On the rise
Shares of Dollarama Inc. increased after it forecast annual and quarterly sales above estimates on Thursday, betting on consistent demand for its discounted groceries and essentials.
Discount store operators have seen steady demand, even as other retailers struggled with softer sales as cost-conscious consumers increasingly stick to a budget when shopping.
Consumers in Canada and the United States have been looking for cheaper deals on items, ranging from cleaning supplies to groceries and apparel as they fend off steeper costs of rentals and fuel.
The Montreal-based discount store operator reported quarterly sales of $1.63-billion, up from $1.47-billion a year earlier, while analysts on average estimated $1.61-billion, as per LSEG data.
Discount retailers are effectively tapping into consumer preferences for cost-effective shopping, seizing market share from traditional department stores, in the face of soaring interest rates, analysts note.
Excluding items, Dollarama posted an adjusted profit of $1.15 per share for the quarter, above expectations of $1.06 per share.
Its gross margin was 44.5 per cent of sales, compared with 43.5 per cent in a year-ago quarter, due to lower inbound shipping costs.
The company expects annual comparable store sales growth in the range of 3.5 per cent to 4.5 per cent, largely above analysts’ estimates of 3.73 per cent.
In a research note, Stifel analyst Martin Landry said: “Dollarama reported strong Q4FY24 EPS of $1.15, up 26 per cent year-over-year and higher than our estimate of $1.04 and consensus at $1.06. Same-store-sales increased by 8.7 per cent Y/Y, higher than our estimate of 6 per cent and consensus of 5.4 per cent, driven by an 11.2-per-cent increase in number of transactions and a decrease of 2.2 per cent in transaction size. Management introduced a FY25 guidance calling for same-store-sales growth of 3.5-4.5 per cent Y/Y, in-line with our expectations of 4 per cent and consensus of 3.7 per cent. The company expects gross margin to be stable Y/Y at the mid-point, and for SG&A expense as a percentage of sales to increase by 35bps Y/Y, suggesting that FY25 EPS should range between $3.80-$4.10, or $3.95 at the mid-point, which is slightly higher than our estimate and consensus of $3.88. We expect Dollarama’s shares to react well to the Q4FY24 results and FY25 guidance, especially given the shares were weak heading into the quarter.”