Dollarama Inc

TSX:DOL

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, and welcome to the Dollarama Fourth Quarter and Fiscal 2018 Results Conference Call. Neil Rossy, President and Chief Executive Officer; and Michael Ross, Chief Financial Officer, will make a short presentation, which will be followed by a question-and-answer period, open exclusively to financial analysts. The press release, financial statements and management's discussion and analysis are available at dollarama.com in the Investor Relations section as well as on SEDAR. Before we start, I have been asked by Dollarama to read the following message regarding forward-looking statements. Dollarama's remarks today may contain forward-looking statements about its current and future plans, expectations, intentions, results, levels of activity, performance, goals or achievements or any other future events or developments. Forward-looking statements are based on information currently available to management and on estimates and assumptions made based on factors that management believes are appropriate and reasonable in circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results, levels of activity, performance, achievements, future events or developments to differ materially from those expressed or implied by the forward-looking statements. As a result, Dollarama cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. For additional information on these assumptions and risks, please consult the cautionary statement regarding forward-looking information contained in Dollarama's MD&A dated March 29, 2018, available on SEDAR. Forward-looking statements represent management's expectations as of March 29, 2018, and expect -- and 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. I would like to turn the conference over to Neil Rossy.

[Neil Rossy, Chief Executive Officer, President and Director]

Thank you, operator, and good morning, everyone. Let's start with an overview of the key highlights and announcements from this morning. First, we reported solid financial results with an increase in sales, net earnings and earnings per share, both for the quarter and the full fiscal year 2018. We were particularly pleased with sales results given the strong comps over the last 2 years. Same-store sales in fiscal year 2018 increased by 5.2%, over and above SSS of 5.8% in FY '17 and SSS of 7.3% in FY '16. Second, we opened 65 net new stores in fiscal 2018, which was right on target. Our store network is now 1,160 stores and growing. Strong SSS and the success of new stores reflect the positive customer response to our offering and our compelling value proposition. They also reflect the strength of our business strategy and our ability to execute. Third, we announced that we will be expanding our existing distribution center in Montreal, Quebec, to address our growing distribution capacity needs. We will be increasing the size of the distribution center by about 50% to approximately 500,000 square feet. We have made the required property acquisitions to move forward with the project, with the purchase of 2 adjacent properties as well as the purchase by Dollarama of the existing distribution center, which was previously leased. As a result, Dollarama will own its distribution operations in their entirety. The expanded distribution center, scheduled for completion by the end of fiscal 2020 or by the end of calendar 2019, will provide the infrastructure to support our store network growth to the previously targeted stated 1,700-store count by 2027. We expect the existing distribution center to continue normal operations throughout the construction phase. Fourth, the board approved a 9% dividend increase to $0.12 per common share, justified by our healthy balance sheet and strong free cash flow. This is the seventh increase since the introduction of a dividend in 2011. Fifth, we are proposing a three-for-one share split, subject to shareholder approval at the AGM in June. The share split can improve liquidity, and make our shares more accessible to a broader range of investors, especially retail investors. If approved by shareholders, and precleared by the TSX, the share split will be effective on or about June 19, 2018. Finally, we announced the appointment of Steve Gunn as Chairman of the Board, effective following the AGM in June. He will succeed our founder, Larry Rossy, who will not stand for reelection as a director and will be named Chairman Emeritus. Kristin Mugford was also appointed as an Independent Director, effective today, bringing further depth to our board. Succession planning has been a priority of the board over the last several years. The objective has been to ensure a smooth transition and continuity of leadership in key roles held by our founder. With the appointment of our lead director since 2009 as the new Chairman, this transition will be complete, and we will be able to continue to count on Larry as a mentor and adviser for the management team and as a source of knowledge and insights for the board. On behalf of the management team, I would like to congratulate Steve and Kristin on their respective appointments. I would also like to express my sincere thanks and gratitude to Larry, who is an inspiration to all of us. We are pleased to be able to count on his continued support in his capacity as Chairman Emeritus. With that, I will now turn it over to Michael to discuss our financial and operational results in more detail.

