Dollarama profit slips as COVID-19 lockdowns, restrictions hit results

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Dollarama Inc.’s sales were flat and profit declined slightly during the busy holiday season, as the discount retailer was affected by lockdowns, tightened restrictions on store traffic in some provinces and a temporary ban on selling non-essential items in Quebec.

Sales momentum has returned more recently, however. On Wednesday, Dollarama announced a 7-per-cent increase to its quarterly dividend paid to shareholders, from 4.7 cents to 5 cents per common share.

The Montreal-based retailer reported on Wednesday that comparable store sales declined by 0.2 per cent in the fourth quarter, which is usually its highest sales period of the year. Assuming no additional restrictive measures are introduced, however, the company expects a percentage comparable sales growth in the low teens in the current quarter, former chief financial officer Michael Ross said on a conference call Wednesday. (Mr. Ross retired on March 1, and remains with the company in an advisory role.)

Customers did stock up for the holidays last year, and demand for seasonal products spiked earlier than usual. But while comparable sales were up 7 per cent in the first five weeks of the quarter, traffic declined significantly after Alberta, Ontario and Quebec introduced new restrictions to curb the spread of COVID-19. Thirty per cent of Dollarama’s stores are in Quebec.

Over all, traffic declined by 21.4 per cent in the 13 weeks ended Jan. 31, though shoppers continued to buy more during each trip – a pattern that Dollarama and other retailers, such as grocers, have observed since the beginning of the pandemic. Dollarama’s total fourth-quarter sales grew by 3.6 per cent to $1.1-billion, with growth driven entirely by new store openings. The company reported net earnings of $173.9-million, or 56 cents a share, down from $178.7-million, or 57 cents a share in the same period the prior year.

“With such restrictions gradually lifted starting in February, strong sales momentum returned in Fiscal 2022 and has remained quarter to date,” president and chief executive officer Neil Rossy said in a statement.

The short-term impact of the pandemic has not dimmed Dollarama’s long-term outlook. The company announced Wednesday that it is planning to build more than 600 new stores in Canada over the next 10 years. Its new goal of 2,000 stores by 2031 is an expansion from its previously announced target of 1,700 stores by 2027. The retailer had 1,356 stores as of Jan. 31. Dollarama plans to open 60 to 70 new stores this year.

During a turbulent year in which the COVID-19 pandemic affected Canadians’ shopping patterns, sales grew at Dollarama amid surging demand for items such as cleaning products, household goods, seasonal products and food. Though Dollarama was forced to close some stores such as in shopping malls – and was restricted from selling non-essential items for temporary periods in Quebec and Manitoba – in many cases it was designated an essential retailer.

The pandemic has also introduced new pressures to the retail supply chain, as retailers and their suppliers have raced to keep up with shifting consumer demand. There have been delays in some shipments, particularly from Asia, and the cost of shipping goods has gone up. In response, some competitors have begun raising prices to compensate for the supply-chain pressures, Mr. Rossy noted on the conference call.

In the past, inflation has been a factor in Dollarama’s decision to raise prices – such as in 2016 when it introduced the $3.50 and $4 price points for some items in its stores.

“We’re a price follower, and therefore, we will absorb the impact of the inflation until the new price point that we have to offer – if we do a markup – is still the most competitive price,” Mr. Rossy said. “… We’re seeing inflation for sure. And as long as we feel comfortable that our next price point is a price point that keeps Dollarama’s price extraordinarily competitive, then it becomes an option for the buyers to use as a tool to help combat some of the headwinds that they have on a daily basis.”

For the fiscal year ended Jan. 31, Dollarama’s sales increased 6.3 per cent to $4-billion, driven by growth in the number of stores – from 1,291 locations on Feb. 2, 2020, to 1,356 on Jan. 31 – and comparable sales growth of 3.2 per cent in stores open more than a year.

Net earnings for the year were $564.3-million or $1.81 a share, up slightly from $564-million or $1.78 a share the prior year. While the company had higher sales, improved margins and a larger equity share of earnings from its majority stake in Latin American discount retailer Dollarcity, earnings were affected by higher costs related to COVID-19. Dollarama’s earnings per share were boosted by share buybacks during the fourth quarter. Share repurchases had been paused during the rest of the year as Dollarama conserved cash, but the company plans to resume buybacks in the coming year.

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