Dollarama. Initiation of Coverage: Dollar for Dollar - Solid Value. Publishing will insert chart here DOL-TSX

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1 NOVEMBER 25, 2009 Dollarama DOL-TSX Initiation of Coverage: Dollar for Dollar - Solid Value Event We are initiating coverage on Dollarama Inc. (DOL TSX) with an OUTPERFORM rating and a $23.00 price target. Action Strong operating metrics and continued value retail market dominance support what is a relatively rich valuation. We recommend investors accumulate Dollarama shares at current levels. Analysis We believe Dollarama is in an enviable position in both absolute and relative terms, given its square footage growth opportunities, superior relative merchandising competency and continued increases in scale efficiencies. In addition, the multiple (versus single) price point strategy introduced by DOL in February 2009, with price points of $1.25, $1.50 and $2.00 provides incremental flexibility to DOL s merchandising options as well as an inflation hedge. We believe these incremental positives largely offset the risk of increased exposure to a broader range of competitors as a result of the switch to a multiple price point strategy, and the consequent impact on the relative value perception and positioning of the dollar store concept. The above factors impute strong incremental sales growth and modest EBITDA margin expansion opportunities, which supports our positive thesis on DOL. Valuation We apply a target EV/F2011E EBITDA multiple of 10.5x, and a F2011E EPS P/E multiple of 18.0x in addition to a DCF in our DOL price target calculation. Our EV/EBITDA multiple is supported by the continued deleveraging of DOL s balance sheet and is essentially in line with Dollar General s IPO pricing. Our target P/E multiple is at a nominal premium to top tier Canadian retailers, which is well supported by DOL s operating metrics and growth outlook. CONSUMER PRODUCTS & RETAIL Kenric S. Tyghe, MBA kenric.tyghe@raymondjames.ca Sara Kohbodi (Associate) sara.kohbodi@raymondjames.ca RATING & TARGET RATING OUTPERFORM 2 * Target Price (6-12 mths) * Closing Price Total Return to Target 13.9% MARKET DATA Market Capitalization ($mln) 1468 Current Net Debt ($mln) 386 Enterprise Value ($mln) 1855 Shares Outstanding (mln, f.d.) 72.7 Avg Daily Dollar Volume (3mo, mln) n.a. 52 Week Range n.a. n.a. KEY FINANCIAL METRICS FY-Jan A 2010E * 2011E * EPS (C$) P/E n.a. 19.8x 16.6x EPS - 1Q -$ A 0.27 EPS - 2Q $ A 0.29 EPS - 3Q -$ EPS - 4Q -$ EBITDA ($mln) EV/EBITDA 12.1x 10.9x 9.3x Revenue ($mln) 1,089 1,252 1,381 COMPANY DESCRIPTION With nearly 600 stores, Dollarama Inc. is Canada s largest value retailer. While approximately 75% of existing stores are located in Ontario and Quebec, the Company is committed to expand its network and increase its presence in the Atlantic and the Western provinces, which currently constitute 10.4% and 15.2% of total store count, respectively. Publishing will insert chart here *Note: Introducing New Target, Rating & Estimates Closing price as of Nov All figures in C$, unless otherwise noted. Sources: Raymond James Ltd.,ThomsonOne, CapIQ The average of our valuation methodologies imputes a $22.66 valuation on DOL. We initiate coverage of Dollarama with an OUTPERFORM rating and a 6 12 month price target of $ Published by Raymond James Ltd., a Canadian investment dealer. Please see end of INsight for important disclosures.

2 RJ Equity Research Page 2 of 36 Table of Contents Investment Highlights... 3 Company Profile... 4 Investment Thesis... 6 Players in North American Value Retailing Key Metrics of North American Value Retailers Ownership and Management Financial Analysis and Outlook Valuation and Recommendation Risks... 36

3 RJ Equity Research Page 3 of 36 Investment Highlights Dominates Canadian Value Retail Landscape Dollarama dominates the Canadian value retail landscape to the point that it defines the space. With a store count in excess of 4 times larger than its nearest competitor, and as the only value retailer with a coast to coast presence, DOL appears poised to extend its dominance still further. DOL, given its corporate owned store model (versus the franchise centric model of the majority of its competitors), delivers a consistency of format and merchandising across its footprint against which its competitors are largely unable to compete. Significant Square Footage Growth Opportunities Despite the 16% CAGR in store count since 1992, we believe significant further square footage growth opportunities exist in both the major urban centres of the Greater Toronto Area (GTA) and Greater Vancouver Regional District (GVRD) and smaller centres across Quebec, Ontario and British Columbia. With a conservative store opening rate of approximately 40 stores per year (over the last 3 years DOL has opened an average of 55 stores per year), and management s belief that the Canadian market could support 900 plus stores from the current approximately 600 stores, DOL s square footage growth has a significant amount of runway. Solid Operating Metrics While a number of DOL s key operating metrics, including a consistent store margin contribution of 21% and F2011E EBITDA margin of 14.4%, are industry leading, there remains significant opportunity for improvements in Inventory Velocity and Yield. As DOL implements key technology and systems initiatives (specifically targeting its inventory management capabilities) it is not unreasonable to expect further improvements in DOL s ROIC through F2012. These technology initiatives impact on inventory velocity will likely be further bolstered by the acceptance of additional payment methods. DOL began accepting debit cards in F3Q09 and is currently running a credit card test program in 73 stores. Brand Awareness Given DOL s dominant market position and appeal to a relatively wide demographic, it is not surprising that it enjoys enviable brand awareness and a very strong value perception. The combination of strong brand awareness and high perceived value explains DOL s very high conversion rate of traffic to purchase.

