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Dollarama's first-quarter sales growth was driven mostly by an increase in the number of stores, the company reported.Paul Chiasson/The Canadian Press

Dollarama Inc.’s first-quarter sales rose nearly 13 per cent to $954.2-million, but the discount retailer was hit by a new round of restrictions as Canadian governments took measures to curb the third wave of COVID-19.

The Montreal-based retailer’s sales growth was driven mostly by an increase in the number of stores, the company reported on Wednesday. Dollarama had 1,368 stores as of the end of the first quarter on May 2, compared with 1,301 a year before.

New government restrictions, such as limits on store capacity and the sale of non-essential goods, were introduced in April – including in Ontario, where 40 per cent of Dollarama’s stores are located. Before the latest restrictions, Dollarama’s comparable sales grew by 15.2 per cent in the nine weeks ended April 4. (Comparable sales is an important metric that tracks sales growth not affected by new store openings.) But for the full 13 weeks ended May 2, comparable sales growth was 5.8 per cent compared with the prior year.

Restrictions on the sale of non-essential goods in Ontario, which will be lifted on Friday, will affect the first 5½ weeks of the company’s second-quarter results as well. Dollarama saw a strong comeback from customers in Quebec – which also banned the sale of non-essential items earlier this year and again in April and May – when restrictions were eased, chief financial officer Jean-Philippe Towner said on a call with analysts on Wednesday. They are hoping for higher activity in Ontario beginning Friday, he added.

“Nothing breaks the heart of a retailer more than not being able to sell something that you have, that the customer wants,” chief executive officer Neil Rossy said on the call when asked about consumer frustration with the restrictions in Ontario. “I think over all the vast majority of customers understand that we’re simply following the rules of the land. And they’re super excited, I believe, to get back in the stores and be able to go buy those summer, gardening, picnic things that they’ve been staring at and excited to get their hands on.”

Comparable sales growth in the quarter was driven by the higher sale of seasonal items, such as Easter candy and decorations, and spring and summer goods. That marks a reversal in buying patterns compared with the first quarter of last year, when the onset of the pandemic drove a spike in sales of lower-margin consumable items, such as cleaning products and food, and a decline in seasonal sales.

Retailers across the industry have been affected by delays in shipping and shortages of shipping containers globally. Dollarama is able to control which containers it ships at a given time to prioritize in-demand goods and mitigate the impact on sales, Mr. Rossy said.

“Certainly the availability of containers and the cost of shipping is a major challenge for everyone,” he said.

Inflationary pressures are also affecting the retail industry, but Dollarama executives did not provide guidance on when price increases might be implemented at the stores. Mr. Rossy reiterated that they continue to monitor factors such as inflation, and prefer to follow competitors rather than being first to raise prices.

“We think Dollarama’s improving profit margins are a positive sign that the company will be able to pass along cost increases to customers as inflationary pressures grow over the next several months,” Edward Jones analyst Brian Yarbrough wrote in a research note on Wednesday.

Dollarama’s profit rose to $113.6-million, or 37 cents per share, from $86.1-million, or 28 cents, in the same period last year.

At the company’s annual general meeting on Wednesday, the BC Government and Service Employees’ Union presented a motion requesting that Dollarama “prepare a report outlining how it assesses and mitigates the human rights risks arising out of its use of third-party staffing agencies for its warehouse and distribution centre staffing needs.” The proposal was voted down at the meeting.

A news conference the day before the meeting, which the union held jointly with Montreal’s Immigrant Workers Centre, included testimony from a former temp agency employee at one of Dollarama’s distribution centres who complained about the lack of safety equipment, including masks. Mr. Rossy responded at the meeting that Dollarama’s use of employment agencies to hire and train employees is necessary to maintain significant staffing requirements that fluctuate throughout the year. Mr. Rossy added that the company complies with employment law requiring the same health and safety standards for both the company’s own employees and agency workers, and that its wages are competitive.

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