Montreal-based Dollarama Inc. reported revenues ahead of expectations in its second quarter of fiscal 2026, but the results failed to excite investors. According to a new report from Stifel analyst Martin Landry, revenues reached $1.724 billion, up 10 percent year-over-year and above both Stifel’s forecast of $1.678 billion and consensus of $1.693 billion.
Comparable store sales in Canada rose 4.9 percent, outpacing management’s guidance of three to four percent. The growth was fuelled by a 3.9 percent increase in traffic and a 0.9 percent increase in basket size, a performance Landry described as “healthy” compared to industry trends.
Earnings Weighed by Higher Costs
While revenues outperformed, higher expenses and taxes dampened earnings. Dollarama posted adjusted earnings per share of $1.16, up 14 percent from a year earlier, but essentially in line with consensus and Stifel’s forecast of $1.17. Excluding one-time items, EPS was closer to $1.20.
Gross margin expanded to 45.5 percent, but rising selling, general and administrative (SG&A) expenses offset the gains. SG&A costs were $241 million, exceeding Stifel’s estimate of $224 million, with The Reject Shop acquisition and related transaction costs accounting for a portion of the increase. In addition, Dollarama’s effective tax rate climbed from 25 percent to 27 percent as the retailer became subject to global minimum taxes following the Australian acquisition.
Guidance Unchanged, Seasonal Sales Flat
Management left full-year fiscal 2026 guidance unchanged, but noted that comparable sales growth is now expected at the high end of the three to four percent range. Seasonal categories remained flat, a trend the company expects will continue, while margins are expected to narrow slightly in the second half of the year due to mix shifts and higher transportation costs.
International Growth Stories
Dollarama’s Latin American subsidiary, Dollar City, delivered a strong quarter. Net earnings rose 56 percent year-over-year, ahead of expectations, while sales advanced 16.4 percent, marking the strongest growth in three quarters. Store count increased by 15 percent, contributing to the momentum. Lower inbound shipping costs supported margins, although higher labour expenses offset some of the gains.
In Australia, Dollarama closed its acquisition of The Reject Shop in July for approximately C$209 million. The retailer operates 395 stores and generated A$866 million in sales in 2024. Dollarama plans to overhaul the chain by introducing a new pricing strategy, redesigning layouts, and enhancing merchandising to mirror the Canadian Dollarama experience. The company has set an ambitious target of expanding the network to 700 stores by 2034.
Valuation and Market Reaction
Despite the earnings beat, Dollarama’s shares fell four percent on the day of the announcement. Stifel notes that shares trade at 36 times forward earnings, a near-record valuation roughly 10 turns above the 10-year average. “Incremental buyers could be on the sidelines awaiting a more meaningful contribution from the Australia and Mexico businesses,” Landry wrote.
Stifel reiterated its Hold rating and C$190 price target, using a blend of earnings, EBITDA, and discounted cash flow valuation methods.
Risks Ahead
Stifel highlighted several risks to the investment outlook, including further penetration of online retail, where Dollarama has only a limited presence, as well as global geopolitical and macroeconomic factors. The Russia–Ukraine conflict, currency fluctuations, and ongoing inflation could all impact costs, sourcing, and consumer demand. Rising interest rates were also flagged as a potential headwind for discretionary spending.
Canada’s Value Retail Giant
Dollarama remains Canada’s dominant value retailer, with more than 1,600 stores nationwide and an estimated market share of over 80 percent. The company has a reported brand awareness of 98 percent and appeals to a broad customer base across income groups. Approximately 25 to 30 percent of its product assortment is refreshed annually, ensuring profitability and consumer interest.
In addition to its Australian and Latin American holdings, Dollarama maintains a 60.1 percent stake in Dollar City, which now operates 532 stores across Colombia, El Salvador, Guatemala, and Peru, generating over US$1 billion in annual sales.
Outlook
Dollarama’s Q2FY26 results underline the strength of its domestic business but also reflect the growing complexity of its international operations. While investors appear cautious about near-term profitability given rising costs and taxes, the company’s international expansion, particularly in Australia and Latin America, could provide meaningful upside over the longer term.
