Dollarama sees room for further growth

MONTREAL — Dollarama Inc. will start to accepting credit cards across all of its stores this year, the retailer said on Thursday, as it posted stronger-than-expected results that sent its stock surging.

The Montreal-based company also raised its estimate of how many of its stores Canada can support within a decade to 1,700 from 1,400. It had 1,095 stores as of Jan. 29.

“This provides us with a comfortable runway for continued organic growth in Canada, consistent with the current store format, real estate quality and capital payback period,” Dollarama CEO Neil Rossy said Friday.

The company said it’s time to stop insisting that customers pay either by cash or debit card — which usually don’t charge merchants the same processing fees as credit card transactions.

Rossy said Dollarama will begin to accept Visa, MasterCard and American Express in all of stores across Canada by the end of its second quarter, which ends mid-summer.

Chief financial officer Michael Ross added that pilot tests show that sales growth will offset the cost of allowing credit cards, but added it will take a year to know whether it can do better than break even.

“Right now, it’s too early to say.” Ross said.

Ross also said it’s too early to predict what will happen to Dollarama’s margins as the store count approaches 1,700 locations, but insisted it will adjust to ensure each location pays for itself within two to three years after opening.

For the 2017-18 financial year, Dollarama expects to add 60 to 70 stores to its network — similar to the 65 added in 2016-17

But a revised outlook for 2017-18 on Thursday included slightly higher ranges for its margins compared with estimates issued in December.

Dollarama (TSX:DOL) also raised its quarterly dividend by 10 per cent to 11 cents per common share, following a strong end to its 2016-17 financial year.

The retailer earned $146.1 million or $1.24 per diluted share for the quarter ended Jan. 29, up from $124.8 million or $1.00 per diluted share a year earlier.

Sales for what was the company’s fourth quarter improved to $854.5 million compared with $766.5 million in the same quarter a year ago.

Analysts had expected a profit of $1.11 per share, according to Thomson Reuters.

By Thursday afternoon Dollarama’s stock was up almost 10 percent at $109.43.

Several analysts released reports suggesting Dollarama stock has room to rise higher, including RBC Dominion Securities — which increased its previous price target by $3 to $129 per share.

RBC retailing analyst Irene Nattel wrote that “in our view DOL remains the leading retailer in our universe of coverage, and we maintain a constructive view on the stock.”

But Nattel added that the risks facing Dollarama include the potential for ”increased competition, minimum wage rate increases, a sustained decline in the Canadian dollar, and sustained product cost inflation.”

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