The Reject Shop’s shipping bills rising amid big cost-cutting push to lift profit

The Reject Shop has joined a ­legion of companies to warn of escalating shipping bills that saddled its budget with unexpected costs in 2021.

The Reject Shop said sales had been hit by lengthy lockdowns across the nation, with many of its stores located in large shopping centres, which have been closed or are facing dwindling foot traffic. Picture: Mark Stewart

The Reject Shop has joined a ­legion of companies to warn of escalating shipping bills that saddled its budget with unexpected costs in 2021 and that have continued to rise into the new financial year.

The no-frills general merchandise retailer said it had booked an extra $9m in shipping costs it had not expected for the 2021 fiscal year, but despite this cost and the impact of store closures caused by Covid-19, it had still managed to roar back to strong profits as it reduced its cost base.

On Thursday, The Reject Shop said annual net profit jumped to $8.3m, from $1.1m, despite a 5.1 per cent fall in sales to $778.7m – the top end of the group’s sales guidance in June. Comparable sales were also down 5 per cent.

Underlying earnings rose 4.7 per cent to $128.5m for the 12 months to June 27.

Despite no dividend being declared and Covid still playing havoc with the company’s operations, the market cheered the result, sending The Reject Shop shares up more than 16 per cent. The shares closed up 81c, or 16.67 per cent, at $5.67.

The Reject Shop said sales had been hit by lengthy lockdowns across the nation, with many of its stores located in large shopping centres, which have been closed or are facing dwindling foot traffic.

Stores in large shopping centres and CBD locations have seen a significant drop in shoppers, with total transactions down 19 per cent from before the pandemic.

But it raised hopes that as vaccines are rolled out, consumers will gain more confidence and return to normal shopping patterns.

The Reject Shop said about half its stores were metro and country stores in neighbourhood and strip locations. This cohort generated comparable store sales growth of 3.4 per cent on 2019, and on average are the most profitable. These stores are the key focus of the company’s growth strategy.

Chief executive Andre Reich said the retailer had entered 2021 with the objective to grow profit through cost reduction driven by business simplification and operational efficiency.

“We have reduced the cost of doing business by approximately $23m during the year, which is a significant achievement and exceeded our stated targets for fiscal 2021,” Mr Reich said.

The retailer said management budgets were hit with an extra $9m in costs flowing from constrained global supply chains and fast-rising freight charges.

“Unlike in fiscal 2021, these higher international supply chain costs have been factored into management’s budget in fiscal 2022. However, they continue to increase each month,” The Reject Shop said.

The profit jump was helped by reducing operating costs by about $22.5m, with a saving of $8.8m in administrative expenses and $13.7m in store expenses.

Depreciation costs of $13.7m were lower than in 2020 by about $4.8m mainly due to a number of non-store assets being fully written down.

The Reject Shop said challenges in the international supply chain were expected to result in shipping costs remaining elevated for the rest of the year.

“I am hopeful that customer shopping behaviour will normalise once broader concerns around Covid reduce and more of the community are fully vaccinated. Until that time, our team will continue to refine our merchandise offer and remain focused on cost optimisation,” Mr Reich said.

Two years ago, billionaire packaging businessman Raphael Geminder bought a 20 per cent stake in the retailer, and while he failed to grab full control through a takeover, he appointed directors and helped lead a strategy change that has paid dividends.