Low loonie causing price creep at Dollarama

MONTREAL — Dollarama said 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 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 concentrating on these price levels anymore.

Meanwhile, the Montreal-based discount retailer said new, highercost 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.