“Cheaper Groceries” Proves Siren Call for Shoppers as Dollarama Stock (TSE:DOL) Blasts Up Post-Earnings

If anyone doubted that the Canadian economy was hurting these days, and quite badly to boot, prepare for perhaps the biggest sign that is not covered in moving neon. Canadian discount retailer Dollarama (TSE:DOL) posted its earnings, and saw an impressive surge as customers turned to the retailer for, among other things, discounted groceries. That was all investors needed to hear. Shares of Dollarama blasted up nearly 11% in Wednesday morning’s trading.

The Canadian shopper is increasingly pressed to make ends meet, and so, is turning to Dollarama for cheaper alternatives to the grocery store. From “pantry staples” to cleaning supplies, Dollarama is proving the bargain destination of choice, as evidenced by the numbers it posted in its earnings report.

Analysts expected Dollarama to do well, with expected net sales of C$1.5 billion. Dollarama beat that expectation and posted net sales of C$1.52 billion. Comparable store sales also shattered expectations, coming in at 4.9%, well above the 3.4% analysts were looking for. Earnings per share also did well against most every comparable measure: the C$0.98 that Dollarama brought in not only well-surpassed analyst expectations calling for C$0.84 per share, but also the figure from a year prior, which came in at C$0.77.

Watch Out for that….Toothbrush?

But not everything went quite so well for Dollarama. A new recall on, of all things, a toothbrush recently emerged, and left Dollarama scrambling to pull the item. The item in question, the Oracare Baby Brush, fell under a Type II recall in Canada, and consumers are advised to return the item to where they purchased it for refund.

A Type II recall, reports note, is “…assign…to a situation where the use of, or exposure to, a recalled product may cause temporary adverse health consequences or where the probability of serious adverse health consequences is remote.” Basically, the toothbrush’s silicone handle has the potential to break in half, thanks to a defect in manufacture. That can turn half the brush into a choking hazard.

Is Dollarama a Good Stock to Buy?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on TSE:DOL stock based on seven Buys and four Holds assigned in the past three months, as indicated by the graphic below. After a 45.81% rally in its share price over the past year, the average Dollarama price target of C$177.38 per share implies 6.94% downside risk.

See more TSE:DOL analyst ratings

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