Dollarama profit tops estimates, credit card transactions help

(Reuters) - Canada's Dollarama Inc DOL.TO reported a better-than-expected profit for the ninth straight quarter as customers spent more at its dollar stores, helped by its policy to accept credit cards for payments.

A pedestrian walks past a Dollarama store in Ottawa, Ontario, Canada, September 1, 2016. REUTERS/Chris Wattie

Dollarama’s shares rose as much as 10.6 percent to a record high of C$134.68 in midday trading.

The company started accepting credit card payments in the beginning of the second quarter.

Customers spent more than twice the amount when shopping with credit cards than they did with cash transactions, Chief Executive Neil Rossy said on a conference call with analysts on Thursday.

The Montreal-based company did not break out how many shoppers were paying by credit as opposed to cash and debit card transactions.

Dollarama has also been adding products to its assortment, which brought more shoppers to its stores.

“Our customers responded well to our product offering during the quarter despite a slower and colder start to the summer season in some of our largest markets,” Rossy said.

Dollarama said that average basket size on checkout rose 5.9 percent in the quarter ended July 30.

The company’s traffic inched 0.2 percent higher - the first time in four quarters - and its same-store sales rose 6.1 percent.

The dollar store operator, which raised its product price ceiling to C$4 last year, faces far less competition in the market than its U.S. peers, allowing it to raise prices and improve margins.

Dollarama's gross margins improved to 39.6 percent in the second quarter from 38.4 percent a year earlier. In contrast, U.S. retailer Dollar General Corp DG.N reported a slide in its second-quarter profit margins, as it cut prices more aggressively to compete with Amazon's AMZN.O Whole Foods Market.

Dollarama’s net income jumped 24 percent to C$131.8 million ($108.61 million), or C$1.15 per share, in the second quarter.

Excluding items, the company earned C$1.15 per share, beating the average analyst estimate of C$1.04, according to Thomson Reuters I/B/E/S.

The company, which opened 17 stores in the quarter, said sales rose 11.5 percent to C$812.5 million. However, they narrowly missed analysts’ expectations of C$812.6 million.

Reporting by Anirban Paul in Bengaluru; Editing by Maju Samuel