(Montreal) Dollarama has to contend with rising supply chain costs, but the Montreal retailer will wait for its competitors to take the first step before raising prices.
Management negotiated “most” of its agreements with container carriers this fall. “It’s no secret that our transportation costs will be higher next year,” said Jean-Philippe Towner, Chief Financial Officer, during a conference call to discuss the most recent quarterly results. Inflationary pressure should continue. ”
The company is not immune to supply chain disruptions. Container shortages, production disruption due to the pandemic, worker shortages and port congestion have given major retailers a headache.
Dollarama has no plans to raise prices, however, until the company sees its competitors do too.
We follow the prices, we are not the first to determine them. We want to continue to offer the best relative value.
Jean-Philippe Towner, Chief Financial Officer of Dollarama
This expectation muddies the outlook for the company’s profit margins in the coming months. For the moment, the situation is not yet clear as to the path taken by the competitors, adds Neil Rossy, President and CEO. “I can’t tell you, in all honesty, what message other retailers are sending. ”
The option to introduce items at $ 4.50 is not on the agenda at this time, Rossy confirmed. In September, he raised the possibility of doing so if inflationary pressures continued for a longer period. “I have nothing to announce at the moment,” he told an analyst. The last increase in the maximum price – to $ 4 – was in 2015.
Without going into detail, Rossy said he had several “tools” to deal with rising supply chain costs. Management is continually looking at ways to increase productivity, he says.
Despite the scarcity of manpower, Dollarama has not been forced to reduce its hours of operation yet. The company also failed to grant “significant” wage increases to attract workers.
Happy Halloween
Dollarama reported better-than-expected results in the third quarter (ended October 31) thanks to sales of Halloween items, which have higher margins, and lower spending related to COVID-19.
Net earnings per share were $ 0.61, up 17.3% from $ 0.52 at the same time last year. Revenue, for its part, rose 5.5% to $ 1.122 billion.
Before the results were released, analysts polled expected earnings per share of $ 0.57 and revenue of $ 1.121 billion, according to a review by Refinitiv.
The achievement of a gross margin of 44.4%, compared to 44%, is explained by the sale of seasonal items. “Halloween was good last year, but it’s been even better this year,” commented Rossy.
Brian Morrison of TD Securities believes the results should moderate concerns about inflationary pressures on the company. The company’s purchasing power, lower COVID-19 spending and a more favorable currency effect should help Dollarama cope with inflation.
Year-over-year operating profit increased 11.4% in the third quarter of the fiscal year to $ 271.6 million.
Comparable store sales, a key metric for measuring a retailer’s organic growth, increased 0.8%.
Dollarama opened a net of 16 new stores, compared to a net number of 19 new stores last year, bringing the total number of stores to 1,397.
Note to readers: The previous version identified the CEO as Larry Rossy. It’s actually Neil Rossy.