Dollarama posts blockbuster earnings results

Reaps upside of $4 price points, credit card option

Dollarama Inc.’s decision to introduce credit card payment as an option at its stores is clearly paying off.

The retailer, which began allowing customers to use credit cards during the second quarter ended July 30, reported blockbuster earnings results on Thursday, with sales growth of 11.5 per cent and earnings per share growth of 31 per cent. The Montreal retailer’s shares ended the day 10.6 per cent higher to $134.72 on the Toronto Stock Exchange.

Chief financial officer Michael Ross told analysts on a conference call that average checkouts at the till with a credit card are already running more than twice the average basket size at the till for a cash transaction. That was substantial enough to offset the merchant’s added costs from offering credit card payment as an option, he said. Dollarama said that average basket size at the checkout rose 5.9 per cent.

Its newer $4 items appear to be just as popular with customers as lower-priced goods, according to industry analysts.

“We believe there has been good consumer acceptance of higher price point items,” Peter Sklar, analyst at BMO said in a note to clients Thursday, noting management said that seasonal merchandise performed well in the quarter. “We believe penetration of higher priced items is greater in the seasonal category than Dollarama’s other product categories,” he said.

In addition, related to the industry metric of inventory turns, Ross said the pricier products appeared to be moving as quickly at the $4 price.

Pricing and consumer perception of its prices is critical for Dollarama, not only because it has carved out its reputation as a low-cost retailer but because it does hold targeted discount sales on select items.

“If we are selling looseleaf (paper) at $1.25 or $1.50 and it is a great value for 50 weeks of the year and during two weeks of the year the other retailers decide to give it away for 10 cents, then for two weeks of the year (customers) won’t buy it at their stores and for the rest of the year hopefully they will, because we are just not in that high-low headspace,” chief executive Neil Rossy told analysts. “On any given day any given item, somebody will be beating us, and we don’t like to play that game or chase that low low.”

Net income climbed to $131.8 million, or $1.15 per share, in the second quarter, up from $106.4 million, or 88 cents, a year ago. That beat analyst mean estimates of $1.04, according to Thomson Reuters.

Same-store sales, a key measure of retail performance, rose 6.1 per cent, and sales in the second quarter rose 11.5 per cent to $812.5 million.