The Montreal-based company said competition from rivals including Dollar Tree Inc had led it to scale back price increases in an attempt to retain customers, reducing gross margins to 40.4 percent in the fourth quarter from 41.4 percent a year ago.
As expected by analysts, the results showed that the discount chain was benefiting from consumers opting for more of their shopping with cheaper retailers in the wake of weakening Canadian economy.
But while customers spent more at its stores on average, the number of transactions fell in the quarter and comparable store sales rose just 2.6 percent, compared to analysts' forecasts of 3 percent and 5.5 percent rise, respectively, a year ago.
The company also expected comparable store sales growth to be in the range of 2.5 percent to 3.5 percent in fiscal 2020.
Dollarama had warned three months ago that it was concerned that fewer customers were shopping at its stores due to price hikes in recent years.
Total quarterly sales rose 13 percent to C$1.06 billion, missing estimates of C$1.07 billion and net income rose to C$171.98 million ($128.1 million), or 54 Canadian cents per share, from C$162.83 million, or 48 Canadian cents per share.
Analysts, however, had expected the company to report a profit of 55 Canadian cents per share, according to IBES data from Refinitiv.
(The story corrects to "raising" from "rising" in first paragraph)
(Reporting by Shradha Singh in Bengaluru; Editing by James Emmanuel)
By Shradha Singh