Reject Shop’s CEO Ross Sudano quits after third profit warning

Shares in The Reject Shop fell by almost 10pc after it issued its third profit warning and said its CEO Ross Sudano would resign.

Shares in The Reject Shop fell 7.5pc after it issued its third profit warning yesterday. Picture: AAP

Shares in struggling retailer The Reject Shop fell by almost 10 per cent after it issued its third profit warning and announced the resignation of chief executive Ross Sudano.

Mr Sudano, who joined the company as its chief in 2014, was unable to rescue the chain from its crashing sales and profitability despite his 20 years of experience in retail, which included stints with Anaconda, Coles and Foodland.

The retailer, beset by competition from supermarkets and other discount department stores who have ratcheted up the competitive pressure, is now projecting a loss of as much as $2 million for the full year against a profit of $3.1m-$4.1m that was previously promised to investors.

The Reject Shop chairman Bill Stevens told The Australian the retail environment was the worst he had seen in years and was “unbelievably challenging” as shoppers had fewer dollars to spend on discretionary purchases.

“After paying the power bills and the fuel bills and every other basic cost of living, yes it is unbelievably challenging out there, but it is what it is,’’ Mr Stevens said.

He did, however, concede that The Reject Shop had fallen down in refashioning its own stores and offering the right products in the right categories for a price that would attract shoppers.

“Elements of the execution is obviously of our making, in terms of the offer and the resonance of our offer we showed that at Christmas, we showed that again at Easter. We continue to do events incredibly well, but in terms of some of the things we have endeavoured to do in the general day-to-day basics, some of those are not resonating as well and obviously (there’s) a lot of competitive pressure in the price space as well.

“Customers with that lower discretionary amount are unbelievably price sensitive.’’

The Reject Shop will further shrink its network with seven stores to close by the end of June, leaving a network of 357 outlets. To help it slim down costs further and rethink its store footprint it has hired LocationIQ to perform a review of its current and potential future property portfolio with KPMG to conduct a financial review of aspects of the business.

R E J E CT

The Reject Shop looks to have also raised the white flag in its seven-month battle to fend off takeover suitor Kin Group, controlled by packaging millionaire Raphael Geminder, and has agreed to allow a representative of Kin to sit on The Reject Shop board as part of its renewal ­process.

Kin is the biggest shareholder in The Reject Shop with a stake of 19 per cent and its executive and investment director Zachary ­Midalia will become a director of the retailer next month along with Steven Fisher, who is the chairman of Breville Group and a former executive of Solomon Lew’s private clothing and investment vehicle Voyager Group.

Mr Geminder’s investment vehicle launched its $2.70-a-share on-market takeover bid for The Reject Shop in November but since then the shares have collapsed to almost $2 in the wake of profit warnings and poor sales.

Shares in The Reject Shop, down already 70 per cent in the last year, fell another 9 per cent in the morning yesterday before closing down 17c, or 7.5 per cent, at $2.10.

“While a range of new initiatives had been identified to address declining sales in the second half, they have not been landed successfully,’’ Mr Stevens said.

“These factors, combined with increased competitive activity, have driven a decline in gross margin during the period.”

Earlier in the year The Reject Shop issued a profit warning along with other discretionary retailers such as Kmart, Kathmandu, Gale Pacific and PAS Group with the retailers bemoaning flat wages growth, a falling housing market and rising cost of living for retreating earnings. Yesterday’s warning is its third since October.

The firm’s general manager supply chain, strategy and innovation Dani Aquilina has been appointed acting chief executive. She will work closely with chief ­financial officer Darren Briggs.