Dollarama has increased its target for new stores as bigger transactions push up its sales and earnings.
Q: Pat: What do you think of Dollarama? Thanks.
A:DOLLARAMA INC. (symbol DOL on Toronto; www.dollarama.com) is Canada’s leading dollar-store operator, with 1,095 locations across the country.
Dollarama’s revenue rose from $1.86 billion in 2012 to $2.06 million in 2013 (fiscal years end January 29). Sales then rose to $2.33 billion in 2014 and to $2.65 billion in 2015. Revenue in 2016 was up 11.8% from 2015.
Earnings increased from $1.50 a share (or a total of $221.8 million) in 2012 to $1.74 a share (or $260.5 million) in 2013. (All figures adjusted for a 2-for-1 split in November 2014.) Profit rose further in 2014, to $2.22 a share ($348.5 million), and then jumped to $3.03 a share ($388.6 million) in 2015. Earnings in 2016 rose 15.7%, to $445.6 million. Per share earnings rose 23.8%, to $3.75, on fewer shares outstanding.
Dollarama’s shares are up almost 22% since the company reported its 2016 sales and earnings.
Same-store sales, net of stores closed, rose 5.8% in the past year. That also excludes the 65 locations Dollarama opened over that period. Higher-priced transactions accounted for 94.8% of the sales gain. Growth in the number of sales transactions accounted for 5.2%.
The company introduced items priced at more than $1.00 in 2009 and has gradually rolled out many non-grocery products priced as high as $4.00. In 2016, 63.4% of its sales came from goods selling for more than $1.25; that’s up from 58.7% a year earlier.
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Dollarama has raised the target for its total number of Canadian stores to 1,700 from 1,400. To support that growth over the next few years, the company recently completed the construction of its new 500,000-square-foot warehouse in Montreal. On the basis of square feet, the new warehouse has added about 40% more warehousing capacity.
Dollarama now accepts credit card payments at its stores, through Visa, MasterCard and American Express.
The company holds cash of $62.0 million, or $0.52 a share. Its long-term debt of $1.1 billion is a low 8% of its market cap.
With the May 2017 payment, Dollarama will raise its quarterly dividend by 10.1%, to $0.11 a share from $0.10. The new annual rate of $0.44 yields 0.4%. The company also continues to aggressively buy back shares—it repurchased 7.4 million shares over the last year for $705.4 million.
The stock has gained 1,236.3% since it began trading on October 16, 2009 at $8.75 a share (adjusted for the 2-for-1 split). It now trades at a high 28.2 times Dollarama’s 2017 forecast earnings of $4.31 a share. That leaves it vulnerable if the company’s sales and earnings fail to live up to investor expectations. However, the company has a strong position in a growing niche. Dollarama continues to report rising sales and profits, and it continues to open new stores.
Inner Circle recommendation: Dollarama Inc. is okay to hold for aggressive investors.
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