Dollarama profit beats as sales of higher-priced items rise

Thu Sep 10, 2015 12:30pm EDT
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By Manish Parashar and Anannya Pramanick

(Reuters) - Canadian discount retailer Dollarama Inc (DOL.TO: Quote) reported a better-than-expected increase in quarterly profit and sales as customers bought more higher-priced items, boosting the company's margins and sending its shares to a record high.

Dollarama, which sells items priced up to C$3 ($2.26), said items priced higher than C$1 accounted for over three-quarters of sales in the second quarter, up from two-thirds a year earlier.

The demand for higher-priced items and a fall in logistics costs due to lower fuel prices, boost margins in the quarter and are expected to do so for the rest of the year, Dollarama said on Thursday.

If Dollarama goes ahead with plans to introduce items priced at C$3.50-C$4.00, that would happen only in the second half of next year, Chief Executive Laurence Rossy said.

"We like to maintain our prices as long as we can, but this is really an exceptional time where the Canadian dollar has gone poorly against the U.S. dollar and everything is bought in U.S. dollars," Rossy said in a conference call.

The company's gross margin rose to 38.4 percent in the quarter ended Aug. 2 from 36.1 percent a year earlier.

"The strong gross margin was particularly noteworthy given concerns about a potential negative impact on procurement from the devalued Canadian dollar," BMO Capital Markets analyst Peter Sklar wrote in a client note.

Dollarama bumped up its gross margin forecast for the year ending Jan. 31 to 37-38 percent from 36-37 percent. After that, it expects margins to fall back to 36-37 percent due to the weak Canadian dollar.   Continued...