Canadian discount retailer Dollarama has raised its full-year sales outlook for its domestic operations after reporting another quarter of robust store traffic. Investors responded positively, sending shares up 3.3% to C$171.01 by mid-morning trading on Wednesday.
The company's fiscal second-quarter results, covering the period ended August 2, showed a 17.6% increase in revenue to C$2.03 billion. Canadian comparable-store sales climbed 5.4%, driven by a 3.7% rise in transactions and a 1.7% increase in average ticket size. Net earnings grew 8.7% to C$349.3 million, while diluted earnings per share rose 11.2% to C$1.29.
Management now expects Canadian comparable-store sales to grow between 4.0% and 4.5% for the full fiscal year, an upgrade from the previous range of 3.0% to 4.0%. The company also increased its planned net new store openings in Canada to 65-75, up from the prior 60-70.
Other Canadian guidance remained unchanged. Dollarama continues to forecast a gross margin of 45.0% to 45.5%, selling and administrative costs of 14.1% to 14.6% of sales, and capital spending of C$420 million to C$470 million. The revised same-store-sales range stands out as the most positive surprise, signaling that the company expects higher volumes without compromising its full-year margin targets.
The quarter was driven by strong sales of consumables and general merchandise, consistent with households trading down. However, management did not quantify how much of the traffic came from new customers or provide an inflation-adjusted sales figure. While a higher nominal ticket is encouraging, it does not by itself confirm market share gains.
The margin picture was more complex. Consolidated EBITDA rose 11.0% to C$653.0 million, but the margin contracted to 32.2% from 34.1% a year earlier. In contrast, Canada's EBITDA margin improved to 34.9% from 34.5%. The decline in the group margin is largely attributable to the full quarter contribution of Dollarama Australia, formerly The Reject Shop, which was acquired last year. The Australian business reduced group gross margin and selling-and-administrative expense performance by 110 basis points each, and cut diluted EPS by C$0.05.
During the quarter, Dollarama renovated 25 Australian stores and opened four new ones, bringing the network to 414 locations. However, only 60 stores have been converted to Dollarama's layout and fixtures, and all continue to operate under the legacy banner. The company's strategy is that conversions will eventually lift productivity, but there is a risk that the strong Canadian performance masks a slower and more expensive integration.
Capital allocation also drew attention. Dollarama spent C$300.4 million to repurchase 1.596 million shares at an average price of C$188.23, well above Wednesday's market price of C$171.01. The board maintained the quarterly dividend at C$0.12.
Looking ahead, the investment thesis hinges on two fronts: Canadian traffic and margins must support the upgraded outlook, while Australia needs to narrow its profitability gap as more stores are renovated. The next report will be judged less on consolidated revenue growth and more on whether the margin split begins to close.
