The 290 stores outside of the CBD and major metropolitan shopping centres had generated a 0.9 per cent rise in sales compared with 2018-19.
Overall, The Reject Shop sales across the entire network are down 1.4 per cent for the 48 weeks ended May 30. It has a minimal online presence and so has missed out on the structural shift to e-commerce which happened during the pandemic, and resulted in booming sales for electronics retailers like JB Hi-Fi.
The company also warned of “materially increased” supply chain costs because of international shipping delays.
The Reject Shop imports a large chunk of its products from Asia and, like many other companies, is having to grapple with higher costs and delays as logistics come under pressure because of disruptions to international shipping channels and schedules. It has also had to lift inventory levels to mitigate the risk of running out of products.
The Reject Shop had not previously given any forecasts for 2020-21 but on Friday revealed that earnings before interest and tax would likely be between $8 million and $10 million. Total sales revenue for 2020-21 was expected to be between $776 million and $778 million.
The Reject Shop is run by chief executive Andre Reich, a former Kmart and Target executive who took the helm in December 2019. He has shifted the strategy to have more emphasis on everyday essential items such as packaged foods, dishwashing liquid, kitchenware and pet products.
The company also warned on Friday that trading conditions in June were unpredictable, particularly given the two-week lockdown in Melbourne in the wake of the latest COVID-19 outbreak.
The company said 35 of the 47 leases in CBD or major metropolitan shopping centre stores were expiring in the next 18 months and negotiations were underway to try and strike a better deal on rents which reflected the tougher conditions. Store closures are on the cards for locations where it cannot make the business model work profitably.
Rich Lister Raphael Geminder’s Kin Group has a 19 per cent stake in The Reject Shop after making a hostile $78 million takeover offer in late 2018.
That bid was rejected by The Reject Shop board.
Also on Friday, The Reject Shop appointed Margaret Zabel to its board. She is a former vice-president of marketing for fast food group McDonald’s Australia and is a director of ASX-listed childcare group G8 Education.
Read More: The Reject Shop stores hit by CBD exodus