The retail crunch has hit the Reject Shop, its shares are tanking

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The Reject Shop, run over by the national downturn in retailing, now expects to report an operating loss in the second half of at least $5 million.

A short time ago, shares in the discount variety store chain were down 34% to $5.20.

Comparable sales of are down 4% for the half year to date.

The company says “challenging retail trading conditions” continue, with all states reporting negative comparable store growth in the third quarter with Western Australia and the ACT the worst performers.

The retail sector in Australia is under pressure from online trading, emerging competitors and consumer sentiment. Many retailers reported poor results from post Christmas sales this year.

Australian retail sales fell unexpectedly in February. According to the ABS, sales fell by 0.1% in seasonally adjusted terms, a result well below the 0.3% increase expected by economists.

Reject Shop managing director Ross Sudano says the weak sales trend outweighed a positive sales momentum in December.

“Recent sales results as well as feedback from customers tell us that, in attempts to broaden our focus on introducing new and fresh products, our merchandise mix has moved too heavily towards a focus on variety products,” he says.

“This reduced focus on our everyday value and bargains, and its impact on our in-store promotional program, has adversely affected our foot traffic.

“Coupled with the challenging market environment, where customers are reducing their discretionary spend, our promotional activity has not generated the incremental foot traffic required to grow comparable sales.”

The company is now changing its product mix, rebalancing marketing and in store activity to emphasize a stronger blend of everyday value.

The Reject Shop now expects to report a net operating loss in the second half of at least $5 million, reducing the full year net profit to about $12.5 million.

The company says it’s unlikely to declare a final dividend.

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