Dollarama declines in heavy trading
Dollarama Inc. shares experienced their biggest one-day drop of 2018 in heavy trading on Thursday, after the national discount retailer’s second quarter revenue, earnings and sales growth were weaker than analysts expected and the company indicated that it has been reluctant to raise prices due to competitive pressures.
The company’s stock — which has outpaced the Toronto S&P/ TSX composite index over the past three years — was down $9.50 or 18 per cent at $42.57 shortly after 1 p.m. That erased all of Dollarama’s stock’s gains since they jumped up $4.32 to close at $44.91 on Sept. 7, 2017, after the company announced last year’s second quarter results.
Dollarama Inc. announced Thursday it earned $141.8 million for its fiscal second quarter ended July 29, up from $131.8 million a year ago.
Despite the increased profit, the 43 cents per share of earnings was below the analyst estimate of 44 cents per share for the quarter, according to Thomson Reuters Eikon. Additionally, sales grew to $868.5 million, up from about $812.5 million in the same quarter last year, but were about two per cent below the analyst estimate of $887.6 million.
Analyst Irene Nattel of RBC Dominion Securities acknowledged the second quarter margin and cost improvements offset “tepid” same-store sales growth, but lowered her price target for Dollarama’s stock to $52, from $55, to reflect a deceleration in sales growth.
Dollarama executives told analysts in a conference call that they had decided to delay pushing through a price increase for its customers for now because the cost of its imported goods has been more stable than expected and cost reductions have offset the impact of higher wages.