The Reject Shop warns on soft sales growth

Weak sales momentum will make it challenging to match last year’s first-half result, the retailer has warned.

The Reject Shop’s sales rose by just 0.3 per cent in the first quarter of the year.

Shares in The Reject Shop slid nearly 7 per cent on Wednesday, after the company warned shareholders at its annual general meeting that sales growth had slowed in the first quarter.

Categories have misfired with shoppers and some shelves lain empty due to stock issues, and the retailer is now facing a challenge to match last year’s half-year result.

The earnings miss comes as chief executive Ross Sudano continues to push through a transformation of the discount retailer, exiting a number of underperforming categories such as kitchen appliances, manchester, rugs and cushions, and devoting more floor space to growth products such as pet care, cleaning and party needs.

However, it seems that some of the categories The Reject Shop has devoted more resources and space to within its stores have failed to capture the attention, and wallets, of shoppers. The retailer is blaming the wrong types of products at the wrong prices for partly driving its sales growth slowdown in the first quarter.

Shelf availability of its “everyday’’ range, including beauty, personal care and food, also caused headaches for The Reject Shop as shoppers walked into stores only to find some of their most popular products missing from the shelf.

This had all combined to drag comparable store sales lower for the start of fiscal 2017, with Mr Sudano telling shareholders in Melbourne this morning that like-for-like sales growth was 0.3 per cent for the first quarter. This was against much strong growth of 6.1 per cent for the first quarter of 2016.

“Given this current trading momentum, we face a challenge in respect to achieving last year’s half year result,’’ Mr Sudano said.

“Achieving last year’s result will be dependent on success in our current plans and on a change in momentum in our comparable sales growth in the second quarter.”

For the first half of 2016 The Reject Shop posted a 43 per cent increase in profit to $18.3 million.

Shares in The Reject Shop fell 65 cents on the bearish earnings outlook, or 6.87 per cent, to close at $8.80. The shares have fallen nearly 50 per cent since August.

After the meeting Mr Sudano told The Australian The Reject Shop had “action plans’’ in place to improve its performance in the second quarter and through 2017.

“We have actions plans to reverse, to change the momentum and we are cycling as we go into our second quarter a lower comparable sales growth … of 3.3 per cent, so with all our activities – specifically with Christmas and our seasonal program – I would expect that we see jump up in comparable sales in the second quarter.’’

Mr Sudano declined to name which categories in its stores had misfired with shoppers during the first quarter.

“There are a number of categories we built growth into in the first quarter where we didn’t deliver the right products and the right mix of products to drive sales.’’