Dollarama Inc. recorded another strong quarter as inflationary pressures continue to drive consumer demand for consumable products at the discount retailer.
The Montreal-based retailer raised its comparable-store sales growth guidance Wednesday as it reported that its third-quarter profit and sales were up compared with a year ago.
During a call with analysts, Dollarama’s chief financial officer, J.P. Towner, said the retailer saw a third consecutive quarter of “higher than historical demand” for consumable products, a category that includes food as well as items such as laundry detergent, that can only be used once.
“Canadians from all walks of life continue to seek value in lower prices on the goods they need,” he said.
The company cited current economic conditions as a significant factor in the demand from new customers as food prices have increased faster than overall price growth figures through much of the year, peaking with 11.4 per cent increase in August.
During the call, Dollarama’s chief executive officer Neil Rossy said convenient store locations and low costs will retain the discount retailer’s new customer base.
“Our value promise and a high inflation environment is even more relevant as consumers juggle the pressure on their wallets and adjust their spending strategies,” said Rossy.
Inflation driving higher prices
As Dollarama, traditionally known for prices between $1.25 and $2.50, continues to stock additional items at $5, Rossy said the rollout has gone as planned and the company has yet to receive negative feedback regarding the higher prices.
Rossy said while the company would like to have a $1 offering for each category, in some cases it is not possible due to the cost of raw materials and higher prices from domestic vendors.
“I can’t control, even though I would love to, what our vendors come in with, as far as cost,” he said.
The chief executive said the company will continue “fighting the fight” in regard to purchasing and managing the cost, especially that of domestically purchased goods.
The financial pressures placed on Dollarama are the same as every other Canadian retailer, said Rossy.
Dollorama continues expansion
The discount retailer opened 18 new store locations in its third quarter for a year-to-date total of 41 net new stores.
“We expect a busy Q4 on the real estate front and remain on track to reach our full-year target of 60 to 70 net new stores,” said Rossy.
Dollarama announced Wednesday that it had signed a deal to buy three contiguous industrial properties in Mount Royal, Que., near its centralized logistics operations and next to its distribution centre for $87.3 million.
The company plans to redevelop the site to support its future logistics and warehousing needs.
“This will provide us with additional flexibility to support our long-term logistics needs as we pursue our target of 2,000 Dollarama stores in Canada by 2031,” Rossy said.
RBC Dominion Securities Inc. analyst Irene Nattel said in a report that the company’s third-quarter results reflect Dollarama’s “strong value positioning for consumers, particularly sought after in the current high inflation environment.”
Dollarama reported earnings of $201.6 million or 70 cents per diluted share for the 13-week period ended Oct. 30, compared with a profit of $183.4 million or 61 cents per share in the same quarter last year.
In its guidance for the year, Dollarama says it now expects comparable-store sales growth for its current financial year to be in a range of 9.5 to 10.5 per cent compared with earlier expectations for a range of 6.5 to 7.5 per cent.
The company also narrowed its guidance for its annual gross margin as a percentage of sales to a range of 43.1 to 43.6 per cent compared with earlier expectations for a range of 42.9 to 43.9 per cent.
Sales for the quarter totalled $1.29 billion, up from $1.12 billion a year earlier.
Comparable-store sales rose 10.8 per cent as the number of transactions climbed 10.3 per cent and the average transaction size gained 0.4 per cent.