Dollarama (TSX:DOL) operates 1,665 discount stores across Canada. It has adopted a superior direct sourcing model, which has removed intermediaries while strengthening its bargaining power with suppliers. Additionally, its efficient logistics have helped reduce expenses while enabling it to offer a wide range of consumer products at attractive prices. As a result, the company continues to deliver healthy same-store sales and consistent financial performance, even in a challenging macro environment.
Meanwhile, Dollarama has delivered an impressive return of 34.8% this year, outperforming the broader equity markets. Its healthy performance in the first two quarters of fiscal 2026 appears to have boosted its stock price. Let’s review its recently reported second-quarter performance and growth outlook to evaluate potential buying opportunities in the stock.
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Dollarama’s second-quarter performance
Last month, Dollarama posted an impressive second-quarter performance, with its topline growing by 10.3% to $1.7 billion. The healthy same-store sales growth of 4.9%, net addition of 77 stores over the last four quarters, and $25.7 million contribution from the recently acquired The Reject Shop boosted its sales growth. The 3.9% increase in the number of transactions and 0.9% increase in average transaction value boosted its same-store sales growth.
Furthermore, its gross margin improved by 30 basis points to 45.5%, driven by lower logistics costs in its Canadian segment, though partially offset by margin pressure in its Australian segment during the post-acquisition period. However, its SG&A (selling, general, and administrative) expenses as a percentage of total revenue have increased from 13.6% in the previous year’s quarter to 14%. Meanwhile, its EBITDA (earnings before interest, taxes, depreciation, and amortization) came in at $588.5 million, with its EBITDA margin at 34.1% – an improvement from 33.5% in the previous year’s quarter.
Furthermore, Dollarcity (60.1% owned by Dollarama) contributed $38.3 million to net earnings, up 68.7% on the back of increased ownership and strong operational performance. However, Dollarama witnessed increased interest and tax expenses, which offset some of the increases in its net income. Meanwhile, its net income came in at $321.5 million or $1.16/share, translating into year-over-year growth of 13.7%. Now, let’s look at its growth prospects.
Dollarama’s growth prospects
Dollarama plans to grow its footprint, aiming to reach 2,200 stores by the end of fiscal 2034. Given its capital-efficient model, quick sales ramp up, shorter average payback period, and lower store network maintenance requirements, these expansions could boost both its top and bottom lines.
In July, the company acquired The Reject Shop, which operated 395 stores in Australia. The acquisition marks the entry of Dollarama into the Australian retail market. Moreover, it is evaluating opportunities and strategies to optimize The Reject Shop’s operations, which could boost its financials in the coming quarters.
Additionally, Dollarcity is also expanding its footprint and expects to increase its store count from its current 658 stores to 1,050 by the end of fiscal 2031. Additionally, Dollarama can increase its stake in Dollarcity to 70% by exercising its option by 2027. Considering all these factors, I believe Dollarama’s growth prospects look healthy.
Investors’ takeaway
The impressive returns have pushed Dollarama’s valuation higher, with its NTM (next 12 months) price-to-sales and NTM price-to-earnings increasing to 6.6 and 39.1, respectively. Although its valuation looks expensive, its higher growth prospects justify these valuation levels. Furthermore, the company has increased its dividends 14 times since 2011, while its forward dividend yield currently stands at 0.23%. Considering all these factors, I am bullish on Dollarama.
