support our long-term growth in Canada and bring added resilience to our logistics through redundancy.

By applying our proven business model Dollarcity continues to generate strong top line momentum, margin expansion and footprint growth across our core markets in Latin America. This is translating into impressive year-over-year network and earnings growth.

Consistent with the prior year, Dollarcity opened 100 net new stores in 2025 bringing into total store count to just over the 700 store threshold at year-end. This includes 11 stores in Mexico since entry last summer, where we are now building a new growth platform.

Dollarcity is well on its way to achieving its store target of 1,050 stores by 2034. As a reminder, this excludes Mexico for which we have not yet set a long-term target. In fiscal 2027, Dollarcity will continue to grow in its first 4 countries of operation in LatAm with a focus on growth in Colombia and Peru. At the same time, we will be carefully scaling our presence and operations in Mexico.

While it is still early days, we continue to be pleased with the team's execution and initial customer reception. Over the last few months, we have been firming up our plans in fiscal 2027 priorities for our multiyear transformation of our retail platform in Australia. We have several initiatives underway across 3 main pillars: merchandising, store experience and network growth and operational excellence.

Deploying aspects of our model is impacting just about every facet of the business. In the near term and through fiscal 2027, this work will be both gradual and disruptive but it is a prerequisite to setting up our Australian operations for future success.

Changing the merchandising strategy is the most important pillar of the transformation and the most complex to implement. We expect our first Dollarama in port SKUs to start hitting shelves during the second quarter of fiscal 2027, with imports primarily comprised of general merchandise and seasonal items. The target is to have about half of the Dollarama import SKUs sourced by the end of fiscal 2027.

On the domestic side, which is primarily consumables, we are also looking at products SKU by SKU to deliver increased value to our customers. Under store experience and network growth, our goal is to renovate the layout and change fixtures in 60 to 80 stores this year, having done 4 last year. We also aim to open 15 to 25 net new stores, all with the dollar MLA out in fixtures, having opened 7 in fiscal 2026.

On operational excellence, we are strengthening the IT infrastructure and optimizing various processes. Notably, we are working on migrating Australia's ERP system to ours to get all our business processes integrated to the same platform. On the logistics front, we are finalizing our plan to optimize operations and support long-term growth.

We are also adding team members as we built the bench strength of the local team. Once a store feels like a Dollarama shop and reflects our value proposition through both the offering and open experience, we will convert that store to the Dollarama banner.

By fiscal year-end, we will be in a better position to evaluate our progress on this front and initial customer reception. The objective is to build our brand equity in the market by introducing our strong and differentiated value and convenience position as we have done over time in all of our other markets.

As you can see, the year ahead is shaping up to be both busy and exciting for Dollarama. Today, we have strong teams across 3 continents working to execute on their respective growth plans with each market bringing its own unique set of characteristics, priorities and opportunities. While the path may differ from one market to the next, the long-term vision guiding our efforts remains the same: to deliver unbeatable value to consumers in every market where we operate and to create long-term value for our shareholders.

As we enter fiscal 2027, the macroeconomic and geopolitical backdrop is evolving rapidly and remains uncertain. Considering the current economic environment in Canada, we expect that consumers will continue to be cautious and deliberate in their spending.

In this context, the importance of value is only increasing. And we believe that the value, convenience and affordability we offer will continue resonating with consumers. Looking at the broader geopolitical environment, the conflict in the Middle East is beginning to have ripple effects on transportation and production costs.

Our business model is resilient and provides us with a number of levers to help mitigate these impacts in the near term. The key variable will be the duration of the conflict which will determine how persistent these cost pressures will be.

As always, we remain highly disciplined as price followers. We will only pass on price increases were absolutely necessary and while staying true to our year-round value proposition.

Across the business, our focus is on the disciplined execution of our plans maintaining our strong value proposition and leveraging the strength of our business model to deliver for our customers and our shareholders.

With that, I'll pass it over to Patrick.

Thank you, Neil, and good morning, everyone. Let's start with a brief overview of our consolidated results before turning to segment performance. Q4 sales, which included 1 less week compared to last year, increased by 11.7% to $2.1 billion. For fiscal 2026, sales increased by 13.1% to $7.3 billion positively impacted by contributions from Australia as well as greater number of stores and SSS growth in Canada.

Diluted EPS increased by 2.1% in Q4 to $1.43. This included a positive $0.03 impact from Australia. For the full fiscal year, EPS rose by 13.7% year-on-year to $4.73. Our Canadian segment met or exceeded all financial guidance targets. SSS came in at 1.5% for Q4 over and above SSS of 4.9% in Q4 last year.

The increase was primarily driven by demand for seasonal products, offset by 2 important factors. The first is a calendar shift caused by a 52-week fiscal year following a 53-week fiscal year. In the quarter, this resulted in one less historically strong pre-holiday sales week and an additional historically low sales week at the end of January.

It also included 4 less pre-Halloween shopping days compared to Q4 last year, which we recorded in Q3. Excluding the calendar shift, SSS would have been 3.5%. The second factor was the weather. As mentioned by Neil, a high volume of weather events, including cold temperatures and precipitation impacted store traffic and resulted in lost sales.

This is reflected in the 1.6% decrease in the number of transactions. Despite this, Basket growth was healthy, growing 3.1%, and we met our annual SSS guidance for the year coming in at 4.2%. While the weather resulted in softer-than-anticipated SSS as weather conditions improved, so did traffic patterns. Store traffic continued to recover nicely as we entered fiscal 2027. Looking ahead to fiscal 2027, we anticipate generating SSS growth in Canada of between 3% and 4%.

Consistent with our outlook last year, we continue to expect sustained demand for the compelling value we offer, which remains particularly relevant in the current environment. At the same time, we also remain mindful of the macro environment and the uncertainty it creates. Gross margin for the Canadian segment came in at 46.6% of sales in Q4 compared to 46.8% last year.

The variance is primarily due to the 53rd week in fiscal 2025, with the 14th week in fiscal 2025, providing additional scaling benefits. Full year gross margin was 45.6% of sales, slightly exceeding the top end of our guidance. For fiscal 2027, our guidance range for gross margin in Canada is in line with last year at between 45% to 45.5% of sales based on our ability to actively manage product margins.

Looking at early fiscal 2027 and given the current macro context, we are closely monitoring pressures in the global supply chain which may negatively impact gross margin during the year.

SG&A for the Canadian segment in Q4 was 14.5% of sales compared to 14.7% last year. The improvement reflects the positive impact of scaling. Full year SG&A came in within guidance at 14.4%. For fiscal 2027, we expect scaling to help offset the impact of higher store labor and operating costs.

As a result, our annual guidance range for SG&A in Canada is slightly better than in the prior year at between 14.1% and 14.6% of sales. Finally, CapEx for fiscal 2027 in Canada is between $420 million to $470 million. The year-over-year increase primarily reflects capital spend for our logistics hub project, a portion of which shifted over from last year.

Turning to Dollarcity. Our share of their net earnings in Q4 increased by 22% to $70.5 million. For the year, our share reached $191.5 million, an over 47% increase. This was driven by SSS and store network growth, offset by the ramp-up of operations in Mexico. On a 100% basis, the Mexico business realized a net loss of USD 5.4 million and USD 11.7 million for Q4 and the full year, respectively.

As the business is still in ramp-up mode, we expect a loss in fiscal 2027, consistent with the range provided last year of between USD 10 million to $20 million for 100% of the business.

On February 5, Dollarcity declared a dividend of USD 125 million, with our share coming in at USD 75.1 million. The doubling of the dividend compared to the previous one declared speaks to Dollarcity's strong free cash flow generation with its profitable growth trajectory continuing to mirror Dollaramas.

In early fiscal 2027, we made a capital contribution of USD 38 million towards Mexico expansion plans. This follows 2 USD 18 million contributions made last year. As with previous capital contributions, we allocated a portion of our share of the latest Dollarcity dividend.

Looking now at Australia. For the approximately 6-month period since our acquisition in late July, the business had a neutral impact on consolidated net earnings for fiscal 2026. For perspective, looking at the full year and on a pro forma basis, Australia generated approximately $916 million in sales and a net loss of $10.6 million, all in Australian currency.

