Dollarama stock falls as retailer plans $450M Calgary hub to anchor western growth

Dollarama (DOL.TO) shares dipped on Wednesday as the discount retailer laid out plans to open hundreds of new stores, with a focus on Western Canada. The Montreal-based company says it plans to build a new $450 million logistics hub in Calgary to service its growing footprint.

Dollarama reported third-quarter financial results before the opening bell on Wednesday. Comparable sales rose 3.3 per cent in the three months ended Oct 27, a slowdown from 4.7 per cent growth in the prior period. Third-quarter profit increased nearly six per cent on an annualized basis, rising to $275.8 million from $261.1 million a year ago. Sales climbed to $1.56 billion, up more than five per cent year-over-year.

The retailer raised its long-term Canadian store count target to 2,200 locations by 2034. Its previous goal was 2,000 locations by 2031. Currently, the company operates about 1,600 stores.

Dollarama also said on Wednesday that it has agreed to buy land in Calgary for $46.7 million for its secondary logistics hub. The facility’s estimated cost of $450 million is to be spread over a three-year period.

Toronto-listed shares fell over six per cent on Wednesday, cutting into a more than 55 per cent gain year-to-date.

Chief executive officer Neil Rossy told analysts on a post-earnings conference call that a second distribution centre will generate significant annual savings for the company.

“Half of the country will be warehoused and distributed from the western DC (distribution centre). Half of the country will be warehoused and distributed from the eastern DC,” he said.

RBC Capital Markets analyst Irene Nattel praised the plan in a research note on Wednesday.

“[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, as well as from a security of supply/service perspective,” she wrote.

Chief financial officer Patrick Bui says he does not expect Dollarama’s growth plan to impact its rewards for shareholders.

“We intend to remain active on the share buyback front, in addition to maintaining our dividend, subject to quarterly approval,” he said on Wednesday’s call.

Dollarama’s latest financial results reflect cautious consumer behaviour, a consistent theme among Canadian retailers, as households continue to feel the sting of inflation. For the third quarter, Dollarama says the average transaction size was down 1.7 per cent year-over-year, while the number of transactions rose by 5.7 per cent.

“Careful discretionary spending by consumers only strengthens our conviction and the relevance of our value model within the Canadian retail landscape,” Rossy said.

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