The Canadian Investor - The Battle of the Dollar Stores: Dollarama vs. Dollar Tree

Episode Date: July 14, 2025

In this episode, we compare two major dollar stores, Dollar Tree and Dollarama. We break them down to see which one stands out as the better business and long-term investment. We break down Dollar Tree’s recent decision to sell off its struggling Family Dollar segment, analyze key financial metrics like margins, free cash flow, and valuation, and contrast that with Dollarama’s performance and business model. From store growth to customer trends, we dig into what sets these two retailers apart and which one looks more compelling going forward. Tickers of stocks discussed: DOL.TO, DLTR Get your TSX Meetup tickets here! Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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that it's a business. Just my reminder to people who own safe Google's, don't be surprised when there's a cycle. If there's uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. Welcome back to the Canadian Investor Podcast. I am back with Dan Kent. quite some time.

Welcome back to the Canadian Investor Podcast. I am back with Dan Kent. We have another episode where we'll be comparing two businesses that have pretty much identical or similar businesses, I would say. In this case, it will be Dollarama and Dollar Tree. So you'll be mostly doing Dollarama. I'll be doing Dollar Tree. For those not familiar, Dollar Tree is a dollar'll be mostly doing Dollarama. I'll be doing Dollar Tree for those not familiar.

Dollar Tree is a dollar store chain in the US. So it'll be interesting. We had a lot of good feedback from the last episode we did from Canadian National Oil and Canadian Pacific. I guess Canadian Pacific, Kansas City, Southern, but let's just say Canadian Pacific. So we decided to do that, especially as we're recording a bit in advance It's something that should remain pretty good for a little while kind of evergreen content Of course things can change with earnings ever so slightly But the gist of what we're talking about will likely not change for the foreseeable future So pretty excited to do this one with you

Yeah, dollarama is a very Popular stock right now. I mean for good reason and there's really no, you know, it'd probably be better to do a Canadian to Canadian comparison, but there's really no Canadian competitor for Dollarama. They're just killing it. I mean Dollar Tree is in Canada as well. And the only reason I know this is we have we have one in the town.

I'm in but yeah, we have some too in on. Yeah. So they are they're a Canadian operator but Dollarama definitely has the lion's share of the Canadian market segment yeah yeah exactly and so we'll start off we'll kind of go back and forth so I'll start off with Dollar Tree here so in terms of what it looks like you have a market cap of right around 21 billion USD they don't currently play currently pay a dividend and the CEO is Michael Creeden who has been there since 2024. So pretty recent CEO.

There's been the change of a few CEOs in the last few years as well. The business, like I said, is a dollar store business. It is trading at a pretty reasonable valuation I would say. We'll talk a bit more about valuation down the line here. They have two main brands Dollar Tree and Family Dollar. However, in March they announced that they had entered into an agreement to sell their Family Dollar business to two private equity firms for a bit more than a billion dollars. That is a massive discount to what they paid back in 2015 to acquire Family Dollar.

I think they had paid like something close to, I can't remember, but about 10 billion here. I'm trying to look if I had it for my notes. No, I don't have it, but that's okay. They had paid 9 billion. Okay, there you go. I was- Huge, huge loss.

Yeah. Exactly. Huge haas, massive hit. Kind of weird that they weren't able to make it worse, but again, it's a massive discount to what they bought in. Like you mentioned, they operate both in the US, but also in Canada. Family Dollar, look, this what happened, it was bought, like I said, was not going going well they did a strategic review of the Family Dollar segment or business in 2023. Following that they decided to close 695 Family Dollar stores. They also took a $1.4 billion dollar impairment hit related to that Family Dollar brand in

2024. And essentially they've Family Dollar has struggled with sales in the last few years and that's why they decided to do the strategic review. They closed some stores as well. So they close a bunch of stores for Family Dollar. They have been opening some stores on the Dollar Tree brand, but Family Dollar, as you can see here for our joint TCI subscribers. You'll see that they've really closed quite a bit. It peaked at $83.59 back in February of 2024 and now they're looking at just slightly less than $7,600 stores.

So close $7,800 stores stores since so you can see that they're already trying to make some changes by the end of the day probably doesn't matter anymore because the transaction will be closed I believe at some point this summer from what they were saying yeah that's definitely a big hit in terms of you know a loss over what a 10-year period you want me to dig I guess I'll dig into Dollarama and kind of go on the flip side of acquisitions, one that's done very well for Dollarama.

