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Dollarama Inc. stock bounced back on Thursday a day after a short-seller attack. But with two consecutive quarterly disappointments, fresh 52-week lows this week and a comprehensive bear case on the stock, investors should worry whether the great growth story at Canada’s dollar store is over.

Actually, whether Dollarama is even a “dollar store” any more is at the heart of the argument from Spruce Point Capital Management. Spruce Point, a New York investment firm known as an “activist short-seller,” has previously targeted Maxar Technolgies Ltd. (which continued its collapse this week) and three other Canadian companies.

Spruce Point’s critique covers many past worries about Dollarama that the company had seemed, so far, to overcome: The price increases that have left few items in the store actually costing a dollar; the impact of rising labour costs; and the potential competition from Dollar Tree and others.

However, Dollarama’s sales-number disappointments in the previous two quarters – accompanied by surprising explanations that included cold weather and a drop in Canadian souvenir sales a year after the country’s 150th birthday – may make the market more receptive to a skeptical take. And Spruce Point has injected accounting and disclosure questions into the mix of concerns about why the Dollarama sales juggernaut has sputtered so far in 2018: “the market could be primed to evaluate the company and its growth story with a more discerning eye,” Spruce Point wrote.

On Wednesday, the day Spruce Point released the report, Dollarama spokeswoman Lyla Radmanovich expressed confidence in the company’s disclosure. Raymond James analyst Kenric Tyghe said on Thursday that the Spruce Point report contained “inaccuracies and confirmation bias,” and that negative takes on Dollarama do not reflect the competitive differences that support Dollarama’s premium valuation. Mr. Tyghe has an “outperform” rating and $50 target price; Thursday’s close was $37.91, up 4 per cent from Wednesday.

Spruce Point argues that there have been retailers in the past, such as the U.S. discount chain Big Lots Inc., that have tried to increase prices and support their same-store sales growth numbers (revenue from locations open at least one year). There’s a bump at first, then a reversal, Spruce Point says, as customers become alienated and search for alternatives – something Spruce Point argues is happening.

Dollarama has just fewer than 1,200 stores today, with a stated goal of 1,700. Spruce Point calls this unrealistic. Dollarama opened just eight new stores in the second quarter, its lowest figure in some time, Spruce Point says, and just 18 in the first half of the year. It opened 65 in the previous fiscal year.

Mr. Tyghe rejects these arguments. He says Dollarama’s recent negative traffic trends have “little to nothing” to do with unhappy customers or competition, but instead are the result of increasing use of debit and credit cards. He calls the store-count plans “not only realistic but perhaps even conservative.”

The Spruce Point critique extends to accounting, governance and disclosure, with a strong objection to Dollarama’s failure to disclose store closings, relaying only on “net new openings” as its store-count measure. “Store closure information is vital to evaluating the health of a retail chain,” the firm argues.

Spruce Point also objects to Dollarama leasing all but one of its five warehouses from the founding Rossy family (and the purchase of land from the family for a sixth). Rent payments and land purchases to the Rossys have totalled nearly $150-million in the past five-and-a-half years, Spruce Point says.

Spruce Point’s Dollarama short report is, as with its August report on Maxar and others before it, a laundry list of objections that can be seen as an attempt to throw things at a wall and see what sticks. Its bottom line, however, is that Dollarama’s shares trade at a premium to other retailers as if it’s a seller of luxury goods, or even a tech company. Instead, Spruce Point says, it’s a discount retailer, and the short-seller doubts its ability to either meet its growth targets or maintain its profitability levels.

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