Turning to fiscal 2027. It is expected to be an investment year as we ramp up the integration process. Neil spoke to our priorities across our strategic pillars. As a result, the Australian segment is expected to generate a net loss in fiscal 2027. These impacts are presented in our financial documents and in our investor presentation, which is available on the Event page, but I'd like to call out the main ones.

First and most significant is the anticipated negative impact from the merchandise changeover and transition to lower-priced items. As you can appreciate, it is also the hardest to quantify at this stage of the transformation as it will depend on several factors. These include the timing of the product transition. The speed at which sales of incumbent higher-priced SKUs will be compensated by sales of the lower-priced Dollarama SKUs and impact on store traffic.

That said, we anticipate a negative impact on sales for the year. The second is related to capital expenditures for store renovation and net new store openings. These are estimated at between AUD 400,000 and AUD 600,000 per renovated store and between AUD 800,000 and AUD 1 million per net new store. There is also a direct impact on sales during renovation related store closures.

Third is P&L related. We expect to incur about $35 million to $45 million in incremental costs related to integration, IT transformation, additional head count and labor costs. These transformational changes are essential to set the business on a path for profitable growth.

There's a lot of work to be done, but we are excited and motivated by the upside potential once we work through some of these major changes to the business. Our vision is to build a leading value retailer with a strong and favorable margin profile compared to global peers.

The work we are undertaking in fiscal 2027 will represent a critical first step in our multiyear path to deliver attractive return on investments. Back to Dollarama, in terms of returning capital to shareholders, we repurchased over 4.4 million shares for cancellation during fiscal 2026 for a total cash consideration of $834.2 million.

We also announced today that the Board has approved a 13.4% increase to the quarterly cash dividend, bringing it to $0.12 per share. Looking ahead, our priorities are clear. We will continue to allocate capital in a balanced manner as we pursue our profitable growth in Canada and LatAm and as we embark on the transformation of our Australian platform.

Consistent with past practice, we also intend to allocate the majority of excess cash towards share buybacks and a dividend subject to quarterly approval. While the broader economic environment remains uncertain, the underlying fundamentals of our business are strong and our value proposition as relevant as ever.

As we enter the next fiscal year, we are focused on disciplined execution to advance our growth initiatives across multiple geographies and support long-term value creation for our shareholders. With that, I'll now turn the call back to the operator for the Q&A.

[Operator Instructions] Our first question is from Irene Nattell with RBC Capital Markets.

I was wondering if we could spend a minute just unpacking that same-store sales number. You called out weather, you called out strong seasonal. Can you give us an idea of what the cadence was through the quarter, what the exit rate was, where we are quarter-to-date and what the demand is like across the store, please.

Sure. Thanks for your question, Irene. Look, starting at a high level, we believe the overall consumer environment remains exactly the same, right? Canadians are faced with pressure on their household budgets and they turn to Dollarama for year-round value and everyday convenience.

So if you look at it sequentially, we had strong momentum as we exited the third quarter. We had strong momentum as we started the fourth quarter in November. And then traffic then dropped off when we encountered unfavorable weather conditions in December and in January.

But once those conditions were behind us, traffic resumed nicely in February and as we kicked off fiscal 2027. So it seems to suggest that the consumer environment that we've seen in the past few quarters, the past many few quarters is exactly the same that we're seeing as we start the new fiscal year.

Our next question comes from the line of Brian Morrison with TD Cowen.

The second focus, I think, this morning is Dollarcity leverage with your sales up 28% and equity income up 22%. But when you look at the disclosure, the Mexico loss, I think you even called that on the call, would the LatAm growth have been 30% to 35% illustrating leverage, Patrick. Is that correct?

And I know there was a pricing structure in Colombia. It was a positive driver last year that will be lapped but looking forward, how should we think about leverage drivers at LatAm and what your breakeven store target is for Mexico?

Sure. So it is true when you look at those numbers of top line of 28% and bottom line of 22%. That does include Mexico. And so if you were to exclude Mexico, I think you're correct in saying that bottom line growth is over 30%. You need also to consider that when you look at the top line growth, it includes sales from Mexico this year. and we didn't have those sales obviously last year.

So you would conclude that the Dollarcity business, excluding Mexico is still benefiting from leverage and scale as we move in time. So to conclude that the business is still growing at a good pace, and there is still scaling benefits to come in the future.

I believe before I forget, there was a second part of your question about Mexico, we've provided in our financial statements the loss for 100% of Mexico this year. We've also commented that Mexico, while we're very happy with the progress is still in ramp-up mode.

So we do expect a loss similar -- a range similar to last year, so about USD 10 million to USD 20 million. After that, hopefully, EBITDA losses will shrink, but a little too early, Brian to be -- to have a clear view on when that business will break even.

Our next question comes from the line of Chris Li with Desjardins.

Maybe just a 2-part question on Australia. First is, I know it's still super early, but for the stores that have been renovated so far, what's been the sales lift? And is it trending in line or better than your expectation?

Yes. And just to take a step back. So what we're doing when we're converting stores, right? So we talked about renovating the layout of the stores, having the appropriate racking, lighting, flow of shopping as well. But it also provides us a higher density of products in the stores, which is an important condition when you're selling low price items and high-volume sales.

And so one would expect a positive uplift. And even if all the products are currently all TRS products, if I could say, we did see a pickup in unit sales. That being said, the real power of the conversion is really when you combine the conversions with a good density of Dollarama SKUs, and we're not there yet.

As Neil commented, we're going to start introducing some SKUs in the first part of -- the first part of the second half of the year.

Our next question comes from the line of Mark Petrie with CIBC.

Neil, you touched on this in your prepared remarks, but obviously, the macro picture has gotten significantly murkier in the last month or so. Can you just add some color to what you said already with regards to the impacts that you've seen on your supply chain, costing and consumer demand.

And obviously, as you said, the longer this goes on, the higher the risk is to affecting costs more materially. But what's the sort of over under on when you would expect this to affect your outlook and guidance.

So it's still early days. And unfortunately, higher energy costs will permeate throughout the supply chain for all retailers and for consumers over the next few months to a year. The duration of the conflict will decide the scale of the effect.

But certainly, inbound costs, outbound costs production costs, raw material costs are all being affected by the increased cost of oil. And that will eventually make its way down the supply chain.

Our job as low-cost retailers and value retailers is to ensure that we're price following and to ensure that we are offering the best value -- relative value in the market that we can.

But I don't believe that any retailer will be -- will escape the reality of global economics. And we just -- we all hope for the consumer and for the world, I would go so far as saying that the conflict ends as quickly as possible.

Our next question comes from the line of John Zamparo with Scotiabank.

Perhaps a follow-up or 2 on that same topic. I wonder if you can elaborate on the ripple effects you've seen. It would be helpful to get a sense of some magnitude on how impactful you expect this to be? In other words, what the gross margin guide would have been prior to the start of the war?

And just to clarify, have you seen any deceleration in same-store sales subsequent to the start of the war?

Yes. Look, I mean, as Neil alluded to, this is early days, right? So we are seeing some increased costs in transportation. We're seeing some cost increase and even product costs. But if we're under the context of this is short term, all of this is -- some of it is included in our guide, right?

So if you look at our guide, we're saying 45%, 45.5% million same as last year, recognizing that there might be some incremental costs that we're seeing right now. But very important is to Neil's point, if this is prolonged and/or deepens, well, there will be potentially over time, consequences on gross margins that we may or may not be able to pass on.

But generally speaking, we have a resilient business model and we're in a good position to offset some of those costs. So I would say we've included some of what we're seeing in the guide. But obviously, if this gets prolonged and gets worse, well then there might be negative consequence on our gross margins and frankly, ripple effects throughout the whole industry and the whole economy.

Our next question comes from the line of Etienne Ricard with BMO Capital Markets.

Patrick, to circle back on Mexico. If you look at your experience in other markets for Dollarcity, at what level of scale from a store count perspective, do you typically reach breakeven levels in a given country?

Every -- I would start out by saying we're following a recipe in all countries we open. So this is arguably the fifth time, but there are some nuances, right? Like certainly, in this case, Mexico is a bigger country, so does might take bigger investments to start off with.

And so it's hard to compare with other countries. But just to give you some elements, think of the pace at which we're ramping up Mexico to be pretty much in line with the experience that we've had in a country like Colombia or Peru. So it gives us -- we'll give you a sense of what we're thinking in terms of ramp-up and related to that and a little bit to an earlier question, we're not breakeven.

