Shares in The Reject Shop (ASX: TRS) are down by 46% this year following the company's disappointing first-half results which saw net profit falling by 15.9%. Further, the shares declined further following the announcement on 13 March that the Managing Director will be stepping-down from his position at the end of the financial year. No replacement has yet been announced by the company.
Does the recent share price fall present a buying opportunity?
The Reject Shop has historically been known for its mix of low-margin products such as health and beauty and confectionary, however its transition into higher-margin products such as outdoor equipment, home decor and furniture has proven difficult for the company. Consequently, the company's margins have been significantly negatively impacted.
The Reject Shop is a well-established brand that is currently focusing on an aggressive store roll-out. The company' strong investment in its distribution network and IT systems should help reduce costs going forward. Once the company gets its inventory mix correct in order to maximise margins, it should see earnings growth.
Therefore, I believe the company's current problems are only temporary in nature and the long-term growth track remains intact. The recent share price drop represents a buying opportunity for investors.
Another ASX retailer currently offering value and poised for further growth is Kathmandu Holdings Limited (ASX: KMD). The New Zealand-based outdoor adventure retailer recently delivered an impressive half-year result. For the six months ended 31 January 2014, the company increased sales by 10.5% and net profit was up 10.7%. The shares have jumped by almost 15% following the announcement.
The company's future appears to be very bright. It's on track to open 15 new stores in FY14 and now targets 180 stores in Australia and New Zealand from the current store level of 139. Australia is the group's dominant division with 90 stores. During the half, Australian sales grew by 6.6%.
However, where the company can really grow is through its online and international offering by taking the Kathmandu brand to the international market. Online sales grew by 49% on the prior period. Importantly, the company launched its international shipping offering. The Kathmandu brand is globally recognised and highly regarded by the international market, so shipping its products to global consumers is huge growth opportunity.
Foolish takeaway
At the current price of $3.55 and trading on price earnings ratio of 16 times, Kathmandu is a worthy addition to the portfolio of Foolish investors. I believe The Reject Shop's problems are only temporary and the recent share price fall offers an excellent entry point.
