Retail Food Group shares plunge 25% on profit downgrade

Retail Food Group’s shares have gone into freefall after the cafe and bakery giant issued a profit downgrade and admitted franchisees were leaving its network.
Nanjing Night Net

RFG’s shares plunged 25 per cent to $1.98 on Tuesday, after the company said it expected its first-half statutory net profit to fall to $22 million, from $33.5 million in the same period last year.

This follows a 7 per cent share price slide on Monday after Fairfax Media reported allegations of widespread wage underpayment in the company’s network.

The stock has now fallen 55 per cent since December 8, when Fairfax published the first of several articles revealing that RFG’s business model was driving some franchisees to the wall.

Almost $460 million has been wiped from the company’s market capitalisation, which now sits at $361 million.

In a trading update released on Tuesday morning, RFG said Crust Pizza and Donut King were trading as anticipated but its Michel’s Patisserie, Brumby’s and Gloria Jean’s chains were trading below expectations.

This was “consistent with recent trading updates of other retailers, particularly those retailers with shopping centre exposures”, RFG said.

The company said negative media coverage about franchising and RFG was making it harder to attract new franchisees or hold onto existing store owners, which would hit earnings.

“Associated revenues are now forecast to be below prior expectations and future franchise trading revenues are also likely to be impacted,” the update said.

Fairfax’s investigation into the company found that at least 200 stores across RFG’s numerous brands, which also includes Pizza Capers and Crust, are up for sale.

The expected $11.5 million earnings slump this half includes the $7 million costs of a business-wide review, and losses from disposing of corporate properties. !function(e,t,s,i){var n=”InfogramEmbeds”,o=e.getElementsByTagName(“script”),d=o[0],r=/^http:/.test(e.location)?”http:”:”https:”;if(/^\/{2}/.test(i)&&(i=r+i),window[n]&&window[n].initialized)window[n].process&&window[n].process();else if(!e.getElementById(s)){var a=e.createElement(“script”);a.async=1,a.id=s,a.src=i,d.parentNode.insertBefore(a,d)}}(document,0,”infogram-async”,”https://e.infogram南京夜网/js/dist/embed-loader-min.js”);

RFG said Tuesday’s profit guidance depended on $5 million of new international licence sales, which it hoped to complete by December 31.

It was also subject to “heightened risk to franchise earnings, given the current adverse publicity”, it said.

The company had not previously given guidance for the half, but Tuesday’s forecast of a 34 per cent profit slump was below what analysts expected based on RFG’s full-year guidance for 6 per cent earnings growth.

RFG reiterated that guidance 12 days ago, and at its full-year results in August said it anticipated “organic growth” across all its divisions.

RFG also said it was negotiating with lenders to extend a three-year loan of $150 million set for repayment in December 2018, and would “advise the market when this process is finalised”.Advertising blitz

RFG has meanwhile launched an advertising blitz promoting its franchisee model to customers and potential new store owners.

Online advertisements are appearing on several popular websites, which link to profiles of Pizza Capers, Michel’s Patisserie, Brumby’s and Crust franchisees, spruiking the benefits of running an RFG business.

Each profile also explains why the franchisee thinks the local community should support their store.

An RFG spokeswoman said the franchisees were not offered incentives of any kind to take part in the campaign, which was intended to remind consumers of the “great job our franchisees are doing every day”.

“We have many examples of successful, hard-working franchisees throughout our network and given the current, tough, retail market conditions, we wanted to remind consumers of what a great job our franchisees are doing every day,” the spokeswoman said.

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