Dollarama’s profit is skyrocketing
Low-cost retailer has avoided many issues plaguing its U.S. counterparts
Dollarama’s impressive fourthquarter results announced Thursday set the Canadian value retailer apart from struggling U.S. counterparts like Dollar Tree and Dollar General.
Dollarama reported a 24 per cent jump in profits to $323.8 million in the quarter ended Jan. 28 from $261.3 million a year earlier.
It also boosted dividends by 29.9 per cent to 92 cents per common share. Notably, same store sales grew 8.7 per cent in the fourth quarter and 12.8 for the fiscal year.
“Our strong financial and operational performance demonstrates the enduring strength of our business model,” Neil Rossy, president and CEO of Dollarama, said in a statement. “Our compelling value proposition continues to resonate with consumers, including in an uncertain economic context.”
The Montreal-based company stands out among other dollar stores in North America, which have seen a major slowdown in business, reporting lower sales volumes and store closures, despite higher prices and interest rates driving more consumers to discount retailers.
Known for its massive presence in rural America with more than 19,000 locations, Dollar General recently announced a decline in both quarterly and yearly profits, and a small growth in same store sales of 0.2 per cent in the fiscal year. It cited facing “operational challenges” such as increased retail labour costs and lower inventory markups in its latest report.
Dollar Tree, the Fortune 500-listed retailer with a small presence in Canada, is preparing to shutter up to 1,000 stores south of the border after it recorded a fourth quarter loss of $1.7 billion (U.S.), down from a $452 million profit a year earlier.
With these stores facing hardships even under favourable
economic conditions, will Dollarama be the last dollar store standing?
“Dollarama just happens to be extremely efficient in what they do,” said Moritz Steinbauer, senior vicepresident at Morningstar DBRS. “Overall, their logistics infrastructure is very lean.”
It also stands to benefit from the lack of competition in the retail sector in Canada, whereas the U.S. market has several players competing on price, Steinbauer said.
“In the U.S., you have Family Dollar/Dollar Tree, Dollar General, obviously Walmart, which has a much larger presence. You have the new online Amazon competitor that also focuses on the budget segment,” he said.
Dollarama has long abandoned its dollar-per-item proposition, raising its price cap on products to $5, which means they can offer a greater selection of products to Canadian consumers, Lisa Hutcheson, managing director at retail consultancy J.C. Williams Group, told the Star in March.
But with economic pressures expected to subside this year as interest rates come down, there is the risk that consumers will return to older, more expensive habits, which could be bad news for dollar stores. Dollarama is already predicting same store sales growth to decline to around 3.5 and 4.5 per cent in the current fiscal year.
Still, Steinbauer doesn’t believe this would lead to the demise of dollar stores. “I don’t think they’re going to fall off a cliff or anything as people have more money to spend again.”