Dollarama (TSX: DOL) is a leading discount retailer with 1,734 stores across Canada and another 414 in Australia. Last week, the company delivered an impressive second-quarter performance for fiscal 2027, surpassing analysts’ expectations. Revenue reached $2.03 billion, slightly ahead of the $2.02 billion consensus estimate, while adjusted EPS (earnings per share) came in at $1.29, compared with expectations of $1.25. After a strong quarter, Dollarama also raised its fiscal 2027 guidance.
The upbeat results and higher guidance have strengthened investor sentiment, pushing the stock 5.2% higher since the earnings release. Let’s examine Dollarama’s latest results, growth prospects, and valuation to assess whether the stock presents an attractive opportunity for investors.
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Dollarama’s second-quarter performance
Dollarama’s direct-sourcing model helps eliminate intermediary costs while strengthening its bargaining power with suppliers. Combined with efficient operations and optimized logistics, this model enables the retailer to offer a broad range of products at attractive prices, supporting resilient same-store sales across economic cycles.
In the second quarter, same-store sales increased 5.4%, driven by a 3.7% rise in transactions and a 1.7% increase in average cheque size. Strong demand for consumables and general merchandise supported sales growth. Meanwhile, a full quarter of Australian operations, compared with just 13 days in the prior-year period, and the addition of 69 Canadian stores over the past four quarters helped drive 17.6% revenue growth.
Canadian gross margins improved 10 basis points to 45.7%. However, consolidated gross margins declined 100 basis points to 44.5%, reflecting the lower margins of its Australian operations. SG&A (selling, general, and administrative) expenses increased 110 basis points to 15.1% of revenue, primarily due to higher Australian operating costs.
Despite these pressures, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 11% to $653 million, although its margin declined 190 basis points to 32.2%. A 30% increase in the contribution from Dollarama’s 60.1% stake in Dollarcity also supported earnings. Consequently, net income increased 8.7% to $349.3 million, while diluted EPS climbed 11.2% to $1.29.
Now let’s turn to Dollarama’s growth prospects.
Dollarama’s growth prospects
After a resilient second quarter, Dollarama management raised its fiscal 2027 guidance for its Canadian operations. The retailer now expects same-store sales to increase 4%–4.5%, up from its previous forecast of 3%–4%. It also raised its store-opening target to 65–75, up from 60–70.
Beyond fiscal 2027, Dollarama’s long-term growth strategy remains intact, with plans to expand its Canadian and Australian store networks to 2,200 and 700 locations, respectively, by fiscal 2034. Resilient same-store sales, an efficient capital model, rapid sales ramp-ups, and shorter store payback periods could support sustained revenue and earnings growth.
Dollarcity also offers additional growth avenue, with plans to expand its store network from 781 locations currently to 1,050 by fiscal 2031. Together, these initiatives provide Dollarama with multiple avenues for continued financial growth in the years ahead.
Investors’ takeaway
Despite the recent buying momentum, Dollarama remains about 17% below its 52-week high. However, the stock still commands a premium valuation, trading at forward price-to-sales and price-to-earnings multiples of approximately 5.7 and 32.6, respectively.
While these multiples may appear elevated, they reflect the company’s resilient financial performance, strong competitive positioning, and multiple avenues for long-term growth. With continued store expansion across Canada and Australia and further growth at Dollarcity, the company has several potential catalysts ahead. Given its premium valuation, investors may want to take a long-term approach and consider accumulating the stock gradually as opportunities arise.
