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March 30, 2016

Grocers ponder CEO change at Dollarama
Neil Rossy takes father Larry Rossy’s CEO spot, amidst rising same store sales and questions about how the transition will affect the chain’s grocery offerings.

Discounter Dollarama used this morning’s fourth quarter conference call to brief analysts regarding the transfer of the CEO role to Neil Rossy, from his father Larry Rossy, who will retain the executive chairman title. The stakes are high for the country’s grocers, who have seen Dollarama’s food, drink and other consumables offerings, steadily chip away at their market share.

“Succession has always been important to us,” said Larry Rossy, 72, who opened the company’s first Dollarama store in 1992. “I am still a young man, but I think that Neil is ready; this is the right time for an orderly transition.”

Larry Rossy has a good point about the timing. Neil Rossy takes the top spot on a day the discount retailer, reported strong fourth quarter numbers. Dollarama’s revenues, earnings and earnings per share all rose significantly during the quarter and for fiscal 2016 as a whole. Just as significantly comparable store sales grew by an impressive 7.9% during the fourth quarter, relative to the same period the previous year.

Continued momentum going forward
Furthermore, recent economic trends suggest that shoppers will be seeking new ways to save money during coming years. Canadians notably continue to suffer from stagnant wages and record debt levels as a percentage of personal disposal incomes. Indeed despite this Dollarama officials increased forward guidance regarding gross profit levels for the coming year.

Larry Rossy also confirmed that Dollarama plans to open between 60 and 70 new stores during fiscal 2017. The company will also be moving upmarket by introducing items at the $3.50 and $4.00 price points.

Transition appears to have momentum
Despite the uncertainty inherent in any power shift, there are numerous reasons to be optimistic about Dollarama’s father-to-son transition. For one, the Rossy family has been operating retail stores for four generations, and during that time has made numerous similar shifts, and has likely mastered best practices in that regard.

Furthermore Neil Rossy’s transition to the CEO spot will carry far fewer risks in a business in which his father is still hanging around. “I plan on doing what I love for many years to come,” said Larry Rossy, who will continue to provide guidance and oversight in his new role. This was apparent in his comments on details such as the chain’s increased focus on offering value to customers.

“We used to try to figure out how to get customers the most toothpicks we could for a dollar,” said Larry Rossy. “However we are realizing that if clients are getting stuck with wood chips in their teeth, it may be better for us to stock 200 quality toothpicks, than 500 lower quality ones.”

That doesn’t sound like a man who is planning on relinquishing overall control anytime soon.

Dollarama earnings highlights (Compared to the Fourth Quarter of Fiscal 2015)
•   Sales increased by 14.6% to $766.5 million;
•   Comparable store sales grew 7.9%, over and above an 8.5% growth the previous year;
•   Gross margin(3) was 40.8% of sales compared to 38.8% of sales;
•   EBITDA(1) grew 25.5% to $189.9 million, or 24.8% of sales, compared to 22.6% of sales;
•   Operating income grew 25.6% to $176.9 million, or 23.1% of sales, compared to 21.1% of sales; and
•   Diluted net earnings per common share increased by 31.6%, from $0.76 to $1.00.

Peter (at) peterdiekmeyer (dot) com

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peter@peterdiekmeyer.com

Peter Diekmeyer Communications Inc.