Dollarama Inc (TSX:DOL) could be a beneficiary from rising prices as consumers fight inflation by trading down and take advantage of the discount retailer’s value offering, according to analysts at Stifel GMP.
The broker commented after “good” third-quarter results with strong same-store-sales growth of 10.8%, suggesting “wallet share gains of discretionary spending by Canadians.”
Stifel was also reassured by management's statements on potential margin expansion in fiscal year 2024 given recent margin pressure from consumables.
Another strong quarter of double digits earnings per share (EPS) growth in 4Q is forecast and Stifel noted the company is in a strong inventory position ahead of the key holiday season compared to the previous year, which should drive same-store sales growth.
“It is still too early to tell how Christmas will fare this year for Dollarama but we believe the company's value offering will resonate well with consumers who are increasingly looking for value.”
Looking out to 2025, 65 store openings are expected which combined with same store sales growth of 4% should drive revenue growth of 7.7%, which the broker feels could be conservative.
The improved visibility on earnings and margins led Stifel to raise its price target to $94 from $88.50 while keeping its 'Buy' rating.
Given the shares are up 33% year to date, Stifel did suggest that the company could see some profit-taking under a sector rotation scenario in 2023 but near-term does not see this as a risk.