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Dollarama (DOL.TO) shares climbed over seven per cent on Wednesday as the discount retailer reported stronger sales from value-conscious shoppers buying household essentials. At the same time, CEO Neil Rossy says a tough economy is luring wealthier customers who wouldn’t typically shop at his company’s stores.
The Montreal-based company says comparable-store sales grew by 4.7 per cent in its latest quarter. The dollar value of shopping baskets fell while the number of visits to stores increased, resulting in a 7.4 per cent rise in revenue to $1.56 billion, versus $1.46 billion in the same period last year. Profit for the 13 weeks ended July 28 topped $285.9 million, up 13 per cent year-over-year.
Toronto-listed Dollarama shares were up 7.2 per cent at $134.30 as at 1:59 p.m. ET on Wednesday. The stock has gained more than 43 per cent over the last 12 months as consumers seek bargains amid elevated living costs.
“We’re at a point where people are more focused on basics, and less on discretionary,” Rossy told analysts on a conference call Wednesday morning. “When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama.”
“Consumers tend to be willing to spend a little more time going to lower-cost alternatives that they don’t necessarily have to when times are better,” he added.
Dollarama says “consumables” such as food and household goods led sales higher in the second quarter, while general merchandise remained stable, and seasonal product sales softened.
Dollarama maintained its guidance for 3.5 to 4.5 per cent comparable-store sales growth in fiscal 2025, calling for strength to be weighted in the fourth quarter versus the third quarter, due to the timing of Halloween and Christmas.
CFRA Research analyst Arun Sundaram upgraded his view on Dollarama shares to “buy” from “hold” on Wednesday, while boosting his price target to $155 from $130.
“[Dollarama] kept its full-year guidance unchanged, which we believe reflects some conservatism heading into the key Halloween season,” he wrote in a note to clients.
On Wednesday’s call, Rossy faced questions from analysts about competition from a new small-store format rolled out by Loblaw (L.TO) under its “No Name” banner.
Last month, the grocery chain announced a plan to open three locations in Ontario where shoppers can expect up to 20 per cent discount on grocery and household essentials. Loblaw says a smaller product assortment and the elimination of fresh produce and dairy will help lower costs.
“As we’ve said many times, we’re not in the grocery business. It’s just one small part of our store. But we will keep an eye on all retailers, like all retailers keep an eye on us,” Rossy said.
He declined to disclose how much of the company’s revenue comes from food sales.
“We focus on a wide variety of goods to attract people to come in, far more than just food,” Rossy said.
“That’s certainly not our focus.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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