The expected weaker result from The Reject Shop (TRS) has seen the retailer cut interim dividend after revealing a slide in profit for the half.
Shareholders will receive a payment of 21.5c a share from the company on April 14, down from the 24c a share paid for the first half of 2013.
The payout would have been much smaller but for the company’s board deciding to boost targeted payout ratio to shareholders to 60% of profit, from the 50% level that had ruled since the company’s just opened distribution store in Ipswich near Brisbane was badly damaged in the huge 2011 floods.
The new 60% rate will be held for the rest of this year and into 2014-15, which could soften the blow from another six months of weak revenue and earnings in the current half.
Historically, the company has earned a disproportionate amount of revenue and profits in the first-half.
That means the payout in the current half could be weaker than expected if there’s no pick up.
Directors though said the company is looking to improve on the weak comparable store sales growth which plagued the business during a poorer-than-expected Christmas trading period and produced last month’s surprise downgrade.
The discount retailer reported a 15.9% fall in net profit to $16.9 million.
The company now forecasts full-year profit between $17-$18 million, compared with $19.5 million for the previous year, which included a $2 million insurance recovery. In other words the underlying result will be flat, but that does depend on trading in the current half.
Revenue from sales rose 17.7% to $385 million, but this was largely from the opening of 33 new stores in the first-half.
Comparable sales growth was flat for the first half, which isn’t a good sign.
TRS 1Y – The Reject Shop confirms its slide
And while the retailer says it will push forward with its plans to open another 12 stores in the second-half, it also made it clear that under-performing outlets will be shut if they can’t be fixed, or if landlord rents are too high.
CEO Chris Bryce said the company is continuing to monitor costs and long-term viability of locations.
”Reductions in occupancy costs continue to be achieved as leases have been renewed, and will continue to be a major focus going forward. We will close stores if appropriate terms are not achieved.
"We have closed one store during the period with a further four stores currently under negotiation which may close this half," Mr Bryce said in yesterday’s statement
The fall in the number of new store openings will allow management to focus on fixing the problems.
The falling Australian dollar is also adding to problems for the retailer which sources most of its products from overseas.
The company has been expecting the currency to fall and had taken forward cover, which helps protect the retailer against a further weakening in the dollar.
But if the dollar doesn’t fall, or starts rising, as it has done in the past three weeks, the forward cover could prove useless. It all depends on the rate for the Aussie dollar in the cover.
TRS shares ended up less than 1% at $10.75.
