Dollarama Inc

Dollarama Inc (TSX: DOL) is a General Retailers Company based out of Canada. The Company offers a variety of consumable products, general merchandise and seasonal products. The Company also sell products through stores located in Guatemala, El Salvador and Colombia.

Financial Highlights – H1 and Q2 Financial Year 2021 (2 August 2020, CAD, thousand)

(Source: Quarterly Report, Company Website) 

In the first half of the financial year 2021, driven by store sales growth of 5.4%, the revenue increased to CAD 1,858,390 thousand (H1 FY2020: CAD 1,774,441 thousand), and in Q2 it increased to CAD 1,013,592 thousand (Q2 FY2020: CAD 946,405 thousand). Reflecting higher operating expenses, the operating income declined to CAD 361,121 thousand in H1 FY2021 (H1 FY2020: CAD 390,196 thousand) and CAD 211,409 thousand in Q2 FY2021 (Q2 FY2020: CAD 221,627 thousand). Driven by lower operating income, the net earnings declined to CAD 228,575 thousand in H1 FY2021 (H1 FY2020: CAD 246,695 thousand) and CAD 142,496 thousand in Q2 FY2021 (Q2 FY2020: CAD 143,183 thousand). The basic earnings per share stood at $0.74 in the first half of the financial year 2021 (H1 FY2020: $0.78). The diluted earnings per share stood at $0.73 in H1 FY2021 (H1 FY2020: $0.78). The cash balance as on 2 August 2020 stood at CAD 218,357 thousand (2 February 2020: CAD 90,464 thousand).

Share Price Performance

DOL 1 Year Technical Chart. Source: Refinitiv, Thomson Reuters

Dollarama Inc shares closed at CAD 48.77 at the time of writing after the market close on 8 September 2020. Stock 52 week High and Low were CAD 53.96 and CAD 34.70, respectively.

Key Risks

Any change in regulations and government policies could affect the overall business of the Company. The outbreak of Covid-19 pandemic resulted in disruption in financial markets, world economy, regional economies and supply chain, which impacted negatively on the financial and operational performance. The Company is also exposed to foreign currency exchange rates fluctuations, seasonal sales fluctuations and competition in product lines.

Conclusion

The Group has shown a decline at the profitability front in the first half and second quarter of the financial year 2021. The top-line performance has improved, while the bottom-line performance has declined, with lower profitability margins for the period. The Group needs to manage its operating expenses unless it results in further deterioration in financial performance in the coming years. The liquidity position of the company remained strong with the well-positioned balance sheet. The Company was not able to open any new store under Dollarcity in Guatemala, El Salvador and Colombia, while it was recognized as an essential business. At present, the Company is not able to provide any guidance of FY2021 but continue to monitor the situation and expect covid-19 to impact adversely on short-term EBITDA and transaction volume. In long-run, the Group is well-positioned to manage the uncertain challenges. Presently, the company is trading near a 52-week high, raising doubts at its upside potential at current prices.

Based on the factors as highlighted above, we recommend a “Watch” stance on the stock at the closing price of CAD 48.77 (as on 8 September 2020), with support from few catalysts needs to be evaluated at a later stage.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.