Yahoo Finance Dollarama raises dividend after sales, earnings climb
Dollarama Inc. raised its dividend after beating expectations in the fourth quarter as high inflation and interest rates pushed Canadians to seek out more value products, particularly for everyday household items and food.
The Montreal-based company reported on March 29 that sales increased by more than 20 per cent to $1.47 billion, beating expectations of $1.39 billion in the fourth quarter ended Jan. 29. Earnings before interest, tax, debt and amortization increased almost 19 per cent to $467.7 million while profits grew to $261.2 million from the same period last year, when the company netted $219.9 million.
Dollarama raised its quarterly dividend by 28 per cent to 7.08 cents per share, from 5.08 cents.
“Strong operational and financial results reflect the continued positive consumer response to our year-round value proposition, which has only been reinforced in the context of high inflation,” chief executive Niel Rossy said on an earnings call.
For the full fiscal year, Dollarama’s earnings jumped nearly 17 per cent to $5.05 billion. Net earnings totalled $801.9 million, or $2.76 per diluted common share. Last fiscal year, net earnings were $663.2 million or $2.18 per diluted share.
High levels of inflation have been a positive for Dollarama compared to other businesses, all of which are contending with tighter economic conditions after rising inflation forced the Bank of Canada to lift interest rates at an unprecedented pace starting last March.
The consumer price index, which measures inflation growth, peaked in June at 8.1 per cent and the latest reading pegged year-over-year price growth at 5.2 per cent, marking a steady decrease, but which is still outside the Bank of Canada’s target of two per cent.
Dollarama reported comparable store sales, a metric that excludes newly opened stores, grew 16 per cent in the quarter. For the fiscal 2023 year, the discount retailer opened 65 new brick-and-mortar locations. The number of transactions also grew in the quarter, up 14 per cent with a 1.6 per cent increase in the average transaction size.
Brian Yarbrough, an analyst at Edward D. Jones & Co. L.P., said the company’s strong performance is welcome but not shocking given that consumers typically seek out cheaper products in recessionary times.
“The million-dollar question remains,” he said of Dollarama’s future performance. “What (will happen) to a lot of consumers who are trading down? Do they stick around at Dollarama or do they go back to their more normal shopping habits?”
A new maximum price point of $5, introduced last summer, has helped the company grow market share, Yarbrough said. Raising the price threshold allowed Dollarama to expand its offerings to include goods such as skincare products and yoga mats, the company said.
For the first half of the fiscal 2024 year, Dollarama expects to benefit from strong demand as inflation levels stay high, but also expects demand to normalize in the second half of the year, though purchases of lower-margin consumables will stay strong. Weighing on the outlook are wage costs. The company expects the labour market to remain tight in the retail sector, making entry-level jobs harder to fill.
Still, Dollarama will continue opening 60 to 70 news stores a year, including in fiscal 2024, which would call for increased staffing levels, management said on the earnings call.
It’s also pouring money intro expanding warehousing and purchased a new 500,000-square-foot warehouse in Laval, Que., in December that it’s currently readying for use. Dollarama expects to make between $190 million and $200 million in capital expenditures for the current fiscal year.
Yarbrough said that, ultimately, a “perfect storm” of economic conditions has helped Dollarama thrive. “No doubt, the numbers they are putting up are very strong and some of the best in Canada,” he said.
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