Dollarama Inc. (TSX:DOL) has become a bit of a legend in the retail sector. For the unacquainted, Dollarama is the largest dollar-store operator in the country and has elevated itself to both darling status and the envy of the industry in just under a decade of being on the market.
Here’s a look at what makes Dollarama different from other retailers and why the company should be part of every portfolio.
Dollarama can attract traffic and get sales
The nature of a dollar store is that it’s a one-stop shop for goods you can buy for a discounted price or bundled with another product. This model works well in that stores get sufficient foot traffic. But where dollar stores often fall short is when converting enough of that store traffic into sales.
This is one of the many areas where Dollarama excels far beyond its peers in the industry. Dollarama not only manages to get sufficient traffic into stores, but once customers are in the stores, they are almost compelled to keep adding more items to their carts. It’s a magnetism that few retailers can attest to; I’ve fallen victim to it on more than one occasion; I enter a store to buy just one item and emerge with a cart full of goods.
Evidence of this trend is apparent in Dollarama’s most recent quarterly results. The company announced that same-store sales grew by 5.1% for the quarter, and that the average transaction size for shoppers in the most recent quarter grew by 5.8%. In other words, shoppers are returning and buying more goods.
Dollarama currently has 1,069 stores across the country and has plans to open up to 70 additional stores during the next fiscal year. Despite such a huge number of stores, industry pundits note that the market is nowhere near as saturated as it is in the U.S., and that market demand could support a significant number of additional stores.
Dollarama noted recently that it could support upwards of 1,400 locations.
Dollarama is a near recession-proof investment
One thing that has always amazed me about dollar stores is how they operate in the retail sector in an inverse capacity. A typical retail model can often be seen as a health check on the overall economy. When there is confidence and consumers with money to spend, they will spend it.
Dollar stores such as Dollarama operate in contrast to this. Their lower prices attract a steady stream of budget-minded customers throughout the year, independent of the overall health of economy, but dollar stores really shine during down periods.
As consumer budgets get stretched, people try to find more value for less money, which ultimately leads to more dollar store visits.
Results that speak volumes … literally
Perhaps the most impressive reason to consider adding Dollarama to your portfolio is because the company continues to impress and shatter records during earnings time.
In the most recent quarter, Dollarama reported higher-than-expected profit for the quarter. Net income for the quarter came in at $110.06 million, or $0.92 per share, beating the $100.08 million, or $0.78 per share, that Dollarama posted in the same quarter last year. Analysts had been calling for Dollarama to post $0.86 per share.
Sales for the quarter also came in higher with $738.71 million coming in 11.2% higher than the same quarter last year.
Dollarama currently trades at just over $100 with a P/E of 28.81. In some circles, this may make the company seem a little pricey, but Dollarama continues to outperform and set the bar higher for other retailers with every passing quarter. In my opinion, Dollarama remains a great investment option.
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Fool contributor Demetris Afxentiou has no position in any stocks mentioned.