Desjardins Desjardins Securities’ Chris Li expects Dollarama Inc. to report “strong” second-quarter 2024 same-store sales growth on Wednesday as consumers “continue to seek value.”
The equity analyst is projecting earnings per share of 77 cents, up 10 cents year-over-year and driven by same-store sales growth of 10.5 per cent (down from 13.2 per cent a year ago). Both are in line with the consensus projections on Street and match management’s expectations from its first-quarter conference call in early June.
“We expect growth to be largely driven by transaction counts (9.5 per cent) as consumers continue looking for value,” said Mr. Li. “Importantly, we expect DOL to raise its FY24 SSSG guidance to 8 per cent (in line with consensus) from 5–6 per cent, implying low-single-digit SSSG in 3Q and 4Q (up against low- to mid-teen comps last year).”
“Gross margin: We expect 20 basis points year-over-year (in line with consensus), driven mainly by lower logistics costs and scaling, partly offset by unfavourable mix. Shrink is a significant challenge for many retailers in the U.S., including the dollar stores. On DOL’s 1Q call in June, management noted that shrink has been increasing for the past few quarters but this is already embedded in its guidance. Consensus FY24 gross margin of 44.0 per cent is right in the middle of management’s 43.5–44.5-per-cent guidance.”
Ahead of the premarket release, Mr. Li made modest adjustments to his full-year earnings expectations, raising his earnings per share estimate by a penny to $3.16.
He maintained a “buy” rating and $93 target for Dollarama shares. The average on the Street is $91.32.
“Overall, we expect 2Q results to reaffirm our expectation for relatively attractive EPS growth of 15 per cent this year, with a similar growth rate of 15 per cent in FY25 (CY24),” said Mr. Li. “We believe this should support current valuation of approximately 25.5 times NTM [next 12-month] EPS (vs 23–24 times average), with share price appreciation largely driven by EPS growth.”