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Dollarama struggling to keep low prices in the face of depressed loonie

Sales in year prior were affected by bad weather in core markets

Dollarama says it could eventually introduce products priced above $3 as it raises prices in the face of a low Canadian dollar.

"We'll hold on as long as we can, but you're going to see some inflation I would say in Canada, unavoidably,'' CEO Larry Rossy said Wednesday in a conference call to discuss strong fourth-quarter results.

The discount retailer said it has absorbed some of the currency headwinds through lower margins, but has been forced to raise prices, for example, by adding 25 cents to some $1 items.

"I think at $1 we're struggling to get good value for the client today,'' Rossy told analysts.

When Dollarama started 23 years ago, all items sold for a loonie or less. But three years after it began selling items between $1.25 and $3, 71.5 per cent of sales now come from these higher price items.

The retailer said it also expects that it can open more stores in Canada than it thought as it continues to open locations in underpenetrated markets, particularly in Ontario and Western Canada.

The company said Wednesday the country can support about 1,400 stores, compared with the 1,200 maximum in its prior forecasts. Dollarama has 955 stores following the addition of 81 locations last year including 27 in the fourth quarter.

Meanwhile, Dollarama said it is feeling no negative pressure in Alberta or Western Canada from the impact of lower energy prices.

The liquidation of Target stores is having a short-term negative impact on Dollarama sales, but Rossy said the possible expansion of Walmart into some of these locations would be positive, as has been the experience for the 380 Dollarama stores located near Walmart stores.

Dollarama raised its quarterly dividend by a penny to nine cents per share Wednesday as it reported its fourth-quarter profit rose about 21 per cent from a year ago and beat the analysts' estimates.

The retailer earned a fourth-quarter profit of $100.3 million or 76 cents per share, compared with a profit of $83 million or 59 cents per share a year ago. Analysts had expected a profit of 71 cents per share.

Sales rose 15 per cent to $669 million for the quarter ended Feb. 1. The increase was due to a 9.3 per cent growth in the number of stores and an 8.5 per cent increase in same-store sales compared with a year ago when results were hurt by bad weather that forced temporary store closures ahead of Christmas.

For the full year, the chain earned $295.4 million or $2.21 per diluted share, compared with $250.1 million or $1.74 per share in 2013. Sales increased 13 per cent to $2.33 billion on a 5.7 per cent increase in same-store sales.

Dollarama shares were up $3.21 or 4.8 per cent at $69.51 on the Toronto Stock Exchange.

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