Dollarama posts 27-per-cent profit gain, raises sales forecast as shoppers seek inflation relief

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Dollarama Inc. DOL-T reported a 27-per-cent increase in quarterly profit and has raised its sales growth forecast for this year, as more people flock to its discount stores for some relief from inflation.

On Wednesday, the Montreal-based retailer reported net earnings of $245.8-million or 86 cents a share in its second quarter ended July 30, compared to $193.5-million or 67 cents in the same period last year, as sales continue to blow past expectations. On a diluted per-share basis, earnings growth was 30.3 per cent.

Dollarama reported that sales have been increasing across its product categories, and demand for “consumables” such as food and household cleaning products has been higher than historical levels.

The company now expects growth in comparable store sales to be in the 10- to 11-per-cent range this year, a change from earlier guidance that predicted growth in the 5- to 6-per-cent range. Comparable sales – an important metric in the industry – tracks sales growth not tied to new store openings.

According to Dollarama, traffic to discount stores is on the rise as inflation continues to put pressure on shoppers. The number of transactions at its stores grew by 12.9 per cent in the second quarter. And people are also buying slightly more when they visit, with the average size of transactions at its checkouts growing by 2.3 per cent. Overall, the retailer reported a 15.5-per-cent jump in comparable sales in the second quarter.

“We are extremely pleased by the sales momentum we are seeing across our product categories in addition to the sustained value-seeking behaviour from Canadian consumers,” president and chief executive officer Neil Rossy said on a conference call to discuss the results on Wednesday, adding that with the macroeconomic environment, the company expects consumer demand at discount stores to remain strong in the second half of the fiscal year.

While people have been shopping more often for some food staples at Dollarama, the retailer has not significantly changed the shelf space it allocates to that product category in the past two years, chief financial officer J.P. Towner said on the call. He noted that while demand has risen for consumables, general merchandise categories are also performing well.

The jump in comparable sales, along with 18 new store openings, combine to deliver a 19.6-per-cent increase in total sales in the quarter compared to the same period the prior year. Dollarama reported total sales of nearly $1.5-billion for the 13 weeks ended July 30.