Dollarama records strong sales and earnings growth in initial financial
report following IPO

MONTREAL , Dec. 10 /CNW Telbec/ - Dollarama Inc. ("Dollarama" or the "Corporation") (TSX: DOL) reported significant increases in sales and net earnings today for the quarter and year-to-date periods ended November 1, 2009 . Today's financial report for the third quarter of fiscal year 2010 is the first for Dollarama since the Corporation's initial public offering ("IPO") in October 2009 .

Financial and Operating Highlights

(All comparative figures below and in the "Financial Results" section that follows, are for the 13-week and 39-week periods ended November 1, 2009 compared to the 13-week and 39-week periods ended November 2, 2008 . Throughout this news release, the term "Normalized" has been used to refer to financial results that have been adjusted to exclude certain non-recurring items and charges related to the Corporation's IPO in October 2009 . For a full explanation of the Corporation's use of the Non-GAAP measures, please refer to Note 1 of the Selected Consolidated Financial Information section of this news release.)

    
    - Sales increased 14.8% in the third quarter and 15.0% year-to-date
    - Comparable store sales grew 7.3% in the third quarter and year-to-date
      periods
    - Year-to-date gross margin increased to 34.5% of sales from 34.0% of
      sales
    - Normalized EBITDA(1) for the third quarter grew 27.1% to $46.7 million
      from $36.8 million
    - Diluted net earnings per share for the third quarter increased to $0.02
      from a loss of $(0.52)
    - Diluted Normalized net earnings(1) per share increased to $0.46 in the
      third quarter from a Normalized net loss(1) of $(0.51)
    - Proceeds from $300 million IPO reduced net debt to $487.1 million as of
      November 1, 2009
    

"We are extremely satisfied with the strong performance of the business during the third quarter," said Larry Rossy, chief executive officer of Dollarama Inc. "Consumers continue to respond favourably to our expanding assortment of items priced at over one dollar and the exciting new values they offer. The growing profitability of our operations also reflects the management team's efforts to manage costs and improve bottom line performance."

"We welcome our new shareholders. As a result of our successful $300 million initial public offering during the third quarter, we have reduced our net debt and we are in a strong position to continue growing the business," said Mr. Rossy .

Financial Results

Sales for the 13-week period ended November 1, 2009 increased 14.8% to $312.8 million from $272.4 million in the corresponding period in 2008. For the 39-week period ended November 1, 2009 , sales grew 15.0% to $889.6 million from $773.5 million for the same period in 2008.

Third quarter sales growth was driven by the opening of 42 net new stores over the last twelve months as well as a 7.3% increase in comparable store sales over the third quarter of last year. Over the last twelve months, Dollarama opened 17 new stores in the western provinces of Manitoba, Saskatchewan, Alberta and British Columbia and 25 net new stores in the rest of Canada .

Comparable store sales increased 7.3% in the third quarter, driven by a 1.1% increase in the number of transactions and a 6.2% increase in the average transaction size, as consumers continue to discover compelling value in Dollarama's merchandise assortment priced above our traditional $1.00 price point. During the third quarter, approximately 27% of sales were accounted for by merchandise offered at price points greater than $1.00 , compared to 24% during the second quarter of fiscal year 2010.

Gross margin increased to 35.5% of sales in the third quarter compared to 34.2% of sales in the same period last year, due primarily to improved product margins and reduced transportation costs. For the 39-week period ending November 1, 2009 , gross margin increased to 34.5% of sales compared to 34.0% of sales for the same period last year.

General, administrative and store operating expenses ("SG&A") in the third quarter increased to $76.2 million from $57.0 million for the same period last year due to the opening of 42 net new stores since the end of the third quarter last year and the incurrence of approximately $11.8 million of non-recurring and IPO-related charges in the current quarter. These non-recurring and IPO-related charges include: a $0.8 million management fee paid to the Corporation's majority shareholder; a $5.0 million fee paid in connection with the termination of our management agreement with the Corporation's majority shareholder; stock compensation expense of approximately $4.9 million triggered by the IPO; and severance charges of $1.2 million . Excluding these non-recurring and IPO-related charges, Normalized SG&A(1) expenses were stable at 20.6% of sales in the third quarter of fiscal year 2010 compared to the same period last year.

