The Reject Shop posts $16.9m annual loss

The Reject Shop shares dived after the discount retailer posted a $16.9m loss amid falling sales and impairment charges.

The Reject Shop has fallen into the red.

Under pressure discount retailer The Reject Shop has posted a net loss of $16.9 million, a complete turnaround from the $16.6 million profit made in 2018, as impairments of $15.4 million after tax and a further slip in full-year sales savaged the company’s profitability.

After suffering a string of profit warnings over the last few years and the exit of its chief executive, The Reject Shop posted a 0.8 per cent dip in its sales for fiscal 2019 but pre-tax earnings fell by 57.6 per cent to $18.2 million. Before impairments, it posted a loss of $1.5 million.

The company also revealed it had breached its banking covenants.

The Reject Shop, which specialises in selling discount variety products, including kitchenware and homewares, saw its shares dive 8.5 per cent to $1.98.

The retailer’s loss was within guidance to the market in May, when a loss of $1 million to $2 million was forecast.

The company, which is searching for a new CEO, also announced a non-cash writedown of $21.9 million.

The reatiler said there had been early signs of a recovery with like-for-like sales in the second half of 2019 down 2.5 per cent, but for the first seven weeks of 2020 they were down 0.5 per cent.

Chairman Bill Stevens, who has announced he will resign at the annual meeting in October, said it had been an extremely challenging year for The Reject Shop and the retail sector.

“We understand and accept shareholders will be extremely disappointed by the company’s performance. We are implementing a new strategy and are progressing leadership renewal that we believe will improve performance to the expectations of our shareholders,” Mr Stevens said.

“With a sharp focus on improving our performance, we have identified errors and we are actively addressing them. Our now refocused strategy, centred around our core discount variety value proposition, is showing early signs of gaining traction with our customers,” he said.

Sales for the year were $793.7 million (a decrease of 0.8 per cent). The boost to sales six stores opening in 2019 and the net four new stores opened in 2018 was more than offset by a a drop of 2.5 per cent in comparable sales, due to weak trading in Western Australia, Queensland and the ACT.

Gross margin fell 1.1 per cent to sales, mainly as a result of increased price competition, markdown activity required to clear merchandise offerings, and an increase in the level of shrinkage, the retailer said.

The Reject Shop was recently the target of a $78 million takeover from packaging billionaire Rafael Geminder, who is the retailer’s biggest shareholder with a stake of 19 per cent.