Dollarama's Pricing Power and Scalability Fuel Resilience in Retail's Rough Seas

The retail sector is a stormy sea these days—trade wars, inflation, and consumer caution are sinking many ships. But one vessel is not just staying afloat—it's accelerating. I'm talking about Dollarama (DOL), the Canadian discount retail giant that's proving you can't put a price tag on value. With Q1 2025 results that crushed expectations, Dollarama isn't just surviving; it's expanding its dominance. Let's dive into why this stock is a must-watch for investors seeking stability in chaos.

The Pricing Fort Knox: Why $1 Still Wins

Inflation is the retail world's greatest disruptor, but Dollarama's secret sauce is its relentless commitment to price stability. While competitors like Walmart or Target are forced to raise prices or shrink packaging, Dollarama has kept its “$1 or less” mantra intact for over a decade. How? By locking in suppliers, optimizing inventory, and leveraging its massive scale.

The Q1 results confirm this strategy's power: comparable store sales rose 5.6%, driven by a 8.7% jump in customer transactions. Even as the average transaction size dipped slightly, the sheer volume of shoppers proves that Canadians are prioritizing affordability.

This chart tells the story: while U.S. discounters have seen margins squeezed to 8-12%, Dollarama's Q1 EBITDA margin hit 29.7%, a 140 basis point improvement over 2024. That's not just a moat—it's a moat with alligators.

Scalability on Steroids: Stores, Stores, and More Stores

Dollarama's domestic expansion has been a textbook case of smart growth. The company added 18 net new stores in Q1, bringing its Canadian count to 1,569. But here's the kicker: management raised its long-term store target to 2,400-2,500 in Canada from the previous 2,000-2,200. With a population of 38 million, that means one store for every 15,000 Canadians—a density that still leaves room to grow.

But the real fireworks are south of the border. Through its Dollarcity venture, Dollarama now owns 60.1% of a chain that's already hit 547 stores across Colombia, Guatemala, El Salvador, and Peru. The new Mexico launch is a game-changer: this $1.4 trillion economy with 126 million people offers a market 3x the size of Canada.

Notice how the red line (actual stores) has already surpassed the green line (old target)? By 2031, Dollarcity aims for 1,050 stores—a 96% increase from today. That's the kind of scalability that turns a good stock into a generational winner.

The Defensive Play That's Offensively Strong

Here's why Dollarama is a must-own defensive retail stock:
1. Margin Resilience: Even with tariffs and labor costs, Q1 operating margin hit 22.9%, up from 21.4% last year. That's cash machine efficiency.
2. Debt Discipline: Net debt-to-EBITDA remains under 2x, a conservative ratio that gives management flexibility to buy back shares ($145.5M this quarter alone) and raise dividends (up 29% year-over-year).
3. Macro Hedge: When consumers tighten budgets, they don't cut $1 items—they buy more of them. That's why Dollarama's sales rose 8.6% in a quarter when big-box retailers like Target saw comparable sales drop.

The Risks? Manageable

Yes, trade wars and economic downturns loom. But Dollarama's strategy is airtight:
- Localized Sourcing: 70% of inventory is Canadian-made, reducing tariff exposure.
- Franchise Model in LatAm: Dollarcity's joint-venture structure limits capital risks while capturing 60%+ equity.
- Dividend Shield: The 6.5% dividend yield (post-latest hike) acts as a cushion during volatility.

Buy Now? Absolutely.

At current prices (~$120/share), Dollarama trades at 23x forward earnings—a premium to its 15x historical average, but justified by its growth thesis. I'd target a $150 price by 2026 if it hits store targets and maintains margin expansion.

This chart shows DOL (blue) outperforming the index (gray) by 40% since 2023. With LatAm expansion just getting legs, this could be the start of a multi-year rally.

Final Verdict: Full Speed Ahead

Dollarama isn't just surviving—it's thriving by doing what it does best: making $1 feel like $100. In a world where “cheap” is the new luxury, this stock is the ultimate contrarian play. Buy the dips, hold the dividend, and let Dollarama's pricing power and global ambitions carry you through the storm.

Action Plan: Accumulate on weakness below $115. Set a 12-month target of $140 and a 3-year view of $170.

Disclosure: This analysis is for informational purposes only and not a recommendation for any specific investment action.