April 7, 2011 / 12:01 PM / 7 years ago

UPDATE 4-Dollarama lures bargain-happy Canadians

* Revenue rises 12 percent, but misses expectations

* Same-store sales rise 5.3 percent

* Shares down 1 percent, after hitting record high (Adds comments from analyst, conference call)

By S. John Tilak

TORONTO, April 7 (Reuters) - Dollarama Inc (DOL.TO), Canada’s largest operator of dollar stores, said on Thursday it plans to open 50 new stores within a year as the popularity of its discount format soars.

Dollarama, which went public in 2009, is growing quickly as bargain-hunting Canadians who flocked to its stores during the economic downturn, stayed on after the economy recovered.

The dollar-store concept has caught on to such an extent that malls that previously eschewed it, preferring to stick to higher-end brands, are now seeking to attract it.

“Now Dollarama is being sought after as an anchor tenant in malls,” Versant Partners analyst Neil Linsdell said.

The chain expects to be operating more than 700 stores within a year. It currently has 652.

Montreal-based Dollarama said its fourth-quarter profit jumped 23 percent, beating market estimates, as the company introduced higher price points to attract shoppers beyond the bargain-basement category.

“The multi-price point move has been helping them expand their average basket size,” Linsdell said.

While other dollar stores stick to the C$1 per item format, Dollarama has tried to edge upmarket, selling products for up to C$2, and analysts say the move has allowed it to offer merchandise appealing to a broader audience than its competitors.

In its fourth quarter, 42 percent of sales came from products priced higher than C$1, compared with 30 percent a year ago.

Dollarama’s fourth-quarter profit jumped to C$42 million ($44 million), or 56 Canadian cents a share, from C$34 million, or 45 Canadian cents a share, in the year-before quarter.

Analysts on average were looking for earnings of 53 Canadian cents a share on revenue of C$411.5 million, according to Thomson Reuters I/B/E/S.

Fourth-quarter revenue was up 12.3 percent at C$408.7 million after the company opened 49 net new stores during the fiscal year. Dollarama, whose investors include Bain Capital, said sales at stores open for at least a year, a key indicator for retailers, rose 5.3 percent.

Dollarama’s stock rose 1 percent to C$31 on the Toronto Stock Exchange early on Thursday, touching its highest level since the company went public, but then retreated 1.8 percent to C$30.20. It has risen 37 percent in the past 52 weeks.

“We could see a modest dividend as early as next year,” Linsdell said.

While Dollarama has been the dominant player in the Canadian dollar-store sector, it could face increased competition from Dollar Tree Inc (DLTR.O), a U.S. chain that acquired Canada’s Dollar Giant Store Ltd.

It is also speculated to be squarely in the sights of private equity players seeking retail acquisitions.

In the United States, Family Dollar FDO.N, a similar chain, has received several takeover bids.

$1=$0.96 Canadian Reporting by S. John Tilak; editing by Janet Guttsman and Peter Galloway

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