As Canadians continue to feel the pinch of high inflation, discount retailer Dollarama Inc. is winning market share, drawing in new customers and boosting its full-year sales forecasts for the second quarter in a row.
Rising costs for everyday goods have been drawing shoppers to Dollarama DOL-T stores – including those who do not usually shop there. “Consumables” such as food, cleaning products and other household items in particular have driven sales growth.
Those trends caused the Montreal-based company to raise its guidance for comparable sales growth for the fiscal year in the second quarter, and again on Wednesday as it reported third-quarter results. As inflation-weary consumers continue to seek out deals, the retailer now expects comparable sales growth in the range of 9.5 per cent to 10.5 per cent this year, up from its estimate of 6.5 per cent to 7.5 per cent in September.
“The trend is clear: our value promise in a high-inflation environment is even more relevant as consumers juggle the pressure on their wallets and adjust their spending strategies,” chief executive officer Neil Rossy said on a conference call to discuss the results.
Dollarama reported that its profit grew by nearly 10 per cent in the third quarter. Net earnings rose to $201.6-million or 70 cents a share in the 13 weeks ended Oct. 30, compared with $183.4-million or 61 cents in the same period last year.
While the inflation rate in Canada has eased since the summer, it remains stubbornly high: in October the Consumer Price Index rose by 6.9 per cent from the prior year, matching the inflation rate in September. And grocery prices have been a particular pain point, rising by 11 per cent in October – down slightly from 11.4-per-cent growth in September, but still representing hikes not seen in years.
Retailers are facing their own cost increases, which in many cases they are passing on to consumers in the form of higher prices. There is a “massive discrepancy” in the cost-increase trends for products that Dollarama buys from North American vendors compared with those purchased overseas, Mr. Rossy said.
“We have definitely not seen North American prices peak. Although every week I think they’ve peaked, and every week they haven’t peaked yet,” he said, adding that the company’s buyers are pushing back as much as possible. “The one thing I know for sure is that those pressures that are being put on Dollarama are being put on every other Canadian retailer. And as you know, the one thing we can control is that our job is to provide the best relative value to our customers.”
For Dollarama, sales of consumables come with lower profit margins compared with other products, and like other retailers, the company is facing higher freight costs to import products and truck them across the country. Gross margin fell to 43.3 per cent in the quarter from 44.4 per cent in the same period last year. However, supply chains are normalizing, executives said, with shipping container costs beginning to come back down to prepandemic levels.
In the third quarter, Dollarama’s comparable sales – an important measure that tracks sales growth not tied to new store openings – grew by 10.8 per cent, driven mainly by an increase in the number of transactions rung through at checkouts. Overall sales, including the impact of new store openings, grew by 14.9 per cent to approximately $1.3-billion in the quarter.
The company had 1,462 stores in Canada as of the end of October, compared with 1,397 locations at the same time last year. Dollarama has previously said it plans to have 2,000 stores in Canada by 2031. The company announced on Wednesday that it has recently agreed to purchase land adjacent to its current distribution centre in Montreal, which will allow it to expand its logistics operations to support the store expansion.