Dollarama (TSX: DOL) is a leading discount retailer with a network of 1,684 stores across Canada and 401 stores in Australia. In addition, the company holds a 60.1% stake in Dollarcity, which operates 683 stores across five Latin American countries. Supported by strong quarterly performances and a robust outlook, the Montreal-based retailer has generated returns of approximately 48% over the past year, significantly outperforming broader equity markets. However, this strong performance has also pushed the stock’s valuation higher.
Against this backdrop, let’s evaluate Dollarama’s recently reported third-quarter results and long-term growth prospects to determine whether the stock still offers an attractive buying opportunity.
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Dollarama’s third-quarter performance
Dollarama reported third-quarter revenue of $1.91 billion, marking a 22.2% year-over-year increase. Sales growth was driven by net store additions of 81 over the past four quarters, same-store sales growth of 6%, and the acquisition of The Reject Shop, which operates 401 stores in Australia. Supported by resilient demand for consumables and strong seasonal product sales, transaction volumes increased 4.1% during the quarter, while the average transaction size rose 1.9%.
Gross margin expanded by 10 basis points to 44.8%. Higher sales volumes and lower logistics costs in Canada more than offset the negative impact of lower gross margins in Australia, driving its gross margins. Meanwhile, selling, general, and administrative (SG&A) expenses increased 110 basis points to 15.4% of revenue, reflecting higher acquisition-related costs in Australian operations, which were partly offset by operating leverage.
Driven by strong topline growth, adjusted EBITDA (earnings before interest, taxes, and depreciation) rose 20.1% year over year. However, the adjusted EBITDA margin declined by 50 basis points to 32.1%. Net financing costs increased 17.8% to $49 million, driven by higher average debt levels. Additionally, Dollarcity’s contribution to net income climbed to $42.4 million from $27.1 million in the prior-year quarter.
As a result of these factors, Dollarama’s net income increased 16.6% to $321.7 million, while diluted earnings per share reached $1.17, representing a 19.4% year-over-year increase. With the latest quarterly performance in perspective, let’s now examine the company’s growth prospects.
Dollarama’s growth prospects
Dollarama continues to expand its retail footprint and expects to increase its Canadian store count to 2,200 by the end of fiscal 2034, while growing its Australian network to 700 stores over the same period. Supported by an efficient capital-light model, rapid sales ramp-up, short payback periods, and relatively low maintenance capital expenditure requirements, these expansions should meaningfully support both revenue and earnings growth.
In addition, management is actively evaluating opportunities to optimize operations at The Reject Shop, which could further enhance profitability and accelerate growth in the Australian business.
Dollarcity is also on an aggressive expansion path, with plans to grow its store network to 1,050 locations by the end of fiscal 2031. Moreover, Dollarama has the option to increase its ownership stake in Dollarcity to 70% by the end of next year, thereby enhancing its exposure to faster-growing Latin American markets. Taken together, these factors position Dollarama for sustained financial momentum over the coming years.
Investors’ takeaway
Beyond capital appreciation, Dollarama has consistently rewarded its shareholders by raising its dividend 14 times since 2011. While the stock currently offers a modest forward dividend yield of 0.21%, its primary appeal remains growth rather than income.
Following substantial gains over the past 12 months, Dollarama’s valuation has expanded, with its next-12-month (NTM) price-to-sales and price-to-earnings multiples standing at 6.9 and 39.6, respectively. Although these metrics suggest the stock is trading at a premium, its superior growth profile, scalable store expansion, and international exposure help justify the valuation. Considering these factors, investors with a long-term investment horizon of three years or more could consider accumulating the stock for potential market-beating returns.
