Dollarama profits jump 28% as inflation drives demand for cheaper goods

discount retailer Dollarama Inc Benefits it rose 28 percent in the first quarter as inflation-related demand for cheaper goods drove more traffic to its stores. But more price increases are on the way, the company’s chief executive said on Wednesday.

Dollarama already announced a new maximum price point of $5 in March, and it is not expected to increase further, but even at lower price points, there have been a greater number of margins during the last year than in previous years. Like all retailers, Dollarama is grappling with rising transportation costs, including ocean freight, and has passed some of those higher costs on to shoppers. The retailer is also experiencing more sustained pressure on wages than executives expected three or four months ago.

“All of the competitors have had no choice but to pass on costs, including ourselves, because the amount of the cost increases… have been just unbelievable,” CEO Neil Rossy said on a conference call to discuss the company’s earnings on Thursday. Wednesday. Dollarama’s position has always been that it maintains “relative value,” or prices that are competitive compared to other retailers, but will continue to see cost increases at the store level, he said.

The Montreal-based retailer reported Wednesday that its net profit rose to $145.5 million or 50 cents a share in the 13 weeks ending May 1, compared with $113.6 million in the same period last year. previous.

Adding to inflationary pressures, the removal of pandemic-related restrictions on store purchases earlier in the quarter helped fuel a double-digit increase in customer traffic to Dollarama. FOOL stores, the company reported.

Dollarama has been pre-ordering products earlier than usual to try to improve its stock position on products that are short, and it expects its inventory position to improve in the second half of its fiscal year. Shipments have been delayed six to eight months in some cases. The first orders mean that as products come in, Dollarama will also incur higher storage costs, Rossy said, adding that getting products from factories to warehouses is a “constant battle.”

Some retailers in the US that have faced similar pressures have recently found themselves carrying more inventory than necessary, as shoppers spend more on going out and traveling, and less on discretionary goods. On Tuesday, Target Corp. said it would be forced to cut prices to clear excess inventory. But Dollarama CFO JP Towner said Wednesday that this is not a concern for the retailer. He noted that Dollarama has always packed up leftover inventory at the end of each season for the following year, something it can do because the items the company sells never go out of style.

Strong demand for seasonal products and higher sales of consumables such as food and household items boosted Dollarama’s sales. Comparable store sales, a key figure that measures sales increases unrelated to new store openings, grew 7.3 percent in the quarter, a faster pace of growth than the same period last year.

Increasing sales of lower-margin consumables slightly affected Dollarama’s gross margins in the quarter, although this was offset by lower logistics costs, according to the company. Gross margin was 42.1 percent of sales compared to 42.3 percent in the same period last year.

Retailers have noted that shopping patterns seen during the height of pandemic restrictions have reversed, with people going to stores more often and stocking up less each trip. Dollarama reported that the number of transactions at its stores increased 14.4% in the quarter, while the average size of those transactions decreased 6.2%.

New store openings have also helped boost sales. The company opened 10 net new stores in the quarter, for a total of 1,431 stores as of May 1. Total sales in the first quarter increased 12.4% to $1.1 billion.

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