TD's Metrics for Groupe DynamiteTHE TD COWEN INSIGHT Groupe Dynamite (“GDI”) implemented a transformation that de-risked to an extent the fast-fashion model. Key steps included an aggressive open-to-buy strategy, the streamlining of its real estate, and investments to optimize inventory and enhance its omnichannel platform.
It is now positioned for its next growth phase that should support multiple expansion, should it achieve our growth targets. Conclusion: We are initiating coverage at BUY and $28.00 target price. This is based on an 18.0x P/E multiple on our F2026E EPS. This is toward the midpoint of its peer group (~16x) that we believe may prove conservative should GDI demonstrate a track record of meeting/ beating expectations, we gain clarity on its potential exposure to tariffs, and with a greater proportion of float shares in the market. Transformation Plan Completed: GDI transformed its business model since F2021, and despite its store count remaining constant, it generated a mid-teen revenue CAGR, topdecile margins, industry-leading inventory turnover (~9.0x) and solid FCF performance.
The successful steps included an open-to-buy strategy enabling it to go deeper into the season to solidify its merchandise offering and continuously be on-trend with the latest fashions. Also, management transitioned its store footprint to higher-tiered malls driving traffic/ basket, and utilized proprietary AI to optimize its inventory/reduce distribution costs. These initiatives are now the backbone of its strategy, positioning GDI to proceed with an extension of them to support future growth. Time to Implement Growth Strategy: GDI's growth outlook is predicated on an improvement in store productivity, expanding its store base largely within the U.S. market, and investments in technology/marketing that should elevate its eCommerce penetration rate. We forecast this will drive double-digit revenue growth (peers ~mid-single digits on average) in tandem with modest operating leverage.
We account for an NCIB that could facilitate EPS growth in the mid-teens over our financial forecast. Net Cash Provides Optionality: GDI is in a net-debt-neutral position. We forecast ~$300mm of FCF through F2026E that should handily fund organic growth, providing optionality to return capital to shareholders. Tariffs a Headwind, but Manageable: GDI has potential tariff exposure due to ~75% of its sourcing from China and ~50% revenue from the U.S. Prior tariff exposure was managed through a combination of sharing with vendors/price increases. We believe this is manageable, but a potential headwind to near-term multiple expansion.