Reject Shop shares lose 40pc as tough trading slice profit

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Reject Shop shares lose 40pc as tough trading slice profit

By Peter Bateman & Emma Koehn

Investors have savaged discount retail chain The Reject Shop after the company admitted it would miss its profit guidance blaming a tough consumer climate driven by slow wage growth.

Releasing its full year results in August the chain said it believed it could achieve a net profit after tax of up to $17.7m for the first half of the 2019 financial year.

Weak consumer sentiment and a warm winter have contributed to a slow start to the new financial year for discount retailer The Reject Shop.

Weak consumer sentiment and a warm winter have contributed to a slow start to the new financial year for discount retailer The Reject Shop.

Ahead of the company’s annual general meeting on Wednesday, the company released a statement to the ASX saying profit would now likely only reach between $10 million to $11 million for the half.

The company said sales for the first fifteen weeks of 2019 had fallen by 2.4 per cent, while guidance given in its 2018 financial results assumed a 1 per cent growth in comparable sales.

In response, The Reject Shop shares fell more than 40 per cent when the market opened but by shortly after midday had recovered to be down 34.68 per cent at $2.92.

“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,"  managing director Ross Sudano said in the statement.

Record low wage growth has concerned policymakers for some time and contributed to a tough environment for traditional retailers also battling stiff online competition.

Reserve Bank of Australia deputy governor Guy Debelle on Wednesday said some of the factors weighing on wages were that workers were not switching jobs as readily and that there was also a growing skill mismatch between the unemployed and available jobs.

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