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Dollarama profit surges, tops estimates

Tags: Dollarama

Discount retailer Dollarama (DOL-T) once again blew past Street expectations – the tenth consecutive time it has done so – when it reported first quarter earnings on Wednesday,

It also announced a share buy-back program. The company says it will purchase around 2.5 million shares, representing about 3.5 percent of outstanding common shares.

Sales in the first quarter increased nearly 15 percent to $398 million from $346 million a year earlier, helped by the opening of new stores.

Same store sales -- a key metric for retailers that measures sales at stores open for at least a year -- grew 8.1 percent in the first quarter.

Profit came in at $42.6 million, or 56 cents per share, compared to $30.4 million, or 40 cents per share, last year.

Analysts were expecting earnings of 50 cents per share and $390 million in revenue, according to Thomson Reuters.

Dollarama says it continues to pursue what it calls its “multi-price strategy”, which has seen it sell items for up to $2. In August it plans to expand that strategy by selling non-grocery items at $2.50 and $3 price points.

"Customers have responded very well to our multi-price point strategy and additional price points provide us with an opportunity to strengthen our value proposition,” Larry Rossy, chairman and CEO of Dollarama, said in a statement. “By selectively introducing items at $2.50 and $3.00 starting in August 2012, we will be able to enhance our customers' shopping experience while staying true to our dollar store concept and our commitment to offering compelling value.”

The move to add higher-priced items may be an effort to stave off competition from Dollar Tree, which continues to expand across Canada.

“Dollar Tree focuses specifically on the $1 US price point in the U.S. and the $1.25 price point in Canada. Although this limits the selection of higher-value items that Dollar Tree can offer versus Dollarama, Dollar Tree definitely has more purchasing power with suppliers as it has revenue in the $7 billion range and approximately 4,500 stores,” Neil Linsdell, analyst at Versant Partners, said in a note to clients. “The danger for Dollarama in pushing towards higher price points however is that at $3 and above, they start to challenge Walmart and Target.” CTV Two CTV News CTV News Channel BNN - Business News Network CP24