Dollarama also seeing demand for discount stores in other markets, announcing it has increased its stake in Latin American retailer Dollarcity.Christinne Muschi/The Canadian Press
Dollarama Inc.’s DOL-T profit jumped by 20 per cent in its first quarter as Canadians rattled by more than two years of rising prices consistently turn to discount stores looking for some relief.
The company is also seeing demand for discount stores in other markets, announcing it has increased its stake in Latin American retailer Dollarcity by issuing shares valued at roughly $731-million as of end of day Wednesday.
Even compared with a period last year when Dollarama saw significant sales growth in Canada, its stores are continuing to see shoppers visit more often. Although customers are buying fewer items on each visit, sales are up.
The growth stemmed mostly from higher demand for consumables, a category that includes food, household cleaning products and personal care items such as soap and toothpaste – a trend Dollarama has observed over the past two years as inflation has put the squeeze on shoppers’ budgets.
Such items generally come with lower profit margins than other categories but can help draw shoppers to stores more frequently. Meanwhile, demand has been stable for other categories such as seasonal products and general merchandise.
“Customers are deploying their discretionary spending prudently,” president and chief executive officer Neil Rossy said on a conference call Wednesday to discuss the results.
Comparable sales – an important metric that tracks sales growth excluding new store openings – rose by 5.6 per cent. That was in comparison with the same period last year, when Dollarama recorded sales growth of 17.1 per cent. The company expects comparable sales to continue to normalize following an unusual surge in demand over the past two years, and has forecast growth for this full fiscal year to be in the 3.5-per-cent to 4.5-per-cent range.
“The path of the Canadian economy and future consumer behaviour remains hard to predict, but one thing that is clear is the strength of our value proposition,” Mr. Rossy said on the call.
The Montreal-based retailer reported net earnings of $215.8-million or 77 cents a share in the quarter ended April 28, compared with $179.9-million or 63 cents in the same period the prior year. The company benefited from lower shipping and logistics costs in the quarter, although store labour costs have risen.
Total sales increased by 8.6 per cent, to $1.4-billion in the quarter, resulting both from comparable sales growth and an increase in the number of stores. Dollarama had 1,569 stores as of April 28, having opened 62 new locations over the previous 12 months.
Also on Wednesday, Dollarama announced that it has increased its stake in Latin American discount retailer Dollarcity, and plans to expand the business.
The Canadian retailer purchased 50.1-per-cent of Dollarcity in 2019, and has increased its stake to 60.1 per cent, in exchange for 6,060,478 Dollarama common shares. Dollarama shares were trading at around $120.54 at close on Wednesday. Dollarama has an option to purchase an additional 9.89 per cent in Dollarcity equity in the future, with that option expiring on Dec. 31, 2027.
Dollarcity operates stores in Colombia, Guatemala, El Salvador and Peru, and has been expanding in those markets. On Wednesday, Dollarama announced that it had increased its growth target, and plans to nearly double its store count to 1,050 locations in those countries by 2031 – with growth primarily focused on Peru and Colombia. Its previous target was to operate 850 stores by 2029. Dollarcity had 547 stores as of March 31.
The company now also plans to expand into Mexico. Dollarama announced on Wednesday that it will indirectly have an 80.05-per-cent equity interest in that portion of the business, while Dollarcity’s founding stockholders will hold a 19.95-per-cent interest. Dollarama has the option to acquire a further 5-per-cent stake in the Mexico operation on or before Dec. 31, 2027. Dollarcity plans to open its first location in Mexico in 2026.
The company has more than tripled its revenues in Latin America since Dollarama acquired its majority stake. Mexico represents a large market where Dollarcity can offer items not currently available in that market, as well as others with an upgraded look and packaging compared with competing products, Mr. Rossy said on Wednesday’s call.