Dollarama’s Earnings Call: Strong Growth Amid Challenges

Dollarama ((TSE:DOL)) has held its Q1 earnings call. Read on for the main highlights of the call.

Dollarama’s Earnings Call Highlights Strong Growth Amid Challenges

Dollarama reported a strong financial performance for the first quarter of fiscal 2026, showcasing significant sales growth and profitability improvements. The company is making substantial progress in its expansion efforts both domestically and internationally. Despite macroeconomic uncertainties and trade challenges, the overall sentiment remains positive as the highlights outweigh the lowlights.

Strong Start to Fiscal 2026

Dollarama kicked off fiscal 2026 with impressive sales figures, reporting a 4.9% increase in same-store sales (SSS) and an 8.2% rise in total sales compared to the same period last year, reaching over $1.5 billion. This growth was driven by a 3.7% increase in transactions and a 1.2% increase in average transaction size, reflecting strong consumer demand.

Expansion and Growth

The company continues to expand its footprint, opening 22 net new stores in Canada, bringing the total to 1,638. In Latin America, Dollarcity opened 12 new stores, increasing their total to 644. Dollarama is also poised to enter the Mexican market, with the first stores expected to open soon, marking a significant step in its international expansion strategy.

Gross Margin Improvement

Dollarama’s gross margin improved to 44.2% from 43.2% in the previous year. This improvement was attributed to lower logistics costs and reduced inventory shrinkage, contributing to the company’s overall profitability.

EBITDA Growth

The company’s EBITDA reached $496.2 million, representing an EBITDA margin of 32.6%, up from $417.7 million and a 29.7% margin last year. This growth underscores Dollarama’s operational efficiency and strong financial health.

Record Net Earnings per Share

Dollarama achieved a record increase in diluted net earnings per share, which rose by 27.3% to $0.98. This milestone reflects the company’s robust financial performance and shareholder value creation.

Macroeconomic Uncertainty

Despite the positive results, Dollarama acknowledged the fragile consumer environment, with macroeconomic uncertainties impacting consumer confidence. This was evident in softer sales during February and March.

Tariff and Trade Challenges

The company continues to navigate counter tariffs imposed by Canada on U.S. imports, affecting a portion of its consumable products. Dollarama is managing these challenges carefully to avoid price increases.

Impact of 53-week Year

Dollarama anticipates a negative impact in Q4 due to lapping a 53-week year, similar to fiscal 2020, which included Halloween sales. This factor is expected to affect the company’s year-over-year comparisons.

Mexico Market Entry Costs

As Dollarama prepares to enter the Mexican market, it anticipates incurring start-up losses ranging from $10 million to $20 million, with potential losses continuing into the second and third years. This investment is part of the company’s long-term growth strategy.

Forward-Looking Guidance

Looking ahead, Dollarama maintains its full-year guidance of 3% to 4% same-store sales growth and a gross margin of 44.2% to 45.2%. The company plans to open 70 to 80 new stores this year, exceeding its usual target. Capital expenditures for fiscal 2026 are expected to reach $285 million to $330 million, with significant investment in a new logistics hub in Western Canada. Despite macroeconomic uncertainties, Dollarama remains focused on delivering value and executing its growth strategy.

In summary, Dollarama’s earnings call painted a positive picture of the company’s financial health and growth prospects. With strong sales growth, expansion efforts, and improved profitability, Dollarama is well-positioned to navigate the challenges ahead. The company’s commitment to its growth strategy and value delivery remains unwavering, providing confidence to investors and stakeholders alike.