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Jun 7, 2017

Dollarama says it can absorb wage hikes, but warns prices could climb with further increases


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MONTREAL -- Dollarama says it can absorb planned minimum wage increases across the country, but the retailer won't rule out raising prices if labour costs continue to climb.

Chief executive Neil Rossy said the Montreal-based retailer won't start by hiking prices in response to wages rising in provinces accounting for more than 60 per cent of its sales.

However, he said that could change if labour costs and the cost of goods rise further over time.

"Our only concern in all that is that we sit in the same position as every other retailer and every other merchant out there," he told reporters after the annual meeting.

"As long as the rules -- in this case the minimum wage -- affect everybody, then our only goal and our only focus is that we remain competitive within the retail landscape that we live."

Ontario has announced plans to raise its minimum wage to $14 from $11.40 per hour on Jan. 1, and to $15 a year later. British Columbia, Alberta and Newfoundland and Labrador are also raising their rates beginning this fall. Alberta will reach $15 by October 2018.

Dollarama said it has initiatives in place to address wage inflation including plans to bring in more higher-margin products. Cost savings are also expected to come in stores through improved recycling, energy efficiency and theft control.

Chief financial officer Michael Ross said the challenge is no different than when it faced a drop in the value of the Canadian dollar, an increase in the cost of goods in China and higher energy costs.

While Dollarama (DOL.TO) says many of its employees earn just above the minimum wage, the provincial increases will also prompt cascading wage increases for other employees.

The increase in the minimum wage comes as Dollarama reports growing revenues and profits.

Dollarama reported Wednesday a profit of $94.7 million or 82 cents per share in the first quarter ended April 30. That was up from $83.2 million, or 68 cents per share a year ago. Sales rose 10 per cent to $704.9 million.

An increase in the average transaction value drove an increase in comparable sales growth, which was 4.6 per cent, but that was offset in part by a decline in the number of transactions relative to the same time last year.

The company told shareholders that it is studying the success of Dollar City before deciding in early 2020 whether to exercise its option to take a majority ownership stake in the chain of 79 stores in Central America.