Canadians are forced to adapt to high inflation by shopping for bargains, especially for everyday essentials. These two stocks below should benefit from this trend.
Dollarama Inc. (TSX—DOL)
Canadians from all walks of life are adapting to high inflation. And many of them are choosing to shop at Dollarama with an eye to value, especially for everyday essentials. Consequently, sales for the first half of fiscal 2023 (fiscal year ends Jan. 31) rose 15.4 per cent year over year to $2.3 billion. Meanwhile, same-store sales (SSS), or sales at stores open a year or more, rose 10.3 per cent.
SSS growth of 10.3 per cent was a vast improvement over the 0.1-per-cent contraction of a year earlier. The increase was primarily attributed to the length and timing of a ban on the sale of non-essential products in Ontario in the previous period. SSS consisted of a 17.4-per-cent increase in the number of transactions and a 6.0-per-cent decrease in average transaction size.
Dollarama is a dividend aristocrat. The company has raised its dividend each year for more than the past five years. In March, it raised the quarterly dividend 10 per cent to $0.553 a share.
Dollarama is a buy for growth.
Loblaw Co. Ltd. (TSX—L)
Loblaw’s drug retail business has driven overall margin expansion at the company, as sales have benefited from growth in higher-margin, front-store categories. Meanwhile, the positive trends in food retail have continued with the company’s conventional stores performing well relative to peers and sales growth in discount banners, heightened by the strength of No Frills and Maxi hard-discount stores and no-name brands.
Loblaw Companies Ltd. has two reportable segments. The retail segment consists primarily of corporate and franchise-owned retail foods stores and associate-owned drug stores. The financial services segment provides credit card and everyday banking services, the PC Optimum program, insurance brokerage services, and telecommunications services.
Based on its year-to-date operating and financial performance and momentum exiting the second quarter, Loblaw expects 2022 full-year adjusted earnings per share growth in the mid-to-high teens. The company expects its retail business to grow earnings faster than sales.
Loblaw will also invest about $1.4 billion in its business and continue to buy back shares. Loblaw is a buy for growth and some income.
This is an edited version of an article that was originally published for subscribers in the October 2022/First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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The MoneyLetter •11/9/22 •