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Dollarama says protracted trade war will hamper ability to find new products

UnknownA protracted trade war between the United States and China could make it more challenging for Dollarama Inc. to find new products that appeal to its customers’ desire to hunt for “treasures,” the discount retailer’s CEO said Sept. 12.

Chinese factories are on standby and not creating new moulds or putting money into research and development on products destined for the U.S. market because of the trade instability, Neil Rossy said during a conference call about it’s second-quarter results.

“And that has an impact on the retailers of the balance of the world, whether its Europe or Canada or everywhere else, because we all benefit from each other’s creativity and productivity,” he said.

“When world markets are having a harder time, there’s less creativity and so that makes the buyers’ jobs on a sourcing front, whether domestic or abroad, more challenging.”

Rossy said retailers prefer a stable environment, but can manage if the impasse lasts only a short while.

“It’s still very stable and I don’t foresee there being any really big challenges unless it goes on for a year plus.”

The comments came as the Montreal-based retailer reported a profit of $143.2 million in its latest quarter as its sales grew nine per cent compared with a year ago.

Its profit amounted to 45 cents per diluted share for the quarter ended Aug. 4, compared with a profit of $140.4 million or 42 cents per diluted share a year ago.

Sales totalled $946.4 million, up from $868.5 million.

Comparable store sales grew 4.7%. That outpaced last year’s sales growth of 2.6% for existing stores as the company focused its merchandise strategies on enhancing revenues, Rossy told analysts.

“We are very focused on stimulating traffic and increasing basket size and are pleased with consumer response to date,” he said, adding that consumer surveys support that its offering and concept resonates.

Rossy said Dollarama has been expanding its product offering where possible and updating selection all the time. It offers more than 4,000 year-round products and more than 700 seasonal ones.

Analysts, on average, had expected a profit of 46 cents per share and revenue of $939.2 million, according to financial markets data firm Refinitiv.

In its outlook, Dollarama raised its guidance for comparable store sales growth for the full year to a range of 3.5% to 4.5% compared with earlier expectations for between 3.0 and 4.0%.

However, the retailer said its gross margins are expected to come in at the low end of its earlier guidance at 43.25 to 43.75%, compared with earlier expectations for between 43.25 and 44.25%.

Dollarama operates 1,250 stores across Canada and expects to grow its network to 1,700 locations by 2027.

It recently exercised its option to purchase a majority stake in Dollarcity for an estimated US$85 million to US$95 million. A total of US$40 million was paid last month with the rest to be handed over next year, subject to final adjustments.

“This truly marks the beginning of a new phase in Dollarama’s growth trajectory by establishing a second growth platform in Latin America in complement to our existing Canadian growth strategy,” Rossy said.

Dollarcity has 192 stores in Colombia, El Salvador and Guatemala. It expects to add up to 50 this year and expand its network to 600 locations by 2029.


Mint, menthol: Vape industry has dug heels in on flavour bans

Efforts to ban flavoured e-cigarettes and reduce their appeal to youngsters in the United States have sputtered under industry pressure in over a half-dozen states this year even as one state, Michigan, moves ahead with its own restrictions and President Donald Trump promises federal ones.

In many cases, the fight by the industry and its lobbyists has focused on leaving the most popular flavours – mint and its close cousin, menthol – alone. But public health experts say that all flavours should be banned, and that menthol can still hook kids on vaping.

The proposal Trump outlined Sept. 11, which would supersede any state inaction, includes a ban on mint and menthol, and an industry giant quickly indicated it would capitulate.

“We strongly agree with the need for aggressive category-wide action on flavoured products,” read a statement released by Juul Labs Inc. “We will fully comply with the final FDA policy when effective.”

But the fight in state legislatures has been fierce. Lobbyists for the vaping and tobacco industry fought bans on flavours in Hawaii, California, New Mexico, Massachusetts, New York, Maine and Connecticut.

Such bans failed or stalled, even as Michigan’s governor this month ordered emergency rules prohibiting flavoured e-cigarettes. New York Democratic Gov. Andrew Cuomo expressed a desire to ban flavoured e-cigarettes.

