Dollarama Profit Jumps Nearly 19% as High Inflation Drives Canadians to Discount Retailer
Dollarama Profit Jumps Nearly 19% as High Inflation Drives Canadians to Discount Retailer
Inflation-weary Canadians looking for deals are continuing to visit discount stores more often – a trend that helped boost profits at Dollarama Inc.DOL-T -0.41%decrease
DOL-T -0.41%decrease
by 18.8 per cent in the fourth quarter, and drove sales growth exceeding the company’s targets.
The Montreal-based retailer reported on Wednesday that net earnings grew to $261.3-million or 91 cents a share in the 13 weeks ended Jan. 29, compared with $220-million or 74 cents in the same period the prior year. Both sales and earnings growth beat analysts’ expectations.
The company also announced a 28-per-cent hike to its quarterly dividend paid to shareholders, to 7 cents a share.
The growth in Dollarama’s sales has been driven by more frequent transactions at its stores, as people shop more often and the chain draws in new customers. Chief executive officer Neil Rossy told analysts on a conference call that he believes the stores can hold on to some of those gains in market share if customers are satisfied that Dollarama’s products are of a comparable quality to pricier items they might buy elsewhere.
“We really do see just a general trend, an interest in checking the value that we’ve always offered to different groups of people that may not have felt any need to shop at a Dollarama, although that breaks my heart,” Mr. Rossy said.
Over the past year, the retailer has introduced higher price points up to $5 for products on its shelves, both to offset rising costs – such as for shipping and raw materials – and to bring in new items it could not offer at its previous maximum price of $4. Among the products it now sells with a $5 price tag are yoga mats, shoe racks and gardening trellises. Mr. Rossy said on the call that the new price points have been “well accepted” by shoppers.
In a statement on Wednesday, the company said these new price points and updated products helped to drive sales up, as did shoppers’ demand for “consumables” such as food and household products. Comparable sales – an important metric that tracks sales increases not driven by new store openings – grew by 15.9 per cent in the fourth quarter. For the full year, comparable sales were up 12 per cent, blowing past Dollarama’s previous guidance, which predicted sales growth between 9.5 per cent and 10.5 per cent for the year.
Total sales grew by 20.3 per cent to $1.47-billion in the fourth quarter. For the full year, sales were up 16.7 per cent to $5.05-billion, largely because of an increase in the number of stores. Over the past year, Dollarama opened 65 new locations for a total of 1,486 across Canada.
Net earnings for the full year ended Jan. 29 grew to $801.9-million or $2.77 a share, compared with $663.2-million or $2.19 in the prior year.
As inflation continues to make life less affordable for many Canadians, Dollarama executives expect heightened demand at the stores to continue in the first half of this fiscal year, before inflationary effects begin to normalize in the second half. The company’s guidance predicts comparable sales growth between 5 per cent and 6 per cent this year, and higher gross profit margins as freight costs come down. Executives noted, however, that the company continues to face wage pressures that began accelerating in the first half of this year.
Source The Globe And Mail. Click here to read a full story
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