Dollarama raises full-year same-store sales forecast, shares gain 10%

By Debroop Roy

(Reuters) - Canadian discount retailer Dollarama Inc beat quarterly revenue estimates and raised its full-year comparable sales forecast on Thursday, as the company held back on aggressive price hikes, sending its shares surging 10%.

Dollarama, whose products are priced between C$1 and C$4, has been keeping price increases to a minimum as it tries to fend off rivals such as Walmart Inc’s Canada unit and Dollar Tree Inc.

The Montreal-based company has also been trying to reduce checkout time at stores and investing to expand its bulk-ordering online business.

These initiatives powered a 5.8% jump in same-store sales in the first quarter ended May 5, much higher than analysts’ average estimate for a 2.9% rise, according to IBES data from Refinitiv.

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

The company cited strong demand for its Easter products among reasons for the higher same-store sales.

Average transaction size rose 4.9%, while total number of transactions climbed 0.9% during the reported quarter.

Dollarama, which offers everything from kitchen ware to clothing accessories, said it now expects full-year same-store sales to grow between 3% and 4%. This compares with its previous forecast of a 2.5% to 3.5% rise.

“We like the industry’s gear toward a value-conscious consumer, notably during a softer macro environment, which will increase the allure of bargain hunting,” said Camilla Yanushevsky, an analyst with CFRA Research, raising her price target by C$15 to C$50.

Impact Shorts

More Shorts

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

As Trump weaponises tariff, Fed sees a bigger worry: Not jobs, but rising prices in America

The smaller price increases again weighed on Dollarama’s gross margin, which fell to 42.1% from 43.8% a year earlier.

But on a post-earnings call Chief Financial Officer Michael Ross said the company expects to sell more higher-margin products in the second half of the year, while also getting a boost from Halloween and Christmas sales.

Total sales increased 9.5% to C$828 million, above analysts’ average estimate of C$813.05 million.

Net income rose 2 percent to C$103.5 million in the three months ended May 5, from C$101.5 million, or 31 Canadian cents, a year earlier.

Profit of 33 cents per share slightly missed analysts’ estimate of 34 Canadian cents per share.

The results come against the backdrop of a lacklustre fiscal 2019. Dollarama missed same-store sales estimates in three quarters, while reporting an in line growth in one. Shares slumped about 38% in 2018.

Dollarama also said it would pause share repurchases to maintain its leverage ratio, a move BMO Capital Markets called “uncharacteristic” as the company has a history of consistent share buybacks.

The company’s shares trading at C$46.71, their highest in over 10 months, and adding to their 30% gains so far this year.

($1 = 1.33 Canadian dollars)

This story has not been edited by Firstpost staff and is generated by auto-feed.