After delivering an impressive return of over 47% last year, the Canadian discount retailer Dollarama (TSX: DOL) has continued its uptrend, rising 35.4% year-to-date. Its solid quarterly performances and improvement in broader market conditions have supported its stock price growth. Meanwhile, let’s assess its recently reported first-quarter earnings and growth prospects to determine buying opportunities in the stock.
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Dollarama’a first-quarter performance
Dollarama posted impressive first-quarter earnings for fiscal 2026 last month, with its topline growing by 8.2% to $1.5 billion. Healthy same-store sales growth and store network expansion boosted its topline. Supported by strong demand for consumables and seasonal offerings, the company reported healthy same-store sales growth of 4.9% during the quarter. A 3.7% increase in the number of transactions and a 1.2% increase in average transaction size drove the company’s same-store sales. Additionally, the company opened 22 stores in the first quarter, thereby increasing its store count to 1,638. Compared to the previous year’s quarter, the company operated 69 more stores during the quarter.
Moreover, the Toronto-based discount retailer’s gross operating margin expanded by 100 basis points to 44.2% amid lower logistics costs. Its SG&A (general, administrative, and store operating) expenses stood at 15.3% of its sales, a marginal decline from 15.4% due to lower labour expenses. Its EBITDA (earnings before interest, tax, depreciation, and amortization) rose 18.8% to $496.2 million, while its EBITDA margin improved 290 basis points to 32.6%. Also, Dollarama raised its stake in Dollarcity from 50.1% to 60.1% in June 2024. Along with the increased stake, Dollarcity’s strong operational performance contributed an 82.4% increase in its contribution to Dollarama’s net income.
Supported by topline growth, expansion of operating margin, and increased contribution from Dollarcity, Dollarama reported a diluted EPS (earnings per share) of $0.98, representing a 27.3% increase from the same quarter in the previous year. Now, let’s look at its growth prospects.
Dollarama’s growth prospects
Dollarama is expanding its store network and anticipates opening 70 to 80 stores during the current fiscal year. Also, the company’s management plans to increase its store count to 2,200 stores by the end of fiscal 2034. Given its capital-efficient and growth-oriented business model, lower capital expenditure for store network maintenance, and rapid sales ramp-up, these expansions could support its top and bottom-line growth in the coming years.
Additionally, the company has agreed to acquire The Reject Shop, which operates 390 discount retail shops in Australia, for $233 million. Given the customary closing conditions, the company’s management anticipates completing the deal in the second half of this year.
Furthermore, Dollarcity is also growing its footprint and expects to increase its store count from its current 644 to 1,050 by the end of its fiscal year 2031. Dollarama can also increase its stakeholding in Dollarcity to 70% by exercising its option. Therefore, I expect the contribution from Dollarcity to Dollarama’s net income could rise in the coming years. Along with these growth initiatives, Dollarama’s management recently announced its plans to repurchase 5% of the company’s outstanding shares over the next 12 months. Considering all these factors, I believe the uptrend in Dollarama’s financials will continue.
Investors’ takeaway
Amid strong buying over the last few months, Dollarama’s valuation has increased and appears to be expensive. Its NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples stand at 7.7 and 40.7, respectively. Given its solid growth prospects and strong fundamentals, I believe Dollarama offers attractive buying opportunities for long-term investors, despite its relatively expensive valuation. Additionally, shareholders can benefit from the company’s consistent dividend growth, as it has raised its dividends for 14 consecutive years.
