Dollarama says its sales surged by more than 20 per cent compared to a year earlier as consumer confidence “appears to be weakening.”
The Montreal-based retail giant also said it may need to change its sales outlook if the Iran war drags on for the long term and results in higher operational costs.
Publicly traded companies like Dollarama are required by law to share financial results with shareholders and analysts on a regular basis to maintain transparency and accountability.
Dollarama says its first quarter saw sales grow 21.4 per cent compared to a year earlier, and was helped in a large way by the number of new stores that were added globally over the past year.
Meanwhile, same-store sales grew 5.6 per cent. Same-store sales give a more accurate measure of consumer demand at each store as opposed to overall sales.
Dollarama has dramatically grown its foothold in the Canada and international markets in recent years as consumers pressured by the heightened cost of living seek value wherever they can — especially for products it considers “consumables and other merchandise.”
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“Following years of inflation, consumers continue to face more inflation and rising costs, including on fuel and everyday goods,” said chief financial officer Patrick Bui in a conference call with analysts and shareholders after the release.
“While this reinforces the importance of affordability and value in purchasing decisions, overall consumer confidence appears to be weakening.”
Food prices in April increased 3.5 per cent from a year earlier, according to Statistics Canada, which is higher than the 2.8 per cent headline inflation reading for the month.
“In Canada, our value proposition continued to resonate with consumers as affordability and everyday value remain top of mind in an uncertain economic environment,” said president and CEO Neil Rossy in the call.
Last month, Walmart shared a similar description of its client base — particularly what it identifies as lower-income shoppers.
“The lower-income consumer is more budget-conscious and perhaps navigating financial distress,” said Walmart executive vice-president and chief financial officer John David Rainey in a conference call with analysts in May.
Walmart also reported at the time that groceries in particular have been driving most of its recent growth.
Dollarama may be known for offering comparably low prices for some goods, including consumables like food and other essentials, but the war in Iran may be accelerating cost pressures for the company.
Dollarama’s executive team was asked about this during the conference call by one analyst.
“That’s a really tough one. Who knows what the price of fuel and the impact on the cost of products will be,” said Bui in response.
“The only thing that we could say is that after Q1, it (the war in Iran) certainly dragged on longer than we had initially anticipated.”
The Iran war is straining supply chains for resources like oil and fertilizer as well as general shipments of goods across the globe. This has led to higher prices for gasoline, which could have long-term knock-on effects of higher prices for merchandise at stores like Dollarama.
Dollarama says it expects to maintain strong sales over the next few quarters, assuming the conflict ends sooner rather than later. But if it becomes a long-term war, things may need to change.
“We’re comfortable reiterating that guidance with the assumption that things will resolve themselves in short order,” said Bui.
“Certainly, if the conflict and fuel prices increase and drag on for a much longer period, while at that point, we may need to revise our assumptions.”
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