BUSINESS

Dollarama makes change with plan to introduce items priced as high as $3

06/13/2012 08:00 EDT | Updated 08/13/2012 05:12 EDT
MONTREAL - Dollarama Inc. (TSX:DOL) plans to gradually introduce some non-grocery items priced as high as $3 this summer, the Montreal-based discount retailer announced Wednesday along with a better than expected profit.

Larry Rossy, Dollarama's chairman and chief executive, said customers have responded well to the addition of items that are priced above $1 — although the previous limit was $2. The plan is to gradually introduce items at $2.50 and $3 starting this August.

"We're just going to throw in some of these items and see what happens," Rossy told analysts on a conference call.

"We're not talking hundreds of items here in any way."

But Dollarama said the majority of its merchandise will continue to be priced at $1 or less.

Dollarama introduced a multi-price point strategy in 2009 as part of its growth plan, and the popularity of higher-priced items has been on the rise.

About 51 per cent of the company's sales were from products costing more than a dollar, compared with 44 per cent a year before, the company said in its earnings on Wednesday.

Chief operating officer Stephane Gonthier noted that the more expensive items will not appear in every section of the store, but mostly in its seasonal and general merchandise products.

"We are maintaining ... our product mix focused on increasing sales in the key categories that have made us a unique value destination," he said.

"We have no plans to introduce grocery items at $2.50 and $3."

Barclays analyst Jim Durran was upbeat about Dollarama's new pricing plan, but said the company will need to be careful.

"In our view, as long as these items provide dollar store value relative to other channel (and) competitor options we believe that these items can be successful," he wrote in a note.

"But they will have to be implemented with caution to ensure Dollarama's cash-strapped consumer still sees the banner as offering great value."

Shares of Dollarama, which became a public company in 2009, briefly touched an all-time high of $61.23 in trading on the Toronto Stock Exchange.

The Montreal-based company's stock was up 6.6 per cent, or $3.73, to $60.60 in afternoon trading Wednesday.

Dollarama's first-quarter profit rose 40 per cent to $42.6 million, or 56 cents per share, which was six cents per share ahead of what analysts expected.

The results compared with earnings of $30.4 million or 40 cents per share a year earlier.

The company's revenue for the 13 weeks ended April 29 was just under $398 million, beating analyst expectations and up 15 per cent from the comparable period last year.

Dollarama said the stronger sales were largely due to an increase in the number of stores to 721 locations across Canada — up 54 from a year earlier — as well as more items priced above $1. The company added 17 stores in the first quarter alone.