[Michael Ross, Chief Financial Officer]

Okay. So thank you, Neil, and good morning, everyone. I would also like to extend my congratulations to Steve and Kristin. First, looking at the fourth quarter fiscal 2018, our strong financial performance was, once again, driven by continued improvements across all key metrics. Total sales -- sales were up 9.8% at $938.1 million. Same-store sales increased by 5.5% over and above the 5.8% increase reported in Q4 last year. Gross margin was very strong at 41.4% of sales, consistent with last year. G&A improved from 14.9% of sales last year to 14.4% of sales this year.EBITDA was up 12.2% at $253.8 million, representing 27.1% of sales. Net earnings stood at $162.8 million, an 11.5% improvement over the prior year. And finally, diluted earnings per share was up 17% to $1.45, also benefiting from the accretive effect of the share buyback program. Q4 2018 CapEx increased to $51.4 million from $37.5 million in Q4 last year. This increase is mainly attributable to the purchase of the 2 properties adjacent to our existing DC for $23.2 million as part of the distribution capacity expansion plans. We will get the fiscal -- to the fiscal 2019 CapEx impact in a moment. Looking now at the full year results for fiscal 2018. Sales increased by 10.2% to nearly $3.3 billion. Same-store sales was 5.2% over and above the 5.8% reported last year. We improved gross margin to 39.8% compared to 39.2% last year. G&A represented 14.5% of sales compared to 15.5% last year, reflecting the positive impact of store-labor productivity initiatives, the benefits of certain cost reduction initiatives at store level and the positive scaling impact of higher sales. EBITDA as a percentage of sales improved to 25.3% from 23.7% last year as a result of cost control initiatives as well as the positive scaling impact of strong top line growth. Finally, net earnings were up to 16.16% (sic) [16.9%] to $519.4 million, while EPS increased by 22.6% to $4.55 per share, reflecting improved earnings and the accretive effect of our share buyback program. For the full fiscal year, we repurchased 6.1 million shares for a total consideration of $812.7 million, at a weighted average share price of $133.12 per share. On February 1, we issued senior unsecured notes in the aggregate principal amount of $300 million, bearing interest at a floating rate of 3-month BAs plus 0.27%. The notes have a 3-year term and were given a rating of BBB with stable trend by DBRS. Net proceeds of the offering were used to repay variable rate indebtedness outstanding under our credit facility, which bears interest at a higher rate, and for general corporate purposes. Throughout fiscal 2018, we continued the rollout of technological initiatives to improve store productivity and reduce costs. We enhanced in-store mobile applications for tasks accomplished by store associates with handheld scanners, thereby improving the efficiency of store processes. We rolled out several initiatives to reduce inventory shrink. Examples include installation of smart cameras in several stores and improved data analytic tools to better help us identify and target risk areas. We are also currently rolling out a new cash management process in stores that will improve the efficiency of cash handling activities. Looking at the consumer facing side, we've been accepting credit cards nationwide since April 2017. After nearly 12 months, the addition of this new payment method is meeting our expectations, with incremental sales and related margins exceeding the incremental impact of credit card fees. We also continue to work on development of our e-commerce platform for bulk sales. This work is ongoing, and our objective remains to launch by the end of current calendar year. Now turning to the guidance for fiscal 2019. The outlook on 4 key metrics shared with the market in December 2017 remains unchanged. So our net new stores target is -- remains 60 to 70, consistent with last fiscal year. The gross margin range is 38% to 39%. Range for G&A as a percentage of sales is 15% to 15.5% and the EBITDA range is 22.5% to 24%. All of these guidance ranges are based on a number of assumptions, including the assumption that same-store sales will be in the range of 4% to 5%. Finally, looking at CapEx for fiscal 2019 and the DC expansion. Guidance for fiscal 2019 has been revised to a range of $150 million to $160 million, up from $110 million to $120 million, to reflect the purchase by Dollarama of its existing distribution center, which was previously leased. Capital expenditures will be revised again, once construction and related costs for the distribution center expansion are finalized. The corporation expects the majority of construction and related costs to be incurred fiscal 2019, with the balance to follow in 2020. With that, I will now turn the call back over to Neil.

[Neil Rossy, Chief Executive Officer, President and Director]

Thank you, Michael. As you can see, we are not resting on our laurels. We have a lot of exciting projects underway to the benefit of our customers and our shareholders. Since my appointment as CEO 2 years ago, I have come to appreciate, even more, the strength of our team and our ability to execute. It reflects both strong leadership across the ranks and a dedicated workforce. This includes our store employees from coast-to-coast, our head office, field management employees as well as our warehouse and distribution center staff. We are all working together to achieve our collective business objectives. I want to recognize the dedication and the job well done, the proof of which is in our sustained results. With that, I will now turn it over to the operator to take questions from financial analysts.

