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Spruce Point Capital Releases a Strong Sell Forensic Research Opinion on Dollarama Inc. (Toronto: DOL, DLMAF:OTC)
Spruce Point Capital Releases a Strong Sell Forensic Research Opinion on Dollarama Inc. (T...
About this update from Dollarama Inc.
[{"type":"text","content":"\n\n\n\nSpruce Point Capital Releases a Strong Sell Forensic Research Opinion on Dollarama Inc. (Toronto: DOL, DLMAF:OTC)\n\n/* Style Definitions */\nspan.prnews_span\n{\nfont-size:8pt;\nfont-family:\"Arial\";\ncolor:black;\n}\na.prnews_a\n{\ncolor:blue;\n}\nli.prnews_li\n{\nfont-size:8pt;\nfont-family:\"Arial\";\ncolor:black;\n}\np.prnews_p\n{\nfont-size:0.62em;\nfont-family:\"Arial\";\ncolor:black;\nmargin:0in;\n}\n\n\n\n\n\n\n\nCanada NewsWire\nNEW YORK, Oct. 31, 2018\n\n\n\nNEW YORK, Oct. 31, 2018 /CNW/ -- Report entitled \"Hard To Bargain For A Higher Price\" outlines how Dollarama faces ~40% downside risk to C$24.60 per share because of serious fundamental headwinds, unachievable growth targets, and questionable governance.  \nDeclining Fundamentals And Unsustainable Margins: Faced with years of negative average traffic growth and an increasingly saturated market, Dollarama is driving comparable store sales growth by abandoning its roots as a dollar store and selling items at progressively higher price points– a move which, while supporting margins, has angered its discount-driven customer base and put further pressure on store traffic. Dollarama has also benefited from a benign competitive environment and various financial and accounting maneuvers which have kept margins over twice the industry average. However, we believe that avenues for further cost-cutting have largely been exhausted, and that Dollarama now faces a wave of cost increases from tariffs, wage hikes, and transportation and marketing-related costs – in addition to very significant FX risks. Additionally, industry competition is poised to intensify as competitors look to increase store counts and as new competitors enter the market. Barring further financial creativity by management, we expect margins to retreat towards peer levels.                                Growth Plan Appears Unrealistic: At the time of its IPO in 2009, Dollarama cited a long-term store target of 900 – up from 585 in 2009. Management has since revised this number upwards multiple times: first to 1,200, then to 1,400, and most recently to 1,700. Our competitive benchmarking analysis shows that this tar...