Reject Shop (TRS) shares jumped 16% or more to $7.39, an 11-month high, after it claimed it was back on track after several years of weak or indifferent growth.
The Reject Shop management told a briefing that it now expects the strong rebound in same-store sales and earnings seen in the second half of 2015 to continue in the 2015-16, underpinning the first full-year profit growth for four years.
As a result of that confidence Reject Shop declared a final dividend of 13.5 cents a share, taking the full year payout to an unchanged 30 cents a share. The shares ended up 16.3% at $7.40.
After a 24% slide in net profit in the December-half to $12.8 million, full year net profit was down just 1.9% to $14.2 million – beating market forecasts – as the company returned to profit in the June-half (which is traditionally the slower of the two half year periods).
Reject Shop’s earnings have been on a downward trajectory since 2010, when the discount variety retailer earned $23.3 million after tax.
The Brisbane floods in early 2011 battered it, damaging a new warehouse in Ipswich and boosting costs, while the retailer started to lose its way with competition at the bottom of the market as Kmart and Target moved down into the sector in search of sales and earnings growth. It worked for Kmart, but not for Target.
Managing director Ross Sudano, who has been in the top job for around a year has steadied the wobbling business by a makeover, new store layout, changed marketing and concentrating on every day products such as groceries, pet care, party needs, household cleaners and health and beauty products to bring customers into stores.
Mr Sudano told analysts and media at ab briefing yesterday that more customers are coming into Reject Shop’s 335 stores and spending more.
The company’s rebound can be seen from a comparison of same store sales. After falling 3.3% in the first half, same-store sales rose 2.3% in the second half and were up by a solid 4.7% in the final three months of the financial year.
Topline sales rose 6.4% to $756.8 million as the company opened 21 new stores, including a new format store at Kellyville in Sydney which will be the model for future stores.
After years of rapid store growth, when Reject Shop took over leases vacated by a failed rival, Discount Superstores Group, the company now plans to open a more modest 10 stores a year.
Mr Sudano said the improvement in foot traffic and transactions had continued into the first few weeks of 2016.
"Every week we have seen transaction growth and on top of that basket size growth," Mr Sudano said. "We are getting consistently more people in our stores."
Mr Sudano also sees scope to open small-footprint and new format stores to take Reject Shop’s into new shopping areas.
Chairman Bill Stevens said in the statement yesterday:
"The Company’s balance sheet is strong, with modest gearing. The solid operating cash-flow enables us to continue a steady expansion of our store network as sensible economic opportunities are identified. This cash flow also enables us to continue a total annual dividend payout for the year of 30.0 cents per share, including the final dividend of 13.5 cents per share.
"Although the lower first-half result contributed to the slightly lower annual profit when compared to the prior year, the Board consider that payment of the same dividend as 2014 is appropriate.”
"The accelerated new store roll-out program of 2012 through December 2014, together with the expanded Distribution Centre capability, give us the base from which to continue a steady organic-growth model."
