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 told during a conference call with analysts after the company released its first-quarter financial results on June 10.

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% for the quarter, excluding stores temporarily closed due to the pandemic. The company saw a 22.6%  increase in average transaction size but a 17% 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% for the quarter, noted Li. Including the temporarily shuttered locations, same-store sales fell 2.4% for the quarter.

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 re-open their economies and customers started to venture out more.“However, store traffic continued to be adversely impacted by physical-distancing measures in place.”

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 business-as-usual approach for the most part, while being more conservative about purchasing consumable goods, such as candy and chocolate. “But for the other stuff, it can last another year, it’s not time sensitive,” said Rossy. “And so we’re going to take the risk of having too much holiday season goods in order to be sure that we have the goods should things get back to normal.”

Higher operational costs related to COVID-19 also affected margins, including a temporary 10% wage increase; added staff shifts to handle increased cleaning protocols and to control traffic into stores; spending on plexiglass shields at cash registers; and reduced store hours. The company said it had $15-million in direct costs related to the pandemic during the first quarter. 

Dollarama’s total sales for the quarter increased by 2% to $844.8-million, driven mainly by 65 new store openings since the same period last year. The company’s net earnings fell to $86.1-million or 28 cents per share, compared with $103.5-million or 33 cents per share in the same period last year.

Source: The Star
Source: Globe and Mail