Dollarama Beats Q1; Geopolitical Risk Clouds Margin Outlook

Dollarama reported a 5.6% same-store sales gain in Canada for its fiscal first quarter, above the 3–4% full-year guidance. Total sales rose 21.4% to nearly $1.9 billion. Diluted EPS hit $1.11, up 13.3% from a year ago.

The company kept its full-year gross margin guidance at 45% to 45.5%. CFO Patrick Boye said that number assumes a quick end to the Middle East conflict and a normalization of fuel prices. If those do not materialize, the guidance could be at risk.

Q1 gross margin improved to 45% from 44.2% last year, helped by lower logistics costs. Boye said the quarter did not yet reflect higher fuel costs tied to the conflict. He expects supply chain pressures to build in the second half. “If the conflict and fuel prices increase and drag on for a much longer period, we may need to revise our assumptions,” Boye told analysts.

The Australia transformation represents another cost headwind this year. Dollarama is renovating 60 to 80 of its 410 Australian stores and transitioning product assortment from The Reject Shop labels to Dollarama-sourced goods. CEO Neil Rossi said half of imported products should be in stores by year-end. The changeover will weigh on sales in Q2 and Q3, management said. Q1 gross margin in Australia, excluding the Dollarcity option gain, ran below the corporate average. The company expects the investment to pay off over the four-year renovation cycle.

Dollarcity continued to perform. The Latin American operation posted net earnings of $51.2 million, up 27%. Same-store sales trends mirrored Canada, management said. Mexico added two stores in early Q2 after ending Q1 at 11. The country remains in investment mode through fiscal 2027.

The Canadian core remains strong. The 5.6% same-store sales gain reflected a recovery from weather-disrupted Q4 and continued demand for value. Rossi said traffic and basket both grew. The company opened 28 net new stores in Q1 and is on track for 60 to 70 for the year. The new logistics hub in Western Canada remains on schedule for late 2027.

Shareholder returns continued. Dollarama bought back nearly 2 million shares for $339 million during the quarter. The board approved a $0.12 quarterly dividend.

The competitive environment varies by market. Rossi said the Australian market has become more competitive than it was a couple of years ago. In Canada, price gaps versus competitors have not changed materially. The company's approach remains consistent: best relative value and store execution.

The biggest risk between now and the next report is the geopolitical assumption. If the Middle East conflict persists, fuel costs will rise and supply chain friction will increase. Dollarama has tools to mitigate some of the pressure: direct sourcing, product mix shifts, price adjustments. Boye was clear that the margin guidance depends on a short conflict. The Q2 report, expected in September, will show whether that assumption holds.