4 RJ Equity Research Page 4 of 36 Company Profile With nearly 600 stores, Dollarama Inc. (DOL TSX) is Canada s largest value retailer. Founded in 1992, Dollarama has evolved from a family retail business into a large network of stores across Canada. Funds advised by Bain Capital acquired an 80% interest in Dollarama in 2004, while the remainder was owned by members of the founding family and management team prior to its Oct IPO. The company raised ~$300 mln by listing 17.1 mln shares on the Toronto Stock Exchange on Oct at $17.50 per share. Dollarama s store network expansion represents a compounded annual growth rate of 16%, expanding from 44 stores in 1992 to 585 stores as of Aug While sales growth closely tracked the store network growth at 16% CAGR, EBITDA increased from $47 mln in 2002 to $161 mln in F1H10, representing an 18% CAGR. Exhibit 1: Performance Snapshot $ʹmln # of Stores % 13.6% 14.0% 16.4% 16.6% 16.4% 15.0% 14.1% 13.5% 14.4% F2002 F2003 F2004 F2005 F2006 F2007 F2008 F2009 F2010E F2011E 0 EBITDA Sales EBITDA Margin % # of Stores Source: Company Reports, Raymond James Ltd. Dollarama s growth model has relied heavily on the opening of new stores in Ontario and Quebec, where store network concentration is the highest. While 75% of existing stores are located in Ontario and Quebec, the company is committed to expand its network and increase its presence in the Atlantic and the Western provinces to further solidify its position as the Canadian dollar store retailer with a national footprint. The Atlantic and the Western provinces currently constitute 10.4% and 15.2% of total store count, respectively.

5 RJ Equity Research Page 5 of 36 Although general merchandise is largely retailed at a single price point of $1.00, Dollarama recently (as of February 2009) introduced $1.25, $1.50 and $2.00 price points, which provides the company with an excellent tool to improve same store sales as well as gross profit margins. The chain s commitment to continuously improve its cost structure implies that management will consistently monitor the targeted mix of merchandise (general merchandise, consumable and seasonal products), making every effort to provide a consistent shopping experience across its store footprint. DOL currently operates four warehouses and a centralized distribution centre in the province of Quebec, all of which provide it with ~1,373 mln square feet of capacity, sufficient to cost effectively service ~150 additional stores. The distribution centre processes some 9,000 pallets per week, and the combined warehouse capacity totals some 110,000 pallets. Some 89% of DOL s merchandise is distributed through the company s distribution centre, and the remaining 11% is directly shipped to the stores by the original suppliers.

6 RJ Equity Research Page 6 of 36 Investment Thesis North American Value Retailers DOL dominates the Canadian dollar store business, with ~585 locations and $1.2 bln in annual sales. The other notable dollar store retailers in Canada are: A Buck or Two; 141 franchise stores. Dollar Store With More; 146 franchise stores. Great Canadian Dollar Store; 113 franchised stores. Dollar Giant Inc.; 60 corporate stores. Everything for a Dollar Store; 80 franchise stores. A Buck or Two has no specific provincial concentration. Dollar Store with More leads Western Canada with 88 stores in British Columbia and Alberta, compared to DOL s 55 and Dollar Giant s 43. Great Canadian is neck and neck with DOL in the Maritimes with 62 stores versus DOL s 61 stores, and has a limited presence in Western Canada and essentially no presence in either Quebec or Ontario. Dollar Giant s store footprint is heavily Western Canada focused but has successfully established a presence in Ontario with 19 stores. While Dollar General (DG NYSE) is the largest of the U.S. value retailers, it does not dominate the value retail landscape to the same extent that Dollarama does in Canada. According to recent IBISWorld data, DG commands ~21% market share versus Family Dollar (FDO NYSE) at ~16%, Dollar Tree (DLTR NASDAQ) at ~9%, Big Lots (BIG NYSE) at ~6.5% and 99 Cents Only (NDN NASDAQ) at ~2.6%. The top 5 value retail chains in the U.S. command ~59% market share versus in Canada, where they command in excess of 80%.

7 RJ Equity Research Page 7 of 36 Macro Overview, Themes and Drivers The Debate: Trade Down or Share of Wallet In our opinion, one of the more material issues in assessing DOL at this point in the cycle, is whether now is the appropriate time to rotate out of defensive value retailers and into more cyclical hardline retailers. That dollar stores, club stores and Wal Mart (WMT NYSE) all saw increases in traffic through the recession is well documented. The sustainability of this growth is, to our mind, the more relevant consideration at this point and hinges on the basis of the underlying consumer behaviour behind the increase. The question is whether the significant acceleration in same store sales (SSS) growth experienced by the value retailers is a function of a trade down by consumers during the recession or value retailers securing a greater share of wallet of existing core customers. The Consumer Trade Down Argument The value retailers delivered very strong sales growth through the early 2000 s recession (mild as it was relative to the recession). This growth was attributed to the value retailers merchandising of low priced needs versus wants items, leaving them well insulated through the downturn. Exhibit 2 highlights the relative SSS growth outperformance of the value retailers during, and the decline in momentum coming out of, the recession. Exhibit 2: SSS Growth SSS % Growth Ticker Family Dollar FDO 7.8% 5.2% 4.1% 5.8% 3.8% 1.8% 2.3% Dollar General DG 6.4% 0.9% 7.3% 5.7% 4.0% 3.1% 2.2% 99C Only Store NDN 6.1% 2.0% 5.9% 3.6% 4.5% 1.5% 0.8% Dollar Tree DLTR 5.0% 5.7% 0.1% 1.0% 2.9% 0.5% 0.8% Best Buy BBY 13.5% 11.1% 4.9% 1.9% 2.4% 7.1% 4.3% Home Depot HD 10.0% 4.3% 0.7% 0.5% 3.8% 5.4% 3.8% Lowes LOW 6.2% 1.2% 2.4% 5.8% 6.7% 6.6% 6.1% PetSmart PETM 4.6% 1.4% 6.5% 9.6% 7.0% 6.3% 4.2% Source: Company Reports, Raymond James Ltd., Raymond James & Associates