We weren't breakeven last year. We don't expect to be EBITDA positive next year. So maybe in the following year, we might be starting to curb EBITDA losses, but this is not bottom line, right? So you would need incremental time to derive a breakeven on the net income.

But like I said, a little too early to say, have a look at the other countries, we'll give you a sense of direction but every country is slightly different. That's all we could say on that.

Our next question comes from the line of Ed Kelly with Wells Fargo.

I wanted to dig in on Australia. I've heard you say a couple of things this morning around -- it sounds like a little bit of a comp headwind. You're going to be doing remodels. There's some transition costs. I'm not sure about the gross margin opportunity.

But when you put all this together for a business that, I don't know, maybe it was a small loss in fiscal '26. Does the loss in this business grow to a range of sort of $30 million to $40 million in EBIT?

I'm just kind of curious if you could help us frame that because it does look like maybe could matter from an earnings perspective.

Sure. So let's take it piece by piece. As we think about the potential impact to fiscal year '27. So first point is the business on a stand-alone basis, so without transformation from Dollarama, you look at last year on a full year basis, what had a loss of AUD 10.6 million. So you need to start from that base to which when you look at the 3 pillars that we've laid out in our investor presentation, there are incremental integration costs.

So we talk about $35 million to $45 million that you would need to factor in. Then you move to -- and I'm moving from third bucket and coming to the first, but the second bucket is a lot about CapEx. So we provide some color in terms of store renovations and new stores.

There is a small P&L impact for the period during which we're going to close a source for the renovation. So we would need to factor that potentially a little bit of DNA. And then the first bucket is really the most uncertain. So this is about transitioning the products, and we talked about all the factors.

But this one, as you might appreciate, we barely have a Dollarama product in the country. And so to start guessing the impact of the transition is a little dangerous at this point. But certainly, once we get greater clarity there, we'll be happy to share with you. But that's how I would think about framing the net income loss for this year.

Our next question comes from the line of Mark Carden with UBS.

I wanted to touch quickly on the competitive backdrop. Are you guys seeing any shifts in intensity, particularly from some of the mass merchants? And then population growth has also pulled in meaningfully any shifts in how you approach unit growth placement going forward in same-store sales, just given the change in dynamics there?

No. I think the market in Canada is quite stable. Competition remained stable. There's no real new entrants to talk about. Overall, I would say it's business as usual in Canada.

Our next question comes from the line of Martin Landry with Stifel.

I would like to touch on your same-store sales guidance for fiscal '27. I would like to know a little bit what assumptions you've used in terms of traffic and basket size? And also if you can talk a little bit about price increases quantify maybe what you've done in terms of price increases in '26? And what's implied in your guidance for '27?

Yes. Taking from a high level, the 3% to 4%, if you recall, it's the same guidance as we provided last year. And so to an earlier comment, when we think about the economic and demand side, it's a very similar setup than what we have seen last year. The slight nuance perhaps compared to last year is towards the end of fiscal '26. We started seeing some price increases from the domestic side, which will trickle into fiscal '27.

So there's a little bit of an uplift when we think about the beginning of fiscal '27 but other than that, we expect a context that is very similar to this year. So the last year, sorry. I mean certainly, as we start the year, there's a lot happening out there and a lot of unknowns. And so we think it's prudent to start with the same guide as we've had last year at 3% to 4%.

Our next question comes from the line of Zhihan Ma with Bernstein.

I wanted to circle back on the Australia side. I think initially, you were kind of saying that it probably takes 3 to 4 years in that range to turn profitable in Australia. I'm wondering if that's still the right time line to think about it? And I'm assuming that probably means you'll have enough time to convert all the merchandising in stores, but probably not remodel the stores.

How should we think about what does it take to turn profitable on the ground?

Yes. Thanks for the question. So consistent with what we said in the past, this is a multiyear transformation, i.e., 4 years. And what the 4 years takes into account is think of the conversions being an important part of this transformation. So 400 stores, going at an average clip of 100 per year, that takes 4 years. So for us to say the transformation is complete.

We need to make sure that we're well advanced, if not completed on the conversion side. And one is, hopefully, what we'll see in 4 years is that we'll have our stores converted and a strong assortment of Dollarama SKUs in the stores. And so yes, we remain consistent with that 4-year time line.

Our next question comes from the line of Luke Hannan with Canaccord Genuity.

Patrick, you touched on the first bucket as it relates to the Australian business transformation as being the most important and talked about refreshing the assortment through the balance of this year. Just curious to know how did you target that initial cohort of SKUs that you're looking to swap out and put in your own? Are they concentrated within any particular price points or category as we think about your assortment?

So the initial study was on, of course, Dollarama's strongest SKUs, taking into account, of course, the SKUs that are transferable to Australia since they have different compliance rules different standards and different products, different voltages in their electricity grids, different sizing in their note pads that they follow a U.K. standard on things in the stationary lines.

So barring the exceptions that are different between Canada and Australia. The balance of the items we started with a focus on compliance first and foremost, the items that we were able to do compliance quickly on because the Australian compliance centers are entirely different from Canada.

So an entire compliance study has to be done on every single SKU that goes into the country. But the goal is to get all dollar and the SKUs into Australia within the next 2 years or so. The priority started with our best SKUs and the most transferable SKUs.

Our next question comes from the line of Corey Tarlowe with Jefferies.

Great. Patrick, you made a comment that around a $10 million loss from Australia and then, I think, building to like $35 million to $45 million as an investment or starting point I think that's like $0.15 to $0.25. Can you just clarify kind of the glide path on that and on the investments, I just wanted to double click on that.

Yes. Sorry. Part of your question I cut off. But yes, you're starting from that $10 million base just as the business operating as normal. And then you would add on top of that $35 million to $45 million of incremental integration cost. And then I also talked about the 2 other buckets, the impact of the store opening.

So there is some incremental P&L impact there, but that's mostly CapEx. And then you would need to factor in something. We're guiding that it will lead to a net loss in sales. So that would have an impact on your bottom line but you would need to add all those pieces.

And so all of that transformation, especially when you think about integration costs, have started as we kicked off the new year, and the team is working very hard to transform the business, but also as a necessary condition are also incurring incremental costs.

And I just wanted to add that clearly, the Dollarama team feels strongly that in the long term, this is a very exciting project and that bringing value to the Australian consumer has merit, both for the consumer and for our shareholders. So while this is a 4-year project, once you've established a low-cost retail platform in Australia with -- by that point, over 500, 600 stores, we feel very confident that being the 800-pound gorilla in the market will play very well for our shareholders.

Thank you. And I'm showing no further questions at this time. This does conclude today's call. Thank you all for your participation. You may now disconnect.

Good morning, and welcome to Dollarama's Third Quarter Fiscal 2026 Results Conference Call. On today's call are Neil Rossy, President and CEO; and Patrick Bui, CFO. They will begin with brief remarks followed by Q&A with financial analysts.

Before we begin, please note that today's remarks may contain forward-looking statements about Dollarama's current and future plans, expectations, intentions, results or any other future events or developments. Forward-looking statements are based on information currently available to management and on reasonable estimates and assumptions made by management. Many factors could cause actual results, future events or developments to differ materially from those expressed or implied. You are cautioned not to place undue reliance on these forward-looking statements.

Forward-looking statements represent management's expectations as at December 11, 2025, except as may be required by law. Dollarama has no intention and undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You are invited to consult the cautionary statement on forward-looking statements in Dollarama's management's discussion and analysis dated December 11, 2025. All forward-looking statements on today's call are expressly qualified by this cautionary statement.

In addition, Dollarama may refer to certain non-GAAP and other financial measures during the call. Please consult the non-GAAP and other financial measures section of Dollarama's MD&A dated December 11. For definitions, reconciliation with appropriate GAAP measures and other information. The quarterly disclosure documents related to this call are available in the Investor Relations section of dollarama.com and on SEDAR+.

I will now turn the call over to Neil Rossy.

Thank you, operator, and good morning, everyone. For the third quarter, we delivered a strong top line performance and double-digit earnings growth, including a nearly 20% increase in EPS. In an economic environment that has remained unpredictable, our business model has continued to prove its enduring relevance and resilience.

