As Canadian stocks plummeted on a brutal trading session that saw the biggest one-day drop on the Toronto Stock Exchange since 1987, one company managed to end the day in positive territory.
Dollarama (DOL.TO) was the sole company that ended Monday’s historic trading day in in the green, up 1.7 per cent, but it still faces potential headwinds of supply chain disruptions caused by the coronavirus outbreak.
The S&P/TSX Composite Index fell 1,660.78 points to 14,514.24 when markets closed on Monday, a drop of 10.3 per cent. Stocks fell so quickly within minutes of the market opening that Level 1 circuit breakers designed to slow trading were triggered, forcing a 15-minute pause on trading.
The TSX jumped 3 per cent when markets opened Tuesday, but the rally appeared to be short-lived as the day passed, briefly dipping into negative territory.
Dollarama was up nearly 3 per cent around 12:40 p.m. ET on Tuesday, trading at $41.82.
“It’s basically a flight to value. Whenever you hear the ‘R’ word – recession – you see stocks like Dollarama, Dollar Tree do well,” Bruce Winder, a partner at the Retail Advisors Network, said in an interview.
“If there’s a recession coming and people are tightening their belts because they lost money in the stock market or their savings and pension are down, they’re going to start down-shopping to channels that stretch your dollar.”
But while Dollarama has remained relatively resilient over the last two days, the stock is down 11 per cent since Jan. 23, the day the World Health Organization (WHO) convened an emergency committee meeting over the coronavirus outbreak.
According to the WHO, more than 109,500 people have been infected with coronavirus – known as COVID-19 – as of March 9. Nearly 81,000 of those cases are in China. A total of 3,809 people have died of the virus globally.
“If this outbreak continues, there are going to be supply chain disruptions for Dollarama,” Winder said.
A Wells Fargo report from last month looking at potential risks to retail supply chains because of COVID-19 listed Dollarama as one of five discount retailers that is particularly exposed to issues in China. According to the report, about 30 per cent of Dollarama merchandise is sourced from China.
“Our industry contacts indicate that these companies likely have 60+ days of replenishment inventory at the moment,” the report said.
“If disruptions continue beyond the next few weeks, with more significant inventory issues in seasonal products possible by mid-summer if disruptions stretch longer.”