Dollarama Inc T.DOL

RBC Raise Target

[retiredcf]

Their upside scenario target is $134.00. GLTA

March 26, 2024

Outperform

TSX: DOL; CAD 103.05

Price Target CAD 118.00 ↑ 114.00

Dollarama Inc.

Buck stops here: Reiterating constructive view ahead of FQ4 release, Target to $118 (+$4)

Our view: Narrative during the latest round of earnings releases reinforces our thesis that DOL is the best positioned of any Canadian retailer with an offering and price point that resonates particularly well with the value-oriented consumer spending and sentiment backdrop. In our view, the stock remains attractive with excellent visibility and sustainability of growth runway, Dollarcity optionality, and perennial return of capital to shareholders through both dividend growth and share buyback. Maintaining OP rating, price target +$4 to $118.

Key points:

Forecasting Q4 EPS $1.06, +17% Y/Y (in line with consensus $1.04, range: $0.97-$1.08), when DOL reports on April 4 (Exhibit 1). Our forecasts for FQ4 and beyond are predicated on SSS consistent with long-term target range 4-5%, with F25/26 at the low-mid point, normalizing from double- digit increases last six quarters. We anticipate annual dividend increase +7% and F25 guidance in conjunction with Q4 results.

• Tweaking our Q4E SSS by +50 bps to +4.5% (two-year stacked +20.4%), bringing the full year average to 12.1% (two-year stacked +24.1%), at the high-end of F24 guidance range 11-12%. Selling strength in Halloween seasonals during FQ3 could be a modest tailwind to this year’s FQ4 that started October 30, a day earlier than prior year. Reminder: Over the course of F24, management raised SSS guidance twice, from +5-6% to +10-11% after Q2 and +11-12% after Q3, implying Q4 +0.25-4.25%, a notable step-down from the YTD average of +14.6% as DOL laps six consecutive quarters of double-digit comps (Exhibit 5).

• According to regulatory filings, DOL repurchased 2.5 MM shares for $242 MM in FQ4. Our model incorporates 2.9% share buyback in F25E, funded with FCF. Assuming normalizing credit conditions, we model a 3.7% buyback in F26 funded with a mix of FCF and debt to maintain leverage largely stable ~2.3x (historical target 2.75x-3.0x). Should DOL's Dollarcity JV partners exercise the put option at some point, it would likely result in a temporary reduction in NCIB.

  Read-throughs from recent reporting: The common theme in calendar Q4 reporting is that overall consumer spending remains under pressure, driving enhanced consumer value-seeking behaviour. RBC Cardholder data insights consistent, with weakness in discretionary goods and home- related spending flat in anticipation of BoC policy pivot (Exhibit 4).

  We reiterate our view that DOL is a stock to own, across cycles, target + $4 to $118. Target valuation off F2026 with both EV/EBITDA 16x and P/E 27x (up from 25x) consistent with 2015-18 average (Exhibit 6). Multiples reflect the stability of the business model against the backdrop of uncertain economy, consumer wallet pressure along with traction on higher price points and Dollarcity opportunity.

[BearBullBrian]

Hmmm. I may have made a mistake. I sold recently because of the double top, planning to buy bck lower. We'll see how that works out. Some retailers have reported that their low income consumers have been holding back. Company reports next Thursday. BBB

[dogatcat]

Looks like you made the right move.