What: As has been expected, The Reject Shop Ltd (ASX: TRS) today reported a sharp decline in full-year profit. While the shares fell to a low of $9.03 early in the session, they soon recovered to be trading 5 cents or 0.5% higher. The shares are now priced at $9.35, which is 49.4% below their 52-week high of $18.47.
So What: While the discount retailer opened 46 new stores across Australia over the year, its comparable store sales dropped 0.45% which highlighted its inability to grow organically in recent times. A very quiet Christmas and Easter period, as well as strong declines in sales during the latest quarter, were the primary reasons behind the decline.
Although the company recognised a 15.1% increase in sales revenue to $711.5 million, its full year profit declined by 25.4% to $14.5 million for the year. This had largely been expected following The Reject Shop's revised guidance, delivered in June.
Below are some of the other highlights from the results.
- Adjusted net profit after tax (NPAT) declined by 2.3% (adjusted for new store opening costs, non-cash charges for underperforming stores and store closures/relocations, and insurance amounts received for Queensland flood claims from FY2013)
- 20 new stores planned for FY2015
- Final dividend of 8.5 cents per share, compared to last year's 13 cents per share
- Highly experienced retail executive Ross Sudano appointed new CEO
Now What: Unfortunately, the tough retail conditions have carried over into the first six weeks or so of the new financial year, which the company hopes will pass in the coming weeks. Regardless, it is targeting a return to earnings growth in FY2015, while it will continue to assess store leases to determine if it is financially viable to keep them open.
A better bet than The Reject Shop
Despite its recent struggles, The Reject Shop presents as a quality business which should fare well for investors in the long run. Furthermore, given the nature of the products it sells, it is relatively protected from the rapidly expanding online retail sector, making it one of Australia's more appealing retailers. However, I personally wouldn't be buying any shares until I was confident comparable store sales were back on track.
