Six years ago, Garage was a mall brand built for teenagers. Its product portfolio included denim, plaid shirts, and homecoming dresses that filled the racks.
Groupe Dynamite (TSX: GRGD), the company behind Garage and Dynamite, has spent six years rebuilding itself, and the results are hard to ignore. Yet the stock has fallen over the past 12 months, making it attractive to long-term value investors at current prices.
Down almost 33% from all-time highs, GRGD stock also offers a trailing yield of 3.9%.
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Why Groupe Dynamite stock fell more than 33%
Groupe Dynamite went public in 2024, and despite the ongoing pullback, it has more than tripled shareholder returns.
The Canadian dividend stock dipped 36% in a single trading session after it reported fiscal Q1 results. However, management bought the dip and repurchased 993,605 shares at an average price of $63.50, which cost $63.1 million.
Notably, Groupe Dynamite does not pay a regular dividend. It paid a special dividend of $2.30 per share last December, which translates to a yield of 3.9%.
What Groupe Dynamite’s latest quarter showed
In fiscal Q2 2027 (ended in July), revenue rose almost 30% year over year to $423.6 million. Sales in the U.S. rose 52.2% to $271.6 million, while Canadian sales slipped 2% to $145.1 million.
The fashion retailer reported gross margins of 68.8% in Q2, an increase of 5.2 percentage points year over year as tariff costs rolled off.
Adjusted EBITDA margin (earnings before interest, taxes, depreciation, and amortization) reached 44.3%, a company record, while adjusted earnings per share climbed to $0.96 from $0.57.
The free cash flow improved to $109.5 million, up from $72.6 million last year. Net leverage ratio stood at 0.89 times at the end of Q2, which is not too high.
CEO Andrew Lutfy pointed to how the company handles stock on shelves, driving profit margins higher. “We view inventory as capital allocation,” he said on the earnings call.
Here is how it works. Groupe Dynamite deliberately orders less than it expects to sell. It sends a small amount of stock to every store and watches underlying demand trends. Busy stores in places like SoHo and London’s Oxford Street sell out first, so they get higher inventory.
About 95% of gross sales are booked at full price, so markdowns are rare, and fewer discounts mean more profit earned on every dress and hoodie.
How Groupe Dynamite could keep growing for decades
Groupe Dynamite plans to open stores in the best malls and high-end locations primarily in the U.S. It aims to end 2028 with 350 stores and expects 24 to 26 openings this year.
The U.S. market is more than eight times the size of Canada by population. Garage has 139 stores south of the border and 96 in Canada, while the United Kingdom is just getting started.
The company grew online sales by 31.5%, and management raised its full-year revenue growth outlook to 25% to 27%, from 22% to 25%. It also lifted its adjusted EBITDA margin outlook to 39.5% to 40.5%.
However, investing in Groupe Dynamite carries certain risks. First, it may not pay shareholders a dividend each year, especially if demand slows amid a challenging macro environment. While sales in the U.S. are strong, Canada is weighed down by softer demand trends.
Analysts tracking the Canadian stock forecast revenue to increase from $1.3 billion in fiscal 2026 to $2.15 billion in fiscal 2029. Over this period, adjusted earnings are projected to expand from $2.25 per share to $4.42 per share.
If GRGD stock is priced at 20 times earnings, below its average of 21.8 times, it could surge 38% within the next 15 months.
