We look at Dollarama’s Q4 results and the impact of the Coronavirus (Covid-19) pandemic on the early part of its first quarter.
Full year sales up to CA$3.8 bn
The retailer’s fourth quarter sales increased by 0.5% to CA$1.1 bn, with the quarter one week shorter than in 2019. Comparable store sales increased by 2.0%, or by 3.8% excluding the impact of a calendar shift. Operating income increased in the quarter by 1.4% to CA$266.1m. For the full year, sales increased by 6.7% to CA$3.8 bn, supported by almost 70 new openings. Operating income increased by 2.7% to CA$868.1m.
Surge in household cleaning products, health and hygiene products, food items and crafts
Dollarama delivered a strong performance in Q4, capping another solid year for the business. It extended its significantly lead in the Canadian dollar store segment, delivering strong increases in store traffic and transaction size.
The retailer saw its sales momentum continue into the first quarter of the year, followed by a surge in traffic and sales as customers stocked up in response to the Coronavirus pandemic. Key product categories that experienced strong growth included household cleaning products, health and hygiene products, food items and crafts.
Traffic slowed significantly at mall stores
More recently, traffic has slowed as a result of travel restrictions, self-isolation measures, mandatory closures of non-essential services and businesses and social-distancing measures. Almost all its Canadian stores (1,291) continue to trade, with its stores identified as an essential service.
Those not trading are primarily located in malls which have temporarily closed. Mall-based stores, accounting for around 25% of the network, which remain open saw traffic fall by around 50% in the last eight days of March. With Easter being a key trading period for the business, sales for the category are down significantly. The retailer is adjusting its plans for Halloween and Christmas although orders for most non-food ranges have been placed.
Source: IGD Research
No issues with product sourcing from China
In terms of product sourcing, many of its overseas suppliers have resumed operations following their closure in February. The retailer does not expect to see any significant supply issues with products coming from China. In Colombia, El Salvador and Guatemala, where it operates as Dollarcity, 190 of its 228 locations remain open, although the future impact of the pandemic is difficult to predict.
Removing previous guidance on sales and profitability
Dollarama expects same-store sales to be negative throughout the remainder of Q1 due to lower traffic levels. It is also seeing higher costs due to increased labour requirements and measures put in place to protect associates and customers. Consequently, the retailer is withdrawing its guidance on sales and profitability for the new financial year. There is a high degree of uncertainty with regards to the duration and future scope of measures imposed to curb the spread of the virus.
Post-crisis, the retailer’s value credentials should help to underpin customer traffic. However, a change in the product mix with lower sales in discretionary categories, due to the potential economic backdrop, will also impact its margins.
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