Inflation boosts Dollarama profits as consumers seek out ways to save

Inflation-weary shoppers continuing to flock to discount stores in search of bargains has spiked sales at Dollarama Inc. amid a rising cost of living.

The Canadian discount giant reported on Wednesday that it earned $179.9 million in its first quarter, up from $145.5 million in the same quarter a year earlier, assales gained 20.7 per cent.

As food costs continue to outpace inflation, shoppers — who saw grocery prices jump by 10.6 per cent in February compared to the same time last year — are searching for ways to lower their grocery bills and stretch their dollar.

Dollarama CEO Neil Rossy, in a Q1 earnings call, said the company continued to see “strong demand for consumables,” and that they were also seeing strength in their seasonal and general merchandise categories.

The company which has more than 1,500 stores, in April said it expects to open up 70 new locations across the country. Rossy said the company opened 21 new stores in the first quarter and aims to have 2,000 locations by 2031.

Dollarama’s earnings and expansion shines a light on changing shopping habits, says Walid Hejazi, professor or economic analysis and policy at the University of Toronto’s Rotman School of Management.

“This is something we always see whenever the economy weakens, but especially when there’s inflation, people have to search for bargains,” Hejazi said. “Because our wages aren’t keeping up with inflation, lots of people are finding it difficult to make ends meet.”

And as consumers increasingly feel as though Canada’s supermarkets are “price gouging,” more shoppers are turning to discount stores for relief, he added. A recent survey, conducted by Agri-Food Analytics Lab at Dalhousie University, found that consumer trust in big grocery chains is deteriorating as 30 per cent of Canadians believe price gouging is the main reason food prices have been rising in Canada.

“Discount stores are emerging as a place where people can go who feel taken advantage of by bigger retailers,” Hejazi said.

“The fact that Dollarama is expanding its store count just shows that they believe this is a long-term trend,” he added. “This might be a good news story for them but maybe not for the overall economy.”

Dollarama says its profit amounted to 63 cents per diluted share for the quarter, up from 49 cents per diluted share a year earlier. Sales in the company’s first quarter totalled $1.29 billion, up from $1.07 billion in the same quarter last year.

Analysts on average had expected a profit of 59 cents per share and $1.25 billion in sales, according to estimates compiled by financial markets data firm Refinitiv.

The increase came as comparable store sales grew 17.1 per cent on a 15.5 per cent increase in the number of transactions and a 1.4 per cent increase in average transaction size.

Dollarama says the increase in comparable store sales was attributable to strong demand across its offerings, including consumables, seasonal items and general merchandise.

Ghada Alsharif is a Toronto-based business reporter for the Star. Reach Ghada via email: galsharif@torstar.ca