The Canadian value retailer Dollarama (TSX:DOL) announced its latest quarterly results earlier this week on Wednesday, December 13. While the company managed to beat Street analysts’ top- and bottom-line expectations for the quarter, its results seemingly didn’t impress investors as its share prices trended downward on the day of its earnings event. DOL stock fell more than 2% on December 13, despite a spectacular intraday rally in the TSX Composite Index during the same session due mainly to the U.S. Fed’s decision to hold interest rates steady.
Dollarama stock now trades at $97.04 per share with a $27.3 billion market cap. Before discussing whether it’s the right time to buy DOL stock on the dip to hold for the long term, let’s find out what possibly went wrong with its latest financial results, which drove its share prices lower.
Dollarama’s upbeat Q3 results
In the third quarter of its fiscal year 2024 (ended in October), Dollarama reported a strong 14.6% YoY (year-over-year) increase in its total revenue to $1.5 billion. Besides a 5.4% rise in its total number of stores from 1,462 to 1,541 in the last 12 months, a strong 11.1% increase in its same-store sales (SSS) drove the company’s total revenue higher last quarter.
To add optimism, the Mont Royal-headquartered value chain operator’s profitability benefited from factors such as lower inbound shipping costs and lower logistics costs. As a result, Dollarama’s adjusted quarterly earnings jumped 31.4% YoY to $0.92 per share, beating analysts’ estimate of $0.86 per share. Similarly, the firm’s adjusted net profit margin in the last quarter expanded to 17.7% from 15.6% a year ago, reflecting its ability to operate more profitably even in difficult market environments. Encouraged by its strong quarterly results, the company’s management raised its SSS guidance range to 11% to 12% from its earlier guidance of 10% to 11%.
But despite these solid financial results, why did DOL stock trended downward on Wednesday? Let’s find out.
Why DOL stock slipped after the earnings event
The primary reason behind the weakness in Dollarama’s stock after its third-quarter earnings release could be linked to its management’s comments during the earnings conference call. In its third-quarter earnings conference call, Dollarama’s vice president of corporate finance and treasurer Jolyane Caron noted that “based on what we see so far, our sentiment is that normalization in SSS trends will continue as we last two years of double-digit SSS.”
These comments could be one of the reasons making investors worried about a potential decline in Dollarama’s same-store sales in the future.
Is Dollarama stock a buy now?
While the management’s comments about the ongoing SSS normalization trends could be one factor disappointing some investors, we shouldn’t forget that Caron, on the same conference call, also highlighted this expected SSS normalization trend is already embedded in Dollarama’s updated full-year guidance and he sees “strong consumer demand across all categories.” While a negative comment may temporarily disappoint some investors, it can’t make all investors ignore the strong financial growth of a company for very long.
Given that, the recent intraday decline in DOL stock could be an opportunity for long-term investors to buy this trustworthy stock at a bargain. Besides its strong financial growth trends and other fundamentals, its ability to continue performing financially well even in difficult economic environments makes it even more attractive.
