Q4/24 RESULTS: ATTRACTIVE GROWTH BEING APPROPRIATELY VALUED
THE TD COWEN INSIGHT
Dollarama ("DOL") released Q4/F24 results and F2025 guidance metrics this morning that both exceeded consensus. We maintain our view that the strength of DOL's business model consistently warrants an overweight or neutral weight position. With a 15% required hurdle rate, and the slowing of its consolidated EPS growth outlook, we view a HOLD recommendation as currently appropriate.
Impact: POSITIVE
Q4/F24 Results Summary: DOL reported EPS of $1.15 relative to our forecast/consensus of $1.07/$1.05, with the beat coming from across the board. Despite lapping a strong comparable, SSSG (8.7%) continues to benefit from heightened traffic to DOL's value proposition. The operating margin had the greatest outperformance contribution due to pricing/scale/lower logistic costs. Lastly, Dollarcity continues to hit the ball out of the park realizing y/y equity income growth of ~66%.
F2025 Guidance: We infer that the key guidance metrics imply an EPS mid-point of ~$4.00 ($3.83-$4.14 range) relative to pre-quarter consensus of $3.88. In typical DOL fashion, its guidance appears to incorporate a degree of conservatism. We believe this is prudent following notably strong comparable periods, however, we are maintaining our updated forecast toward the high end of its guidance metrics. Even so, our EPS growth forecast now derives a growth rate in the mid-to-high teens (F2025 has a 53rd week) relative to its recent three-year average of >25%.
Dollarcity: The recent results of Dollarcity have been simply outstanding, inclusive of an initial dividend distribution this quarter. With no tangible guidance it is difficult to accurately forecast. That stated, it is clear, in our view, that the cadence of new store growth should exceed its annual target of ~50, that the banner is gaining market share, and that notable operating leverage is taking hold due to scale/recent capital expenditure incurred to improve its distribution/logistics.
Conclusion: We believe DOL's growth outlook, consistent/predictable attractive FCF generation, and emergence of Dollarcity's growth warrant a premium multiple. That stated, it is our view that following several years of outsized growth aided by an inflation-aided trade down of traffic, we believe that the rate of top-and-bottom line growth is poised to slow. Despite our positive financial outlook, we believe an applied multiple trending toward its historical average is now more appropriate, relative to our prior years' view of the high- end of its historical range. We maintain a HOLD rating with a revised $113.00 target price