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People shop in a Dollarama store in Montreal, September 17, 2008. (Christinne Muschi/Christinne Muschi for The Globe and Mail)
People shop in a Dollarama store in Montreal, September 17, 2008. (Christinne Muschi/Christinne Muschi for The Globe and Mail)

Dollarama hikes dividend as profit jumps 51% Add to ...

Dollarama is boosting its quarterly dividend after the discount retailer crushed analyst expectations by producing record fourth-quarter profits that soared more than 50 per cent.

The Montreal-based chain said Wednesday that it will increase its dividend 22 per cent to 11 cents per share from nine cents, payable May 4 to shareholders of record at the close of business April 25.

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On the Toronto Stock Exchange, the company's shares shot up 7.5 per cent, or $3.64, to $52 in early trading.

“Dollarama completed a very successful fiscal year,” stated CEO Larry Rossy.

He said the dividend increase, which came earlier than analysts had expected, reflected the company's confidence in its ability to reward shareholders while also pursuing continued growth.

Dollarama said net profit in the three months ended Jan. 29 was $63.6-million or 84 cents per diluted share.

That was up 51 per cent from the $42-million or 56 cents per share it earned a year earlier.

Dollarama's sales jumped 14.7 per cent to $468.7-million, mainly due to the addition of 52 stores over the year, as well as comparable store sales growth of 7.9 per cent, up from 5.3 per cent in the same 2011 quarter.

It was also aided by Halloween having fallen this year in the fiscal fourth quarter.

The results beat estimates compiled by Thomson Reuters. On a net income basis, the consensus had been for 68 cents per share of net income, or 69 cents on an adjusted basis, on $458.95-million in revenue.

Comparable store sales growth for the fourth quarter consisted of a 3.8 per cent increase in average transaction size combined with a four per cent increase in the number of transactions.

The growth in transaction size reversed a declining trend for the previous three quarters.

“The holiday season and the favourable weather conditions experienced during the fourth quarter of fiscal 2012 helped boost the overall sales results,” the company said in its release.

Net financing costs decreased by $2.7-million in the fourth quarter to $3.1-million because of lower debt levels and a lower interest rate.

Full-year diluted net earnings increased to $173.5-million, or $2.30 per share, from $116.8-million or $1.55 per share a year earlier.

Sales increased 12.9 per cent to $1.6-billion from $1.42-billion, mainly driven by new store openings as well as a 5.4 per cent increase in comparable store sales.

Irene Nattel of RBC Capital Markets said the “strong beat” reflects the “ongoing solid fundamental story.”

“Combined with ongoing balance sheet deleveraging, Dollarama should deliver above-average earnings growth versus other Canadian retailing peers regardless of macro backdrop,” she wrote in a report.

Despite the dividend increase, the chain should still retain an estimated $170-million to $200-million in free cash flow in fiscal 2013-14, Ms. Nattel added.

Derek Dley of Canaccord Genuity welcomed the strong results and recommended that investors switch out of Tim Hortons to Dollarama, his top growth retail pick.

“With a cautious consumer spending environment, we expect Dollarama will continue to outperform over the coming year,” Mr. Dley wrote in a report.

Dollarama operates stores at 704 locations across Canada offering a broad assortment of everyday consumer products, general merchandise and seasonal items at fixed price points up to $2.

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