MONTREAL – Discount retailer Dollarama says it plans to stick with its winning formula as its expands to 1,200 stores over the coming years by not offering more lower margin grocery or pharmaceutical items.
“For me the future is the present. I’m very happy with our offering today,” CEO Larry Rossy said Thursday during a conference call to discuss its second-quarter results.
Dollarama (TSX:DOL) announced a two-for-one stock split as it reported its profit increased 15.3 per cent from a year ago to $68.8 million on a 12 per cent boost in sales.
The Montreal-based company said it earned $1.03 per share, compared with $59.7 million, or 82 cents per share, in the same quarter last year.
Sales increased to $572.6 million, versus $511.3 million year-over-year.
Same-store sales — a key retail measure that reflects sales at stores that have been open for at least a year — were up 4.2 per cent year-over-year. That’s on top of a 6.2 per cent increase in same-store sales last year.
The sales growth included a 3.1 per cent increase in average transaction size and a 1.1 per cent increase in the number of transactions.
Nearly two-thirds of sales came from products priced higher than $1, up from 61.7 per cent a year ago. The use of debit cards increased 2.1 percentage points to 42.7 per cent.
The retailer sells a small assortment of over-the-counter drugs like pain killers, clothes and non-perishable food, but has no intention of following its American dollar store rivals by expanding these categories, especially food.
“I think that the offering that we have today and the categories that we have are exactly what the customers expect and we don’t want to transition our store into a grocery store — absolutely not because we like the margins we’re making and we’re not favourable to the margins of the grocery industry.”
About half of Dollarama’s products are general merchandise, 13 to 14 per cent seasonal products and about 36 per cent consumables.
Dollarama said the stock split will be done through a share dividend.
The company said it will pay a dividend of one share per outstanding share on Nov. 17 to shareholders of record at the close of business on Nov. 10.
The chain said 18 net new stores were opened during the second quarter of fiscal 2015 and 43 so far this fiscal year. It remains on target to expand its Canadian store network by 70 to 80 stores this year.
Dollarama has 917 stores across the country, selling a variety of merchandise at prices up to $3. It expects to continue adding locations annually until it reaches a saturation point of some 1,200 stores under its current store format.
Meanwhile, the company said the January increase in duties on goods imported from China won’t have a material impact on its results.
“It’s an extra cost to doing business as the dollar is and we’re going to handle it the same way,” Rossy told analysts.
Chief financial officer Michael Ross said the company has had enough lead time to deal with the one-time increase in costs caused by Ottawa’s decision to end general preferential tariff treatment for 72 countries, most notably China, Brazil, Hong Kong and India.
“It’s less significant than the currency impact and we’re treating it the same way we’ve been treating forever inflation, wage increases, currency fluctuations and so on.”
Analysts welcomed both the results and Dollarama’s bullish outlook for continued sales and profit increases.
“Based on commentary we remain confident in Dollarama’s ability to continue to deliver industry-leading performance metrics,” wrote Irene Nattel of RBC Capital Markets.
Keith Howlett of Desjardins Capital Markets said the results are evidence that consumer response to the chain remains strong and that lower same-store sales in the two preceding quarters was largely weather-related.
“The dollar store segment is consolidating into the hands of the strongest players, with Dollarama and Dollar Tree gaining market share,” he said, pointing to more than 200 stores in Canada by the U.S. company.
Shares in the company were up eight cents at $93.95 in early afternoon trading Thursday on the Toronto Stock Exchange.
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