Reject Shop Ltd (ASX: TRS) is not concerned about the arrival of US online retail giant Amazon.com, Inc. to Australian shores.
The Reject Shop sells discount items that would be uneconomical to sell online, even for Amazon. The company is marketing to people who love to save money and a lot of their sales are due to people coming into the shop for a few things and picking up extras on the way through the store.
The arrival of Amazon's distribution centres in Australia has negatively affected the share price of the bigger retail stocks such as Myer Holdings Ltd (ASX: MYR), which is down 84% this year.
The Reject Shop is a discount retailer with a variety of everyday essentials including homewares, kitchenware, hardware, pet care, household cleaning products, toiletries and cosmetics. The Company has 347 stores nationwide, 13 of which were added in the last financial year.
The stock plunged in April when the company put out a largely negative trading update. This was due to external retail conditions and a merchandising strategy of having more variety at the expense of the staple items customers wanted. That strategy has not worked well.
Since the announcement the share price has gone sideways.
Since then the company has put in place strategies to correct the previous strategy and will have learned a valuable lesson.
Listening to customers, the company has now amended its merchandising tactics in the second half of the year by re-investing in its key everyday lines and branded bargains to ensure availability and visibility in promotional space in store and that the pricing is the best in market.
The company also altered TV and catalogue advertising to better show the value for customers.
Last month the company announced that Ms Michele Teague would be joining the Board of Directors. Ms Teague has extensive experience and an understanding of the retail industry, having worked most recently as general manager of marketing for Kmart, which has performed well recently and gained somewhat of a cult following among some of its customers. Before that Teague worked at Metcash, Restaurant Brands, Pacific Retail and Woolworths in New Zealand.
Net profit for FY17 was down 27.8% to $12.3 million, but the company has a strong operating cash flow and net cash of $2.6 million.
The share price is depressed at $4.06 and the company has a low Price/Sales ratio of 0.16 and Price/Earnings ratio of 9.49. The dividend yield is high at 10.49% and may represent a coming dividend cut.
With a fresh face added to the board of directors and management going back to its core strategies after listening to customer feedback and sales data, the Reject Shop looks to be on-course for recovery in my opinion.
