Dollarama Inc T.DOL

TD

[retiredcf]

Dollarama Inc.

(DOL-T) C$88.81

Q2/F24 Preview: Anticipating Annual Guidance to be Raised

Event

Dollarama is scheduled to report its Q2/F24 results on September 13.

Impact: NEUTRAL

• Q2/F24 Preview: We expect Dollarama to continue benefiting from its relative value proposition advantage in Q2/F24, as consumers “trade down” to lower prices due to the elevated inflationary environment. This should result in heightened traffic volumes driving our SSSG forecast of ~11%. We forecast a y/y improvement in the gross margin, as the impact of new price points/price increases should offset the mix shift toward consumables. The margin benefit should be more than offset by heightened labour costs incurred to manage heightened sales volumes, resulting in a modest decline in the operating margin. Our mid-teen growth forecast for EPS of $0.76 is in line with consensus of $0.77.

• Price Checks: Our quarterly price checks illustrated that price increases slowed sequentially, likely due to the slowing in the growth rate of inflation/easing in supply chain constraints. We maintain that Dollarama's pricing flexibility, enhanced by its $4.25-$5.00 price points, is supportive of gross margin expansion in F2024.

• Guidance: We anticipate that Dollarama's SSSG guidance will be raised with the Q2/F24 release. Based on our Q2/F24 forecast and the maintaining of its annual guidance range of 5.0%-6.0% in Q1/F24, this implies negative SSSG in H2/F24. We view this as overly conservative despite the lapping of strong double-digit comparable quarters in H2/F24.

• NCIB: Despite its revised buyback methodology, Dollarama was active with its NCIB in Q2/F24, repurchasing ~2.86mm shares for total consideration of ~ $250mm. We expect strong annual FCF to support a buyback of >$750mm in F2024.

• Investment Summary: We remain positive with our outlook and recommendation for Dollarama, given its consistent EPS growth profile, ability to generate solid FCF, and the diversification of its business model that, in our view, should support attractive long-term growth. We expect this should maintain a premium valuation relative to the market, in the current retail/economic environment.

  TD Investment Conclusion

  We maintain our BUY recommendation and $94.00 target price. We will revisit our target price, recommendation, and estimates following quarterly earnings.