Fernando MonteiroThe Reject Shop, the Champion of Cheap
August 23rd 2009 13:49
It’s not too often that you hear of a business that returns 48 per cent on equity. Just think how much your money in the bank is earning. Well, The Reject Shop (TRS) just posted a net profit of $19 million for 2008-09, an increase of 14 per cent on the previous year which, you will agree, in current times is a feat.
According to the SMH last Thursday, 20 August 2009, the “the trend has improved” and The Reject Shop plans to open 22 new stores to a total 171 by year end. The shop appeals to customers who look for value and, not surprisingly, opens for trade in typically labour suburbs. What they sell? The shop sells general merchandise, from laundry powder to Pepsi Max to baby food to almost anything, cheap.
The secret for profiting from selling cheap is for The Reject Shop the same that works for JB Hi-Fi: buy bulk, sell cheap and beat the competition, sell in large quantities. There is plenty of demand for this kind of approach to retail.
For the inquisitive investor, if the return on equity of 48.1 per cent is not enough, then consider that revenues increased by 2.3 times in the last six years to $412.2 million while net profit increased for the same period of time by 3.4 times to $19 million. The net profit margin, also for the same period, was an average of 4 per cent. Equity increased for the same period of time 2.3 times to $39.5 million. TRS current share price is $13.45 and its P/E is 18.5 times, perhaps fully valued in this instance.
According to the SMH last Thursday, 20 August 2009, the “the trend has improved” and The Reject Shop plans to open 22 new stores to a total 171 by year end. The shop appeals to customers who look for value and, not surprisingly, opens for trade in typically labour suburbs. What they sell? The shop sells general merchandise, from laundry powder to Pepsi Max to baby food to almost anything, cheap.
The secret for profiting from selling cheap is for The Reject Shop the same that works for JB Hi-Fi: buy bulk, sell cheap and beat the competition, sell in large quantities. There is plenty of demand for this kind of approach to retail.
For the inquisitive investor, if the return on equity of 48.1 per cent is not enough, then consider that revenues increased by 2.3 times in the last six years to $412.2 million while net profit increased for the same period of time by 3.4 times to $19 million. The net profit margin, also for the same period, was an average of 4 per cent. Equity increased for the same period of time 2.3 times to $39.5 million. TRS current share price is $13.45 and its P/E is 18.5 times, perhaps fully valued in this instance.
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