Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Dollarama employee restocks shelves at the store in Vaughan, Ont. (JENNIFER ROBERTS/Jennifer Roberts for the)
Dollarama employee restocks shelves at the store in Vaughan, Ont. (JENNIFER ROBERTS/Jennifer Roberts for the)

At the Bell

As RIM shares languish, Dollarama on a roll Add to ...

Research In Motion Ltd. posts results for its second fiscal quarter on Thursday, and it appears sure to be a better day for the company than three months ago.

Back in June, the shares plummeted 22 per cent on news of missed performance targets, a rare decline in sales from the previous quarter and job cuts. The story today is looking brighter, even though the shares still languish.

More related to this story

Analysts say early checks show that new BlackBerrys running an updated version of RIM’s operating system are selling better than expected. That should help the Waterloo, Ont.-based company hit targets for the quarter, concluded at the end of August, and could lead management to lift guidance for the current quarter.

But that’s about the extent of good news expected by the Street. Analysts have been notching down the likely number of PlayBook tablet devices RIM sold last quarter and they warn that the company faces an enormous challenge in closing the gap that has opened between itself and competitors, namely Apple Inc.’s iPhone and Google Inc.’s Android software.

The smart phone market is growing rapidly but RIM has not capitalized on the trend because it has lacked new products, says Kris Thompson, of National Bank Financial. “In North America, future buyers prefer the iPhone and Android nearly 20 to 1 over BlackBerry,” he wrote in a report last week.

Mr. Thompson sees some upside for the stock in the short-term, but says RIM’s existing products “are not competitive to sustain market share over the long term.” He cites limited visibility on the company’s next-generation class of devices as well as the fact that RIM has “recently missed key product cycles, which may be repeated especially as a number of senior management have resigned.”

Mr. Thompson has a “sector perform” rating and $35 (U.S.) price target on the stock. He suggests investors “trim” their positions in RIM after the quarterly results “on any perceived near-term results recovery.”

Weakening economies usually hurt retailers, but there is surprising optimism around Dollarama Inc., Canada’s largest dollar store operator with 667 locations across the country.

The Montreal-based company posts second-quarter numbers on Wednesday after the market closes. Analysts are expecting a 12-per-cent rise in revenue from a year earlier to $385.4-million (Canadian) and a 54-per-cent rise in share profit.

Shares of Dollarama have nearly doubled in price since the company’s IPO two years ago. That rise has come even as the company reported that store traffic declined during its two previous quarters, as measured by number of transactions. But Dollarama has managed to beat expectations by raising prices.

Kenric Tyghe, of Raymond James Ltd., says that to prosper amid growing competition, Dollarama must continue to increase same-store sales through volume, not just price increases. He expects same-store sales growth of 3.7 per cent for the second quarter, compared with a rise of 7.8 per cent a year earlier. He rates the shares “market perform” with a $33 price target.

Other retailers are reporting similar trends of declining traffic, note analysts Irene Nattel and Tal Woolley of RBC Dominion Securities Inc. But they think that Dollarama should be able to sustain new store openings of about 50 per year and deliver revenue growth of almost 12 per cent this fiscal year.

Dollarama looks “among the best growth names in the Canadian discretionary space,” they wrote in a report Sept. 8. They rate the stock “outperform” with a $38 price target.

Follow us on Twitter: @GlobeInvestor

 

Topics:

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories