Dollarama's profit beats estimates as shoppers spend more

FILE PHOTO - A Dollarama logo is pictured outside of a store in Ottawa, Ontario, Canada, September 1, 2016. REUTERS/Chris Wattie (Reuters)

(Reuters) - Canada's Dollarama Inc <DOL.TO> reported a better-than-expected profit, driven by an increase in comparable sales as shoppers spent more at its dollar stores.

Same-store sales rose 5.5 percent in the quarter as shoppers continued to buy higher priced products and the discount retailer maintained its gross margin at 41.4 percent.

The profit beat comes in spite of slowing retail spending across Canada and a nearly 21 percent increase in minimum wage in its most populous province, Ontario beginning January.

Dollarama raised its capex outlook for fiscal 2019 to between C$150 million and C$160 million saying it expects to spend on expanding its distribution capacity and on automation. It had a previous view of C$110 million to C$120 million.

Several Canadian retailers like Alimentation Couche-Tard Inc <ATDb.TO> and Loblaw Cos Ltd <L.TO> are looking to automation to mitigate the hit their bottom lines will take as provinces raise the minimum wage.

Dollarama opened 25 new stores during the quarter, bringing the total to 1,160.

The Montreal-based company's net earnings rose to C$162.8 million, or C$1.45 per share, in the quarter ended Jan. 29, from C$146.1 million, or C$1.24 per share, a year earlier.

Analysts on average had estimated the company to earn C$1.40 per share, according to Thomson Reuters I/B/E/S.

Sales rose 9.8 pct to C$938.1 million.

The company said its board had approved a proposed 3-for-1 share split of its common shares.

It also said its founder Larry Rossy would step down as Chairman effective June 7 and would be succeeded by Stephen Gunn, who has been Dollarama's Lead Director since 2009.

Dollarama's shares were up 5 percent at $163.05 on the Toronto Stock Exchange.

(Reporting by Karan Nagarkatti in Bengaluru; Editing by Saumyadeb Chakrabarty and Shailesh Kuber)