Shutdowns Hurt Dollarama Sales in Q1
Reduced demand for holiday merchandise and a lack of traffic at mall stores dinged Dollarama sales during the first quarter.
The Canadian discounter said a surge in customer traffic in early March could not make up for a sharp decline in traffic during the rest of March and all of April. Increasingly strict measures imposed by public health authorities across Canada to curb the spread of COVID-19 led to customers making fewer trips to Dollarama but spending more on each visit.
"Our first quarter results reflect the direct and indirect effects of COVID-19 while demonstrating that Dollarama adapted quickly to an unprecedented situation in order to serve Canadians from coast to coast. This was made possible by the dedication of our employees who adopted new work processes and safety measures, and our resilient business model," said President and Chief Executive Officer Neil Rossy.
Sales for the first quarter ended May 3 increased by 2% to $844.8 million, compared to $828 million in the prior year period. The company said revenue was driven by higher sales of consumables, including household and cleaning products, health and hygiene essentials and food products. This positive effect was partially offset by lower in-store traffic, a reduction in demand for certain product categories, such as seasonal, including Easter and spring-summer goods, party supplies and greeting cards, as well as reduced store hours and temporary store closures due to COVID-19.
Interestingly Dollar Tree also reported a sales decline due to lack of demand for Easter merchandise during its COVID-19 quarter.
Same-store sales, excluding temporarily closed stores, grew 0.7% in the first quarter. This growth consisted of a 22.6% increase in average transaction size and a 17.9% decrease in the number of transactions as customers reduced the frequency of store visits but purchased larger quantities of goods at one time. The low traffic in mall stores that remained open across the country negatively impacted same-store sales growth for the quarter.
Toward the end of the first quarter, the situation began to stabilize although in-store traffic continued to be adversely impacted by physical distancing measures in place, the company says.
Dollarama said gross margin was 41.3% of sales in the first quarter, compared to 42.1% of sales in the first quarter of fiscal 2020. Gross margin was lower due to negative scaling on lower sales per store, higher sales of lower margin consumable products and incremental direct costs related to COVID-19 measures implemented in the second half of the quarter, which had a 10 basis-point impact.
Net earnings decreased to $86.1 million, or 28 cents per diluted common share, in the first quarter, compared to $103.5 million, or 33 cents per diluted common share, in the first quarter of fiscal 2020. This decrease in net earnings is mainly the result of the impact of the COVID-19 pandemic on in-store traffic, sales and gross margin as well as additional SG&A expenses incurred.
"As provinces across Canada carefully and gradually resume economic activity, we will continue to maintain and enhance our COVID-19 operating procedures and preventive measures. We remain steadfast in our commitment to providing Canadians with affordable everyday products, and a safe and efficient in-store shopping experience – today and for the long term,'' Rossy said.
As of May 3, 1,197 Dollarama stores were open and 104 were temporarily closed, for a total of 1,301 stores. The vast majority of store closures were in enclosed malls, primarily in the province of Quebec.
As at May 3, 1,097 Dollarama stores were operating with at least a 10% reduction in opening hours to allow more time for re-stocking and due to mandatory Sunday closures in the province of Quebec.
During the first quarter Dollarama opened 10 net new stores, compared to 11 net new stores during the corresponding period of the previous fiscal year.
During the COVID-19 crisis, Dollarama has implemented measures including:
- A temporary 10% wage increase for all store, distribution center and warehouse employees and equivalent pay premiums for distribution center and warehouse agency workers
- In-store health and safety measures to prevent the spread of COVID-19 and minimize risk to employees and customers such as: implementation of recommended hygiene, respiratory and self-isolation practices; distribution of personal protective equipment such as gloves, masks and face shields to all employees; installation of plexiglass shields at all cash counters; installation of distancing markers in queue lines and directional arrows in aisles; limiting the number of customers and members of the same household in a store at one time; in–store signage and broadcasting of safety and physical distancing measures applicable to customers and employees; and a comprehensive and robust set of store cleaning and sanitization protocols to be completed throughout the day, among other measures
- Strict protocols to minimize risk to employees and customers in any proven or probable case of COVID-19, including cleaning protocols, self-solation directions and financial support for directly or indirectly impacted employees. As of June 8, Dollarama has had a total of 20 COVID-19 store employee cases
- The addition of approximately 450,000 employee hours in stores, including the equivalent of an additional shift in each store to staff a dedicated position responsible for crowd control and to ensure the implementation of additional cleaning and physical distancing measures outlined above
- Reduced opening hours to allow for re-stocking shelves without customers in store
- Equivalent health and safety measures implemented at the distribution center and warehouses to prevent the spread of COVID-19 such as: temperature and health checks at the beginning of every shift; distribution of personal protective equipment such as face shields, masks and gloves to all workers; installation of disinfectant stations throughout the premises; reduced capacity and shift sizes to allow physical distancing; sanitization of equipment used by workers before the start of each shift; and staggered lunch breaks and shift start and end times, among other measures