Operating income for the 13-week period ended November 1, 2009 totalled $28.9 million compared to $30.5 million for the 13-week period ended November 2, 2008 . Adjusted for the non-recurring and IPO-related SG&A expenses detailed above, Normalized earnings before interest and taxes ("EBIT")(1), a non-GAAP measure of operating performance used by the Corporation, increased 30.2% to $40.7 million or 13.0% of sales in the third quarter, compared to $31.3 million or 11.5% of sales in the third quarter last year. For the 39-week period ending November 1, 2009 , Normalized EBIT(1) margin increased to 11.9% of sales from 11.7% of sales for the corresponding period last year, driven by the increase in gross margin over the same period.

Interest expense on long-term debt increased $10.1 million to $26.2 million in the third quarter of fiscal year 2010 from $16.1 million during the third quarter of the previous year, due primarily to $13.8 million of non-recurring interest expense, including: the write-off of $3.8 million of financing costs associated with the debt redeemed with the IPO proceeds, and $10.0 million in debt repayment premium and expenses associated with the redemption of our 8.875% senior subordinated notes. There were no unusual interest charges recorded in the third quarter last year.

For the 13-week period ended November 1, 2009 , the Corporation recorded a foreign exchange gain of $7.8 million arising from the mark-to-market of derivative financial instruments and long-term debt. This foreign exchange gain compares with a foreign exchange loss on derivative financial instruments and long-term debt of $30.2 million recorded during the 13-week period ended November 2, 2008 driven by the impact of the strengthening of the US dollar relative to the Canadian dollar on our US dollar-denominated senior floating deferred interest notes which were not hedged during that period. Given the redemption of the 8.875% senior subordinated notes on November 17, 2009 and the continuance of the related derivative instruments to hedge the senior floating deferred interest notes, management does not expect that the net earnings (loss) of the Corporation will be impacted significantly by foreign exchange losses (gains) on derivative financial instruments and long-term debt in the future.

For the third quarter ended November 1, 2009 , Dollarama reported net earnings of $1.1 million or $0.02 per diluted share compared to a net loss of $22.2 million or $(0.52) per diluted share for the third quarter last year. Net earnings in the third quarter of fiscal year 2010 were reduced significantly by the one-time expenses associated with the Corporation's IPO as described above, partially offset by a foreign exchange gain on derivative financial instruments and long-term debt; whereas net earnings in the third quarter of fiscal year 2009 were unfavourably impacted by a $30.2 million foreign exchange loss on derivative financial instruments and long-term debt associated primarily with the impact of the strengthening of the US dollar relative to the Canadian dollar on our US dollar-denominated senior floating deferred interest notes.

Excluding the tax-adjusted non-recurring and IPO-related charges described above, Dollarama generated Normalized net earnings(1) of $23.0 million or $0.46 per diluted share for the third quarter ended November 1, 2009 compared to a Normalized net loss(1) of $21.7 million or $(0.51) per diluted share for the same period last year. Normalized net earnings(1) increased to $61.9 million or $1.36 per diluted share for the 39-week period ended November 1, 2009 from a Normalized net loss(1) of $20.5 million or $(0.48) per diluted share for the same period last year.

About Dollarama Inc.

In 1992, the Dollarama business was founded by our CEO, Larry Rossy, a third generation retailer. We are the leading dollar store operator in Canada with 594 locations across the country. Our stores provide customers with compelling value in convenient locations, including metropolitan areas, mid-sized cities and small towns. All stores are corporate-owned and provide customers with a consistent shopping experience. Each store offers a broad assortment of everyday consumer products, general merchandise and seasonal items. Products are sold in individual or multiple units at select fixed price points between $1.00 and $2.00 , with the exception of select candy offered at $0.65 .

