The Reject Shop sees dividend reinstatement and growth

Company News

by Glenn Dyer

In the world of retail, divergent outcomes are evident between The Reject Shop (ASX:TRS) and Lovisa, showcasing distinctive retail strategies. On one end, The Reject Shop, renowned for its discount variety offerings, has sprung a surprise by reinstating dividends and planning a $10 million share buyback, buoyed by improved sales and profit figures.

After a series of lackluster results, executive changes, and dwindling sales, TRS has taken a sharp turnaround. Particularly noteworthy is the dividend's reinstatement and increase, marking a substantial shift from the years of underperformance. TRS has declared a final dividend of 6.5 cents per ordinary share and a special dividend of 9.5 cents per ordinary share, culminating in a total of 16 cents per share for the fiscal year ending in June. This is a remarkable shift from zero dividends in the preceding years.

These dividends, which equate to approximately 60% of net profit after tax for 2022-23, will be fully franked at a 30% tax rate. The annual report reveals a 5.8% rise in sales to $819 million, a 36% surge in EBIT to $20.8 million, and an impressive 63% growth in net profit after tax to over $10 million.

While specific guidance for the coming fiscal year is absent, TRS has signaled a strong start to 2023-24, with comparable store sales for the initial seven weeks growing 4.4% year-on-year. This positive response is attributed to the introduction of a new general merchandise range, enticing customers seeking savings on essential branded items. Furthermore, Clinton Cahn, acting CEO, will continue in the dual role of Chief Financial Officer while the search for a replacement continues.

In contrast, Lovisa, a global budget jewelry chain predominantly targeting women, grapples with a dividend reduction following a sluggish beginning to the 2023-24 financial year. Unlike TRS, Lovisa experienced a notable slowdown, with comparable store sales dropping by 5.8% in the initial seven weeks of the fiscal year. Nonetheless, total sales increased by 13.1%, driven by ongoing store expansions.

Lovisa has curtailed its final dividend by 16%, amounting to 31 cents per share (70% franked). This resulted in a full-year dividend of 69 cents, a decrease from the 74 cents per share in the previous year.

Despite the challenging trading environment in certain markets, Lovisa persisted with its expansion strategy, adding 210 new outlets and 12 new markets, reaching a total of 801 stores by June 30.

CEO Victor Herrero underscored the company's growth momentum despite the trying conditions, especially in the latter half of the year. The company remains focused on global expansion while maintaining robust profit growth. Lovisa's financial resilience, aided by an adjusted capital structure and the inclusion of debt, positions the company favorably for ongoing expansion.

In the market response, TRS shares climbed by about 2%, whereas Lovisa's shares dropped more than 9% by midday.

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.

Subscribe to our Daily Newsletter?

Would you like to receive our daily news to your inbox?