Ahead of the release of its third-quarter 2024 financial results on Dec. 13, Scotia Capital analyst George Doumet reaffirmed Dollarama Inc. as “a top defensive pick, especially under a hard landing scenario for 2024.”
“For Q3, we are modestly above consensus (on a higher top line) – and when compared to the mid-point of DOL’s F24 guidance, we believe we could see a lower SG&A rate (driven by operating leverage) and higher gross margins (driven by lower product/transport costs and higher price), depending on consumables’ relative performance versus the general merchandise/seasonal categories,” he said. “All in all, we expect topline growth to decelerate but remain robust, supported by sustained healthy demand as consumers hunt for value. We will be looking for updates on the latest demand trends for consumable products and seasonal category’s performance (Halloween, etc) in the quarter.”
Mr. Doumet is projecting revenue of $1.495-billion and 88 cents, both exceeding the Street’s forecast ($1.479-billion and 86 cents). Those are driven by a “strong” same-store growth expectation of 10 per cent.
“We expect trade-down trends to continue to propel growth across all three product categories,” he said. “That said, we expect the continued shift toward the discount channel and essential categories to disproportionately benefit consumables performance. Coupled with 14 net new stores quarter-over-quarter, we look for top-line growth of 15.9 per cent in Q3.
“On gross margin, we look for an expansion of 67 basis points to 44.0 per cent (vs. consensus of 44.2 per cent), driven mainly by favourable shipping costs and logistics costs (as inventory position improves year-over-year). We expect limited mix tailwind in Q3 given the anticipated consumables strength.”
After modest increases to his estimates to reflect lower expenses and the introduction of his 2026 forecast, Mr. Doumet raised his target for Dollarama shares to $104 from $99.50, keeping a “sector outperform” recommendation.
“DOL shares are currently trading at a 9-per-cent premium (versus its five-year average); and we believe the premium is justified in the current macro-environment, considering DOL’s unique combination of defensiveness and favorable growth prospects,” he said.