So $52 billion Canadian market cap. I mean, a lot of this has been realized over the last few years. In terms of a dividend, it's small yielding, but consistently growing. I think they've grown the dividend for for it's at least a decade straight. I mean, it's primarily small yielding because of the large run up in share price. The CEO is Neil Rossi.

He's been there since 2016 as CEO, but he's been with Dollarama for a very long time. I think it was the early 2000s. He's been with the business since. And you know, Dollarama in terms of the core business, they used to be one of those dollar only discount stores, which I think Dollar Tree still does like to a certain extent, they're definitely like the cheaper store. They haven't really adopted the higher priced items yet. They still have them, but the rollout's been later. And I do actually remember people being very enraged when Dollarama started. They went from like that dollar, dollar 25, dollar 50 store to items being four dollars

plus. But I mean, it's largely faded now, especially the inflation over the last few years. Some of the stuff, four or five dollars is a bargain. Yeah. Just go back to the episode where we talked about teaching teenagers about investing and money and the chart I picked up saying what you could buy with a dollar back in the nine early 1900s versus today. Like at the end of the day, it's inflation. Yeah. Like a dollar is not worth today.

Well, it was 15, 20 years ago. It's just perfectly normal that there's going to be less and less stuff that's available for a dollar unless you just like start shrinking and shrinking the packaging and make it like tinier and tinier. Yeah and the thing is, Dollarama was doing this but other stores were as well. I mean it wasn't just an isolated incident, but they focus on limited inventory. And I think this actually serves them very well. So you'll often only see a single brand of a particular item inside its stores. Like you might go to a place like Walmart and you'll see like 20 different,

I don't know, floor cleaners or something like Dollarama, very limited inventory. And this actually, you know, it works well. It's worked well for a very long inventory. And this actually, you know, it works well. It's worked well for a very long time. And they have a dominant share of the dollar store market in Canada. So it's it's above 50 percent. So they're a majority market shareholder, which is. And considering the fact they have so much growth, potential growth, it's it's pretty impressive. I mean,

they have a very good ability to kind of enter smaller towns and areas where, you know, many franchises don't even consider entering because the target market is too small. They've pretty much done this to perfection. It's kind of sad in the fact that they do take, you know, a lot of these smaller towns have like single owner dollar stores, like, you know, non-franchise, the like single owner dollar stores, like, you know, non franchise. The dollar am is kind of come in and put them out of business. But I mean, I guess this is just kind of the way it goes in some situations. I do believe they acquire them and rebrand them and they simplify their store model as well.

So you don't have many stores that are different than others. And what I mean by this is if, you know, there's a wide variety of different types of Walmarts, you might get the super centers, or you might get like the scale back simple stores like Dollarama is just the same across the board. You know, the square footage might vary, but overall they sell pretty much the exact same thing in every single store you go to.

And despite having a 50% market share, there's still a ton of room for expansion. So in the US, which would be, you know, Dollar Tree's primary market, there's a dollar store on average for every 10,000 people. In Canada, it sits at 20,000. And in addition to this, the company sells a lot of private label items are just completely unbranded items. So obviously they're cheaper, which ultimately keeps margins high and keeps prices down for consumers. And in terms of, you know, acquisitions, and this would probably this would have come a little bit earlier than the family dollar situation, but they acquired a majority stake in Dollar City, which is a Latin American dollar store operator.

So at first, back in 2013, they entered like a licensing and partnership with the company back in 2013. So Dollarama essentially came in and kind of showed Dollar City, you know, how to operate a more profitable model. And there was an option for Dollarama to eventually take a stake in the company. I mean, I imagine they wanted to see if they could kind of, you know, improve the operations overall. And back in 2019, they exercise those call options and they purchase majority ownership 50.1% in dollar city. And in 2024, they bought 10% more of dollar city. So

that again is more Latin America, but and they do plan to expand into Mexico in 2026. And I mean, the partnership has worked out very well for Dollarama we're on the flip side the the family dollar situation hasn't really worked out all that well for for Dollar Tree. Yeah and maybe it's just them playing a wait-and-see approach with the US too right because there is a lot of competition it's not just Dollar Tree but you have Five Below that's kind of in that same same market too of kind of dollar store the five below is obviously with the name So you can figure out what it is

