Dollarama Inc. Q3 2026 Earnings: Growth Momentum Amid Margin Management Challenges

Dollarama's Q3 2026 top line grew substantially, with revenue rising 21.15% YoY to $1.36 billion according to the earnings report. This strong sales momentum was driven partly by domestic comparable store growth of 6.0%, alongside expansion into new markets like Australia as reported in the Q3 results. However, a puzzling divergence emerged in bottom-line results. One source reported diluted earnings per share climbing 19.4% to $1.17, while another documented diluted EPS falling sharply by 15.31% to $0.83. This stark contrast requires careful reconciliation.

The discrepancy likely stems from differing definitions or reporting periods. The figure showing EPS growth ($1.17) also cited net earnings increasing 16.6% to $321.7 million, suggesting a robust profitability trend. Conversely, the lower EPS figure ($0.83) appeared alongside operating profit rising 25.41% to $343.3 million, indicating solid operational performance but potentially affected by other factors like share count or non-recurring items not detailed in the brief reports.

Both reports agree on significant cash flow generation. Operating cash flow reached $310.1 million, yet cash reserves fell 28% to $146.6 million. This implies substantial capital deployment. The source reporting the higher EPS also mentioned a large share repurchase program, spending $484.6 million to buy back 2.6 million shares. This aggressive buyback likely contributed to the EPS increase reported there but would also explain the cash reserve decline noted in the other source, despite strong operating cash flow. The company's focus on returning capital to shareholders, alongside ongoing international expansion, appears to be the primary driver behind the cash balance reduction.

Penetration & Expansion Engine

Dollarama's growth story hinges on two engines: solid domestic momentum and aggressive international scaling. Canadian sales grew steadily, with comparable store sales rising 6.0% in Q3 2026 as per the Q3 results. This domestic strength supported margin expansion, with the Canadian segment now targeting a gross margin of 45.0–45.5% for the year. However, the cash burn required to fund this expansion was stark, as the company's cash reserves fell 28% to $146.6 million according to the earnings report, despite generating $310.1 million in operating cash flow.

International expansion is accelerating rapidly. The company opened 401 new stores in Australia during the quarter, while also adding 25 net new stores in its Latin American chain, Dollarcity. This global footprint push comes alongside growing institutional backing, with shares acquired by 50 firms including Morgan Stanley and Osaic Holdings. While the scale of new openings is impressive, the simultaneous drop in cash reserves raises questions about the sustainability of this pace and the pressure on near-term liquidity.

Margin Management & Future Pressure Points

The company's latest outlook shows cautious optimism tempered by emerging pressure points. Dollarama has raised its Canadian segment guidance to 4.2–4.7% comparable sales growth alongside a 45.0–45.5% gross margin range, reflecting confidence in sustained consumer demand as reported in the Q3 results. However, this upbeat narrative is balanced by a notable divergence in profitability metrics. While operating profit rose 25.41% YoY to $343.3 million, diluted EPS fell sharply by 15.31% to $0.83 according to the earnings report-a discrepancy suggesting margin compression is offsetting revenue gains.

Capital expenditure remains elevated as the firm doubles down on expansion. Spending jumped 25.51% YoY to $40.9 million, primarily funding international growth including Australian and Latin American markets. This aggressive investment occurs despite a 28% drop in cash reserves to $146.6 million, even as $310.1 million flowed through operations. The cash burn raises questions about liquidity buffers against macroeconomic headwinds.

Execution risks are mounting. New store rollouts-25 net additions in Dollarcity and six in Australia-could strain supply chain logistics and inventory management. If rising input costs or softer consumer spending persist, the 45.0–45.5% gross margin target may prove ambitious. Institutional investors' continued buying (50 firms added shares) reflects faith in scalability, but the EPS decline and cash position warrant monitoring as key downside signals.

Investor Sentiment & Long-Term Thesis

Building on the robust operational results from recent quarters, investor sentiment for Dollarama shows continued optimism. Institutional ownership is expanding, with 50 firms increasing their stakes in the company according to the earnings report. Analysts are also upbeat, with Scotiabank and RBC Capital issuing "Outperform" ratings and setting a median price target of $208.5.

The long-term thesis for Dollarama is anchored in its domestic strength and expansion efforts. Canadian comparable store sales rose 6.0% in the latest quarter as reported in the Q3 results, indicating solid penetration in its core market. International growth is accelerating, with 401 new Australian stores added and net openings of 25 in Dollarcity and 6 in Australia.

However, risks remain. The 28% drop in cash reserves to $146.6 million signals potential liquidity concerns, especially amid ongoing capital spending increases. Expansion efforts, while promising, carry execution risks that could strain resources if not managed carefully. These factors warrant caution despite the positive momentum.