Dollarama beats earnings estimates, eyes pricier items

Wed Jun 13, 2012 4:11pm EDT
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By Claire Sibonney

TORONTO (Reuters) - Canada's largest dollar-store chain, Dollarama Inc (DOL.TO: Quote), reported a bigger-than-expected quarterly profit on Wednesday on strong sales of more expensive items and announced a stock repurchase plan, sending its shares nearly 7 percent higher.

Dollarama, which currently sells items at prices of up to C$2, also said it will start introducing non-grocery items priced at C$2.50 and C$3 from August as it seeks to diversify its merchandise.

In its fiscal first quarter ended April 29, Dollarama generated 51 percent of its sales from products priced higher than C$1, compared with 44 percent in the corresponding quarter last year.

"Dollarama I think is very well positioned. It's the most visible growth story in the consumer products universe," said Derek Dley, an analyst at Canaccord Genuity in Vancouver.

Dollarama, which went public in 2009, said most of its merchandise will continue to be priced at C$1 or less.

Dollarama has more than 720 locations across Canada. It added 17 stores during its first quarter, and expects to add between 50 and 60 stores in total this year, tapping into demand from cost-conscious consumers in uncertain economic times.

"I think Canadian consumers ... as they are visiting more and more dollar stores - uncluttered, well-lit locations averaging anything from 6,000 to 10,000 square feet - are finding this commercial proposal interesting," said chief operating officer Stephane Gonthier.

Gonthier said he was not concerned about discount retail giant Wal-Mart's (WMT.N: Quote) move to introduce lower priced items that compete with dollar-store goods.   Continued...