So that would make sense and when you look at the numbers here for Dollar Tree and we can kind of compare both You can let me know what the margin profile looks like but I have a decent idea for dollar Rama So if you're looking at gross margins for Dollar Tree, you're looking at 35, 36% and then operating margins are currently around 11.5, which I'm suspecting is much lower than Dollarama if I remember correctly. Yeah, Dollarama gross margins of 45%. So quite a bit higher there and then operating margins of 25%. So I mean, it's more than double than most all US operators. It's done very well. I think it has, you know, the best margins by quite a wide margin out of any dollar store

operator. Yeah, I mean, the good news for Dollar Tree is that the margins have been trending up in the past year. So probably a bit of as a result of that strategic review from Family Dollar. And I wouldn't be surprised if they actually kind of increase those margins a little bit. It really looks like, I don't know, it's kind of weird that something like they weren't able to make it work when it's they're both like dollar store is just a bit of a head scratcher but clearly they think it's better off to take the hit,

sell it off and store count has been increasing, like I mentioned when you look at the actual Dollar Tree brand, and that's what I'll be focusing more on it because, look, for all intents and purposes, they're even like segregating now the results from Family Dollar because it's being held for sale. But if you're looking at Dollar Tree, the store count has been increasing at a decent clip.

It's been increasing at a rate about 4.3% every year. So it went from having a bit more than 6,000 stores in 2017 and now surpassing 9,000. So definitely growing the network here. And like I mentioned, Family Dollar, that peaked in 2024. So clearly they're winding down some stores, but again, doesn't really matter anymore because it's being held for sale. Want to buy a stock, but don't want to shell out

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sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the App Store and I'll see you there. In terms of Dollarama, what's their store account looking like and do you have a breakdown by chance for a dollar city as well? No, I don't have the dollar city breakdown, but Dollarama, they, so in 2020 they had 1300 stores, 2025 they're going to have 1650. So expansion is slowing a bit, but they also, you know, in their guidance, they are kind of ramping up expansion.

So they typically open, you know, 60 ish stores a year. Yeah, it looks about right on the, on the joint TCI there. They have the store count. So you're looking at anywhere from 60 to 70 stores a year. And now they're they're planning to open moving forward over 80 a year. So they're definitely upping that a bit. But it's in terms of an overall, you know, store perspective, it's much smaller than something like Dollar Tree.

But it's also, you know, there's a lot less competition again here in Canada and obviously Canada, if you consider the fact that they're what 10% of the population of the United States, at least on their Canadian arm, like it does make sense. There's not gonna be as much room for them to open stores, at least profitable stores, so I wouldn't take the like just bottom line store accounts of these companies as any sort of indication I mean Dollarama just is serving kind of a much smaller market. Yeah and when you start looking at profitability like look Dollar Tree is still a profitable business their net

income was 343 million for the most recent quarter which actually was higher than last year during the same quarter, which is pretty interesting since they've stopped adding the results from Family Dollar since it was being held up for sale. So clearly it was weighing on profitability. In terms of free cash flow, it doesn't look too bad here. And I know it doesn't look as good and I know you'll talk about it for Dollarama, but it doesn't look all that bad. They've always been free cash flow positive,

at least since 2016. So it's been better in recent years, actually bottom in 2022, 408 million for the year. And then the last few years, it's hovering around 14, 1500. So definitely generating some free cash flow, which is something you'd like to see for a company like that.

It's not as nice as Dollarama, which I'm sure you'll talk about in terms of profitability. Yeah. So Dollarama on a free cash flow on a trailing 12 month basis sits at around 1.45 billion. So on a constant currency basis, it's around 1.1 in US dollars versus dollar cities, 1.4 billion. But the key difference here is Dollar Tree generates triple the revenue. So, you know, 300 million. So what would that be? 1.4. You're looking at like maybe 25% less free cash flow, but one third the revenue. So this should give you an idea

of how efficient Dollarama is versus Dollar Tree. I mean, I think it's just obviously those operating margins when they're that much higher, obviously the company is going to be that much more profitable. And I think it, you know, the main element here, I think is competition. Like Dollarama has very little competition here in Canada.

And I guess the other element there is, is there the potential for more competition? I would say, I mean, as we mentioned, like Dollar City's, they do exist, or sorry, Dollar Tree, they do exist here in Canada. I mean, I don't think there's too many US dollar store operators that are like aggressively expanding in Canada. But as for right now, I mean, they're you know, the lack of competition and just the overall efficiency of the company has made it you know, it generates a ton of free cash flow relative to the revenue, it turns out. Yeah, well, because if you're looking at free cash flow margin, right, that's what you want to look at.

