The Canadian retail scene is in a rather intriguing spot right now, with some big winners, like Dollarama (TSX:DOL), continuing to heat up, while laggards, like Canadian Tire (TSX:CTC.A), are sinking as the tariff risks take a toll. In a prior piece, I praised Dollarama as the premier defensive growth play worth paying a premium price tag for but also remarked on the deep-value traits of Canadian Tire. Undoubtedly, Canadian Tire faces quite a bit of disruptive impact if tariffs are on the way.
In any case, I think investors shouldn’t overreact by adjusting allocations in their portfolios just because they expect 25% tariffs will be sticking around. While Bank of Canada governor noted that such tariffs could structurally change things (and not for the better), as firms pivot and adapt to the new tariff environment, I think there’s also a good chance that a new trade deal (one that doesn’t involve tariffs) can be successfully negotiated, perhaps in short order. At the end of the day, tariffs are a terrible deal for both sides, and it’s in the best interest not to have them linger and weigh heavily on both economies for too long.
Tariff impact aside, let’s have a closer look at the two retailers to see how they’ve fared.
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Dollarama
Dollarama stock is inching higher in recent sessions, now up close to 6% in the past week. Undoubtedly, tariff fears haven’t impacted the discount retailer as it has for its discretionary peers in retail. Undoubtedly, Dollarama has a beefed-up growth story and the ability to keep taking share in an environment that could see many Canadians return to that value mindset.
Whether it’s inflation or job losses at the hands of tariffs, a more cautious consumer seems likelier to “trade down” retailers in a bid to save more cash. In any case, Dollarama is one of the best-run dollar stores (do we still call it that, given that a vast majority of goods trade for magnitudes more than a dollar?) on the continent. Undoubtedly, when it comes to discount retail, it’s all about getting the best value. It’s not necessarily about the lowest possible cost; it’s more about a wide assortment of items (preferably branded items) of decent quality at a reasonable price point.
With one of the best value propositions in the retail scene, I find it hard to bet against shares of DOL, even as the valuation approaches concerning levels. At 37.7 times trailing price to earnings (P/E), the discount retailer is the priciest I’ve seen in a while. While there are tailwinds and relative defence that warrant a premium, I must say I’d rather wait for a pullback after last week’s hot run. Perhaps chasing the name for relative shelter from tariffs could prove a bad idea, given the stretched multiple.
Canadian Tire
I’ll go ahead and say it: Canadian Tire stock stands out as one of the best deals in retail today. The stock trades at 9.1 times trailing P/E and has a well-covered and “growthy” 4.98% dividend yield. While the retailer dreads Trump tariffs, I still think that it’s a Canadian icon that will prevail, whether that entails a year of share price consolidation and transformation or a better-than-expected year that sees 25% tariffs be lifted shortly after they’re imposed.
In any case, I think there’s too much tariff fear baked into shares right now. Suppose Canada is able to reach a new deal with the U.S. (I find it likely that one will happen before summer), CTC.A stock could have ample ground to gain. What’s most striking is the nearly 3% gain posted by the stock on a day weighed down by tariff jitters. Perhaps the worst of the tariff impact is already baked in? I guess time will tell.
With the recent sale of Helly Hansen, Canadian Tire has plenty of cash to stay flexible and agile as it dodges past macro threats that could fly its way. Even if big, expensive changes are on the way for Canadian Tire, I continue to find it a well-run retailer that will find its way again.
