UPDATE 1-Dollarama forecasts annual sales above estimates on strong demand

(Updates with details from release, adds background)

April 4 (Reuters) - Dollarama forecast annual and quarterly sales above estimates on Thursday, betting on consistent demand for its discounted groceries and essentials.

Discount store operators have seen steady demand, even as other retailers struggled with softer sales as cost-conscious consumers increasingly stick to a budget when shopping.

Consumers in Canada and the United States have been looking for cheaper deals on items, ranging from cleaning supplies to groceries and apparel as they fend off steeper costs of rentals and fuel.

The Montreal-based discount store operator reported quarterly sales of C$1.63 billion ($1.21 billion), up from C$1.47 billion a year earlier, while analysts on average estimated C$1.61 billion, as per LSEG data.

Discount retailers are effectively tapping into consumer preferences for cost-effective shopping, seizing market share from traditional department stores, in the face of soaring interest rates, analysts note.

Off-price retailers in the U.S. such as TJX exceeded quarterly results as thrifty shoppers hunt cheaper apparel, cosmetics and gift deals.

Excluding items, Dollarama posted an adjusted profit of C$1.15 per share for the quarter, above expectations of C$1.06 per share.

Its gross margin was 44.5% of sales, compared with 43.5% in a year-ago quarter, due to lower inbound shipping costs.

The company expects annual comparable store sales growth in the range of 3.5% to 4.5%, largely above analysts' estimates of 3.73%. ($1 = 1.3498 Canadian dollars) (Reporting by Annett Mary Manoj in Bengaluru; Editing by Shweta Agarwal)