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Reject Shop share price climbs higher on business update

The Reject Shop Ltd (ASX: TRS) share price has opened 4% higher this morning after the ASX retailer announced a business update on its recent sales.

Jump in sales of core products

This morning, the discount retailer revealed that over the last three weeks, it has experienced a significant jump in sales due to customer concerns around coronavirus. With this, comparable sales were 5.7% higher for the first 11 weeks of the current half-year period ending June 2020 (2H20).

The Reject Shop pointed out that in comparison, for the first eight weeks of 1H20, comparable sales were only 2.3% higher.

Sales during the most recent three-week period between 24 February to 15 March 2020 have seen particularly strong demand for cleaning, groceries, toiletries and pet care products.

Other retailers which are experiencing a jump in sales for certain items include our largest two food retailers,  Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL). Both supermarkets have now placed restrictions on the sales of certain items including toilet paper, tissues and hand sanitisers, as customers rush to stock up.

The Reject Shop acknowledges that it is unknown how long the current elevated period of sales for these kinds of products will continue.

On another positive note, the discount retailer noted there has been a recent improvement to its product range and it is now starting to receive goods from its China-based suppliers. This comes after production in China had been slowed right down due to coronavirus movement restrictions.

The Reject Shop’s recent difficulties

In addition to being caught up in the wider market correction on the ASX over the past couple of weeks, the Reject Shop share price has come under pressure following the retailer’s 1H20 results release and announcement of an equity raising late last month.

The Reject Shop reported total sales of $435.7 million for the half-year, up only 0.7% on the prior corresponding period, while comparable store sales increased only 0.5% for the period. Earnings before interest and tax (EBIT) for the discount retailer increased 3.9% to $16.1 million. With regards to the impact of the coronavirus moving forward, the Reject Shop noted that it was too early to comment on any impact it might have on its financial performance.

In the same announcement back in late February, the Reject Shop announced a $25 million equity raising via an entitlement offer available to Australian and New Zealand shareholders. The company’s business update today seems to be very much aimed at providing an update to eligible shareholders for this capital raising.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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