Dollarama: Fueling Resilience Through Buybacks and Global Expansion

Dollarama Inc. (TSX: DOL) continues to position itself as a premier growth vehicle in the retail sector, leveraging its disciplined capital allocation strategy and ambitious expansion plans. The company's 5% share buyback program, paired with aggressive store growth in Canada and its Latin American ventures, creates a compelling narrative for long-term investors. Here's why Dollarama stands out as a resilient investment play in an uncertain macroeconomic environment.

The Power of Share Buybacks: Margin Expansion and Value Creation

Dollarama's renewed normal course issuer bid (NCIB) allows the repurchase of up to 13.9 million shares (5% of its float) through July 2026. As of June 2025, the company had already repurchased 5.1 million shares at an average price of CAD 139.27, with $1.068 billion allocated to buybacks in the previous NCIB cycle. This program directly boosts EPS accretion, as fewer shares dilute earnings growth. With $1.3 billion in annual free cash flow and net debt of CAD 1.2 billion, Dollarama has ample flexibility to execute repurchases while maintaining its 15% dividend hike (to CAD $0.1058/share) in April 2025.

The buybacks also signal confidence in the company's valuation. While its P/E ratio of ~28x (based on 2024 earnings) is elevated compared to peers, RBC Dominion Securities' CAD 207 price target (implying a 15% upside from current levels) reflects optimism about its long-term growth trajectory.

Canadian Expansion: A Steady Engine of Growth

Dollarama's Canadian store network is on track to reach 2,200 locations by 2034, up from 1,638 stores as of March 2025. In Q1 2026, it added 22 net new stores, with plans to open 70–80 stores this fiscal year. This disciplined expansion targets underserved markets while maintaining 4.9% comparable store sales growth, driven by its $5 price ceiling model—a secular tailwind as consumers prioritize value.

The company's infrastructure investments, such as its Montreal distribution center (500,000 sq. ft.), ensure operational efficiency. Even in a “fragile” Canadian consumer environment, Dollarama's focus on high-margin consumables (e.g., snacks, cleaning supplies) and seasonal items has insulated its margins.

Latin American Ventures: Global Dominance in the Making

Dollarama's foray into Latin America via Dollarcity (60.1% stake) and the impending acquisition of The Reject Shop (TRS) in Australia marks a critical diversification play. As of March 2025, Dollarcity operated 644 stores across Colombia, Guatemala, El Salvador, and Peru, with plans to expand into Mexico by late 2025. By 2029, Dollarcity aims to reach 850 stores, capitalizing on the region's growing demand for discount retail.

The TRS acquisition, expected to close by July 2025, adds 200+ stores in Australia, where Dollarama plans to replicate its $5 pricing model. Combined, these ventures represent a $2 billion+ opportunity to leverage its proven retail formula in high-growth markets.

Risks and Considerations

• Valuation Concerns: The 28x P/E is rich for a company with single-digit sales growth. Share repurchases at elevated prices could dilute returns.
• Economic Sensitivity: Canadian consumers' cautious spending—evident in a 2.2% decline in average transaction size—remains a near-term headwind.
• Execution Risks: Scaling operations in Latin America and Australia requires flawless logistics and cultural adaptation.

Conclusion: A Buy with a Long-Term Lens

Dollarama's blend of financial discipline (buybacks + dividends), domestic store growth, and global expansion positions it as a resilient growth stock. While near-term risks like valuation and macroeconomic uncertainty exist, the company's track record of 27% profit growth (Q1 2026) and RBC's CAD 207 price target make it a compelling buy for investors willing to look past short-term volatility.

Recommendation: Buy, with a Hold for those sensitive to valuation. Monitor execution of the NCIB and Dollarcity's Mexico rollout as key catalysts.