Dollarama sales surge as bargain hunters accept higher $5 price point: CEO

Dollarama Inc. reported its second-quarter profit rose compared with a year ago as it sales also climbed nearly 20 per cent. A person walks past a Dollarama store in Montreal, Wednesday, June 7, 2023. THE CANADIAN PRESS/Christinne Muschi

Even as inflation continues to rankle consumers, Dollarama Inc.'s chief executive says the launch of a new $5 price point has been "well accepted" by shoppers.

Neil Rossy insisted Wednesday that customers' willingness to pay a bit more for items stems from his company's careful timing around increases and focus on ensuring any higher price points are still driving "great relative value."

"We don't like to add price points until we really feel pressured," he said on a call with analysts.

"Each time we do that, because we wait so long and we spend so much time preparing, it's been well accepted."

Montreal-based discount chain Dollarama launched $5 items last year as inflation soared, positioning it as a way to boost the retailer's product assortment and help the company manage cost pressures. The rollout will continue in 2024.

The cost of goods still remains stubbornly high, especially in the grocery category where Dollarama competes, and as a result, Rossy has noticed consumers are taking up "value-seeking behaviour."

Value chains, including Dollarama, have been among the biggest beneficiaries of the shift toward bargain hunting.

The retailer said Wednesday it earned $245.8 million or 86 cents per diluted share for the quarter ended July 30, up from a profit of $193.5 million or 66 cents per diluted share in the same quarter last year.

Sales for the quarter totalled $1.46 billion, jumping 19.6 per cent from last year.

Comparable store sales for the quarter rose 15.5 per cent as the number of transactions climbed 12.9 per cent and the average transaction size increased 2.3 per cent.

In its fiscal full-year outlook, the company raised its expectations for comparable store sales growth to between 10.0 and 11.0 per cent.

The company had said in March that it expected comparable store sales growth for the year between 5.0 and 6.0 per cent.

Dollarama had 1,525 stores at the end of its most recent quarter, up from 1,444 a year earlier. It plans to have 2,000 stores operating in Canada by 2031.

Though many real estate firms report an increase in vacancies, Rossy said, "real estate is something that we must always chase down and stay on top of and manage."

"We've always wanted to open the bulk of our new store openings at the beginning of the year and that has always been something that escaped us even though we've tried," he said.

"Even though we've always wanted to and failed in the past, we've succeeded this year and we're all very proud of."

The market reacted positively to Rossy's remarks and the company's earnings, with Dollarama's share price rising four per cent or $3.59 to $92.95 in mid-morning trading.

RBC analyst Irene Nattel was also impressed.

"Results reflect Dollarama's strong value positioning for consumers, particularly sought after in the current high inflation environment, and overall financial results reinforce management focus on productivity and efficiency," she said in a note to investors.

This report by The Canadian Press was first published Sept. 13, 2023.