Getting Savvy
Whilst some companies are hitting hard times, The Reject Shop Limited (ASX: TRS) has had a comparatively good earnings season.
A few notes on their financial year 2015 result:
- Sales up 6.4 per cent and earnings (net profit after tax) down 1.9 per cent. There appears to have been some ‘one off’ charges in the result so a degree of earnings power growth can be argued.
- Earnings decline was off the back of poor performance in the first half. Performance appears to have improved in the second half and most notably the 4th quarter with growth in same store sales of 4.7 per cent.
- 9 stores were closed, 21 opened netting 12 stores to the network (total of 333 as at 30 June 2016). The 9 stores closed were reportedly due to unfavourable trading conditions/could not agree on terms with the landlord.
It’s early days yet, The Reject Shop has a long way to go before it reaches the heights of its prior performance but we can’t fault management for their work in turning around the business thus far.
Notably, we are meeting with management today and may have more to share. Stay tuned!
Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Guy Davis
:
I meant 60% not 70% my apologies. I feel like the “minimum 60%” is a bit broad and would love some more info.
Also, any details on the costs of TRS’s currency hedging would be appreciated. I tried to make sense of note 24 on Derivative Instruments, but struggled to get my head around it.
Regards,
Guy
Roger Montgomery
:
Guy, Put simply the level of the currency when the hedges roll off determines the price at which the retailer must now buy further stock. The impact is obviously larger if the store footprint is growing and it’s important to ask to what expect the retailer is able to pass on the increased costs.
Guy Davis
:
Hi Scott,
It was good to see the results backing up what has been getting clearer anecdotally- that the turnaround is gaining traction.
Did management give any detailed forward dividend guidance, beyond that in the report? I would be very keen to hear Ross Sudano comment about future dividend policy. In the past, the company had payed out around 40-50% of earnings until EPS declined significantly and the payout ratio was raised to around 70% in the last couple of years. Presumably this was to avoid a large drop in DPS and appease the yield crowd.
Going forward, as the company (apparently) enters growth again, it would be great for the long-term value of the company if they would allow the payout to remain static and the ratio to to drop back as earnings grow again.
The Aussie dollar could continue to be a challenge, although I guess this is an issue for much of the retail sector.
Thanks,
Guy
Roger Montgomery
:
We’re expecting further weakness in the AUD, so its something to consider.