A few months ago the market dumped Dollarama on one soft print. This morning’s earnings showed exactly why that was a gift.
If you ever want a textbook example of why your single biggest edge as a retail investor is the ability to ignore the noise of one quarter, Dollarama just handed it to you.
Rewind a couple of months. I put out a video on a company that had just posted a slightly disappointing quarter, and the market treated it like the building was on fire. The stock got cut down to the $166 to $170 range on what amounted to one weak same-store-sales number. My take at the time was simple: this looked like the market panicking over a single data point while the long-term story marched on. That company was Dollarama. It reported again this morning, the numbers were excellent, and the stock is up around 7% on the day, sitting near $193. The investors who kept their heads a few months ago are now looking at a very nice rebound.
So let’s walk through what Dollarama actually delivered, why the quality here is so rare, and whether I think it’s still worth buying after the recovery.
A defensive retailer growing like a tech stock
Total revenue jumped 21.4% year over year. Stop and think about how unusual that is. This is a defensive retailer. People walk into Dollarama to buy things that cost three, four, or five dollars. A business like that posting 21% growth is the kind of number you’d expect from a software company, not a discount chain selling household basics.
I’ve been bullish on this name and on Loblaw for about five years now, and the reason is the same for both. Canada is in the middle of a genuine cost-of-living problem. Prices on necessities have climbed far faster than wages, and that has pushed shoppers down the value chain. What’s striking is who’s doing the trading down. It isn’t just lower-income households. Middle-class and even higher-income Canadians are walking into Dollarama because they’re tired of paying absurd prices for everyday items at the big retailers.
When I first noticed this, I assumed it was a temporary pandemic-era reaction to that spike toward 9% inflation, and that it would fade as things normalized. It hasn’t faded at all. In my view this is a permanent shift. Once you’ve trained a household to buy its basics at Dollarama, you don’t win them back unless the broader economy improves dramatically and people suddenly feel flush again. That’s the engine driving a defensive retailer to 21% revenue growth.
The comp rebound that vindicated the thesis
The reason last quarter rattled people was soft same-store sales. Management chalked it up to weather keeping shoppers home, and honestly, I was skeptical. Dollarama sells the kind of necessities you go out and buy regardless of whether it’s raining. But the rebound this quarter suggests the weather story held up.
Comparable sales in Canada grew 5.6% in the first quarter of fiscal 2027, made up of a 3.5% increase in transactions and a 2% increase in the average basket. That’s on top of 4.9% growth in the same quarter a year ago, and it was driven by strong demand across both consumables and general merchandise. To put it in context, you have to go back to 2024 to find a single quarter with a better comp than this one.
It helps to zoom out on the trend. Comps have been drifting lower since the pandemic peak, when this company was briefly posting something like 17% same-store growth. A gradual cooldown off that kind of number is completely normal and expected. No retailer keeps that pace. The real signal is that even after lapping those monster inflation-era comps in 2022 and 2023, Dollarama is still compounding at roughly 5%. That tells you the trade-down isn’t slowing down, and neither is the company.
Last quarter the comp came in around 1.5%, and the market knocked the stock down something like 15 to 20% on it. That is the entire lesson in one move. If you have genuine long-term conviction, those short-term blips are opportunities, not reasons to run.
Store growth, and the other thing that spooked people
The second worry I kept hearing was that store growth was stalling. Dollarama opened only seven net new stores last quarter, and people extrapolated that into a slowdown. This quarter it opened 36, its biggest opening quarter in a long time. The first quarter tends to be when Dollarama does its heaviest store openings anyway, and the recent run has gone from the low-to-mid twenties up to 36 this time around. Store growth isn’t slowing. If anything, it just reaccelerated.
Why the margins dipped, and why it doesn’t worry me
Here’s the one spot where a quick glance at the numbers can mislead you. Gross margin slipped to 43.9% from 44.2%, and the EBITDA margin eased to 31.6% from 32.6%. On the surface that looks like profitability going backward.
It isn’t. The drag is almost entirely the integration of The Reject Shop in Australia, with a little help from the Mexico pilot. Both are lower-margin operations that are still being built out and turned around. Australia alone knocked roughly 1.1% off the consolidated gross margin, while the total decline was only 0.3%. Do that math and you’ll see the Canadian business actually improved its margins this quarter. This isn’t Dollarama struggling. It’s Dollarama absorbing acquisitions that cost capital to fix.
