Canada's Dollarama results top estimates on strong demand for Halloween decor

(Reuters) -Dollarama Inc beat analysts’ estimates for third-quarter results on Wednesday, as customers largely staying at home due to the COVID-19 pandemic spent more on Halloween decorations and household essentials.

FILE PHOTO: A Dollarama store is pictured in Toronto, Ontario, Canada, June 5, 2018. REUTERS/Carlo Allegri

Demand for discounted items has been strong due to coronavirus-induced high unemployment and a decline in household income in several major economies, with hunkered-down consumers buying more low-priced seasonal items.

Dollarama’s U.S. counterparts Dollar General and Dollar Tree have signaled a strong start to the holiday selling season.

“The popularity of seasonal festive items in the third quarter is a positive trend as we enter the seasonally important fourth quarter,” Dollarama’s Chief Executive Officer Neil Rossy said in an earnings call with analysts.

Rossy warned that new restrictions imposed in certain Canadian provinces could hurt sales and store traffic during the busy holiday shopping season, but added that traffic in November has picked up from the reported quarter.

Dollarama also said it would pay bonuses to its over 26,000 store employees as of Dec. 9 for keeping its outlets open throughout the pandemic, with full-time employees getting C$300 ($234.56) and part-time workers receiving C$200.

That is about C$6.5 million in total, which marks a 4% increase in the company’s holiday-quarter selling, general and administrative expenses, said Canaccord Genuity analyst Derek Dley.

Sales rose 12.3% to C$1.06 billion in the quarter ended Nov. 1, beating estimates of C$994.9 million, according to Refinitiv IBES.

The results underscore Dollarama as a destination for Canadian consumers and management’s operating discipline, said Irene Nattel, an analyst at RBC Capital Markets.

Excluding items, Dollarama earned 51 Canadian cents per share, beating estimates of 44 Canadian cents.

Montreal, Quebec-based Dollarama also increased its quarterly cash dividend by 6.8%.

Shares of the company gained 4% in afternoon trading.

($1 = 1.2790 Canadian dollars)

Reporting by Praveen Paramasivam in Bengaluru; Editing by Sriraj Kalluvila and Amy Caren Daniel