Trump’s federal proposal, as it stands, would require no congressional approval, meaning lobbying efforts to defeat it could be less effective than in state legislatures. Juul spent $1.9 million in the first half of the year to try and sway the White House, Congress and the Food and Drug Administration.

The Vapor Technology Association has reported spending $78,000 this year in its lobbying fight against California’s proposed flavoured e-cigarettes ban, while one of the world’s largest tobacco producers, Altria, reported spending over $100,000 last fall solely to lobby such legislation. The bills have since stalled.

Reynolds American, which sells Vuse Alto e-cigarettes, reported spending $240,000 on paid lobbyists in New York this year. At least $23,000 alone went to fund their lobbying push against a flavoured tobacco ban that failed to pass this year.

Altria, which is also Juul’s biggest investor, also spent over $70,000 in Maine alone this spring on an online social media and email campaign in its efforts to defeat a ban on flavoured e-cigarettes and all tobacco products, according to lobbying reports filed with state ethics officials. Maine still has no flavour ban.

The global e-cigarette and vape market was valued at as much as $11 billion in 2018. The rise in teen vaping has been driven mainly by flavoured cartridge-based products such as Juul, which controls roughly three-quarters of the U.S. e-cigarettes market.

The proposals and the lobbying fight come as health authorities investigate hundreds of breathing illnesses reported in people who have used e-cigarettes and other vaping devices. No single device, ingredient or additive has been identified, though many cases involve marijuana vaping.

Supporters of flavours argue that adult cigarette users say flavours helped them quit, and that legislators should instead focus on companies that are trying to hook young nonsmokers with clearly kid-friendly marketing and packaging.

“One of the things that we are finding is that state legislatures are reflexively reacting to media stories and without a scientific basis making determinations that flavours are the problem so we need to get rid of all the flavours,” said Tony Abboud, president of the Vapor Technology Association.

There had been concern that the tobacco and vaping industries were winning their fight to keep at least the most popular flavours _ mint and menthol _ in play. That concern has now been tempered by Trump’s announcement that his ban would include menthol and mint.

Last November, the FDA announced plans for a crackdown that could lead to federal regulators pulling all e-cigarette flavours besides menthol and mint – thought to be useful to adult smokers – from shelves. The FDA also said it would also seek to ban menthol cigarettes.

The FDA’s announcement came just two days after Juul announced the halting of in-store sales of mango, fruit, creme and cucumber flavours in retail stores.

The company’s CEO has said that Juul never intended for young people to use their products but that they are “sensitive” to concerns raised by the FDA.

And a spokesman for Juul, Ted Kwong, said before the announcement by Trump that the company would support an outright ban on flavours that mimic kid candies, foods and drinks.

Still, in line with the FDA’s proposed policy, Juul Labs still distributes mint, menthol and tobacco flavours in retail stores. The company also sells flavoured products through its website.

Anti-tobacco and -vaping groups say there’s no scientific basis for leaving menthol or mint alone. They warn menthol has been unethically marketed toward African Americans, and that such flavours can still increase the appeal of e-cigarettes for young people who aren’t smokers by overcoming the harshness of nicotine.

“Anything that is overcoming the harshness of tobacco flavouring is something that kids are going to find more appealing,” said Hillary Schneider, director of government relations in Maine for the American Cancer Society Action Network.

But banning minty flavours has been politically contentious.

In Maine, convenience store owners upset by a proposed flavour ban argued that mint, wintergreen and menthol represent 30% of flavours offered in stores statewide and $32 million in tax revenue.

Lawmakers then considered a tweak to only allow menthol, mint and wintergreen flavours. Maine ended up passing a bill _ backed by the tobacco and vaping industries, as well as small retail stores _ that instead makes it illegal to sell e-cigarettes to people under 21 and give them to minors under 16.

Officials in Michigan Gov. Gretchen Whitmer’s administration discussed exempting mint and menthol flavours from the e-cigarette ban, but “determined that the action taken was the best path forward to protect youth,” said Bob Wheaton, spokesman for the state Department of Health and Human Services.

A court challenge is expected for Michigan’s ban.

Abboud argued before Trump’s decision that states should hold off on further action for now.