No trading update from The Reject Shop at its annual meeting yesterday, but a heads up for shareholders that the company plans to renegotiate a slew of store leases.
That sent the shares down more than 5% in the last hour of trading to close at $6.68.
The annual meeting was told the company will try to renegotiate over half of its rental agreements with landlords as the COVID-19 pandemic forces a drastic change in shopping habits.
The company will join the likes of Premier Investments (JayJay Jeans, Portmans, Smiggle, Dotti, Peter Alexander) in taking on shopping centre owners for rent reductions and other lease changes. Mosaic Brands is another to have had a run-in with centre owners such as Scentre.
Chairman Steven Fisher said the company’s 355-stores had performed at “varying levels” during the pandemic, prompting the retailer to review its network.
“Stores in neighbourhood and strip locations have performed much better than stores in large shopping centres and the Central Business Districts of capital cities due to customers heeding advice from authorities to stay at home and limit interactions with others,” he said.
“The company is working constructively with its landlords—both existing and potential—to reduce occupancy costs to ensure that the company’s cost base better reflects the sales opportunity associated with each store.”
CEO Andre Reich told the meeting in a more blunt manner.
“In FY21, the Company will seek to renegotiate 87 leases that are either in holdover or will expire during the year with a further 130 in FY22. This means we have an opportunity to improve our property portfolio in the short-term,” he said.
“The Company’s weighted average lease expiry remains at approximately two years.”
While Reject Shop is threatening to close stores on the one hand, it’s on the lookout to open new ones in lower-cost locations, a point the company and its leaders stressed to the AGM several times.
It’s also trying to develop its online shopping portal to capitalise on the structural change in the way consumers shop (as are the likes of Lovisa).
Driving cost down is a key priority for the retailer as it’s on the first phase of its turnaround strategy. The key goal is to stop the slide in earnings and expand earnings before interest and tax (EBIT) margins to 5% from 0.6% that it posted in 2020.
Mr. Reich is also looking to reduce the range of items sold in stores by as much as 75% to simplify operations, cut costs, and increase buying power.
“Once the Company’s cost base is set at a sustainable level, the Company is expected to be well-placed to pursue longer-term growth through store network expansion and e-commerce,” he said.
“The team has already started looking for new store opportunities across the country and is also in the early stages of trialing an e-commerce offering that complements our established bricks and mortar offering.
“We are busy repositioning The Reject Shop as the place for all Australians to shop first and save. As Australia moves into some uncertain economic conditions,” he said.
The TRS share price has surged 90% since the start of 2020, while ASX shopping centre stocks are down by between 16% and 40%. Investors reckon the retailer is the winner.