Dollarama drops on short-seller report

BOSTON •Spruce Point Capital Management, which focuses on in-depth research of companies’ vulnerabilities, sees room for Dollarama

Inc.’s stock price to tumble roughly 40 per cent after the Canadian retailer raised prices and fewer customers are shopping at its stores.

“Spruce Point believes Dollarama is a ‘strong sell’ with an approximately 40-per-cent downside risk,” Ben Axler, who runs the hedge fund, said at an investment conference on Tuesday, according to a person familiar with his presentation. He examined the firm’s products, pricing and what he called “troublesome management and governance red flags.”

Axler presented the idea at an investors conference in New York and on Wednesday released a report.

“Dollarama is now a broken growth story that will fail to hit its lofty long-term growth targets,” the report said, adding that the share price could drop to $24.60 per share. Dollarama fell 5.3 per cent Wednesday to close at $36.41..

Axler is one of a handful of so-called short activists, investment managers who often spend months researching a company and then publicize the information to convince others that the stock will fall a lot. Dollarama’s stock price has already dropped 21 per cent in the last six months.

Dollarama is no longer a true dollar store after price hikes that have taken a bite out of store traffic, Axler said.

Lyla Radmanovich, a Dollarama spokeswoman, said she was not aware of the presentation and declined to comment.