8 RJ Equity Research Page 8 of 36 If we turn our attention to the recession, the value retailers have continued to deliver the strong retail SSS growth, which has averaged ~4% since 1Q08. The robust sales growth has been achieved despite increasing unemployment levels, which at first blush seems counter intuitive given that it is the core demographic of the value retailers that is often perceived as the most vulnerable during periods of economic weakness. Exhibit 3 illustrates the SSS growth through the most recent recession. Exhibit 3: SSS Growth of U.S. Value Retailers SSS % Growth DG BIG DLTR FDO NDN 1Q07 2.4% 4.9% 5.8% 0.9% 2.9% 2Q07 3.0% 5.2% 4.4% 0.4% 5.2% 3Q07 3.0% 0.5% 1.9% 1.5% 6.1% 4Q07 0.4% 0.6% 0.8% 1.0% 2.9% 1Q08 5.4% 3.4% 2.1% 1.0% 1.5% 2Q % 2.8% 6.5% 0.0% 0.5% 3Q % 0.2% 6.2% 0.1% 4.7% 4Q08 9.4% 3.2% 2.2% 5.6% 4.2% 1Q % 0.5% 9.2% 2.1% 6.2% 2Q09 8.6% 2.4% 6.8% 6.4% 7.2% 3Q09E 7.3% 0.0% 6.5% 6.2% 2.3% 4Q09E 7.0% 2.0% 2.5% 1.0% 3.5% Source: Company Reports, Raymond James, Raymond James & Associates A key tenant of the trade down argument is that as the economy recovers, and given that no one aspires to shop at a dollar store, the pace of SSS growth will moderate as consumers revert back to their preferred retailers. This argument, however, is coloured by the question of whether or not the U.S. and Canadian consumer has entered a new era of thrift, and if so, what is the new normal for the consumer, as it relates to the outlook for the value retailers; essentially how long is the collective memory of the consumer (in our opinion, short) and what impact does this have on consumer behaviour and the propensity to trade back up as the recovery gathers momentum.

9 RJ Equity Research Page 9 of 36 The Share of Wallet Argument The counter argument to the above is that value retailers SSS growth rates have outperformed due to their success in securing an increased share of wallet through a number of key initiatives. These initiatives have included an expansion of the range of consumables, improved in stock inventory position and the acceptance of a broader array of payment methods. Supporting the above argument is the reality that coming out of the last recession, while SSS growth weakened, it was more a function of the explosion in store count and square footage growth (among a number of incremental macro and competitor specific factors) through the recession, than consumers necessarily trading up. Through the last recession, publicly traded U.S. value retailers had added in excess of 2,500 stores by the end of 2002 and a further 4,000 locations by the end of This translated into square footage growth of 31.2% for the big four U.S. value retailers. Exhibit 4 illustrates the magnitude of store count growth from 2000 to 2005 and how it slowed as key markets absorbed the store build out. Exhibit 4: New Store Growth (Calendar Year) Store Growth Rate DOL BIG DG DLTR FDO NDN # Y o Y % Y o Y % Y o Y % Y o Y % Y o Y % Y o Y % % 10.8% 14.2% 12.3% 25.5% % 3.4% 10.3% 14.6% 11.5% 22.8% % 3.6% 9.6% 10.6% 8.9% 25.2% % 5.0% 9.3% 8.8% 7.3% 15.9% % 6.7% 8.3% 6.5% 8.3% 5.9% % 1.9% 3.8% 10.5% 5.7% 8.2% % 1.6% 0.4% 6.0% 4.2% 5.6% % 1.0% 2.1% 5.3% 2.2% 7.2% Source: Company Reports, Raymond James Ltd., Raymond James & Associates

10 RJ Equity Research Page 10 of 36 Consumables as the Category Value retailers have increasingly focused on the consumables category to drive SSS growth. The higher concentration of consumables in value retailers merchandising mix, which drives incremental sales, traffic and gross profit dollars, also adds significant complexity to store operations. At first blush, a higher percent of consumables in the mix pressures gross profit margins (given the inherently lower margins on food and other consumables) versus the more traditional value retailer merchandise, and the increased complexity that consumables add to the supply chain. As we detail later in this report, the value retailers in the U.S. have proved quite adept at managing the negative margin impact of increased consumables in the merchandising mix. The reality is that the value retailers (from mass merchandisers to dollar stores) have been reporting an increased shift toward basics and consumables and away from more discretionary items. Consumables from the value retailers perspective, while biased toward cleaning (laundry and dishwashing detergents) and personal health (shampoo and toothpaste), have seen a rapid increase in food (candy, soda, canned foods and box items). Given the demographic served by FDO and DG, both have been accepting Supplemental Nutrition Assistance Program (SNAP) (food stamps) and Electronic Benefit Transfers (EBT) as a means on payment since In order to be eligible to accept food stamps as a form of payment, the retailer must at a minimum sell bread, milk and eggs. Both FDO and DG have and will likely continue to increase consumables despite their already high percentage of the mix. Exhibit 5 illustrates the change in DG and FDO s merchandising mix from 2006 to We believe DOL s consumables as a percentage of mix will top out at 40% given the above dynamics, and as such we see only a nominal increase from the current 37%. In Canada the equivalent welfare benefits are not in the form of food stamps but rather in cash payments.

