TSX:DOL - Post Discussion
Post by
retiredcf on Sep 15, 2023 12:20pm
TD Raise Target
Bump their target by $11.00. GLTA
Dollarama Inc.
(DOL-T) C$92.25
Q2/F24 Results: Exceeding Lofty Expectations Event
This morning, Dollarama reported Q2/F24 results well above our forecast/ consensus, and raised its guidance for F2024.
Impact: POSITIVE
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Q2/F24 Summary: Dollarama exceeded the most bullish of expectations with its Q2/F24 results. While a “beat-and-raise” was widely anticipated pre-quarter, we believe the “raise” component was also exceeded despite our belief that there continues to be a degree of conservatism baked into it. That stated, the Q2/F24 EPS of $0.86 handily exceeded consensus of $0.77 representing an ~30% y/y increase. Heightened traffic continues to flock to Dollarama's value proposition that drove sales/SSSG well above expectations, and attractive scale within SG&A. Dollarcity, to a lesser extent, also contributed to the beat.
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F2024 Guidance: As anticipated, management raised its F2024 guidance for its key SSSG metric. The magnitude of the increase (range of 10%-11%), however, was larger than anticipated as benchmarked to the pre-quarter consensus of 8.1%. As mentioned in our preview, the potential for an increase in sales could also lead to upward pressure on margin targets. While the forecast for the gross margin and SG&A were both maintained, it appears, especially on the SG&A line, to be somewhat conservative, in our view. Management is renowned for keeping some cushion in its back pocket, and we believe this may prove to be the case with its updated guidance once again.
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Balance Sheet: With its updated methodology, Dollarama remains active with its NCIB while reducing its leverage ratio, that is down to 2.4x from its prior target of 2.75x. We anticipate FCF to fund ~$450-$500mm in share repurchases in H2/F24.
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Conclusion: We were admittedly looking to tone down our positive recommendation on Dollarama post Q2/F24, given the recent share price appreciation, increase in valuation, and with the growth outlook inevitably having to slow. That stated, the near-term tailwinds to the business model appear strong, the guidance appears at a minimum reasonable, and the economic outlook and predictability of Dollarama's earnings/FCF make it difficult at this time to rotate out of. We believe this outlook continues to warrant a premium valuation multiple.
TD Investment Conclusion
We maintain our BUY recommendation with a revised $105.00 target price.
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