Dollarama profit down, but sales up
Retailer earned nearly $86.1 million for the quarter ending May 3
Dollarama Inc. experienced a drop in profit during its most recent quarter, but still topped the expectations of analysts who believed the pandemic would weigh more on the company’s bottom line.
“Following a volatile sales environment in Q1, we are happy and pleased with the momentum we’re seeing in our business now in the early part of the second quarter,” chief financial officer Michael Ross said during a conference call with analysts after the company released its first-quarter financial results Wednesday.
The Montreal-based retailer earned nearly $86.1 million, or 28 cents per share, for the quarter ended May 3 compared with a profit of $103.5 million, or 33 cents per share, in the same quarter a year earlier.
That beat the Desjardins Securities estimate and analyst consensus of 26 cents per share, analyst Chris Li wrote in a note.
“The outperformance came from better-than-expected same-store sales and gross margin as the negative impact of COVID-19 was less than what we and the Street had expected,” he wrote.
Same-store sales, a key retail metric, grew 0.7 per cent for the quarter, excluding stores temporarily closed due to the pandemic. The company saw a 22.6 per cent increase in average transaction size, but a 17.9 per cent drop in the number of transactions as people reduced their shopping frequency, but purchased more at a time.
Analysts expected the metric to fall by 3.6 per cent for the quarter, noted Li.
Including the temporarily shuttered locations, same-store sales fell 2.4 per cent for the quarter.
Sales totalled $844.8 million, up from $828.0 million a year ago.
The company experienced a surge in store traffic in early March, said CEO Neil Rossy, as customers stocked up on household and cleaning products, health and hygiene goods, and food.
“It comes as no surprise that demand for Easter and early summer seasonal goods, party supplies and greeting cards was lower in these exceptional circumstances,” he said.
In late March, Dollarama saw a sharp decline in store traffic, he said, as governments and health authorities imposed strict measures to help curb the spread of the coronavirus.
The company’s stores in malls were the most impacted, he said. These represent about a quarter of the company’s locations.
By the end of April, he said, the situation began to stabilize and some provinces started announcing plans to reopen their economies and customers started to venture out more.
The company anticipates a slow and careful resumption of activities throughout Canada during its second quarter, he said. Currently, 32 of Dollarama’s 1,301 stores remain temporarily closed. The company was deemed an essential service by some provinces and allowed to keep its stores open in many areas.
While several categories, such as party and greeting cards, remain down, others are higher than normal, said Ross, such as summer and pool toys, and gardening supplies.
The company is taking educated guesses for how much stock it purchases for the future, Rossy said.
For the upcoming Halloween and Christmas holiday season, it is continuing with a businessas-usual approach for the most part, while being more conservative about purchasing consumable goods, such as candy and chocolate.
In the second half of the first quarter, Dollarama spent $15 million to protect the health and safety of employees and customers, and to support employees.
It implemented strict protocols to minimize risk to employees and customers in any proven or probable case of COVID-19, including cleaning protocols, self-isolation directions and financial support for directly or indirectly impacted employees.