The Reject Shop (TRS)

Operations
� Operates discount variety store chain called �The Reject Shop� Also operates �E $2 stores� but these are gradually being replaced by �The Reject Shop� formatted stores, which are more profitable. TRS closely follows trends in the USA.
� The Warehouse Australia and Millers report margin deterioration from intensed competition. TRS reports no such pressures, and has instead increased its margins.

2004 Results
� Sales of $180.6m, up 10.2%
� Record NPAT of $5.6m up 20.9%. EBITDA of $11.9 million, EBIT of $8.8 million.

Fundamentals:
� TRS recently listed on the ASX at $1.80. Has been in an uptrend since that time, hitting a high of $2.75, but has since retraced to $2.60-ish.
� Market capitalization = circa $60 million
� Price/Earnings = 11; Price/Sales = 0.33; Yield = 6% (forecast), EBIT multiple of 7. These ratios indicate good value.
� Robust balance sheet, net debt is decreasing and the inventory is clean (nos stale or old inventory). Net debt at June 30 was only $1.7 million. Combined with high Free Cash Flows, negligble risk of company going bankrupt.
� Insider purchase Friday 26 November, but shareholders sold down their holding during the IPO.

Future Outlook
� Forecast NPAT of $6.0-$6.2 million. Dividend at 60% of NPAT.
� Forecast Free Cash Flow for FY2005 = $4.6 million. This will be used for further expansion, reducing the modest debt burden and payment of a healthy dividend without the need to raise capital from investors.
� Will continue store rollout plan of 8-10 stores per annum (from a current base of 103). �The early sales of our Pacific Fair store, our first in Queensland, were particularly pleasing.�
� �In the first quarter of FY 2005, sales have exceeded our budgets and we are confident of a strong first half result that will position us well to deliver on our full year profit outlook. �

Overall, looks like the company is expanding revenue at 10% per annum and profits at 20% pa.

I do NOT hold any TRS shares at present. The company looks interesting, but not living in Ozzie I'm not sure what their competitive position is. Why does one go to a "Reject Shop" and not a Millers or Crazy Clints? What is TRS's competitive advantage? What market share does TRS have and how much potential for expansion is there? What is the brand profile of "The Reject Shop"?

PS: Thanks to Tommy and DavidRob for mentioning this in the HWW thread. Thought TRS deserves some dedicated attention, discussion and analysis.