Dollarama says protracted trade war will hamper ability to find new products

A protracted trade war between the United States and China could make it more challenging for Dollarama Inc. to find new products that appeal to its customers' desire to hunt for "treasures," the discount retailer's CEO said Thursday.

Chinese factories are on standby and not creating new moulds or putting money into research and development on products destined for the U.S. market because of the trade instability, Neil Rossy said during a conference call about it's second-quarter results.

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"And that has an impact on the retailers of the balance of the world, whether its Europe or Canada or everywhere else, because we all benefit from each other's creativity and productivity," he said.

"When world markets are having a harder time, there's less creativity and so that makes the buyers' jobs on a sourcing front, whether domestic or abroad, more challenging."

Rossy said retailers prefer a stable environment, but can manage if the impasse lasts only a short while.

"It's still very stable and I don't foresee there being any really big challenges unless it goes on for a year plus."

The comments came as the Montreal-based retailer reported a profit of $143.2 million in its latest quarter as its sales grew nine per cent compared with a year ago.

Its profit amounted to 45 cents per diluted share for the quarter ended Aug. 4, compared with a profit of $140.4 million or 42 cents per diluted share a year ago.

Sales totalled $946.4 million, up from $868.5 million.

Comparable store sales grew 4.7 per cent. That outpaced last year's sales growth of 2.6 per cent for existing stores as the company focused its merchandise strategies on enhancing revenues, Rossy told analysts.

"We are very focused on stimulating traffic and increasing basket size and are pleased with consumer response to date," he said, adding that consumer surveys support that its offering and concept resonates.

Rossy said Dollarama has been expanding its product offering where possible and updating selection all the time. It offers more than 4,000 year-round products and more than 700 seasonal ones.

Analysts, on average, had expected a profit of 46 cents per share and revenue of $939.2 million, according to financial markets data firm Refinitiv.

In its outlook, Dollarama raised its guidance for comparable store sales growth for the full year to a range of 3.5 per cent to 4.5 per cent compared with earlier expectations for between 3.0 and 4.0 per cent.

However, the retailer said its gross margins are expected to come in at the low end of its earlier guidance at 43.25 to 43.75 per cent, compared with earlier expectations for between 43.25 and 44.25 per cent.

Dollarama operates 1,250 stores across Canada and expects to grow its network to 1,700 locations by 2027.

It recently exercised its option to purchase a majority stake in Dollarcity for an estimated US$85 million to US$95 million. A total of US$40 million was paid last month with the rest to be handed over next year, subject to final adjustments.

"This truly marks the beginning of a new phase in Dollarama's growth trajectory by establishing a second growth platform in Latin America in complement to our existing Canadian growth strategy," Rossy said.

Dollarcity has 192 stores in Colombia, El Salvador and Guatemala. It expects to add up to 50 this year and expand its network to 600 locations by 2029.

Companies in this story: (TSX:DOL)

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