Dollarama Inc. headquartered in Montreal is Canada’s largest retail chain since 2009 selling different items for four dollars or less. Its product lines comprise product mixes of various activities like catering, restaurants & hotels, event, party, & wedding planning, hospital & care facilities, schools, maintenance, and many more.Dollarama was operating a total of 1192 stores as ofOctober 2018. And the company’s Q3 earnings report dated December 6, 2018, speaks that a total of 43 new stores have been opened so far till date and expecting to open 60 to 70 new stores in the current fiscal year.

Dollarama (TSX: DOL) had released its last earnings result on December 6, 2018, for the Fiscal 2019 third quarter ended October 28, 2018. It has reported that its diluted net earnings per common share booked a rise 7.90% to C$0.41 from C$0.38 for the quarter, missing the analysts’ consensus estimates of C$0.42 by C$0.01. It is also reported in the earnings result that the company had earned revenue C$864.27 million and thereby booked an increase of 6.6% for the said quarter. The store sales according to the report, however, grew 3.1%, over and above 4.6% growth of the same quarter of the previous year. Gross margin was 38.9% of sales which also shows a declination compared to 40.1% of sales for the same quarter, last year.

The company also announced recently a quarterly dividend $0.04 to be paid on February 8, 2018, based on stockholders of record on January 11, 2018. This represents an annualized dividend $0.16 and the dividend payout ratio (DPR) of Dollarama presently is 9.67%.

After a successful run during the last decade in the Canadian economy as an IPO since 2009, Dollarama obviously would like to forget the year 2018 due to some miss parameters in their earnings report compared to that of analysts’ consensus estimates. Strategic analysts are also saying that the company itself studied the matter and planned some changes in the coming year to improve the financial parameters which are likely to be seen in near future Dollarama earnings date.

Let’s look at the changes that Dollarama made recently:

DollaramaLaunches E-commerce Site

In December 2018, Dollarama first-ever launched its e-commerce site as a pilot project offering over 1000 merchandises. The items available in this site are chosen to sell in bulk quantities. During the pilot project, services are available only to the customers for shipments within Quebec. So the target groups of clients are events and activities management group who need bulk quantity purchase such as restaurants, hospitals, party and wedding planning, schools, workplaces etc. The company planned to rollout to other provinces in Canada based on conduct and feedback of this pilot project.

Expansion into Latin America

Dollarama signed and entered into an agreement in 2013 with Dollar City, an El Salvador based Latin American retailer with similar pricing strategy,with an aim to grow its footprint beyond the country. During the year 2018, as an international venture, Dollarama added 43 new stores until such time and expected to open another 60 to 70 new store by 2020 before the existing agreement expires. As part of the agreement, Dollarama is exercising its expertise with Dollar City and began testing its business model in different new markets in Latin America like Guatemala, Columbia, Peru, and Ecuador. These are massive opportunities to Dollarama for its international expansion program.

Effective and fruitful performance of these changes can definitely improve the parameters of earnings report of Dollarama earnings date and the company’s stock performance as well in the market.

Return on Dollarama Inc. Stock

Dollarama stock is, in fact, represents an ownership stake in the company. This means the capital that you employed against the share allotted to you will be deployed to operate the business successfully creating earnings from the funds that made up the capital of the company. The cash flow generated out of the business activities will fetch the potential for income in terms of dividend and capital appreciation in terms of price increase are two major objectives while purchasing a stock. This will tell you whether or not the company is growing your capital and keeping you in a position to sell your shares at a profit.

ROCE (Return on Capital Employed) calculation for Dollarama based on the facts and figures for the third quarter ended October 28, 2018, which published on December 6, 2018, is as under.

ROCE of DOL = [Earnings BeforeIncome Tax (EBIT) ÷ (Capital Employed)] × 100

Capital Employed = Total Assets – Current Liabilities

Therefore, ROCE = [C$752.71m ÷ (C$2141.98m – C$641.33m)] × 100 = 50.16%

Now you can see that Dollarama earned C$50.2 from every C$100 what you have invested during the first three quarters of Fiscal 2019 which is far above the benchmark rate for ROCE 15%.

Different analysts and market observers say that Dollarama is clever enough with their investment or dividend payments and suggest that such larger ROCE is due to growth in earnings relative to capital requirements.

Next Step

Dollarama achieved ROCE substantially high above the benchmark that makes the company a solid return on investment and attracts the investors for its potential stock. But as an investor, you should not stick to a single parameter like ROCE but also look at other fundamental indicators like future prospects and valuations. It’s no doubt good news for the Dollarama investors that the encouraging ROCE is able to manage the strong earnings in Dollarama earnings date indicating control over the capital, but if that doesn’t occur, ROCE may fall. In that case, your money will be invested elsewhere. So it is important for investors to know and understand what is going on within the company and how the financial parameters are behaving.

Conclusion

Based on different factual results and level of activities, performances, future developmental prospects, and the guidance of analysts including various underlying assumptions and risks, it may be concluded that this is the time when investors may consider buying Dollarama stock in a defensive way instead of selling.