Shares in discount retailer Reject Shop Ltd (ASX: TRS) will be on watch today after the company released a positive trading update this morning.
Reject Shop is a discount retailer that sells a variety of items including food & drink, health & beauty products, homewares, clothing and stationery.
The business was founded in 1981 when it opened its first store in Melbourne selling factory seconds. Today, there are more than 350 stores across the country and the company employs more than 5,500 staff across its network.
Key Metric Turns Positive
Arguably, the most crucial key performance indicator for a retail business (especially for a relatively mature business) is comparable sales. This is sometimes referred to as same store sales or like-for-like sales. Basically, it is a way of measuring the organic growth of the business after stripping out new acquisitions or the opening of new stores, both of which should serve to boost revenue but may simultaneously mask a weakening underlying business.
The Reject Shop has pleasingly reported that comparable sales are up 0.3% for the first 15 weeks of the new financial year. This might not seem overly impressive but to provide some context, comparable sales for the second half of last financial year were -2.5%.
The Christmas period has always been the most crucial to overall business performance. Therefore, it’s imperative that management get the sales mix right and effectively manage any marketing campaigns in the upcoming months if the positive momentum is to continue into the new year.
Search For CEO Continues
The company has been on a quest to find a new CEO to replace Ross Sudano who announced his departure from the top job back in May. According to the announcement, the search is now well advanced and the company expects to make a further announcement in the next 6 to 8 weeks.
In the meantime, acting CEO Dani Aquilina will continue to steer the ship. Commenting on the positive trading update she said: “While only in the early stages of our turnaround, I am pleased to communicate a return to positive comparable sales. Our customers are responding positively to the changes that we are making, which re-engages with the company’s core DNA.”
She added, “We have further work to do to provide our customers with the range and customer experience that they desire. However, I am confident, that we have fundamentally repositioned the company with a clear strategy that will deliver improved performance.”
My Take
Whilst today’s news is no doubt a step in the right direction, I think the business is fighting an uphill battle over the long-term like many of its retail peers. Just yesterday, Nick Scali Limited (ASX: NCK) released a disappointing trading update which saw its share price hammered. I am steering clear of all the retailers for now but could be tempted back if panic set in and silly prices were being offered. For now, this is not the case.
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At the time of publishing, Luke has no financial interest in any companies mentioned.
