The Reject Shop could be a recession-buster after signing new deal

The Reject Shop Ltd (ASX: TRS) share price is trading more than 2% higher today after the company signed a new deal with a supermarket giant.

Nikhil Gangaram

Nikhil Gangaram is currently studying dentistry, however, his first love is the stockmarket which he believes to be the greatest wealth generator in the world. Nikhil has extensive experience in financial markets with a background in economics and having worked as an Australian equities trader for a proprietary firm. His investment philosophy has developed from being a short-term speculator to building long-term and sustainable portfolio returns. Nikhil hopes to help readers become better investors by focusing on stock selection and risk management.

Published September 2, 2020 4:01 pm AEST

The Reject Shop Ltd (ASX: TRS) share price is trading 2.01% higher today after the company signed a new deal with a supermarket giant.

View of hand holding pen signing new deal with glasses sitting on table next to contract papers. — Image source: Getty Images

Reject Shop share price lifts on deal with Tesco

According to an article on news.com.au this morning, the Reject Shop had inked a new 3-year deal with UK supermarket giant, Tesco.

According to the article, the new partnership will see Tesco-branded grocery items stocked in 354 Reject Shop stores. The first products to be stocked will include packaged food, health, beauty and household products.

The Reject Shop's management highlighted that the deal will offer customers more choice and high quality products at a discount price.

Reject Shop CEO Andre Reich stated: "We're all facing tough economic times, and The Reject Shop will always help people save money".

How did the Reject Shop perform in FY20?

For FY20, the Reject Shop reported a huge improvement in its financial performance.

After delivering a $16.9 million loss in FY19, the company reported a net profit of $1.1 million for FY20. Despite the return to profitability, shares in the Reject Shop dropped as the company missed net profit expectations.

The company also reported a 3.4% increase in sales for FY20 of $820.6 million and 30.1% surge in earnings before interest, taxes, depreciation and amortisation (EBITDA) of $23.7 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.

Why the Reject Shop could be a recession-buster

Following today's news of a 7% contraction in GDP growth, Australia is facing its first recession in nearly 30 years. As a result, discount retail operators like the Reject Shop could be poised to benefit.

With traditional retailers facing troubling times, shoppers could turn to budget retailers like Reject Shop. The company has a firm footing in Australia's 'dollar shop' industry and could see a surge in demand as economic times get tougher.

In addition to deals with supermarket giants like Tesco, Reject Shop is embarking on an ambitious growth plan. Additional initiatives include establishing more physical stores and online shopping facilities. This potential has been reflected in the Reject Shop's share price, which has bolted more than 123% for the year.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.