And fixing them is the entire point. The reason Dollarama bought The Reject Shop in the first place is that it believes it can apply its own playbook and drag those margins up toward Canadian levels over time. It won’t happen overnight, but I have a hard time betting against this management team on that front.
The real bull case lives outside Canada
This is where the long-term story gets interesting. Dollarama owns roughly 60% of Dollarcity, its Latin American operation, and that business is on fire. Its contribution to Dollarama’s net earnings rose to $51.2 million, up about 37% from a year ago, on a 30% jump in revenue, as the store count grew from 644 to 752.
That, to me, is the core of the bull case. Canada is the foundation. It’s a cash machine, but it’s mature, and nobody should expect it to grow quickly from here. What Canada does is generate the free cash flow that funds expansion everywhere else. Latin America is a long runway. Mexico is a fresh pilot. Australia is a turnaround project with hundreds of stores. Dollarama has spent years proving it can deploy one successful business model over and over, and it now has three separate international avenues to keep doing exactly that. The catch is that turnarounds and rollouts take years, which is precisely why this is a stock for investors with a long-term mentality, not a quarter-to-quarter one.
A profitability profile almost nobody can match
Numbers like these are why I rate Dollarama’s profitability a 9.2 in our Stocktrades Premium reports. The company runs free cash flow margins around 21% and operating margins near 27%. Compare that to Dollar Tree, which sits closer to 8% free cash flow margins and 9% operating margins, and the gap is enormous.
The clearest way to see it is the cash. Dollar Tree pulls in roughly $19.7 billion in revenue and generates around $1.6 billion of free cash flow. Dollarama generates about $1.5 billion of free cash flow on roughly $7.3 billion in revenue. Nearly the same cash, on about a third of the sales. That is what an efficient business looks like.
Underpinning all of it is a return on invested capital around 21%. If I could only look at one metric on a company, this would be near the top of the list, because very few businesses sustain a number that high for as long as Dollarama has. It dipped into the high teens during the pandemic and has climbed since. That ability to reinvest capital, whether borrowed or earned, at a 20%-plus rate is the single biggest reason this stock has returned roughly 250% over five years and more than 500% over a decade.
It also explains why I’m not bothered that Dollarama buys back very little stock and pays a tiny dividend of about 0.25%. The dividend has still grown at a high-teens pace, but the bigger point is this: why would a company that can reinvest at 20% returns spend its cash shrinking its share count instead? It shouldn’t, and it doesn’t. The low buyback number isn’t a weakness here. It’s discipline.
Guidance, and whether it’s still a buy at $193
Management held its guidance steady: 60 to 70 net new stores, comparable sales growth of 3 to 4%, a gross margin of 45 to 45.5%, and capital spending of $420 to $470 million. They blew past the comp guidance this quarter, came in light on gross margin for the Australia reasons already covered, and bumped up capex meaningfully from around $300 million a year ago. That spending increase is going straight into projects I’d expect to earn strong returns, so I have no problem with it.
So is it a buy at $193? Let’s be honest about valuation. For a brief window, when the stock was down in the high $160s to low $170s, it actually looked fairly valued on a price-to-free-cash-flow basis. That window has closed. At $193 you are paying full price.
But paying full price for a genuinely great business isn’t a mistake. You are almost never going to find a defensive retailer earning 21% on invested capital, with 25%-plus operating margins, sitting in the bargain bin. The brief period in 2024 and 2025 when Dollarama screened as cheap was largely an artifact of the inflation-driven earnings surge of 2022 and 2023 flattering the multiple. The market now correctly prices this as a long-term trade-down winner, the same reason Loblaw has done so well, and I’d be surprised to see it get genuinely cheap again unless it strings together several soft quarters in a row. Nothing in this print suggests that’s coming.
For full transparency, I didn’t manage to buy Dollarama when it dipped to the $160s, mostly because I couldn’t find room for it in my portfolio at the time, and I regret that. It remains one of the highest-quality businesses in the country, run by one of the best management teams in the country, and I have real faith they’ll integrate Australia and scale Mexico successfully. If it hands me another dip, I won’t hesitate to pull the trigger.
