News Release - Dollarama

Dollarama announces strong third quarter results

MONTREAL, Dec. 5, 2013 /CNW Telbec/ - Dollarama Inc. (TSX: DOL) ("Dollarama" or the "Corporation") today reported an increase in sales and an improvement in net earnings for the third quarter ended November 3, 2013. The quarter was characterized by continued growth in the store network and solid comparable store sales growth.

Financial and Operating Highlights

(All comparative figures below and in the "Financial Results" section that follows are for the third quarter ended November 3, 2013 compared to the third quarter ended October 28, 2012. All financial information presented in this news release has been prepared in accordance with generally accepted accounting principles in Canada ("GAAP") as set out in the Handbook of the Canadian Institute of Chartered Accountants - Part 1 which incorporates International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. Throughout this news release, EBITDA, total debt and net debt, which are referred to as "non-GAAP measures", are used to provide a better understanding of the Corporation's financial results. For a full explanation of the Corporation's use of non-GAAP measures, please refer to footnote 1 of the "Selected Consolidated Financial Information" section of this news release.)

Throughout this news release, all references to "Fiscal 2013" are to the Corporation's fiscal year ended February 3, 2013 and to "Fiscal 2014" are to the Corporation's fiscal year ending February 2, 2014.

Compared to the third quarter of Fiscal 2013

Sales increased by 14.2% to $522.9 million;
Comparable store sales grew 4.8%;
Gross margin stood at 37.1% of sales, compared to 37.2% of sales;
EBITDA⁽¹⁾ grew 19.4% to $99.8 million, or 19.1% of sales;
Operating income grew 18.9% to $87.5 million, or 16.7% of sales; and
Diluted net earnings per share increased by 27.9%, from $0.68 to $0.87.

In addition, 86 net new stores were opened over the past 12 months, including 19 net new stores opened during the third quarter of Fiscal 2014.

"We are very satisfied with our continued growth in comparable store sales in the third quarter. The consistent growth and strength of our operating results are a testimony to the success of our merchandising strategy, the compelling value of our product offering and the dedication of our employees", stated Larry Rossy, Chairman and Chief Executive Officer of Dollarama.

Financial Results

Sales for the third quarter of Fiscal 2014 increased by 14.2% to $522.9 million from $458.0 million in the corresponding period of the prior fiscal year. The increase was driven by the growth in the number of stores over the past twelve months, from 761 stores on October 28, 2012 to 847 stores on November 3, 2013, and by continued organic sales growth driven by comparable store sales growth of 4.8% in the third quarter of Fiscal 2014, over and above comparable store sales growth of 6.6% in the third quarter of Fiscal 2013. Comparable store sales growth for the third quarter of Fiscal 2014 consisted of a 2.9% increase in average transaction size and a 1.9% increase in the number of transactions. In this quarter, 62% of our sales originated from products priced higher than $1.00 compared to 57% in the corresponding quarter last year. Debit card penetration also increased, as 41% of sales were paid with debit cards compared to 38% in the corresponding period of the previous fiscal year.

The gross margin stood at 37.1% of sales in the third quarter of Fiscal 2014, compared to 37.2% of sales in the third quarter of Fiscal 2013, mainly due to stable product margins slightly offset by additional occupancy costs. The acceleration of net new store openings over the past 12 months to 86 net new stores compared to 71 net new stores during the prior comparable period had a temporary cost impact of approximately 0.1 % on gross margin in the third quarter. This cost impact associated with the acceleration of net new store openings decreased steadily over the first three quarters of Fiscal 2014 and this acceleration is not expected to have a significant impact in the last quarter of Fiscal 2014.

General, administrative and store expenses ("SG&A expenses") for the third quarter of Fiscal 2014 decreased to 18.1% of sales, compared to 19.0% of sales in the corresponding period of Fiscal 2013. During the quarter, we continued to realize the benefit of several productivity initiatives implemented to date. Additionally, in the corresponding period of Fiscal 2013, the Corporation incurred a $3.1 million charge representing a payroll-related tax, more specifically a mandatory contribution to Quebec's Health Services Fund calculated based on the Corporation's aggregate salary pool, which was increased as a result of the exercise of a significant number of options by members of senior management. SG&Aexpenses in the third quarter of Fiscal 2014 stood at $94.5 million, an 8.5% increase over $87.0 million over the corresponding quarter of Fiscal 2013.

