Dollarama posts 8.6% sales gains in Q1, unveils plans to expand into Mexico

Montreal-based discount chain Dollarama reported sales and profit gains in its first fiscal quarter and also announced plans to expand into Mexico with a joint venture.

Net income was up about 20% for the 13-week quarter, which ended April 28, to about $215.8 million Canadian ($157 million U.S.), on sales growth of 8.6%, to $1.4 billion Canadian ($1 billion U.S.).

Comparable-store sales were up 5.6% in the period, reflecting an 8.7% increase in traffic and a 2.8% decrease in basket size, the company said in a conference call with analysts. Analysts had expected slightly higher comps, with average projections of 5.7% growth.

“People are coming more often to our stores,” said Patrick Bui, chief financial officer. “Clearly, they value our value proposition, but they’re just purchasing slightly less in terms of basket dollars.”

Shoppers are seeking bargains on core consumable products and everyday essentials, the company said, but are being careful with their spending on more discretionary items.

“While demand for general merchandise and seasonal products remains stable overall, customers are deploying their discretionary spending prudently,” said Neil Rossy, president and CEO.

Dollarama, which operates 1,569 stores across Canada, said it expects comparable-store sales to “normalize” over the course of the year, and it is maintaining projections of comp-store sales growth between 3.5% and 4.5% for the full fiscal year.

Related:Canadian discounter Dollarama posts 16.1% sales growth

Separately, Dollarama said it increased its investment in Dollarcity, the Latin American discount chain, and plans to expand it into Mexico. Dollarcity currently has 547 stores in Colombia, Guatemala, El Salvador, and Peru.

Dollarama said it acquired an additional 10% equity interest in Dollarcity in exchange for the issuance of about 6 million Dollarama common shares. Dollarama has had a longstanding partnership with Dollarcity and now owns a 60.1% equity interest in the company. It also has an option to purchase an additional 9.89% equity interest by Dec. 31, 2027.

Dollarama will own an 80.05% equity interest in the Mexico portion of the venture, which is expected to begin opening stores in 2026.

“A key component of our long-term growth strategy, Dollarcity has generated impressive results year-after-year,” said Rossy.

Dollarama also said that Dollarcity has increased its long-term store target in its four current countries of operation from 850 stores by 2029 to 1,050 stores by 2031.