Dollarama Q4 Affected by COVID-19 Public-Health Measures

Ongoing pandemic continued to impact sales and consumer shopping patterns

3/31/2021

Dollarama Q4 Affected by COVID-19 Public-Health Measures

Dollarama's sales increased by 3.6% to $1,103.7 million in the Canadian retailer's fourth quarter.

Historically, Canadian retailer Dollarama’s highest sales results occur during the fourth quarter, with December representing the highest proportion of sales. Although the retailer entered its latest fourth quarter, which ended Jan. 31, with a strong momentum, thanks to comparable-store sales of 7.0% for the period ended Dec. 6, 2020, the introduction of more stringent measures by Canadian authorities due to the pandemic in December negatively affected in-store traffic and sales for the remainder of the quarter.

Sales in Dollarama's fourth quarter of fiscal 2021 increased by only 3.6% to $1,103.7 million*, compared with $1,065.2 million in the fourth quarter of fiscal 2020.

Restrictions included lockdowns; stricter in-store capacity limits in Ontario, Quebec and Alberta; and the temporary ban on the sale of nonessential items in Quebec, where about 30% of the retailer's stores are located.

"These stricter measures resulted in an abrupt and sustained decline in store traffic and sales through to fiscal year-end," said Neil Rossy, president and CEO. "With such restrictions gradually lifted starting in February, strong sales momentum returned in fiscal 2022 and has remained quarter to date, as consumers continue to recognize the value and convenience of shopping at Dollarama."

Meanwhile, general, administrative and store operating expenses for the fourth quarter totaled $186.1 million, compared with $155.7 million for the fourth quarter of fiscal 2020. This increase reflected incremental costs of $23.8 million, primarily for additional in-store hours to enact COVID-19 protocols, and the one-time gratitude bonus paid to store employees in December 2020.

Financing costs decreased by $2.4 million, from $25.2 million for the fourth quarter of fiscal 2020 to $22.8 million for the fourth quarter of fiscal 2021, mainly due to a lower average borrowing rate on debt.

Dollarama also reported financial results for full-year fiscal 2021, revealing that its sales increased by 6.3% to $4,026.3 million, compared to $3,787.3 million from prior year. Sales growth was driven by growth in comparable store sales and in the total number of Dollarama stores over the past 12 months (from 1,291 stores on Feb. 2, 2020 to 1,356 stores on Jan. 31, 2021).

"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," added Rossy. "Our store teams and business leaders came together quickly to implement new operating procedures to protect customers and staff in order to provide Canadians with convenient and affordable access to everyday essentials throughout the pandemic."

Excluding stores temporarily closed in the context of the COVID-19 pandemic, comps grew 3.2% in fiscal 2021, over and above a 4.3% growth in fiscal 2020. Comparable-store sales growth for fiscal 2021 consisted of a 29.1% increase in average transaction size and a 20.1% decrease in the number of transactions. This growth was driven by higher demand for certain product categories, including certain seasonal product categories, household and cleaning products, health and hygiene essentials, and food products, but this positive effect was partly offset by government-imposed restrictions on retailers, including the ban on the sale of nonessential items in Quebec during the fourth quarter, as well as reduced operating hours and in-store capacity limits.

General, administrative and store operating expenses for fiscal 2021 totaled $654.0 million, an 18.5% increase over $551.7 million for fiscal 2020. This reflected costs of $81.1 million for additional in-store hours to execute COVID-19 protocols; temporary wage increases between March 23 and Aug. 2, 2020; and a one-time gratitude bonus paid in December 2020. Incremental costs were partly offset by higher labor productivity in stores due to the processing of a lower number of larger transactions and less packaway of seasonal inventory as a result of stronger sales for summer, Halloween and Christmas products — the majority of which were recorded earlier in the fourth quarter than normal.

Net earnings for Dollarama totaled $564.3 million, or $1.81 per diluted common share, for fiscal 2021.

As of Jan. 31, Dollarama's adjusted net-debt-to-EBITDA ratio was 2.68 times, a 29-basis-point improvement from fiscal 2020 year-end.

Dollarama believes that it can profitably grow its Canadian store network to about 2,000 stores over the next 10 years, with an average new store capital payback period of approximately two years.

"Based on our historical performance, our hard-earned position as a weekly shopping destination for Canadian families, and a careful evaluation of market potential and dynamics, we are increasing our long-term growth target in Canada to 2,000 stores by 2031," said Rossy.

This is an increase from Dollarama's previously disclosed long-term store target of 1,700 stores in Canada by 2027.

On March 31, 2021, the retailer's board of directors had approved a 7.0% increase of the quarterly cash dividend for holders of common shares, from $0.047 to $0.0503 per common share. This dividend is payable on May 7 to shareholders of record at the close of business on April 16.

Montreal-based Dollarama operates more than 1,301 stores throughout Canada. The company is No. 66 on Progressive Grocer's 2020 PG 100 list of the top grocers in the United States.