Bargains Among Discount Stores: Anxious Consumers Trading Down
Suburban shopping malls in Canada never recovered from the pandemic. Thanks largely to Amazon, Walmart and Costco, six years after COVID, there is still plenty of room for your car in the parking lots of many suburban malls, often adjacent to the former Hudson’s Bay store or other absent anchor tenant. The discount stores, however, are crowded.
Inflation, unemployment and consumer confidence have always had a big influence on sales in discount stores, and current conditions are a plus for the discounters. Grocery prices in Canada rose by 3.5% in 2025, up from 2.2% in 2024, with notable increases in the price of coffee, beef and oranges.1 To make matters worse, Canadian unemployment rose to 6.8% in December, with employment up by just 8,200 jobs.2
Consumer confidence in Canada remains “gripped in neutrality,” and Canadians are two-and one-half times more likely to believe that our economy will get weaker rather than stronger in the next six months, says a recent Bloomberg-Nanos report.3
Rising grocery prices and job insecurity may be sending shoppers to the discounters, but crowded stores don’t make them attractive investments if expenses are high and margins are low. Even if sales and earnings are growing, the growth may already be reflected in the share price.
Tariffs are another problem, particularly for U.S. companies, since so many discount store products are manufactured in China. U.S. President Donald Trump’s initial imposition of tariffs on Chinese products disrupted supply chains, raised costs and lowered profits for U.S. discounters, leaving some shelves bare until the chains could find alternative sources. The tariffs peaked at 145% before a series of deals resulted in tariffs on China being reduced to about 30%.
The shares of discount chains Five Below, Dollar General and Dollar Tree have been soaring and are well-suited for momentum investors. Dollarama has shown steady growth, while Savers Value Village will require a turnaround. The relatively high Canadian dollar makes U.S. stocks less expensive.
Five Below Inc. (FIVE/NASDAQ)
Founded in 2002, Philadelphia-based Five Below has more than 1,900 stores in 46 U.S. states. The outlets sell items under $5 that are geared toward teenagers and tweens, who, the company points out, have substantial discretionary income since their parents take care of their basic needs. Store inventories include items such as fashion accessories, cosmetics, sporting goods, tech items, arts and crafts and party supplies.
The company announced its third-quarter 2025 results in December. Adjusted net income was US$37.8 million or $0.68 a share, up from US$23.3 million or $0.42 a share in the third quarter of fiscal 2024. Net sales rose 23.1% to US$1.04 billion from US$843.7 million, while comparable sales increased by 14.3%.
When it reports its 2025 fiscal year, which ends 1 February 2026, Five Below expects adjusted net income of US$317 million to US$327 million or about US$5.71 to US$5.79 per share on net sales of about US$4.62 to US$4.65 billion.
Five Below shares skyrocketed in 2025, rising from lows below US$60 in April 2025 to a recent price of more than US$190. At that price, Five Below has a market capitalization of about US$10.6 billion and trades at 30 times estimated 2025 earnings.
The company has relatively modest debt compared to Dollarama. As of 2 August 2025, Five Below reported total assets of US$4.34 billion, total liabilities of US$2.53 billion, and shareholders' equity of US$1.8 billion. The company has a B+ long-term issuer default rating from Fitch Ratings and no investment-grade ratings, indicating a speculative status that makes it suitable only for risk-tolerant investors.
Among 19 analysts who follow the company, 10 say buy, eight say hold and one regards it as a sell, with an average price target of US$214.41, figures from TipRanks show4.
Dollar General (DG/NYSE)
Dollar General, founded in 1939, is headquartered in the Nashville suburb of Goodlettsville, Tennessee, and has nearly 21,000 stores in the U.S. and Mexico.
In the third quarter of its fiscal 2025, Dollar General reported strong growth in sales and earnings and raised its forecast for net sales growth, same-store sales growth and earnings. The company plans to renovate many of its stores and to open about 575 new ones in the U.S. and up to 15 in Mexico.
Last year, DG shares jumped to the US$130 range from below US$100 as solid results prompted investors to grow more optimistic. At a recent price of US$144, the company has a market capitalization of US$31.6 billion, yet still trades at a modest 22.5 times its forecasted fiscal 2025 full-year earnings of US$6.40 per share.
The company’s recent quarterly reports show total assets of about US$31 billion to US$32 billion, total liabilities of $23.5 billion to US$23.7 billion and shareholders’ equity of about US$8 billion. The company has investment-grade credit ratings with stable outlooks.
A total of 16 analysts follow the company; nine say buy, and seven say hold. Their average price target is US$144.50, not much higher than today5.
Dollar Tree (DLTR/NASDAQ)
Headquartered in Chesapeake, Virginia, Dollar Tree operates more than 9,000 outlets in the United States and 277 Dollar Tree Canada stores in seven provinces. The company sold its stake in 7,600 Family Dollar stores July 2025 for US$1 billion.
Dollar Tree opened 106 new stores in the third quarter of its fiscal 2025 year. For the quarter, the company reported US$244.6 million in income from continuing operations or US$1.20 per share. Net sales increased 9.4% to US$4.7 billion, and same-store net sales increased by 4.2%, while gross profit climbed 10.8% to US$1.7 billion. Gross margin gained slightly to a strong 35.8%. The company repurchased 4.1 million of its shares for about US$400 million in the quarter.