So you're looking here at around 22 percent for Dollarama and Dollar Tree. You're looking around like 70 percent. Yeah. So that what I mean, if you looked at Dollarama to like pre pandemic, I think a lot of this was tailwinds from the shift in consumer spending, though, as well. Like you can see from 2023 and beyond, it just it launched. And I think that's mostly because, you know, traffic 2023 and beyond it just it launched and I think that's mostly because you know traffic into the stores has just skyrocketed. But even before that I mean

they were still looking at free cash flow margins that were doubled that of what it currently is for a Dollar Tree so still still doing good. In terms of competition and expansion for Dollarama what's good in terms of competition and expansion for dollarama what's i do wonder for retailer and we did not put this in our notes but it'll be interesting to hear what you have to say but remember the target expansion yeah it didn't last and i do wonder how because target is more of a discount store as well and how that flopped like i wonder how much that is a cautionary tale for US retailers because they are not quite obviously the same market as a Target because clearly there's more expensive,

you can buy TVs, you can buy all kinds of stuff at Target, but it may be something that US retailers that would potentially want to disrupt a dollar I must say, you know what? We're not sure we saw the target experience what about 10 years ago at this point roughly. We're not sure if we want to take that gamble for a market that's as small as the Canadian market. Yeah, I mean the target the target situation was I'm pretty sure it was like a borderline disaster.

Oh yeah, disaster, yeah. Yeah, so the shelves were half empty, like people were pumped and then like you got in, they really didn't do a great job. I mean Nordstrom probably did a better job of expanding in Canada, but even them, they're out and obviously it's a completely different market, but they did a more, I think systematic approach where Target tried to open, I think a bunch of stores at the same time and didn't have the proper supply chain. 133. Yeah. So they, they opened 133 stores. I don't know how long it lasted.

I know there was a pretty sure there was one that was relatively close to me. It didn't, I mean, it didn't do very well. And they ended up closing all 133 stores with a 2.1 billion dollar operating loss. So, I mean, that's definitely the case. Like it could be the case. Like a lot of these U.S. companies don't really expand to Canada. First off, they, you know, they're used to operating in the U.S. I mean, I know I've been to, like, I don't shop at Dollarama or Dollar Tree very much, but I have been to both and Dollarama is miles ahead of the Dollar Tree in my area. So it'll be interesting. I mean, when you have a company

that owns 50% of the market share, obviously, you know, if you're sitting there, there could be opportunity. Obviously, there's only one major player. so there is the potential for disruption there. But do you want to lay out the capital to do so when there's been... I'm sure Target's not the only example. It's probably the only one I can think of off the top of my head, a US company that's come in and kind of bombed, but it's definitely a risk. Yeah.

And then in terms of if we look at Free again free casserole per share has been doing pretty well for For Dollar Tree here So a lot of it was just because they've done quite a bit of share buybacks over the the last little while So they've repurchased at least 400 million worth of share every single year since 2021 So the free casserole per share has been doing quite well for that reason. The debt, they have roughly 8 billion in total debt on the balance sheet, which is totally manageable.

I mean, they have an interest coverage ratio when using EBITDA that is 20 times. So very much, you know, not an issue here. And they also have about 1 billion in cash on the balance sheet. Yeah. So Dollarama from like 2015 to 2020, I believe they issued a lot of a lot of shares or at least didn't buy them back as aggressively, but they've been buying back a lot of shares in recent times. So since 2021, it has bought back 12.5% of shares. Debt really isn't that much of an issue at all either. So they have 2.2 billion in long-term debt with around 2.2 billion in annual EBITDA.

So not really an issue. Actually, they went flat from probably what? February 2019 to around 2021, but then they started kind of buying back shares more aggressively. And I mean, I would imagine it's because they've generated so much more free cashflow because of that consumer shift that they're able to continue to buy back shares. Now, there's an element there that the company is very, very expensive and they're still kind of buying back a lot of shares but too early to say whether or not. Wouldn't be the first company to do that.

Yeah. I mean, yeah, I don't know about the share buy back end. I mean, Dollarama is, we'll get the valuation later but it's very expensive. It's probably been one of the main reasons I've avoided it but again, I've been wrong for numerous years in that regard. The stocks gone up. Like it was trading at pretty much the same valuation like 18 months ago.