11 RJ Equity Research Page 11 of 36 Exhibit 5: DG and FDO Merchandising Mix FDO FDO DG DG % 66% 61% 58% 16% 18% 27% 29% 15% 16% 12% 13% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Consumables General Merchandise Seasonal/Electronics Source: Company Reports, Raymond James Ltd. It is this key difference between the two markets that we believe largely drives the disparity in consumables (specifically perishables) as a percent of the merchandising mix. DOL is also more similar to DLTR in terms of target market demographic (i.e. distinctly more middle, than lower income). DLTR s percent of consumables in the mix is significantly lower than both DG and FDO at ~49%. Comparing the current merchandising mix between DOL and its North American peers highlights quite how material the differences are between them, and the opportunities (or threats). The multiple (versus single) price point strategy introduced by DOL in February 2009, with price points of $1.25, $1.50 and $2.00 in addition to the $1.00 (with the exception of candy at $0.65) strategy that the company had followed from F2003 F2009 provides incremental flexibility to DOL s merchandising options. The flip side of the new pricing strategy is that it does, in our opinion, raise some interesting questions on the relative value perception and positioning of the dollar store concept in consumers minds and increase DOL s exposure to key competitors. Dollar Giant, a significant DOL competitor in Western Canada, moved to a $1.50 on the vast majority of its merchandise shortly after DOL s move in February. In DOL s F2Q10 ended August 2009, items selling above the $1.00 threshold represented just 24% of sales. We expect this will increase significantly as DOL changes the composition of its consumables and general merchandising mix, in an effort to retain the increased share of wallet it garnered during the recession.

12 RJ Equity Research Page 12 of 36 The change in strategy most closely mirrors that of DG, which also uses a multiple price point strategy biased towards the $1.00 mark. FDO and BIG, both of which follow a multiple price point strategy, have a significantly higher percentage of products above $1.00 than either DOL or DG, and a higher cap on prices (i.e. a significant number of product prices that exceed $10.00). DLTR and NDO, follow a single price point strategy, of everything for a dollar or less, which was the strategy followed by DOL prior to February In our opinion the low average ticket inflates the perceived value of dollar stores. The average ticket at DOL is ~$6.93, at FDO and DG it is ~$9.68 and at DLTR it is ~$7.49. In addition, some products within dollar stores are special packs that cannot be found at other retailers, further obfuscating the consumer s ability to compare prices. As mentioned earlier in the report, while at first blush the increased consumables concentration in the mix initially negatively impacted gross margins of DOL s peers, the impact has been more than offset by greater buying leverage as value retailers have become ever more significant in the consumables category, and increased their sophistication through increased use of pricing optimization techniques and software. Exhibit 6: North American Value Retailers Gross Margins Gross margin DOL BIG DG DLTR FDO NDN percentage % % % % % % % 42.2% 28.3% 36.4% 33.5% 40.2% % 41.8% 29.4% 36.4% 33.8% 40.1% % 40.7% 29.5% 35.6% 33.8% 39.0% % 39.1% 28.7% 34.5% 32.9% 37.5% % 39.9% 25.8% 34.2% 33.1% 39.2% % 39.6% 27.8% 34.4% 34.0% 38.4% % 40.0% 29.3% 34.3% 33.6% 39.3% Source: Company Reports, Raymond James Ltd, Raymond James & Associates A further point of reference in terms of mix is the impact of the target demographic of the key value retailers, which varies both in terms of income band, and urban versus rural mix of stores.

13 RJ Equity Research Page 13 of 36 Similarities and Subtle Differences of the Business Models and Demographics According to the U.S. Census Bureau, real median U.S. household income declined by 3.6% (from $52,163 to $50,303) between 2007 and 2008, offsetting the gain in income experienced over the past 3 years and coinciding with the recession that started in December Both DG and FDO are squarely targeted on the low middle income demographic, with the emphasis on the low versus middle. In excess of 53% of DG s customers have household incomes below US$30,000; at FDO the number of households at or below this threshold is 44% according to recent Nielson Homescan data. An estimated 25% of customers at both DG and FDO have average annual income of US$20,000 or less, which is very close to the official U.S. poverty threshold. Exhibit 7: U.S. Poverty Rates Poverty Rate (%) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Number in Poverty (mln) Poverty Rate Number in Poverty Recession Source: U.S. Census Bureau, Raymond James Ltd

14 RJ Equity Research Page 14 of 36 Dollar Tree as Dollarama s Closest U.S. Peer DLTR is something of an anomaly in the value retail segment; despite the fact that it is a true dollar store with ~95% of merchandise priced at below $1.00 (NDO follows a similar strategy), its focus is distinctly more middle America or rather the more affluent value retailer customer. This positioning is very similar to that of DOL. In contrast to both DG and FDO, DLTR stores are relatively more concentrated in shopping centres that house Target (TGT NYSE) and Best Buy (BBY NYSE) with stores and locations designed to appeal to a broader market than FDO. The want versus need focus of DLTR is even more apparent, given its lower relative mix of consumables than either DG or FDO. DLTR consumables as a percentage of merchandising mix in 2008 were 49% versus DG at 69% and FDO at 61% (recall both DG and FDO have significantly higher food offerings in their consumables category given their core demographic and importance of food stamps to this demographic). DOL s consumables mix in 2008 was closer to 35%. While we expect consumables will continue to increase modestly as a percent of DOL s mix, the current consumables mix supports a thesis that DOL remains more want (seasonal and general merchandise) than need (consumables) focused. This want focus tends to drive targeted shopping from more affluent customers, while core lower income customers will shop the store. Exhibit 8 highlights the median household income and population density of DOL, DLTR, DG, FDO and Wal Mart (WMT NYSE).

15 RJ Equity Research Page 15 of 36 Exhibit 8: DOL Relative Population and Income Demographics $55,000 Median Income (5 kilometre radius) $53,000 $51,000 $49,000 $47,000 $45,000 $43,000 $41,000 $39,000 $37,000 $35,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 Median Population (5 kilometre radius) Source: Company Reports, Raymond James Ltd. We provide a more detailed summary on DLTR s key metrics and each of DOL s North American peers later in the report.

