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Aldi muscles in on The Reject Shop

AAP logoAAP 23/08/2016 Andrew Leeson

The arrival of German supermarket Aldi in South Australia and Western Australia is hurting discount retailer The Reject Shop.

Managing director Ross Sudano said it was a difficult retail environment in the second half of the 2015/16 financial year, due to the lengthy federal election campaign and Aldi's expansion into two more states.

Revenue in the 53 weeks to July 3 rose 5.7 per cent from the previous year, which had 52 weeks, to $800 million, but comparable store sales growth in the second half of the year was just 1.3 per cent, down from 4.4 per cent in the first six months, Mr Sudano said.

The Reject Shop's sales in WA and SA were weaker than on the eastern seaboard, and an eight week election campaign and drawn out result also impacted consumer activity.

"Aldi has definitely changed consumer patterns in the market ... it will take a period of time for it to settle down," Mr Sudano said.

"The second half, for us, was quite a challenging half. So we had really good momentum into Easter and then once Easter arrived, and it arrived early, the momentum of consumer confidence seemed to change."

Aldi moved into SA in early February and has plans to open 50 stores there, while it's first store in WA opened in June, and it plans to expand to 70.

The Reject Shop has 29 stores in SA and the same number in WA, and 341 stores across Australia.

The Reject Shop's gross profit margin in 2015/16 also took a 1.9 per cent fall, caused by a weaker Australian dollar and $9.6 million in costs from the closure of its Melbourne distribution centre.

The company's shares were down $2.77, or 18.7 per cent, at $12.08 at 1400 AEST, and UBS analyst Jordan Rogers said the weaker margin and second half revenue were the main causes of disappointment for investors.

THE REJECT SHOP'S GROWTH SLOWS IN SECOND HALF

* Annual net profit up 20pct to $17.1m

* Revenue up 5.7pct to $800m

* Final dividend up 5.5 cents to 19 cents, fully franked

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