Dollarama is one of those stocks that I’ve always liked but have never owned because of, I don’t know, stupidity? Laziness?
It’s a moot point.
Bottom line is that this dollar store operator remains one of the most consistent and best-performing companies and stocks out there.
That’s especially true since the pandemic and as inflation has taken hold.
Dollarama beat analysts’ estimates with its latest quarterly earnings results and raised its forecast.
Here’a a nice, tight summary from an analyst on how the company continues to go from strength to strength and why it’s is one of the best inflation fighting stocks there is.
by Brian Morrison, TD Securities
Dollarama is the largest dollar store chain in Canada, operating over 1,440 stores across the country.
In addition, Dollarama holds a 50.1% equity interest in Dollarcity.
■ Dollarama reported second quarter (Q2) fiscal 2023 earnings per share (EPS) of $0.66, slightly ahead of our forecast/consensus of $0.64.
Fiscal 2023 guidance was also modestly raised.
Impact: SLIGHTLY POSITIVE
Q2/F23 Results (period ending July 31, 2022)
- Sales Summary: Sales growth of 18.2% year-over-year (y/y) exceeded our forecast by ~2%.
- Strong top line growth was attributable to the lapping of government restrictions on non-essential goods, price increases implemented, and heightened traffic due to Dollarama’s compelling value proposition in inflationary times.
- Same store sales growth (SSSG) was 13.2% (consensus 11.9%) consisting of an ~20% increase in transactions and ~6% decline in basket size.
- The company remains on track with its annual new store count target of 60-to-70 (2023 year-to-date).
- Margin Summary: Gross margin of 43.6% increased ~20 basis points (bps) y/y, exceeding our outlook for a slight decline.
- This is attributable to price adjustments/lower logistic costs offsetting the notable shift toward lower-margin consumables and inflationary pressures on product/freight.
- Selling, General, and Administrative Expenses (SG&A) as a % of sales declined to 13.8% from 15.3%, also favourable to our forecast, with most of the decline (~120bps) due to the elimination of direct COVID-19 costs.
- Dollarcity: Maintained its attractive growth trajectory with equity income increasing ~88% y/y to $7.7mm, in line with our forecast.
- Adjusted EBITDA: Adjusted EBITDA increased ~26% y/y to ~$369 million, ahead of our estimate of ~$356 million.
- Guidance: As anticipated, management raised its SSSG guidance for F2023.
- We estimate its updated guidance metrics derive an EPS range of $2.58-to-$2.80, relative to the current consensus estimate of $2.67.
Conclusion: We summarize this morning’s release as slightly positive.
While we anticipated strong y/y earnings growth and SSSG to be increased, admittedly the degree is a notch above our expectation.
This should be supportive of modest upward revisions to guidance and in our view justify its premium multiple being sustained in the current market volatility.
We remain constructive on the share price outlook for Dollarama as it is a defensive go-to for investors, but note that we anticipate returns to moderate in the second half of 2023 relative to the first half as its growth rate normalizes.
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