Dollarama Falls on First Earnings Miss Since IPO

Dollarama Inc., Canada’s largest dollar-store retailer, plunged the most in almost two years after reporting first-quarter earnings per share that fell short of analysts’ estimates for the first time since it went public.

Dollarama, based in Montreal, sank 3.4 percent to C$70.13 at 4 p.m. today in Toronto, the biggest one-day drop since August 2011. The stock has risen 19 percent this year, the fourth-best performer among 18 stocks in the Standard & Poor’s/TSX Consumer Discretionary Index.

The company reported adjusted earnings of 62 Canadian cents a share, short of the median estimate of 67 cents according to a Bloomberg survey of 10 analysts.

Dollarama had topped analyst estimates for 14 straight quarters since the company’s initial public offering in October 2009, data compiled by Bloomberg show.

The stock has 13 buys and 3 holds, according to ratings compiled by Bloomberg.

Same-store sales, a measure of sales at stores open for at least a year, rose 3.7 percent in the quarter, compared with 4.6 percent growth a year ago. Gross margin for the quarter was 35.9 percent, compared with 36.3 percent in 2012, Dollarama said in a statement.

“It was a disappointing quarter, the biggest surprise for us was the operating costs, which were way higher than what we expected,” Bobby Hagedorn, analyst with Edward Jones & Co., said on the phone from St. Louis. “They attributed it to costs from the increased pace of store openings.”

Cost Squeeze

Dollarama opened 21 net new stores in the first quarter and has added 85 net new stores in the past year compared with 54 in prior comparable period. The costs of setting up the new stores as well as training staff are expected to impact Dollarama’s earnings for the next three quarters, the company said.

In a conference call discussing the earnings results today, Larry Rossy, chief executive officer with Dollarama, said the company is on pace to open at least 80 more stores in the coming year.

“We’re take a bit of a longer-term view, that this is a blip for them, and they will begin to see the benefits of the store openings,” Hagedorn said. “If they can get their same-store sales back to the 5 or 6 percent level, that could also help them mask that effect.”