September 13, 2018 / 2:28 PM / 8 days ago

UPDATE 2-Bad weather hits Dollarama sales, shares sink

(Adds share movement, analysts comments, background)

By Debroop Roy

Sept 13 (Reuters) - Canadian discount chain Dollarama Inc fell short of analysts’ estimates for profit in the second quarter as bad weather kept customers at home, prompting a cut in its same store sales forecast and sending shares up to 20 percent lower.

Dollarama operates more than 1,000 stores across Canada and sells everything from kitchen ware to clothing accessories.

The company, which has been facing increased competition from U.S.-based Dollar Tree, said it kept price rises in check during the quarter, leading to a 2.6 percent rise in comparable sales.

That, however, was just half of analysts’ consensus forecast of a 5.26 percent rise, according to Thomson Reuters I/B/E/S.

For fiscal 2019, the Montreal-based chain now expects comparable store sales growth in the 2.5 to 3.5 percent range, down from its earlier estimates of a 4-5 percent rise.

“The negative same store sales guidance revision, while partially mitigated by a positive increase in gross margins (and decrease in SG&A margins), is problematic in our opinion,” Raymond James analyst Kenric Tyghe said.

The company said that the impact of a drawn-out winter that kept shoppers away from stores in the first quarter had spilled over into the second. Numbers were also hit by weak Canada Day sales on July 1, the company said.

While average transaction size rose 3.1 percent during the quarter, the number of transactions fell by half a percent.

The company’s net income rose to C$141.8 million ($109.05 million), or 43 Canadian cents per share, in the second quarter ended July 29, from C$131.8 million, or 38 Canadian cents per share, a year earlier.

Excluding items, it earned 43 Canadian cents per share. Sales rose 6.9 percent to C$868.5 million.

Analysts on average had expected the company to earn 44 Canadian cents per share on revenue of C$887.8 million.

Shares fell 13.7 percent in morning trade in Toronto to stand at C$44.96, having traded at a one-year low of C$41.63. ($1 = C$1.30) (Reporting by Debroop Roy in Bengaluru; Editing by Shounak Dasgupta and Patrick Graham)

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