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

View of hand holding pen signing new deal with glasses sitting on table next to contract papers
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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.

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.

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Motley Fool contributor Nikhil Gangaram 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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