The Reject Shop is reining in its expansion plans as a sales slump that began with the federal budget rolls on.
The discount retailer's net profit dropped 25 per cent to $14.5 million in the year to June, as it wrangled with underperforming stores, closures and relocations.
It also had a sharp downturn in comparable sales, which began when the federal budget was delivered in May and has continued into the first six weeks of the 2014/15 financial year.
Unseasonably warm weather also hindered sales going into winter, and chairman Bill Stevens said recovery had not come as expected when cold weather finally hit in July.
"Some of the winter range products have done well as the temperature decreased," he said.
"Nonetheless we haven't recovered as much as we would have otherwise liked."
Despite the tough start to the current financial year, The Reject Shop expects to deliver a higher underlying profit than 2013/14's $19.5 million, as it rolls out a new advertising campaign and promotions.
It will rein in its store expansion to 20 stores per year after opening more than 85 stores in the past two financial years.
It closed one underperforming store in 2013/14 and expects to close up to another three in the current year.
Chief financial officer Darren Briggs said the company would also experiment with new products in an attempt to meet changing customer taste during this year's holiday seasons.
"It seems that customer spending patterns relating to gifts going into Christmas have changed somewhat," he said.
"What we found was that perhaps a lot of the gift related elements of the offer didn't sell as well as what we had anticipated and perhaps what we'd experienced in the past."
The Reject Shop shares were down three cents at $9.27 at 1334 AEST.
THE REJECT SHOP FORECASTS MODEST RECOVERY DESPITE PROFIT HIT
* Net profit of 14.5m, down 25 pct from $19.5m in 2012/13
* Sales revenue of $711.5m, up 15 pct from $618m
* Final dividend of 8.5 cents per share, down from 13 cents
