Dollarama ((TSE:DOL)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Dollarama’s recent earnings call conveyed a generally positive sentiment, highlighting the company’s robust international expansion and strong revenue growth. However, challenges were noted, particularly with flat seasonal sales and increased costs tied to new operations in Australia. Despite these hurdles, Dollarama’s core Canadian business remains strong and continues to expand.
International Expansion Achievements
Dollarama has made significant strides in its international expansion efforts. The company successfully opened Dollarcity’s first store in Mexico and completed the acquisition of Australia’s largest discount retailer, The Reject Shop, adding 5,000 new colleagues to its workforce. This expansion marks a strategic move to increase Dollarama’s global footprint and diversify its market presence.
Strong Same-Store Sales Growth in Canada
In Canada, Dollarama reported a 4.9% growth in same-store sales. This growth was driven by a 3.9% increase in the number of transactions and a 0.9% rise in the average transaction size. These figures underscore the company’s strong performance in its home market, reflecting its ability to attract and retain customers.
Revenue and Earnings Growth
Dollarama’s financial performance was impressive, with sales increasing by 10.3% to over $1.7 billion. Net earnings rose by 12.5% to $321.5 million, and diluted EPS increased by 13.7% to $1.16. These results highlight the company’s effective strategies in driving growth and profitability.
Gross Margin Improvement
The company’s consolidated gross margin for Q2 improved to 45.5%, up from 45.2% the previous year. This improvement was primarily due to lower logistics costs, showcasing Dollarama’s efficiency in managing its supply chain and operational expenses.
Canadian Store Expansion
Dollarama continued its expansion in Canada by opening 27 net new stores in Q2, bringing the total number of locations to 1,665. The company aims to open 70 to 80 net new stores by the end of the fiscal year, further solidifying its presence in the Canadian market.
Challenges in Seasonal and Discretionary Spending
Despite overall growth, Dollarama faced challenges with flat seasonal sales and inconsistent consumer behavior, indicating fragility in discretionary spending in Canada. This reflects broader economic uncertainties that may impact consumer confidence and spending habits.
Higher SG&A Costs
The company experienced an increase in SG&A costs, which rose to 14% of sales from 13.6% last year. This increase was driven by higher labor costs in the Australian segment and a 20 basis point impact from a onetime transaction cost, highlighting the financial implications of its international expansion.
No Immediate Profit Contribution from Australia
Dollarama does not expect its Australian segment to contribute to profitability in fiscal 2026 due to integration costs and a multiyear transformation plan. This indicates a long-term strategic investment with anticipated future returns.
Forward-Looking Guidance
Looking ahead, Dollarama provided optimistic guidance, with a 10.3% increase in sales reported for the second quarter compared to the previous year. The company plans to open 70 to 80 net new stores by year-end and has set a long-term target of 700 stores in Australia by 2034. Dollarama remains focused on integrating its products and store layouts into The Reject Shop, with full conversion expected by the end of fiscal 2027. The company’s Canadian segment continues to perform strongly, and Dollarama is committed to providing value to consumers amid economic uncertainties.
In conclusion, Dollarama’s earnings call highlighted a positive outlook with strong international expansion and revenue growth. While challenges such as flat seasonal sales and increased costs in Australia were noted, the company’s core Canadian business remains robust. Dollarama’s strategic initiatives and forward-looking guidance suggest continued growth and resilience in the face of economic uncertainties.