Customers browse the aisles of the Dollarama store at 226 Front St. East in downtown Toronto, on Dec. 6, 2018.Fred Lum
Dollarama Inc. is holding steady on its prices, even as its profit margins have been squeezed by selling some lower-margin products, and by the company’s investments in logistics.
Competitors are also generally keeping prices stable, and the Canadian discount retailer does not expect to see markups in the near future.
“We’re all [seeing] inflation, competitors and ourselves. And if they’re not passing on that cost, we’re not," chief financial officer Michael Ross said on a conference call to discuss Dollarama’s third-quarter earnings on Wednesday.
“The only thing that would make it an obvious choice for us is, when today’s $4 is worth $5, we’ll talk about it," chief executive officer Neil Rossy said. "... We really would want inflation to be a big piece of that decision.”
Higher store traffic and customers buying more items have boosted sales so far this year, Mr. Ross said. Same-store sales growth also benefited from having Halloween shopping days fall in the third quarter rather than the fourth quarter this year.
Dollarama is also testing out self-checkouts to keep waiting times low at the cash register, and to prevent losing sales when customers see long lineups and abandon their baskets. Roughly 20 of the company’s more than 1,200 stores have self-checkouts in place.
Before rolling out more widely, the company needs to test such features as security measures and the mechanism for buying bags. Unlike larger stores that can easily accommodate installing self-checkout lanes, Dollaramas tend to have a smaller footprint, so the company is also testing whether the checkouts hamper the flow of traffic into the stores.
“It’s quite complex because it also affects the flow of the entire front of your store," Mr. Rossy said. "... So it’s a slow but steady rollout. It won’t be a fast one.”
Dollarama missed analysts’ estimates for quarterly profit by a narrow margin on Wednesday, bruised by higher costs from store openings.
Shares of the Montreal-based company, having gained 51 per cent this year, were down more than 8 per cent in afternoon trading.
The company has been pouring money into expanding its stores as well as its online business for bulk ordering while adding new items, particularly household goods and food items, to boost sales.
At the same time, Dollarama has kept price rises to a minimum to better fight competition from Canadian and U.S. retailers.
These efforts boosted sales at Dollarama stores open for at least 13 months, growing 5.3 per cent in the third quarter ended Nov. 3, well ahead of the estimated rise of 3.84 per cent, according to IBES data from Refinitiv.
The company’s margins, however, fell to 43.7 per cent from 44.3 per cent as it sold more low-margin items. Meanwhile, expenses rose about 18 per cent, primarily because of new store openings.
The retailer, targeting 60 to 70 new stores in the fiscal year, rolled out 21 outlets in the third quarter.
Net income rose to $138.6-million, or 44 cents a share, from $132.1-million, or 40 cents a share, a year earlier.
Excluding items, the company earned 43 cents a share, missing the average analyst estimate by two cents.
Net sales rose 9.6 per cent to $947.6-million, above expectations of $936.78-million.
Dollarama said it now expects full-year comparable sales to grow in the range of 4 per cent to 4.5 per cent, compared with the prior range of 3.5 per cent to 4.5 per cent.
With a report from Reuters
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