Reject Store shares crash 40% as CEO blames slow pay growth for miserable retail conditions

Manan Vatsyayana/AFP/Getty Images
  • The Reject Shop, hit by what it says is an extremely weak retail market, announced a profit downgrade on sliding sales.
  • The CEO blames a “continuing absence of real wage growth” and rising costs, including mortgage rates.
  • The company’s shares fell 40% on the downgrade.

Shares in the Reject Shop fell steeply after the retailer announced a profit downgrade as sales continue to fall.

A short time ago, the shares were down almost 40% to $2.72 after the company said an “absence of real wage growth” and rising mortgage rates had contributed to an “extremely weak” retail environment.

Comparable sales for the first 15 weeks of the 2019 financial year fell 2.4%.

And the company has revised down its net profit for the first half to between $10 million to $11 million.

“The extremely weak retail environment has seen sales deteriorate, with this deterioration accelerating markedly during September and early October,” the company said in a trading update.

The Reject Shop is now aiming for a full year net profit flat with last year’s of $17.7 million.

Managing Director Ross Sudano acknowledges this is extremely disappointing news for shareholders.

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

“The continuing absence of real wage growth and increases in the cost of many basic expenses (including mortgage rates) ensures that competition for the discretionary spend of consumers remains high.

“In addition, we have seen increased investment in promotional pricing across many retailers, particularly in the Fast-Moving Consumable Goods (FMCG) space, resulting in additional investment in our FMCG pricing to ensure our value proposition is not damaged.

“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.

“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.”

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