Dollarama is a holding company that operates through a chain of subsidiary dollar stores in Canada. It is a major player in the Canadian value retail industry.
Dollarama owns and operates more than 1,220 stores across all the ten provinces in Canada. The company has a presence in metropolitan areas, mid-sized cities, as well as small towns, and nearly all stores are located in high-traffic areas such as shopping centers.
Dollarama offers general merchandise (46% of the product offering), consumer products (39%) and seasonal items (15%) to its customers. The company offers a wide range of goods ranging from household wares, food, beverages, snacks, and pet food to hardware, garden tools and other general merchandise.
Dollarama operates through an extensive network of warehouses, distribution centers and stores to reach out to its customers. In addition to operating its own store network, Dollarama is the primary product supplier to Dollar City, in El Salvador, Guatemala, and Colombia.Investment Data
- Opportunity Score: 58
- Ticker: TSE:DOL
- Sector: Consumer Defensive
- Industry: Retail - Defensive
- Market Cap: 15.29B
- P/E: 28.42
- Dividend Yield: 0.36
- Dividend Payout Ratio: 10.29
- FFO Payout Ratio: Dividend Snapshot Members Only
- FCF Payout Ratio: Dividend Snapshot Members Only
- Chowder Score: Dividend Snapshot Members Only
- Piotroski-F Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Starting out as a single store back in 1992, Dollarama has today become a popular household name and shopping destination for Canadians. As Canada’s leading value retailer, Dollarama offers products at different price points ranging from $1 – $4, which provides its customers with a wide product selection and value while enhancing their overall shopping experience.
Dollarama is expanding its geographical as well as digital presence. It launched its online store, offering some of its most popular consumable and general merchandise products for sale. The company is targeting to grow sales by opening 60-70 stores each year. It is also expanding its distribution center area to provide the necessary infrastructure to support the long-term growth of its store network.
Dollarama’s supplier base is well diversified and it sources merchandise majorly from North America (44% of total retail volume) and 25 different countries (56%). Over the years, Dollarama has built a network of trusted suppliers that meet its quality standards. As a result, the company has been able to maintain a level of consistency across price range, merchandise mix, product offerings and store layout which drives customer loyalty and repeat traffic. Compelling value, strong brand reputation, and quality products have resulted in sticky customer relationships over the years.
Since 2011, this Canadian Dividend Aristocrat has announced successive increases to its dividend. The company last approved a 10% increase in its dividend payout this year. Dollarama has a 0.5% yield and a very low payout ratio of 10%. The company has compounded its dividend growth at an impressive 15% CAGR over the last five years.
Dollarama’s business strategy of adopting a fixed price point retail concept, pursuing store network expansion and sourcing merchandise directly from overseas suppliers have contributed towards Dollarama becoming a key Canadian value retailer. The company’s huge spending on expansion and increased focus on customer satisfaction should help in earnings growth. As one of the largest bargain shops in Canada, Dollarama is also focusing on slowing down its pace of price hikes to further increase customer footfall.
Dollarama’s deal with Dollar City grants it an option to buy a majority stake in the store in February 2020. This deal will help in expanding Dollarama’s geographical footprint in growing economies across Central America, and in Colombia, a key market in Latin America.
Value and convenient locations are Dollarama’s strong competitive advantages. Dollarama is favorably positioned to benefit from the growing value retail industry in Canada which is a growing segment of the overall Canadian retail industry. The Canadian dollar store industry remains relatively under-penetrated when compared to the US Dollar store, which grants ample opportunity for future growth.
Since Dollarama operates in the value retail industry, it faces intensive competitive with respect to price, store location, merchandise quality, and customer service. The company competes with other dollar stores as well as discount and convenience stores in Canada.
Some of the multi-outlet dollar store chains include Dollar Tree Canada, Dollar Store With More, Great Canadian Dollar Store and Buck or Two Plus!. Competition is fierce as a result of a lack of significant economic barriers for other companies to open dollar stores. In addition, the company also faces competition from e-commerce websites and online shops selling merchandise and goods.
A broad assortment of general merchandise, consumables and seasonal items; a large network of conveniently located stores and dominant market share in Canada’s discount space are key enablers for Dollarama. Digital sales and market expansion are near-term opportunities for Dollarama to cash upon. Its deal with Dollar City and expansion strategy would also act as potential growth drivers in the future. A very low payout ratio further indicates enough room for future dividend hikes.
Its ability to grow revenue through price increases may be challenged in the short term due to competition. Dollarama has a had a long growth history which may be enticing for many as it showed a great growth vector but that may slow down as seen in the pull back. The change in price hike strategy will impact revenue and is possibly moving the company from high growth revenue to normal growth.
I have flirted with the thought of buying DOL but never pulled the trigger. While the business model works for a lot of markets, I don’t see the business as a toll booth and preferred Alimentation Couche-Tard TSE:ATD.B and Metro TSE:MRU with the grocery and pharmacy angle.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.