The Reject Shop CEO steps down as profit turns into loss

CEO of The Reject Shop (ASX: TRS) Ross Sudano has stepped down as the group announces another downgrade, just three months after the group downgraded an expected profit from $10.6 million to between $3.1 million and $4.1 million.

Though perhaps the writing was on the wall in February when the company announced its "strong" Christmas sales growth of just 0.2 per cent.

The company revealed this morning that the group now expects to see a loss of between $1 million and $2 million for FY19. This comes despite opening 13 brand new stores during the financial year.

The first ten stores opened in the first half, and the three this half, does not appeared to have helped the group's bottom line and store growth sits at -2.7 per cent, and store growth in the second half is -2.9 per cent.

The company has blamed a number of market conditions for the downgrade including a tough trading environment in the retail sector impacted by low consumer confidence, increases in the cost of living, and a rapidly falling housing sector.

The company's sales and merchandise initiatives have not paid off according to company. Though not explicitly mentioned by name in today's downgrade release, the company said in its half year results that they were attempting to push greeting cards and home storage as a major sales initiatives.

The company also took a swing at supermarkets and department stores, blaming them for competitive pricing pressure on its traditionally budget prices, forcing roll-backs across a number of key lines as The Reject Shop looks to maintain its price gap in the market.

As a result Sudano has stepped down from his role of CEO which he has held for nearly five years.

He will be replaced by interim CEO Dani Aquilina who currently holds the role of General Manager Supply Chain.

The company is in the process of searching for a replacement CEO to lead the business through these choppy waters and refresh the company's product range that will appeal to its customers.

In addition to the downgrade the company announced that it will close seven stores by the end of the financial year. This brings The Reject Shop's total number of stores to 357 nationwide. 

Chairman of The Reject Shop Bill Stevens says the shakeup of the company's leadership should energise the business moving forward.

"After a period of consolidation of the significant growth undertaken by the company, the board, in conjunction with Ross, has determined that this is an appropriate juncture to seek a new chief executive to guide the company through the next phase of its growth and to bring renewed energy and vigour to the role," says Stevens.

"The company experienced a significant weakening in sales performance despite delivering well on key seasonal offers, including Easter, and this is an extremely disappointing result for our shareholders."

"While a range of new initiatives had been identified to address declining sales in the second half, they have not been landed successfully."

"We continue to have confidence in the company's long-term prospects, and the opportunities for a new CEO to deliver a refreshed product range that will appeal to a broader customer base."

In February this year a company incorporated specifically for the purpose of taking over The Reject Shop attempted its second takeover of the company.

The bid of $2.70 per share came in the wake of The Reject Shop's first half results, with Allensford hoping shareholders would take advantage of the offer following the company's projected full year results. At the time The Reject Shop advised shareholders to reject the bid.

"The sustained deterioration in The Reject Shop's financial performance over the period and a further deceleration in sales during the first seven weeks of the second half, despite net 10 new store openings, is confirmation that the board's strategy to arrest the long-term underperformance of the business is failing," said Allensford director Nick Perkins at the time.

When announcing the group's half year results Sudano said the disappointing result of a 40 per cent dive in profits was caused by factors outside of his control.

"This has been an extremely challenging period to be operating a retail business and the retail sector as a whole has felt the impacts of lower consumer confidence, flat wages, changing spending patterns and the rise in energy costs," said Sudano.

"The Reject Shop has not been immune from these factors; however, our strategy to implement fundamental change to restore the performance of the business we articulated three years ago is on the cusp of generating real returns and will begin to be reflected in the second half of this calendar year and beyond."

Shares in The Reject Shop are down 6.61 per cent to $2.12 per share at 11.57am AEST.

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