Dollar-plus items behind sales surge at Dollarama
Burgeoning company set to open 70 more stores by end of the year
It seems Canadians are shedding the stigma once attached to shopping at discount dollar stores, as sales surge at Dollarama Inc. and customers become increasingly comfortable paying more than a loonie for the chain’s products.
“People feel good now shopping at Dollarama. Before they were hiding their bags,” said a shareholder at the company’s annual meeting in Montreal on Wednesday.
“They were putting our bags into Zellers bags, right?” added CEO Larry Rossy, referring to the nowdefunct Canadian discount chain Zellers Inc.
The average checkout bill for a Dollarama customer rose 5.9 per cent in the first quarter compared with the same period last year, while the number of transactions grew one per cent — helping lift total sales 13 per cent to $566.1 million. Earnings per share rose 28 per cent to 50 cents per share, exceeding the average estimate of analysts surveyed by Bloomberg.
“At the end of the day, what matters is that customers leave our stores happy, with more in their baskets than they planned on purchasing,” said Rossy.
Shoppers are also willing to pay more for individual items at Dollarama, which currently top out at $3 — and chief financial officer Michael Ross says the chain is getting ready to bump that maximum price higher.
The company first added goods at $1.25, $1.50, and $2 — in addition to 69¢ candy. By spring 2012, half its sales came from merchandise over $1.
Later that year, it added items priced at $2.50 and $3.
Ross says the company does not know exactly when it will raise its “big ticket” items to $4, but says it likely won’t happen this year.
“The benefit is that we’re growing these price points continuously to those that you have already and it allows you to deepen the offering within a given category,” said Ross.
“At the same time, it gives you flexibility to deal with the economic environment, and it varies from year to year.”
In the quarter ended May 3, 73.2 per cent of Dollarama’s sales were generated from products that cost more than a dollar, compared with 62.3 per cent during the same period last year.
The company says its performance was helped by the increasing number of stores, along with continued organic growth as comparable store sales rose 6.9 per cent in the period.
Dollarama management says they do not believe the continued sales growth is a symptom of weary Canadians chasing discounts in tough economic times.
“There are a lot of things that happen in the environment, surrounding the economy, with energy, austerity, and all that. To tell you the truth, we don’t see the impact because with our model it’s the same with an economic downturn or if things are going well — people continue to go to Dollarama,” said Ross.
Dollarama opened 17 stores in the first quarter of fiscal 2016, compared with 25 a year earlier. The chain now has 972 locations across Canada.
Ross says Dollarama is increasing the target number of stores from 1,200 locations to 1,400 over the next several years, and plans to open between 70 and 80 by the end of 2015.
The company also announced Wednesday that it received approval from the TSX to repurchase up to 3.5 per cent of its shares.
Ross says the objective of the buyback is to pay out less in dividends, create better value for shareholders, and invest more in expanding the number of store locations.
The company is also beginning to upgrade its store infrastructure this year by rolling out Wi-Fi across its network to monitor inventory and sales.