Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Dollarama’s DG sales rose 8% in the first quarter of fiscal 2026, led by 5% same-store sales growth. Adjusted operating profit grew 16% as margin expanded 160 basis points to 22.9%. The shares rose nearly 10% on June 11 after the report.
Why it matters: Despite weak consumer sentiment in Canada, Dollarama has reinforced its appeal among increasingly frugal shoppers by leveraging value pricing, expanded assortments, and a multiprice strategy.
The firm’s shopper appeal was evidenced by healthy trends in traffic (up 3.7%) and average ticket (up 1.2%), which we attribute mainly to higher demand for branded consumables in smaller pack sizes and lower prices. While the higher mix of consumables is likely a margin headwind, we expect this to be more than offset by more-efficient logistics, lower shrink, and labor and store expense leverage, driving operating margin to 24.8% in 2026 from 24.6% a year ago.
The bottom line: We plan to tick up our C$115 fair value estimate for narrow-moat Dollarama by a low-single-digit percentage. The shares look expensive, trading at more than 40 times our 2026 EPS estimate as investors price in overly optimistic long-term sales growth assumptions.
For 2026, we forecast same-store sales to rise 4%, led primarily by traffic, which sits at the top end of the firm’s 3%-4% outlook range. This, coupled with 75 net new stores (the midpoint of the target for 70-80 stores), led to our 7.6% sales growth forecast.We view our 10-year assumptions for 8% sales growth and 25% operating margin as realistic. Our estimates incorporate mid-single-digit same-store sales growth annually, including an expected lift from a new price tier of $6 to be added in 2029, and 65 new stores each year.
Coming up: We view the retailer’s Mexican debut this summer via subsidiary Dollarcity as a prudent move to tap growth in this sizable market, but we remain skeptical about the acquisition of Reject Shop (set to close in July), given its lack of experience in Australia.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