And it's, I'm pretty sure it's up like over a hundred percent since, so it's really difficult. I was trading pretty expensively even pre pandemic. Like I remember liking a lot of things and I've always been like, oh, it's a bit expensive for what you get. And clearly what do I know? Cause I would have been a home run if I bought that pre pandemic in terms of

comparable store sales competition. So it's very interesting because they do, they provide some stats here and comp sales have not been doing all that well, at least last year, the customer traffic, not quite sure how they measured that, but I guess it's the total consumers coming in the stores or making purchase. I'm not 100% sure. I would say it would have to be making a purchase. Making a purchase, huh? Because how else would they?

Yeah. Yeah, I guess if they have sensors. But anyway, so consumers traffic was very low single digits to almost flat last year. And then you're looking at the first quarter, it's looking pretty good for fiscal 2025. The first quarter they're looking at total same store sale of 5.4%. You're looking at 2.5% increase in customer traffic and the average ticket size up 2.8% and what's also notable is they were seeing actual declines last year in consumer discretionary and now they're seeing that going up 4.6%.

Consumables, which I guess are like non-discretionary items, those have seen some pretty robust sales over the last three, four years. So it's really been the discretionary stuff that's been weighing a bit more on the results there. Yeah, in terms of Dollarama, I mean, I don't have, I didn't get any sort of like average ticket or like foot traffic or anything, but in terms of same store sales, they have, they've slowed down quite a bit. I mean, I don't want to say the company struggled like before 2022, but it definitely didn't do as good. It was definitely, as I mentioned, the sky high inflation that caused some like gigantic tailwinds for the company. So they typically grow same store sales in the mid single digits. I don't know if you have a chart here. Yeah.

So you're talking about anywhere from like if you were to average out from 2013 to 2023, it would be around 5%. I would say would be a pretty good benchmark for that. But I mean post 2022, like everything changed. The company would go on to post seven straight quarters of double digit same store sales with numbers reaching as high as 17.1% in early 2023 on a quarterly basis.

Like it just absolutely skyrocketed because of that, again, the big shift, rapid inflation. I mean, people are looking to save money. So now Dollarama, they're probably back to that normalized level of 5% same store sales growth. But the thing is, is like, this is over and above what they were reporting in 2023 and 2024, which does make it very expensive, very impressive. I mean, that 5% is kind of, you

know, some people might look at that and not be overly impressed. But when you're mean that 5% is kind of, you know, some people might look at that and not be overly impressed, but when you're growing that 5% over the, you know, 17%, 15%, 11% you grew the year before, it would have been very easy for that shift to kind of fade away in Dollarama to report same store sale declines. I think we've seen that a bit with a lot of other retailers like Loblaw slowed down quite a bit, but Dollarama, I mean it's very impressive over the last couple years here. Yeah, yeah I know, very impressive for Dollarama at the end of the day compounds, right? Want to buy a stock but don't want to shell out hundreds

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Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time.

And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning, Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the youtubers and influencers and podcasters

that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. So guidance for 2025 for Dollar Tree. They're saying it's a three to 5% comparable sales growth. So definitely seeing some encouraging signs here. They're planning to open 400 new

stores. When it comes to the valuations, that's where I think they start. We start seeing the difference a whole lot. Yeah, separation. So they're trading around like 19 times trailing 12 months earnings or around 15 times the price of free cash flow. Obviously they're not growing super quickly. So, you know, you can maybe, it's a bit cheaper on that forward-looking basis. It's not the cheapest valuation for a retailer, but certainly it's definitely much cheaper than what you'd be paying for Dollarama. Yeah, Dollarama is very expensive. We're talking, I think it's is very expensive. We're talking, I think it's 36 X expected earnings. And in terms of free cash flows, 37 X trailing 12 month free cash flows.

And I mean, we're seeing big sentiment in the market in industries that appeal to discount shoppers or at least shoppers that are looking to save money. Because I bring up something like Costco. That's not necessarily like a discount shopping store, but it's a place that people go to, you know, try to buy more in bulk and save some money. And they're very similar in regards to Costco, because if you were to just look at these companies on face value, look at the numbers, I mean, they're growing at, you know, a 5% pace, but they're trading like more expensive than US tech companies growing at like triple those rates.