Net financing costs increased by $0.3 million, from $2.8 million for the third quarter of Fiscal 2013 to $3.1 million for the third quarter of Fiscal 2014. This increase is attributable to an increase in borrowings compared to the corresponding period of Fiscal 2013 which was largely associated with the Corporation's share buyback initiatives.

For the third quarter of Fiscal 2014, net earnings increased to $61.7 million, or $0.87 per diluted share, compared to $51.5 million, or $0.68 per diluted share, for the corresponding period of Fiscal 2013.

Dividend

On December 5, 2013, the Corporation's Board of Directors announced that it had approved a quarterly dividend for holders of its common shares of $0.14 per common share. The Corporation's quarterly dividend will be paid on February 5, 2014 to shareholders of record at the close of business on January 10, 2014 and is designated as an "eligible dividend" for Canadian tax purposes.

Normal Course Issuer Bid

Total common shares repurchased under the Corporation's normal course issuer bid (or "NCIB") during the third quarter ended November 3, 2013 amounted to 657,871 common shares for a total cash consideration of $49.6 million. Total common shares repurchased under the NCIB since June 17, 2013 amounted to 2,219,118 common shares, representing approximately 3.3% of the public float as at May 31, 2013, for a total cash consideration of $165.0 million. As at November 3, 2013, all common shares repurchased under the NCIB had been cancelled. Management anticipates that the repurchase of shares under the NCIB will be accretive to shareholder value over time.

About Dollarama

Dollarama is Canada's leading dollar store operator with 847 locations across the country. Our stores provide customers with compelling value in convenient locations, including metropolitan areas, mid-sized cities and small towns. Dollarama aims to provide customers with a consistent shopping experience, offering a broad assortment of everyday consumer products, general merchandise and seasonal items. Products are currently sold in individual or multiple units at select fixed price points up to $3.00.

Forward-Looking Statements

Certain statements in this news release about our current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statements. The words "may", "will", "would", "should", "could", "expects", "plans", "intends", "trends", "indications", "anticipates", "believes", "estimates", "predicts", "likely" or "potential" or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements. Specific forward-looking statements included in this news release include, but are not limited to, the potential accretive effect of the NCIB. Forward-looking statements are based on information currently available to us and on estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors, which are discussed in greater detail in the "Risks and Uncertainties" section of the Corporation's management's discussion and analysis (MD&A) for Fiscal 2013 and in its continuous disclosure filings (available on SEDAR at www.sedar.com): future increases in operating and merchandise costs, inability to sustain assortment and replenishment of our merchandise, increase in the cost or a disruption in the flow of imported goods, disruption of distribution infrastructure, inventory shrinkage, inability to renew store, warehouse, distribution center and head office leases on favourable terms, inability to increase our warehouse and distribution center capacity in a timely manner, seasonality, market acceptance of our private brands, failure to protect trademarks and other proprietary rights, foreign exchange rate fluctuations, potential losses associated with using derivative financial instruments, level of indebtedness and inability to generate sufficient cash to service our debt, interest rate risk associated with variable rate indebtedness, competition in the retail industry, current economic conditions, failure to attract and retain qualified employees, departure of senior executives, disruption in information technology systems, unsuccessful execution of our growth strategy, holding company structure, adverse weather, natural disasters and geo-political events, unexpected costs associated with our current insurance program, litigation, product liability claims and product recalls, and environmental and regulatory compliance.

These factors are not intended to represent a complete list of the factors that could affect us; however, they should be considered carefully. The purpose of the forward-looking statements is to provide the reader with a description of management's expectations regarding the Corporation's financial performance and may not be appropriate for other purposes; readers should not place undue reliance on forward-looking statements made herein. Furthermore, unless otherwise stated, the forward-looking statements contained in this news release are made as of December 5, 2013, and we have no intention and undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

Selected Consolidated Financial Information

	13-Week Periods Ended		39-Week Periods Ended
(dollars and shares in thousands, except per share amounts)	November 3, 2013	October 28, 2012	November 3, 2013	October 28, 2012
	$	$	$	$

Earnings Data
Sales	522,949	457,993	1,482,391	1,296,939
Cost of sales	328,714	287,428	940,196	819,444
Gross profit	194,235	170,565	542,195	477,495
SG&A expenses	94,459	87,021	270,476	241,429
Depreciation and amortization	12,271	9,961	34,790	28,478
Operating income	87,505	73,583	236,929	207,588
Net financing costs	3,074	2,794	7,684	8,145
Earnings before income taxes	84,431	70,789	229,245	199,443
Provision for income taxes	22,736	19,308	62,136	55,588
Net earnings	61,695	51,481	167,109	143,855