16 RJ Equity Research Page 16 of 36 Players in North American Value Retailing Dollarama (DOL TSX) DOL with ~585 stores is in excess of 4 times larger than its nearest competitor, Dollar Store with More at 135 stores and is the largest value retailer in Canada. DOL is the only value retailer with a presence in all 10 provinces, with 75% of stores based in Ontario (232) and Quebec (211). DOL s store prototype is approximately 10,000 square feet gross. DOL recently switched to a multi point price strategy with approximately 24% of merchandise priced at more than a $1.00. Given DOL s target demographic of middle Canada and greater focus on wants versus needs, DOL s merchandising mix is materially different from either DG or FDO, and more closely mirrors that of DLTR. DOL s percent of consumables in its merchandising mix is ~37% versus DLTR at 49%, DG at 69% and FDO at 61%. DOL s merchandising mix is illustrated in Exhibit 9. Exhibit 9: DOL Consumables and the Merchandising Mix 2006 Merchandise Mix 2008 Merchandise Mix 17% 16% 34% 37% 48% Consumables General Merchandise Seasonal 47% Consumables General Merchandise Seasonal Source: Company Reports, Raymond James Ltd and Raymond James & Associates In addition, DOL benefits from both superior buying power and sourcing reach versus its Canadian peers due to its relative size and presence. DOL s buying advantage provides it with access to a broader array of vendors, which facilitates its ability to bring new and DOL specific product to market quicker than its competitors. On the sourcing front, 58% of DOL merchandise is sourced offshore, with no single supplier accounting for more than 6% of purchases which imputes low supplier concentration and risk. DOL is, in our opinion, far and away the most adept of the Canadian value retailers in its offshore sourcing capabilities, and continues to successfully leverage this competency.

17 RJ Equity Research Page 17 of 36 Dollar General (DG NYSE) DG is the largest U.S. value retailer, with 8,577 stores in 35 states. DG was acquired in 2007 by KKR in a $7.2 bln deal that valued DG at an estimated 12.3x EV/EBITDA. DG s F2007 EBITDA was $478 mln and improved to $860 mln in F2008. DG s $21.00 IPO price on Nov 12 09, its enterprise value of $10.8 bln and LTM (last twelve months) EBITDA of $1.1 bln, imputes a 10.0x EV/EBITDA multiple. DOL s LTM EV/EBITDA multiple based on its IPO price of $17.50 was 11.0x. DG s store prototype is approximately 8,000 square feet gross. DG follows a multi point price strategy with in excess of 68% of merchandise priced at more than a $1.00. DG s store base remains more rural than urban despite the increased focus on, and development of, its urban footprint. DG targets low and low middle income households and its largest and closest competitor is FDO. While DG s share of wallet from lower income families with less than $25,000 has been growing, 20% of its revenues growth has been attributed to ~22% of customers with household incomes in excess of $70,000. Given its position as a convenience niche next to the grocers and Wal Mart, DG s consumables offering as a percent of the merchandising mix is the highest of the North American Value retailers. DG s merchandising mix is illustrated in Exhibit 10. Exhibit 10: DG Consumables and the Merchandising Mix 2006 Merchandise Mix 2008 Merchandise Mix 16% 15% 16% 18% 66% Consumables General Merchandise Seasonal/Electronics 69% Consumables General Merchandise Seasonal/Electronics Source: Company Reports, Raymond James Ltd and Raymond James & Associates

18 RJ Equity Research Page 18 of 36 Family Dollar (FDO NYSE) FDO is the second largest U.S. value retailer with 6,625 stores in 44 states, with a store base that remains more urban than rural. FDO continues to re align space to more profitable categories namely food and paper products (away from apparel and footwear). Through 4Q09, ~48% of FDO s store base was realigned, and consumables had increased to 64% of mix, from 61% in F2008 and will likely trend higher as FDO completes its in store realignment. FDO s store prototype at 8,000 square feet is equivalent to DG. FDO follows a multi point price strategy with products that range for under $1.00 to $10.00 with ~79% of items selling above the $1.00 mark. Given its position and focus on the low income customer and acceptance of SNAP (food stamps) in ~60% of stores currently, FDO s food as a percent of consumables is higher than its peers. FDO is second only to DG in terms of consumables as a percent of merchandising mix, which is underpinned by its serving of a materially lower income demographic than DLTR, and a significantly greater focus on needs versus wants. FDO s merchandising mix is illustrated in Exhibit 11. Exhibit 11: FDO Consumables and the Merchandising Mix 13% 2006 Merchandise Mix 2008 Merchandise Mix 12% 29% 58% 27% 61% Consumables General Merchandise Seasonal/Electronics Consumables General Merchandise Seasonal/Electronics Source: Company Reports, Raymond James Ltd.

19 RJ Equity Research Page 19 of 36 Dollar Tree (DLTR NASDAQ) DLTR is the third largest U.S. value retailer with ~3,750 stores in 48 states, and is distinctly more Middle America than either DG or FDO, a reality reflected both in its merchandising mix and its store location and feel. In addition, we believe that DLTR is DOL s most relevant peer given its market position, merchandising mix and store prototype. Clearly, DLTR with less than half the stores of DG does not dominate the value retail landscape in terms of store count as DOL does in Canada. DLTR s store prototype at 10,000 square feet is the largest of the big 3 value retailers, and is further differentiated by a strategy of locating in high volume shopping centres (adjacent to anchors such as Target). Recall that both DG and FDO store footprints are heavily weighted toward second tier space. In addition, unlike either of it two larger competitors, DLTR follows a single price point strategy of $1.00. It is the largest value retailer to pursue this strategy, which has necessitated a certain amount of de contenting on occasion in order to protect its margins on select items. DLTR s merchandising mix is materially different from either DG or FDO. DLTR s percentage of consumables in its merchandising mix is 49% versus DG at 69% and FDO at 61%. DLTR s merchandising mix is illustrated in Exhibit 12. Exhibit 12: DLTR Consumables and the Merchandising Mix 2006 Merchandise Mix 7.9% 2008 Merchandise Mix 5.5% 47.2% 48.7% 44.9% 45.8% Consumables General Merchandise Seasonal Consumables General Merchandise Seasonal Source: Company Reports, Raymond James Ltd.

