Dollarama sees future same-store sales climb as competition weakens

TORONTO – For the second consecutive year, Dollarama Inc. is expecting its profits will be higher in the next fiscal year compared to the current fiscal year.

The Canadian dollar-store retailer released its 2018 profit forecast on Monday — it expects to see a 6 per cent increase in profit compared to the year ahead. The Montreal-based company also said it expects to see about two more per cent increase in same-store sales next year as it builds on sales growth from 2017.

“With these improvements incorporated into the guidance, we are well positioned to continue to increase shareholder value,” Dollarama chief executive Larry Rossy said in a statement.

This gives the retailer a unique opportunity to fatten its bottom line in light of slowing retail sales across Canada.

Some analysts agree with management’s assessment of the industry but they warn it’s not too soon to get cautious about the stock price following recent sharp gains. Dollarama traded as high as $189.20 on Friday, its highest level since November 2015. On Monday afternoon, shares were trading at $189.46, down 1.2 per cent.

“Our board remains confident in our long-term strategy and optimistic about our future,” Rossy said.

Dollarama, however, could face some challenges over the next year as it enters a period of higher inflation and commodity costs.

Raymond James analyst Kenric Tyghe expects Dollarama to continue to outperform its peers and the retail sector in general, but in the meantime, he said, the company is aggressively pursuing sales growth from new stores.

“Building on the additions of 38 new stores since last year’s earnings call, Dollarama is expected to open more than 90 locations in the coming fiscal year,” he said in a note to clients.

Last October, Rossy announced a 10-year expansion plan that would see Dollarama add another 1,200 stores in North America over the next decade and double its store count.

Over that time period, he would like to add 120 stores per year. If Dollarama follows through on its plan, this would propel its store count over 3,000 by 2023 — up from 2,606 at the end of May.

Revenues in Dollarama’s third quarter ending June 30, however, are expected to be flat to slightly down from last year. And while same-store sales are expected to grow 1.4 per cent, Rossy warned investors not to expect growth in its store locations or product assortment.

“While we continue to watch our growth rate, we are now also focused on maintaining a balance between productive new store growth and targeted expansions and remodels to achieve sustainable same-store sales increases,” he said.

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