[Operator]

[Operator Instructions] And the first question is from Mark Petrie from CIBC.

[Mark Robert Petrie]

I guess, first, I just wanted to ask about the competitive environment and specifically, are you seeing anything that makes you a little bit more concerned on the gross margin number than you might have been previously?

[Neil Rossy, Chief Executive Officer, President and Director]

No. The actual competitive environment is relatively stable. It's always very competitive. And so from that perspective, whether there are new retailers coming into the market and other retailers leaving the market, we're always attentive to all competition. And so I would say, the first answer is no. With regards to gross margin, we're pretty stable right now, from a relative competitive perspective, but there are a lot of moving pieces at this moment in time between the domestic pressures on costs for certain commodities and import pressures on certain commodities and things happening overseas. And so as long as that is -- continues to affect all retailers at the same time, which it does, of course, the competitive environment from that perspective will remain relative.

[Mark Robert Petrie]

Okay. And then I also wanted to ask about the impact of minimum wage, specifically, in Ontario. And obviously, one month of that is in effect for this quarter. Was that all, sort of, as expected? And how should we think about or how should investors think about the impact of that on your Q4 SG&A?

[Michael Ross, Chief Financial Officer]

Okay, so Mark, this is Michael. So that was totally expected. And so that's the answer to that. For Q4, absolutely.

[Operator]

The next question is from Kenric Tyghe from Raymond James.

[Kenric Saen Tyghe, Senior Vice President]

Just a busy quarter in terms of new store adds and net store adds. I wonder in that context, though, if you could speak to your new store productivity in quarter. And perhaps, more broadly, how it trended through 2018?

[Michael Ross, Chief Financial Officer]

Okay, so you're right. Q4, we had 25 net new stores. In fact, it was in line with Q4 of the year before. And the economics continue to be very strong. So if you look at our final results, average sales are -- per store are up. First year, if you look at prior cohorts at '15, '16, '17, we continue to see a good first year ramp-up in sales and second year. And our costs to open up stores have not increased from year to year. So all to say that the payback, the economics are very strong.

[Operator]

The next question is from Irene Nattel from RBC Capital Markets.

[Irene Ora Nattel, Managing Director of Global Equity Research]

Just on the subject of bulk buying/e-commerce, would you be able to share with us your current thinking around how you plan on rolling it out, shipping, whether it's going to be more of a reactive or a proactive approach? Any color you can provide there?

[Neil Rossy, Chief Executive Officer, President and Director]

Yes, a little color. It continues to be an iterative process, even internally. By no means are we e-commerce experts. So we're taking our time and doing lots of beta testing, and we're somewhat introducing a new concept, but for Costco, in this concept of selling things by the case and not by the unit. So communicating that message is a challenge for us, and so we're working on all those things. As far as how shipping or shipping costs, et cetera will be charged or not charged to the customer is mostly hammered down, but not enough that I'm willing to say that we've put a final stamp on it. So that remains to be seen before I give you more details on that, simply because we want to make sure before we say anything, as you understand, that we are convinced that it is the right way to start. We are happy with the progress. I mean, it's up and running internally, and we're tweaking and learning from the people, the test groups internally that we've been doing our tests with. And as promised, you'll have it, and every customer will have it before the end of the year. I'm considering rolling it out in a province or 2 before doing it nationally, to just get more feedback and make sure we've produced a product that people are happy with. But it's still a work in progress. And again, how big a business it will be is a complete unknown to us, and I guess, to the people in your position who are trying to figure that out too. And so that remains to be seen. I think, at the end of the day, the way we look at it is, any additional business it brings is a positive thing. And it's really meant as a tool to address a customer base that isn't satisfied or being satisfied in an intelligent, useful way to them by -- that need a higher quantity of our product without having to go store to store. Whether that's a person with a party, or the dog groomer who's got a small business, or whatever it is, we're trying to address the person who isn't being serviced in the correct way by our physical location. And so we'll continue to update you as we finalize all the details.

