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The Reject Shop

By Dan Stratful

Monday 12th December 2011

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The Reject Shop (ASX: TRS) was founded in 1981, listing on the ASX at $2 per share in 2004 the same year it opened its 100th store.

By 2010 it had 200 stores operating in the Australian discount retail sector selling goods such as general merchandise, homewares, personal care products, hardware, basic furniture, kitchenware, confectionery and lifestyle merchandise. TRS’s strategy is to grow through both organic growth and through a consistent program of new store openings.

Price                          $10.20
Market capitalisation   $266 million
Year Rolling High/Low  $18.37/$8.91
Financial Year             6/2011A     6/2012F
EPS (cps)                   61.5c          73c   
PE Ratio                     16.5           14
Dividend (cps)            31c            35c

The opening of TRS’s Ipswich Distribution Centre was supposed to provide a major platform for growth, but it coincided with disappointing seasonal trade which meant the company was unable to absorb the additional costs associated with the opening. This led to a profit downgrade which saw the shares heavily sold-off.

And when it rains it pours, as the new Ipswich Distribution Centre was destroyed shortly after the profit downgrade when the Queensland floods hit in early 2011. This led to inventory loss across the group and understocked stores meaning the year ending 30 June 2011 was a year to forget.

Full year comparable store sales were down 1.5%, as the second half of the year saw a sharp 5% fall in comparable store sales, but total sales for the year increased 7% to $505 million, as 23 new stores were opened in the year, while net profit came in at $16 million.

Despite a horrible year, TRS aims to eventually have 400 stores across the group, driven by its short term goal of around 20 new stores per annum. The company has a good track record of growth and profitability and can again be considered when trading conditions improve.

TRS’s shares today traded at $10.48

STATUS: HOLD

For sharemarket and fixed income trading enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232, dan.stratful@irg.co.nz
**A disclosure statement is available, on request and free of charge.


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