Dollarama wants to continue its expansion abroad with Mexico as its next destination. To achieve this, the company is strengthening its partnership with the Latin American retailer Dollarcity, which plans to open a first store in this country in 2026.
Dollarama announced Wednesday that its stake in Dollarcity increased to 60.1% following the acquisition of an additional 10% stake, in exchange for 6,060,478 common shares of Dollarama. The implied value totals US$554 million.
As part of this purchase, the Montreal retailer has agreed with the founding shareholders of Dollarcity that the Mexican territory will be the next market of establishment.
“Mexico has a population of nearly 130 million and a vibrant retail market. We believe local consumers will be interested in Dollarcity’s value proposition, as has been the case in our current countries of operation in Latin America,” said Dollarama retailer President and CEO Neil Rossy. during a call with analysts.
The Montreal-based company will indirectly hold an 80.05% stake in the Mexican portion of the business, while Dollarcity’s founding shareholders will own 19.95%.
Dollarama estimates that the transaction should have a neutral impact on its net earnings per share for fiscal 2025.
“This transaction simply reinforces our commitment to the growth platform and its long-term potential, while at the same time continuing our profitable growth in Canada,” said Dollarama Chief Financial Officer Patrick Bui during the call with analysts regarding the first quarter financial results.
A cautious approach
Dollarama acquired an initial 50.1% stake in the Latin American retailer in 2019. This followed an agreement signed six years earlier, under which the Quebec company was to share its business expertise and provide procurement services.
Dollarcity had 547 stores in Colombia, Guatemala, El Salvador and Peru at the end of March. The goal is to increase this number to 1,050 by 2031.
Dollarcity has more than tripled its sales and increased its presence in key Latin American markets since 2019, Rossy said.
Entry into the Mexican market will be done with the same discipline and caution as during the expansion in Colombia and Peru in recent years, he said.
“I think that’s one of the lessons we learned from our partnership. Each new country of operation requires a great expenditure of energy, time, resources and money,” explained Mr. Rossy, when asked why Mexico was added rather than other markets.
“In order to best utilize all these resources, the partnership decided together that Mexico, being the largest market between Latin America and Canada, made the most sense as the next market of operation,” he said. he continued.
Dollarama has also acquired an option to purchase, at any time, but no later than December 31, 2027, an additional 9.89% interest in Dollarcity, as well as a corresponding interest of almost 5% in the partnership from Mexico.
Profit on the rise
The deal came as Dollarama reported earnings of $215.8 million, or 77 cents per share, for its first quarter ended April 28, up from earnings of $179.9 million, or 63 cents per share, a year earlier.
Sales for the quarter totaled $1.4 billion, up from $1.3 billion at the same time last year. This growth is attributed to the larger number of stores, which stood at 1,569 in April 2024, the company explains.
It also attributes this increase to a further increase in same-store sales, which jumped 5.6%. The growth is “mainly due to the persistence of higher-than-historical demand for basic consumer products and other essential products,” wrote analyst Chris Li of Desjardins Securities in a note. to investors.
The number of transactions increased by 8.7%, but the average transaction amount decreased by 2.8%. Bui said consumers are visiting stores more often, but “they’re just buying a little less in terms of dollars.”
Dollarama posted core net income of $0.77 per share, compared to $0.63 in the first quarter of fiscal 2024. Prior to the results release, analysts were expecting earnings of $0.76 per share, according to financial data firm Refinitiv.