20 RJ Equity Research Page 20 of 36 Big Lots (BIG NYSE) BIG, cast as a value retailer is the next largest in the space with ~1,340 stores in 47 states, and a differentiated business model centred on overrun, closeout, and discontinued products from in excess of 300 vendors from around the world. In contrast to its more traditional value retailer competitors, some 69% of BIG s merchandising mix is discretionary items. BIG s target demographic is also more upper middle and focused on customers with a $50,000 plus income and a discounter mentality. A further differentiator between BIG s model and a typical dollar store is that it does not accept food stamps and is not in the perishable foods business (recall that DG and FDO are both actively expanding their perishable food offerings and business hours, in order to become even stronger competitors in the convenience food retail niche). Given its target demographic and the fact that BIG is not in the perishable food segment, its consumables merchandising mix at ~31% is significantly lower than that of its peers. BIG s merchandising mix is illustrated in Exhibit 13. Exhibit 13: BIG Consumables and the Merchandising Mix 2006 Merchandise Mix 25.9% 2008 Merchandise Mix 26.5% 43.1% 46.3% 27.8% 30.4% Consumables General Merchandise Seasonal/Hardlines Consumables General Merchandise Seasonal/Hardlines Source: Company Reports, Raymond James Ltd.

21 RJ Equity Research Page 21 of Cents Only (NDN NYSE) NDN, the smallest of the Big 5 U.S. value retailers, is best described as a deep discount grocery store, with ~282 stores in 4 states. Despite a problem plagued entry into the Texas market in June 2003, the store footprint remains heavily weighted toward California. NDN has long struggled with company specific execution gaffes, most notably its entry into the over stored Texas dollar store market, weak financial controls and IT infrastructure. While NDN s single price point strategy mirrors that of DLTR, the merchandising mix and opportunistic buying programs are key differentiators. In excess of 50% of NDN s purchases are opportunistic buying of overruns and closeouts. NDN offers an attractive channel for manufacturers given that it never advertises branded merchandise which allows the manufacturers to avoid any channel conflict with full price customers. We estimate that in excess of 68% (the highest of any of the value retailers) of the merchandising mix is consumables (including a significant perishables foods offering). Unlike the other value retailers, NDN s system constraints are such that it is unable to provide its sales mix by category.

22 RJ Equity Research Page 22 of 36 Key Metrics of North American Value Retailers Despite the increased sales contribution from consumables, sales per square foot, margins and inventory productivity are improving for most of the value retail sector. While the merchandise, real estate, operating strategies and competitive environments of these companies vary, the rate of change and trends in these key financial and operating metrics is, we believe, instructive relative to our DOL thesis. Sales per Square Foot Sales per square foot (sales productivity) continues to improve for the value retailers due to a number of company specific initiatives, including acceptance of alternate payment methods (credit, debit, food stamps), expansion of the consumable mix and strengthening of their discretionary offerings. DOL began accepting debit cards (which currently account for ~29% of sales) in F3Q09. The average debit card ticket is 2.5x the average cash ticket. In addition DOL is currently piloting a credit card program in 73 stores, which will further expand the accepted payment forms once rolled out across the entire store footprint. The acceptance of credit cards once fully implemented, will likely facilitate a further increase in DOL s average ticket size. Exhibit 14 highlights the sales per square foot change on a calendar year basis for the value retailers. DLTR s relative performance from 2000 to 2007 was, we believe, negatively impacted by the transition to its 10,000 square foot prototype and NDN by its disastrous entry into Texas in Exhibit 14: North American Value Retailers Sales / Avg. Square Foot Sales/Avg.Sq.Ft. DOL BIG DG DLTR FDO NDN $ Y o Y % Y o Y % Y o Y % Y o Y % Y o Y % Y o Y % % 2.2% 9.0% 3.0% 3.8% 2004 $ % 1.4% 9.6% 1.4% 12.4% 2005 $ % 4.2% 2.2% 7.5% 1.8% 4.1% 2006 $ % 7.2% 0.3% 1.9% 3.0% 1.8% 2007 $ % 0.7% 2.8% 1.9% 1.8% 3.5% 2008 $ % 0.6% 7.9% 1.3% 0.8% 2.5% Source: Company Reports, Raymond James Ltd., Raymond James & Associates

23 RJ Equity Research Page 23 of 36 Gross Profit per Square Foot Gross margin rates and perhaps importantly gross margin per square foot for the value retailers has been improving despite the growth in contribution from lower margin consumables. The unfavourable mix impact on gross margins has been more than offset by a number of margin expansion catalysts. The key margin expansion catalysts include greater buying leverage as the value retailers have become increasingly relevant players in the consumables space (which has translated into better mark ups), and growing use of pricing optimization tools and software. In our opinion, DOL, while tracking to plan on a full SAP and point of sale (POS) scanning rollouts (January 2011) among other key IT initiatives, is behind the systems and inventory optimization curve relative to its North American value retail peers. The current IT and logistics enhancement initiatives offer further gross margin expansion opportunities for DOL. Exhibit 15: North American Value Retailers Gross Profit / Avg. Square Foot Gross DOL BIG DLTR FDO NDN DG Profit/Avg.Sq.Ft. $ Y o Y % $ $ $ $ $ 2004 $ $ $ $ $ $ $ % $ $ $ N/A $ $ % $ $ $ $ $ $ % $ $ $ $ $ $ % $ $ $ $ $ Source: Company Reports, Raymond James Ltd., Raymond James & Associates Operating Expense per Square Foot In the value retail segment, specifically for the single price formats (DLTR, NDN and until recently DOL), continuously finding ways to manage down operating expenses is an imperative, as there is no way to pass through cost increases. That DLTR, as the largest of the pure dollar stores has been the most successful of the U.S. value retailers at managing expense margins for best in class performance should not come as a surprise, given the economies of scale from their larger store prototype rollout among other initiatives. What is a surprise is the extent to which DOL s expense margins (while still relatively impressive in both absolute and relative terms) increased 384 bps over the same period to 20.3% from 16.5% (excluding the Bain & Company management fees).

