Dollarama Inc. Q3 Preview: Cautious Consumer May Help Its Sales

seekingalpha2024-11-22

Dollarama Inc. is expected to announce Q3 '25 earnings on December 4th, '24, with a slight EPS growth but potential revenue miss due to recording methods.Management guidance aligns with analysts' ...

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Q3 Preview: Cautious Consumer May Help Its Sales","media":"seekingalpha","content":"<div>\n<p>Dollarama Inc. is expected to announce Q3 '25 earnings on December 4th, '24, with a slight EPS growth but potential revenue miss due to recording methods.Management guidance aligns with analysts' ...</p>\n\n<a href=\"https://seekingalpha.com/article/4739411-dollarama-inc-q3-preview-cautious-consumer-may-help-its-sales\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Dollarama Inc. 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Q3 Preview: Cautious Consumer May Help Its Sales\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-22 04:15 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4739411-dollarama-inc-q3-preview-cautious-consumer-may-help-its-sales><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Dollarama Inc. is expected to announce Q3 '25 earnings on December 4th, '24, with a slight EPS growth but potential revenue miss due to recording methods.Management guidance aligns with analysts' ...</p>\n\n<a href=\"https://seekingalpha.com/article/4739411-dollarama-inc-q3-preview-cautious-consumer-may-help-its-sales\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"DLMAF","symbol_name":"Dollarama, Inc.","start_time":0,"source_url":"https://seekingalpha.com/article/4739411-dollarama-inc-q3-preview-cautious-consumer-may-help-its-sales","article_id":"2485408874","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2162300471/image_2162300471.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485408874","pubTimestamp":1732220131,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Historically, over the last eleven quarters, the company missed revenue estimates 3 times, with the last two being missed. So, with the way the year is going, the customer is harder to predict, and also, Halloween sales are pushed to Q4, I wouldn’t be surprised to see another miss.   Seeking Alpha The company expects gross margins to remain in the range of 44% to 45%, with higher logistics costs expected to be realized in H2 of the year. What I am Looking For The management mentioned that they are actively trying to cut down on costs to get much more profitable and efficient, so I will be looking to see how that plan is coming along. It appea","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"DLMAF":"Dollarama, Inc."},"translate_title":"Dollarama Inc.第三季度预览：谨慎的消费者可能有助于其销售","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DLMAF":0.9},"content_text":"Dollarama Inc. is expected to announce Q3 '25 earnings on December 4th, '24, with a slight EPS growth but potential revenue miss due to recording methods.Management guidance aligns with analysts' expectations, but Q3 may be soft due to Halloween sales shifting to Q4 and unpredictable customer behavior.Focus on cost-cutting measures, Dollarcity expansion, and financial health, with Walmart's strong performance hinting at potential positive guidance for Dollarama.Initiating coverage with a hold rating, awaiting more information on efficiency improvements, consumer outlook, and Dollarcity's progress in LatAm.   jetcityimage  Introduction Dollarama Inc. (OTCPK:DLMAF) is set to announce Q3 ’25 earnings on December 4th, ’24, before the market opens. I wanted to go through some numbers as the company is not very well covered by the Street and give some thoughts on its outlook and where I stand currently. I expect some growth in EPS, but may miss revenue estimates due to the way some revenue was recorded. However, I am expecting guidance to be in line or even revised upward if Walmart’s (WMT) performance is any indication. The company is not that enticing to own right now, so I am initiating my coverage with a hold rating. What to Expect The company isn’t very well covered on the Street. There are no estimates of upcoming EPS numbers. However, I wouldn’t expect the number to be massively different y/y or even sequentially. I am expecting EPS to be slightly up compared to last time the same year, mainly due to the company actively repurchasing shares. Analysts are expecting revenues to be $1.12B, which is around 5% growth y/y and down around 3% sequentially. Now, how does it compare to the management’s guidance? The management expects to see same-store sales to be in the range of 3.5% to 4.5% for the full year, which translates to around $4.54B in sales for the year. Analysts expect that number to be $4.56B, so we can see that the company will miss full-year estimates unless analysts revise these numbers in the next quarter. Unfortunately, the management didn’t provide numbers specific for the upcoming quarter; however, they did mention that historically, key Halloween sales days will fall in Q4, which will skew same-store sales in favor of Q4, so I am expecting a soft number for Q3. Will it miss analysts’ estimates? Historically, over the last eleven quarters, the company missed revenue estimates 3 times, with the last two being missed. So, with the way the year is going, the customer is harder to predict, and also, Halloween sales are pushed to Q4, I wouldn’t be surprised to see another miss.   