Why The Reject Shop Shares Are Sinking

Discount retailer The Reject Shop’s (TRS) weak trading performance for the six months to June especially has seen the company omit its final dividend for the 2016-17 financial year.

And to make matters worse the company has seen no improvement in the early weeks of 2017-18 with sales still slowing – same store sales were down 3% in the first seven weeks of the new financial year against a 2.5% slide in the final six months.

If that doesn’t improve – same store sales in the same period of 2016-17 were down 0.8%, another slide in profit is likely for the current half.

The decision to scrap the final payout was revealed in early April when the shares fell by a quarter in one day after the retailer downgraded its sales performance and its expected 2016-17 profit to around $12.5 million.

The company earned $17.1 million in 2015-16 and an interim after tax profit of $17.5 million (which was down 44% on a year earlier).

That means the company has lost $5.3 million after tax in the second half of the financial year.

In the end the figure was a touch weaker than that further justifying the decision to withhold the final payout.

The company paid an interim of 24 cents a share in March, but the slump in sales performance and earnings has seen the final dropped as the company looks to conserve cash.

TRS paid a final a year ago of 19 cents a share, making 44 cents a share for the full year. This year shareholders will have to settle for the already paid interim.

The Reject Shop said Wednesday that full-year profit has fallen 27.8% to $12.3 million, due to weak trading conditions across its stores, particularly in Western Australia and the Australian Capital Territory.

Same store sales fell 1.6% over the year (the first half saw a dip of 0.8%, but this accelerated to a fall of 2.5% in the second half).

EBITDA fell 13.4% to $38.3 million. The company said its gross profit margin fell 80 points in the year because of the sales slowdown.

Sales revenue for the 52 weeks to July 2 slipped slightly, 0.7 per cent, to $794 million on account of its 2017 financial year being one week shorter than the 53 weeks included in 2016, it says.

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.

View more articles by Glenn Dyer →