Reject Shop blames interest rate hike for sales downturn

The downturn has led the company to slash full-year profit forecasts yesterday, reported The Australian.

Less than two months after telling shareholders at the company's annual general meeting that sales were ahead of expectations, managing director Chris Bryce yesterday said first-half profit was now expected to be "significantly down" on the previous first half.

Comparable store sales growth for the first four moths of the financial year was 4.2 per cent, but had swung into negative territory following the RBA's decision to raise official interest rates by 25 basis points to 4.75 per cent on November 2.

"We haven't seen things drop off so quickly and for such a sustained period as we have today," Mr Bryce said.

"There's not as many people around shopping, and those that are there aren't spending as much."

Reject was now expected to report a full-year profit of $21-$22 million after tax, compared with previous guidance for a result of $26-$26.5m and down from the $23.4m it made last financial year.

Shares in Reject plummeted as much as $4.37, or 26 per cent, to a 13-month low of $12.72 on the news, before finishing at $13.50, down $3.59 or 21 per cent.

Previous Reject Shop bosses highlighted the company's ability to maintain growth even in times of poor consumer spending, arguing that it made the company's cut-price offering more appealing to a larger number of cash-strapped shoppers.

But Mr Bryce said while sales of household staples and everyday items "were ticking along quite nicely", more discretionary seasonal merchandise such as Christmas-related food and toys had suffered.

"This is traditionally a period for retailers where people come and buy their gifts, their Christmas lights and wrapping paper -- you have the ability to take a little bit of cream, and that just hasn't transpired for us this time," he said.

In line with other retailers, including Metcash, Harvey Norman and Myer, Mr Bryce said Reject was under pressure from price deflation as competitors offered sharp discounts to lure reluctant shoppers. "People are bringing their prices down, and that has a consequential impact on margin," he said.

However, the downturn would not derail Reject's plans to open 17 new stores this financial year, with Mr Bryce saying the success of stores opened during the first half "provides confidence there is continued demand for our offer".

Read more about The Reject Shop at The Australian.