Dollarama gives more bang for the shareholder’s buck too

Between now and 2016, Montreal-based Dollarama Inc. (DOL-TSX) reportedly wants to open from 70 to 80 new stores a year in Canada. Does that make it recklessly ambitious?

No, it doesn’t, Robert Taylor would likely tell you. Mr. Taylor is senior vice president and portfolio manager of Toronto-based Canoe Financial.

And he says Canada is underserved by discounters like Dollarama. Although the U.S. now boasts one generic dollar store for every 13,000 people, Canada has only one store for every 26,000 people.

Moreover, Dollarama stands to benefit from the expected growth of Canada’s seniors, as well as its immigrant population: two groups whose need to watch their pocketbooks makes them ideal “demographics” for a discount store.

For its part, Dollarama gets a strong payback from the stores it does open, recouping its investment within two years, says Mr. Taylor, who also lauds the company’s upgrades in both inventory management and transaction processing.

Another Dollarama plus? Strong growth in same-store sales — specifically, four-to-five per cent — thanks to the company’s success in replacing slower-selling items with faster-selling ones.

Increase helps fuel growth

Dollarama has also succeeded in boosting same-store sales by increasing the number of items it sells that cost more than $1.

In the meantime, the company is likely to log annual earnings growth of 17-to-20 per cent over the next several years — growth that will be partly fueled by a rise in Dollarama overall square footage of 10 per cent a year, says Mr. Taylor, who can’t say enough good things about the retailer.

“I think when you put together all the pieces of the puzzle, you have a well-run business with good ‘bones’ and strong capital, including a return on investment capital of 20-to-25 per cent,” he says.

He also likes Dollarama’s relative cheapness, given that for 2015, it now trades at a price-to-earnings ratio of 17.5. Historically, it’s traded closer to 20.

For Mr. Taylor, Dollarama is a best buy.

Founded in 1992, Dollarama now boasts close to 800 stores across Canada. Its products, in either individual or multiple units, are sold at fixed price points of up to $3.

For the 13 weeks ended May 4, Dollarama’s net income jumped to $53.2 million or $0.78 a share, from $45.6 million, or $0.62 a share, for the similar period in 2013.

Sales, not surprisingly, were also higher, rising 11.8 per cent to $501.1 million while gross profit grew 8.2 per cent to $91.3 million.

 

 

Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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