Dollarama Q3 sales, profit increase as discount chain continues expansion

A Dollarama store is seen June 11, 2013 in Montreal. THE CANADIAN PRESS/Paul Chiasson

MONTREAL - Dollarama's sales and profits continued double-digit growth in the third quarter on industry-leading comparable-store sales, but the discount chain slightly missed analyst forecasts as it opened slightly fewer new stores than expected.

The Montreal-based company earned $61.7 million or 87 cents per diluted share during the period ended Nov. 3. That was up 28 per cent from $51.5 million or 68 cents per share in the prior year.

Revenues were up 14.2 per cent to $522.9 million while comparable-store sales grew 4.8 per cent on a 2.9 per cent increase in average transaction size and a 1.9 per cent increase in the number of transactions.

Dollarama (TSX:DOL) was expected to earn 87 cents per share on $526.3 million of revenues, according to analysts polled by Thomson Reuters.

The company said the sales increase was driven by the addition of more than 80 stores over the 12 months, including 19 net new stores in the third quarter.

Chief executive Larry Rossy said he is satisfied with the continued growth of comparable-store sales, a key industry measure.

"The consistent growth and strength of our operating results are a testimony to the success of our merchandising strategy, the compelling value of our product offering and the dedication of our employees," he said in a news release.

The chain had 847 stores countrywide, up from 761 a year ago.

Sales of items priced at more than $1 continued to accelerate and represented 62 per cent of sales in the quarter, up from 57 per cent a year ago when the $2.50 and $3 items were introduced. More than 40 per cent of sales were paid by debit cards, up three percentage points from the prior year.

Pre-tax operating earnings (EBITDA) was $99.8 million, up from $87.5 million a year earlier.

Irene Nattel of RBC Capital Markets said the results were strong but "shy of forecast" due to lower store openings and slightly higher costs.

"Overall would describe the quarter as solid. Comparable sales continue to lead the pack and 15 per cent EBITDA growth on one-year basis, 35.4 per cent on two-year stacked basis remains sector-leading," she wrote in a report.

"We remain confident that Dollarama can deliver solid high teens EPS growth through our forecast period."

On the Toronto Stock Exchange, Dollarama's shares were down $2.50 or 2.87 per cent at $84.60 in Thursday morning trading.

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