Dollarama provided the latest signal that the fourth quarter will be a challenge for Canada’s retail sector, after the national dollar-store chain said December sales were severely impacted by bad weather.
Montreal-based Dollarama (TSX:DOL) said store traffic fell significantly due to the temporary closure of about 80 stores or nearly 10 per cent of the chain during storms and power outages in Eastern Canada.
The biggest impact was felt in the two weekends before Christmas when stores were shut for several hours for up to two consecutive days.
“The corporation believes the decline in December sales to be an exceptional event as sales are now trending back to normal levels in January,” Dollarama said in a news release.
Analyst Irene Nattel of RBC Capital Markets said Dollarama won’t be the last retailer to warn that fourth-quarter results will be hurt by extreme weather.
“The combination of snowstorms in Quebec and Ontario both weekends before Christmas and extensive power outages will lead to a fourth-quarter shortfall for all retailers,” she wrote in a report.
Ernst & Young retail analyst Daniel Baer said the increasing popularity of Black Friday sales, tied to the U.S. Thanksgiving in late November, also worked against Canadian retailers.
He said deep discounts a month or more before Christmas and the Boxing Day shopping period in Canada conditioned shoppers to expect sales throughout the holiday shopping season.
Statistics Canada won’t release official retail sales figures for December until the end of February.
However, Moneris Solutions – a major operator of point-of-sale terminals used at Canadian check-out counters – said overall spending increased by 1.95 per cent in the fourth quarter, noting that the increase was lower than in the previous three quarters of the year.
The impact of the ice storm caused in-store spending to fall 2.62 per cent in Ontario from Dec. 20 to 24, Moneris said.
Dollarama said Friday that its comparable-store sales in the busiest month of the year were down 7.5 per cent from a year earlier, largely offsetting an 8.4 per cent increase in November.
Sales in the first two months of Dollarama’s fourth quarter decreased by 1.4 per cent from the prior year.
Several retailers have already warned that lower sales will pressure fourth-quarter results.
Women’s apparel retailer Reitmans (Canada) Ltd. (TSX:RET.A) said holiday sales fell 5.3 per cent for the five weeks ended Jan. 4, compared with the same time last year.
Target Corp. anticipates a deeper loss of about 45 cents US per share for the quarter, more than the loss of 22 cents to 32 cents US it had previously projected.
Sears Holdings Corp. said it faces a hefty loss for the fourth quarter and full-year, and blamed it partly on a drop of 4.4 per cent in sales at its Canadian stores between Nov. 3 and Jan. 6.
Dollarama didn’t provide an estimate for its fourth-quarter results, which began Nov. 4 and ends Feb. 2. The results are expected to be issued in early April.
Prior to Dollarama’s statement before markets opened Friday, analysts were looking for it to generate about $617-million of revenue and $1.21 per share of adjusted earnings in the fourth quarter.
Nattel said Dollarama’s performance in the final two months of the year suggests that same-store sales will be flat or up slightly, instead of the 5.5 per cent increase she had previously forecast.
Nattel lowered her earnings forecast for the company’s fourth quarter by nearly 10 per cent to $1.10 per share.
She added that the longer-term outlook for Dollarama remains intact, with the company expected to increase its dividend by 18 to 20 per centl.
“In our view, no other Canadian retailer offers similar consistent growth and visibility in the current challenging retail environment.”
Derek Dley of Canaccord Genuity said the lower December sales will reduce fourth-quarter earnings per share by about seven per cent.
He said sales weakness in December was a one-time event, with the robust increase in November as evidence of the company’s “accelerating top line growth.”
Canada’s largest dollar store operator has 847 locations across the country, offering products up to $3.