[Irene Ora Nattel, Managing Director of Global Equity Research]

That's very helpful, Neil. Would you be able to disclose anything around -- some of your current thinking around, which categories will be across the store? Or will there be certain categories that you've definitely decided will not be included or will?

[Neil Rossy, Chief Executive Officer, President and Director]

No, I think we're going to start with categories across the store. One of the things you learn when you get into this is, that if you want to do it with our existing goods and our existing goods were built for our retail operation, there are certain items you simply can't ship in an e-commerce platform without it being cost prohibitive. So if you're buying wine glasses at our store and you're hoping to buy 400 wine glasses on our e-com site, it's highly doubtful that will happen because the wine glasses, the way we bring them in for our retail operation aren't built to handle drop tests for courier companies. And so there's a bunch of items that will drop off or be added or removed based on the practicality within our systems. And that's why it's still a work in progress.

[Irene Ora Nattel, Managing Director of Global Equity Research]

That's great. And just one final question, if I may. I guess it was on the last call, you guys indicated that you wanted to get through Christmas before you gave us an idea of sort of debit versus credit, sort of the combined penetration of the two, the degree of cannibalization and that sort of thing. Can you share any more color on that?

[Michael Ross, Chief Financial Officer]

Irene, it's Michael. Yes, I mentioned that last time. And so what we've noticed clearly and I mentioned it a bit in the script was that initially, we were satisfied if this operation was cost neutral, and what we've realized after Q4 is that it's been better than cost neutral. So we've now exceeded on that side. We're not disclosing by how much or what that is. But just happy to tell you that it's definitely been better than cost neutral.

[Operator]

The next question is from Derek Dley from Canaccord Genuity.

[Derek Dley, MD & Consumer Products Analyst]

Just moving back for a second to the conversation on the bulk-buying initiative. Can you just talk about the infrastructure that you have in place to support that initiative, whether it be -- I mean, do you have a proportion of your distribution center or potentially the new capacity that's coming online that will be dedicated towards bulk buying? And in terms of the distribution on the e-commerce side, can you just remind us, like how often your distribution trucks are touching a store per week? Just to get an idea of the infrastructure in place.

[Neil Rossy, Chief Executive Officer, President and Director]

Sure. So on the e-com side, when we built our latest warehouse on [ La Fonce ][indiscernible] in Montreal to build out further warehouse capacity, we took into account that we would have the luxury of plenty of floor space to test the e-commerce platform in a, let's say, a less elegant and efficient way than one would do if this becomes a successful business. So it was very easy. We took some square footage at floor level, laid out as efficient a pattern as we could for the picking and shipping, and made sure that it can handle whatever we're about to test and run. And if the business itself proves to be successful or deserves more attention and sophistication, then we have plans and understand how to take it to the next level from that perspective. With regards to your second point...

[Michael Ross, Chief Financial Officer]

Trucks going to...

[Neil Rossy, Chief Executive Officer, President and Director]

Trucks going to the current stores, of course, it depends on where the stores are located. Prince George BC and Decarie Square, which is in Montreal 2 minutes from the distribution center, have different times for delivery, but trucks are going out to all of our stores on a daily basis. So goods are being delivered to all of our stores every day of the week. And the question of whether an item that is going -- the same item is going to our stores every day of the week is a different question, which is how often does the same item get cycled to any given store during the normal course of the business. And it really depends on the item. So on very high volume items, it -- they have much shorter cycle times with regards to a replenishment, and therefore, they get delivered to our stores much more frequently. And on lower volume items or smaller cube items, we have a longer replenishment time, so it could be up to 3 weeks between picking and replenishment. But all of those factors are considered in the algorithms that we run to decide how much to ship, so that the stores are not out of goods, whether that's 3 days apart or 4 weeks apart. That's all taken into consideration, and how many pieces we're sending to ensure that the goods are in the stores at all times.

[Derek Dley, MD & Consumer Products Analyst]

Okay. Terrific. And Michael, maybe this one for you. Just on the weather impact during the quarter, I know we saw a lot of snow, more so in January than in December. Was there any there any discernible weather impact on same-store sales this quarter?

[Michael Ross, Chief Financial Officer]

In Q4, yes, January, I think, we could've shown a bit better traffic if mother nature had been a bit more on our side, for sure.

[Operator]

The next question is from Vishal Shreedhar from National Bank Financial.

