As the North American economy recovers, companies such as Dollarama, Wal-Mart Stores, Inc. (NYSE:WMT), and Target Corporation (NYSE:TGT) will likely have a hard time raking in the profits to which they were accustomed during the recession.
Dollarama earnings fall
On June 12 Dollarama reported its fiscal first quarter earnings, which were off of analyst predictions for the first time since the firm’s IPO in October 2009. The median estimate was for the company to come out with earnings per share of CAD $0.67, but the company reported CAD $0.62. In the 14 previous quarters, the Canadian company beat analyst expectations.
According to Edward Jones & Co. analyst Bobby Hagedorn, increased expenses were the main reason for the sour performance. “It was a disappointing quarter. The biggest surprise for us was the operating costs, which were way higher than what we expected,” he told Bloomberg. “They attributed it to costs from the increased pace of store openings.”
The previous steady growth for the company was a sign of the times, with profits soaring as a new class that was hard-hit by the recession poured into stores looking for deals. But now that those people are in more solid financial positions, Dollarama isn’t likely to see the type of profits it had in recent years. The company opened 21 stores in the first quarter, and 85 stores in the last year. These outlets cost a lot of money to set up and train staff, so expect Dollarama’s earnings to be down for at least the next three quarters, despite what may happen in the economy.
After reaching nearly $80 per share early in mid-May, Wal-Mart Stores, Inc. (NYSE:WMT) has stumbled to its current level of around $75 per share following a dim earnings report. Sales increased by just 1% in the fiscal 2014 first quarter earnings released in May. While management at the firm cited a delay in payroll tax and one less selling day than the same period last year as the catalysts for the poor performance, those could be scapegoats for the real reason: people aren’t bargain shopping as much. However, the report could be a one-off, as the firm is getting a hold on the grocery business and could drive up sales in that area in the months ahead.