(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.
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.
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 lackluster 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.