MONTREAL – While some Canadian retailers spend big bucks to lure customers, discount retailer Dollarama says it sees no need to water down its high margins by spending money on advertising and marketing.
For the ninth consecutive quarter, Dollarama’s sales increased by double digits in the third quarter.
And purchases by loyal customers improved same-store sales, or sales for stores open at least a year, by 5.1 per cent during the third quarter. That’s on top of the eight per cent increase last year.
“It’s very hard for a retailer to convince itself to spend money to invite more consumers in when you deliver five plus per cent of same-store sales,” chief operating officer Stephane Gonthier said in a conference call Wednesday.
Instead of promotional flyers, the Montreal-based retailer is focused on improving its offerings to win sales from the 15 per cent of customers who leave the stores without purchases.
Dollarama said its sales and profits surged in the third quarter as it added new stores and shoppers continued to increase the amount of purchases.
The retailer (TSX:DOL) earned $41.8 million or 55 cents per share for the period ended Oct. 30, up from $31.3 million or 42 cents per share a year earlier.
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Sales increased 12.5 per cent to $400.3 million from $355.7 million, helped by its opening of 10 new stores in the period, or 51 stores over the past year.
The company was expected to earn 52 cents per share on $400 million of revenues, according to analysts polled by Thomson Reuters.
Nearly half of its sales were for items selling for more than $1, up from 40 per cent a year ago, and the average customer increased the size of their purchases.
“The increase in average transaction size is a strong indicator that our multi-price point strategy and our compelling merchandise offering continues to deliver value to our customers,” he told analysts.
A higher transaction size was partially offset by a 0.1 percentage decline in traffic at the stores. The quarter marked the fourth consecutive period of lower traffic, but at a lower rate than in the past.
Keith Howlett of Desjardins Capital Markets said retail traffic trends have generally been weak in Canada as Walmart (NYSE:WMT), Tim Hortons (TSX:THI) and Reitmans (TSX:RET.A) have all reported decreases.
“In the context of a stubbornly weak retail environment in Canada, Dollarama continues to exceed market expectations and create value for shareholders,” he wrote in a report.
Net financial costs decreased by more than half to $3.4 million as it reduced debt and benefited from lower interest rates and lower amortization.
Chief executive Larry Rossy said the competitive landscape for the chain hasn’t yet changed and could be helped by the arrival into Canada of Target in 2013.
“I’m looking forward to it. I think that they’re going to bring traffic where we’re situated close to the Target stores,” he said.
Rossy said he doesn’t believe the U.S. chain, which he said was a notch higher than Walmart, will “trade down” by selling low-price products that fill Dollarama’s shelves.
The company expects to add 50 stores this fiscal year and about the same number in 2012. With the retail vacancy rate running at about one per cent, rents are higher than expected but locations remain available.
“It’s a good time for landlords, in Canada anyway,” he said.
Dollarama maintained its dividend at nine cents per share, but Neil Linsdell of Versant Partners said the payout could increase as it continues to pay down debt. He increased his target share price by $5 to $46.
Canada’s biggest dollar store operator has 690 outlets across the country, which sell consumer products, general merchandise and seasonal goods for less than $2.
On the Toronto Stock Exchange, its shares gained $1.06, or 2.6 per cent at $41.38 in afternoon trading.
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