Starting in Canada. We generated 6% same-store sales growth with sustained demand for consumables and higher seasonal product sales, thanks to the full Halloween shopping period falling within the quarter. We saw strong store traffic trends and contributions from our full product mix, demonstrating once again that Dollarama is a reliable and sought-after destination across product categories. Amid economic uncertainty, the certainty of our low prices and year-round value keeps bringing consumers back. We are always working hard to hold on pricing for our customers and to be a price follower. In Q3, we continued to leverage our agility and expertise as buyers to limit price increases across our product offering.

Retail increases on domestic brand names were unavoidable this quarter due to higher domestic supplier costs, but they did not impact our relative value. On the real estate front, we opened 19 net new stores in Q3, bringing our total number of stores in Canada to 1,684 locations. With 68 net new store openings in the first 9 months of fiscal 2026, we have already opened more stores than typically do in a year. We are on track to achieve our exceptionally higher target of between 70 to 80 net new stores for the full fiscal year. The development of our future Western Logistics Hub north of Calgary also continues to progress. Construction is underway since the fall, and the project remains on budget and on time.

Turning now to Latin America, where we continue to demonstrate the portability of our business model. Dollarcity delivered strong financial results for its third quarter and opened another 25 net new locations. This brought the total dollar store count to 683 at the end of September. Since then, we have been busy opening several more stores, including our 700th location in Latin America last month. With 5 countries of operation and a strong presence in 4 of those countries, the Dollarcity team deserves recognition for reaching this latest milestone and for their outstanding execution.

Dollarcity's 700th store was also our fifth location in Mexico with just a handful of stores concentrated in the Guadalajara area, it is still early days. However, we are pleased with how our market entry is progressing and look forward to opening many more stores by year-end. We continue to see meaningful long-term potential in this new market by applying the disciplined playbook that has worked across our 4 current LatAm countries of operation.

In Australia, we have begun laying the groundwork for the Reject Shop's multiyear transformation. On the merchandising front, updating the product offering is a deliberately thorough undertaking, which requires planning on the procurement, logistics and inbound shipping side. The process of reviewing all SKUs takes time because of the volume and related complexities as well as the initial legwork involved on the compliance side. It's also the most important aspect of this transformation in terms of delivering our value proposition to the Australian consumer. We continue to be on plan to have select Dollarama SKUs starting to hit shelves next year with penetration gradually increasing throughout fiscal 2027 and fiscal 2028. One stores better reflect the Dollarama value proposition, we will start putting our name on the outside of the store.

On the store format front, we have begun introducing the Dollarama layout through the store renovations and new store openings. Renovating an existing store entails rehauling the floor plan, new fixtures, racking, lighting, et cetera. We have renovated 4 stores since the beginning of the year, and we expect to ramp up in fiscal 2027 as we fine-tune the process and to renovate all existing stores over a 4-year period. Going forward, new stores will have the Dollarama fixtures and layout, which enables more SKU density among other improvements. This will be very impactful once we are further along with the Dollarama merchandise rollout.

As we work through these more customer-facing aspects of the transformation, we are also actively working on optimizing our IT infrastructure, store processes and logistics operations. While we are only at the beginning of this journey, I am motivated by the strong alignment with across the business and by the local team's drive to get things rolling.

To summarize, in Canada, we remain cautiously optimistic as we head into Q4 and mindful of the continued economic uncertainty that has been impacting consumer behavior. In Latin America, we look forward to tapping into more growth and gradually ramping up expansion in Mexico. And in Australia, it's all hands on deck to transform the business ahead of deploying our value proposition over the coming years. Across our complementary growth platforms from leadership to the shop floor, everyone is focused on execution.

With that, I'll pass it over to Patrick.

Thank you, Neil, and good morning, everyone. In Q3, total sales increased more than 22% to over $1.9 billion. The year-over-year increase was driven by sales from our Australian segment as well as an increase in Canadian same-store sales and store network growth. 6% SSS in Canada consisted of a 4.1% increase in transactions and a 1.9% increase in basket size. SSS was boosted by all Halloween sales days falling in the quarter. This is due to the retail calendar shift as we lap a 53-week year with 4 of those days falling in the fourth quarter last year.

Heading into the second half of the year, our outlook on SSS in Canada was cautious due to consumer fragility and fluctuations in discretionary spending through the first half. However, given our year-to-date performance, including stronger-than-expected Q3 results, we are increasing our full year SSS guidance from between 3% and 4% to between 4.2% and 4.7%. This upward revision factors in our expectations for Q4 with the negative impact of the calendar shift and assuming a positive response to our holiday offering from a still pressured consumer. Gross margin increased to 45.8% for the Canadian segment in Q3 compared to 44.7% last year, thanks to a more favorable sales mix with higher sales of seasonal products and lower logistics costs.

As a result, we are increasing our fiscal 2026 guidance range for this segment's gross margin from between 44.2% and 45.2% of sales, to between 45% and 45.5%. Factoring in Australia's lower margin, consolidated gross margin came in at 44.8% of sales for Q3. SG&A for the Canadian segment came in at 14.2% compared to 14.3% last year. The increase reflects the positive impact of scaling. Full year guidance on this metric remains unchanged of between 14.2% and 14.7% of sales. Consolidated SG&A was 15.4% of sales in Q3, an increase primarily driven by additional SG&A from the Australian segment.

Turning to Dollarcity, our 60.1% share of their net earnings amounted to $42.4 million in Q3, representing a 56.5% increase over last year. The increase is driven by higher sales both from SSS and store network growth and margin expansion, partially offset by higher SG&A related to Mexico. During the quarter, we made a second capital contribution of USD 18 million towards Mexico expansion plans. Again, a portion of our share of the latest Dollarcity dividend was used as a funding source. Next year, we expect to maintain the pace of 2 dividends a year, each followed by a Mexico capital contribution.

Based on the strong performance of our Canadian segment, including Dollarcity's equity contribution, EBITDA increased by 20.1% to $612 million. Net earnings increased by 16.6% to $321.7 million, and diluted EPS grew 19.4% to $1.17. The Australian segment had a negative $0.03 impact on EPS. Regarding Australia, Q3 is usually a soft quarter due to seasonality, while Q4 is historically the strongest with summer and Christmas occurring at the same time. This should balance out their results through the second half of the year. While immaterial, we expect TRS to have a neutral to slightly negative impact on earnings in fiscal 2026. The Australian business represents a long-term investment and it will be built over the next 4 years.

In this context, it is important to keep in mind that the Australian segment's results will not reflect the performance of our business model in this market, not until our value proposition is meaningfully deployed which will only occur once we have made significant progress on key aspects of the transformation. Near-term results will instead reflect the investments required to deploy our value proposition in Australia. As we work on implementing the major changes Neil spoke to, we expect fiscal 2027 to be a heavy investment and transition year for the business. As a result, we do not expect the Australian segment to have a positive impact on our overall profitability in the near term, including fiscal 2027.

Turning to capital allocation. We were active on the share buyback in Q3 with the repurchase of over 2.6 million shares for cancellation for a total cash consideration of $884.6 million. We also announced today that the Board approved a quarterly cash dividend of $0.1058 per share. You will also note that we lowered our CapEx guidance for fiscal 2026 to a range of between $240 million and $285 million. This simply reflects a shift in timing of certain expenses related to the Western Logistics Hub into next year. Clearly, the everyday value and convenience Dollarama offers continues to resonate. In a challenging economic environment and at a time of softer consumer confidence, Canadians from coast to coast are consistently seeking out our value proposition.

We also continue to see similar trends in Latin America. These results only strengthen our results and commitment to our growth plans and to delivering reliable value in what remains an uncertain context. Across the business, we will continue to deploy capital with discipline and always with the aim of creating long-term value for all stakeholders. With that, I'll now turn the call back to the operator for the Q&A.

[Operator Instructions] Our first question is from Irene Nattel of RBC Capital Markets.

Listening to the commentary, it sounds as though you're seeing a better consumer shop across the store. I didn't hear as much around sort of weakness in seasonal as we have in certain other quarters. So can you talk about what you're seeing and whether -- how we're trending quarter 4 to date?

Yes. I mean in terms of context, I think it's really the same as last quarter, really more of the same. We continue to serve a fragile consumer and what seems to be an uncertain macro backdrop. And in that context, consumers focus on essentials and on value. What that means on our side is consumable assortment continues to perform. But you're also right in pointing out that one change this quarter is that our seasonal assortment improved and was positive this quarter. So as of now, we expect that will hopefully continue into Q4. But like all things, we're not immune of trends shifting either.

