The Reject Shop Ltd (ASX: TRS) could be poised to fly after releasing a promising half-year report for FY21. At the time of writing, the Reject Shop share price is trading slightly higher for the day at $7.55, up 1.9%.
What did the Reject Shop announce?
Earlier today, Reject Shop released its financial report for the first half of FY21.
The report was highlighted by a 46.5% increase in net profit after tax (NPAT) of $16.3 million. In addition, Reject Shop reported a 20.8% increase in Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITA) of $31.1 million for the half-year.
Despite a surging net profit, the company reported sluggish sales for the first half. Consequently, for the 6 months to 31 December 2020, Reject Shop reported a 0.3% dip in sales of $434.3 million.
Reject Shop also acknowledged the company's strong balance sheet, boasting $107.6 million in cash on hand. In addition, the company highlighted that no JobKeeper wage subsidies were received by the company despite pandemic restrictions.
Reject Shop cited the company's strong cash position was driven by prudent cost reduction, business simplification, and operational efficiency. Despite a strong cash position, Reject Shop did not declare an interim dividend.
What is the outlook for the Reject Shop?
The company highlighted that performance in the first half of FY21 should not be used as an indicator for the second half. Reject Shop acknowledged that a higher proportion of sales are generated in the first half. Historically, the company has reported EBIT losses in the second half over the past 2 financial years.
Despite the dour outlook, Reject Shop noted that management will continue to focus on cost reduction, business simplification, and operational efficiency.
Reject Shop also noted that stores in CBD locations and large shopping centres could suffer from reduced foot traffic. In addition, the company highlighted further challenges to its international supply chain which could impact stock availability and increase costs.
Reject Shop Chief Executive Officer, Andre Reich, noted that:
Once the cost base is optimised, we expect to be well-place to pursue longer-term growth via store network expansion and by growing our online presence.
Reject Shop Share Price Outlook
With 354 stores, Reject Shop is Australia's largest discount variety store. Despite uncertainty over short term growth, the company maintains that it is well-positioned to capture a growing market share.
This optimism has been reflected in the Reject Shop share price which has surged more than 78% in the last year.
