A Dollarama store is seen in Montreal. File photo by THE CANADIAN PRESS

Dollarama shares drop despite third-quarter profit and sales up from year ago

MONTREAL — Shares in Dollarama Inc. dropped nearly nine per cent Wednesday despite reporting strong third-quarter results.

The discount retail chain saw same-store sales jump 5.3 per cent for the quarter ended Nov. 3 — exceeding the 3.1 per cent growth in the same quarter the previous year.

That increase consisted of a 2.8 per cent boost in average transaction size, thanks in part to an increase in the number of units per basket, the company said. A 2.4 per cent increase in traffic also helped same-store sales grow.

“Based on our performance to date, we are narrowing our underlying full-year comparable store sales assumption to four per cent to 4.5 per cent, the top end of the previously disclosed range,” said CEO Neil Rossy in a statement.

Sustained momentum in this metric in the 2021 financial year — Dollarama is currently reporting for its 2020 financial year — “could be a catalyst for share price/modest valuation expansion, in our view,” wrote Irene Nattel, an RBC Dominion Securities Inc. analyst, in a note. Analysts had expected a 3.75 per cent quarterly increase in same-store sales for the discounter, she wrote, below the reported 5.3 per cent increase.

Dollarama shares closed down $4.34, or 8.85 per cent, to $44.70 on the Toronto Stock Exchange.

Nattel attributed the intraday trading activity to management’s cautious tone around fourth-quarter expectations and projected shipping costs for the next financial year.

For the quarter, Dollarama reported a profit of $138.6 million, up from $132.1 million in the same quarter last year, helped by a boost in sales.

The discount retailer says the profit amounted to 44 cents per diluted share compared with a profit of 40 cents per diluted share in the same quarter last year.

Sales in the quarter totalled $947.6 million, up from $864.3 million.

Analysts on average had expected sales of $936.8 million and a profit of 45 cents per share, according to financial markets data firm Refinitiv.

New stores helped boost sales. Dollarama added 21 net new stores in the quarter — up from 14 in the same quarter last year — for a total count of 1,271 as of Nov. 3. It remains on track to open between 60 and 70 net new stores in this financial year as it works to grow to 1,700 locations in Canada by 2027.

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