Forward looking statements

Certain statements in this news release may contain forward-looking statements. Forward-looking statements, by their nature, are based on assumptions and are subject to important risks and uncertainties. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business and its corporate structure. Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors: future increases in operating and merchandise costs, inability to refresh our merchandise as often as in the past, increase in the cost or a disruption in the flow of imported goods, disruption of distribution infrastructure, current adverse economic conditions, high level of indebtedness, inability to generate sufficient cash to service all the Corporation's indebtedness, ability of the Corporation to incur additional indebtedness, significant operating restrictions imposed by our senior secured credit facility and our senior floating rate deferred interest notes indenture, interest rate risk associated with variable rate indebtedness, no guarantee that our strategy to introduce products between $1.00 and $2.00 will be successful, market acceptance of our private brands, inability to increase capacity of the warehouse and distribution centers, weather conditions or seasonal fluctuations, competition in the retail industry, dependence on ability to obtain competitive pricing and other terms from our suppliers, inability to renew store, warehouse and distribution center leases or find other locations on favourable terms, disruption in information technology systems, growth strategy unsuccessfully executed, inability to achieve the anticipated growth in sales and operating income, inventory shrinkage, compliance with environmental regulations, failure to attract and retain qualified employees, departure of senior executives, fluctuation in the value of the Canadian dollar in relation to the U.S. dollar, litigation, product liability claims and product recalls, unexpected costs associated with our current insurance program, protection of trademarks and other proprietary rights and natural disasters, risks associated with the protection of customers' credit and debit card data as well as the other factors identified throughout our Management Discussion & Analysis dated December 10, 2009 . The forward-looking statements contained in this discussion represent the Corporation's expectations as of December 10, 2009 , and are subject to change after such date. However, the Corporation disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.

    
    Selected Consolidated Financial Information

    (dollars in
     thousands,
     except per           13-Week       13-Week       39-Week       39-Week
     share amounts   Period Ended  Period Ended  Period Ended  Period Ended
     and number        November 1,   November 2,   November 1,   November 2,
     of shares)              2009          2008          2009          2008
                    -------------- ------------- ------------- --------------
    Earnings Data
    Sales               $ 312,797     $ 272,379     $ 889,606     $ 773,465
    Cost of sales         201,674       179,356       582,412       510,703
                    -------------- ------------- ------------- --------------
    Gross profit          111,123        93,023       307,194       262,762
    Expenses:
    General,
     administrative
     and store
     operating
     expenses              76,229        56,990       196,442       158,639
    Amortization            6,008         5,500        18,343        15,838
                    -------------- ------------- ------------- --------------
    Total expenses         82,237        62,490       214,785       174,477
                    -------------- ------------- ------------- --------------
    Operating income       28,886        30,533        92,409        88,285
    Interest expense
     on long-term
     debt                  26,170        16,079        55,066        46,102
    Interest expense
     on amounts due
     to shareholders        5,826         6,469        19,866        18,940
    Foreign exchange
     loss (gain) on
     derivative
     financial
     instruments and
     long-term debt        (7,785)       30,230       (36,619)       39,786
                    -------------- ------------- ------------- --------------
    Earnings (loss)
     before income
     taxes                  4,675       (22,245)       54,096       (16,543)
    Provision for
     (recovery of)
     income taxes           3,535           (38)       15,243         5,489
                    -------------- ------------- ------------- --------------
    Net earnings
     (loss)             $   1,140     $ (22,207)    $  38,853     $ (22,032)
                    -------------- ------------- ------------- --------------
                    -------------- ------------- ------------- --------------

    Basic net
     earnings (loss)
     per common
     share              $    0.02     $   (0.52)    $    0.87     $   (0.52)
    Diluted net
     earnings (loss)
     per common
     share              $    0.02     $   (0.52)    $    0.85     $   (0.52)

    Weighted average
     number of basic
     common shares
     outstanding
     during the
     period (in
     thousands)            48,202        42,576        44,451        42,576
    Weighted average
     number of
     diluted common
     shares
     outstanding
     during the
     period (in
     thousands)            50,345        42,576        45,659        42,576

    Balance Sheet
     Data(2)
    Cash and cash
     equivalents        $ 261,539
    Merchandise
     inventories          255,949
    Property and
     equipment            135,095
    Total assets        1,508,797
    Total debt(3)         748,660
    Net debt(4)           487,121

    Other Data
    Year-over-year
     sales growth            14.8%         12.6%         15.0%         11.9%
    Comparable store
     sales growth(5)          7.3%          4.2%          7.3%          2.7%
    Gross margin(6)          35.5%         34.2%         34.5%         34.0%
    Normalized SG&A
     as a % of
     sales(1)(7)             20.6%         20.6%         20.6%         20.2%
    Normalized
     EBITDA(1)          $  46,743     $  36,783     $ 124,337     $ 106,373
    Normalized
     EBIT(1)            $  40,735     $  31,283     $ 105,994     $  90,535
    Normalized EBIT
     margin(1)(7)            13.0%         11.5%         11.9%         11.7%
    Normalized net
     earnings(1)        $  22,996     $ (21,695)    $  61,893     $ (20,497)
    Capital
     expenditures       $   7,119     $   9,033     $  23,928     $  25,945
    Number of
     stores(2)                594           552           594           552
    Average store
     size (gross
     square feet)(2)        9,795         9,733         9,795         9,733