Our next question comes from the line of Brian Morrison with TD Cowen.

Patrick, it looks like you have a second capital call already for Mexico. Store openings are starting to accelerate. I think you said you already have more capital plan to allocate there for next year. Can you maybe just tell us how you're allocating capital? Is it new stores only? Does it include any warehousing? And how has the initial performance been trending ahead of these expectations with the first few stores, realizing it's early days?

Yes. So just to comment on the second part of the question. It's -- we agree, it's still very early days. Our first store only opened at the end of June. We have 9 stores now as of today. And as Neil commented, we're encouraged by the initial customer response. As for the first part, and apologies, I think the line wasn't very clear, but the business is still in a ramp-up phase and requires capital for new store openings and really setting up the business. And as we think about next year, we're still in that ramp-up phase. I mean, the business is not at scale to absorb fixed costs that we're committing in the country. And that would lead to more of the same as this year, meaning losses. We're not expecting the business to be breakeven next year and further capital investments.

Our next question comes from the line of Chris Li with Desjardins.

Maybe a question on Dollarcity and LatAm. As you mentioned, continues to be very strong. I know you've already provided some colors on the drivers. But I was wondering if you can provide just a bit more details on some of those drivers. And then when do you think you'll be in a position to update us on what the long-term store potential target is for LatAm?

Thank you, Chris. Look, I mean when we think about the LatAm business, you see the top line performance, right? It's a -- when you contrast that to Canada, it's a business that continues to grow very quickly with respect to units. It's opening at a higher pace compared to a smaller base. So you have that increase on the top line. And SSS, just like in Canada, it's the same trends. It's the same consumer trends and SSS remains healthy. But the thing to keep in mind is, given the size of the business, it still benefits from substantial scaling. So when you look at your fixed costs that are included in your gross margins, your fixed costs and your SG&A, those costs are amortized on bigger and greater sales numbers. So that's how you go from a high sales business on the top line to a business that is capable of scaling the net income.

Our next question comes from the line of Etienne Ricard with BMO Capital Markets.

So to circle back on Mexico, you've been opening more stores recently. If we look at your prior experience in other Latin American markets, at what store count level do you gain the confidence that your business model is working and that the brand is resonating with consumers? And as a follow-up, when could we expect Dollarcity to expand in other Mexican states?

Look, I mean, it's not a -- it's hard to pinpoint an exact number, right? We've opened already 9 stores. And as we increase the store count, I mean, you would suspect that the level of confidence will increase in time. And like we commented, I think at this point, what we're seeing today is quite encouraging, and we see the initial reception of the Mexican consumer. And hopefully, that will continue in time.

Our next question comes from the line of Vishal Shreedhar with National Bank.

With respect to traffic, continued strong numbers. I was hoping to get your perspective on the traffic growth that you're posting in the context of the ongoing real estate growth and slowing population growth in Canada. Is it something that you're doing? Is it competitors? Is it the backdrop of consumers? Perspective there would be useful.

Yes. You're correct in pointing out that what we hear and understand from a macro perspective, slower population growth is, in theory, a headwind. But if we look at the patterns at our business, I mean, traffic remains healthy. And in the context, as we commented on, of budgets being stretched and people seeking value in essentials. We're clearly hitting the mark and people seem to appreciate that value and continuing coming to our stores. So I would say despite this headwind, I think we're doing pretty well in the retail space.

Our next question comes from the line of John Zamparo with Scotiabank.

My question is on gross margin. And I think, Neil, you had mentioned higher domestic costs on a procurement basis. I wonder what you're seeing on cost of goods based out of China because we continue to see negative PPI from that country. So I'm hoping you could add some color on cost increases that you're seeing in your general merchandise and seasonal categories.

So China has been relatively soft for the last, I would say, 6 months or so and favorable for importers. That's leveled off, we feel. And right now, it's pretty much stable. No decreases, not really many increases. But we do continue to see aggressive -- I wouldn't go so far as to say overly aggressive, but certainly, domestic producers are being very, very comfortable asking for price increases when we're not seeing the input costs going up on a lot of the products that those prices and increases are being asked for.

So I think domestic corporate North America is definitely pushing on costs, and that's something that is a retailer, when we don't see a proportionate increase in the input cost, it's very hard to keep up with why they're doing this other than wanting to make more profits. So what our job is to make sure that our relative value on those domestic products remains ultra-competitive. For the imports, it's much clearer because it's all based on input costs and nothing more than that, not a strategy to make more money per se. And so it's much easier to control and much easier to forecast months out. And so for now, it's fairly stable on the import side.

Our next question comes from the line of Mark Carden with UBS.

Another one on the gross margin. Just with respect to logistics tailwinds, they still seem to be a positive even with the tougher compares. How should we think about how that could play out over the course of the next few quarters? Are you finding incremental room for improvement on that this front? Just what are you seeing there?

Yes. And just to clarify what we meant by lower logistics costs. I mean we're seeing strong productivity gains in our logistics network. We're seeing good stability in the logistics chain, whether shipping port, rail, truck, and that essentially negates friction costs. So that's what we're seeing. And certainly, higher SSS is also very helpful in scaling gross margins. Now you're asking about the future. We hope we'll be able to continue in that direction. But especially as we approach or enter really or we're in the middle of winter, sometimes there's unforeseen events. And that's just the normal course of our business, and there's friction costs that happened in that context.

So I think what we've achieved in terms of gross margin this quarter is a really, really high bar, and we're very pleased with the results. But something to note is as we think about Q4 and if you look sequentially versus last year, last year, we also benefited from that 53rd week. So that was helpful in scaling gross margins, and that's not something that we will have as a positive in this Q4.

Our next question comes from the line of Ed Kelly with Wells Fargo.

I wanted to ask you because you talked about pricing. Could you give a little bit of commentary on terms of what's been happening with your average unit price and the benefit you're seeing there? And then on $4.55 and higher price point, I'm curious because your traffic has been remarkably strong. Do you think that moving into that higher price point is helping traffic, meaning you're able to add items that maybe you couldn't sell previously? And then it's been a few years since you've launched that price point. I'm kind of curious as to where you are in maximizing that at this point.

That's a multilayered question, if I remember all the bits and pieces. Look, I mean, as we commented in the past, moving up price points could be incrementally helpful in certain categories and being deeper in those categories. And we think there's a lot of room still to grow within the $5 price point. And there's no need at the current time and no reason for us to change that strategy as we speak. Now to the first part of your question, on the back of strong inflation from suppliers and pushing costs or attempting to push costs, that certainly puts added pressure on the unit costs. But overall, when you look at our results and you look at the relative value we deliver in the stores, I think we are able to fare fine in that context.

Our next question comes from the line of Martin Landry with Stifel.

I want to touch on your guidance for comparable same-store sales. Year-to-date, I believe you've done -- you've grown your comparable sales at the pace of 5.3%. You're guiding for full year of 4.2% to 4.7%. So you do expect a little bit of a deceleration in Q4. You have pointed out and called out that there's a calendar shift. And I was wondering what's the -- if you can quantify the headwind from the calendar shift that you expect?

Yes. Thanks for the question. And I think it's important to clarify. So we are expecting a material deceleration in SSS in Q4. But if this was evident yet, it has nothing to do with our views on the consumer environment or the macro context that is changing or we hope that it continues staying the same. The material deceleration is really just mechanical from a calendar perspective. It's really just that. So these 52 over 53 happens once in a while. And the last time it happened, it was in fiscal 2020 over fiscal 2019.

And if you have a look at what was discussed back then, we were talking about a deceleration just on the mechanics of the calendar of about 180 basis points. So there's the impact of Halloween, but there's also the impact of replacing those Halloween days with days at the end of January, which are typically low sales days. So there's that double impact. So that 180 that we encountered 5 years ago or so is something to be expected this year as well.

Our next question comes from the line of Luke Hannan with Canaccord Genuity.

I wanted to follow up on the Australia build-out. I think it was referenced that you don't expect the segment to have a positive impact to profitability for fiscal '27. But just a clarification on that. Does that mean also you'd expect it to be, I guess, neutral or maybe slightly negative to EPS in fiscal '27? Or how should we think about that?