[Vishal Shreedhar, Analyst]

Just on the mix there. I think some grocers have indicated that, in their perspective, Dollarama is focusing more on consumables. I'm wondering if that was the case. And what your percentage mix is outside consumables?

[Michael Ross, Chief Financial Officer]

Vishal, I'm just going to answer the fact part, the mix part, then I'll let Neil answer the rest. But the mix is exactly the same as it was last year. So it hasn't increased in terms of percentage of sales.

[Vishal Shreedhar, Analyst]

Okay, that's helpful. In terms of intents to move into fresh and frozen, any desire there?

[Neil Rossy, Chief Executive Officer, President and Director]

We have no desire to move into fresh or frozen at the current time.

[Vishal Shreedhar, Analyst]

Okay, that's great. The dividend increase was smaller than, at least, I anticipated. And the dividend payout ratio seems to be tracking down over time. I'm wondering if there is a target dividend payout ratio that investors should look at. Or how the board considers the best ways to return capital to shareholders?

[Michael Ross, Chief Financial Officer]

Well, the board considers the share buyback program as the best way. I mean, we've brought back close to almost 30% of the initial float, at an average price of $70. So today, that means that the share buyback program has contributed $3.5 billion to the value of the company. And dividend is, like I mentioned in the past, that's not -- we do and have for the seventh time now, increased the dividend on a yearly basis. There is no payout or yield target, it's simply convenient to add $0.01 to the quarterly number we had before, and that was it.

[Vishal Shreedhar, Analyst]

Okay. In terms of DC expansion, will your initiatives also increase efficiency for that DC? Or is it just using the same processes but just more of it?

[Neil Rossy, Chief Executive Officer, President and Director]

The purpose of the expansion is for capacity. If you ask me, when a DC is getting close to saturation, is it at its most efficient? I would say, no. And so by that notion, we should be slightly more efficient. But I would say that, that's not the purpose of the project, and if that ends up being the case, it's icing on the cake.

[Vishal Shreedhar, Analyst]

Okay, that's helpful. And just a quick one here for Michael in terms of the sales performance, I think you quantified or you gave us color that January wasn't as hot as anticipated on traffic because of the weather, and that's understandable. But last quarter you also gave us color that there was a benefit from a calendar shift in this quarter. I'm wondering if those 2 factors roughly netted out.

[Michael Ross, Chief Financial Officer]

Yes, that's a good point. Yes, let's assume, yes.

[Operator]

The next question is from Jim Durran from Barclays.

[James Durran]

Just wanted to go back to the credit card. So are you telling us that the credit card was accretive to average ticket? And can you give us some idea to how accretive it might have been?

[Michael Ross, Chief Financial Officer]

So the first part is yes. And the second part of your question is, no, we don't give out more information. But yes, it was. So we were happily surprised that it did contribute more than what we had anticipated.

[James Durran]

And Michael, can you give me some idea like, how X the test market penetration has unfolded relative to your experience in the test market? And is the test market still showing increased penetration of credit card today?

[Michael Ross, Chief Financial Officer]

Well, okay, so obviously, the big chunk came during the past year. Now we're leveled off, so now it's going to be more normal increases moving ahead. So that's a color I can give you right now.

[James Durran]

So would you describe the adoption of credit card as a payment vehicle by consumers to be a quick adoption? And there's kind of a straight line up. And that you expected it will reach maturation sometime over the next 12 months?

[Michael Ross, Chief Financial Officer]

Yes. Penetration of debit and credit, so plastic, has accelerated during the period, more than it had in prior periods.

[James Durran]

Okay. No, that's helpful. I wanted to go back to a question that was asked earlier, talking about what we'll call loosely, square footage efficiency. So if we track how your sales growth is performing each quarter and take away the comp store sales number as a rough proxy for the sales growth contribution of new square footage, it looks like this year was one of the weakest we've seen in a long time. Is there something with respect to cannibalization or other factors that would be reducing the contribution of new store openings in there, sort of, first 12 months?

[Michael Ross, Chief Financial Officer]

No, in fact, no. So we've -- when I talked to you about payback and ramp-up, we factor cannibalization and that's been improving. In the noncomp, you have to factor those Dollar City numbers there, which is approximately 1% of total sales. So I don't know if you took that into account. But otherwise, sales of the more recent cohorts -- F '15 being one that gives you the full 2 year, and then F '16 -- we notice increase in first year of those cohorts of sales. And even F '17 for the stores that have been -- become comp, have been doing very well and outperforming the other cohorts.

