Dollarama sales, profit way up after growing total number of stores

If domestic manufacturers and suppliers keep pushing their prices up on food and several household goods, Dollarama Inc.’s chief executive says retailers will have no choice but to raise prices too.

“Retailers are doing their best not to push those costs on to the consumers, but retailers can only absorb so much,” Neil Rossy told analysts on a conference call Wednesday to discuss the company’s latest results.

He said the increases have come from the consumables category, which Dollarama defines as paper, plastics, foils, cleaning supplies, basic health and beauty care products, pet food, confectionery, drinks, snacks and other food products.

General merchandise, which runs the gamut from party supplies to greeting cards and electronics and kitchenware, hasn’t seen the same shift in pricing pressures, Rossy added.

His remarks come as Canadians have been grappling with rising costs for the last two years, putting a strain on budgets and causing some to adopt more price-conscious behaviour.

Inflation eased considerably over the last year, reaching 3.1 per cent in October, but remains above the Bank of Canada’s target of two per cent.

Inflation has had some positive impacts for Dollarama as customers have been drawn to the Montreal-based chain’s lower prices, bringing added foot traffic and purchases to its stores.

The retailer said Wednesday it earned $261.1 million or 92 cents per diluted share for the 13-week period that ended Oct. 29, up from a profit of $201.6 million or 70 cents per diluted share a year earlier.

Sales totalled $1.48 billion, up from $1.29 billion in the same quarter last year.

Dollarama says the increase in sales was driven by growth in its total number of stores and increased comparable-store sales, which evaluates sales at a company’s existing stores.

Dollarama ‘resonates with cash-strapped Canadians’

Irene Nattel, an analyst with RBC Dominion Securities Inc., took such numbers to mean that Dollarama’s strategy “resonates with cash-strapped Canadians,” she said in a note to investors. The quarter’s results reinforce the narrative that management is focused on productivity and efficiency, she wrote.

Asked by an analyst whether Rossy is worried customers who “traded down” to Dollarama to cope with price increases will “trade up” if inflation eases more, the chief executive brushed off concerns.

“When they’re trading down, consumers tend to look at Dollarama as a solution … and when the market and the economy are strong, there are just more dollars to spend,” he said.

“The most important thing is that we convert them into believers in Dollarama’s value and convenience so that they keep coming back regardless.”

Rossy’s confidence is baked into the company’s outlook, which now forecasts comparable-store sales for its full year to grow 11 to 12 per cent, up from earlier expectations for growth of 10 and 11 per cent.