Yes. Thanks for the question. I think it's a little too early to comment on that. I think we are in the middle of our planning work as expected, and we're doing everything very, very diligently. And once we have -- we feel more comfortable with the plan, we'll be happy to provide more color around that.

Our next question comes from the line of Corey Tarlowe with Jefferies.

I have 2 questions. The first one is on consumer behavior. So you had transaction growth was up 4%, basket was up about 2%. I'm just wondering, are you seeing any shifts in purchasing patterns, whether it's trade down or increased frequency that caused you to think differently or influence your merchandising strategy? And if so, what are those changes? And then secondarily, just on the gross margin, performance and the outlook, can you talk about if there are any changes in the merchandising strategy or mix shifts that are unlocking perhaps the upward revision to the guide despite persistent supply chain pressures, it would just be good to get some color there.

Yes. Thanks, Corey. I mean I think the one word you need to keep in mind is consistency, right? And it means consistency of what we're seeing with respect to our merchandising strategy. So if you look over time, it has been the same recipe. And gladly, that is well received on the consumer side. Now when you look at the pattern,of our SSS broken down by traffic and basket, it's -- I'd say it's more of the same, and we're pleased with the traffic numbers, but traffic has been fairly robust, if you look at the past few quarters. So we just think that it's a continuation of that and a clear indicator of good receptivity of consumers to our consistent and relative value merchandising strategy.

Our next question comes from the line of Zhihan Ma with Bernstein Institutional Services, LLC.

Just a follow-up on the Australian side of things. I'm wondering if you can shed some color on the early results based on any sales lift, the pace of conversion versus your expectations? And a quick clarification on the gross margin point. I think you were saying that Q4 is going to be higher than Q3. Is it fair for us to use their historical second half of the year, take what they have done in Q3 and derive what Q4 is going to be?

Yes. On the second part of your question, I think one might suspect that gross margins will be better in Q4 because just like in Canada, you're having more seasonal sales. So there is an improvement. But that being said, gross margins from year-to-year fluctuate depending on the context. So last year is not necessarily a perfect guide. But directionally, it will give you the sense that Q4 could be because of the seasonality, could be stronger than Q3.

In terms of the store renovations, look, I mean it's very, very early days. There was 4 conversions. And to clarify why we do these renovations is really having the fixtures and the layout as per Dollarama, and that gives us the opportunity to having greater SKU density in the stores, which should lead to higher sales even if you continue selling the same merchandise. So just having more density could lead to more sales. So again, early days, but we're hopeful that, that strategy will play out in the Australia market as well.

Thank you. As there are no further questions at this time, this will conclude today's call. Thank you all for your participation. You may now disconnect.

Good morning, and welcome to Dollarama's Second Quarter Fiscal 2026 Results Conference Call. On today's call are Neil Rossy, President and CEO; and Patrick Bui, CFO. They will begin with brief remarks followed by a Q&A with financial analysts.

Before we begin, please note that today's remarks may contain forward-looking statements about Dollarama's current future -- current and future plans, expectations, intentions, results, or any other future events or developments. Forward-looking statements are based on information currently available to management and on reasonable estimates and assumptions made by management. Many factors could cause actual results, future events or developments to differ materially from those expressed or implied. You are cautioned not to place undue reliance on these forward-looking statements.

Forward-looking statements represent management's expectations as at August 27, 2025, except as may be 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. You are invited to consult the cautionary statement on forward-looking statements in Dollarama's management's discussion and analysis dated August 27, 2025. All forward-looking statements on today's call are expressly qualified by this cautionary statement.

In addition, Dollarama may refer to certain non-GAAP and other financial measures during the call. Please consult the non-GAAP and other financial measures section of Dollarama's MD&A dated August 27, 2025, for definitions, reconciliations with appropriate GAAP measures and other formation. The quarterly disclosure documents related to this call are available in the Investor Relations section of dollarama.com and on SEDAR+.

I will now turn the call over to Neil Rossy.

Thank you, operator, and good morning, everyone. In the second quarter of fiscal 2026, Dollarama delivered strong financial results and achieved several international milestones.

Let me start with international expansion. In the middle of the quarter, we celebrated the opening of Dollarcity's first store in Mexico, a large and high potential market. Later in the quarter, we completed our acquisition of Australia's largest discount retailer welcoming the local management team and 5,000 new colleagues. While vastly different in approach, both market entries are the culmination of strategic objectives that have long been in motion. They represent two additional complementary growth platforms, which only strengthen and diversify our long-term strategy. They also broadened the strength of our team with a greenfield entry into a huge market and our first transformation of a large existing business. This is all made possible by our successful core Canadian business, which serves as the foundation that fuels our broader ambitions.

Let's now look at our performance in Canada. We generated healthy same-store sales, both in the quarter and since the beginning of the year. This reflects the underlying strength of our business model, the relevance of our value proposition for Canadian consumers and the team's impeccable execution. Consumables were once again a driver behind our sales with general merchandise and seasonal remaining stable. This speaks to the appeal of our overall assortment at any given time of year.

It also shows that Dollarama continues to cement its place in the regular shopping habits of Canadians, whether for everyday essentials or discretionary goods. To achieve this, we work incredibly hard day in, day out to offer products at compelling value by maintaining our pricing when possible for our customers in this volatile trade environment. We will stay the course in our efforts, relying on our agility and expertise as buyers to maintain our relative value in the market to the benefit of consumers.

On the real estate front, we opened 27 net new stores in Q2, bringing the total number of net new stores year-to-date to 49. And our footprint in Canada to 1,665 locations. Halfway through the year, we are well on our way to achieving this fiscal year's target of between 70 to 80 net new store openings, which, as a reminder, is exceptionally higher than in previous years.

The development of our future Western logistics hub situated just north of Calgary, also continues to progress well. Site preparation activities began during the quarter with construction scheduled to start in September. We are pleased to be on plan and on budget at this stage of the project with the site expected to be operational by the end of 2027.

Turning now to Dollarcity, which generated another strong performance, both operationally and financially in the second quarter. The business is experiencing similar underlying trends as Canada in terms of customer appeal, reinforcing the relevance of our business model across geographies and demographics.

During the second quarter, Dollarcity continued to add stores at a healthy clip, opening 14 net new locations. This brings their total store count in all 5 countries of operation in Latin America to 658. That number includes our first Dollarcity in Mexico, located in Guadalajara, Jalisco. While it is still very early days, we are quite pleased and encouraged by the initial reception from customers. We look forward to opening several additional locations in Mexico by fiscal year-end.

Finally, I'd like to turn to Australia. Since closing the acquisition of TRS, priority #1 has been the onboarding of our new colleagues, sharing our vision for the future and mobilizing the right people and teams to kickstart a multiyear transformation journey. This work is being led by a strong local management team based in Melbourne, supported by a cross-functional integration office. The teams will be working on multiple fronts to thoughtfully deploy the Dollarama business model over the coming years. I'm pleased to say that the TRS team is ready and motivated and that this work has already begun.

On the merchandising front, we are now starting to selectively phase in Dollarama products across categories. This will be a gradual process, which will continue through to the end of fiscal 2027. Along the way, we will be simplifying the price point structure, including lowering the current pricing ceiling.

In parallel, our plan is to convert store layouts to deliver that convenient and consistent shopping experience we are recognized for, and which directly supports our merchandising strategy. Conversion projects are already underway, representing an important step towards laying the groundwork before we can rank ramp-up conversions in fiscal 2027 and over an approximately 3-year period.

The gradual phase-in of our merchandise and store format will introduce elements of the Dollarama brand to our stores in Australia. Once stores contain a critical mass of Dollarama products, we intend to bring them under the Dollarama banner. We will also leverage our operational excellence to level up IT infrastructure, store and logistics operations and processes. Work on all these fronts will allow us to get the most out of what is from a real estate standpoint, a high-quality existing store network across Australia.

As a reminder, we currently have 395 locations and our long-term target is to reach 700 stores in Australia by 2034. The goal of the transformation road map is to optimize the business and set it up for accelerated growth. Over the next 3 to 4 years, we will be implementing major changes across the business. We will proceed methodically, maintaining a slow and steady approach to ensure execution.

