Dollarama still bullish on expansion as profits slip amid pandemic

Dollarama Inc. remained bullish on the future of the discount chain in Canada even as its profits slipped amid higher costs and restrictions related to the pandemic in its latest quarter.

The Montreal-based retailer raised the number of stores it plans to have in Canada to 2,000 within the next decade, a nearly 50 per cent jump compared with its total of 1,356 stores at the end of January.

"Based on our experience, our historical performance and what we see going forward, we feel very confident in raising our long-term store target at this time," Neil Rossy, Dollarama president and CEO, said on a call with analysts Wednesday morning.

The new target is up from an earlier goal of 1,700 stores by 2027. The discount retailer also said it plans to increase its quarterly dividend by seven per cent.

Shares of Dollarama rose about 5.5 per cent in early afternoon trading on the Toronto Stock Exchange.

The plan to open new stores across the country continues despite a tough fourth quarter — historically the company's strongest sales period of the year.

"Our strong sales momentum was interrupted by the introduction of more stringent public health measures in several provinces in the month of December," Rossy said in a statement. "These stricter measures resulted in an abrupt and sustained decline in store traffic and sales through to fiscal year-end."

In Quebec, where Dollarama operates nearly a third of its stores, retailers were prohibited for much of the winter from selling items deemed non-essential, with some stores cordoning off entire aisles of merchandise.

Though the ban went into effect on Dec. 26, Dollarama chief financial officer Jean-Philippe Towner said on the earnings call that the impact on store traffic began shortly after the announcement of the new restrictions in mid-December.

Return to sales of non-essential items in Quebec

"The strong sales momentum has returned following the end of some of the COVID-19 restrictions, especially the ban on the sale of non-essential items in Quebec," Desjardins analyst Chris Li said in a memo.

The retailer said it earned $173.9 million or 56 cents per diluted share for the quarter ended Jan. 31, down from a profit of $178.7 million or 57 cents per diluted share a year earlier.

Sales in the 13-week period totalled $1.10 billion, up from nearly $1.07 billion. Excluding temporarily closed stores, comparable store sales for the quarter fell 0.2 per cent compared with a year earlier.

Meanwhile, Dollarama's full-year results showed positive growth, with sales increasing 6.3 per cent to $4.03 million in fiscal 2021.

"We achieved solid results in a truly unprecedented year, which reconfirmed the resilience of our business model and the relevance of our offering to Canadians from all walks of life," Rossy said in a statement.

Like other retailers, Dollarama has faced rising costs associated with health and sanitation for its workforce. For the last fiscal year, Dollarama invested $84 million in COVID-related measures, Rossy said.

In January, Quebec's workplace safety board issued 11 fines to nine Dollarama locations for failing to respect provincial sanitary guidelines. The fines came after Dollarama workers protested last year over what they described as inadequate sanitary measures at the company's facilities.