Expansion strategy for Reject Shop::

Author: Simon Evans
Date: 16/02/2006
Words: 347
Source: AFR
Publication: The Financial Review
Section: Companies and Markets
Page: 20

The Reject Shop has increased the forecast for its full-year profit and boosted its dividend after a buoyant first half. Managing director Barry Saunders said the company was in a strong position to capitalise if retail conditions turned sour.

The discount variety store operator had a strong Christmas period and robust sales growth of items such as toothpaste, domestic cleaning products and shampoo.

It increased its full-year profit forecast to a range of $8 million to $8.2 million from a previous forecast of $7.5 million to $7.7 million.

Mr Saunders said while some others in the retail sector were predicting a downturn, The Reject Shop was positioning itself for continued strong trading.

A fully franked interim dividend of 13? per share, up from 10?, will be paid on March 17.

The company is set to open more stores, with four outlets now operating in Queensland and the first Western Australian one to open later in the second half.

Mr Saunders said those two markets offered strong growth opportunities but the company would be selective in choosing sites.

In Queensland, The Reject Shop aimed to have 40 stores in total over the next few years, while in WA the number would be slightly less.

"We see potential over time to have up to 25 to 30," he said.

Net profit for the first half of 2005-06 increased 20.4 per cent to $8.7 million. Sales increased 14.3 per cent to $127.7 million. It now has 113 stores.

The company will ramp up capital expenditure this fiscal year to $12.5 million from an average annual level of between $6 million and $7 million, which is why there will be a loss in the second half.

A new distribution centre in the Melbourne suburb of Tullamarine and extra store openings will soak up most of the spending.

Clime Asset Management director Roger Montgomery said the result "gives strength to the theory that in economic weakness people keep buying but are more price conscious".

He also praised Mr Saunders's management skills and said benefits were flowing from the same profit-loop approach to business improvement which was bolstering Woolworths.

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