As this is a multiyear journey, we don't expect the business to materially contribute to our profitability until a few years down the road when the heavy lifting is behind us. As a team, we are very excited about these projects and the opportunities that lie ahead across our growth platforms in Canada and Latin America and now Australia to the benefit of all our stakeholders.

With that, I'll pass it over to Patrick.

Thank you, Neil, and good morning, everyone. Some housekeeping before we get into our second quarter performance, which includes 13 days of results from Australia. Following the TRS acquisition, we now have 2 reportable segments: the Canadian one, which continues to include our Canadian operations and equity investments in Dollarcity and now an Australian one to cover our newly minted Australian operations. This will allow for the tracking of our performance in Canada as before.

Note that we won't be providing guidance for the Australian segment for fiscal 2026 nor will we be disclosing SSS in Australia, since we are in the process of developing and implementing an extensive road map to transform the business. That said, we don't expect any bottom line contribution from the Australian segment for fiscal 2026, once integration costs are factored in. Our previously issued guidance for fiscal 2026 applies exclusively to our Canadian segment.

And with these clarifications, let's turn now to our second quarter results. In Q2, sales increased 10.3% compared with the same period last year, coming in at over $1.7 billion. This was primarily driven by 4.9% growth in same-store sales in Canada as well as additional revenue from a growing number of stores. As explained earlier, revenue also included contributions from the Australian segment for 13 days, amounting to $25.7 million.

Drilling down on same-store sales in Canada, these consisted of a 3.9% increase in the number of transactions and a 0.9% increase in average transaction size. Strong traffic and demand for consumables were the primary drivers behind this performance in an environment where consumers continue to seek value and to deploy discretionary spend carefully.

Our full year guidance for SSS in Canada remains unchanged at between 3% to 4%. However, given our strong performance through the first half of the year, we now expect to be in the upper end of that range. The Canadian consumer remains fragile and cautious on discretionary spending in a context of continued economic uncertainty. We are mindful that this may have an impact on SSS in the second half of the year, a period of historically strong seasonal sales.

Also, remember that we are lapping a 53-week year, which happens every 5 to 6 years and causes a shift in the days that fall into any given quarter. That impact will be felt in Q4, when we will be up against a quarter that included Halloween last year, whereas Halloween falls in Q3 this year. The last time that happened was in fiscal 2020.

Consolidated Q2 gross margin was 45.5% of sales in Q2 compared to 45.2% in Q2 last year. The improvement is primarily explained by lower logistics costs. We continue to expect some headwind pressure on margins through the second half of the year, namely from mix and higher shipping costs. We do, however, now anticipate ending up in the upper end of our annual gross margin guidance range for the Canadian segment of between 44.2% to 45.2% of sales.

SG&A represented 14% of sales in Q2 compared to 13.6% for Q2 of fiscal 2025. The increase versus last year is primarily driven by SG&A from the Australian segment, which had a 20 basis point impact. Labor costs are one of the structural differences between our Canadian and Australian segments as these are higher in Australia than in Canada.

SG&A in Q2 also included a 20 basis point impact related to a onetime transaction cost. Guidance expectation for fiscal 2026 SG&A for the Canadian segment remains unchanged at between 14.2% and 14.7% of sales. EBITDA was $588.5 million compared to $524.3 million in the second quarter of fiscal 2025. Q2 net earnings increased by 12.5% to $321.5 million, resulting in an increase in diluted EPS of 13.7% to $1.16.

The Australian segment had a slightly negative but immaterial impact on net earnings and diluted EPS in the quarter. With our now increasingly global operations, you'll see an uptick in our effective tax rate of roughly 100 basis points going forward. Following the TRS acquisition, we are now subject to Pillar Two and we operate in higher tax rate jurisdictions.

For Q2, the year-over-year increased to 27% from 25.1% in Q2 of last year, is also explained by a nonrecurring impact of $6.7 million related to a licensing agreement entered into with Dollarcity for the expansion of the business in Mexico. Dollarcity continues to deliver impressive earnings growth. Our 60.1% share of Dollarcity's net earnings amounted to $38.3 million this quarter, compared to $22.7 million in the second quarter last year.

The year-over-year increase is driven by strong same-store sales, a growing store network, gross margin expansion, an increased stake compared to last year. During the quarter, we used proceeds from our USD 37.6 million share of the Dollarcity dividend from December to make an initial capital contribution of USD 18 million for Mexico expansion plans.

And just after Q2 ended, the Dollarcity Board approved a second cash dividend of USD 62.5 million, an amount consistent with the previous dividend. Our share of that dividend again corresponds to USD 37.6 million and is expected to be received in the third quarter.

In Q2, we repurchased just over 932,000 shares for a total cash consideration of $174.8 million. We also announced today that the Board approved a quarterly cash dividend of $10.58 per share. We intend to continue prioritizing allocating cash to share buybacks to maximize shareholder value, subject to market conditions along with consistent quarterly dividend as part of our balanced capital allocation strategy. In terms of our debt structure, we completed a $600 million bond offering back in June, the proceeds will notably be used to repay the $250 million bond that comes due this fall.

In conclusion, we are pleased with the underlying trends driving our performance so far this year and with our capacity to unlock even more value for our shareholders as we expand internationally. We approached this while remaining mindful of the shifting macro environment and how consumers are adapting to it with a focus on delivering compelling value.

Our core Canadian business is strong, growing and profitable. And with our free cash flow generation and multiple complementary expansion platforms, we have valuable optionality to effectively deploy capital. Through sound capital deployment and disciplined execution across our platforms, we look forward to driving long-term growth and value creation for our shareholders.

With that, I'll now turn the call back to the operator for the Q&A.

[Operator Instructions] Our first question comes from the line of Irene Nattel with RBC Capital Markets.

Looking at your same-store sales performance year-to-date of 4.9% versus the guidance. So let's -- we can ignore -- or let's put aside for the moment, the low end of 3%, let's say, for the full year, 3.5% to 4% implies a deceleration in the back half of the year. Can you talk about what you're seeing in terms of consumer behavior? And why you're not sort of more optimistic, I guess, for lack of a better way of putting it.

Thanks for the question, Irene. During the first quarter, we've seen an inconsistent -- or we've seen inconsistent behavior from the consumer. I mean there were moments of resilience, but there were also moments of fragility. For example, if we look at our seasonal assortment, I mean, summer is not over, but the performance was essentially flat. And we expect this, if I could say, unpredictability to continue in the back half of the year. But you're correct in saying that with the performance we've had in the first half, we were comfortable or we're comfortable pointing towards the high end of our guidance.

Our next question is from Brian Morrison of TD Cowen.

I want to focus on TRS and maybe I appreciate the details in it's early days, but I want you to share with us how we should think about this transition? Should we think about it as the conversion of 100 stores per year? And then can you go into more detail on the merchandise transition? Should we think about it as the non-converted stores will also be housing Dollarama merchandise a combo of the two or maintain the TRS sourcing? Just maybe some details how we should think about that, please?

Good morning, Brian. So on the merchandising front, it will be a gradual phase-in. The merchants in Canada are working closely with our colleagues in Australia to phase in Dollarama's import merchandise and to revamp and rework the current domestic offering as well. It will take some time between now and fiscal -- end of fiscal 2027 to really start feeling more like you're walking into a Dollarama store is our expectation.

Conversions have begun in four stores. It will be a gradual phase-in, again over the next several years, each year, ramping up the number of store conversions that we're able to execute. As the team gets better as our bandwidth grows in the country and that expertise is on the ground. We also continue to work on the IT infrastructure and logistics, which have begun to ramp up. But it's early days, as you know, we're 13 days in. So that's about all the color we can share at this point in time.

Our next question is from Etienne Ricard of BMO Capital Markets.

To circle back on Dollarcity, so strong earnings growth with better gross margins, but higher SG&A. Looking forward, how should we think about operating leverage drivers between gross margin and SG&A. And I mean, in other words, how much more head count do you plan to adding as you continue to expand in new geographies?

Yes. I'd say at a high level, I mean, it's still a business that has a lot of scaling potential. And you can see that when you look at the top line growth trickling down to bottom line in coming with 60-plus earnings growth. When we highlighted higher labor costs, it's really a function of higher wages, higher minimum wage increase in those countries, which is still increasing at higher rates than, for example, if compared to Canada. But aside from that, we continue to expect leverage in every line item, whether in gross margins or in SG&A.

Our next question is from Vishal Shreedhar of NBC.

