Dollarama (TSX: DOL) stock has been on a tear over the past year, climbing more than 42% and hitting new highs. For a retailer that’s already a household name in Canada, those gains might surprise some. But what’s really interesting is that Dollarama stock isn’t just riding consumer demand. It’s aggressively expanding, improving margins, and making moves internationally that could set it up for a new growth phase. It’s the kind of combination that could turn a reliable retail name into Canada’s next big turnaround success story. So let’s look at why.
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What happened
Over the last year, Dollarama expanded its store count from 1,569 to 1,638, with 22 net new openings in the most recent quarter alone. Comparable store sales grew 4.9% on top of last year’s 5.6%, driven mostly by consumables and a strong seasonal performance. Management proved it can grow without sacrificing profitability, as evidenced by gross margins improving to 44.2% from 43.2% a year ago. With Canadians still seeking value in a high-cost-of-living environment, that traffic doesn’t seem likely to slow.
Earnings growth was equally impressive. First-quarter net income surged nearly 27% to $273.8 million, with diluted earnings per share (EPS) jumping to $0.98 from $0.77. Earnings before interest, taxes, depreciation and amortization (EBITDA) rose almost 19%, and operating margins widened to 25.6% from 22.9% a year earlier. Even stripping out the $10.4 million unrealized gain tied to derivatives on its Dollarcity investment, the core business still posted significant margin expansion.
More to come
Dollarcity itself is a growing force. The Central and South American discount retailer, in which Dollarama now holds a 60.1% stake, grew its sales by 12.6% in the latest quarter. It also expanded its store base to 644 locations. Margins improved there as well, with lower shipping and logistics costs helping to boost profitability. This business gives Dollarama a high-growth international arm that could eventually rival its Canadian footprint. Especially with new markets like Mexico on the horizon.
The most intriguing new development is Dollarama’s acquisition of The Reject Shop, Australia’s largest discount retailer. The deal could open another continent of growth opportunities. While management says it will remain focused on its Canadian base, the move signals a clear willingness to leverage its expertise globally. If Dollarama can replicate its winning formula overseas, it could diversify revenue streams and reduce dependence on domestic economic conditions.
Considerations
Of course, not everything is risk-free. The retail sector remains sensitive to shifts in consumer spending, supply chain disruptions, and inflation. The Reject Shop integration will need careful handling, and while expansion brings opportunity, it also demands capital and management attention. Debt levels are notable, with $4.7 billion on the books. Although the company’s strong cash generation at $1.1 billion in free cash flow over the last year provides room to manage it. The current dividend yield of about 0.22% won’t attract income seekers, but the low payout ratio suggests the company has the flexibility to grow distributions if it chooses.
Looking ahead, Dollarama’s fiscal 2026 guidance calls for 70 to 80 net new stores in Canada, comparable sales growth of 3% to 4%, and gross margins between 44.2% and 45.2%. None of these numbers factor in the potential upside from The Reject Shop deal. Add in the continued momentum from Dollarcity and stable consumer demand for discount retail, and the growth path looks solid. The challenge will be maintaining margins while scaling internationally. Yet if the past year is any indication, Dollarama’s leadership is more than capable.
Bottom line
Investors who once saw Dollarama stock as a mature retailer might want to take another look. The combination of strong Canadian sales, a thriving Latin American business, and an ambitious Australian acquisition could reshape the company’s growth profile. While execution risks remain, the fundamentals suggest that this is not just a steady value play. It could be the start of a much larger expansion story. If management delivers, Dollarama stock could very well become Canada’s next retail growth legend, with plenty of runway left both at home and abroad.
