08/12/2013 06:36 EDT | Updated 10/12/2013 05:12 EDT

Dollarama's operations chief heading to California to be CEO of 99-cents Only

MONTREAL - Dollarama is losing one of its top executives, who is moving to California to become president and CEO of another discount retailer called 99-cents Only Stores.

Chief operating officer Stephane Gonthier will remain with the Montreal-based company for a time to ensure a smooth transition.

"During his six-year tenure, Stephane has been an important member of the team that has led the growth and success of Dollarama," stated Dollarama founder Larry Rossy, who will assume Gonthier's duties on an interim basis.

He credited Gonthier for helping to develop a strong and talented management team that will continue to build on its solid growth strategy.

Gonthier, who previously held several positions at convenience store operator Alimentation Couche-Tard (TSX:ATD.B), said the decision to leave Dollarama was difficult.

"But I am confident that Dollarama is well positioned for the future, with the right people and resources in place to continue to deliver on its strategic plan," he said in the news release.

The trained lawyer and holder of an MBA will head a company with US$1.5 billion of sales last year and 327 stores. More than half its sales come from food and beverages, including produce, dairy, deli and frozen foods.

The 99¢ Only Stores was acquired in January 2012 by affiliates of Ares Management, the Canada Pension Plan Investment Board and the founding Gold/Schiffer family.

Irene Nattel of RBC Capital Markets said Gonthier was a critical part of Dollarama's (TSX:DOL) team and the "face" of the company for investors and analysts.

"Much of the heavy lifting from an operations perspective has been completed, but Dollarama's board will undoubtedly be looking for another strong operations executive as replacement for Mr. Gonthier," she wrote in a report.

She described Dollarama's "secret sauce" as equal parts product merchandising and strong sourcing, with consistent operational improvement, which won't be affected by Gonthier's departure.

"We remain confident that Dollarama can continue to deliver 15 to 20 per cent organic EPS growth over our forecast horizon," Nattel wrote, pointing to anticipated same-store sales growth of four to five per cent while reiterating her price target of $81.

"In our view, no other Canadian retailer offers similar consistent growth and visibility in the current challenging retail environment."

Dollarama currently has more than 800 locations across Canada and had more than $1.86 billion of sales last year. It sells a variety of household goods, usually at between one and three dollars each.

Its shares have steadily appreciated, gaining 40 per cent in the past year. But they were down $1.98 or 2.54 per cent, on the news of Gonthier's departure to trade at $75.85 in early afternoon trading Monday on the Toronto Stock Exchange.