The Canadian economy is facing challenging conditions right now, and consumers are cutting back on spending. Heading into this tumultuous time, Dollarama Inc. (TSX:DOL), the country's most iconic dollar store chain, reports earnings this week, with its latest numbers coming out on Thursday morning. Should you buy it before then?
The last time it reported earnings, back in March, its quarterly sales looked strong with sales rising by just under 12% to $2.1 billion. But its comparable store sales in Canada didn't look too impressive, climbing by just 1.5%. The comparable growth rate is more indicative of how the company is doing organically, whereas the top line can be boosted by acquisitions and new store openings. So things weren't all that strong for the company in the period that ended Feb. 1
The company blamed unfavorable weather conditions on the less-than-stellar growth. The results were also prior to the start of war in Iran, which has resulted in a rise in oil prices, which may also negatively impact the most recent quarter. It'll be an important test for the company to see how well its business is doing amid rising inflation, especially with the Canadian economy experiencing a second straight quarter of GDP decline.
All in all, it could prove to be a challenging quarter for Dollarama. Investors may already be bracing for the adversity as the retail stock is down 13% this year. However, even with the decline, it's trading at around 38 times its trailing earnings. At that kind of a premium, you may want to wait until after Dollarama reports earnings before making a decision on the stock, because at that price, there's not much margin of safety with the stock.
