Dollarama's ROIC Edge: The Secret to Canada's Discount Retail Dominance

In an era of retail sector turbulence, one metric quietly signals which companies are built to last: Return on Invested Capital (ROIC). For Dollarama (TSE:DOL), this measure of capital allocation efficiency has consistently outpaced rivals like Walmart (WMT) and Dollar Tree (DLTR), creating a sustainable competitive moat that few have recognized. Investors ignoring ROIC are missing the clearest indicator of Dollarama’s ability to compound value—and it’s time to act before the market catches on.

ROIC: The Metric That Reveals True Capital Alchemy

ROIC measures how effectively a company converts invested capital into profit. A higher ROIC means every dollar reinvested generates more earnings—a hallmark of durable competitive advantages. Let’s compare Dollarama to its peers:

• Dollarama: ROIC has averaged 28–31% since 2023, dipping slightly to 27% by late 2024 but still far outpacing peers.
• Walmart: ROIC improved but remains obscured in reported data, likely hovering around 12–15% due to higher capital intensity.
• Dollar Tree: Struggles with weak ROIC, hitting just 7.7% in early 2025—half Dollarama’s rate—due to poor capital deployment and underperforming stores.

Why Dollarama’s ROIC Dominates

Dollarama’s edge isn’t luck—it’s engineered through three pillars:

1. Pricing Power: The $1-$4 Moat

Dollarama’s rigid $1–4 pricing model forces unmatched cost discipline. By sourcing directly from 1,260 global vendors and prioritizing rail transport over costly trucking, it keeps logistics expenses low. Gross margins hit 46.8% in 2025, far above Dollar Tree’s 29.3%, thanks to:
- Vendor diversification: No single supplier accounts for more than 1% of purchases, avoiding disruption risks.
- Just-In-Time (JIT) inventory: Minimal overstocking ensures cash isn’t tied up in unused goods.

2. Store Optimization: Growth Without Overextension

Dollarama’s expansion is surgical. It added 65 stores in 2025 (accelerating to 70–80 in 2026) while maintaining 4.9% comparable sales growth—even as broader retail foot traffic waned. Key tactics:
- Prime locations: Stores in high-traffic Canadian neighborhoods drive 5.3% transaction growth.
- International dominance: Its Dollarcity subsidiary in Latin America grew net earnings by 72.5% in 2025, proving the model scales globally.

3. Supply Chain Resilience: Outthinking Disruptions

While Dollar Tree and Walmart grapple with inflation and labor costs, Dollarama’s supply chain is a fortress:
- Rail-first logistics: Reduces emissions and costs, with a $450M Calgary hub set to cut transit times further.
- Vendor partnerships: Ethical sourcing standards and long-term contracts ensure stable pricing, even during global shocks.

ROIC’s Implications: Dividends, Buybacks, and Undervaluation

Dollarama’s ROIC advantage isn’t just a vanity metric—it fuels shareholder returns:
- Dividend safety: A 21.7% EPS growth in 2025 supports its 1.8% dividend yield, far safer than Dollar Tree’s 0.6% payout.
- Buyback efficacy: The company spent $1.07B on buybacks in 2025, shrinking shares outstanding while maintaining growth.

Yet Dollarama trades at a 14.8x P/E, below its 5-year average of 17.2x, despite 14.8% revenue growth in 2025. This gap is a call to action:

Why Now is the Time to Act

The market has overlooked Dollarama’s ROIC-driven moat. Here’s why investors should pounce:
1. Recession resilience: Its discount model thrives when consumers cut spending elsewhere.
2. Global expansion: The $1.3B acquisition of Australia’s The Reject Shop (set to close in 2025) opens a new growth frontier.
3. ROIC stability: Even with capital employed rising 91% since 2019, ROIC remains double the industry average—a sign of reinvestment quality.

Final Word: ROIC Isn’t Just a Number—It’s a Roadmap

Dollarama’s ROIC advantage isn’t a fleeting blip. It’s the product of decades of discipline in pricing, expansion, and supply chain management. With a 27% ROIC in 2024 vs. Walmart’s likely 12–15% and Dollar Tree’s 7.7%, the choice is clear: Dollarama is the retail stock best positioned to compound value in the next decade.

Act now—before ROIC becomes the only thing retail investors talk about.