Canada's Dollarama misses estimates amid pricing pressure

(Reuters) - Canada’s Dollarama Inc on Thursday reported lower-than-expected quarterly results, as the discount chain operator could not raise prices in the face of stiff competition from retailers such as Dollar Tree Inc, sending its shares down as much as 17 percent.

A Dollarama store is pictured in Toronto, Ontario, Canada, June 5, 2018. REUTERS/Carlo Allegri

The results come on the back of worries that fewer customers are shopping at Dollarama’s stores, unhappy with price hikes in recent years.

Dollarama sells products priced up to C$4, while U.S.-based Dollar Tree sells everything for a fixed price of C$1.25.

Dollarama’s shares, which have fallen more than 35 percent this year, were unlikely to get a boost unless there is change in its ability to further increase prices, according to TD Securities analysts.

Dollarama, which operates more than 1,000 stores in the country, said same-store sales rose 3.1 percent in the third quarter, but its number of transactions declined by nearly 1 percent.

Keeping prices in check also resulted in gross margin of 38.9 percent, compared with 40.1 percent in the year-ago quarter.

“It’s been said that we are no longer a dollar store, but in reality, we still have less than C$1, C$1 and C$1.25 items,” Chief Executive Officer Neil Rossy said on a conference call.

The Montreal-based company’s net income rose 2.7 percent to C$133.5 million ($99.5 million), or 41 Canadian cents per share, in the quarter ended Oct. 28.

Analysts on average had expected the company to post a profit of 42 Canadian cents per share, according to IBES data from Refinitiv.

Total sales rose 6.6 percent to C$864.3 million, but missed analysts’ average estimates of C$872.6 million.

For fiscal 2019, the company reduced its capital expenditure forecast to a range of C$180 million-C$190 million, from C$190 million-C$200 million.

Reporting by Debroop Roy in Bengaluru; Editing by Maju Samuel