Dollar Tree’s forecasts are healthy, if not spectacular. The company said it expects comparable net same-store sales growth to be 5.0% to 5.5% for 2025 over 2024.
As of November 2025, Dollar Tree had US$13.66 billion in total assets, made up of US$10.19 billion in total liabilities and $3.46 billion in shareholders’ equity. Dollar Tree’s credit rating is BBB, or investment grade, with a stable outlook.
At a recent price of US$118, Dollar Tree trades at a modest 20 times its forecasted fiscal 2025 full-year earnings of US$5.60 to US$5.80 per share. Of the 19 analysts who follow the company; eight regard it as a buy, six say hold, and, surprisingly, five analysts regard the stock as a sell. Their average price target is US$1256.
Dollarama Inc. (DOL/TSX)
Montreal-based Dollarama, which started with a single store in Matane, Québec, in 1992, now dominates the Canadian discount store landscape, with 1,684 stores in Canada as of November 2025. The company also has 683 Dollarcity stores in Latin America, made up of 398 stores in Colombia, 113 in Guatemala, 91 in Peru, 80 in El Salvador and one in Mexico, together with about 400 The Reject Shop stores in Australia.
Dollarama announced its third quarter fiscal 2026 results on 11 December 2025 (for the quarter ending 2 November 2025), with earnings, sales and store openings all up over the same period a year earlier, part of a steady record of consistent growth. Net earnings reached $321.7 million in the quarter, up 16.6% from the same quarter a year ago, while earnings per share rose 19.4% to $1.17 vs. $0.98.
Sales for the quarter rose to $1.9 billion, up from $1.56 billion, while comparable store sales climbed 6.9%, up from 3.3% over the third quarter of fiscal 2025. The company opened 19 new Canadian stores and bought back $484.6 million worth of its shares in the quarter.
Dollarama shares have been a long-term outperformer since their Initial Public Offering (IPO) in 2009, breaking through the $100 level two years ago and rising at a faster pace since then. At a recent price of $183, Dollarama has a market capitalization of about $50 billion and trades at roughly 39 times analysts’ consensus estimate of its forward earnings of $4.71 per share; optimistic but not excessively so.
As of 2025, Dollarama had relatively high leverage, with $7.4 billion in total assets, made up of $6.1 billion in liabilities (including store leases) and $1.3 billion in shareholders’ equity.
Dollarama's credit ratings of BBB from S&P Global, Baa2 from Moody's Investors Service and BBB (high) from DBRS Morningstar reflect these agencies’ view that while Dollarama is at the lowest investment grade, its sales growth and high margins mean it should weather a downturn.
Among 11 analysts who follow Dollarama, six say buy and five say hold, with an average price target of $223, figures from TipRanks show7.
Savers Value Village (SVV/NYSE)
Based in Bellevue, Washington, Savers Value Village (SVV/NYSE) is best known for its Value Village banner in Canada (Village des Valeurs in Quebec) and Savers in the United States. The company sells second-hand clothing, shoes, accessories, housewares, bedding and bath items that have been donated on site or bought from charities at a flat rate per pound.
The company has 172 stores in the U.S., 165 in Canada and 14 in Australia, totalling 351 stores, the company’s 2024 annual report said8.
SVV went public in late June 2023 at US$18 per share in 2023 and quickly peaked at US$26 before falling to US$12 in November of that year. The stock has not traded above US$14 since May 2024 and dipped below US$7 in March 2025. At a recent price of US$10, the company has a market capitalization of about US$2 billion.
On 31 October 2025, SVV reported third-quarter non-GAAP earnings of just US$0.14 per share, more than 50% lower than the US$0.29 that the company had forecast. GAAP results reflected a loss of US$14 million or US$0.9 per share, partly due to disappointing results in Canada, where sales were hurt by high inflation and unemployment.
Canadian sales were expected to stay flat in 2025, the company said. SVV dramatically lowered its total sales and income forecasts for the year to just US$17-US$21 million, down from US$47-US$58 million.
The surprisingly bad results caused the shares to plunge more than 40% the next day, prompting some law firms to claim that SVV executives gave an overly optimistic portrait of the company during its 2023 IPO.
The company’s most recent annual report shows US$1.88 billion in assets made up of US$1.46 billion in total liabilities and US$421.7 million in shareholders’ equity. The company’s credit rating is single B, non-investment grade, making it suitable only for risk-tolerant investors prepared to bet on a turnaround. Despite the risks, three of the four analysts who follow the company see it as a buy and one as a hold, with an average price target of US$15.179.
Richard Morrison, CIM, is a former editor and investment columnist at the Financial Post. richarddmorrison@yahoo.ca
1 https://www150.statcan.gc.ca/n1/daily-quotidien/260119/dq260119b-eng.htm
2 https://www150.statcan.gc.ca/n1/daily-quotidien/260109/dq260109a-eng.htm
3 https://nanos.co/canadian-consumer-remains-tentative-bloomberg-nanos/
4 https://www.tipranks.com/stocks/five/forecast
5 https://www.tipranks.com/stocks/dg/forecast
6 https://www.tipranks.com/stocks/dltr/forecast
7 https://www.tipranks.com/stocks/tse:dol/forecast
8 https://s202.q4cdn.com/614174375/files/doc_financials/2024/ar/7216876c-69b0-46de-964f-8857e1f0b51b.pdf
9 https://www.tipranks.com/stocks/svv/forecast