Reject Shop anticipates earnings slump despite sales growth

Company News

by Glenn Dyer

Discount retailer The Reject Shop (ASX:TRS) is expecting a more than halving in earnings for the year ending June 30, despite reporting reasonable sales growth for the latest quarter and financial year to date.

In an update to the ASX on Thursday, the retailer stated it expects full-year EBIT (Earnings Before Interest and Tax) and, before accounting for leases, to be in the range of $4.0 million to $5.5 million.

The company didn’t provide any comparisons, but its 2022-23 report indicated that EBT before accounting for leases was $13.3 million, while in the December half-year it was $19.4 million, suggesting TRS will incur a significant loss for the June half-year.

The update caused the shares to lose nearly 5% in the first 10 minutes of trading Thursday morning.

CEO Clinton Cahn commented, "Like many Australian retailers, The Reject Shop is currently facing a number of macro and inflationary pressures, including higher wages, domestic supply chain costs, and shrinkage. As we prepare for FY25, my team and I are very focused on improving gross profit margin and managing the cost of doing business.”

Cahn added, “The Company’s strong balance sheet positions us well in the uncertain macroeconomic and consumer environment.”

The update revealed that headline sales were up 4.1% in the second half so far - which is better than inflation - while comparable store sales are up 3.3% (which is around the rate of inflation).

Cahn stated in Thursday’s statement that “Our customers continue to respond positively to our new and improved merchandise offering… We are focused on continuing to grow sales in FY25 by further refining our merchandise strategy and continuing to expand our store network.”

Directors noted that the company saw growth "in both customers and units per basket has driven comparable store sales growth during the second half. This represents a continuation of the positive sales momentum achieved during the first half, notwithstanding the challenging macro and retail trading environment."

"Sales growth in consumables categories has remained strong as customers continue to visit The Reject Shop for low-priced consumables that represent great value, particularly branded products. In general merchandise, the Easter and Mother’s Day events performed strongly and the ongoing newness and differentiation in our Home range has continued to resonate well with customers. With the cost of living pressures remaining elevated, sales in the more discretionary, commoditized general merchandise products have been softer,” directors said in the statement.

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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