Dollarama’s Price Target Cut to $203: A Short-Term Shift or Long-Term Resilience Signal?

National Bank’s recent reduction of Dollarama’s price target to $203 from $213 has sparked debate among investors. While the adjustment reflects short-term underperformance in the bank’s capital markets business, the “Outperform” rating underscores confidence in Dollarama’s long-term growth resilience. This article evaluates whether the price target cut is a temporary valuation correction or a misstep in a broader narrative of sustained value creation.

Financial Performance: Strong Fundamentals Amid Macroeconomic Headwinds

Dollarama’s Q2 2025 results highlight its ability to navigate a challenging economic environment. Revenue surged 10.3% year-over-year to $1.72 billion, with EPS of $1.16 exceeding forecasts by 3.57% [1]. Net earnings grew 12.4% to $321.5 million, supported by a 45.5% gross margin [2]. These figures demonstrate the company’s pricing power and operational efficiency, even as inflation and high interest rates pressure consumer spending.

The discount retail model, which prioritizes low-cost consumables and private-label products, has proven particularly effective in a price-sensitive market. Dollarama’s same-store sales in Canada rose 4.9% in Q2 2025, driven by demand for household essentials and strategic inventory management [1]. This resilience aligns with broader industry trends, where discount formats outperform traditional retail segments by catering to budget-conscious consumers [3].

Expansion Strategy: A Dual-Track Approach to Growth

Dollarama’s long-term growth hinges on its dual-track strategy of domestic expansion and international diversification. In Canada, the company opened 27 new stores in Q2 2025 and plans to add 70-80 stores annually, maintaining a disciplined approach to market saturation [1]. Internationally, the focus on Australia and Mexico is accelerating, with a target of 700 Australian stores by 2034. The acquisition of The Reject Shop in Australia has further strengthened its foothold in the region, though challenges such as higher tax rates and sourcing tariffs remain [1].

Industry Context: Discount Retail’s Structural Tailwinds

The discount retail sector is experiencing a renaissance in 2025, fueled by economic uncertainties and shifting consumer behavior. Social commerce is reshaping retail, with global s-commerce sales projected to grow at a 21% CAGR through 2029 [3]. Dollarama’s focus on private-label brands and value-oriented products positions it to capitalize on these trends, as middle-income consumers increasingly prioritize affordability over premium offerings.

However, the U.S. discount department store sector has seen a 0.6% annual revenue decline from 2020 to 2025 [4], underscoring the importance of international diversification. Dollarama’s geographic expansion mitigates regional risks while tapping into markets with untapped discount retail potential.

Challenges and Opportunities

While Dollarama’s fundamentals are robust, near-term risks include supply chain disruptions and regulatory hurdles in international markets. Tariffs and tax complexities could pressure margins, particularly in Australia and Mexico. Additionally, the company’s reliance on low-price strategies may limit gross margin expansion if input costs remain elevated.

That said, Dollarama’s disciplined capital allocation and focus on operational efficiency provide a buffer. Its ability to adapt product mixes to local demand—such as introducing region-specific private-label items—demonstrates agility in a fragmented retail landscape.

Conclusion: A Case for Long-Term Confidence

National Bank’s price target reduction to $203 reflects a recalibration of short-term expectations rather than a fundamental shift in Dollarama’s growth trajectory. The company’s strong Q2 performance, coupled with its expansion plans and structural advantages in the discount retail sector, supports a long-term “Outperform” outlook. Investors should view the price target cut as an opportunity to reassess Dollarama’s value proposition in a market increasingly defined by value-driven consumption.

Source:
[1] Earnings call transcript: Dollarama Q2 2025 beats EPS forecast, stock dips [https://www.investing.com/news/transcripts/earnings-call-transcript-dollarama-q2-2025-beats-eps-forecast-stock-dips-93CH-4213056]
[2] DOLLARAMA REPORTS FISCAL 2026 SECOND QUARTER RESULTS [https://www.prnewswire.com/news-releases/dollarama-reports-fiscal-2026-second-quarter-results-302539479.html]
[3] Top Retail Trends in 2025: Discount Formats and Social Commerce Drive Growth [https://www.euromonitor.com/article/top-retail-trends-in-2025-discount-formats-and-social-commerce-drive-growth]
[4] Discount Department Stores in the US industry analysis [https://www.ibisworld.com/united-states/industry/discount-department-stores/4235/]