Dollarama (TSX:DOL) operates 1,665 low cost shops throughout Canada. It has adopted a superior direct sourcing mannequin, which has eliminated intermediaries whereas strengthening its bargaining energy with suppliers. Moreover, its environment friendly logistics have helped scale back bills whereas enabling it to supply a variety of client merchandise at engaging costs. In consequence, the corporate continues to ship wholesome same-store gross sales and constant monetary efficiency, even in a difficult macro setting.
In the meantime, Dollarama has delivered a formidable return of 34.8% this 12 months, outperforming the broader fairness markets. Its wholesome efficiency within the first two quarters of fiscal 2026 seems to have boosted its inventory value. Let’s overview its lately reported second-quarter efficiency and progress outlook to guage potential shopping for alternatives within the inventory.
Dollarama’s second-quarter efficiency
Final month, Dollarama posted a formidable second-quarter efficiency, with its topline rising by 10.3% to $1.7 billion. The wholesome same-store gross sales progress of 4.9%, web addition of 77 shops over the past 4 quarters, and $25.7 million contribution from the lately acquired The Reject Store boosted its gross sales progress. The three.9% improve within the variety of transactions and 0.9% improve in common transaction worth boosted its same-store gross sales progress.
Moreover, its gross margin improved by 30 foundation factors to 45.5%, pushed by decrease logistics prices in its Canadian section, although partially offset by margin stress in its Australian section in the course of the post-acquisition interval. Nevertheless, its SG&A (promoting, common, and administrative) bills as a share of complete income have elevated from 13.6% within the earlier 12 months’s quarter to 14%. In the meantime, its EBITDA (earnings earlier than curiosity, taxes, depreciation, and amortization) got here in at $588.5 million, with its EBITDA margin at 34.1% – an enchancment from 33.5% within the earlier 12 months’s quarter.
Moreover, Dollarcity (60.1% owned by Dollarama) contributed $38.3 million to web earnings, up 68.7% on the again of elevated possession and robust operational efficiency. Nevertheless, Dollarama witnessed elevated curiosity and tax bills, which offset a few of the will increase in its web revenue. In the meantime, its web revenue got here in at $321.5 million or $1.16/share, translating into year-over-year progress of 13.7%. Now, let’s have a look at its progress prospects.
Dollarama’s progress prospects
Dollarama plans to develop its footprint, aiming to achieve 2,200 shops by the tip of fiscal 2034. Given its capital-efficient mannequin, fast gross sales ramp up, shorter common payback interval, and decrease retailer community upkeep necessities, these expansions might enhance each its prime and backside strains.
In July, the corporate acquired The Reject Store, which operated 395 shops in Australia. The acquisition marks the entry of Dollarama into the Australian retail market. Furthermore, it’s evaluating alternatives and techniques to optimize The Reject Store’s operations, which might enhance its financials within the coming quarters.
Moreover, Dollarcity can also be increasing its footprint and expects to extend its retailer depend from its present 658 shops to 1,050 by the tip of fiscal 2031. Moreover, Dollarama can improve its stake in Dollarcity to 70% by exercising its choice by 2027. Contemplating all these components, I consider Dollarama’s progress prospects look wholesome.
Buyers’ takeaway
The spectacular returns have pushed Dollarama’s valuation greater, with its NTM (subsequent 12 months) price-to-sales and NTM price-to-earnings growing to six.6 and 39.1, respectively. Though its valuation seems costly, its greater progress prospects justify these valuation ranges. Moreover, the corporate has elevated its dividends 14 instances since 2011, whereas its ahead dividend yield at the moment stands at 0.23%. Contemplating all these components, I’m bullish on Dollarama.
