Reject’s Shares Fall As Full-Year Profit Slides
Discount retailer The Reject Shop which operates 385 stores has seen a dip in its full-year net profit, sending its shares tumbling this week.
On Thursday, the day it reported its FY24 earnings, its share price slid by around 8 per cent from the previous day’s close to around A$3.09. It has lost nearly 12 per cent of its share price since the start of this week.
It reported a 54.3 per cent slide in full-year net profits to $4.71m, even as revenue rose 4.1 per cent to $852.74m.
Sales for the year were $852.7 million, up 4.1 per cent over the corresponding period. It generated 2 million more customer transactions over the previous year.
Over the last few years, the company closed 12 stores during the year, including six underperforming stores, three relocations and three which it termed as “regrettable closures”, the result of a tenancy remix by the landlord. It expects to close a further approximately five stores during FY25.
However, in FY25, it is targeting to open approximately 15-20 new stores in FY25, including approximately 10 stores during the first half of FY25.
Some of the factors that pressured its earnings, Reject said, included store closures, which include “the non-cash write-off of assets associated with closures.” It noted that store expenses, including the operating costs associated with opening and closing stores, totalled approximately $2.5 million in FY24.
Some of the other factors that Reject attributed to its performance this year were the headwinds it was facing from “a number of macroeconomic and inflationary pressures.”
It said that the cost of doing business was 37.7 per cent of sales (compared to 36.8 per cent in the previous year). Store expenses were 32.3 per cent of sales, up from 31.1 per cent in the previous year, while administrative expenses improved to 5.4 per cent of sales compared to 5.7 per cent in FY23.
Within store expenses, store labour increased 1 per cent to 14.6 per cent of sales, while store occupancy costs were relatively flat at 13.3 per cent of sales.
Additionally, its gross profit margin result was impacted by higher than anticipated shrinkage and product mix shift towards lower margin consumables.
It said that supply chain costs too had a mixed impact on gross profit margin with the benefit from a reduction in international shipping costs, partially offset by increased domestic supply chain costs.
In FY24, the retailer launched its homewares range, grew its seasonal events offerings around Christmas, Easter and Halloween, and added that it refreshed most of its core ranges and expanded the breadth of its branded low-priced household essentials range.
“While we are pleased with the progress being made in relation to the new merchandise strategy, we recognise that there is an opportunity to improve the profitability of the business. Like many Australian retailers, The Reject Shop is currently facing a number of macro and inflationary pressures, including higher wages, elevated domestic supply chain costs and shrinkage. My team’s key focus in FY25 is to continue to improve gross profit margin while also growing sales through the ongoing improvement of the merchandise offering and expanding our national store network,” said chief executive officer, Clinton Cahn.