Purchases lift profits by 20% for Dollarama
Profits at Montrealbased Dollarama surged 20 per cent in the first quarter as consumers bought more during their average trips to the store and took to higher price points of up to $4.
Dollarama, which operates 1,108 stores across the country, posted profits of $94.7 million, or 82 cents per share, in the quarter ended April 30, compared with earnings of $83.2 million, (68 cents) in the same period a year ago. Analysts had estimated 79 cents per share of profit for this year’s first quarter, according to mean estimates from Thomson Reuters.
“The consumers seem to be happy with the relative value of the $3.50 and $4 price points, so the acceptance of them from the perspective of wins and losses or percentage of successful purchases by buyers has been pretty consistent and in line with other price points,” chief executive Neil Rossy told a conference call with analysts on Wednesday.
Dollarama began introducing goods priced above $1 in 2009 and has slowly incorporated pricier merchandise to its mix, introducing the new $3.50 and $4 last year.
Sales rose 10 per cent to $704.9 million as the dollar store giant added 13 new locations to its store network across the country, up from $641 million last year.
The company also broke out its wholesale revenues for the first time in the first quarter on the products it supplies to the Dollar City chain in El Salvador, Guatemala and Colombia, which amounted to about one per cent of total revenue in the quarter, or $7 million.
“Their purchasing patterns in general are very similar,” Rossy said of the customers in South and Central America, and added the store assortments are similar to that of Dollarama in Canada. “You are not going to sell too many gloves and hats in countries with an average temperature of 70 to 80 degrees, but of our everyday consumables stuff,” the majority of merchandise “has translated perfectly in those countries.”
Consumers spent 6.1 per cent more on their average basket at the till, though customer traffic declined 1.4 per cent. Gross margin was 37.6 per cent, an increase of 69 basis points year over year.
The rise in the average transaction value drove a 4.6 per cent increase in same-store sales, a key measure that tracks volume at stores open for more than a year.
Management noted the retailer’s results were up against unusually high same-store traffic increase in the year ago period of 2.8 per cent.
“Overall, this was a strong quarter for Dollarama, and was slightly better than anticipated due to the strong margin improvement and basket growth,” Peter Sklar, analyst at BMO Capital Markets, wrote in a note to clients.
By the end of the second quarter, all of Dollarama’s stores will accept credit cards, a practice that began rolling out at stores in April in addition to cash and debit cards.
“Our expectation is that acceptance of credit cards will increase the average transaction size, but reduce the number of trips to the store,” said Keith Howlett, an analyst at Desjardins Securities. “As a guidepost, transactions using debit cards at Dollarama are approximately twice the size of cash transactions.”