Seeking Alpha The company expects gross margins to remain in the range of 44% to 45%, with higher logistics costs expected to be realized in H2 of the year. What I am Looking For The management mentioned that they are actively trying to cut down on costs to get much more profitable and efficient, so I will be looking to see how that plan is coming along. It appears that gross margins have been trending in the right direction for a while now, so I would like to see this continue into the next year.   Seeking Alpha Furthermore, I would like to hear the progress on getting Dollarcity out to more regions. It had a great performance so far. The company opened an additional 38 stores on December 31st, ’23, so I would like to hear about the momentum going forward. I don’t expect to hear much about the plans to open Dollarcity in Mexico, but it would be nice if they gave us any more updates on its 2026 opening date. I believe LatAm is a massive market for these types of stores and expect to drive decent earnings the more stores it opens across the region, including Mexico. On the competition front, the two largest US retailers recently reported very different realities. Walmart surged 4% on strong-than-expected guidance and upward revisions to its FY24 guidance, helped by better-than-expected Sam’s Club performance and ecommerce, which saw 27% growth y/y. On the back of such strong quarter results, WMT increased its FY24 guidance, with the holiday season shaping up to be quite good, too. On the other side of the coin, Target (TGT), which reported on the same day as WMT, went the other way altogether after posting a disappointing Q3, plagued by inventory buildup and lackluster top-line growth of 1%. The company also missed estimates on top and bottom lines. The company’s Q4 guidance came in much lower than analysts’ estimates, which tells me the middle class is seeing quite a bit of a squeeze at the end of the year, even with the holiday season upon us. What can these two giants tell us about Dollarama? They’re not quite in the same income range as Dollarama, but Walmart is closer to it than TGT is. So, I am expecting decent guidance for the holiday season from Dollarama, especially with Halloween days included in that quarter, as well as the more active holiday season, which helps all the time. I would be surprised if we see downward revisions coming in. Middle-class families are still feeling the pinch these days and are still cutting down on spending, which may mean that they will turn to stores like Dollarama or Walmart instead of Target, even as inflation is somewhat tamed right now. Not fully. That last bit appears to be very sticky to get back down to 2%. However, families are not seeing much difference yet. Looking at the company’s financial position, I would like to see it tackling its debt position a bit. It’s not particularly an issue since its interest coverage ratio is around 10x, but many investors do not like debt as a form of growth vehicle. The company’s cash position is around $272m vs. $2.28B in long-term debt. That’s quite a gap, but as I said, it’s not particularly an issue yet. Closing Comments So, I am not expecting to be blown away by the company’s next quarter. I am leaning more towards a positive outcome than not. This is mainly because of the way some sales have been recorded and that this penny-pinching of middle-class income families will turn to these stores a lot more often due to the tough economic outlook. If Walmart’s earnings are any indication of the company’s future results, I wouldn’t be surprised if we see an upward revision for the rest of the year. I would be surprised to see the company going the way that Target did. It’s unlikely. With that said, I am not particularly looking to start a position in Dollarama Inc. stock before earnings. I would like to gather more information on the progress overall, and I would like to hear what the management has to say about the consumer going forward after the holiday season. I would also like to hear what kind of extra measures they have in store to improve its efficiency and profitability and the progress of Dollarcity buildout across LatAm. Thus, I am initiating my coverage of Dollarama with a hold rating.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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