DOLLARAMA INC. FQ3 Preview: Disinflation Continues, As Does Trade-down
Dollarama will report its Q3 results on Wednesday December 13.
Management will host a webcast at 10:30 a.m. ET, which can be accessed
using this link. The quarter ran from July 31 to October 29.
Sales Expected To Remain Strong: Dollarama has delivered double-digit
same-store sales (SSS) growth for the last five periods, averaging 14.5%
growth over that time. We expect this trend will continue in Q3, and forecast
SSS growth of 10.5%. We expect growth will once again be primarily driven by
increased consumer traffic, and we forecast 9.3% growth in traffic and 1.1%
growth in basket. On a four-year basis (so comparing to pre-pandemic), this
implies stable basket trends and modest increases in traffic as consumers
continue to seek value. We believe this value-seeking has begun to shift more
substantially to the general merchandise and seasonal categories, while
consumables growth is moderating (though still notably positive).
Inflation Decelerating, Price Levels Stabilizing: Our November price
survey herein shows greater stability in prices, with the fewest number of
price increases since early 2022. The average price increase also continues
to decelerate, with November up 2.1% Y/Y, down from 4.6% in August.
Lastly, pricing levels are plateauing the percentage of goods listed at >$4 is
down slightly from earlier in the year while the percent of goods listed at
$1.50 or lower is flat, but remains dramatically lower vs. 2020/2021.
Expect Upside To SSS Guidance: We continue to see DOL’s SSS
guidance as conservative and continue to forecast the full-year to exceed
management’s 10%-11% range (CIBCe 12.2%). We see margin ranges as
more appropriate and likely to be maintained, though see SG&A as a
potential area of better leverage, particularly with the strong top-line. For Q3,
we forecast 70 bps of GM% expansion driven by top-line leverage,
favourable sales mix and lower freight costs. Conversely, we expect SG&A
rate to rise driven by elevated cost inflation of 14%, on a per store/per week
basis.