Dollarama to sell products priced up to C$5 to shore up margins

(Reuters) -Canada’s Dollarama Inc said on Wednesday it would roll out additional price points up to C$5 this year, as the discount retailer, which typically sells everything from kitchen essentials to party supplies under C$4, looks to shield its margins from heightened inflation.

Discount stores, which have benefited from shoppers turning to off-price retailers to protect their pockets during the pandemic-led economic downturn, have been bumping up prices and focusing on selling costlier items to offset shrinking margins.

Dollarama’s U.S. counterpart Dollar Tree Inc also raised prices for most of its products to $1.25 from the traditional $1 price point last year, in a bid to protect its profits from spiraling freight costs.

Montreal-based Dollarama, which has over 1,400 stores across Canada, said it expects supply chain and other inflationary pressures to be more this year and projected a decline in gross margins for its fiscal year 2023.

The company said it expects annual gross margin to be between 42.9% and 43.9%. It reported a gross margin of 43.9% in the fiscal year ended Jan. 30.

Dollarama also saw a boost from increased spending on seasonal items in the holiday quarter, as well as price-sensitive shoppers looking to buy everyday essentials at cheaper rates, as higher prices of everything from clothing to cooking sauces began to hit consumers’ wallets.

The dollar store chain posted an 11% rise in fourth-quarter sales, in line with analysts’ average estimate, even as a fresh round of COVID-related restrictions hampered footfalls at its stores over the holiday season.

Sales rose to C$1.22 billion ($977.64 million) in the quarter from C$1.10 billion a year earlier.

Excluding items, Dollarama earned 74 Canadian cents per share in the three months to Jan. 30, above estimates of 71 Canadian cents per share.

($1 = 1.2479 Canadian dollars)

(Reporting by Deborah Sophia in Bengaluru; Editing by Krishna Chandra Eluri)