Dollarama Inc.’s (TSX:DOL) fourth quarter and fiscal 2018 results beat consensus; company raises dividend and plans stock split
SmallCapPower | April 2, 2018: Dollarama Inc. (TSX:DOL) Thursday reported strong fourth quarter and full year fiscal 2018 results. Profit for the fourth quarter ended January 28, 2018, increased 11.5% to $162.8 million, or $1.45 per diluted share, above the consensus estimates of $1.40 per share. For fiscal 2018, profit rose 16.6% to $445.6 million, or $4.55 per diluted share, $0.04 above the Street consensus of $4.51.
Higher profits helped the Company to raise its quarterly dividend by 9% to $0.12 per common share. Dollarama also announced a proposed three-for-one stock split and the appointment of Stephen Gunn as Chairman, succeeding Larry Rossy. Both these announcements are subject to shareholders’ approval at the upcoming annual general meeting on June 7, 2018. A stock split would be investor and trader friendly as the stock currently trades at $150. Since the 2009 IPO price of ~$10, shares of Dollarama have grown multifold and currently trade $156.58, driven primarily by strong growth in earnings that have consistently beaten analysts’ expectations.
Sales rose 9.8% to $938.1 million for the fourth quarter and 10.2% to $3,266.1 million for fiscal 2018, driven by continued organic sales growth fueled by comparable store sales (5.5% for fourth quarter and 5.2% for full year) and the addition of 65 new stores over the past 12 months. Gross margins increased 60 bps to 39.8% for fiscal 2018, above the higher end of management guidance, primarily attributable to higher product margins. Gross margins for the fourth quarter stayed flat at 41.4%.
EBITDA increased 12.2% to $253.8 million, or 27.1% of sales, for the fourth quarter, a 60-bps improvement over the prior-year period. For FY 2018, EBITDA rose 17.5% to $826.1 million, or 25.3% of sales, a 160-bps improvement over FY2017 figure of 23.7% and above the upper end of the management guidance. Margin improvements were primarily the result of lower SG&A expenses as a percentage of sales due to labour productivity improvements as well as the positive scaling impact of strong comparable store sales.
Dollarama’s management also announcement plans to increase the size of its distribution centre in Quebec by 50% to 500,000 square feet. Expected to be completed by 2020, the expansion will support the long-term growth of its store network to the previously stated target of up to 1,700 stores by 2027. To reflect this expansion, Dollarama revised upwards its 2019 capex guidance to $150-$160 million from $110-$120 million earlier.
Dollarama is Canada’s largest discount retailer, selling a variety of merchandise at its 1,200 retail stores across Canada. The Company’s primary strategy is to offer compelling value for its target customer, the middle class. As part of this, Dollarama offers a broad assortment of everyday consumer products, general merchandise and seasonal items, including private label and nationally-branded products, at compelling values – merchandise is sold in individual or multiple units at nine select fixed price points ranging from $0.82 to $4. Dollarama currently trades at a market cap of $17.1 billion, a P/E of 35.89x, and price to TTM sales of 5.38x.
Disclosure: Neither the author nor his family own shares in the company mentioned above.
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