I've sold out of my position over recent weeks as it became clear this company was unlikely to get another t/o offer and that the management are some of the most inept I've come across. Joe Aston has summed it up well in today's AFR.:
he Reject Shop shareholders cop Hallmark condolence card
By Joe Aston
Feb 21, 2019 — 11.00pm
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Its rubbish performance aside, any company called The Reject Shop pretty much writes its own headlines. Who can forget Tony Abbottwandering under its shingle at Kippax Fair outside Canberra in June 2015. The Prime Minister and the cameras were there for a strategic media opportunity at the butcher next door, called Elite Meats. The irony.
On Wednesday, the $2 stores' chief executive Ross Sudano put on an aptly defective performance of his own, under enormous pressure to shore up investors' confidence after Ruffy Geminder's standing $78 million takeover bid lobbed late last year and yet another earnings downgrade last month.
Sudano showed plenty of ankle. There were innovative tactics, like: "I can say part of our objective here is to have a profit in the first and the second half" and "I think the strategy here is to build back to flat, and then beyond that into positive contribution in the second half." Presumably he also walks by putting one foot in front of the other?
Prime Minister Tony Abbott walks past The Reject Shop during his visit to a butcher shop in Kippax on Thursday 4 June 2015. Alex Ellinghausen
There was understatement. "Christmas is a good indication of where we're strategically taking the business, a journey that has been three years in the making," he advised of December comparable store sales growth of 0.2 per cent, then negative 2.5 per cent in the first seven weeks of calendar 2019. So this "good indication of where we're strategically taking the business" – i.e expensively backwards – is probably his predator's whole point.
The Reject Shop's revenues fell by 1.1 per cent in the first half, despite opening 10 (net) new stores. Ten! We hear capital allocation is a tricky sport, but buying negative growth doesn't sound, well, prudent. So Sudano intends to open another 10 in the current half! How logical. Related Quotes TRSThe Reject Shop
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Oh, and it's pivoting into greeting cards "as a significant category killer, a real… a significant reason for people to shop within The Reject Shop." What next? Blank VHS tapes?
And while Sudano has resolved to partner with UK retailer Card Factory, The Reject Shop is "reserving the right to either [like Card Factory, manufacture its own cards] or being fully integrated or to be supplied by [a] third party." Great, on top of failing to sell them, this guy now wants to manufacture the rejects too. Perfect.
Card Factory, Sudano claims after his fact-finding mission to Britain, "have (sic) been able to drive growth out of that category." Er, did he miss its downgrade of January 10? Card Factory managed revenue growth of 3.4 per cent in the 11 months to December 31 despite opening 51 (net) new stores. Sound familiar? Oh, and "we anticipate that FY20 will be another difficult year."
The Reject Shop traded at $14.77 in August 2016 and $7.80 as recently as April. It closed Thursday's session at $2.70. There's no doubt it's a lumpy stock, but chairman (since 2010) Bill Stevens rhetorically asking if "the business responded well to the challenges that have occurred in the marketplace?" and answering "we certainly believe it has" belies any quantitative reading of his stewardship.
Where did The Reject Shop go wrong? Forager Funds Management
We're no sop for Geminder's bid; like Solomon Lew and Myer (not that Premier looks like spending another cent on that unmitigated train wreck), shareholders absolutely should demand and extract a premium. But if making birthday cards and growing the store footprint is Sudano's grand plan after five years in charge, the packaging billionaire might even have "low-balled" too early.
TRS Price at posting:
$2.72 Sentiment: Sell Disclosure: Not Held
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