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Dollarama Inc. shares jumped six per cent on Wednesday as profits topped analyst expectations.
The increase was primarily due to “higher than historical demand for consumables,” or food, and other household products. Same-store sales — sales at stores that have been open for at least a year — rose 15.5 per cent as Canadians increasingly turned to the value retailer for their grocery needs amid higher inflation.
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“We are seeing robust performance across the board in terms of our three main product categories and their departments,” said Rossy. The sales increase enabled management to pay shareholders a dividend of seven cents a share, in line with previous quarters.
The spike in sales had little to do with a change in the product mix, chief executive Neil Rossy told analysts on a Sep. 13 call, and “more to do with volume than a change in our offering.” In other words, consumers are simply more receptive now to Dollarama’s existing product offering, and are making more frequent — and bigger — transactions at the value retailer.
“I know the flavour of the day is all of these YouTube things about grocery, and food, and Dollarama,” Rossy told analysts, referring to the ‘Dollarama Budget Grocery Shopping Trend,’ where vloggers showcase low-cost food hauls from the retailer, “but the reality is, we haven’t grown our food section or grocery sections. It still remains a small piece of our offering, one of the many things we offer.”
The profit increase was also due to an increase in the number of Dollarama stores — 1,525, up from 1,444.
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The value retailer beat analyst estimates. Same-store sales were five per cent higher than Stifel analysts Martin Landry and Mathieu Deneault Gauthier anticipated, they wrote in a Sep. 13 note. Similarly, Scotiabank analysts were “handily (beat),” they wrote in a note the same day.
While inflation has caused an increase in sales at the retailer, it’s also caused an increase in theft, or ‘shrinkage,’ as desperate consumers fill their pockets with Dollarama goods.
Shrinkage has gotten worse in the last 12-18 months, Rossy told investors on the call, but the company had expected this, and have included it in their guidance. “We’re comfortable with the shrink position that we have,” he said.
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The strong quarterly performance prompted Dollarama to update its outlook for the second half of the fiscal year, bumping sales growth estimates to 10 to 11 per cent, up from five to six per cent previously.
“In the second half of Fiscal 2024, the Corporation expects to continue to benefit from strong demand for its affordable, everyday items in the current macro-economic and inflationary context,” management said.
• Email: mcoulton@postmedia.com