[James Durran]

No, that's helpful. Last question just on bulk. Will you be including bulk in comp store sales performance? Or is that going to be a corporate-driven initiative and so excluded from comps?

[Michael Ross, Chief Financial Officer]

No, it's going to be excluded from comps. So if the stores are cannibalized, the current stores that are cannibalized by it, it will show up in reduced same-store sales. And we'll report separately, the bulk sell operation.

[Operator]

The next question is from Edward Kelly from Wells Fargo.

[Anthony Bonadio, Associate Analyst]

This is actually Anthony Bonadio on for Ed. Just real quick just on traffic. You guys saw a sequential uptick this quarter. Anything to point to there in terms of drivers? And to what extent was the credit card addition playing a part?

[Michael Ross, Chief Financial Officer]

Credit card was not significant to it. And it was in line with what we had communicated over the past 5 quarters or even 6 quarters, when we had announced that Q4 of last year would be negative and Q1 and that we should see an ebb and flow movement of the traffic, and it's exactly what happened in Q2s. Traffic starting to kick back in Q3 and Q4. So again, in line with our expectations. No surprise. And that's how we view it.

[Anthony Bonadio, Associate Analyst]

Got it. That's helpful. And if I can just get one more in quick, you'd mentioned you've completed about 400 store layout optimizations in the last call, with 600 to 700 left. Can you give us some quick color around the changes that were involved? And if you can, a sense how much complex you typically see from something like that?

[Michael Ross, Chief Financial Officer]

Sure. So our optimizations generally include putting wall standers on the walls, new cash counters, adding the queue line and reconfiguring the store and reoptimizing the layout of the store.

[Operator]

The next question is from Brian Morrison from TD Securities.

[Brian Morrison, Research Analyst]

If I can just go back to an earlier question on the gross margin, Neil. You say that the competitive environment is consistent. And obviously, through buying process, you have very good visibility in the gross margin, well in advance. So can you just walk me through some of the key factors in the 100- basis point gross margin decline in your guidance to the investment and the value proposition?

[Michael Ross, Chief Financial Officer]

Well it's, again, it's all about the margin you decide to put on the items and what price point value you're comfortable with comparing to the market. So as you know, we refresh 25% to 30% of our items every year. And over and above that, we can have, in a much lower percentage, some markups. But essentially, it's through that process that we establish when we set -- the buyers set the price point, they look at the level of competitiveness and so that's how the margin is reflected. And as we told you, it's already very high at 39%, we finished at 39.8%. And so we need to be aware of that balancing value between what the compelling value and what you put in to your -- what you retain as a return for the investor.

[Brian Morrison, Research Analyst]

Fair. But I mean, the consumer has told you by the traffic and the basket size over the past couple of years as you've had pretty big tailwinds, sorry, pardon me, headwinds with FX, that the value proposition is there. So I'm not sure I understand if the competitive environment is consistent, why you feel the need to invest in that, just the degree of conservatism?

[Neil Rossy, Chief Executive Officer, President and Director]

Sure. So I'm going to add some color to what Michael said. Beyond FX challenges, both domestically and on an import side, because as you know, a good percentage of our goods come from Asia and the U.S. dollar question of Canadian to U.S. is one hedge. And the other question, of course, is the U.S. dollar against the currencies in the markets that we buy in. So there's a question there that might affect costs from anybody importing from those countries. There is also a question of increased costs for multiple reasons, whether it's shortages in supply of raw materials and therefore, prices go up or commodities are hotter for any given reason or production challenges for any given reason in any given area of production. And so if there's pressure on price for all buyers buying goods, then one of the reasons Dollarama might go from what we consider to be internally very high margins that we have today, and always with our core principles kept at the forefront of all of our decision making, which is we are in the business of offering great relative value. And so if there's pressures on price, forgetting the competitive environment here for a moment, then there's pressures on price for everyone. And when those pressures come, there's always the delay or the lag between the cost to the retailer and what they're going to sell it for. And we never want to be the first to react negatively to a higher cost. So we need -- considering the special sauce of our business is relative value, we need to wait and watch what the relative value is in other retailers. And if they move their costs, then -- or their retails, I should say, then it gives us some flexibility to do what you're saying, which is, remain highly competitive and have the right margins still. But if there are cost pressures on goods being bought in all categories because that's what happens, in the world at times, and the buyers have to deal with it, then we have to be more conservative on where that pricing flexibility will be, and we never want to be the leader to go up. We always want to be the leader by being the last to have to go up, if we have to go up.

