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Reject Shop share price hammered on guidance downgrade

Unfortunately for its long-suffering shareholders, the Reject Shop Ltd (ASX: TRS) share price has dropped notably lower once again.

In early trade the discount retailer’s shares are down 9% to $2.06. This means they have fallen a massive 69% since this time last year.

Why is the Reject Shop share price sinking lower again?

The retailer’s shares have come under pressure today after it downgraded its full year guidance and announced the exit of its chief executive officer.

According to the release, tough trading conditions in the retail sector have led to sales across the retailer’s network falling well below expectations.

Reject Shop’s comparable store sales in the second half are currently down 2.9%. This has led to its year to date comparable store sales falling 2.7%.

In addition to this, the company’s gross margins have fallen as the expected benefits from sales and merchandise related initiatives have not landed with consumers during the half.

This margin pressure has been exacerbated by the competitive pricing pressure placed on a number of key sales departments from both the major supermarkets and department stores. This forced price roll-backs across a number of key lines as the business looks to maintain its price gap in the market.

In light of this underperformance, management advised that the company will be unable to achieve its full year net profit after tax guidance of between $3.1 million and $4.1 million. Instead, it expects to post a loss after tax of between $1 million and $2 million.

CEO exit.

The company’s chairman, Bill Stevens, advised that CEO Ross Sudano will leave the business in the near term.

He said: “After a period of consolidation of the significant growth undertaken by the Company, the board, in conjunction with Ross, has determined that this is an appropriate juncture to seek a new Chief Executive to guide the company through the next phase of its growth and to bring renewed energy and vigour to the role.”

An executive search process has been commenced to find a replacement, but in the meantime the company’s general manager of supply chain, strategy and innovation, Dani Aquilina, has been appointed acting CEO.

The shares of rivals Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) are both trading higher today.

Need a lift after these declines? This could be the share to buy. It has been rated as a buy and tipped for very big things.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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