New store openings hit Dollarama's profit

(Reuters) - Canadian dollar-store operator Dollarama Inc DOL.TO missed analysts' estimates for quarterly profit by a narrow margin on Wednesday, bruised by higher costs from store openings.

FILE PHOTO: A Dollarama store is pictured in Toronto, Ontario, Canada, June 5, 2018. REUTERS/Carlo Allegri/File Photo

Shares of the company, having gained 51% this year, were down about 5% in early trading.

The company has been pouring money into expanding its stores as well as its online business for bulk ordering while adding new items, particularly household goods and food items, to boost sales.

At the same time, Dollarama has kept price rises to a minimum to better fight competition from Canadian and U.S. retailers.

These efforts boosted sales at Dollarama stores open for at least 13 months, growing 5.3% in the third quarter ended Nov. 3, well ahead of the estimated rise of 3.84%, according to IBES data from Refinitiv.

The company’s margins, however, fell to 43.7% from 44.3% as it sold more low-margin items. Meanwhile, expenses rose about 18%, primarily due to new store openings.

The retailer, targeting 60 to 70 new stores in the fiscal year, rolled out 21 outlets in the third quarter.

Net income rose to C$138.6 million, or 44 Canadian cents per share, from C$132.1 million, or 40 Canadian cents per share, a year earlier.

Excluding items, the company earned 43 Canadian cents per share, missing the average analyst estimate by 2 cents.

Net sales rose 9.6% to C$947.6 million ($712.43 million), above expectations of C$936.78 million.

Dollarama said it now expects full-year comparable sales to grow in the range of 4% to 4.5%, compared with the prior range of 3.5% to 4.5%.

Reporting by Soundarya J in Bengaluru; Editing by Shinjini Ganguli