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We are encouraged by Dollarama’s DOL announcement that it will build a new distribution center in Calgary by fiscal 2028. This should speed up store expansion in underpenetrated Western Canada and ease reliance on the traditional strongholds of Quebec and Ontario, where we see risks of saturation after 30 years of growth.
Key Morningstar Metrics for Dollarama
That said, we expect only a slight uptick in our store count estimate, as the updated guidance for 2,200 stores by fiscal 2034 is less than 1% higher than the 2,186 stores we had penciled in at the end of the 10-year forecast period. Looking at this and earnings in the third quarter that should keep the retailer on track to meet our fiscal 2025 expectation for sales growth of 7% and earnings per share growth of 11%, we’ve not changed our fair value estimate of C$106 per share. Shares fell 6% on Dec. 4 but remained expensive, trading at over 30 times next year’s earnings.
For the quarter, sales rose 5.7% and adjusted EPS rose 6.5%, in line with FactSet consensus estimates. While same-store sales growth of 3.3% looked light, it was against a tough comparison (11%) in the year-ago quarter, when sales benefited from higher-price tiers being introduced. We believe Dollarama’s value positioning, strong merchandising, and constant product refresh continue to resonate with cautious consumers. Operating margins fell 60 basis points to 24.3%, as labor expense leverage was more than offset by logistics cost inflation and a higher sales mix of lower-margin consumables. We think highly productive stores and tight expense management should keep this metric at 24% for fiscal 2025.
Regarding the new distributor center in Calgary, Dollarama expects to close the C$47 million land purchase within the next three months, then spend C$450 million over the next three years to build out the 1.6 million square foot logistics and distribution hub.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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