Dollarama’s profits dip on costs of expansion
Canadian dollar-store operator Dollarama Inc missed analysts’ estimates for quarterly profit by a narrow margin on Wednesday, bruised by higher costs from store openings.
Shares of the company, having gained 51 per cent this year, were down more than eight per cent in late-afternoon trading in Toronto.
The Montreal-based 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.
Dollarama, which is opening stores throughout Canada, also bought a controlling stake in Latin American value retailer Dollarcity that operates in Colombia, Guatemala, and El Salvador this year.
These efforts boosted sales at Dollarama stores open for at least 13 months, growing 5.3 per cent in the third quarter ended Nov. 3, well ahead of the estimated rise of 3.84 per cent, according to IBES data from Refinitiv.
Three extra days during the quarter, comprising Halloween shopping period, also boosted sales, the company said.
The company’s margins, however, fell to 43.7 per cent from 44.3 per cent as it sold more low-margin items. Meanwhile, expenses rose about 18 per cent, 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 $138.6 million, or 44 cents per share, from $132.1 million, or 40 cents per share, a year earlier.
Excluding items, the company earned 43 cents per share, missing the average analyst estimate by 2 cents.
Net sales rose 9.6 per cent to $947.6 million, above expectations of $936.78 million.
Dollarama said it now expects full-year comparable sales to grow in the range of 4 per cent to 4.5 per cent, compared with the prior range of 3.5 per cent to 4.5 per cent.
Dollarama says the average transaction size grew 2.8 per cent, while the number of transactions rose 2.4 per cent.