Urbanization And Budget Pressures Will Fuel Canadian Discount Retail Expansion

Key Takeaways

• Rapid store expansion, strong supply chain, and value positioning are driving market share gains and higher transaction frequency, supporting sustained top-line and margin growth.
  
• Global scaling of private label, sourcing, and market entry strategies is boosting product margin control and establishing a platform for long-term earnings outperformance.
  
• Reliance on physical store growth, rising labor and compliance costs, and lack of digital focus amid supply chain risks threaten future margins and revenue stability.

Catalysts

Operates a chain of stores and provides related logistical and administrative support activities.

• Analysts broadly agree Dollarama's store network can grow to 2,200 in Canada by 2034, but this may be a significant understatement; record quarterly net new store openings and the ongoing migration of consumers toward value retail suggest the pace of store growth could exceed current expectations and drive even stronger revenue and market share gains.
  
• While consensus expects the new Western Canada logistics hub to support margin expansion by reducing logistics costs, the company's proven ability to deliver frictionless and agile supply chain performance even in volatile markets signals a potential for sustained gross margin outperformance, as further investments in technology and sourcing deepen supply chain moat and earnings resilience.
  
• Escalating pressure on household budgets and urban affordability challenges are making Dollarama a habitual shopping destination for both essentials and small discretionary purchases, fueling structurally higher transaction frequency and persistent same-store sales growth which directly supports top-line revenue expansion.
  
• Dollarama's expanding private label and direct sourcing capabilities-in both North America and new markets like Australia and Latin America-enable superior product margin control and pricing flexibility compared to peers, setting the stage for net margin improvement above historic trends as these efforts scale globally.
  
• The company's successful integration and transformation of acquired and newly entered markets, enabled by a strong and aligned corporate culture and real estate optimization, unlocks multi-geography operating leverage and sets up a long runway for earnings growth well beyond what is currently capitalized in the share price.

Dollarama Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Dollarama compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Dollarama's revenue will grow by 10.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 18.9% today to 17.8% in 3 years time.
• The bullish analysts expect earnings to reach CA$1.6 billion (and earnings per share of CA$6.12) by about September 2028, up from CA$1.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 44.7x on those 2028 earnings, up from 41.2x today. This future PE is greater than the current PE for the CA Multiline Retail industry at 26.0x.
• Analysts expect the number of shares outstanding to decline by 1.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.58%, as per the Simply Wall St company report.

Dollarama Future Earnings Per Share Growth

Risks

• The company's reliance on sustained store openings for growth in a potentially saturated Canadian market, along with limited disclosure and uncertainty about profitability timelines in the new Australian segment, could constrain future revenue and earnings expansion.
  
• Rising wage and benefit costs, particularly highlighted in Australia and several Latin American markets where minimum wage increases are occurring faster than in Canada, may erode net margins across all operating regions.
  
• Dollarama's heavy dependence on low-cost global supply chains remains exposed to potential disruption from geopolitical volatility, trade barriers, currency fluctuations, and tariffs, each posing a threat to profit margins and overall earnings stability.
  
• The accelerating shift toward e-commerce and digital-first retail, juxtaposed against Dollarama's continued brick-and-mortar expansion and lack of a robust online strategy, risks reduced store traffic and future revenue growth.
  
• Growing regulatory scrutiny and consumer expectations for sustainability around single-use, low-priced goods may lead to increased compliance costs, supply chain adjustments, or product restrictions, all negatively impacting operating margins and earnings.

Valuation

• The assumed bullish price target for Dollarama is CA$223.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Dollarama's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$223.0, and the most bearish reporting a price target of just CA$115.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CA$9.1 billion, earnings will come to CA$1.6 billion, and it would be trading on a PE ratio of 44.7x, assuming you use a discount rate of 7.6%.
• Given the current share price of CA$188.39, the bullish analyst price target of CA$223.0 is 15.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.