Dollarama hikes full-year sales forecast as inflation drives more Canadians to discount retailers

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Dollarama Inc. DOL-T has boosted its sales-growth forecast for the year, as inflation drives Canadians to change their shopping habits and visit discount retailers more frequently.

The Montreal-based store chain had previously expected comparable sales growth of between 4 to 5 per cent this year, but announced on Friday that it was raising that outlook to a range of 6.5 to 7.5 per cent growth. Dollarama has seen customers buying more “consumables” such as food and household products at its stores.

“I do believe that there is probably some trading down because of the inflationary environment and the pressures on everybody’s wallets,” chief executive officer Neil Rossy told analysts on a conference call on Friday.

Existing customers are visiting the stores more often, and the chain is attracting new customers and gaining some market share in the current environment, according to the company. Dollarama reported a 32-per-cent jump in profits in the second quarter, and a 20-per-cent increase in the number of transactions rung up at its stores.

“It’s a great opportunity for us to keep some of those customers that might not otherwise have tested those items or come into our store for those items,” Mr. Rossy said.

Dollarama’s net earnings grew to $193.5-million or 67 cents per share in the 13 weeks ended July 31, 2022, compared with $146.2-million or 48 cents per share in the comparable period the year before.

Concerns over inflation have risen and have been impacting Canadians’ buying habits, said Tamara Szames, Canada retail industry adviser with research firm The NPD Group.

More than one-third of Canadian consumers told NPD they were looking for more promotions during its past quarterly survey of roughly 1,000 Canadian consumers in June; 18 per cent said they were planning to cut back on spending and 13 per cent were looking to buy fewer items overall.

“The consumer is really being cautious in terms of what they’re spending,” Ms. Szames said. During the back-to-school season, for example, many shoppers were focusing on “fundamental essentials, more so than the wants,” she added.

On the other hand, while some people are cutting back on consumer goods, they are also spending more on celebrations as pandemic restrictions lift and social events become more common. Dollarama reported that sales of party products were brisk in the second quarter.

And as the chain has begun introducing more products at its new $5 price point, Dollarama is beginning to widen its assortment of holiday-related goods such as decorations and tableware that it could not profit from at $4 or less, Mr. Rossy said.

Following massive supply chain disruptions that affected retailers around the world, the discount chain has been working to rebuild its inventory, including by ordering fall and winter seasonal items earlier than usual and increasing its “safety stock” backup in case items sell out.

Mr. Rossy said on the call that Dollarama should be well-stocked as it heads into important seasons such as Halloween and the holidays. Like other retailers, the company is still incurring higher-than-usual freight costs to bring products in. Although shipping container prices are normalizing, they are still “nowhere close” to pre-pandemic prices, chief financial officer J.P. Towner said.

Dollarama’s total sales increased by 18.2 per cent to $1.2-billion in the second quarter, driven partly by an increase in the number of stores. The company opened 13 net new stores in the quarter, and has opened 63 new locations since the same time last year, for a total of 1,444 stores across the country.

Comparable sales – an important measure that tracks sales growth not tied to new store openings – increased by 13.2 per cent in the quarter.