Dollarama could pounce on the misfortunes of the Bargain Shop as it looks to expand its national reach by adding about 80 stores again this year.
Dollarama CEO Larry Rossy said Friday that the discount chain is eyeing some of the locations currently held by the small-town retailer which is reportedly closing 64 stores as it restructures under creditor protection.
"There are locations that they have that we may want," Rossy said during a conference call with financial analysts.
The comments came as Dollarama raised its quarterly dividend to 14 cents per share, up from 11 cents after reporting a big increase in fourth-quarter earnings that beat analyst estimates.
The Montreal-based discount chain reported a profit of $77.1 million or $1.04 per diluted share for the quarter ended Feb. 3. That compared with a profit of $63.6 million or 84 cents per diluted share in the same quarter last year.
Sales, helped by the additional week as well as new stores, totalled $561.9 million, up from $468.7 million a year ago. Comparable store sales, which it calculated on a 13-week basis, were up 4.6 per cent.
Excluding one-time items, the company said it earned $1.06 in the quarter, up from 84 cents per share a year earlier.
Analysts had been looking for $1.02 per share of adjusted earnings, $1.03 per share of net income and $546.33 million of revenue in the quarter, according to Thomson Reuters estimates.
75 to 80 openings planned this fiscal year
Dollarama has 785 locations across the country offering a broad assortment of products that cost up to $3 and plans to add 75 to 80 stores this financial year, after adding 81 new locations in 2012 with 81.
It wasn't immediately clear how many Bargain Shop locations could be added or when they may open.
Bargain Shop, which originated as the Canadian division of the Woolworth's retail chain, has 231 stores under the Bargain Shop, Red Apple and Mymark banners.
Rossy said the drive by U.S.-based retailers such as Marshall's and Michael's to open Canadian locations has raised real estate costs.
"The American invasion as we call it has taken up a lot of real estate … it's not necessarily competition by other dollar stores it's just competition for the real estate."
Dollarama said it struggled at times last year to keep up with the pace of new store openings. Its margins were affected as it was forced to pay several months rent until it could open the stores and generate sales.
Rossy also said he expects it could take six to 12 months to determine the real impact on its sales from the arrival of Target.
Where Wal-Mart has taken over Zeller's stores, the effects have been positive on Dollarama by generating increased traffic, he told analysts.
"So I expect the Target effects to be as positive but you have to wait."
Company reported profit of $220M
For its 2013 financial year, which had 53 weeks, the company reported a profit of just under $221 million or $2.94 per diluted share on sales of $1.86 billion.
That compared with a profit of $173.5 million or $2.30 per diluted share on sales of $1.6 billion in its 2012 financial year, which had 52 weeks.
The company said that while the number of transactions was stable in the quarter, the size of customer purchases grew by 4.6 per cent. About 56 per cent of sales spending came from items priced above $1 compared to 50 per cent last year.
Chief operating officer Stephane Gonthier said the chain's margins will improve in the coming years as it realizes the benefits of a series of efficiency initiatives, including new cash registers that will speed up transactions.
RBC analysts Irene Nattel and Tal Woolley said the strong sales performance should alleviate investor concerns about beating last year's strong results.
"We anticipate that the results delivered today combined with share buybacks and the dividend increase will continue to build investor enthusiasm for Dollarama shares," they wrote in a research note.
On the Toronto Stock Exchange, Dollarama shares gained $3.43, or 5.3 per cent, at $68.03 in Friday afternoon trading.