Dollarama boosts outlook as inflation drives bargain-hunters to its stores

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Dollarama Inc. increased its sales forecast for the remainder of the fiscal year as consumers flock to discount stores on a hunt for bargains amid rising costs.

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The Canadian retail chain on Friday hiked its forecasted full-year store sales growth to between 6.5 and 7.5 per cent from its previous expectation of four to five per cent, saying it expects to continue benefiting from strong demand for “affordable, everyday items” amid inflation.

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“Canadians from all walks of life continue to adapt to the high-inflation environment,” chief executive Neil Rossy said during Friday’s earnings call.

Dollarama’s sales grew 18.2 per cent annually to over $1.2 billion for the second quarter, which the CEO attributed to strong demand for “everyday essentials” observed since the beginning of the year. The company said the sales increase was driven by growth in its total number of stores over the past 12 months.

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The retailer also registered strong seasonal sales during the quarter for both spring and summer products, such as beach toys and barbecue accessories, after a decline last year stemming from Ontario’s weeks-long ban on selling non-essential items during the COVID-19 lockdown.

Canadians from all walks of life continue to adapt to the high-inflation environment

Neil Rossy

“During that time, over 40 per cent of our total store network couldn’t sell non-essential items. This occurred during the peak spring seasonal sales period, which had a negative impact on customer traffic and overall sales,” Rossy said.

Executives said that with no incremental direct costs related to COVID-19 measures during the second quarter, its expenses represented a smaller percentage of sales compared to that of the previous year, which had an additional $11.7 million in such costs.

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Financing costs also jumped by $3.8 million for the quarter mainly due to higher average debt levels and a slightly higher average borrowing rate.

Dollarama reported net earnings of $193.5 million and said diluted net earnings increased by 37.5 per cent to 66 cents per share in the three months ending July 31.

As customers return to brick-and-mortar retail stores, the company is boosting inventory by purchasing fall and winter seasonal goods earlier than usual to avoid delays amid global supply chain disruptions.

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“It’s essential that our stores are well-stocked ahead of key seasons. I’m pleased with our progress in rebuilding our inventory to pre-pandemic levels,” Rossy said, adding that Dollarama’s inventory is now up to 40 per cent compared to the same period last year.

He said logistics operations are processing an exceptionally high volume of goods, putting the company in a solid position ahead of the upcoming key holiday season, and with Halloween just around the corner.

Dollarama said it’s also on track to open its annual target of between 60 to 70 new stores by the end of its fiscal year.

Shares were up 1.27 per cent to $80.51 in Toronto on Friday afternoon. Its stock is up 26 per cent so far this year.

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