[Brian Morrison, Research Analyst]

That's fair, Neil. I appreciate that. That makes sense. I'm just wondering, are you seeing any of those pressures currently, as you look forward to fiscal 2019?

[Neil Rossy, Chief Executive Officer, President and Director]

For sure, there are pressures that all buyers and all companies are facing right now. The cost of raw materials, whether it's carton, whether it's steel, they're all going up. It is a challenging time now to be a buyer for any and all retailers and importers of any kind. And so because of those challenges, as a company, we want to make sure that we can be realistic about what we're able to deliver. And the last thing we'd ever want to do is deliver margin percentage and lose customers. And so we will always put the customer first and then the margin percentage second.

[Operator]

And our next question is from Keith Howlett from Desjardins Securities.

[Keith Howlett]

I was wondering why Larry decided to retire early.

[Neil Rossy, Chief Executive Officer, President and Director]

I would love to address that one. Of course, my father being, let's say, a seasoned retailer, has simply decided to slow down a little. And to give you a little color on what that means, I guess, it's a right he rightly deserves. That being said, just so we keep things in relativity, he was still at the office every day of the week. And I can tell you for a fact that he put in 6 hours last Saturday as well. So it was a 6-day work week instead of a 5-day work week. So everything is relative when we say he's slowing down. He continues to enjoy mentoring the teams in his core areas of buying and real estate. And he's simply taking a step back, but that step back brings him closer to normal people. I hope that helps.

[Keith Howlett]

I was wondering about the real estate and the buying roles that he is most active in. Are there any extra people brought in to the buying group or to real estate?

[Neil Rossy, Chief Executive Officer, President and Director]

Well, thankfully there's not been a need to bring any extra people in. Because part of our responsibility and his responsibility, as management of a company of our size, is that we have the teams in place that we're not relying on any one person. Although, obviously, a founder and somebody of Larry's wherewithal and competence is hard to replace, but the people that have been working with him, for example, in real estate and buying, have been working with him for, I can tell you, 10-plus years. And so we're very comfortable with the positions, he's very comfortable with the positions of the people in his areas. So he continues to mentor them, continues to enjoy working with them. And thankfully, there are no fires to put out.

[Keith Howlett]

And then just a question on the Ontario minimum wage. I'm wondering if you've had an opportunity to take specific measures to try and offset that impact in terms of store hours, which I don't think you're changing. But -- or other measures that, specifically, would offset that?

[Michael Ross, Chief Financial Officer]

Yes, so Keith, if you look at the range, the outlook for next year, if you look at the range, it deteriorates at the better end by 50 bps. So -- and if you look at the impact of the minimum wage increase in Ontario, which was the biggest, but we still had -- or having one in Quebec, that's going to be good sized too, up to $12. So all of that -- if you factor that headwind, and you look at the range we have, there is obviously, some offsetting savings that come from these different initiatives, and principally from those that I mentioned in the script. So there's still labor cost opportunities at store level, cash management will bring some. And there's loss prevention going on in Johanne's team initiatives that have allowed some work investing in capital, we talked to you about the cameras in the stores. They are training, follow-ups and so on. So all these initiatives will be offsetting some of the headwinds, not all, but some of the headwinds this year, in F '19.

[Keith Howlett]

I just had a question about some of the malls, where Miniso has opened stores. And I'm just wondering whether in specific close adjacency, you noticed any impact from the opening of a Miniso store?

[Michael Ross, Chief Financial Officer]

No, we haven't. Not to date.

[Keith Howlett]

And then I just had one last question on -- just with Sears going out of business, and I realized most of their price points are beyond yours. But is there any change to your outlook in terms of the categories in the store, like would you look at more, for example, commodity socks or that sort of thing? Or any change due to the exit of Sears?

