Dollarama Inc. enjoyed a 21 per cent year-over-year jump in sales in its latest quarter as the discount retailer scooped up consumers seeking cheaper products amid high inflation.
In the quarter ended April 30, the company said strong demand was held up across the board, from consumables to seasonal items and general merchandise, resulting in a profit boost of 23 per cent from a year earlier.
For same-store sales, the number of transactions grew nearly 16 per cent while purchase sizes also nudged up.
“We had a good Easter,” said chief executive Neil Rossy. “But there’s a slight move away from the consumables, in fact, a little bit towards the traditional mix.”
Consumables, which saw a spike in recent quarters, is a category that includes food as well as items ranging from batteries to laundry detergent.
Summer sales are looking bright despite some huddles, Rossy said Wednesday.
“It’s unseasonably chilly still in many parts of the country along with other natural disasters, unfortunately, which are challenging in many areas of the country,” he told analysts on a conference call.
“But the customer has started to move toward our summer offering.”
Dollarama’s real estate footprint is increasing as well. It opened 21 net new stores in its first quarter, pushing its network to 1,507 locations by April 30 versus 1,431 a year earlier — an 11 per cent expansion. Dollarama hopes to reach 2,000 stores in Canada by 2031.
Same-store sales jumped by 17 per cent year over year, an “impressive” pace — the fastest in at least five years — said analyst Martin Landry of Stifel GMP.
“The strong same-store-sales appeared to be driven by volume rather than price, an excellent sign and suggesting that Dollarama continues to gain market share,” Landry said in a note to investors.
“Consumers continue to turn to Dollarama for consumables in addition to everyday household items and seasonal products,” said RBC Dominion Securities analyst Irene Nattel.
As interest rates rise along with the cost of living, the customer boost stemmed partly from “trade-down, no doubt,” Rossy said, referring to shoppers who swap their previous retailers of choice for more affordable alternatives.
The trend came as Dollarama was relatively indifferent to competitor discounts.
“We don’t react to promotional activities. We never have,” Rossy said.
“If you come in our stores at back to school, you’re probably going to pay more for the hundred-pack of looseleaf — of ruled white paper — than you will walk into another retailer that’s giving it away at that time of the year. But for the other 11 and a half months of the year, we’re cheaper,” he said.
Rossy said “shrink” — decreasing inventory relative to recorded stock caused by factors ranging from theft to product damage — has also been on the rise for the past few quarters and is embedded in its forecast for the year, which it maintained at five to six per cent sales growth.
“This suggests a rapid deceleration in the coming quarters and may raise some questions,” Landry said.
Rossy cited worker wage growth as one factor working against profit margins, but noted declining freight rates could help offset higher costs.
As to whether consumables will continue to occupy a larger share of customer carts, Rossy said: “Unfortunately I haven’t got a clue what’s going to happen in the future. But I can tell you it’s pretty stable the last month or so and we ‘re hoping it’ll continue in that direction.”
On Wednesday, the company reported earnings of $179.9 million in its latest quarter, up from $145.5 million in the same period the year before.
The profits amounted to 63 cents per diluted share for the quarter ended April 30, up from 49 cents per diluted share a year earlier.
Sales totaled $1.29 billion, up from $1.07 billion in the same quarter last year.
Analysts on average had expected a profit of 59 cents per share and $1.25 billion in sales, according to estimates compiled by financial markets data firm Refinitiv.
This report by The Canadian Press was first published June 7, 2023.