People walk into a Dollarama store in Toronto, September 25, 2021.

Image Credit: THE CANADIAN PRESS/Graeme Roy

MONTREAL - Discount chain Dollarama Inc. recorded a surge in sales in its latest quarter as its low prices on everyday household items attracted shoppers in search of relief from high inflation.

The Montreal-based company's same-store sales — a key measure comparing sales at the same locations and excluding new stores — grew 15.9 per cent in the fourth quarter compared with the same period last year.

The result came as Canada endured the highest inflation in decades, prompting many consumers to shift their shopping habits in search of deals and lower prices.

Overall, the dollar store's sales for the quarter totalled $1.47 billion, up from $1.22 billion in the same quarter last year.

It also reported an uptick in the number of transactions, which rose 14.1 per cent compared to the same period of 2022, while the average transaction size increased 1.6 per cent.

The higher sales pushed Dollarama's fourth-quarter profit to $261.3 million, up from $220.0 million a year earlier, and prompted the company to raise its quarterly dividend to 7.08 cents per share, up from 5.53 cents per share.

The retailer said it earned 91 cents per diluted share for the 13-week period ended Jan. 29, up from 74 cents per diluted share a year earlier.

The results reflect "the continued positive consumer response to our year-round value proposition, which has only been reinforced in the context of high inflation," Neil Rossy, president and CEO of Dollarama, said during a call with analysts on Wednesday.

"We were very proactive in rebuilding our inventory to pre-pandemic levels and circumventing some of the delays in the system impacting all retailers, all while mitigating the impacts of rising freight and logistics costs."

In its outlook for its 2024 financial year, Dollarama said it expects 60 to 70 net new store openings and comparable store sales growth of between five and six per cent.

"Our sourcing of properties is vast and varied, and really it's more a question of opportunity than it is strategy per se," Rossy said, noting that Dollarama is interested in malls, strip centres and standalone buildings.

"We're interested in any location that we think will increase the convenience to our customer base and not cannibalize existing stores."

The company opened 65 new stores in its fiscal 2023 year, bringing its total store count to 1,486 as of Jan. 29.

Dollarama is also focused on ensuring that the customers it's gained as a result of high inflation keep coming back, Rossy said.

He said as long as Dollarama continues to offer products that satisfy those new customers and offer the best everyday value, many of them will likely stay.

"But the risk is always there, of course, that when they're in another store and times are slightly less challenging they'll simply pay more."

Meanwhile, the retailer's general, administrative and store operating expenses for the fourth quarter were $209.6 million, up 17.8 per cent compared with $178.0 million in the same quarter last year.

Much of the cost pressure came from higher wages, said Dollarama chief financial officer J.P. Towner.

"We're still facing an extremely tight labour market," Towner said during the conference call. "We've seen an acceleration in wage pressure ... and we expect that trend to continue in fiscal 2024."

Towner said Dollarama employees have also been working more hours to keep up with demand.

"In addition to wages, we're seeing increased traffic in our stores, which means more more hours spent on replenishing the inventory on our shelves," Towner said.

RBC Dominion Securities Inc. analyst Irene Nattel said Dollarama's "exceptionally strong" same-store sales reflect the retailer's strong value positioning for consumers, particularly in the current high-inflation environment.

The sales results beat expectations and show consumers are continuing to turn to Dollarama for "consumables in addition to everyday household items and seasonal products," she said.

The store rolled out a new $5 price point last year, allowing the store to stock new products and restock others that had been priced off the shelves due to inflation.

Dollarama has bulked up its shelves with a greater selection of everything from cleaning supplies and kitchen products to personal care items and clothing.

Although sales have been robust across different departments, Rossy said Dollarama's consumables category has experienced particularly strong sales.

The dollar store has expanded its food aisle in recent years, offering more pantry items like instant noodles, cereal, tuna and olive oil.

This report by The Canadian Press was first published March 29, 2023.

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News from © The Canadian Press, 2023