‘Extremely disappointing’: Reject Shop shares bomb 44pc after profit warning

Retailer The Reject Shop plunged 44 per cent after warning investors of a profit drop in the December half.

The discount store (ASX:TRS) said it was now only expecting to make between $10 and $11 million profit after sales in the first 15 weeks fell into negative territory.

The stock dropped to an intra-day low of $2.50 from $4.47 on Tuesday.

The Reject Shop previously said it expected to report an FY19 net profit after tax that was “consistent with last year of $17.7m”.

Despite strong marketing and merchandise plans, and in store execution, the extremely weak retail environment has seen sales deteriorate, with this deterioration accelerating markedly during September and early October, the company explained.

Comparable sales for the last eight weeks have fallen to -3.9 per cent, with year-to-date comparable sales performance now -2.4 per cent over the first 15 trading weeks.

“We understand and acknowledge this is extremely disappointing news for our shareholders,” managing director Ross Sudano said.

“We are doing everything within our power to manage the business for profitable growth through this extremely challenging consumer environment.”

Mr Sudano blamed the lower sales on the “continuing absence of real wage growth and increases in the cost of many basic expenses, including mortgage rates”.

He said this ensured that competition for the discretionary spend of consumers remained high.

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“Despite the challenges with sales in the first 15 weeks, we continue to manage our inventory particularly well and expect to continue to do so over the remaining weeks of the financial year,” Mr Sudano said.

“We are entering our key selling period and have a strong seasonal program in place, with a compelling value offer for Christmas and many tactical activities in place to drive sales.

“Christmas plans are built on the successes from last year and the early trade of the Christmas merchandise has been positive.”