A Dollarama store is seen Tuesday, June 11, 2013 in Montreal.THE CANADIAN PRESS/Paul ChiassonThe Globe and Mail
Care to bet against the Dollarama juggernaut? Be very careful.
The retailer, which reports fourth-quarter results before the bell Thursday, has seen its shares decline mildly year-to-date. True, the stock is outpacing other retailers and the broader market, but we’ve come to expect more from shares that, at a nearly 400 per cent return over the last five years, are one of the shining stars of the S&P/TSX Composite.
There’s always a challenge for Dollarama, yet the company seems to rise to the occasion. Right now, the question seems to be Ontario’s minimum-wage increase eating into the company’s margins. But Jim Durran of Barclays says watch out: Earnings guidance suggests the company is absorbing 100 per cent of the increase, “but we are seeing signs of heightened retail price inflation.”
Mr. Durran suggests multiple reasons, in fact, why Dollarama might top analyst consensus numbers which, on average, calls for earnings per share of $1.40 on sales of just over $936 million, according to Thomson Reuters ‘ Eikon. Mr. Durran says foreign-currency exchange rates — always an issue with the company’s international suppliers — seem to be swinging in favour of Dollarama. And “recent negative headlines with Toys ‘R’ Us could provide a marginal lift in toys-related traffic.”
If Dollarama indeed beats, it’ll be old news: The company has topped quarterly earnings expectations in each of the last eight quarters, according to Eikon. A year ago, Dollarama exceeded EPS guidance by 11.7 per cent, the biggest beat of them all.
This doesn’t mean, necessarily, that Mr. Durran has a buy rating; he rates the stock a “sector performer.” Like a number of analysts, he holds back his love for valuation issues. Dollarama has maintained its premium valuation — 29 times forward earnings, by Mr. Durran’s calculation — even as other stocks have seen multiples contract. “We continue to take a more conservative stance as we expect EPS growth to slow from recent >20 per cent cadence to mid-teens over the next 12 months.”
He raised his price target last week to $154 from $151. The average is nearly $161, and one analyst is at $175 — suggesting Dollarama can keep on rolling.
Steelmaker Stelco Holdings Inc., fresh off a wild ride from U.S. President Donald Trump’s tariff drama, said after markets closed Wednesday that it was providing earnings estimate for the first two quarters due to “favourable market conditions” — but investor reaction may be mixed.
The company said its sales and profits for the first quarter will reflect orders in 2017’s fourth quarter, when prices were lower. EBITDA, or earnings before interest, taxes, depreciation and amortization, will be between $60 million and $70 million, less than analysts expect.
It expects its second-quarter EBITDA to come in between $120 million and $150 million thanks to higher prices, higher volumes and more efficient production. That number, however, seems to handily beat analyst expectations for that period.
The company also said it’s doing a “bought deal” stock offering of 10 million shares at $21.75 apiece. Majority shareholder Bedrock Industries B.V. is selling the stock, meaning the company will receive no proceeds.
In the U.S. Thursday morning, Corona beer and Svedka vodka maker Constellation Brands Inc. is expected to post a rise in fourth-quarter profit, helped by rising demand for its premium beers. The company had previously warned that its wine and spirits business would remain under pressure. Analysts expect, on average, EPS of $1.74 U.S. on revenue of just about $1.75 billion U.S.
The company’s report may include new commentary about its recent, splashy investment in Canada’s Canopy Growth Corp. Constellation agreed in October to pay $245 million (Canadian) for 9.9 per cent of Canopy’s common shares, plus warrants to acquire additional shares in the company. Constellation CEO Rob Sands told his investors in January that Constellation and Canopy are developing a nonalcoholic cannabis beverage for Canada.
With files from Reuters
David Milstead