24 RJ Equity Research Page 24 of 36 As DOL accelerates it expansion in the GTA and GVRD, we expect that the realities of higher square footage rental, logistics and labour costs will continue to pressure G&A margins. Exhibit 16 details the change in operating expense per average square foot of the value retailers. Exhibit 16: North American Value Retailers Operating Expense / Avg. Sq.Ft. Operating DOL BIG DLTR FDO NDN DG Expense/Avg.Sq.Ft $ Y o Y % Y o Y % Y o Y % Y o Y % Y o Y % Y o Y % 2004 $ % 7.9% 2.9% 3.9% 3.5% 2005 $ % 0.7% 7.4% 5.5% N/A 1.7% 2006 $ % 1.6% 2.6% 4.0% 0.5% 4.6% 2007 $ % 5.2% 0.9% 5.4% 7.1% 7.3% 2008 $ % 1.0% 0.3% 0.6% 4.4% 4.7% Source: Company Reports, Raymond James Ltd., Raymond James & Associates Inventory Productivity Inventory represents ~45% of the assets (net of cash and goodwill) at DOL versus ~40% at the U.S. value retailers; inventory productivity is hence critical. The key inventory productivity measures are inventory velocity (revenue generated from each dollar of inventory) and inventory yield (gross profit from each dollar of inventory). The largest improvements in sales productivity and return on invested capital (ROIC) have been achieved by DG and FDO. This should not come as a surprise given the magnitude of the U.S. recession, their value proposition and target demographic, and the quantum of benefit from their refined pricing and inventory control strategies. Inventory velocity has improved at all the U.S. value retailers as illustrated in Exhibit 17. This improved velocity has been driven by the following: Elimination of unproductive SKUs Increased sophistication of the inventory replenishment technology and systems has improved in stock levels of productive SKUs and reduced the safety stock requirement. Acceptance of additional forms of payment (debit and credit cards) In contrast to its U.S. peers, DOL inventory velocity has been soft, due in part, we believe, to its relatively late introduction of additional payment methods in the form of debit cards and perhaps more importantly the limitations of its current inventory control and optimization infrastructure. DOL s manual inventory counts worked well in the past, but are simply inadequate relative

25 RJ Equity Research Page 25 of 36 to best in class value retailers. DOL management has a number of in progress systems initiatives, specifically targeting improved inventory management capabilities. DOL has attached universal product codes (UPC) to approximately 50% of its merchandise items and continues to build out the requisite systems infrastructure for a January 2011 POS system implementation date. Successful rollout and implantation of these initiatives is, in our opinion, an imperative, given DOL s poor inventory velocity performance relative to its U.S. value retail peers. Exhibit 17: North American Value Retailers Inventory Velocity/Avg. sq. ft Inventory Velocity DOL BIG DG DLTR FDO NDN $ Y o Y % Y o Y % Y o Y % Y o Y % Y o Y % Y o Y % % 4.5% 10.1% 3.3% 4.3% % 2.0% 5.7% 1.2% 17.6% % 4.7% 8.7% 3.4% 0.1% 2006 $ % 1.4% 12.5% 6.5% 6.5% 2007 $ % 1.8% 19.3% 7.3% 7.5% 2.6% 2008 $ % 4.2% 6.1% 2.4% 2.4% 8.4% Source: Company Reports, Raymond James Ltd., Raymond James & Associates We are of the opinion that an improvement in inventory velocity, on the back of its in process technology and systems deployments (recall POS scanning capability is scheduled to be fully rolled by January 2011), combined with the possibility of a full credit card rollout, represents a material opportunity for DOL to further improve its ROIC, which is essentially in line with majority of its peers but significantly lags that of industry leader (DG) at >19%. However, inventory yield improvements will, we believe, be harder for DOL to secure, given that the key driver of the improvement of this metric for the U.S. value retailers has been the marked increase in consumables mix. Essentially, the incremental revenue growth (increased consumables mix drives increased traffic) has more than offset the lower margin of consumables. Given that we expect DOL s consumables in the mix to remain within a range of 35% 40% through our forecast window the efficiency gains for the POS rollout are critical. The estimated annual cost savings from the POS initiative of $15 $20 mln are, we believe, the single largest lever for improvements in DOL s ROIC, given that we expect inventory yield will likely remain range bound through our forecast window to F2011. Exhibit 18 illustrates the value retailers historical ROIC estimates.

26 RJ Equity Research Page 26 of 36 Exhibit 18: North American Value Retailers ROICs ROIC (%) DOL BIG DLTR FDO NDN DG % Δ bp % % % % % % 10.7% 13.0% 7.4% 12.7% % 8.6% 10.3% 10.9% 4.1% 12.0% % % 10.5% 11.0% 4.0% 7.8% % % 10.5% 11.4% 3.1% 13.8% % % 10.8% 11.1% 3.5% 16.9% Source: Company Reports, Raymond James Ltd., Raymond James & Associates Ownership and Management As of Nov 02 09, the directors and executive officers, as a group, directly or indirectly, owned ~12.4 mln common shares, representing ~17% of shares outstanding. As of Oct and following the completion of Dollarama s Initial Public Offering, Funds advised by Bain Capital (Bain Dollarama (Luxembourg) One) represent ~58% ownership of common shares outstanding on a fully diluted basis. Mr. Larry Rossy, founder and CEO, has ~12% interest through his direct and indirect holdings and is the largest individual holder.