With respect to Australia, Neil, want to get your thoughts on what the biggest risks are? And as you contemplate implementing the Dollarama model, how should we think about transferring the culture of performance into what is a new venture for you guys with this acquisition?

I'm excited by the, I guess, similarity between the two teams and the leadership at what is now, I guess, Dollarama Australia and no longer TRS. They really have bought into what we're trying to achieve. And I think over the next few years, the culture will unify. And it's not -- it's something that we focus on, and we're excited by. But I think that the daily work processes and ambitions tend to just become the culture over the course of time. It's not like we're pulling out a manual and the cult -- the Dollarama cult manual where it's a daily sort of process, and I think the Dollarcity experiment for Dollarama in many, many, many years ago, has turned into an incredibly fantastic partnership and the Dollarcity culture is at one with the Dollarama culture.

And I think our goal is to do the very same thing in Australia. There's going to be ups and downs. And I'm sure as a business, we'll only get better as time goes on. I mean even in the early days at Dollarama, we'd go from guardrail to guardrail on any given topic or subject, but we always managed for the overall performance to work well for our shareholders. And I'm sure the same lessons that we learned along those paths will apply and help us not make those mistakes in Australia, but it's a new market with a whole bunch of new challenges. So we'll do the best we can to minimize any of the challenges that arise. But I think we have a great team and I'm quite excited about that business, but it will take time.

Our next question comes from the line of John Zamparo with Scotiabank.

I wanted to ask about the tax rates and in particular, Pillar Two. Can you provide some more color here? Is it fair to assume that's now a permanent feature? And any way you can quantify what that might mean for your tax rate moving forward.

Thanks for the question, John. So I would first say that we're now a global business, and it does come with additional tax complexities. And despite the tax efficiency of our structure, I would say that we are now subject to a higher effective tax rate of, call it, roughly 100 basis points. So we're operating in higher tax jurisdictions.

And as you pointed out, as a multinational, we're now subject to what is called Pillar Two. But I would also take the opportunity to highlight again that in the tax that you've seen this quarter, there is a nonrecurring impact of $6.7 million just for Q2, related to the granting of an IP license to Mexico, but that should not be assumed in future quarters. At the end of the day, it's just the cost of doing business as we execute on our ambitions to become a global retailer.

Our next question is from Mark Petrie of CIBC.

First, Neil, if you ever do put that cult of Dollarama manual into print, I'd love a copy. Maybe just to ask a question just about the supply chain. Obviously, the industry has had some time to adjust, although the new environment clearly remains uncertain. I'm just curious if you could provide some thoughts on kind of your takeaways for Dollarama from all of that and any risks or opportunities that you see as a result of these shifts?

I mean, look, it's -- as you know, it's quite volatile, right? Any political, any trade issues can easily destabilize the logistics chain. But we could only comment on what we've seen in Q2. And in Q2, it ran very smoothly. And that's one of the reasons why we were able to achieve a higher gross margin percentage. It was frictionless. There was no added costs in the chain.

But as you know, we remain vigilant at anything that is, I guess, thrown at the logistics chain and we looked at last year was a good example of strikes and bottlenecks at ports. But from what we've seen up to now in Q2, none of that has happened, but we need to remain vigilant.

Our next question is from Edward Kelly of Wells Fargo.

Nice quarter. I have a question for you on just Canadian consumer and behavior. Curious if you think you are getting any benefit from a buy sort of Canada approach by consumers over here, given the geopolitical backdrop. And then as it pertains to Walmart, Walmart has mentioned that they are ramping price and promotional activity in Canada. I'm curious if you've experienced that to date or any impact and what a more aggressive Walmart could mean going forward?

Sure. So I'll address the Walmart question. Walmart, Loblaws, everybody understands how competitive the environment is at this point in time with the instability and customers focused on consumables and their base needs. The landscape remains higher -- a higher level of competition than generally speaking. But that being said, we continue to stay focused on remaining the best value, relative value in the market.

We can only control our actions and not the actions of others. So our buying team's job is to stay on top of what market values are and stay ahead of the curve to be the best relative value in our convenient locations in a quicker, easier shop and I think our performance gives us confidence that we're executing on that promise.

Our next question comes from Martin Landry of Stifel.

I would like to touch on Mexico a little bit. I know it's early days, but just would like to hear what -- some color on the ramp-up of your first store, how does it compare to other stores you've ramped up in Latin America? How the customer responds. It's a new brand in Mexico that's unknown mostly by most of your consumers. So just a little color to help us understand how the opening has gone, it would be great.

Marty, you're right. It's really early days. Look, it's one store and it's only been a few weeks. So very, very hard to draw any trends or conclusions here. But from the limited amount of days that we've seen, I mean, it seems that it is well received by the Mexican consumer, and we're encouraged by that. But I will reiterate one store and only a few weeks. So can't draw any conclusions at this point.

Our next question is from Luke Hannan of Canaccord Genuity.

I wanted to follow up on the Canadian segment and specifically the comment that the consumables business was strong as it has been in past quarters, but it sounds like also seasonal products and general merchandise were relatively stable as well. So I mean can you just frame that up for us? It seems like that's a continuation of what happened during Q1 as well?

And I mean, is there anything that we can necessarily infer from that? Is the overall Canadian consumer in a place of stability despite the sentiment? It seems to be depressed. Just maybe a little bit more detail on that.

Yes. I mean really, what we're seeing in Q2 is a continuation of Q1 and prior quarters. So consumables, continuing to perform well. The consumer is still seeking value and trying to remain within its budget and Dollarama is there for the consumer. And on the other side, when you look at seasonal sales and you go back a few quarters, it's anywhere between flat, slightly negative, slightly positive. And so when we look at our summer seasonal, it's really along the same trend. It's flat. I mean, summer is not over, but it's flat.

And so all we see is a continuation of that. But like I also, I think, mentioned in one of my first -- one of the first questions is there's some inconsistency in what we're seeing from the consumer. So at some moment, it seems resilient. And others, it seems fragile. So it's really hard at this point to draw any trends of the health of the Canadian consumer.

Our next question is from Mark Carden of UBS.

So just in terms of sourcing with some more clarity coming into play on U.S. tariffs and global products, are you seeing any incremental shifts on the sourcing front? Any particular opportunities to boost sourcing from any given geographies?

Not really. We expected this tariff discussion to be relatively short-lived, like we were hoping 2 years or less. And while we've looked at other markets, you have to be realistic that the importation of goods from almost anywhere, but the U.S. is -- or Canada is a 3- to 6-month project.

And so while we've done our work on the few items that would be alternatives from the goods we buy from the U.S., it hasn't been a huge push because the majority of the goods that we buy from the U.S. are national brands, and those national brands can't be replaced with private label imports. It's just not the nature of those products.

So when you're talking about Pepsi and FritoLay and Nestlé and Hershey, it is what it is. But where we're talking about plastic molded items or other goods that were made in the U.S., those goods have been transferred to other countries because namely Canada, because the 25% tariff, of course, was highly prohibitive.

Our next question is from Corey Tarlowe of Jefferies.

Great. I was just curious on The Reject Shop acquisition. It does seem like there's a lot of exciting plans that you have ahead for the business. But if you were to bucket the initiatives that you have in terms of maybe like layups versus midrange jump shots or contested 3s or how do you think about what's kind of the lower-hanging fruit versus not. I would just be curious to get kind of your thoughts and as well around, I believe, Neil, you made a comment around the pricing changes that you're looking to make. How should we be thinking about the opportunity there versus what exists in that business today?

So Corey, I think we'd like to think of it as an overall game. So there's no focus on any particular shot. There's a focus on all the shots, all the plays, all the layups. So what we're doing because it's such a big undertaking as we're commencing the process in all parts of the business. Some will be easier and faster to execute and others a longer slog. But it all needs to get done. And so it's all commenced simultaneously.

And clearly, having the correct assortment is going to be the true driver of what differentiates us from the retail market or existing retail market in that country. And I would argue the retail market in all countries we're in. So a focus by the buying teams here and there on getting our assortment into the Australian market is my priority #1. But regardless of whether it's my priority #1, all the different pieces of the sort of conversion of the existing business into what we wish to see in the future have begun.

Thank you. This concludes the Q&A session. Thank you all for your participation. This does conclude today's call. You may now disconnect.