But yeah, I mean, it's just, I think it's kind of, you know, the expectation that possibly the trend will continue and probably just, you know, the most that these companies do have. I mean, I, I plug some basic, you know, mid single digit growth numbers into fiscal AIs like Modeler and kept margins relatively steady for dollar RAM And I got a fair value of around a hundred and forty nine dollars, and it's currently trading around a hundred and ninety so But again like it same situation as last year and it's gone on to double so It's a bit difficult to markets obviously pricing these companies like the trend is going to definitely continue moving forward. And yeah, it's expensive, but it's not much more expensive than it was a year ago. And it's,

you know, as I mentioned, gone on to like double since then. So yeah, and I think there may be a shift to for investor demand in terms of having some more defensive plays, companies that should do well in a whole variety of macroeconomic environments. I think that's where you're probably seeing a little bit of shift with companies that were more focused on consumer discretionary being hit pretty hard. Obviously, you don't have to think very far if you just think about that. We talked about Nike recently, Lululemon, I know their clothing brand, but think about about BRP like all these things that are more consumer Discretionary regardless of what the cost is on the scale as a whole

They've been struggling a bit more and those consumer essentials have been doing definitely better I mean you can just think about I think LVMH has been struggling to the luxury Louis Vuitton. Anyway, ZLVMH, I won't try to say all the names. I guess I'll finish here for Dollar Tree, say just some quick notes. I was listening to the recent earnings call. They said that Q1 were actually better than expected,

like I referenced in terms of comp sales. They said they added 2.6 million new customer in Q1. Again, that is one part that, like are they new customers or like total customers making purchases? Anyways, it doesn't matter, but that's the number they gave. They also said that customer who visited Dollar Trees at least three times during the quarter increased 9%.

Again, not quite sure how you, like do they have facial recognition or maybe they have like a loyal, what's that? They're watching you. They're watching you or I guess maybe they have loyalty stuff I'm not quite sure but that's what they provided. They say increased consumer traffic is coming from all income cords

but they saw the most growth in high income customers. Customers are increasingly looking for value as their budget gets squeezed so a bit the same obviously the same kind of tailwinds that would see Dollarama would see what they're talking about it right now on their most recent calls. They have been working on plans to address a wide range of potential disruption in global trade, including tariffs. They have five primary ways of doing it to mitigating the impact, negotiating with suppliers, respeccing products, moving countries of origin where the products are being produced, dropping

non-economic items that don't make any more sense for their lineup, and expanding their multi-price capabilities. So I guess probably expanding beyond the $1, which would make a whole lot of sense. And they said they were able to offset about 90% of the first round of tariffs, although this was before liberation days. So it'll be interesting to see how they are able to offset when it's being felt more and more the tariffs. Because a lot of people were taking victory laps, right? With the US inflation figures, it wasn't impacted all that much by tariffs.

You saw hardcore Trump supporters saying, see, tariffs are not inflationary, and it's fine, we're not seeing the impact. Well, the reality is, it takes some time to see the impact, because you have these retailers or these companies making purchases and they're seeing that there could be some potential tariffs. So right, they actually load up and buy in advance. So it'll be interesting to see how they fare in the next couple quarters with those tariffs

and how much of an impact it has on their margins or how much of an impact it has on revenues if they have to increase their prices, for example. Yeah, and obviously, Dollarama being in Canada is not going to be at as large of a risk, I mean, unless there's some sort of, you know, issues with Canada and China. But they did mention that- Well, it could be also the US making kind of pressuring Canada yeah any trade deal with Canada would have to have some kind of higher tariffs on certain countries certain obvious injuries yeah certain countries with the first one coming to mind being China yeah and dollar amma does source I don't

think they source a ton of their stuff from the US but they do source you know double-digit percentage of items from the US. So, I mean, you could have the main risk there that some of the counter tariffs on some of the products it does get from there could be, could be, you know, exposed to tariffs, but they also did mention, you know, tariffs will have some sort of a bit of a headwind, but they they kind of mentioned that, you know, the tailwinds they're facing right now are much, much greater than the overall headwinds that could see they could see from, you know, tariffs in general. And the one thing I'll mention, I guess, is they're they're they mentioned on the call

that they're ramping up their capital expenditures. So they were originally expected to spend around 260 million, but they're kind of bumping that up to 300 million, possibly 330 million. And I know they're spending a bunch of money expanding Western Canada, like the logistics there, probably to and, you know, improve, you know, the overall supply chain there, which could ultimately boost margins as well. I believe that's going to be rolled out at the end of 2027 or something like that. And in terms of, I know this is kind of back previously, but I did find those those dollar city like store expansions. So they, they have around 644

sales or stores stores right now. So that's in Columbia, Peru, El Salvador, Guatemala. And I mentioned they do plan to roll out. I think they're just piloting Mexico over the next, I believe it be this year. And I mean, Dollar City has done very well for them. I mean, they have revenue is up 13% net income up 52%. Same store sales positive. And it's been a very strong acquisition. And I mean, store counts continuing to go up They added 12 on the quarter. So not not a huge amount, but they've got a lot of promise in that area

