For the second time in two years, shares in discount retailer, The Reject Shop (TRS) have been pounded after shocking the market with a surprise sales profit downgrade.
The previous effort was back in early 2015 and that sales and share slide saw the company change management and strategy, which up to midway through 2016 seemed to be working.
But there were signs in the December half year of sluggish trading and that was confirmed on Friday with news of a slump in sales, a drop in profit and no dividend for the second half of the 2016-17 financial year.
The company’s shares plunged 35.5% (against a 24% slide in February 2015) to $5.11, the biggest daily fall in more than two years.
The $5.11 close last Friday was lower than the $5.28 hit in June 2015 and is the lowest the shares have been for a decade.
The Reject Shop said the weak trading conditions mentioned in its half year results released in February have continued across its stores in all states and it now expects a full-year profit of about $12.5 million – compared to $17.1 million in 2015-16.
Total comparable sales are down 4% in the second half to date, with significant underperformance flagged particularly in its Western Australian and ACT outlets.
The lacklustre performance has seen it project an operating loss of $5 million for the second half, which would drag full-year profit down to $12.5m.
The Reject Shop also declared a final dividend of 19 cents a share last year, but the group told shareholders to expect nothing this time around.
“This is a disappointing development for our shareholders and an underperformance,” managing director Ross Sudano said in a statement.
“The extremely challenging external environment, as well as execution issues with our merchandising strategy, have combined to deliver a weak sales trend, outweighing the positive sales momentum achieved during December.”
Mr Sudano added feedback from customers suggested the group had been focusing too much on variety products, with the group set to respond by altering its product mix and its promotional materials.
“(A) reduced focus on our everyday value and bargains, and its impact on our in-store promotional program, has adversely affected our foot traffic,” he said.
“Coupled with the challenging market environment, where customers are reducing their discretionary spend, our promotional activity has not generated the incremental foot traffic required to grow comparable sales.”
