After conducting his semi-annual price point and basket analysis of Dollarama Inc. (DOL-T), Stifel analyst Martin Landry expects the discount retailer to raise its full-year same-store growth forecast when it reports its second-quarter 2024 financial results on Sept. 13.
“We analyzed more than 4,000 SKUs to assess the pace of the $4-plus product roll-out, and we reviewed our basket of 71 legacy products to determine the extent of inflation passed to customers,” he said. “Our analysis suggests that the roll-out of the $4-plus products is progressing well with 15 per cent of DOL’s products priced above $4.00, 800 basis points higher than in September 2022. Additionally, our analysis of DOL’s legacy products suggests that prices are 4.3 per cent higher year-over-year, which bodes well for SSS growth.”
Mr. Landry is now projecting quarterly revenue of $1.396-billion, up 14.7 per cent year-over-year on a comparable same-store sales growth assumption of 10.1 per cent and a 5-per-cent gain in store network. His earnings per share forecast of 75 cents is a gain of 13.6 per cent, but it sits 2 cents below the consensus on the Street due to a lower margin expectation.
“Over the last year, Dollarama has benefited from Canadians becoming more frugal to offset inflation and rising interest rates,” he said. “The number of transactions in Dollarama’s store grew 15.5 per cent year-over-year in Q1FY24, supporting our view that the company is gaining significant market share. Additionally, Walmart Inc. mentioned on its Q2FY24 call that they are continuing to gain market share across all markets, categories and income demographics, which we view has a positive read-through for Dollarama and a strong indication that consumers continue to trade down.”
Mr. Landry reiterated his “buy” recommendation and a $96 target for Dollarama shares. The current average is $91.18.
“Dollarama’s shares did not move much the day the company reported its stellar Q1FY24 results as investors were trying to assess the implication of the unchanged same-store-sales guidance,” he said. “However, we expect management to increase its FY24 same-store-sales guidance ... This increase should confirm continued market share gains and consolidate Dollarama’s position as the leading Canadian retailer during this economic slowdown. Hence, with strong organic growth rates, 500 basis points above historical levels, and not expected to abate near-term, Dollarama should garner a higher valuation, in our view.”