TRS - The Reject Shop

[VSntchr]

It was dropped from the standard MSCI index in the latest review which wouldn't have helped.

The operational model of this business is in question and the competition is stiff.
General market uncertainty around whether they can continue to provide valuable growth to shareholders going forward is driving the price down

 

[ROE]

If you invest in this sort of business it helps to troll through their shop while going out shopping or
something like that if you are observant it will tell you the story before the bad news hit the market.

TRS model has change some what over the year, they start stocking bulky high value item which isn't cheap
and there aren't sell them and they taking up lot of spaces, I notice this a while ago

combine with massive competition from kmarts and everyone else in the game I decided it is a no go zone.

as price fall from teens to high single digit every one call it cheap , it getting hell of a lot cheaper because their business model is under threat and competition is hitting them left and right plus the make up of their stores no longer what used to drive their sales.

The only way out for them is re-structure their stores and get rid of those bulky items and go back to the old day
and do it cheaper than every else and hopefully customers will come back...to do this, they need to drop margins and profit so they are between a rock and a hard place

I don't think it is a bad business but there are too much uncertainty around them and it is hard to see where the light at the end of the tunnel is and that what the market doesn't like.

If they can work out how to re invent the stores format and drive sale then I think there is some value in them but can they do it and deliver high margin and profit? is their model still working with dozen of competitors around?

and that is million dollar questions and if they can pull it off the stock will recovered until then I cant see light at the end of the tunnel short term.

 

[niknah]

Most of what they sell is imported.
The AUD is going down so they'll have to pay more.

But it maybe a good sign for the economy if people are spending less money in shops like these.

 

[ROE]

The Stock price is now tempting and should be a decent margin of safety for the trouble it is facing

 

[oldblue]

The Stock price is now tempting and should be a decent margin of safety for the trouble it is facing

Perhaps - but the shareprice is still in a consistent downturn. I'll resist the temptation a bit longer.

 

[ROE]

on fundamental at this price it is compelling value despite its problem

I factor in 20% decline in earning and various scenario and they don't grow again for a while
it still stack up.

even dividend drop to 25c it still close to 5% fully franked on $5.40, once the market see some stability in this, it also a yield play.

I am in, it another stock the market start to get sick of it and left it drift south.
If and when it turns, it will rally hard and re-rate and I did a bit of scouting and look like they

reverse back to their old way slowly and abandon the failed strategy of stocking large crappy items so it may takes a bit of time to show up.

 

[ROE]

luck is on my side I made a correct call at the bottom

yield chaser will be in, now the business seem stablise and
it is on its way to return to the good old day reject shop with the right mix of products

 

[notting]

Was a good call, well done.
I was listening!!

Sales in the second quarter stabilized, as the business was refocused on delivering great value on everyday products.

Same store sales were down for the last Qtr, but up for the first half of this which is hopeful!
The art of retail is compelling pricing and turnover. They are focusing on that and that should bode them well.
It needs to get up through $6.50 and hold for a bit to confirm a bottom.

 

[notting]

Well looks like that's it for the short squeeze.
Now for the verdict.

 

[peter2]

The TRS chart looks interesting. Volume and volatility have dropped off, yet the price hasn't moved.

 

[galumay]

I quite like the look of TRS, but each time I have a look at it I cant get past the negative free cash flow year after year, the Capex spend is huge. The rest of their metrics look ok but the -FCF puts me off, it would be understandable if it were a once off, but its the last 2 years reported and looking to be heading that way this year.

 

[VSntchr]

I quite like the look of TRS, but each time I have a look at it I cant get past the negative free cash flow year after year, the Capex spend is huge. The rest of their metrics look ok but the -FCF puts me off, it would be understandable if it were a once off, but its the last 2 years reported and looking to be heading that way this year.

