You have to ask how long-struggling discount retail chain The Reject Shop can remain independent after another earnings downgrade and CEO departure yesterday.
The Reject Shop revealed it is heading for a full-year loss for 2018-19, as sales evaporate and profits follow thanks to a price-cutting war with rival retailers such as supermarkets and department stores.
The company told the ASX on Thursday said it now expected to run at a loss of $1 million to $2 million this year – a downgrade from earlier guidance for a profit of $3 million to $4 million.
Seeing The Reject Shop made a $10.6 million profit in the first half of the year, it is on track to lose around $12 million in the June half.
Mr. Stevens said the company’s board and its CEO Ross Sudano had decided Mr. Sudano should leave the business in the “near term”, and make way for a CEO who could “bring renewed energy and vigour to the role”.
But will the company survive that long after this weak update?
Melbourne billionaire, Ralph Geminder (who has had his own loss-making troubles at the Pact packing group) is sitting in the share register with a 19% stake after The Reject Shop rejected a $78 million takeover offer last year.
Yesterday’s announcement revealed that Mr. Germinder has tightened his grip on the company with a board representative named.
The Reject Shop announced yesterday that Zac Midalia was appointed to the company’s board as Mr. Germinder’s representative to its board, along with Breville Group chairman Steven Fisher as an independent director. Breville Group, by the way, is 26% owned by Solomon Lew’s Premier Investments.
Investors were not impressed, naturally and the shares were sold off by 8% at one stage before they closed down 6% at $2.13. That’s well under the $2.70 a share cash offer from Mr. Germinder last year.
Whatever happens on the corporate side, it won’t quickly alter the fact that at its low price points, The Reject Shop should be doing better with customers feeling the pain of low-income growth and falling house prices.
But the impact of election campaigns in NSW and then federally, weak consumer confidence, flat wages, and those falling house prices have seen same store (or comparable) sales, which have fallen 2.7% in the year to date (down 2.9% in the current half).
Profit margins have been eroded by major supermarkets and department store competitors (Kmart and Target) cutting prices in some of key product categories, forcing it the company to match those cuts.
“This is an extremely disappointing result for our shareholders,” said chairman Bill Stevens.
“While a range of new initiatives had been identified to address declining sales in the second half, they have not been landed successfully.”
“Non-product related costs including Store Wages, Occupancy Costs and Head Office Costs have been well controlled during the half, with material cash reductions on rent renewals still being delivered.
“Notwithstanding this, we were unable to achieve acceptable rental outcomes on seven stores up for renewal during the half and these stores will be closed by the end of June<“ the company revealed in yesterday’s statement.
The company’s general manager of supply chain, strategy, and innovation, Dani Aquilina, has been appointed as the acting CEO while a permanent replacement is found.
“One of the key priorities for the new leadership of the business is to generate sales growth and develop strategies to respond to the challenging retail environment,” Mr. Stevens said.