Dollarama's sales rose to $2.1-billion in the fourth quarter, largely driven by new store openings and its acquisition of Australia's The Reject Shop.Fred Lum/The Globe and Mail
The war in the Middle East has set off ripple effects in rising production and transportation costs, which will affect retailers and consumers over the next few months to a year, Dollarama Inc. DOL-T chief executive officer Neil Rossy said on Tuesday.
“I don’t believe that any retailer will escape the reality of global economics,” Mr. Rossy said during a conference call to discuss Dollarama’s financial results for the fourth quarter of its fiscal year ended Feb. 1.
The conflict adds to continuing consumer uncertainty, with inflation pinching household budgets, increased unemployment and trade tensions all contributing to a challenging economic backdrop.
The company released a forecast predicting its comparable sales growth could slow slightly in the coming year. Short-term higher costs related to the Middle East conflict are built into Dollarama’s guidance for its gross profit margins in this fiscal year, which it predicts to fall between 45 and 45.5 per cent. But if the conflict drags on or deepens, it may have negative consequences for profit margins and for the wider economy, chief financial officer Patrick Bui said during Tuesday’s call.
Bombings in the region by the United States and Israel, as well as retaliatory attacks by Iran on its Persian Gulf neighbours, have damaged oil and gas production and infrastructure. And Iran has effectively closed the Strait of Hormuz, which connects the gulf to global shipping routes and carries one-fifth of the world’s oil and liquefied natural gas.
While the scale of the impact is still uncertain, costs for raw materials, production and shipping are all being affected by increased oil prices, and that will trickle down the supply chain, Mr. Rossy said.
“We all hope for the consumer – and for the world, I would go so far as saying – that the conflict ends as quickly as possible.”
The Montreal-based discount retailer has always maintained that it is a “price follower,” and that it will not raise prices unless competitors do the same. On Tuesday, Mr. Rossy reiterated that Dollarama will only pass on increased costs “where absolutely necessary.”
Dollarama on Tuesday announced a 13.4-per-cent increase to its quarterly dividend, to 12 cents per share.
Dollarama forecasted same-store sales growth to be between 3 to 4 per cent in the year ahead. In the fiscal year ended Feb. 1, same-store sales grew by 4.2 per cent.
Same-store sales, which tracks sales growth excluding the impact of acquisitions or the opening of new locations, is an important metric in the retail industry.
The company’s stock price declined by 9.6 per cent in trading on the Toronto Stock Exchange on Tuesday, after the report.
Dollarama has benefitted in recent years from a challenging economic backdrop, as Canadians in search of lower-priced goods have been driven to visit discount stores more often – a trend that grocery retailers have also noted.
“Considering the current economic environment in Canada, we expect that consumers will continue to be cautious and deliberate in their spending,” Mr. Rossy said.
Rough weather in December and January negatively impacted foot traffic for Dollarama in its fourth quarter, with the number of checkouts at stores falling by 1.6 per cent. But shoppers bought more during each trip, leading to a 3.1-per-cent increase in average transaction size. Traffic recovered as the weather began to improve slightly in February, Mr. Bui said.
The company reported same-store sales growth of 3.5 per cent in the fourth quarter, when adjusted to remove the impact of an extra week that was included in the same period the prior year. Even with the adjustment, however, growth slipped somewhat compared to the prior year, when fourth-quarter same-store sales grew by almost 5 per cent.
The calendar shift also meant that the fourth quarter included four fewer days of pre-Halloween sales – a strong sales period for the stores – compared to the year before.
Dollarama reported $2.1-billion in sales in the fourth quarter, up 11 per cent compared to the same period the prior year. That increase was largely driven by Dollarama’s acquisition last year of Australia’s largest discount retailer, The Reject Shop – whose 402 stores were not part of the fourth-quarter results the prior year – as well as 75 new store openings in Canada over the past year.
In February, Dollarama opened its 1,700th store in Canada, and it plans to open 60 to 70 new locations in the country in the year ahead. The company is also expanding internationally, with new store openings planned in Australia and under its Dollarcity banner in Latin America.
The retailer’s profits were roughly flat in the quarter and fell on an earnings-per share basis. Dollarama reported net earnings of $392.5-million or $1.43 in diluted net earnings per common share, compared to $391-million or $1.40 per share during the same period the prior year.
For the full fiscal year, Dollarama’s sales grew by 13.1 per cent to $7.26-billion, and comparable sales were up 4.2 per cent, accounting for the calendar shift with the additional week the prior year. Net earnings grew to $1.3-billion or $4.73 in diluted net earnings per common share, compared to nearly $1.2-billion or $4.16 per share the year before.
Editor’s note: A previous version of this article incorrectly stated that Dollarama reported a 3.1-per-cent decrease in average transaction size in its fourth quarter, as shoppers bought less during each trip. The average transaction increased by 3.1 per cent, as shoppers bought more. These errors have also been corrected in the article's subhead.