The Reject Shop Ltd (ASX: TRS) share price is on watch today after releasing a trading update. Will investors put the shares on sale?
Why is the Reject Shop share price in the spotlight?
Reject Shop is a leading discount retail business in Australia. However, it’s experiencing continued sales impacts. The company blamed Brisbane, Perth and Victoria lockdowns, as well as COVID-19 concerns in NSW for weaker conditions a few months ago. CBD and large shopping centre locations were suffering from weaker footfall.
Since February, the CBD locations and large shopping centres continue to trade well below pre COVID-19 levels.
The company’s preliminary figures show comparable sales for the 48 weeks ending 30 May 2021 were down 1.4% compared to the comparable period in FY19.
Reject Shop said that comparable sales at CBD locations and large shopping centres (47 stores) were down 12% while the remainder of the portfolio (290 stores) were up 0.9%. Of the 47 CBD and large shopping centre stores, approximately 35 of these have leases that expire in the next 12 months or are currently being renegotiated or have recently been renegotiated.
The retail business also said it’s still seeing elevated supply chain costs, particularly international shipping costs as well as costs associated with holding inventory because of international shipping delays.
Guidance
Reject Shop has tried to reduce its costs to make up for the sales shortfall.
It’s expecting FY21 full year sales to be in the range of $776 million to $778 million and underlying EBIT (EBIT explained) for FY21 is expected to be in the range of $8 million to $10 million.
This could be subject to change. Reject Shop pointed out that year-end adjustments (like stocktake) and the latest lockdown in Melbourne make conditions harder to judge.
Network expanding
Despite the above problems, Reject Shop is still looking for new locations, particularly in regional Australia. The national store footprint has increased to 359 stores, up from 354 at the half year result. It’s expecting to open two new stores in June and nine stores in the first quarter of FY22.
Summary thoughts on Reject Shop and the share price
Reject Shop has been volatile over the last five years and ten years. On paper it has quite a lot of potential – a growing store network, a focus on growing margins and a potential opportunity with e-commerce.
But short-term trading disappointment can undoubtedly send the Reject Shop share price lower. Time will tell if it can turn things round.
