Ready to shell out at Fourdollarama?

Discount retailer says loonie causing price creep

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Dollarama_CB_296Dollarama says the weaker Canadian dollar is forcing it to raise prices and could lead the discount retailer to increase its current price threshold from $3 to as much as $4 by late next year.

“The probability is in the third and fourth quarter of next year, we’ll have to move our price points up,” CEO Larry Rossy said Thursday during a conference call about its latest results, which beat analyst expectations.

Rossy told analysts the company hopes to get more “clarity” about the need for higher prices during a trip to China in October.

“In general, we like to maintain our prices as long as we can, but this is really an exceptional time where the Canadian dollar has gone so poorly against the U.S. dollar and everything is bought in U.S. dollars. So to absorb 25 to 35 per cent (in currency swing) is almost impossible.”

Compounding Dollarama’s efforts to offer consumers value is the dwindling availability of goods it can purchase for 25 to 35 cents and sell for $1 or $1.25. Rossy said China is no longer focusing on those price levels anymore.

Meanwhile, the Montreal-based discount retailer says new, higher-cost items could also weigh on its decision to raise the chain’s current price threshold to $3.50 or $4 by late 2016.

However, Rossy said the new, higher-priced items would not lead to the introduction of new product categories. Food, for example, would remain priced at a maximum of $2.

And the company could mitigate pricing pressures by reducing product sizes.

“So as a consumer, I guess next year will not be a pleasant year from a purchasing point of view because you’ll probably be seeing some inflation in all likelihood.”

Dollarama said its earnings surged 39 per cent to $95.5 million in the three months ended Aug. 2 on a 14 per cent increase in sales.

During the second quarter, 76.5 per cent of Dollarama sales were for products priced higher than $1, up from 67 per cent a year ago.

Same-store sales—a key retail measure of sales from stores open at least a year—rose 7.9 per cent. It included a 6.2 per cent increase in the size of average purchases and 1.5 per cent more transactions.

Overall sales grew to $653.3 million from $572.6 million.

Net income amounted to 74 cents per common share, up from 51 cents per share or $68.9 million in the prior-year quarter.

Dollarama was expected to earn 61 cents per share on $642.7 million of revenues according to analysts polled by Thomson Reuters.

It has benefited from the addition of 72 net new stores over the past year, including 17 during the quarter. Dollarama operates 989 stores across Canada.

Sales growth is consistent across the country with no real negative impact being seen in oil-producing regions like Alberta.

2 comments on “Ready to shell out at Fourdollarama?

  1. Dollarama used to have everything at $1 or less and had increased their prices even when the Canadian Dollar was at par or above the US$. What was their reasoning to increase prices back then?

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  2. Sept 19th and I am just back from a 2 day holiday to Bellingham, Wa…. Visited a Dollar Tree store there in a uoscale Mall near the University…. Shelves full of all kinds of Food, Hardware, Personal items etc… and everything is $1 max… Jello is 2/$1… our Dollar Tree in Nanaimo is a Joke… sparse shelves and an even more sparse array of Goods!
    These Canadian managers need to take a trip South and learn not only how to BUY Smart, but also how to Merchandise their Stores !. Obviously it appears the Canadian Managerial mind-set is inadequate …. probably explains why Target and several other Retailers have given up on Canada over the last couple of years. We just don’t have the zest to compete and seems there never will be, so long as the Canadian retailer can convince Canadians that our Prices have to be higher…. 25% maybe 30% depending on the Exchange rate would be acceptable…. but 75 to 100% is just ridiculous!

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