Dollarama is a holding company that operates through a chain of dollar branches in Canada. It’s a major player in Canadian value retailing.

Dollarama owns and operates 1,356 stores in ten Canadian provinces. The company has a presence in metropolitan areas, medium-sized towns and small towns, and almost all stores are in high-traffic areas such as shopping malls.

Dollarama offers its customers general merchandise (43% of product offerings in fiscal 2020), consumer goods (41%) and seasonal items (16%). The company offers a wide variety of goods ranging from housewares, groceries, beverages, snacks, and pet foods to hardware, gardening tools, and other general merchandise.

Dollarama works through an extensive network of warehouses, distribution centers and stores to reach its customers. Dollarama not only operates its own branch network, but is also the main supplier to Dollar City in El Salvador, Guatemala and Colombia.

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Investment data

Sales growth and market exposure

Dollarama started out with 44 stores in 1992 and has grown to become a popular term and shopping destination for Canadians with more than 1,300 stores domestically. As Canada’s leading value retailer, Dollarama offers products at prices ranging from $ 1 to $ 4. This offers its customers a wide range of products and great value while enhancing their overall shopping experience.

Dollarama is expanding its geographic and digital presence. The company launched its online store (www.dollarama.com) and put some of its most popular consumables and general goods on sale. The company aims to increase sales by opening new stores every year. In addition, the company is expanding its distribution center to provide the necessary infrastructure to support the long-term growth of its branch network.

Dollarama’s supplier base is well diversified, sourcing mainly from North America (44% of total retail volume) and 25 different countries (56%). Over the years, Dollarama has built a network of trusted suppliers who meet its quality standards. As a result, the company has been able to maintain a level of consistency across the price range, mix of goods, product offerings, and store layout, which promotes customer loyalty and repeat traffic. Persuasive value, a strong brand reputation, and quality products have resulted in sticky customer relationships over the years.

The company recorded sales growth of more than 6% in FY2021 and strong sales momentum in FY2022. Dollarama saw an increase in demand for household and cleaning products, hygiene and health, and food. The company opened 65 new stores in the past year. Dollarama’s in-store traffic and sales were negatively impacted at the end of the fiscal quarter due to the temporary ban on non-essential item sales in Quebec, where approximately 30% of its stores are located.

Although fourth quarter earnings were impacted by lower like-for-like store sales due to restrictions and higher COVID-19 costs, the company benefited from higher margins, lower financing costs, and a higher share of Dollarcity’s net income.

Dividends

Dollarama is a Canadian dividend aristocrat and has announced successive increases in its dividend since 2011. The company recently approved a dividend payout increase of more than 14%. Dollarama has a modest yield of 0.35% and a very low payout ratio of 11%. A very low payout ratio still shows enough room for future dividend increases. The company has stepped up its dividend growth at an impressive rate of more than 9% CAGR over the past five years. It also aims for an active resumption of share buybacks in fiscal 2022.

Dollarama’s business strategy of adopting a fixed-price retail concept, expanding its store network and sourcing goods directly from overseas suppliers has helped Dollarama become a major Canadian value retailer. The company’s huge expansion spending and increased focus on customer satisfaction should contribute to earnings growth. As one of the largest bargain stores in Canada, Dollarama is also focused on slowing the pace of price increases to further increase customer footfall.

Dollarama’s deal with Dollarcity will help expand its geographic presence in growing economies in Central America and Colombia. Dollarama’s more than 50% stake in Dollarcity’s net income is set to further fuel revenue growth. At the end of the year, Dollarcity had 264 branches with 145 locations in Colombia, 52 in El Salvador and 67 in Guatemala and is aiming for a long-term growth target of 600 branches by 2029.

Value and convenient location are Dollarama’s strong competitive advantages. Dollarama is well positioned to benefit from Canada’s value-adding retail industry, which is a growing segment of the overall Canadian retail industry. The company intends to expand its store space to 2,000 Canadian locations by 2031, compared to its previous goal of 1,700 stores in Canada by 2027.

Dollarama expects 60 to 70 new stores to open and total investments of $ 160 to 170 million for fiscal year 2222. The Canadian dollar store industry is relatively subdued compared to the US dollar store, which offers ample opportunity for future growth.

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competition

Because Dollarama is in value retailing, it faces intense competition in terms of price, location, product quality, and customer service. The company competes with other dollar stores as well as discount and convenience stores in Canada. Some of the multi-point dollar chain stores include Dollar Tree Canada, Dollar Store With More, the Great Canadian Dollar Store, and Buck or Two Plus !.

The competition is fierce as other companies have no significant economic barriers to opening dollar stores. Additionally, the company faces competition from e-commerce websites and online stores that sell goods and merchandise.

Bottom line

The ongoing COVID-19 pandemic continued to affect Dollarama’s sales and shopping behavior, but the stock remained stable during volatile times. A wide range of general merchandise, consumables and seasonal items; A large network of conveniently located stores and a dominant market share in Canada’s discount areas are important prerequisites for Dollarama.

Digital distribution and market expansion offer Dollarama short-term opportunities to make money. Value Retail is a growing segment of the Canadian retail industry. Because of its large national presence, Dollarama is well positioned to capitalize on this trend.

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