The Reject Shop Poleaxed

Shares in The Reject Shop (TRS) took another pounding from worried investors yesterday, taking its losses to more than 50% since Friday.

The shares fell 18.6% to $5.16, after falling more than 35% on Friday after the company shocked the market with a sales and earnings downgrade and the suspension of the final dividend for 2016-17.

All up the shares are down 54% in two days and have been setting a series of new lows since late Friday as they tumbled.

Same-store sales fell about 4% this year, the company said on Friday, which it expected would push it to a $5 million loss in the second half and a $12.5 million profit in the full-year, down from $17.1 million in 2015-16.

Managing director Ross Sudano blamed the poor performance was due to a tough “external environment" and missteps with its merchandising strategy that had seen it focus too heavily on variety products, like decorations and toys, at the expense of everyday household items like toiletries.

Morgan Stanley analyst John Stavliotis said in a note to clients over the weekend that he had previously been hopeful about The Reject Shop’s strategy of focusing on cut-price everyday products, but it was clear that had not been successful.

"The failure raises concerns of TRS’s ability to effectively compete on price and offering on everyday products," Mr Stavliotis wrote to clients.

The Reject Shop has 350 stores across Australia and has a long-term target boosting this to 400. However, according to UBS the company should review the size of its network.

“While the company is opening new stores, we believe there is potential for another 30+ store closures over the medium-term,” Analyst Jordan Rogers Rogers said in a note yesterday.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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