Dollarama posted lower earnings for its most recent quarter on Wednesday, but the retailer nevertheless surpassed the expectations of analysts who believed the pandemic would weigh more heavily on its results.
“Following a volatile sales environment in the first quarter, we are pleased and satisfied with the momentum we see in our business early in the second quarter,” said CFO Michael Ross during a conference call with analysts. after the retailer’s first quarter financial results are released.
The Montreal-based company made nearly $ 86.1 million, or 28 cents a share, for the quarter ended May 3. In comparison, it had earned $ 103.5 million, or 33 cents a share, for the same quarter a year earlier.
This surpassed the estimate of Desjardins Securities and the analyst consensus, which aimed for a profit of 26 cents per share, analyst Chris Li wrote in a note.
“This superior performance is explained by the fact that comparable store sales and gross margin were better than expected, since the negative impact of COVID-19 was less than we and (market analysts) had expected “He wrote.
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Excluding establishments that are temporarily closed, Dollarama said sales of stores open for at least a year had increased 0.7%. The average transaction size increased by 22.6%, but the number of transactions decreased by 17.9%, with consumers going out less often but spending more during their visits.
Analysts expect 3.6% to drop in this figure for the quarter, said Li.
Including closed stores, same store sales decreased 2.4%.
Total sales were $ 844.8 million compared to $ 828.0 million in the first quarter of last year.
The company experienced a large increase in store traffic in early March, said CEO Neil Rossy, as customers stock up on household and cleaning products, health and hygiene products , and in food.
“It is not surprising that demand for seasonal Easter and early summer products, party supplies and greeting cards was lower in these exceptional circumstances,” he said. .
Dollarama saw a sharp drop in store traffic in late March, he said, as governments and health officials imposed tough measures to help curb the spread of the coronavirus.
The stores located in shopping centers were the most affected, added Rossy. These represent around a quarter of the company’s establishments.
By the end of April, he continued, the situation began to stabilize and some provinces began to announce their plans to reopen their economies and customers began to move more.
“However, store traffic continued to be affected by the physical distance measures put in place. “
The company anticipates a slow and cautious resumption of operations across Canada during its second quarter, he said. Currently, 32 of the 1,301 Dollarama stores remain temporarily closed. The business has been considered an essential service by some provinces, which has enabled it to keep its stores open in many regions.
While several categories, such as birthday cards and greeting cards, are still falling, others are higher than normal, Ross said, such as summer and pool toys and supplies gardening.
The company makes decisions based on informed estimates of how much inventory it will buy for the future, said Rossy.
For the upcoming Halloween and Christmas holiday season, his approach is largely based on the status quo, while being more conservative when it comes to purchasing consumables, such as candy and chocolate.
“But for the other stuff, it can last for another year, it is not time sensitive,” said Rossy.
“So we’re going to take the risk of having too much merchandise for the holiday season so we can be sure we have the necessary merchandise if things get back to normal. “
Dollarama said it spent $ 15.0 million in the second half of the quarter to protect the health and safety of employees and customers, and to support employees.
The retailer said it has strict protocols in place to minimize risks to employees and customers in any proven or likely COVID-19 case, including cleaning protocols, self-isolation instructions and financial support for employees affected directly or indirectly.
He said a total of 20 employees at his stores had been diagnosed with COVID-19 as of Monday.