    -----------------------------
    (1) In this document, we refer to Normalized EBIT, Normalized EBITDA,
        Normalized SG&A and Normalized net earnings (loss), collectively
        referred to as the "Non-GAAP measures". Normalized EBIT represents
        operating income, in accordance with Canadian GAAP, adjusted for
        non-recurring and IPO-related charges. Normalized EBITDA represents
        Normalized EBIT plus amortization. Normalized SG&A represents
        General, administrative and store operating expenses ("SG&A"), in
        accordance with Canadian GAAP, adjusted for non-recurring and IPO-
        related charges. Normalized net earnings (loss) represents net
        earnings (loss), in accordance with Canadian GAAP, adjusted for non-
        recurring and IPO-related charges, net of tax impacts.

        We have included Non-GAAP measures to provide investors with
        supplemental measures of our operating and financial performance. We
        believe Non-GAAP measures are important supplemental metrics of
        operating and financial performance because they eliminate items that
        have less bearing on our operating and financial performance and thus
        highlight trends in our core business that may not otherwise be
        apparent when relying solely on Canadian GAAP measures. We also
        believe that securities analysts, investors and other interested
        parties frequently use Non-GAAP measures in the evaluation of
        issuers, many of which present Non-GAAP measures when reporting their
        results. Our management also uses Non-GAAP measures in order to
        facilitate operating and financial performance comparisons from
        period to period, to prepare annual budgets, and to assess our
        ability to meet our future debt service, capital expenditure, and
        working capital requirements, as well as our ability to pay dividends
        on our capital stock. Non-GAAP measures are not presentations made in
        accordance with Canadian GAAP. For example, certain or all of the
        Non-GAAP measures do not reflect: (a) our cash expenditures, or
        future requirements for capital expenditures or contractual
        commitments; (b) changes in, or cash requirements for, our working
        capital needs; (c) the significant interest expense, or the cash
        requirements necessary to service interest or principal payments on
        our debt; and (d) income tax payments that represent a reduction in
        cash available to us. Although we consider the items excluded in the
        calculation of Non-GAAP measures to be non-recurring and less
        relevant to evaluate our performance, some of these items may
        continue to take place and accordingly may reduce the cash available
        to us.

        We believe that the presentation of the Non-GAAP measures described
        above is appropriate. However, these Non-GAAP measures have important
        limitations as analytical tools, and you should not consider them in
        isolation, or as substitutes for analysis of our results as reported
        under Canadian GAAP. Because of these limitations, we primarily rely
        on our results as reported in accordance with Canadian GAAP and use
        the Non-GAAP measures only as a supplement. In addition, because
        other companies may calculate Non-GAAP measures differently than we
        do, they may not be comparable to similarly-titled measures reported
        by other companies.


                          13-Week       13-Week       39-Week       39-Week
                     Period Ended  Period Ended  Period Ended  Period Ended
    (dollars in        November 1,   November 2,   November 1,   November 2,
     thousands)              2009          2008          2009          2008
                    -------------- ------------- ------------- --------------

    A reconciliation
     of operating
     income to
     Normalized EBIT
     is included
     below:

    Operating income    $  28,886     $  30,533     $  92,409     $  88,285
    Add: non-recurring
     and IPO-related
     charges:
      Management
       fees(a)(b)             750           750         2,250         2,250
      Fee paid in
       connection
       with the
       termination
       of the
       management
       agreement(b)         5,000             -         5,000             -
      IPO related
       stock
       compensation
       expense(c)           4,852             -         4,852             -
      Severance(d)          1,247             -         1,483             -
                    -------------- ------------- ------------- --------------

      Non-recurring
       and IPO-related
       charges             11,849           750        13,585         2,250
                    -------------- ------------- ------------- --------------

    Normalized EBIT     $  40,735     $  31,283     $ 105,994     $  90,535
                    -------------- ------------- ------------- --------------
                    -------------- ------------- ------------- --------------
      Normalized
       EBIT margin           13.0%         11.5%         11.9%         11.7%

