Key Morningstar Metrics for Dollarama
- : C$138.00Fair Value Estimate
- : ★Morningstar Rating
- : NarrowMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
What We Thought of Dollarama’s Earnings
Dollarama’s DOL first-quarter results included 21.4% sales growth, driven by a 5.6% rise in same-store sales. However, EBITDA margin contracted 100 basis points to 31.6% due to Australia’s (10.0% of sales) mix headwinds and elevated operating expenses as the business transitions to Dollarama’s sourcing.
Why it matters: Canada’s (90% of sales) strong performance reinforces our conviction in Dollarama’s merchandising ability and value proposition. Traffic rose 3.5%, and ticket was up 2.0%. These results signal deepening wallet share among value-conscious households.
- Dollarama reiterated its 3.0%-4.0% same-store sales growth outlook for its Canadian segment in fiscal 2027, which is in line with our 3.5% expectation. We see an acceleration to 4%-5% over the next decade due to increases in the number and size of transactions.
- The firm announced that a distribution center will open in Calgary by the end of calendar 2027 to support growth in underpenetrated Western Canada (40% of new stores over the past two years). We expect this expansion to contribute to 8% average revenue growth over the next decade.
The bottom line: We plan to increase our C$138 fair value estimate for narrow-moat Dollarama by a low-single-digit percentage due to the time value of money. Despite this expected change, we view shares, which rose 9% on the report on June 11, as very overvalued.
- In our view, the market is pricing in a successful turnaround in Australia in the near term, though we remain cautious. With only half of the transition to imported items expected to be completed by the end of fiscal 2027, the shift to value-focused fare remains in the early stages.
Key stats: Dollarama opened 28 net new stores under its Canadian banner in the period, bringing its total to 1,719. The firm appears to be on pace with its plan for 60-70 net new stores in fiscal 2027, which reflects strong execution.
