Gardeners, grillers and swimmers fuel Dollarama sales surge in second quarter

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Dollarama Inc. enjoyed a seven per cent sales boost and flat profits in its second quarter as Canadians bought seasonal items for home and patio during the pandemic's summer months.

"Our sales mix reflects the fact that our customers are spending more time at home -- think more gardening, more barbecue, things of that nature," CEO Neil Rossy said on a conference call with analysts Wednesday.

While purchases of impulse items such as candy and chewing gum dropped off, the spike in seasonal products such as pool toys meant higher margins, he said.

Dollarama started the quarter with 104 of its more than 1,300 stores temporarily closed -- mainly in Quebec malls -- due to provincial health measures, while the vast majority of the others were operating under reduced hours. By June 19, all stores were reopened on top of 13 new locations, with only six per cent now operating at reduced hours.

The average transaction size ballooned by 42 per cent, mitigated by a 26 per cent drop in the number of transactions.

"Customers continue to consolidate their trips, but they leave the stores with larger baskets," Rossy said.

The coronavirus incurred incremental costs of $32.4 million last quarter due to additional health measures and a temporary wage increase, which ended in early August after being extended for a month and a half beyond the expected date.

Employees received a 10 per cent pay increase beginning in late March while warehouse workers saw a $3 raise on an income that starts near minimum wage, which in Quebec is $13.10. The so-called pandemic pay program applicable to most of its 20,000-plus workers cost Dollarama roughly $11 million in its second quarter, leaving it with profits of $142.5 million.

The company has faced blowback from advocacy groups and workers who are demanding higher wages and better working conditions after the retailer spiked the pay hike.

Rossy rejected the notion of discontent in the ranks.

"The morale in the field is excellent and the hiring status is excellent. We're very happy with that situation, and our employees seem to be very, very comfortable, at ease with how we've handled the situation to date," he said.

Dollarama and several other retailers launched their pandemic pay programs as COVID-19 began to spread throughout Canada, triggering unprecedented working conditions amid a shopping frenzy that left some store shelves bare as companies scrambled to restock products.

The Montreal-based company topped expectations as it reported a second-quarter profit of 46 cents per diluted share for the quarter ended Aug. 2 compared with a profit of $143.2 million or 45 cents per diluted share in the same quarter a year earlier when it had more shares outstanding.

Sales in the quarter climbed to $1.01 billion from $946 million a year ago, boosted in part by a run on cleaning products.

"Compared to the roller coaster we experienced in Q1 with the shift from panic buying to full lockdown, the situation stabilized on several fronts during Q2. We saw a steady improvement in customer traffic throughout the quarter," Rossy said.

Analysts on average had expected a profit of 42 cents per share and $975.7 million in revenue, according to financial markets data firm Refinitiv.

Comparable store sales excluding temporarily closed stores grew 5.4 per cent, while comparable store sales including temporarily closed stores rose 2.5 per cent.

This report by The Canadian Press was first published Sept. 2, 2020.

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