Gloom as buyers hit Reject button

THE Reject Shop has blamed home loan rate hikes and subdued wage growth for a hefty cut to its profit outlook that has sent investors scrambling for the exits.

And the gloomy consumer conditions called out by one of the nation’s biggest discount retailers are unlikely to ease, with the Reserve Bank warning employers will not come under any substantial pressure to lift wages any time soon.

Shares in The Reject Shop plunged almost 40 per cent yesterday after it warned an accelerating drop in sales would bite deep into its firsthalf profit.

The retailer, which sells up to 7000 items ranging from potting mix to unicorn pillows, is struggling to stay relevant against key competitors such as Kmart and Big W as well as major supermarket chains.

Shares in The Reject Shop have fallen from more than $18 to less than $3 in five years.

The retailer, which operates 358 stores, yesterday cut its profit forecast for the first half of the financial year to between $10 million and $11 million — down from an original forecast of $17.7 million.

Managing director Ross Sudano said it was doing everything it could to prosper in an extremely challenging consumer environment.

“The continuing absence of real wage growth and increases in the cost of many basic expenses, including mortgage rates, ensures that competition for the discretionary spend of consumers remains high,” he said. The Reject Shop’s likefor-like sales fell 2.4 per cent for the first 15 weeks of the financial year compared with the same period a year earlier.

The sales slump intensified in September and October, with a 0.5 per cent decline for the first five weeks of the financial year, then a 3.9 per cent drop in the past eight weeks.

Mr Sudano said the chain was overhauling its range and lowering prices to retain its value proposition. Its shares closed yesterday at $2.73.