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A woman walks past a Dollarama store in downtown Montreal, Quebec, April 23, 2020.

Christinne Muschi/The Globe and Mail

Will kids still go trick-or-treating during a pandemic? That’s a question that hangs over discount retailer Dollarama Inc. as it prepares for the all-important holiday season.

Seasonal products are an important sales driver for Dollarama since they earn higher margins – and a decrease in holiday sales could impact the company’s profit margins for the fall and winter seasons. The Montreal-based company reported on Wednesday that its second-quarter sales were boosted by summer products, as people stuck at home bought more gardening and barbecue supplies. But while the stores are stocking as normal for the holidays, executives are cautioning that they expect softer sales around Hallowe’en this year, and that there is uncertainty around people’s buying habits in the Christmas season.

“We don’t know whether people will compensate by simply wearing masks and being more careful, but still engaging in those seasons – which we’re hopeful they will, to try to maintain normalcy as much as possible,” chief executive officer Neil Rossy said on a conference call to discuss the company’s earnings. “…We’re all guessing. This is a debate, about whether society is fearful, or aggressive to have fun at this point in time.”

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Over the summer, demand for party supplies was lower than in other years. The door-to-door activity at Hallowe’en is expected to decrease, Mr. Rossy said, but it’s possible people will have more limited gatherings to mark the holiday.

“We continue to be hopeful that people will engage at Hallowe’en and Christmas,” Mr. Rossy said.

“Yesterday I bought a good amount of spectacular Christmas-decorated KN95 masks,” he added later on in the call. “Hopefully those masks will encourage people to get close and hug their families while still protecting themselves.”

The company reported Wednesday that its second-quarter sales grew 7.1 per cent, to $1-billion, driven by continued demand for cleaning products as well as summer items. Comparable store sales -- an important metric that tracks sales growth at stores open more than a year – were up 2.5 per cent in the thirteen weeks ended Aug. 2. Excluding stores that were temporarily closed during the pandemic, comparable sales rose 5.4 per cent.

Store traffic improved in the quarter as provinces lifted restrictions designed to curb the spread of COVID-19. While most of Dollarama’s stores were allowed to remain open during the pandemic to provide essential goods such as packaged foods and household items, 104 were forced to close, mostly in shopping malls that were shut down. All of the company’s 1,314 stores had reopened by June 19; 83 locations are still operating at reduced hours.

Shoppers continue to visit Dollarama stores less often but buy significantly more during each trip – a pattern other retailers have noted as the pandemic continues to affect shopping behaviour. Dollarama reported that the average transaction size rose by 41.7 per cent in the quarter, while the number of transactions fell by 25.7 per cent.

The retailer’s supply chain has stabilized, with many high-demand items now fully in stock, Mr. Rossy said on Wednesday. The only items Dollarama cannot buy as much as it would like is Lysol wipes, he added, though the company has sourced another brand of antibacterial wipes that will be in stock soon.

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Dollarama reported $34.3-million in costs related to COVID-19 in the second quarter, which included costs related to cleaning and physical-distancing protocols in stores, and bonuses paid to store employees from March 23 to Aug. 2.

The company reported net earnings of $142.5-million or 46 cents per share, compared to $143.2-million or 45 cents per share in the same period last year.

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