Shares in Reject Shop Ltd (ASX: TRS) have dipped 12% after the company reported its results for FY20. At the time of writing, The Reject Shop share price had dropped to $6.82 after closing yesterday's session at $7.75.
How has The Reject Shop performed in FY20?
Earlier today, The Reject Shop released its financial results for FY20.
The report was highlighted by a net profit of $1.1 million for FY20 which saw that The Reject Shop return to profitability. However, the net profit result was below consensus forecast of $2.2 million for the year ending 30 June.
Additional highlights from the company's report included a 3.4% increase in sales for FY20 of $820.6 million. In addition, earnings before interest, taxes, depreciation and amortisation (EBITDA) for FY20 also surged 30.1% on the prior corresponding period to $23.7 million with The Reject Shop boasting free cash flow of $61.6 million.
According to the company, sales growth was fuelled by strong consumer demand for 'essential' products during the COVID-19 pandemic. The Reject Shop reported strong performances in cleaning products, groceries, toiletries and pet care. The company also reported a surge in demand for 'at home' items such as stationary, craft products, kitchen needs and electronic appliances.
Despite a miss in net profit expectations, the Reject Shop's performance in FY20 is a huge improvement from its $16.9 million loss in FY19. The company's management attributed the turnaround to a rebound in sales and heavy cost cutting. This was reflected in the company's cost of doing business, which fell to 26.7 % in FY20 from 39.9% a year ago.
The Reject Shop also noted $92.5 million cash on hand for FY20 and declared no dividend.
What is the outlook for The Reject Shop?
The Reject Shop highlighted that the COVID-19 pandemic has provided the company with the opportunity to reset and grow.
Management noted that with uncertain, future economic conditions, the company's product range could appeal to more consumers. The retailer also highlighted that the discount-variety sector is under-represented in the Australian retail market.
As Australia's largest discount-variety store, The Reject Shop maintains that the company is well positioned to capture growing market share. In order to harness the opportunity, The Reject Shop plans to simplify the business and shrink its product range and inventory.
In addition, the company will look to refresh its merchandise mix in favour of more essential items. In doing so, The Reject Shop hopes to reverse a 3-year slide in earnings.
About The Reject Shop share price
As mentioned, at the time of writing The Reject Shop share price has fallen 12% in today's trade. The Reject Shop share price has recovered 184% since its March low and has increased 105% in year-to-date trading.