Basic net earnings per common share	$0.87	$0.70	$2.31	$1.95
Diluted net earnings per common share	$0.87	$0.68	$2.31	$1.90

Weighted average number of common shares outstanding during the period:
Basic	71,048	73,667	72,289	73,763
Diluted	71,209	75,525	72,454	75,699

Other Data
Year-over-year sales growth	14.2%	14.4%	14.3%	14.4%
Comparable store sales growth ⁽²⁾	4.8%	6.6%	5.0%	7.3%
Gross margin ⁽³⁾	37.1%	37.2%	36.6%	36.8%
SG&A as a % of sales ⁽³⁾	18.1%	19.0%	18.2%	18.6%
EBITDA ⁽¹⁾	99,776	83,544	271,719	236,066
Operating margin ⁽³⁾	16.7%	16.1%	16.0%	16.0%
Capital expenditures	24,604	20,054	74,556	52,483
Number of stores ⁽⁴⁾	847	761	847	761
Average store size (gross square feet) ⁽⁴⁾	9,915	9,932	9,915	9,932
Declared dividends per common share	$0.14	$0.11	$0.42	$0.33

			As at
			November 3, 2013	February 3, 2013
			$	$
Statement of Financial Position Data
Cash and cash equivalents			98,471	52,566
Merchandise inventories			366,182	338,385
Property and equipment			249,064	207,697
Total assets			1,567,731	1,453,692
Total debt ^{(1, 5)}			389,420	264,420
Net debt ^{(1, 6)}			290,949	211,854

⁽¹⁾	In this press release EBITDA, total debt and net debt are referred to as "non-GAAP measures". Non-GAAP measures are not generally accepted measures under GAAP and do not have a standardized meaning under GAAP. EBITDA represents operating income plus depreciation and amortization. Total debt and net debt are defined below. The non-GAAP measures, as calculated by the Corporation, may not be comparable to those of other issuers and should be considered as a supplement to, not a substitute for, or superior to, the comparable measures calculated in accordance with GAAP.

	We have included non-GAAP measures to provide investors with supplemental measures of our operating and financial performance. We believe that non-GAAP measures are important supplemental metrics of operating and financial performance because they eliminate items that have less bearing on our operating and financial performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on GAAP measures. We also believe that securities analysts, investors and other interested parties frequently use non-GAAP measures in the evaluation of issuers, many of which present non-GAAP measures when reporting their results. Our management also uses non-GAAP measures in order to facilitate operating and financial performance comparisons from period to period, to prepare annual budgets, and to assess our ability to meet our future debt service, capital expenditure and working capital requirements.

		13-Week Periods Ended		39-Week Periods Ended
(dollars in thousands)		November 3, 2013	October 28, 2012	November 3, 2013	October 28, 2012
		$	$	$	$
A reconciliation of operating income to EBITDA is included below:
Operating income		87,505	73,583	236,929	207,588
Add: Depreciation and amortization		12,271	9,961	34,790	28,478
EBITDA		99,776	83,544	271,719	236,066
	EBITDA margin ⁽³⁾	19.1%	18.2%	18.3%	18.2%

				As at
(dollars in thousands)				November 3, 2013	February 3, 2013
				$	$
A reconciliation of long-term debt to total debt is included below:

Long-term debt				221,395	262,071
Debt issue costs				2,025	2,349
Bank indebtedness				166,000	-
Total debt ⁽⁵⁾				389,420	264,420

A reconciliation of total debt to net debt is included below:

Total debt				389,420	264,420
Cash and cash equivalents				(98,471)	(52,566)
Net debt ⁽⁶⁾				290,949	211,854

⁽²⁾	Comparable store sales represents sales of stores, including relocated and expanded stores, open for at least 13 complete fiscal months relative to the same period in the prior year.
⁽³⁾	Gross margin represents gross profit divided by sales. SG&A as a % of sales represents SG&A Expenses divided by sales. Operating margin represents operating income divided by sales. EBITDA margin represents EBITDA divided by sales.
⁽⁴⁾	At the end of the period.
⁽⁵⁾	Total debt, a non-GAAP measure, is defined as the sum of long-term debt, debt issue costs and other bank indebtedness.
⁽⁶⁾	Net debt, a non-GAAP measure, is defined as total debt minus cash and cash equivalents.

SOURCE Dollarama Inc.