Dollarama Inc.
DOL-ightful! DOL Q3F/24 results strong and better than expected, again
TSX: DOL | CAD 99.08 | Outperform | Price Target CAD 113.00
Sentiment: Positive
First impression: Modest positive. Results continue to support our constructive view and investment thesis, and DOL premium valuation. Q3 saw DOL deliver another quarter of exceptionally strong SSS, +11.1%, +21.9% on a 2-year stacked basis, as expected moderating a still-sector leading level from prior Q's +15.5%/+17.1% despite tougher prior-year comps. Results reflect DOL's strong value positioning for consumers, particularly sought after in the current high inflation environment, and overall financial results reinforce management focus on productivity and efficiency. Updated guidance on SSS reflects strong YTD performance, implies sharply moderating cadence in Q4 relative to prior year tough comp likely to be a key topic of questioning on the 10:30 am conference call. Calling it "modest positive" despite market expectations for strong Q.
EPS $0.92 +32%, vs forecast/consensus $0.86 (+24% Y/Y), driven by stronger-than-expected SSS as consumers continue to turn to DOL for consumables in addition to everyday household items and seasonal products, slightly stronger than expected gross margin, likely in part due to scaling, and lower than expected SG&A $$.
Highlights of Q3/F24 results (full details on the following page):
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Revenue/SSS strong and better than expected, total revenue +14.6%, SSS +11.1% vs RBC +8.5%.
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Basket/traffic trends reflect strong demand for all product categories with consumables demand remaining above historical levels: Basket +0.6%, traffic +10.4% as DOL's deep value positioning and everyday household needs/seasonal/celebration offering resonates with cash-strapped Canadians.
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Gross margins up Y/Y, opex a tick lower than forecast.
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EBITDA including Dollarcity +24% Y/Y, +5.3%/+6.2% above forecast/consensus.
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Dollarcity contribution $18 MM, above forecast.
Updated F24 guidance reflects strong YTD SSS, balance unchanged:
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SSS: 11-12%, YTD average 16.3% implying Q4 SSS flat to +4%, which begs the question around whether management is being conservative given prior +15.9% comp or seeing meaningful slowdown in QTD SSS.
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New unit growth: 60-70, consistent with LT objectives.
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Gross margin: Range 43.5%-44.5%
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SG&A as % of sales: 14.7%-15.2%
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Implied EBITDA margin range: 28.3%-29.8%, RBC last published 29.9%.
Expect focus of 10:30 AM conference call to be: i) rationale behind implied tepid Q4 SSS guidance; ii) consumer demand trends, notably mix/price points and holiday/seasonal with only two weekends left before Xmas; iii) any meaningful slowing in demand with broader weakness in non-essential spending and trade-down in essentials; iv) outlook for opex with ongoing wage pressures, v) performance at Dollarcity, realistic expectations for annual contribution as store base tips more in favour of mature, existing stores vs new stores.
Conference call 10:30 AM, webcast link on the Investor Relations tab under "events":