    A reconciliation
     of Normalized
     EBIT to
     Normalized
     EBITDA is
     included below:

    Normalized EBIT     $  40,735     $  31,283     $ 105,994     $  90,535
    Add:
     Amortization           6,008         5,500        18,343        15,838
                    -------------- ------------- ------------- --------------

    Normalized
     EBITDA             $  46,743     $  36,783     $ 124,337     $ 106,373
                    -------------- ------------- ------------- --------------
                    -------------- ------------- ------------- --------------


    (dollars in           13-Week       13-Week       39-Week       39-Week
     thousands,      Period Ended  Period Ended  Period Ended  Period Ended
     except per        November 1,   November 2,   November 1,   November 2,
     share amounts)          2009          2008          2009          2008
                    -------------- ------------- ------------- --------------

    A reconciliation
     of SG&A to
     Normalized SG&A
     is included
     below:

    SG&A                $  76,229     $  56,990     $ 196,442     $ 158,639
    Deduct: non-
     recurring and
     IPO-related
     charges(a)(b)
     (c)(d)               (11,849)         (750)      (13,585)       (2,250)
                    -------------- ------------- ------------- --------------

    Normalized SG&A     $  64,380     $  56,240     $ 182,857     $ 156,389
                    -------------- ------------- ------------- --------------
                    -------------- ------------- ------------- --------------
      Normalized
       SG&A as a %
       of sales              20.6%         20.6%         20.6%         20.2%

    A reconciliation
     of net earnings
     (loss) to
     Normalized net
     earnings (loss)
     is included
     below:

    Net earnings
     (loss)             $   1,140     $ (22,207)    $  38,853     $ (22,032)
      Diluted net
       earnings
       (loss) per
       common share     $    0.02     $   (0.52)    $    0.85     $   (0.52)

    Add/(deduct)
     pre-tax:
      Management
       fees(a)                750           750         2,250         2,250
      Fee paid in
       connection
       with the
       termination of
       the management
       agreement(b)         5,000             -         5,000             -
      Stock-comp
       expense
       triggered by
       the IPO(c)           4,852             -         4,852             -
      Severance(d)          1,247             -         1,483             -
      Write-off of
       deferred
       financing
       cost(e)              3,814             -         3,814             -
      Debt repayment
       premium and
       expenses(f)         10,006             -        10,006             -

    Tax impact             (3,813)         (238)       (4,365)         (715)
                    -------------- ------------- ------------- --------------

    Normalized net
     earnings (loss)    $  22,996     $ (21,695)    $  61,893     $ (20,497)
                    -------------- ------------- ------------- --------------
                    -------------- ------------- ------------- --------------
      Diluted
       Normalized
       net earnings
       (loss) per
       common share     $    0.46     $   (0.51)    $    1.36     $   (0.48)

    -----------------------------
        (a) Reflects the management fees incurred and paid or payable to the
            company's majority shareholder, excluding out of pocket expenses.
        (b) The management agreement was terminated concurrent with the IPO.
        (c) Reflects the stock compensation expense related to performance
            vesting clauses that were triggered by our IPO.
        (d) Represents the elimination of severance.
        (e) Write-off deferred financing costs associated with the debt
            redeemed with our IPO proceeds.
        (f) Call premium, prepayment expenses and other fees associated with
            the redemption of our 8.875% senior subordinated notes in
            November 2009.
    (2) At the end of the period
    (3) Total debt is comprised of current portion of long-term debt,
        long-term debt before financing costs and discounts, and derivative
        financial instruments related to long-term debt.
    (4) Net debt is defined as total debt (see note 3) minus cash and cash
        equivalents.
    (5) Comparable store means a store open for at least 13 complete months
        relative to the same period in the prior year, including relocated
        stores and expanded stores.
    (6) Gross margin represents gross profit as a % of sales.
    (7) Normalized EBIT margin represents Normalized EBIT (see note 1)
        divided by sales. Normalized SG&A as a % of sales represents
        Normalized SG&A (see note 1) divided by sales.
    

For further information: Nicholas Nomicos, Interim Chief Financial Officer, [phone] x1237, [email protected]; Media: Paul de la Plante, NATIONAL Public Relations, [phone]