Dollarama sales slowdown a rare misstep

Can’t rule out price hikes due to tariff spat

MONTREAL • Dollarama investors don’t take kindly to average results.

Shares of Dollarama Inc., the Montreal-based retailer that’s been adding stores throughout Canada, fell the most since December after it reported the lowest comparable-store sales growth in more than four years. Dollarama said poor April weather pushed back demand for summer goods such as hats and gardening tools. It maintained a full-year forecast of 4 per cent to 5 per cent growth.

“We’re a month into the second quarter and we’re seeing a catch-up,” Chief Financial Officer Michael Ross said at a press conference after Dollarama’s annual meeting. “Not too many retailers give you 4 to 5 per cent outlook on same-store sales, that’s pretty good.”

Dollarama shares soared more than 1,500 per cent since the company went public in 2009 and investors have gotten used to a regular stream of good news. In the past, that’s included sales growth above 4 per cent and long-term plans to open 1,700 stores, 300 more than initially envisaged.

This time, comparable sales increased 2.6 per cent in the quarter for the 13 weeks April 29, compared with 4.6 per cent a year earlier. The firm’s shares ended the day at $146.03, down 6.7 per cent.

Dollarama’s first-quarter profits increased to $101.6 million (92 cents per diluted share) from $94.7 million (82 cents) last year. Sales were $756.1 million, up 7.3 per cent from $704.9 million a year earlier. Earnings per share were just short of the 93 cents expected, according to analysts polled by Thomson Reuters Eikon.

The number of stores grew by 62 locations to 1,170. Excluding the impact on seasonal goods such as gardening items, same-store sales were within its forecast of four to five per cent. The firm said sales normalized with the warmer May weather.

Analyst Irene Nattel of RBC Capital Markets said the results are best viewed as a blip on Dollarama’s consistent trajectory of 15to 20-per-cent earnings per share increases.

“We remain confident in Dollarama’s ability to continue to deliver EPS compounded growth approaching 20 per cent over our forecast horizon,” she wrote in a report.

Neil Rossy, Dollarama’s CEO, told shareholders the company may be forced to raise prices on food and other goods imported from the U.S. because of Canada’s plans to impose tariffs in re- taliation for American duties on aluminum and steel. But Rossy said he’s not worried about the discount retailer losing its competitive edge because other Canadian retailers will face the same pressures.

“It won’t be fun for any retailer in the country and I guess the saving grace is that it will affect all retailers in Canada the same way,” he told the company’s annual meeting. “That being said the customer may suffer if the changes are extreme but they will suffer across all retailers.”