Dollarama Inc. is ramping up its expansion with a Calgary-area distribution centre and a lot more of the chain's stores headed for Canada over the next decade.
The retailer announced Wednesday that it had spent $46.7 million to buy land in Balzac, a hamlet outside Calgary that is known for hosting retailer warehouses.
Dollarama will use the land to build its own 1.6 million square-foot warehouse and distribution centre to service Western Canada and take some of the pressure off its facilities near Montreal.
"Up until now, we have relied on a centralized approach," Dollarama chief executive Neil Rossy told analysts on a Wednesday call.
"While our current operations have served us well, given our Western store base and future growth plans across the country, the time is right to put in motion plans to develop a two-node logistics operation."
The new facility is expected to be in operation by the end of 2027 but is dependent on Dollarama's deal to buy the land closing as planned in the company's fiscal 2025.
Once the logistics hub is built, Rossy said it will bring his company more long-term agility and resilience.
"We will be even better positioned than we are now to ensure the smooth flow of goods to our stores in all situations," he said.
While Dollarama's current network of stores now spans 1,541 locations, it is due to get a big boost in the coming years.
Dollarama said Wednesday that it now plans to operate 2,200 locations by 2034. That store count compares with its prior goal of opening 2,000 stores by 2031.
It estimates the average payback period — how much time it will take Dollarama to recoup its investment — for the new stores will be about two years.
"Our guiding light when it comes to economics of stores is really payback," said chief financial officer Patrick Bui on the same call as Rossy.
"As long as we see strong paybacks for our stores, it gives us confidence in a longer and a better target."
The 200-store increase over three years works out to about 67 new stores per year, which Desjardins analyst Chris Li said makes it "right in line" with the current annual average of 60 to 70 stores per year.
He and Irene Nattel of RBC Capital Markets saw the logic in Dollarama's expansion plan.
"In our view, (the) decision to add a second logistics hub in Western Canada makes a great deal of sense given growth in store count and geographic footprint, but as well from a security of supply/service perspective," Nattel wrote in a note to investors.
Dollarama's announcements came the same day as it reported a third-quarter profit of $275.8 million, up from $261.1 million a year ago.
That profit amounted to 98 cents per diluted share for the quarter ended Oct. 27, up from a profit of 92 cents per diluted share in the same quarter last year.
Sales for the quarter totalled $1.56 billion, up 5.7 per cent from $1.48 billion a year ago. Comparable store sales rose 3.3 per cent as the number of transactions rose 5.1 per cent, but the average transaction size fell 1.7 per cent.
The results span a busy time period encompassing both the back-to-school season and the lead up to Halloween.
Rossy said Dollarama was "generally satisfied" with its Halloween performance but it is "too early" to tell how the holiday season is shaping up.
Canadians have lately been more prudent about their spending and some have cut back on discretionary purchases, weighing on retailers.
Dollarama's price points tend to be lower, helping it weather such periods, but analysts like Nattel have been keenly watching to see if the company encounters slowing demand in sales of non-essential goods.
Rossy has noticed shoppers being "conservative" with their discretionary spending.
"The consumer is focused on everyday essentials and I guess it's completely to be expected, when people worry about the economy in general," he said.
Asked by an analyst whether that frugality is making it harder to pass on higher costs, Rossy emphasized Dollarama is running a business predicated on value.
"We're a price follower, not a price leader, so we will watch what the market does," Rossy said.
"If the market absorbs inflation or weaker exchange rates or tariffs, then that is what Dollarama will do too."
On top of easing inflation, retailers will soon have to implement a two-month GST break for products like some toys and food that the federal government singled out for holiday relief.
U.S. president-elect Donald Trump has also threatened to levy a 25 per cent tariff on products entering his country from Canada and Mexico.
"Whatever challenges we have, whether it's tariffs or taxes of various kinds, the point is it's going to affect all Canadian retailers equally who are selling our category of goods," said Rossy.
"How we react to it is always what's going to decide whether we are competitive or not competitive in the market."
This report by The Canadian Press was first published Dec. 4, 2024.
Companies in this story: (TSX:DOL)
Tara Deschamps, The Canadian Press