Especially, I mean mexico is pretty big country probably a relatively untapped market. So that should uh, Should continue to be an added tailwind as well. Yeah, and one thing where a dollar Rama really outperforms another thing that it really Performs dollar tree. Let's say that way its return on invested capital. So they're looking at like 21% average over the last Five years and then dollar tree is sitting at seven point four percent So clearly dollar Rama the better capital allocator between the two companies here and I guess we'll finish here So which one would you own right if you had to start a position right now? I'll say my answer and then you because we didn't Didn't prepare this in advance. So to me, honestly, I may surprise some people

But if I were to think specifically investment I think Dollar Tree is likely to be the better investment between the two over the next five years Let's say just because I'm gonna say obviously doll Rama is the better business. I think that's hands down It's very hard to argue like all the numbers look way better for doll Rama But where it comes down to for me is just evaluation. I think a lot of investors are in Dalarama and they're saying it's a fantastic business. It's hard to disagree with them but when you're paying like 40 times earnings for a company that is not growing all that fast like it's going at a 5% clip per year, it just feels

like there's a lot of expectation in that valuation and I'm not quite sure how it ends up being a fantastic investment over the next five years where Dollar Tree, I mean it's rebounded a little bit over the last, you know, it's up like 40% or so recently over the last six months, pulling it up 33% over the last six months. So it's done quite well but you're still looking at I think a lot more upside if the management team in place really gets its stuff together even if they don't get close to the kind of margins and efficiency that we're seeing from Dollarama. Just the fact that the market is so much larger in the US. And if they can really bring back the business in line, maybe like bring it like, you know,

60% of what Dollarama is on most metrics. I think you'd be looking with a much better investment over the next five years. If I had to bet, that's what I would do. Yeah. Yeah. It's, it's very difficult to look at these two businesses and, you know, you're paying almost triple the price for a company like Dollarama. I don't know. This is tough for me.

I would have to see, you know, how much, you know, what was it? Family dollar actually, like, weighed on the results if they like completely divest out of that, like how they would do. I would probably buy Dollarama still. I mean, I've been pretty bullish on this entire podcast. That's just towards Dollarama. We should just put like a couple hundred dollars each in our portfolio.

You put to like, let's say you could buy a couple of shares and I'll buy, you know, the equivalent in Dollar Tree or whatever. See where we're at. Like we put a small amount, doesn't matter the amount we put, but we, we kind of put our money where our mouth is and look back in five years and see, see you did the best. I mean, it's, it's hard to argue against Dollar Tree being a bit of a contrarian play right now. I mean, it's down, it's down a lot of money from its highs in 2022. But I mean, Dollarama is just such the better operator at this point in time. It operates in a market with a fraction of the competition. There's a

lot of expansion available, like I had mentioned in Mexico, obviously, that's probably over the long term, probably over the next five or 10 years, because as I mentioned, they're just looking to pilot it next year. Yeah. But I mean, I would still buy Dollarama. Just, I mean, they're just a much more efficient company. As I mentioned, I mean, they generate the equivalent free cashflow on, well, not the equivalent. They're about, like I said, 25% lower,

but on a third of the revenue, they still have a ton of opportunity to expand in Canada. Yeah, I don't know. No, it's a, if it wasn't for the Latin America dollar city, I think for me, it would be like no brainer Dollar Tree because then there's just very limited growth, but it really seems like dollar city is, you know, it's doing very well. And I don't know to the extent that there's competition over there, but it feels like there would be less competition there than the US. So they're operating in markets where they do have an upper hand

compared to competitors versus Dollar Tree. There's a lot of competition, not just. And obviously you see that in Canada, too, but not just other dollar stores. Walmart is, you know, it's pretty big in the US. You have that in Canada, of course. I'm well aware that there's Walmarts in Canada, but there's just probably more competition overall in the US. So I guess that's the more bear case, but I don't know.

