Dollarama looking at price hikes in response to Canadian retaliatory tariffs

Dollarama Inc. 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 retaliation for American duties on aluminum and steel, the company's CEO said Thursday.

Neil 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 shareholders at the company's annual meeting.

"That being said the customer may suffer if the changes are extreme but they will suffer across all retailers because retailers can only do so much."

Rossy later told reporters that it's a complex task to assess the potential impact on hundreds of items, especially if consumer goods can't be sourced from other countries.

"So if I'm buying plastic-moulded items I have options all around the world for them. If I'm buying a Mars bar or a Hershey bar made in Pennsylvania I don't really have too many options."

Dollarama can't rule out raising prices but wouldn't do so on items that aren't directly hit by higher costs in order to remain competitive, Rossy said. It also has no plans to increase its maximum price of food items beyond $2 or add a higher category of prices beyond $4.

The retailer said it had also tried to absorb the cost from a rise in minimum wages and would welcome the Ontario Progressive Conservative party's promise not to increase the level to $15 in January should it be elected Thursday.

"I think it's good for everyone. You never like to have inflation," said chief financial officer Michael Ross.

Dollarama announced Thursday that it planned to test its e-commerce strategy to sell full boxes of select items to consumers in Quebec by Christmas before rolling out the program across the country.

Its shares fell 6.4% in Thursday trading after the discount retailer missed analyst expectations as cool spring weather hurt sales of seasonal goods that are a key driver of revenues in April.

Dollarama earned $101.6 million or 92 cents per diluted share in the first quarter. That compared with $94.7 million or 82 cents per share in last year's fiscal first quarter.

Sales for the 13 weeks ended April 29 were $756.1 million, up 7.3% from $704.9 million in the comparable period a year earlier.

Comparable store sales grew 2.6% from last year, while 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 4% to 5%.

Many retailers would be happy with those numbers but investors have become accustomed to higher comparable sales from Dollarama that have ranged from 5.2% to 7.3% over the past three years.

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

"We remain confident in Dollarama's ability to continue to deliver EPS compounded growth approaching 20% over our forecast horizon," she wrote in a report.

The annual meeting saw Dollarama founder Larry Rossy step down as executive chairman, though he is expected to remain with the company as a mentor.