Still doing the store roll out...when they finish the capex spend should reduce. However with more stores means more maintenance capex. Perhaps if you could find out the split between growth (roll out) and maintenance capex you could get a better idea of steady state FCF. Depreciation might be a good place to start, assuming that the accounts are a true reflection.

 

[notting]

Doing it with its 61.8 retrace from the spike after the last report.
Lets see what the volume action is to see if their is keen buying or despairing selling at this point.

 

[piggybank]

I quite like the look of TRS, but each time I have a look at it I cant get past the negative free cash flow year after year, the Capex spend is huge. The rest of their metrics look ok but the -FCF puts me off, it would be understandable if it were a once off, but its the last 2 years reported and looking to be heading that way this year.

Hi Galumay,

Is here a formula for working out the "cash flow" please?

In today's Full Year 2015 announcement to the market, it said one of the highlights was the Strong cash flow performance. Could either yourself or someone else explain the difference between last years (negative) cash flow and this years (positive) one?

The results presentation can be found here:- http://www.stocknessmonster.com/news-item?S=TRS&E=ASX&N=427848

Cheers
PB

 

[Cashflows]

Hey Piggybank, this might not be right but I'll try to answer your question (And to keep my mind focused on the fundamentals of investing instead of all the red I see on my screen...)

The most basic formula for Free Cash Flow (FCF) or the cash that the business has made that can be taken out of the business and given to the owners is:

Net Operating Cash flow - Capital Expenditure = FCF

CAPEX is funds used to acquire, maintain or upgrade assets. It is usually found in the 'Investing Cash Flows' section of the cash flow statement under the heading 'Payments for Property, Plant, and Equipment'.

So here is TRS' basic FCF:
$46,852,000 - $17,119,000 = $29,964,000 As opposed to last year's negative cash flow of: - $7,338,000

As far as I can tell, there are two 'main' reasons as to why this result is so different:

The first reason is that net operating cash flow almost doubles from $24,320m to $46,852m. While there was a decrease in the company tax of about $4,435m, this still doesn't account for $18,097m. The only reason I have found is that there is increased operational leverage within the business due to management finding increased efficiencies in the supply chain and distribution network. This was a big focus of ross sudano when he reviewed the company and the evidence is that while sales increased by 6.4%, expenses only increased by 4.1%, resulting in an expansion of margins for the business.

The second reason is a sharp decrease in CAPEX, which decreased by about 46% from $31,658 to $17,119. This was mainly the result of less store openings.

The difference of these two changes result in an increase of $32,636,000 in positive cash flow - which is pretty close to the $29,964,000 FCF calculation we got at the start.

Hope this wasn't too confusing (or wrong) for anyone, and that it answers your question piggybank...

 

[piggybank]

Hi Cashflows,

Thanks for taking the time to explain the differences there - much appreciated.

​

 

[notting]

Been mauled again this week.
It's quite a good trading stock as it's moves tend to be exaggerated.
Before reporting there was a trading expectation of a spike which had become a bit of a tradition after a report. But the report disappointed instead and so it solf off after that run up in anticipation a further spike.

Then it was realized that still with a PE of 22 and growth off the table, for the moment, it was still too high.
But now, it's not a bad bond!
Paying nearly 6% fully franked and a PE of 13. Gotta find a floor here you'd think. (perhaps fill the gap back up to and test it's 61.8% weekly retrace 9.24 before consolidating as a medium term divy dog.)

It'd make a pretty good buy if it tested $6 which is the last standing technical level.
I would be very surprised if it gets there. could have a good start to the week next week before consolidation.

 

[notting]

Let me read that again.
Hmmm. We are now loosing money. We have pretty much done all we could to turn things around.
We haven't.
We are not in danger of breaching debt covenants.
But hell what's going to stop us?

Retailers can't even sell cheap crap anymore

How Solomon Lew does it is beyond me.

 

[notting]

Ready to Rock? or Roll?

 

[jjbinks]

Very bad day
I had some shares which I fortunately sold 1 week ago!