Tariffs have an annoying habit of arriving at the border and eventually showing up at the cash register. Canada’s latest retaliatory tariffs cover roughly $20 billion of U.S. goods, while the trade dispute has expanded across steel, autos and other products. Bank of Canada Governor Tiff Macklem recently warned that the newest U.S. tariffs could push Canadian fourth-quarter growth below 1%.
For businesses, the problem is straightforward. Imported products become more expensive, supply chains get shuffled, and passing every extra dollar onto customers risks sending them elsewhere. That makes pricing power rather valuable.
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Not every price increase is equal
Pricing power doesn’t simply mean charging more. A company needs customers willing to keep buying after the price changes. That’s much easier when the product is necessary, difficult to replace, or still looks inexpensive compared with alternatives.
Smaller retailers can get trapped between rising wholesale costs and customers unwilling to pay more. Large companies have another weapon: scale. They can negotiate with suppliers, spread logistics costs across more stores, adjust the product mix and selectively increase prices rather than slapping another dollar onto everything.
Those advantages can become particularly useful during a stock market correction when investors sometimes sell businesses facing temporary cost pressure without considering which ones can actually defend margins. Dollarama (TSX: DOL) belongs in that second group.
Cheap products, powerful model
Dollarama operates 1,734 Canadian stores selling consumables, household products and general merchandise at relatively low fixed price points. Its advantage isn’t that customers enjoy higher prices. Instead, Dollarama has enormous sourcing scale, a frequently refreshed product assortment and enough price points to manage increases without destroying its value proposition.
Management also hedges most forecasted U.S.-dollar merchandise purchases, providing some protection from currency swings. The latest quarter provided a useful stress test. Canadian comparable-store sales increased 5.4%, including 3.7% growth in transactions and 1.7% growth in the average purchase. Even better, Canadian gross margin increased slightly to 45.7% from 45.6%.
Guidance goes higher
That performance convinced management to raise its fiscal 2027 Canadian comparable-store-sales outlook to between 4% and 4.5%, up from 3% to 4%. Dollarama also increased its expected Canadian store openings to between 65 and 75.
Meanwhile, international expansion is adding another leg. Dollarcity sales jumped 30% during its latest quarter as the network reached 781 stores across Latin America and Mexico.
That growth makes Dollarama more than a defensive Canadian retailer. It increasingly resembles one of those Canadian blue-chip stocks that can keep finding another place to deploy capital. However, the share price reflects quite a bit of that optimism.
A magnificent price tag
Dollarama recently traded around $183.40, or almost 37 times trailing earnings. That’s a serious valuation for a retailer, even one this good. There’s also Australia. Dollarama is transforming The Reject Shop business it acquired there, and management still expects the Australian segment to record a net loss this fiscal year.
Tariffs, currencies, and sourcing disruptions could also eventually overpower some of Dollarama’s margin tools. Pricing power has limits when customers visit specifically because things are cheap. Then again, the long-term record explains why investors tolerate the valuation.
Split-adjusted Dollarama shares were around $32.37 in October 2016. Today, they are roughly $183, representing annualized growth of about 18.9%.
Those future prices simply extend the historical growth rate and are not forecasts. At today’s valuation, expecting another identical decade would be ambitious.
Bottom line
Tariffs won’t magically become good news for Dollarama. Higher sourcing costs can still hurt. Yet the advantage is having several ways to respond before profits take the full hit. This comes through scale, sourcing, product refreshes, currency hedges and carefully managed pricing.
With Canadian traffic still rising and margins holding up, Dollarama has already shown something many tariff-exposed businesses would dearly like to borrow. That’s the ability to ask customers for a little more without watching them walk out the door.
