Shares in The Reject Shop have fallen more than 24 per cent as the discount retailer says its half year results are well below expectations and forecasts full year profit will be down.
The Reject Shop on Friday said sales results for the six months to December were disappointing as heavy discounting and the weaker Australian dollar weighed on profits.
It had had an unexpectedly poor Christmas trading period with flat comparable store sales, particularly at those in major shopping centres which continued to drag down good growth generally in other locations.
The Melbourne-based company expects first half sales to be $385.5 million, up 17.7 per cent over the prior corresponding period, but its gross margin was below that planned and what was achieved in the previous year.
That was due to higher than planned discounting and poor returns from some higher margin categories.
Underlying first half EBITDA earnings are expected to be 5.2 to 6.6 per cent above the previous corresponding period at between $36.5 and $37 million.
Still, managing director Chris Bryce said the overall result was well below expectations.
The company forecasts full year net profit after tax will be down, coming in in the range of $17 million to $18 million compared with $19.5 million in 2013.
“This reflects flat overall comparable store sales for the half, resulting from an unexpected poor December trading period, coupled with a disappointing gross margin outcome,” Bryce said.
He added that the result detracted from positive improvements in key operating metrics and the successful execution of 33 new store openings during the half.
In the second half, the Reject Shop will target moderate comparable store sales growth and gross margin percentage in line with the prior corresponding half.
“The reducing Australian dollar will continue to require significant focus and planning over this half and into next year, and we have already addressed some of the areas which resulted in a lower margin result this half,” Bryce said.
The Reject Shop plans to open 12 new store in the second half.
The company will announce its half year results on February 19.
Shares in the company were down $4.09, or 24.2 per cent, to $12.81 at 1350 AEDT on Friday.
AAP
