Dollarama (TSX:DOL) posted an impressive second-quarter performance earlier this month, with its topline and diluted EPS (earnings per share) growing by 7.4% and 18.6%, respectively. The solid performance has raised investors' sentiments, boosting its stock price. Dollarama is up 9.6% compared to this month's low and is up 44% this year. Amid solid buying over the last few months, let's assess whether buying opportunities still exist by looking at its second-quarter performance in detail and growth prospects.

Dollarama's second-quarter performance

Dollarama posted a revenue of $1.56 billion in the second quarter of fiscal 2025, which ended on July 28. Its same-store sales grew by 4.7% on the back of a 15.5% increase in the corresponding quarter of the previous year. The company's management has credited its compelling value and the breadth of its product offering for solid same-store sales. Adding 58 stores over the last four quarters has supported its top-line growth.

Its gross margin expanded by 130 basis points to 45.2% amid lower contractual rates with carriers and a decline in logistics expenses. Further, although its SG&A (selling, general, and administrative) expenses increased by 7.3% year over year as a percentage of total revenue, it remained flat at 13.6%. Amid top-line growth and expansion of gross margins, the company's adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 14.7%, while its adjusted EBITDA margin expanded by 2.1% to 33.5%.

The contribution from Dollarcity increased from $11.4 million to $22.7 million as Dollarama increased its stake from 50.1% to 60.1% in Dollarcity on June 11. Meanwhile, Dollarama's net financing expenses rose $4.8 million amid a higher average borrowing rate and higher interest expense on lease obligations. Further, its diluted EPS grew by 18.6% to $1.02. Now, let's look at its growth prospects.

Dollarama's growth prospects

Dollarama plans to open around 60 stores annually, thus increasing its store count to 2,000 by the end of fiscal 2031. Given its capital-efficient business model, quick sales ramp-up, and a lower payback period of less than two years, these expansion initiatives could boost its top and bottom lines. The company has also been focusing on increasing its digital footprint to enhance customer convenience.

Moreover, the company has the option to acquire an additional 9.89% stake in Dollarcity, which it can execute at any time within December 31, 2027. Meanwhile, Dollarcity has also planned to expand its store network from 570 to 1,050 by the end of fiscal 2031. These expansions could increase Dollarcity's contribution to Dollarama.

Share repurchases and dividends

Dollarama has been rewarding its shareholders through consistent dividend growth and repurchases. Since 2013, the company has repurchased $6.8 billion worth of shares while paying $675 million in dividends. In July, the company received approval to repurchase 16.55 million shares within 12 months, which would lower its outstanding shares by 6%. The retailer has raised its dividend 13 times since 2011 and currently offers a forward dividend yield of 0.27%.

Bottom line

Dollarama's stock price has increased substantially this year, driving its next-12-month price-to-earnings multiple to 32.1, which looks expensive. However, given its healthy growth prospects and solid underlying business, investors are ready to pay a premium to own the stock. Considering all these factors, investors with longer investment horizons can buy the stock to earn superior returns.