27 RJ Equity Research Page 27 of 36 Exhibit 19: Senior Management Profiles Senior Management Position Description Rossy, Larry Chief Executive Officer and Director Mr. Rossy founded Dollarama in 1992, when he made a strategic decision to implement the ʺDollar Storeʺ concept, with a focus on the expansion of its retail network. As the Companyʹs CEO, his responsibilities entail new store development and site selection as well as overseeing the overall management of the organization. Mr. Rossy is also a member of Dollaramaʹs Board of Directors. Nomicos, Nicholas SVP, Interim Chief Financial and Secretary, Director As an operating partner at Bain Capital since 1999, Mr. Nomicos serves as Senior Vice President, Interim CFO and Secretary. Mr. Nomicos has held various senior positions at Oak Industries, a component manufacturing conglomerate serving telecommunication and appliance control industries. He is a Director of Dollarama, and well as a member of Bombardier Recreational Productsʹ Board of Directors. Rossy, Neil SVP, Merchandising, Director Mr. Rossy serves as Senior Vice President, Merchandising, responsible for overseeing warehouse construction and store fixture design, as well as merchandising and creating house brands. He also serves as a Director. Gonthier, Stephane Chief Operating Officer Since September 2007, Mr. Gonthier has been the serving as Chief Operating Officer. Prior to joining Dollarama, he held various senior positions at Alimentation Couche Tard (ATDʹB TSX) from 1998 to Assaly, Leonard SVP, Information Technology and A veteran in the retail industry, Mr. Assaly has held various executive positions with the Logistics Company since As Senior Vice President, Information Technology, he is responsible for designing and overseeing the development and implementation of software applications. Robillard, Geoffrey SVP, Import Division Mr. Robillard serves as Senior Vice President and was the owner and President of Aris Import from 1973 to 2004, which assisted Dollarama in establishing direct overseas sourcing capabilities. His responsibilities entail coordinating and managing the entire process of sourcing internationally, and working with buyers to choose merchandise. Source: Company Reports, Raymond James Ltd. Exhibit 20: Shareholders Summary Bain Dollarama (Luxembourg) One S.à.r.l. 42,219, % Total Institutions and Others 18,121, % Top Management & Insiders 12,351, % Total Shares Outstanding Diluted 72,691, % Source: Company Reports, Raymond James Ltd.

28 RJ Equity Research Page 28 of 36 Financial Analysis and Outlook We believe that DOL s growth, and more specifically the SSS acceleration through the recession was more a function of a traffic growth from an increased share of wallet from its core consumers and the lift in average ticket prices from the introduction of the multi point price strategy, than from a material trade down by Canadian consumers. Our share of wallet argument is, in our opinion, supported by the fact that the depth of the recession in Canada was less severe than it was in the U.S. by a number of key measures, and the core lower middle middle consumer targeted by DOL is of a different income demographic to the core (and more economically sensitive) low income consumer of DG and FDO. On the above basis, and consistent with the key drivers of our investment thesis we have detailed our DOL estimates below. A number of anomalies, including but not limited to the one time IPO related expenses and previously included interest expense related to preferred shares (eliminated with using a portion of the IPO proceeds), limit the merits of using EPS growth comparisons for F2010 and F2011, supporting our belief that EBITDA growth is the more relevant metric through our forecast window. Revenues Our F2010, F2011 and F2012 revenue estimates assume SSS growth of 7.2%, 4.2% and 4.1% for revenue of $1,252 mln, $1,381 mln, and $1,515 mln, respectively. SSS growth comps in the first half of F2011 will be tough, given the positive impact of the multi price strategy in F1H10 on sales. We expect net new store openings of 47 stores in F2010, 44 stores in F2011 and 50 stores in F2012. The moderation of new store growth rates to the mid high single digit range is due in part to the nature of the real estate markets in the Western Canada, which we believe will impede the pace of DOL s site selection. Gross Margin We believe that positive impact of the multi price point strategy will be partially offset limited improvements in inventory yields as DOL s POS system is only scheduled to go live in January Consequently, our gross margin estimates are relatively conservative at 34.3%, 34.4%, and 34.6%, in F2010, F2011, and F2012, respectively.

29 RJ Equity Research Page 29 of 36 Our gross margin estimates drive gross profit of $427.1 mln, $475.2 mln and $524.4 mln in F2010, F2011 and F2012, respectively. EBITDA Our F2010E EBITDA of $169.5 mln and F2011E EBITDA of $199.0 mln for yearover year growth of 10.4% and 17.4%, respectively, exclude F3Q10 impact on SG&A of IPO related expenses. For F2012, our EBITDA estimate is $216.5 mln. Our SG&A dollars for F2010E, F2011E and F2012E are $257.6 mln, $276.0 mln, and $307.7 mln for SG&A margins of 20.6%, 19.9%, and 20.3%, respectively. EPS Our EPS estimates for F2010, F2011 and F2012 are $1.02, $1.22 and $1.39, respectively. As previously mentioned, a number of anomalies limit the merits of using EPS growth comparisons for F2010 and F2011. Valuation and Recommendation Our DOL valuation is derived from the average of our P/E, EV/F2011E EBITDA and DCF valuations. Given DOL s relatively strong free cash flow generation and low maintenance capex due to the nature of the underlying business model, the use of a DCF model is well supported. We have also used a P/E based valuation to further triangulate our imputed value on DOL. EV/EBITDA Valuation Methodology While we are cautious on the sustainability of the improved EBITDA margins and would be more comfortable if we had a number of additional quarters to augment the margin expansion thesis, an argument could reasonably be made that the company and market specific differentiators alone warrant a premium relative to the peer group. On this basis, applying a 10.5x multiple to our F2011E EBITDA imputes a valuation on DOL of $ Given what is a relatively conservative multiple that we apply to DOL, we have provided a sensitivity table in Exhibit 21 for a range of EBITDA multiples from 9.5x 11.5x for imputed valuations of $20.75 $26.24 based on our F2011E EBITDA of $199 mln.