Dollarama eyes cheapest products as way to shore up sales growth
Dollarama Inc. will focus more of its attention on its lowest priced products in a bid to keep its comparable store sales growth from slowing.
On a Thursday call with analysts, chief executive Neil Rossy said the Montreal-based dollar store chain saw its third-quarter comparable store sales grow 3.1 per cent compared with 4.6 per cent in the same quarter a year ago. The comparable store sales growth for the period ended Oct. 28 was due to a four-per-cent increase in average transaction size, but was partially offset by a 0.9-per-cent drop in the number of transactions and was affected by a decision to limit price increases in recent quarters.
To keep growth from stalling, Dollarama said it will call attention to items it sells for $1.25 and less.
Dollarama, which operates more than 1,000 stores in Canada, sells items priced up to $4, while U.S.based Dollar Tree, which operates in Ontario and B.C., sells everything for a fixed price of $1.25.
Asked if Dollarama will drop prices on more expensive items, Rossy said, “We are going to start with the highlighting and then depending on the results of the highlighting, we might take further action.”
Dollarama has been slowly introducing higher price points in stores for years as it has grappled with more competition from e-commerce giant Amazon and Asian retailers Miniso and Muji, which recently entered the Canadian market. It’s also faced pricing challenges from periods when the loonie’s value was depreciating or the North American Free Trade Agreement was being renegotiated. Their costliest items go for $4. Rossy stressed that Dollarama is “comfortable” with that price point “for the moment” because he feels “there is still runway ahead of us at the current price point.”
“We are more committed than ever to highlight what I feel is a misconception potentially,” he added. “It has been said we are no longer a dollar store, but in reality, we have a ton of less than a dollar, a dollar and $1.25 items.”
Despite the price points rising, Rossy described the company’s recent performance as stable and revealed it earned $133.5 million in its latest quarter, up from $130.1 million a year ago. That profit amounted to 41 cents per diluted share, up from 38 cents per share in the same quarter last year.
Analysts on average had expected a profit of 42 cents per share for the quarter, according to Thomson Reuters Eikon.
Sales for the quarter ended Oct. 28 totalled $864.3 million. The lower-than-expected quarterly results sent Dollarama shares down as much as 17 per cent in Toronto. They ended the day at $33.33, down 11.8 per cent.