To watch: Dollarama, Empire\IGA, Nuvei

What do you do with addresses from Dollarama, Empire/IGA, and Nuvei? Here are some analyst recommendations that are likely to move prices soon. Note: The writer may have a completely different opinion than the one expressed.

Dollarama (DOL, $100.21): Increase in sales targets would be welcome for the stock’s prospects next year

The discount retailer will unveil third-quarter results on December 13, and Chris Lee of Desjardins Capital Markets expects a 21% increase in earnings to $0.85 per share in line with consensus.

The retailer is expected to increase its gross margin by 80 basis points to 44.1% even as it increases the proportion of sales of less profitable consumer staples. The analyst explains that a decrease in transportation costs, economies of scale and an increase in the prices of some items will improve this margin.

However, the increase in labor costs would result in general and administrative expenses increasing by 60 basis points, to 14.7% of revenue, in the third quarter.

Dollarama benefits from inflation that is still well felt and rising interest rates that attract fans of discounts in stores. That’s why Chris Lee expects a 10% increase in same-store sales in the third quarter. sAbove his colleagues’ expectations.

This situation should also encourage the retailer to raise its same-store sales targets for the remainder of fiscal 2024.

“We think a 4 to 5% increase in same-store sales in the fourth quarter of 2024 is important, because it will serve as a foundation for the trend next year,” explains Chris Lee, who recalls the strong results. 2024 has set the bar very high compared to 2025.

In other words, if the company does not raise its comparable sales guidance for the fourth quarter of 2024, investors may then fear a slowdown that could extend into 2025, thus causing estimates for next year to decline.

“Our forecast for earnings growth of 15% in 2025 is based on a 4% increase in comparable sales next year compared to a 12% rate in 2024,” the analyst explains. An annual replenishment of products offered, a larger number of items priced at $4.25 and more each as well as stable in-store traffic would allow Dollarama to achieve this.

However, the analyst expects bargain hunting to decline next year and the number of items in baskets to decrease.

Same-store sales have become a major factor in the performance of the stock, which trades at a high multiple of 26.5 times expected earnings. In addition, Dollarama may have to deal with the potential return of investors to less defensive sectors.

Gross margin is expected to improve by another 40 basis points to 44.4% in 2025, while general and administrative expenses should remain stable as a proportion of revenue. Earnings will rise from $3.35 per share in 2024 to $3.86 in 2025.

“Although the upside potential is too modest to justify a buy recommendation, Dollarama still offers a good balance of growth and prudence attributes, in an uncertain economic environment,” says the analyst, who suggests buying the stock and maintaining his target. From $104.

Chris Lee will revise his forecasts and valuation model as necessary, following the third quarter disclosure.

Empire/IGA (EMP.A, $37.73): A new effort to cut costs is expected