The Reject Shop (TRS) is heading up market and away from its ‘cheap as chips’ roots as it tries to halt a slide in earnings and the impact of growing increased competition.
Competition is intensifying at the bottom of the local retail sector as the likes of Kmart, Big W and Target market go down market in search for growth and bump into the likes of The Reject Shop and struggling groups such as Retail Adventures, the failed discount chains associated with entrepreneur, Jan Cameron.
That growing competition has crimped margins and earnings for TRS at a time when it should be doing well with customers hesitant about spending and looking for value for their dollars.
The retailer said yesterday it will now start moving its stores towards higher margin goods and give more shelf space to high sales categories in 2015.
It is also reformatting its stores to improve their look and offer.
The full benefits of this change to its entire store network should start to be seen as the company heads into the second quarter of 2015, TRS said yesterday.
"The Company anticipates improvement overall in our operating costs to sales as we leverage a higher sales base.
"We will continue to target productivity gains in stores and look to reduce occupancy costs on renewal. Refining our promotional spend to geographic segments coupled with our increased store presence should help moderate our marketing spend to sales," directors said yesterday.
"The Company expects underlying profit growth for the current year, underpinned by the extensive store opening program in FY2013 and FY2014," the company said yesterday.
But that’s in the future, the past year, especially the last six months, have been pretty tough with bad news from the company this year with a couple of downgrades.
As a result the 2013-14 annual results, released yesterday, revealed a 25.6% slide in full-year net profit to $14.5 million.
While that was in line with an earnings warning delivered in June, the sluggish performance of its chain of stores has continued into the 2014-15 year with like for like store sales (or same store or comparable store sales) for the first six weeks of the new financial year still falling.
TRS 1Y – Profit, growth slip at The Reject Shop
"The Company has had a challenging start to FY2015 with the first month of the year yielding negative comparable sales growth," directors said yesterday.
Big electronics retailer, JB Hi-Fi (JBH) is another market leader among retailers to have reported the continuation of sales softness from the old year into the new financial year.
And there’s every chance that will continue until consumer confidence strengthens.
And until that happens, TRS and its shareholders will face tough trading and a weak share price.
TRS shareholders have already seen a 50% drop in the value of their shares since their peak last October at $18.47.
They dropped a further 2% and more yesterday to a low of $9.03, still well above the year low of $7.95 reached in June after the latest downgrade.
But they recovered somewhat in late trading to close down 0.6% on $9.24.
And yesterday there was more pain with the final dividend cut to 8.5c a share from 13c in 2012-13.
The interim was cut to 21.5c from 24c, making a total for 2013-14 of 30c, down from 37c the previous year.
While that is a payout ratio of 60% of earnings per share, directors made it clear the ratio would be assessed each half year, based on underlying trading and the financial needs of the company.
Chairman Bill Stevens said in his statement yesterday, "The financial performance for the 2013-2014 year was extremely disappointing. While we always believed the benefits of our accelerated store opening program would take time to fully emerge it is clear we still have some way to go and need to better engage with elements of our customer base.
"The company is now in a consolidation phase and the Board expects that this will remain largely consistent with the underlying strategic direction that we have conveyed.
"Nonetheless, our new Chief Executive Officer, Mr Ross Sudano, will be joining us on 11th September 2014, and we welcome his arrival.
"Once Ross has had the appropriate familiarisation opportunity, the Board looks forward to engaging with him on the future strategic development of the company."
The company reported a 15.1% rise in headline sales to $711.5 million with comparable store sales – which strips out the impact of new store openings – down 0.45%.
Reported net profit fell to $14.5 million, while adjusted profit was 2.3% weaker at $19.5 million.
The adjustments to the profit included new store opening costs, asset write-offs and other asset impairments (of $960,000).
But despite the weak 2013-14, and as it heads up market, the retailer is still spending on an expansion plan, and is busy revamping its existing stores.
The retailer said it would rigorously negotiate with landlords with more than 60 lease renewals scheduled for fiscal 2015.
That’s in addition to plans to open a further 15 new stores in the current half, with three of those already opened.
"The Company will continue to increase its store portfolio and anticipates by the end of FY2015 to have 340 stores open and trading," TRS said yesterday.
As well as the new store, the company is reformatting and revamping every existing store to improve the selling experience for customers and try and drive turnover with more new products being introduced and turned over.
"As part of our desire for enhanced engagement with our customers, and to better satisfy their shopping requirements, we are currently reformatting all of our stores. We believe that this will make it a better experience for our customers," the chairman said in his commentary yesterday.