[Neil Rossy, Chief Executive Officer, President and Director]

No. We've been selling socks for 20 years. And so I don't think Sears' products and the products that Sears really specialized in, unfortunately, are things that fit into our price points. And so really, Sears, from a competitive environment perspective, just really didn't live in our domain at all. And so other than there being theoretically more dollars to be spent at other retailers, there's really not been an impact, specifically, from Sears' demise.

[Operator]

The next question is from Peter Sklar from BMO Capital Markets.

[Peter Sklar, Analyst]

I just have one question. Just curious why you haven't talked about Dollar City today? And can you update us what's going on in Columbia, in terms of store count? And how store economics are unfolding? I mean, you had been open there for a period of time, so maybe you could provide us with some insights?

[Neil Rossy, Chief Executive Officer, President and Director]

Sure. So Dollar City continues to progress in the right direction. The results of our entrance into Columbia have been in line with the results of our entrance into the 2 first countries, which is all good news. The execution at store level has been -- continues to be very strong. And our ability -- or variability, in fact, to find sites continues to be, let's say, reasonable and not a challenge that's made the entire concept of test in Columbia and going into Columbia any more difficult than we'd hoped to. And so I would say, so far, so good, would be, from a high level, the status of Dollar City continues to be, I guess, mentored and monitored and guided in the direction that will hopefully, make it an interesting thing one day, and we'll keep you posted.

[Peter Sklar, Analyst]

And Neil, how many units do you have in Columbia now?

[Neil Rossy, Chief Executive Officer, President and Director]

I think it's 11, but it's somewhere in the 10 to 15 range.

[Operator]

The next question is from Neil Linsdell from Industrial Alliance.

[Neil Linsdell, Head of Research & Equity Research Analyst]

Just a follow-up on what you said about Dollar City. On the same-store sales purpose, how are the sales for Dollar City considered?

[Michael Ross, Chief Financial Officer]

Well, yes, we are not ready to disclose because we are under NDA, so there is certain information where we're definitely not going to disclose. But all to say that it's going very well and -- in the 3 countries. And so as Neil said, we like what we see, and in terms of whether it's same-store sales or margins but we're -- to date they're meeting our expectations.

[Neil Linsdell, Head of Research & Equity Research Analyst]

I wasn't actually looking for their same-store sales. I'm just wondering, do you consider when you do a same-store sales number, is Dollar City included in that? Or is that separate?

[Michael Ross, Chief Financial Officer]

I'm sorry. No, no, no.

[Neil Linsdell, Head of Research & Equity Research Analyst]

One channel, one store?

[Michael Ross, Chief Financial Officer]

We don't own them, so it's 0, so there's absolutely -- the revenues that we have are in noncomp revenues. And the revenues that we recognize are only the ones where the products that are shipped to them go through our logistics system. It excludes any purchases that they make directly from Asia.

[Neil Linsdell, Head of Research & Equity Research Analyst]

Right. Okay. That's what I was just looking for clarification on. There's a decent amount of growth coming out of Dollar City from what we are seeing. Have you changed the number of people or the amount of time that is being spent in Canada to support them? Or is it all in Dollar City's camp?

[Neil Rossy, Chief Executive Officer, President and Director]

No. I would say it's 99% in Dollar City's camp. And that the team we built from day one here to handle that project remains either exactly the same, give or take one person.

[Neil Linsdell, Head of Research & Equity Research Analyst]

Okay. Good leverage. And then just on the international side as well, on the sourcing side, have you seen anything change over the last 12 months, say, as far as countries that you might focus on for purchasing or any change in the climate in China?

[Neil Rossy, Chief Executive Officer, President and Director]

Well, certainly, there's not some new country that's come out of nowhere and amazed us all, us, the buyers and sourcers of the world. That being said, because of pressures in China in the last 12 months or so or 1.5 year on environmental issues and other issues, there's more competitive production, trying to compete and compensate for certain categories of goods. So where I might have been buying our tote bags that we sell from China, I just move the order to Vietnam. But as a whole, it's a tiny percent of the time, and if goods were coming from Asia, particularly China, 9 out of 10 times they're still -- or more -- they're still in China. And China still remains the most efficient source of supply. But we're always looking and always studying the question that you just asked. I'm going to take this opportunity to correct myself, because I had something else in mind when I answered the question before, and I was wrong. The amount of stores we currently have in Columbia, because of our incredibly efficient friends down south are working so hard, is actually 30 stores -- 37 stores open and operating in Columbia today.

[Operator]

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