Discount retailer The Reject Shop Ltd (ASX: TRS) reported a rise in revenue yet a disappointing fall in net profit for the first half of financial year 2015. Still, that hasn't put off investors as the stock rocketed up as much as 9.4% in morning trade after the results announcement.
Shares are still way down from $17.00 highs back in January 2014. Just yesterday the stock set a multi-year low of $5.35. The previous Christmas and Easter shopping seasons in late 2013 and early 2014 were marked with poor performance. The company conducted a review of its product offerings and pace of opening new stores over the past year. A harsh retail environment and weak economy didn't help the company and other retailers like Super Retail Group Ltd (ASX: SUL) and Kathmandu Holdings Ltd (ASX: KMD) both saw a huge decline in share price in 2014.
Here are the half-year results highlights:
Sales $402.2 million, up 4.4% / Comparable store sales growth: -3.3%
Earnings before interest and tax, depreciation and amortisation (EBITDA) reported EBITDA was $28.5 million, down 14.4%
Net profit after tax (NPAT) reported NPAT was $12.8 million, down 24%
Earnings per share 44.4 cents per share, down 24.1% from 58.5 cps in the previous corresponding period
Dividends per share 16.5 cents per share, down 23.3% from 21.5 cps
Takeaways from the results
Comparable sales showed improvement from the first quarter (-5.4%) to second quarter (-1.7%) with better retail conditions and a stronger Christmas sales season. However, interim comparable sales were still down 3.3%. Investors will need to follow second-half results to see if this trend continues.
New store additions will be reduced to keep operating costs under control. The Reject Shop is still adjusting its total store numbers to meet the market's realities and is rationalising stores that are not meeting minimum performance metrics. During the first half, 19 new stores were opened and 3 were closed, raising the total store count to 337 nationwide. The company's target is now to selectively open 10 – 15 stores per year.
The balance sheet has been strengthened with a higher cash position and the company is paying down long-term debt steadily to make it a more solid business.
Is this a chance to pick up a discount in The Reject Shop shares? The price is definitely low, yet analysts' forecasts for full-year financial year 2015 earnings are for them to be down. Sales may benefit in the second half from recent interest rate cuts and lower petrol costs.
I would prefer Super Retail Group because it is larger company and looks to be turning up in sales and earnings already.
