Advertisement
Advertisement

Dollarama Q2 Beat Overshadowed by Costs: Stifel

Date:

Share post:

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.

Dollarama at The Tenor in Toronto (Image: Dustin Fuhs)

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.

More from Retail Insider:

LEAVE A REPLY

Please enter your comment!
Please enter your name here

More From Retail Insider

RECENT RETAIL INSIDER VIDEOS

Advertisment

Subscribe to the Newsletter

Subscribe

* indicates required

RECENT articles

The Woodbridge Company Limited appoints Michael Medline as President/CEO

Medline is a highly respected and experienced executive, known for having delivered strong operating and financial results at two of Canada's most iconic companies, Empire Company (Sobeys Inc.) and Canadian Tire Corporation.

RONA becomes first home improvement retailer to partner with DoorDash

This partnership spans nearly 200 RONA+ and RONA corporate stores located in seven provinces and over 150 cities across the country.

Krispy Kreme looks to expand cafe concept to Calgary market

And the brand is looking to launch its donuts in Costco in 2026 in the market.

Loblaw reports revenue growth of 4.6% in Q3

The combination of everyday value offerings, personalized PC Optimum loyalty rewards, impactful promotions, and new store openings drove higher levels of customer engagement.

Canadian consumers drawn to redemption of loyalty awards: AIR MILES

Digital redemptions are quick, frictionless, and a means to fulfil instantaneous gratification for your efforts of engaging with a loyalty program.

Foodtastic Seeks Franchisees as It Expands Across Canada

While Foodtastic maintains fewer than 30 corporate locations, the majority of its outlets are franchised, spanning roughly seven or eight of its brands.

Hush expands brand presence with experiential activations in Canada and the U.S.

Hush originally aimed to create weighted blankets to assist children with sensory challenges.

Shake Shack Canada launches on Uber Eats in Toronto

Formed in 2023, Shake Shack Canada is a partnership between Toronto-based private investment companies Osmington Inc. and Harlo Entertainment Inc.

Double Click: Shopify Inc. Q3 2025 Earnings: Bruce Winder review & commentary

Shopify posted Q3 revenue of $ 2.84 billion, up + 32% from last year.

Understance to Close All Canadian Stores by December 1

Understance will shutter its Vancouver, Calgary, and Toronto stores on December 1, ending its short-lived retail expansion across Canada.

Knix Expands into Men’s Market with New Brand MNTD

Knix launches men’s essentials line MNTD, blending innovation, comfort, and freshness with its first-ever expansion into men’s apparel.

Canadian Apparel Retail Defies 2025 Gloom Forecasts

Canadian apparel sales rose 9.3% in 2025, defying recession fears as strong domestic spending and younger consumers fueled growth.

Interprovincial alcohol trade barriers keep small businesses bottled up: CFIB

Outdated rules and complicated processes continue to block Canadian producers from reaching new markets.

Shapermint expands into Walmart Canada with new shapewear line

Shapermint debuts its Core shapewear line at over 270 Walmart Canada stores, expanding access to its comfort-focused, size-inclusive essentials.

Canadians to spend $9.3B this Black Friday and Cyber Monday

Survey finds Canadians plan to increase Black Friday and Cyber Monday spending, focusing on discounts, free shipping, and strategic purchases.

Samsung survey reveals tech issues in retail

64% of retail workers say mobile devices are essential to their job, with average use of 4 hours per day for sales, inventory, and customer service tasks.

Dr. Phone Fix selected by Alberta Motor Association as exclusive cell phone repair partner

Founded in 2019, Dr. Phone Fix operates a nationwide network of 35 corporately owned cell phone and electronics repair stores across four Canadian provinces.

Big League Food Company announces major expansion, accelerating path to $100M revenue milestone

The Toronto-based company said its growth plan is focused on high-traffic, strategic locations that expand the reach of each brand.

Retail Leads Canadian Job Gains as Sector Rebounds from Layoffs

Canada’s retail sector added 41,000 jobs in October, driving national employment growth as part-time work and e-commerce recovery signal renewed consumer confidence.

Ontario’s biggest T&T Supermarkets coming to Empress Walk, North York

The grocery store retailer said the store will be 66,000 square feet.