Dollarama Earnings: Value Proposition Shines Amid Macro Uncertainty; Shares Rich

Key Morningstar Metrics for Dollarama

• Fair Value Estimate
  : C$148
• Morningstar Rating
  : ★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Dollarama’s Earnings

Dollarama DOL’s second-quarter sales rose 17.6%, driven by 5.4% same-store sales growth. EBITDA margin fell 190 basis points to 32.2%, reflecting 110-basis-point headwinds to gross margin and SG&A, respectively, from a full quarter of Australia (10% of sales), partially offset by improvement in Canada.

Why it matters: Amid a soft consumer backdrop, Dollarama’s price leadership and sourcing capabilities remained resilient. In Canada (90% of sales), transactions rose 3.7%, and the average ticket increased 1.7%, underscoring the strength of its merchandising strategy.

• Management does not expect to raise its USD 5 maximum price point in the near term, citing Dollarama’s ability to offset cost pressures. We think maintaining this price ceiling reinforces its value proposition and supports average long-term sales growth of 9%.
• The firm remains focused on Australia’s multiyear turnaround, renovating 25 stores (up from 13 in the first quarter) and opening four net new locations. While progress continues, we remain cautious, as this pursuit could divert attention from Dollarama’s core Canadian business.

The bottom line: We plan no material changes to our C$148 fair value estimate for narrow-moat Dollarama. We see shares, up 4% on the print, as overvalued, trading at roughly a 15% premium to our fair value estimate.

• We think the market is pricing in a faster turnaround in Australia than is likely. Only about 15% of the 414-store network has been converted to the Dollarama format, and imported products remain limited, with just half expected to be introduced by fiscal 2027 year-end.
• Dollarama updated fiscal 2027 guidance for its Canadian segment, calling for 4%-5% comparable store sales growth (3%-4% prior) and 65-75 new stores (60-70). Our pre-earnings assumptions were 4% comparable sales growth and 60 openings, so we expect little change to our forecast.