Market Movers On the rise
Shares of Dollarama Inc. were higher after it lifted its annual sales forecast on Wednesday, encouraged by strong demand for its household essentials and groceries as inflation-hit consumers turned to discount stores.
Consumers grappling with high interest rates and rental costs are swarming dollar stores in search of affordable holiday decorations and cheaper consumables including chocolates, snack bars and beverages.
Dollarama profit jumps 31.4% as shoppers continue to look to discount retailers for inflation relief
Montreal-based Dollarama has also benefited from price hikes that were undertaken to offset higher costs resulting from persistent supply-chain challenges in logistics and labor.
The discount store operator now expects comparable store sales growth of 11 per cent to 12 per cent for fiscal 2024, up from the 10 per cent to 11 per cent it had estimated previously.
Dollarama’s sales rose nearly 15 per cent to $1.48-billion in the third quarter, in line with analysts’ average estimates, according to LSEG data.
Excluding items, the company posted adjusted profit of 92 cents per share, above expectations of 86 cents.
Its gross margin was 45.4 per cent of sales, compared with 43.3 per cent a year ago, helped by lower inbound shipping and logistics costs.
In a research note, Stifel analyst Martin Landry said: “Same-store-sales increased by 11.1 per cent year-over-year, in-line with our estimate of 11.2 per cent and better than consensus of 9.7 per cent, driven by a 10.4-per-cent increase in number of transactions and a 0.6-per-cent increase in transaction size. EBITDA margins reached 32.4 per cent, up 245 basis points Y/Y, the highest level in recent history and higher than our expectation of 31.1 per cent. Management increased its FY24 same-store-sales growth guidance by 100bps, which now calls for an increase of 11-12 per cent Y/Y. However, gross margin guidance remains unchanged despite the strong outperformance in Q3FY24. This suggests a same-store-sales growth of 0-4 per cent in Q4FY24, lower than our estimates of 6 per cent and consensus of 5 per cent. It also suggests a sharp deceleration in EBITDA growth which may be viewed negatively by investors today.”
Elsewhere, Desjardins Securities’ Chris Li said: “We expect a favourable reaction in the share price, balanced against the fact that performance has been strong heading into the quarter. DOL trades at 26 times forward P/E vs the historical average of 24 times. We believe valuation is well-supported by the current environment with the consumer continuing to search for value as well as our expectation of 15-per-cent EPS growth next year, with increased confidence from the results this morning.”