I feel like there's still more upside for Dollar Tree. That's the way I see it. I would say so too too, especially on on the tariff front. Like this company, it wasn't actually doing all that bad up until, you know, that March area. I mean, that that's the other thing, too. I don't know how much they source from from

China. I would imagine it's quite a bit of items that they get get from China. So that's a completely other element, a complete other element. There is how hard they'll be hit by tariffs because I would have meant, as you had mentioned, I don't know, they probably front loaded a lot of the items in order to- I don't know if they did specifically.

I know a lot of companies would have, but I wouldn't be surprised if they did that. Yeah. Yeah. So there's the issue there that China and US relations are really not all that good, whereas Canada and China, you know, not as bad. So, I mean, if you had, you know, kind of stickier tariffs, it could see that, you know, you could see that impact margins overall. I don't know. I tend to go with the businesses that are just operating better despite but the valuation is so wide here that It's it's it would definitely be tempting to take like a contrarian play on on Dollar Tree

But I would still probably buy Dollarama Yeah, let let me put it this way. I would not be surprised if Dollar Tree out performs and I would not be surprised if Dollarama outperforms the other one. Like I would not be surprised with either outcome because Dollarama is clearly the better operator between the two so if it can continue to do that, continue with the expansion of Dollar City in Latin America and you know Canada as well, I can definitely see it outperforming Dollar Tree if everything goes well and I guess there's no contraction in the multiples.

I guess that's the biggest wild card there. Whereas Dollar Tree, I guess like the argument I made, the valuation is much lower. And if they can really, you know, just do things a bit better than they have been, I think it's not that hard to make the case for them being the better investment. But I think that's always goes down, right? When you're investing, I think it's just a reminder for people, yes, I tend to like to invest in good businesses and great businesses,

but they do come at a premium. And sometimes when you're paying too high of a premium, you're really impacting your per potential returns down the line. And I think it's really important for people to remember that because a really good company that you're overpaying with will not be a good investment. Yeah, exactly. Well, and I guess that like would make a good point here. Like if I were to buy one for the next year or two, it would probably be Dollar Tree. But if I were to just,

if I was planning to buy one of these and hold them for 10, 15, 20 years, I would have a very hard time choosing Dollar Tree over, over Dollarama. Because you know, like if Dollarama sees a slowdown, you might see it, you know, grow into a more historical valuation, but then probably continue to, to grow at a pretty good pace. Whereas for Dollar Tree, you're getting a company at $100 that was $153 right before those tariffs were announced. So yeah, I would not be surprised if Dollar Tree performed better over the next year or two,

but Dollarama would still be the business that I would hold over the next decade or a couple decades. Yeah. Yeah. It's definitely the biggest risk, right? It's multiple contraction from Dollarama. Because even if the company continues doing well, what if it starts trading at 25 to 30 P, which is not cheap per se for a dollar store, but it's a significant discount to

what it's currently trading at. So just food for thought for people. Some of the things to keep in mind at the end of the day investing is not black and white. It's just very great. There's a lot of different variables. You can make a case like we've talked about just now that I think you can make a strong case for either one of these companies as an investment to which one will perform better. So let us know what you think. Hopefully you like this comparison of both.

I know we got a lot of positive feedback from the CPKC, so hopefully we'll still get some feedback. I'm sure I'll get a little bit of hate mail because I chose the American company over the Canadian one. By the end of the day, I like to know try to think I don't try to vote with my heart or not I try to look at really purely as an investment case and I think again if I had to choose probably Dollar Tree just because of the upside but again be five years down the line I could be completely wrong so.

We'll have to revisit the episode. Yeah exactly I'll be happy to say that was wrong. People know if you've been listening to the podcast for a while, more than happy to say I was wrong on something, you know, I'm actually usually oftentimes more reluctant to take victory laps when I was right. So that's just my personality. Yeah, it's I mean, I think they're both good companies, especially with the tailwinds that they could have moving forward I just think there's a there's a bit more potential issues with with Dollar Tree Overall, so I mean, yeah, we'll see we'll see in the next year or two here. It's gonna be interesting. Yeah

Exactly. Well, I hope you enjoyed this episode and hope you're enjoying the start of the summer Like I said, we recorded this one a bit earlier, so we recorded it on July 2nd. You probably will hear it around mid-July. Just recording some episodes in advance so you don't miss any new content during the summer as we're trying to take a little bit of time off. Glad you were with us for the episode. We appreciate your support and we will be back next Monday or Thursday. I'm not quite sure which day we'll release The Canadian Investor podcast should not be construed as investment or financial advice. The hosts and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial

professional before making any financial or investment decisions.