Stock pick: Dollarama Inc. excels at cutting costs as much as its customers do

New tech and logistics upgrades will boost efficiency further

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Chart showing 12-month trailing stock performance of Dollarama

There may be no retail company more loved in Canada than Dollarama (TSX: DOL). For the last couple of years, analysts have been big time bullish on the business. It’s managed to make a ton of money in our slower retail spending environment and its stock price has climbed 30% over the last 12 months and 367% over the last five years.

With that kind of performance, it must be time to sell, right? Not according to Kenric Tyghe, an analyst with Raymond James. He has an outperform rating on the stock and thinks it can reach $105 over the next 12 months. Other analysts are still keen on the company too—it has a consensus outperform rating, according to S&P Capital IQ.

Part of the reason for the continued optimism is that it’s not only still doing well, but it also raked in the cash during a quarter that was hurt by ice storms in Ontario and generally bad weather across the country. During the first quarter of 2015—results were announced on June 13—sales rose by nearly 12% to $501 million, while earnings per share climbed by 25.8%.

The outlook going forward is still positive, says Tyghe, but not because of the rapid expansion that’s driven growth over the last few years. While it’s still opening new stores—it opened 25 net new stores in Q1 and expects to open about 80 in total during fiscal 2015—the story for this year is backend efficiencies.

It’s undergoing an overhaul of its point of sale system and it’s also continuing to roll out technology that will make it easier to automate its warehouse and track employee attendance. These technological upgrades will make the company more efficient, he says.

While there are some issues to watch out for—a falling loonie and higher occupancy costs in larger cities—there’s even more growth to come for this high flying business.

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