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  "documentTitle": "Dollarama Inc. (DOL)",
  "authorId": "54_Spruce_Point_Capital",
  "authorName": "Ben Axler",
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  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2018-10-31 00:00:00",
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  "notes": "The slide uses four bar charts to demonstrate the inverse relationship between forex gains and underlying margins, highlighting a 'convenient' stabilization.",
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      "kind": "callout",
      "text": "Quick turnaround in underlying profitability! Just in time to keep the declining forex hedge benefit from dragging down margins...",
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      "text": "As the currency hedge benefit has reversed through the last two years, underlying gross margins have purportedly risen by *EXACTLY ENOUGH* to keep total gross margins steady between 39-40%.",
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      "text": "Total EBITDA Margin vs. EBITDA Margin Ex-Forex Gains",
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      "text": "% of Gross Profit from Forex",
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      "text": "% of EBITDA from Forex",
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      "text": "gross margin: 300 bps",
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      "text": "Even as FX hedge gains fell from close to 8% of gross profit in FY 2016 to a drag on gross profit in FY 2018, gross margin expanded by over 100 bps over the same period, implying gross margin expansion ex-forex of almost 300 bps within two years for a retailer with gross margins which were already unusually high, and whose margins had contracted for four straight years before the rapid reversal.",
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      "text": "Dollarama’s sales are in Canadian dollars, whereas a majority of its product purchases are U.S. dollar-linked. Management claims to enter into CAD/USD hedging arrangements to lock in near-term margins without having to adjust prices in response to FX movements. However, management has nonetheless admittedly adjusted prices alongside unhedged peers in response to shifts in the CAD/USD exchange rate, rendering its currency hedges a source of profit.",
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      "text": "Forex dynamics through the last two years have erased the large hedge benefit realized by Dollarama in FY 2016, but management reports that gross margins have effectively remained flat through this period, implying significant gross margin improvement in the underlying business (see graphs below). As the currency hedge benefit has reversed through the last two years, underlying gross margins have purportedly risen by *EXACTLY ENOUGH* to keep total gross margins steady between 39-40%. We find this oddly convenient – or, at the very least, we question whether management will be able to maintain steady margins in the face of unfavorable FX rate dynamics in the future.",
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      "kind": "title",
      "text": "Hedging Instruments A Material Source Of Profits In Recent Years",
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