Dollarama sees summer sales spike, but Halloween brings uncertainty

Dollarama Inc. (DOL.TO) saw its sales jump by seven per cent in its most recent financial quarter as customers purchased more seasonal items, including gardening, barbecue, pool products, while they stayed at home through the summer.

But executives say the COVID-19 pandemic has created uncertainty about the Halloween season, one that is particularly significant for the company’s upcoming financial results.

“There’s no question that the lack of international travel and reduction in domestic travel means that people are staying home a lot more,” chief executive Neil Rossy said on a conference call with analysts on Wednesday.

“Therefore, things like gardening, barbecue, [items related to] cleaning up the backyard, redoing the living room, have all been impactful and successful for Dollarama.”

In the three month period ending Aug. 2, more customers were purchasing higher margin items such as seasonal products, while impulse buys for things such as gum and candy were down, Rossy said. The average transaction size jumped 41.7 per cent in the quarter, as customers purchased more items in fewer trips.

The results came as Dollarama reopened all of its locations – including those in malls – for the first time since the coronavirus pandemic forced many businesses to go into lockdown. The company said it reopened all of its locations by June 19, and that 83 locations – or six per cent of its store network – are operating with reduced hours.

Dollarama saw same store sales, excluding stores temporary closed due to COVID-19, jump 5.4 per cent in the quarter.

While seasonal purchases boosted Dollarama’s financial results, the company faces uncertainty about whether upcoming holiday seasons – specifically Halloween and Christmas – will provide the same kind of sales increase in future quarters.

“We anticipate that Halloween, a historically significant season in terms of high sales and positive margin contribution, will be negatively impacted by COVID restrictions, including social distancing,” Rossy said.

Dollarama’s chief financial officer Michael Ross said that the Halloween season typically carries “strong weight” on the company’s third quarter results.

“We believe it will have a negative impact, but to what extent we do not know,” Ross said.

“I think it’s safe to assume that Halloween will be down. It won’t only impact the top line, but these are part of our highest margin items, the seasonal items, and so depending on the results it might impact our margins.”

Rossy said that, despite the uncertainty, Dollarama has committed to having a full holiday offering and making the shopping season as normal as possible.

“We bought like we have for the past, and I’ll be very honest, if we can do what we’ve done in the past, I’ll be ecstatic,” he said.

Sales in the quarter increased 7 per cent, from $946 million to $1.01 billion in 2020. The company reported a second quarter profit of $142.5 million, or 46 cents per share, compared to $143.2 million, or 45 cents per share, during the same time last year. Dollaram said the higher sales and margins in the quarter were offset by increased costs related to the COVID-19 pandemic.

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