Dollarama profit up despite rising input costs
A weaker loonie and rising wages for its employees are making it harder for Dollarama to do business, the company said in releasing its quarterly results on Thursday.
The Montreal-based chain of dollar stores saw its profit increase to 55 cents a share in the three months up to the end of October. That's up from 43 cents in the same period a year ago. And overall sales increased 12 per cent to $588 million as the chain added 11 new stores across the country, for a total of 928 stores overall.
But despite the positive headline figures, the company's business model got a little bit trickier during the quarter, the CEO said.
The company sells a lot of foreign-made goods to Canadians at rock-bottom prices. Heavily dependent on imports, the chain is vulnerable to a weak loonie because a lower dollar makes it more expensive to bring in products.
The Canadian dollar has been weakening throughout 2014, but especially so in the last few weeks as oil prices have plummeted. The loonie was worth 87 cents US on Thursday. Last year, it was above par with the U.S. buck.
"We're hearing about even price increases on incoming inbound freight from the Orient," CEO Larry Rossy said Thursday during a conference call to discuss third-quarter results.
The value of the Chinese yuan is roughly tied to the U.S. dollar.
And input costs are expected to go up even more in the new year when a host of new tariffs on foreign goods are implemented.
The company is facing rising input costs elsewhere, too. Five provinces have boosted their minimum wages this year, by an average of 2.5 per cent, and that's eating into the company's potential profits.
"You have to appreciate that the dollar store business is a labour-intensive business," Rossy told analysts.
Still, the core business looks strong based on the quarterly numbers revealed Thursday.
"Our sales this quarter were fuelled also by very strong Halloween season sales, as our customers responded positively to our compelling range of Halloween products," Rossy added.
The retailer hopes better weather this year will result in a stronger Christmas shopping season.