12.15
RBC CM Outperform, Average Risk, Price Target: $25.00 (was $23.00)
Dollarama reported strong and better than expected Q3 results yesterday. EPS before non-recurring and adjusted for go-forward shares outstanding of 75.0 million was $0.31, better than forecast of $0.21, which assumed limited FX gains and no existing interest accretion on the existing preferred interests. Third quarter earnings were driven by higher than expected gross margin of 35.5% vs. estimates of 34%, which was in line with the long-term target as articulated by management at the time of the IPO. DOL reported sales of $312.8 million (+14.8%), consistent with forecast. Comps of +7.3% were in line with RBC CM’s +7.5% forecast and consistent with first half performance. Looking ahead, RBC CM continues to forecast comps of 7.2% for F2010 and 5% for F2011, settling back to the long-term sustained rate of 3% thereafter. Gross margins of 35.5% (+137 bps) were well ahead of forecast of 34.0% and driven by better merchandising margins and lower freight costs.
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