Reject Shop CEO out after profit warning

The Reject Shop’s CEO has quit after the troubled retailer announced store closures and flagged a loss of up to $2 million.

The Reject Shop’s chief executive has quit after the troubled retailer announced store closures and slashed its full-year guidance to predict a loss of up to $2 million.

The company said Ross Sudano would leave “in the near term” and general manager of supply chain, strategy and innovation Dani Aquilina had been appointed acting CEO while it searched for a replacement.

Shares in The Reject Shop, which as recently as February reiterated its expectation of a full-year profit of between $3.1 million and $4.1 million, were 6.2 per cent lower after 25 minutes of trade on Thursday and close to the 14-year trough they hit in November.

The Reject shop said merchandising and operational changes it had implemented in the hope of a turnaround had fallen short, with the result it now expected a loss of $1 million to $2 million.

“The reduced earnings guidance reflects a tough trading environment in the retail sector which has continued to be impacted by low consumer confidence, flat wages, increases in the cost of living and a rapidly falling housing sector,” the company said in a statement.

“Gross margins have fallen as the expected benefits from sales and merchandise related initiatives have not landed with consumers during the half.”

Seven stores will close by the end of June after the company was unable to negotiate “acceptable” rents, leaving a network of 357 outlets. It did not say which stores would close.

Breville non-executive chairman Steven Fisher and Zac Midalia, who represents the Allensford group that this year tried to buy The Reject Shop, have joined the company board.

Is this the end for The Reject Shop?

WHAT WENT WRONG?

In October, The Reject Shop slashed its profit forecast, triggering a whopping 44 per cent slump in its price — which was already at a worrying low.

Retail experts say the bargain chain has suffered from the increased competition in the discount department store space.

Business trends expert Dr Lauren Rosewarne from The University of Melbourne said Kmart’s rebranding in recent years means customers can now buy low-priced goods “in an environment less ramshackle and a little more Zen than the Reject Shop offers”.

Not only that, the Aussie bargain market has a new and ever-expanding German kid on the block who has disrupted the industry in style, Aldi.

Dr Rosewarne also said online competition, notably eBay and Aliexpress, were taking business from The Reject Shop.

She said that, to deal with these threats, the discount chain needs some sort of experience to entice customers to visit its shops.

“The Reject Shop never had a ‘destination’ or ‘experience’ element to it for customers, nor an ability to truly offer visitors goods they couldn’t get elsewhere,” she said.

“These two things need to be worked on by chain retailers wanting to survive in a challenging space. A store needs to be more than a place to by an emergency roll of wrapping paper or a close-to-expiry box of cereal in 2018.”

However, Mr Sudano, said back in October the sales slide is due to an “extremely challenging consumer environment”, rather than any problem with the company’s strategy or execution.

“The continuing absence of real wage growth and increases in the cost of many basic expenses (including mortgage rates) ensures that competition for the discretionary spend of consumers remains high,” he wrote in a market statement.

“In addition, we have seen increased investment in promotional pricing across many retailers, particularly in the fast-moving consumable goods (FMCG) space, resulting in additional investment in our FMCG pricing to ensure our value proposition is not damaged.”

At 10.25am AEST, Reject Shop shares were worth $2.13, 75 per cent down on their April 2018 valuation.