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Dollarama Q3 sales increased 6.6%

Staff Writer |
Dollarama reported increases in sales, net earnings and earnings per common share for the Fiscal 2019 third quarter ended October 28, 2018. Diluted net earnings per common share rose 7.9% to $0.41.

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Sales for the third quarter of Fiscal 2019 increased by 6.6% to $864.3 million, compared to $810.6 million in the corresponding period of the prior fiscal year.

Continued organic sales growth was fuelled by balanced growth in both comparable store sales and in the total number of stores over the past twelve months, from 1,135 stores on October 29, 2017 to 1,192 stores on October 28, 2018.

Comparable store sales grew 3.1% in the third quarter of Fiscal 2019, over and above strong comparable store sales growth of 4.6% in the same quarter a year ago.

Comparable store sales growth consisted of a 4.0% increase in average transaction size, over and above a 4.5% increase in the corresponding quarter of Fiscal 2018, partially offset by a 0.9% decrease in the number of transactions.

The rate of comparable store sales growth in the third quarter of Fiscal 2019 reflects management's decision to strategically limit price increases in recent quarters, in order to ensure an even more compelling and competitive value proposition to consumers in the current retail environment.

Gross margin was 38.9% of sales in the third quarter of Fiscal 2019, compared to 40.1% of sales in the third quarter of Fiscal 2018.

Gross margin was lower due to lower product margins attributable to management's decision to minimize price increases in Fiscal 2019 compared to Fiscal 2018.

Gross margin includes sales made by the Corporation to Dollar City, as principal, which represent approximately 1% of the Corporation's total sales, and a nominal markup margin. Consequently, these sales had minimal impact on overall gross margin in either the current or prior year quarter.

General, administrative and store operating expenses ("SG&A") for the third quarter of Fiscal 2019 was $121.2 million, a 3.1% increase over $117.6 million for the third quarter of Fiscal 2018. This increase is primarily related to the continued growth in the total number of stores. SG&A for the third quarter of Fiscal 2019 represented 14.0% of sales, compared to 14.5% of sales for the third quarter of Fiscal 2018. The 0.5% improvement is mainly the result of continuing labour productivity initiatives, the timing of certain expenses incurred as well as scaling, which contributed to mitigate the impact of minimum wage increases in certain jurisdictions, primarily in Ontario.

Net financing costs increased by $1.2 million, from $10.2 million for the third quarter of Fiscal 2018 to $11.4 million for the third quarter of Fiscal 2019. The increase is mainly due to increased borrowings on long-term debt.

Net earnings increased to $133.5 million, or $0.41 per diluted common share, in the third quarter of Fiscal 2019, compared to $130.1 million, or $0.38 per diluted common share (retrospectively restated to reflect the Share Split), in the third quarter of Fiscal 2018.

The increase in net earnings is mainly the result of a 6.6% increase in sales and lower SG&A as a percentage of sales, partially offset by a lower gross margin. Earnings per share were also positively impacted by the repurchase of shares through the Corporation's normal course issuer bid.

On December 6, 2018, the Corporation announced that its board of directors had approved a quarterly cash dividend for holders of its common shares of $0.04 per common share.

The Corporation's quarterly cash dividend will be paid on February 8, 2019 to shareholders of record at the close of business on January 11, 2019 and is designated as an "eligible dividend" for Canadian tax purposes.

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