Dollarama stock perks up after discount retailer reveals plans to expand chain to 2,000 stores

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Despite lacklustre fourth-quarter earnings that failed to meet analyst expectations, budget retail giant Dollarama Inc. saw its shares rise Wednesday after it announced plans to expand its store count to 2,000 by 2031.

Dollarama’s sales increased by 3.6 per cent to $1.1 billion, short of analyst expectations. Canaccord Genuity Capital Markets had pegged the figure at $1.15 billion and Scotiabank at $1.14 billion.

In a press release, CEO Neil Rossy blamed COVID-19 restrictions for the lower-than-expected results for the discount store chain: “These stricter measures resulted in an abrupt and sustained decline in store traffic and sales through to fiscal year-end. With such restrictions gradually lifted starting in February, strong sales momentum returned in Fiscal 2022 and has remained quarter to date.”

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The discount retailer said it started the fourth-quarter strong, but momentum faded amid stricter occupancy limits for stores in Ontario, Quebec and Alberta, as well as a ban on non-essential retail in Quebec by early December.

Dollarama posted a fourth-quarter earnings before interest, taxation, depreciation and amortization, or EBITDA, figure of $326.9 million, far below the analyst consensus of $341 million, according to Canaccord. Dollarama’s net earnings fell to $173.9 million, or 56 cents per share, in line with analyst estimates, from $178.7 million, or 57 cents per share a year earlier.

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The company also raised its dividend by 7 per cent to $0.0503 per common share.

The stock got a lift Wednesday as the company set a new target of 2,000 stores by 2031, up from a previous target of 1,700 stores by 2027. The company, which now has 1,365 stores in its network, plans to open 65 new stores this fiscal year and another 60 to 70 in 2022. Dollarama expects each new store to pay for itself within about two years of opening. Dollarama’s shares were trading 6.3 per cent higher at $55.62 per share on the Toronto Stock Exchange.

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The company said its decision to expand its retail footprint was based on “the continued relevance of Dollarama’s business model.”

Dollarcity, the Latin American unit, will also expand its network to 600 stores by 2029 from 264 now, across Colombia, El Salvador and Guatemala. It’s also looking to enter the Peru market.

Dollarama’s weakness in fourth-quarter sales is part of a larger trend of slowing growth in Canadian retail, as lockdowns limited consumers’ abilities to go shopping during the crucial holiday season.

Retail transactions overall fell about 5 per cent year-on-year in early December after showing between five and 10 per cent annualized growth for most of the summer and fall, Nikita Perevalov, Scotiabank director of economic forecasting, wrote in a note to clients on March 19. The decline came immediately after Quebec and Ontario re-entered lockdown.

According to Statistics Canada, retail sales in December suffered their largest decline since April, falling 3.4 per cent, or $53.4 billion. Sales did rise for the fourth quarter as a whole, but only by 1.2 per cent, compared to the previous quarter.

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