Yahoo Finance Dollarama expects sales to stay strong as shoppers look to fight inflation
Dollarama Inc. expects demand for lower-margin, everyday products to remain strong through the end of its fiscal year as shoppers continue to look for cost-saving alternatives as inflationary pressures persist.
The retailer said the sustained demand is most notable in its consumable product categories and has fuelled an acceleration in same-store sales, chief executive Neil Rossy said.
“Our value promise and a high-inflation environment is even more relevant as consumers juggle the pressure on their wallets and adjust their spending strategies,” Rossy told investors during an earnings call on Wednesday morning.
Dollarama’s sales grew by nearly 14 per cent annually to over $1.2 billion for the third quarter, an increase it attributed to an expansion in its total number of stores over the past 12 months, as well as a 10.8 per cent growth in comparable store sales. The chain has 1,462 stores as of Oct. 30, compared to 1,397 in 2021.
It reported net earnings of $201.6 million and said diluted net earnings increased by 14.8 per cent to 70 cents per share in the three months ending Oct. 30.
The stronger-than-usual demand for consumables led the discount retail chain to hike its forecast for comparable store sales growth for the fiscal year to between 9.5 and 10.5 per cent.
“As we look to the fourth quarter for Dollarama — which is historically our busiest in terms of sales — we expect inflationary pressures (on customers) to persist through to our fiscal year end,” Rossy said.
Chief financial officer J.P. Towner said the company’s value proposition remains relevant in the current inflationary context. The results marked Dollarama’s third consecutive quarter of higher-than-normal demand for consumable products, while the company also performed well on general and seasonal merchandise, Towner said.
“Canadians from all walks of life (are) continuing to seek value and lower prices on the goods they need, which is driving traffic to our stores,” he said, noting that they saw a 10.3 per cent increase in customer traffic and a 0.4 per cent increase in basket size.
Towner added that Dollarama stores are also benefiting from its pricing strategy, which includes its recent introduction of new price points between $4.25 and $5.
The executives also attributed the quarter’s success to an absence of COVID-related restrictions, which have previously impacted retailers and consumer shopping patterns, as well as minimal incremental direct costs related to COVID-19 health and safety measures.
Last quarter, the company said it is boosting inventory by purchasing fall and winter seasonal goods earlier than usual to avoid delays amid global supply chain disruptions as customers return to brick-and-mortar retail stores.
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The company also increased its new store target for Latin American value retailer Dollarcity from 600 to 850 stores by 2029. Dollarcity, which Dollarama has a 50.1 per cent equity interest in, has 395 stores to date in its Colombia, Guatemala, El Salvador and Peru markets.
Rossy said the company’s objective from the beginning was to bring its concept to these markets and execute them in a low-risk manner that would not distract from its plans in Canada.
Shares of Dollarama were up more than five per cent at $83.89 in afternoon trading in Toronto.
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