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UPDATE 1-Reject Shop issues profit warning; Australia retail outlook weakens
January 24, 2014 / 1:40 AM / in 4 years

UPDATE 1-Reject Shop issues profit warning; Australia retail outlook weakens

* Reject Shop sees H1 NPAT of A$16.6-A$16.9 mln

* Low-end retailers suffering as unemployment rises, A$ falls

* Strong share performance of 2013 being unwound in 2014 (Recasts, adds analyst comment and sector outlook)

By Maggie Lu Yueyang

SYDNEY, Jan 24 (Reuters) - Australian retailer Reject Shop Ltd said first-half net profit was set to slide on disappointing sales for the year-end season and costs related to new store openings, sending its shares plunging 23 percent.

The profit warning was the second from an Australian retailer in a week, after Super Retail Group, which owns sports and auto-related brands, said its first-half net profit would only be slightly higher than a year ago, falling shy of market expectations.

The latest warnings indicate the retail sector faces significant challenges, with unemployment tipped to rise and the Australian dollar falling, said Sondal Bensan, an investment analyst at BT Investment Management.

Australia shed jobs at the fastest pace in nine months in December with full-time jobs suffering their biggest drop since mid-2011, and analysts expect to see a rise in unemployment in the year ahead.

The warnings also mean lower-end retailers may struggle to justify heady stock gains that were made in the past year on improved consumer confidence, Bensen added.

Reject Shop said its first-half net profit after tax will fall to between A$16.6 million and A$16.9 million ($14.6-14.8 million), which compares with A$20.1 million for the same period a year ago.

“This reflects flat overall comparable store sales for the half, resulting from a unexpected poor December trading period, coupled with a disappointing gross margin outcome,” the company said in a statement.

Super Retail Group blamed an “impacted gross margin” due to increased promotional activity in its first-half performance update.

Shares in Reject Shop last traded at A$12.96, down 23.3 percent at 0124 GMT, compared with a 0.2 percent gain in the broader market.

The Reject Shop has lost more than 25 percent into the new year, while Super Retail Group is down 20 percent. Electronics retailer JB Hi Fi Ltd has shed 10 percent.

In 2013, the Reject Shop jumped 16 percent and Super Retail Group gained 34 percent. JB Hi Fi more than doubled in value last year, making it one of the top performers for the year.

$1 = 1.1388 Australian dollars Reporting by Maggie Lu Yueyang; Editing by Edwina Gibbs

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