A Weak Loonie Is Good and Bad for Dollarama Inc.

Dollarama Inc. (TSX:DOL) still holds massive potential for growth, but the weakened loonie will bring higher price points for shoppers.

| More on:
The Motley Fool

Dollarama Inc. (TSX:DOL) still holds the title of being the largest owner and operator of dollar stores in Canada, and for good reason, too. The company has over 1,000 stores scattered across the country and has plans to expand to beyond 1,200 locations within the next five years.

If you are like me, Dollarama is the type of store you go into for one item but walk out with a full basket of items. Having so many products across such a wide variety of areas for low prices resonates with consumers. Whether or not the company can maintain this model while the market is down and the economy and loonie are both in a weakened state is another matter.

What about the weak loonie?

All of those great odds and ends we pick up from our trip to our local Dollarama are, for the most part, imported from China. Most of the goods are purchased for 25 or 35 cents and then sold in stores for $1 and up.

With the loonie down considerably over the past year, finding and paying for products with that reduced spending power is becoming more and more difficult, leaving the company with few options. It could reduce the sizes of products to keep the price the same or introduce a new, higher price point that will allow Dollarama to purchase the products and still make a profit.

The company is considering both moves. A potential increase in prices has already been occurring for the past year or so. Over the past year the number of items for sale in Dollarama stores that were available at the $1 price point have gone from nearly 75% of inventory to less than 50%. In the same period, new price points have been slowly introduced.

In the end, consumers may be left with sticker shock as the price of an item creeps closer to $5 after tax. With the loonie hovering at US$0.70 or lower, a new $4 price point that Dollarama has been flirting with for some time may finally get added into the mix, likely before the end of the year.

Dollarama still has huge, untapped potential

Despite the increasing price points and reduced spending power, there is still a massive demand for dollar stores in Canada.

There’s no argument over the fact that dollar stores are great businesses during down markets as consumers look for more frugal alternatives to reduce spending. The current economic weakness could be a boom for Dollarama’s business. In the latest quarter the company noted that there was no drop in sales, even in Alberta, which has been hit hardest from the commodity drop off.

Dollarama currently trades just below $74. Year-to-date, the stock is down by 7.5%, much like most of the market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »