By Sarah Thompson, Kanika Sood, Emma Rapaport


Despite economic headwinds, there’s been no lack of activity in the local retail sector. And profit warnings from some of the country’s highest-profile brands – from Harvey Norman to Best & Less and Adairs – have not dulled interest in Australia from one major overseas retailer, Canada’s Dollarama, a Montreal-headquartered discount chain.

Sources told Street Talk that Dollarama had approached The Reject Shop, the ASX-listed discount retailer whose largest shareholder is billionaire businessman Raphael Geminder’s Kin Group. Assisting The Reject Shop with those discussions was UBS, they added.

Other major The Reject Shop investors include Bennelong Funds Management, with a 16.7 per cent stake, and Wilson Asset Management.

It has been a difficult year for The Reject Shop, with the company’s chief executive, Phil Bishop, abruptly leaving after just seven months in the job in February. The Reject Shop’s chief financial officer, Clinton Cahn, a former UBS analyst, is acting as chief executive.

Sales for the six months to December 31 were strong, however, up 3.5 per cent to around $439 million. Profits for the period rose 14.1 per cent compared to the same time one year earlier, to $16.4 million. The group was also expanding late last year, opening eight new stores and targeting another five locations in the six months to June 30. It was expecting to open 15 new stores this financial year, having closed five stores in the prior year.

It is unclear when Dollarama approached The Reject Shop, but sources with knowledge of the discussions said they continued for some time this year. Ultimately, The Reject Shop ended those discussions.

The Reject Shop shares have risen 6.6 per cent since December 31, closing down 7c to $4.50 on Monday. The company declined to comment.

Brokers are also bullish on the retailer, with buy recommendations from Jarden analyst Ben Gilbert, Morgan Stanley’s James Bales and others. In a note to clients earlier this year, Goldman Sachs analysts Sophie Carran and Xavier Harrison said the business would “benefit from a strong trade-down effect as the health of the consumer weakens delivering market share gains in general merchandise which is higher margin”.

In Canada, Dollarama is benefiting from higher interest rates, which are pushing shoppers toward cheaper products. In March, the company reported a 20 per cent increase in sales to $C1.47 billion ($1.63 billion), ahead of expectations of $C1.39 billion for the three months to the end of January.

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