As it warned earlier in the year discount retailer, The Reject Shop lost money in the year to June and suspended its final dividend.
It is also under pressure financially after admitting that it has breached its banking covenants. In fact, the banks are providing working capital finance so it would be fair to say that The Reject Shop is now effectively in the hands of its bankers.
The earlier warning said that the weak retailing conditions and poor sales would hurt the company in the June half and that’s what happened.
And even though the warning was there for all to chew over since late May when the downgrade was issued and the departure of then CEO Ross Sudano revealed, the shares have not really adjusted to the terrible trading situation the company now finds itself in.
They fell to a low of $1.83 in late June, a month after the update and CEO’s departure was announced. The shares then rebounded to a recent high of $2.25 on August 12. When reality hit the shares sold off to a low of $1.95 before recovering to end at $1.985, down 8.5% on the day.
That is a false market because investors seem to have pinned their hopes for a renewed attempt to buy the company by Melbourne based billionaire Raphael Germinder. That bid at $2.70 a share was made last November and rejected by the company, so the offer lapsed.
There’s no way a new bid around $2.70 will be made (perhaps Mr. Germinder considers himself to be very lucky at avoiding the trading disaster that befell The Reject Shop in the second half).
The full-year loss of $16.9 million followed write-downs and disappointing sales, was a complete turnaround from the profit of $16.6 million in 2017-18.
The retailer’s 2018-19 loss came after booking post-tax impairments of $15.4 million and the company said the results meant it had not met its fixed charge cover covenant at June 2019, nor would it meet the covenant in September 2019.
Stripping out the impairments, The Reject Shop reported a loss of $1.5 million, in line with lowered guidance in May.
Total sales for the 12 months to June 30 slipped by 0.8% to $793.7 million, with comparable sales falling by 2.5% thanks to weak trading in Queensland, WA and the NT.
It said it had received a waiver from its bank for both breaches and has support via the continuing provision of its working-capital facilities.
The loss saw The Reject Shop drop its final dividend after paying a 10 cents a share interim earlier this year. The company paid a massive (compared to now) dividend of 35 cents a share in 2017-18 with a 24 cents interim and 11 cents a share final.
Those salad days are long gone and given the weak state of retailing and household spending, won’t be back for some time to come.
The irony is that in these times of weak household income growth and lackluster wage growth, The Reject Shop should be doing well by offering under pressure consumers value for money products. Something has obviously gone wrong and can’t be fixed.
